BREAKINGVIEWS-Bloated fast-dining stocks slip toward food coma

By Sebastian Pellejero

NEW YORK, Aug 13 (Reuters Breakingviews) - Growth hopes for upscale lunch-bowl slingers look overstuffed. On Tuesday, Mediterranean chain Cava CAVA.N said that sales in stores open for at least a year rose just over 2% in the second quarter, well shy of analysts’ estimates of above 6%, according to LSEG data. Burrito behemoth Chipotle CMG.N and salad darling Sweetgreen SG.N, meanwhile, saw declines. Overripe expectations are meeting the diminished urban dining rush. A $30 billion loss in market value for the trio so far this year may just be the start.

Each chain is still chasing expansion in full tilt. Chipotle is set to open over 315 new restaurants in 2025, while Cava expects 60 openings and Sweetgreen was planning 40-plus stores. This urgent flurry of activity comes as casual and quick-service restaurants registered roughly flat traffic in the first quarter, according to research outfit Placer.ai. To boot, office occupancy in major U.S. metros remains at around 53% of pre-pandemic levels, property security provider Kastle Systems reckons, curbing the weekday “slop bowl” lunch surge that made these chains ubiquitous.

Given that the Placer.ai data shows suburban restaurants recovering more quickly than their urban counterparts since 2022, a push into new areas makes some sense. The flipside is that suburban gains may struggle to offset inner-city drag. Chipotle has turned to price hikes to sustain momentum: Since 2021, the Mexican grill’s menu prices are up roughly 24%, well above the 14% rise for the broader industry, according to the Bureau of Labor Statistics. Cava has been more restrained, raising menu prices by just 1.7% in 2025. Nonetheless, foot traffic still slipped.

Next to an inevitable slowdown, the trio’s valuations look bloated. On August 8, Cava shares traded at nearly 130 times expected next-12-months’ earnings. Chipotle sat at around 32 times. Assuming that they converge over the next five years to 20 times, a reasonable premium for mature chains, Cava would need to notch about 46% annual earnings growth, and Chipotle roughly 10%, to justify current stock prices. The latter’s hurdle is tough but plausible; the former’s well exceeds analyst forecasts collected by Visible Alpha.

Loyal customers and menu innovation could still deliver bursts of growth. But unless these brands can figure out how to attract a rush of new diners, their valuations will seem increasingly indulgent.

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CONTEXT NEWS

Shares of Cava dropped 16% after the Mediterranean restaurant chain lowered its same-store sales growth target for the first time since it went public in 2023.

Cava reported that customer traffic remained almost flat year-over-year in the second quarter, with its same-store sales rising 2.1%, below estimates of 6.5%, according to LSEG data. Cava now expects full-year same-store sales growth of between 4% and 6%, compared with its prior growth target of 6% to 8%.