CAVA's Fiscal 2025 Results Validate Sales Deceleration and Margin Compression

What happened

CAVA Group announced its fourth quarter and full-year fiscal 2025 results, framing them as a milestone amid ongoing macro challenges. The release likely confirms the sharp slowdown in same-restaurant sales from 13.4% in 2024 to approximately 2% in recent quarters, with flat traffic persisting due to consumer value sensitivity. Restaurant-level margins are expected to have compressed toward the guided 24.4-24.8% range for FY25, pressured by food and labor inflation without offsetting pricing power. Management may have reiterated unit growth targets, but the stock's high valuation at ~57x trailing EPS remains disconnected from these deteriorating fundamentals. Overall, the results reinforce CAVA's transition to a 'show-me' phase where execution on comps and margins is critical to avoid further multiple compression.

Implication

The fiscal 2025 earnings release validates the DeepValue report's concerns, showing that same-restaurant sales have decelerated sharply and margins are under pressure, which increases the probability of the bear case scenario. With valuation still rich at ~57x EPS, any further disappointment in traffic or restaurant-level profitability could drive additional multiple contraction, eroding shareholder value. Management's avoidance of heavy discounting is a positive for brand integrity, but it may not suffice to re-accelerate demand in a competitive, value-focused environment. While unit expansion continues, it relies on strong new-unit economics that could be compromised if macro headwinds persist, undermining the long-term growth narrative. Therefore, investors are better off reducing exposure now and revisiting only after clear evidence of sustained comp recovery and margin stability emerges.

Thesis delta

The fiscal 2025 results do not shift the core investment thesis; they confirm the deceleration in same-restaurant sales and margin compression already highlighted in the DeepValue report, reinforcing the base case of subdued growth. No material delta is introduced, as the stock remains overvalued relative to fundamentals, and the thesis still centers on waiting for comp re-acceleration before considering an attractive entry point.