Falling 16% during afternoon trading on Wednesday, Cava’s stock is the most recent fast-casual restaurant chain to be frowned upon by Wall Street after subpar quarterly sales results were released. Double-digit growth in same-store sales was being celebrated by companies like Chipotle Mexican Grill and Cava just a year earlier, even as the restaurant industry as a whole saw decreased customer traffic and dwindling revenues.
But the circumstances have changed drastically. Foot traffic at quick casual restaurants fell this spring as sales started to slow or even decline. Executive leadership has stated that, to account for this decline, diners are feeling cautious, as described by Sweetgreen CEO Jonathan Neman, or are navigating an economic fog, according to Cava CFO Tricia Tolivar
Investors are also cutting back their investments in fast-casual restaurants following their rewards of these businesses last year for their better performance than the rest of the industry, as customers find justifications to cut back on Shake Shack burgers or Chipotle bowls. Only Wingstop among the well-known publicly listed quick-casual companies has been able to keep a favorable path this year, claiming a 20% growth.
Given the weak traffic trends and concerns about consumer expenditure, investors have grown increasingly wary of putting money in any restaurant chain on a larger scale, as emphasized in a Sunday UBS research note. Despite their historical position as a safer investment in periods of economic instability, even fast-food companies have had problems with declining traffic and sluggish sales growth.
Although some quick-casual companies have attributed their poor performance to company-specific issues, executives have also admitted that economic volatility is affecting consumer behavior, and, hence, their sales. Typically, fast-casual eaters have more income and are more probably hold white-collar jobs. Still, Chipotle’s chief executive officer, Scott Boatwright , ascribed a 4% decrease in same-store sales in the second quarter to a departure from low-income customers.
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