By Evie Liu

Cava stock dropped after the Mediterranean fast-casual chain reported fourth-quarter earnings that missed Wall Street expectations.

For the three months that ended in December, the company posted five cents in adjusted earnings per share, up from two cents a year ago but below the consensus among analysts polled by FactSet of seven cents per share.

The stock initially plunged as much as 10% in Tuesday after-hours trading but has recovered slightly. Shares recently traded down by about 4.3%.

Total revenue increased by 28.3% to $225.1 million in the quarter, beating the $223.3 million expected by analysts. The company noted that the fourth quarter in 2023 had an extra week compared with 2024. Excluding sales from the extra week, Cava revenue grew by 36.8% year over year.

The company added 15 new restaurants during the quarter, bringing the total to 367, an 18.8% increase from a year ago. Same-restaurant sales also improved 21.2% from the year-ago period, with about three-quarters of the growth driven by better guest traffic instead of higher menu prices.

"2024 was another year of extraordinary growth and success for CAVA as we established Mediterranean as the next major cultural cuisine category and delivered our unique value proposition, that is clearly resonating with modern consumers," wrote CEO Brett Schulman.

The company expanded its restaurant-level profit margin by 50 basis points to 22.4%. (100 basis points is one percentage point.) The better margin was mostly due to operating leverage from higher sales, according to the firm, although rising operational costs driven by a rollout of steak in the summer of 2024 and higher wages has partially offset those gains.

For fiscal 2025, management expects to open 62 to 66 new restaurants and see same-restaurant sales grow another 6% to 8%.

Restaurant-level profit margin is expected to come in between 24.8% to 25.2%, roughly the same as 25% in 2024. However, pre-opening costs for new restaurants are expected to come to $14 million to $15 million, higher than the $12 million for 2024.

Adjusted Ebitda is expected to come in a range between $150 million and $157 million, compared with $126.2 million in 2024.

Coming into earnings, Cava shares rallied 97% over the past 12 months but have fallen 12% this year. Investors have grown increasingly uneasy about the stock's high valuations.

Write to Evie Liu at evie.liu@barrons.com

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February 25, 2025 17:10 ET (22:10 GMT)

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