Mediterranean Growth Monster: CAVA Keeps Surging—Buy the Dip?

Core Insights - CAVA Group Inc. has demonstrated strong performance with a year-over-year (YoY) comparable sales growth of 21.2% in Q4 2024, despite the broader retail sector facing challenges due to food inflation [2][4] - The company opened 15 new locations, increasing its total to 367 restaurants in the U.S., contributing to a robust revenue growth of 28.3% YoY, reaching $227.4 million [5][6] - Despite strong sales growth, CAVA's stock experienced a nearly 10% decline following its earnings announcement, primarily due to missing earnings per share (EPS) estimates and lower guidance for future sales growth [3][4][7] Financial Performance - CAVA reported an EPS of 5 cents for Q4, missing analyst expectations of 7 cents [4] - Revenue increased by 28.3% YoY to $227.4 million, surpassing consensus estimates of $223.25 million [5] - Adjusted net income rose to $6.5 million from $2 million in the previous year, and adjusted EBITDA increased to $25.1 million from $15.7 million [6] Market Position and Guidance - CAVA's guidance for 2025 projects comp sales growth of only 6% to 8%, a significant decrease from the 13.4% growth in 2024, which led to investor concerns [7] - Analysts suggest that management may have intentionally set conservative guidance to create a low bar for future performance, a strategy known as lowballing [9] - Piper Sandler upgraded CAVA to an Overweight rating, viewing it as a strong opportunity in the fast-casual restaurant sector, especially given its relatively modest menu pricing increases compared to peers [10][11]