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Cava’s stock plunged more than 20% in after-hours trading Tuesday following the company’s announcement of a reduced full-year forecast for same-store sales growth. The Mediterranean fast-casual restaurant chain missed revenue estimates in its second quarter, highlighting challenges in maintaining customer traffic despite steady expansion.

Q2 Financial Snapshot: Growth Meets Headwinds

The company reported quarterly revenue of $280.6 million, slightly below Wall Street’s estimate of $285.6 million. While net restaurant sales rose 20% year-over-year to $278.2 million, driven largely by new store openings, same-store sales—which measure sales at locations open at least a year—grew just 2.1%, well short of the anticipated 6.1%.

Net income slipped to $18.4 million (16 cents per share), down from $19.7 million (17 cents) a year prior. Despite a modest earnings beat on a per-share basis, the weaker revenue and slowing traffic raised investor concerns.

Lowered Guidance Reflects Slowing Growth

Cava now expects full-year same-store sales growth between 4% and 6%, down from its previous forecast of 6% to 8%. The stock has already dropped 40% year-to-date, with Tuesday’s after-hours selloff intensifying the decline.

The company described quarterly customer traffic as “roughly flat,” contrasting sharply with the prior year’s nearly 10% traffic growth that helped fuel a 14.4% same-store sales increase. CEO and co-founder Brett Schulman had earlier attributed last year’s strong momentum to menu innovations like the introduction of grilled steak.

Industry Challenges Mirror Broader Trends

Cava’s performance echoes difficulties faced by competitors in the fast-casual segment. Chipotle Mexican Grill recently reported a 4% drop in same-store sales, while Sweetgreen’s shares tumbled after the company cut its outlook for a second consecutive quarter.

CFO Tricia Tolivar noted that initial strong sales in early Q2 prompted the company to maintain its original guidance after Q1 results, but growth decelerated once the grilled steak promotion’s anniversary passed.

Strategic Investment in Automation Startup Hyphen

Amid these operational headwinds, Cava announced participation in a $25 million Series B funding round for Hyphen, a startup specializing in automating plate and bowl portioning. The round was led by Chipotle Mexican Grill, a fellow Hyphen investor.

Schulman emphasized that adopting Hyphen’s automated digital makeline technology could enhance order accuracy and speed during peak digital ordering hours, while easing staff workload—a move aimed at boosting efficiency and customer experience in a competitive market.

Full-Year Outlook and Profitability Targets

Despite the softer sales forecast, Cava reaffirmed its guidance for adjusted EBITDA of $152 million to $159 million and restaurant-level profit margins between 24.8% and 25.2% for the full year, signaling confidence in its cost controls and operational improvements.

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