Why Is Cava (CAVA) Down 18.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Cava Group (CAVA). Shares have lost about 18.7% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Cava due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important catalysts.

CAVA Q2 Earnings Beat Estimates on Traffic and Unit Growth

CAVA delivered earnings of $0.19 per share in the second quarter of fiscal 2026, up 18.8% from $0.16 a year ago and surpassing the Zacks Consensus Estimate of $0.18 by 5.6%. Total revenues rose 31.3% year over year to $368.44 million and beat the consensus mark of $353 million by 4.4%.

Results reflected continued restaurant expansion and healthy guest demand. CAVA opened 17 net new restaurants, while same-restaurant sales increased 9%, including Guest Traffic growth of 5.3%.

CAVA Unit Growth Expands Restaurant Sales

The CAVA unit’s revenues increased 31.3% year over year to $365.43 million in the fiscal second quarter. The increase primarily reflected contributions from 94 net new CAVA restaurant openings during or subsequent to the second quarter of fiscal 2025, along with higher sales at restaurants in the comparable base.

Menu price and product mix contributed 3.7 percentage points to same restaurant sales. Average unit volume rose to $3.09 million from $2.94 million a year earlier. The company ended the quarter with 476 CAVA restaurants, up 19.6% year over year, while new restaurant productivity remained above 100%.

CAVA Group Sees Margin Pressure From Costs

CAVA’s restaurant-level profit increased 28.1% year over year to $93.81 million. However, restaurant-level profit margin contracted 60 basis points to 25.7%, reflecting a less favorable cost mix despite strong restaurant sales.

Food, beverage and packaging costs rose 50 basis points to 30.0% of revenues, largely because of input costs tied to the Pomegranate Glazed Salmon launch. Labor and related costs increased 30 basis points to 25.3%, reflecting an incremental 3% wage investment. Occupancy improved 50 basis points to 6.3%, while other operating expenses increased 40 basis points to 12.8% on a higher mix of third-party delivery.

CAVA Generates Strong Cash Flow Through Q2

CAVA paired growth with stronger cash generation through the second quarter of fiscal 2026. Net cash provided by operating activities increased 36.0% year over year to $134.5 million from $98.9 million, primarily reflecting improved operating performance and favorable working capital changes. Purchases of property and equipment totaled $89.7 million, resulting in year-to-date free cash flow of $44.8 million, up from $21.9 million a year ago.

Liquidity remained solid at the end of the fiscal second quarter. CAVA held $322.8 million in cash and cash equivalents and $112.8 million in fixed-income investments, representing approximately $435.6 million of combined cash and investments. The company had no borrowings under its $150 million revolving credit facility and had $149.1 million of available borrowing capacity, net of $0.9 million in outstanding letters of credit.

CAVA Maintains FY26 Outlook Amid Sales Rebound

CAVA reiterated its fiscal 2026 outlook for 75-77 net new restaurant openings and same restaurant sales growth of 4.5%-6.5%. The company continues to expect a restaurant-level profit margin of 23.7%-24.3%, pre-opening costs of $22.0-$22.5 million and adjusted EBITDA of $181-$191 million.

Management said industry concerns around the Cyclospora outbreak pressured same restaurant sales around quarter-end, but trends improved sequentially and most recently recovered to the mid-single digits. The outlook also incorporates expected fuel surcharges, the partial rollout of pre-marinated chicken and continued wage investments, while management indicated fiscal fourth-quarter restaurant-level margins historically decline by close to 300 basis points from the fiscal third quarter because of seasonality.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -12.84% due to these changes.

VGM Scores

At this time, Cava has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a score of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cava has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Cava belongs to the Zacks Retail - Restaurants industry. Another stock from the same industry, Restaurant Brands (QSR), has gained 2.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2026.

Restaurant Brands reported revenues of $2.52 billion in the last reported quarter, representing a year-over-year change of +4.6%. EPS of $1.07 for the same period compares with $0.94 a year ago.

Restaurant Brands is expected to post earnings of $1.09 per share for the current quarter, representing a year-over-year change of +5.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Restaurant Brands. Also, the stock has a VGM Score of C.

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This article originally published on Zacks Investment Research (zacks.com).

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