Cava rallies to record high as solid demand for steaks and salads boosts forecasts

(Reuters) - Mediterranean restaurant chain Cava Group's shares surged over 23% to a record high of $125.38 on Friday, after strong demand for its salad bowls and pita wraps boosted its annual sales and earnings forecast.

The fast-casual chain, which made a strong market debut in June last year, exceeded second quarter expectations after markets closed on Thursday, and said the system-wide roll out of grilled steak on June 3 generated stronger than expected sales.

Many Americans are cutting back on dining out due to steadily increasing fast-food prices over the past two years, prompting chains such as McDonald's and Burger King to dole out more offers to attract customers.

Cava, in contrast, took a 3% menu price increase in January with no further price increases planned in 2024, Wedbush analyst Nick Setyan noted.

"While many have commented on decelerating traffic in the market, we have seen sustained momentum," CEO Brett Schulman said on post-earnings call.

Consumers are trading up from cheaper fast food options as price increases since the pandemic have made Cava more competitive with quick service restaurants, Jefferies analyst Andy Barish said.

"We continue to view... CAVA's attractive value proposition, growth in advertising, increased brand awareness, menu innovation (like steak) ... as drivers of growth in the near- to medium-term," Wedbush's Setyan said.

Cava's restaurant-level margin improved by 40 basis points to 26.5% in the quarter, as higher sales and favorable commodity costs offset increased wages and the introduction of higher-cost steak.

The stock was on pace to log its best session ever, if gains hold.

Full-year same restaurant sales growth is now expected at 8.5% to 9.5% from prior forecast range of 4.5% to 6.5%. It expects core earnings to come in between $109 million to $114 million.

Cava's forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 244.78, compared with Chipotle Mexican Grill's 43.57.

(This story has been refiled to correct the syntax in the headline)

(Reporting by Savyata Mishra in Bengaluru; Editing by Tasim Zahid)