HomeBusinessCava becomes profitable, justifies a high valuation with a large sales quarter

Cava becomes profitable, justifies a high valuation with a large sales quarter

Wall Street got its first taste of Cava (CAVA) future earnings potential.

In its first quarterly report since its much-hyped IPO, the Mediterranean fast-casual restaurant chain turned profitable, with sales up 62.4% year-over-year and same-store sales up, an 18.2% increase in earnings results in the second quarter.

Cava (CAVA) stock popped more than 8% after market close on Tuesday.

Profitability is an important focus.

The company posted net income of $6.5 million last quarter. In all of fiscal year 2021, the company posted a net loss of $37.4 million, which increased to a net loss of $59 million in 2022.

“Sales and profitability reached record levels,” Cava co-founder and CEO Brett Schulman said in the press release. “Our dominant leadership position and proven transferability create a meaningful growth opportunity in new and existing markets, as evidenced by our 16 net new CAVA restaurant openings during the quarter.”

The income statement

  • Net sales: $172.9 million, up 27% year-over-year

  • Diluted EPS: $0.21

  • Sale in the same store: an increase of 18.2%

  • Net income: $6.5 million

  • Average Unit Volume: $2.6 million

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After the IPO, Cava shares closed at $43.30, valuing the restaurant chain at about $4.8 billion — almost double what the company had priced the night before at $22 per share (for a total valuation of $2.5 billion).

The IPO was widely seen as a benchmark for other startups monitoring the public market.

In mid-July, analysts began reporting on the stock with high expectations of long-term potential and some comparisons to rival Chipotle (CMG).

In the second quarter, Cava saw same-store sales grow 18.2% year over year, surpassing Chipotle’s 7.4% same-store sales growth in the second quarter. Sales were boosted by a 10% increase in guest traffic and higher menu prices and product mix, up 7.9%. In the first quarter of 2023, sales of Cava increased by 28.4%.

A banner for Mediterranean restaurant chain Cava hangs outside the New York Stock Exchange (NYSE) when the company goes public on June 15, 2023 in New York City. (Photo by Spencer Platt/Getty Images)

What else we’re looking at: new restaurant openings

Cava said in its S-1 filing that it plans to use the proceeds to open new restaurants and for general corporate purposes.

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The fast-casual chain already appears to be using some of that cash, adding a net 16 new restaurants in the quarter. At the end of the second quarter, there are now 279 cava restaurants.

The chain opened its first fast-casual concept in 2011. Since acquiring Mediterranean fast-casual chain Zoes Kitchen for $300 million in August 2018, it has successfully converted 145 Zoes Kitchen locations to the Cava brand.

During the rest of 2023, it plans to open between 34 and 44 new Cava locations and open a further eight converted Zoes (the rest of the locations). The company said it plans to operate 1,000 locations in the US by 2032.

This story breaks. Check back later for updates.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].

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