Many investors feel a growing optimism about the restaurant industry and its opportunities, whether looking at stocks or taking on a brick-and-mortar. Some are looking for the next CAVA Group, Inc. Others wonder if another Cava is possible.
Here, we’ll look at its success story and others lining up behind it.
The Headlines
You only need to look at the headlines to see Cava’s trajectory. The Motley Fool wrote, “Could Buying Cava Stock Today Set You Up for Life?” Yahoo Finance said, “Will Cava (CAVA) Beat Estimates Again in Its Next Earning Report?” And finally, Insider Monkey shared this, “CAVA Group, Inc. Among the High Growth Restaurant Stocks for 2025.”
It’s hard not to be positive, with the stock skyrocketing over 170% in 2024. This surge left both the restaurant industry, with a 2.5% increase, and the S&P 500, with 24% growth, in the dust.
What did Cava do right and how do you emulate that level of success?
The brand’s focus rested on differentiating itself in the culinary world. Nasdaq points to unique products like Garlic Ranch Pita Chips with steak options, which drove sales and increased customer engagement. It also has a strong expansion strategy and expects a 17% growth in 2025.
Far Better Than Average
This Mediterranean restaurant chain surprised even the diehard enthusiasts when it beat earning estimates by over 33% in the last two quarters. Of course, this comes as no surprise to the stock market darling. According to Yahoo Finance, Cava has an Earnings ESP of 8.89%, demonstrating a bullish outlook on near-term earning potential.
The Industry’s 2025 Financial Outlook
A recent report by Morgan Stanley on the restaurant industry revealed a positive outlook. The challenges faced in 2024 should be easing, with labor costs remaining steady as a balanced job market unfolds. The uncertainty resides in the current administration’s immigration stance. According to the National Restaurant Association, 21% of restaurant workers in 2024 were immigrants.
Where All Eyes Are Turning To
The market is betting on two restaurant stocks: El Pollo Loco and Kura Sushi.
El Pollo Loco has done several things right, including new, well-received menu items and promotions. The company also streamlined operations, resulting in reduced build costs per unit.
On January 23, 2025, BIGLARI Capital CORP. acquired an additional 489,247 shares of El Pollo Loco Holdings Inc. Since the transaction, their stock has experienced a 4.1% gain.
Kura Sushi is on a growth spurt, currently taking over the Pacific Northwest and expanding beyond metropolitan areas. Its expansion efforts include Tacoma, WA, and Beaverton, OR, demonstrating untapped market potential, according to Nasdaq.
By entering smaller markets with a targeted approach, they reduce cannibalization risks. They expect an annual growth rate of 20%, with 14 new restaurants opening in 2025. TipRanks reported on its recent Q1 earnings call. “Kura Sushi showcased…a substantial growth in sales and profitability, backed by effective marketing strategies through IP collaborations. Despite facing challenges in traffic and labor costs, the company remains optimistic about its future endeavors.”
The first quarter saw six new units and 1.8% comparable sales growth. They ended the first fiscal quarter with $111.7 million in cash and equivalents with no debt. On the downside, Kura Sushi experienced a 2.3% decline in traffic. Despite this, TipRanks suggests, “The company’s forward-looking guidance reveals a commitment to continued expansion and innovation, offering a promising outlook for investors.”
Their focus on enhancing the guest experience and operational efficiency can help offset the labor costs and traffic challenges, which the company is committed to addressing.
Time will tell.
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