Key Points
The company is aggressively opening new locations to fuel its growth story.
Costs for food and labor have been rising faster than total revenue.
Cava Group(NYSE: CAVA) has a simple, compelling story. Mediterranean food is popular, and the company has room to more than double its store count. The market has bought into this growth story supporting a valuation that assumes smooth sailing for many years to come.
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Beneath the long-term goal of reaching 1,000 locations by 2032, the company's near-term fundamentals are showing signs of stress. Restaurant-level margins are starting to slip, and same-store sales growth slowed to a crawl at the end of last year. For a stock with this valuation, the ongoing expansion of restaurants must now be weighed against deteriorating unit economics.
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Restaurant margins are under pressure
After posting its first full year of revenue above $1 billion, the core operating metrics have weakened. Same-store sales growth decelerated sharply to just 0.5% in the fourth quarter of 2025, and the early signs of margin compression have emerged.
Restaurant-level margins declined from a healthy 25% in fiscal 2024 to 24.4% in 2025, ending the year at 21.4% in the fourth quarter. The pressure on profitability is expected to continue, with management guiding for margins of 23.7% to 24.2% for 2026.
The primary driver is that expenses are rising faster than revenue. In 2025, food and packaging costs rose 24.6%, and labor costs increased 22%, compared to total revenue growth of 22.5%. These core operating expenses are proving difficult to control in the current environment.
This pressure is compounded by the company's digital mix, which represents a structural headwind for margins. Digital orders accounted for nearly 38% of sales in 2025, but a significant portion of those sales carries commission costs of roughly 15% to 30% paid to third-party delivery platforms.
The price of aggressive expansion
As one of the few fast-casual restaurant concepts with a sizable growth runway, the market has focused on Cava's potential to expand from 439 locations today to over 1,000 by 2032. The company is well positioned to fund this growth, with a clean balance sheet and nearly $300 million in net cash. This story has fueled a 63% gain in the stock this year, pushing its valuation to roughly 185 times this year's expected earnings.
While the market focuses on the company's long-term potential, adjusted earnings per share (EPS) are expected to decline slightly in 2026. This is a result of the company's upfront investments to grow its store base and the introduction of its new salmon menu item, which is expected to reduce margins by about 100 basis points.
The year ahead will test the durability of Cava's model. A recovery in traffic and a stabilization in margins are needed to support the valuation. With the stock trading at a significant premium, investors can afford to be patient while watching for signs of continued traffic weakness, slowing momentum in new store productivity, and further margin erosion.
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Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group. The Motley Fool has a disclosure policy.
