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Investors are eating up Kava (CAVA).
On Tuesday, the Mediterranean fast-casual chain’s stock hit a new record of $59.91. The stock is up more than 40% since the beginning of the year, and has risen 19% in the past five days after reporting strong sales and bottom line gains in its fourth quarter results.
For comparison, the S&P 500 (^GSPC) is up more than 7% since the beginning of the year, while fast-casual giant Chipotle (CMG) is up nearly 20%.
For the fourth quarter, Cava’s revenue came in at $177.17 million, compared to estimates of $174.09 million, and adjusted earnings were $0.02, compared to estimates of $0.01.
Same-store sales increased 11.40% year over year, easily beating Wall Street’s expectations of 6.25%.
“Our results reflect how well we are demonstrating the power of category-defining brands,” CEO Brett Schulman told Yahoo Finance. He believes there is a huge “white space in front of us” in the Mediterranean food sector.
JPMorgan analyst John Ivankoe said in a note to clients that the company’s team and operating structure are “high profile and important for CAVA, which dominates the large, flexible ‘Mediterranean’ category.” “This confirms its potential to become a national brand,” he wrote.
Stifel analyst Chris Okal wrote in a note to clients that Cava’s “premium valuation is justified by sound unit economics, development visibility, and solid operating momentum,” adding that it supports “near-term “This could lead to further upward revisions to forecasts and long-term earnings.” potential. “
Jefferies analyst Andy Barish raised his price target 16% from $48.00 to $66.00 following Q4 results, citing “an attractive runway for further expansion for CAVA.” Ta.
The persistent problem of labor costs will continue to haunt the restaurant industry until 2024.
Twenty-two states raised their minimum wages on January 1, and Oregon, Nevada and Florida also plan to raise their minimum wages later this year.
And California faces impending wage increases as a result of AB 1228 and its predecessor, the FAST Act. Starting April 1, restaurant chains with at least 60 locations across the U.S. will be required to raise the minimum wage for restaurant workers to $20 an hour.
Schulman said the company intends to “absorb a 30 basis point impact,” adding that it always “hopes” to pay above average wages and that “every market we operate in… We will be competitive and offer attractive wages,” he added.
The company expects restaurant-level margins in 2024 to be 22.7% to 23.3%, or 150 to 210 basis points lower than in 2023. Schulman said the margin impact of higher wages is “an investment in a team that will generate restaurant-like margin growth over the long term.”
Cava raised menu prices by 2.5-3% in January. His average price per person, including premium add-ons to entrees, is currently $14. In August 2023, Schulman told Yahoo Finance that the average price per person was “a little over $13.50.”
When asked about the company’s pricing power, he said, “We have price elasticity.” “We want to have the best value proposition for our guests, not just take advantage of it because it’s there,” he added.
CFO Tricia Tolliver said the company expects food costs to rise in the low to mid-single digits in 2024, but Schulman said the new steak offering is “a high-end product. “That’s the way it’s going to be priced…that’s how we see it.” Dollar margin is neutral against our basket. ”
Cava develops slow and steady growth plan
The company plans to increase the number of Cava stores to 1,000 by 2032.
The company will have 309 stores as of the end of fiscal 2023, opening 72 stores last year and plans to open 48 to 52 stores this fiscal year.
“We are projecting annual compound unit growth of 15%,” Schulman said, “and we feel very comfortable with our pipeline and our ability to sustain this growth rate.”
Sticking to its existing market penetration model, the company plans to enter Chicago with three stores this year.
Ivankoe believes the brand is a “preferred tenant,” especially since “this high-profile IPO draws attention to the company’s well-funded sub-$300 million balance sheet and brand longevity prospects.” ing.
Earlier this year, the company opened a new food processing facility in Verona, Virginia, capable of serving at least 750 Cava stores. In addition, we can supply packaged products such as Crazy Feta and Harissa to up to 1,000 stores.
“Currently, we have approximately 650 grocery stores and are slowly expanding,” Schulman said, adding that the new facility represents an opportunity to expand the processed food business in the future.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
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