Imagine a vibrant fast-casual dining scene where Mediterranean bowls and fresh ingredients once lured in crowds of young professionals and students—now facing a sudden dip in enthusiasm, especially among those aged 25 to 34. That's the stark reality hitting Cava, as they've just slashed their full-year predictions, signaling potential turbulence for the entire fast-casual restaurant sector. But here's where it gets controversial: Is this just a temporary economic hiccup, or a deeper shift in how young adults are choosing to spend their hard-earned money?
Let's unpack this step by step, starting with the details from Cava's latest update. On Tuesday, the company revised its outlook for the year, marking the second consecutive quarter they've had to adjust expectations downward. The core issue? Younger diners aren't stopping by as often as they used to. In a chat with analysts, Chief Financial Officer Tricia Tolivar pointed out that within the fast-casual category, the 25- to 34-year-old group seems hit hardest. These consumers make up a significant portion of the customer base in this space, and as the year winds down, Tolivar noted a clear drop in demand.
What’s driving this change? Tolivar links it to a few key factors affecting this demographic. First, higher unemployment rates in this age bracket are pinching wallets. Second, the restart of student loan repayments in the spring has added financial strain—think of it like an unexpected bill that forces you to rethink non-essential expenses, such as a weekly dining out treat. And third, the tariffs introduced by President Donald Trump are contributing to what Tolivar describes as an 'overall fog' for consumers, making it harder to predict and plan purchases. For beginners curious about tariffs, they're essentially taxes on imported goods that can raise prices on everyday items, indirectly affecting a restaurant's supply costs and, in turn, what customers pay at the counter.
Interestingly, this isn't isolated to Cava. Their competitor, Chipotle Mexican Grill, observed similar patterns in their 25- to 34-year-old customers when they shared third-quarter results just a day later. It's a trend that's raising eyebrows across the industry.
And this is the part most people miss: Despite these headwinds, Cava isn't throwing in the towel. For 2025, they're now anticipating same-store sales growth of 3% to 4%, a notch down from their earlier estimate of 4% to 6%. (For those new to this term, same-store sales refer to revenue increases at locations that have been open for at least a year, giving a clearer picture of operational health without the boost from new openings.) They've also dialed back expectations for restaurant-level profit margins to 24.4% to 24.8%, compared to the prior range of 24.8% to 25.2%. This reflects tighter financial pressures, but it also shows Cava's proactive adjustments.
The market reacted swiftly: Cava's stock price dropped 5% in after-hours trading, and since the start of the year, it has plummeted a whopping 54%. Investors are clearly wary of these shifts.
Diving into the third-quarter results ending October 5, here's how things stacked up against analyst predictions from a survey by LSEG:
- Adjusted earnings per share: 12 cents, right on target with expectations.
- Revenue: $292.2 million, just shy of the anticipated $292.6 million.
Cava's same-store sales ticked up by 1.9%, which fell below the StreetAccount estimates of 2.8%. Traffic stayed even with the previous year, but the company managed to lift sales through higher menu prices and a greater emphasis on premium protein choices—like opting for grass-fed beef or organic chicken, which appeal to health-conscious eaters willing to pay a bit more.
Here's a fascinating twist: Even with slower sales growth, Cava is actually capturing more of the market, according to Tolivar. This suggests that those younger consumers might be opting to prepare meals at home or pack lunches instead of switching to cheaper fast-food alternatives. In Tolivar's words, 'It appears that the consumer is being more thoughtful around their dining occasions, and how frequently they are doing that.' Picture a busy professional deciding to meal-prep salads on Sunday to save money and avoid the hassle—it's a smart, practical choice that skips the restaurant entirely.
On a brighter note, Cava stands out from rivals like Chipotle and the broader restaurant world by seeing stronger same-store sales increases among lower-income diners. Tolivar credits this to their strategy of holding menu prices steady relative to inflation, offering a budget-friendly option. For example, while other chains might hike prices due to rising costs, Cava's commitment to affordability keeps it accessible for those watching every dollar.
Overall, net sales surged 20% to $292.2 million, largely thanks to expanding their footprint. Since the third quarter of last year, they've added a net of 74 new locations, expanding to a total of 415 stores as of October 5. This growth in physical presence is fueling revenue, even as per-location performance faces challenges.
The Mediterranean-inspired chain recorded a fiscal third-quarter net income of $14.7 million, equating to 12 cents per share. That's down from $18 million, or 15 cents per share, in the prior year. After accounting for executive transition expenses and other one-time items, the adjusted earnings per share remained at 12 cents.
As we wrap this up, it's worth pondering the bigger picture. Are economic policies like tariffs genuinely creating this 'fog' for consumers, or is the issue more about shifting priorities in a post-pandemic world? And do you agree that younger adults are simply being 'more thoughtful' with their spending, or is this a sign of deeper dissatisfaction with fast-casual dining? Share your thoughts in the comments—do you see this as a temporary setback or a long-term change? We'd love to hear your take!
