One of the hottest stocks in America. It's got nothing to do with AI. It is Cava. Cava shares have been on a tear, hitting a record high Today, more than doubling in six months. In a little more than a year, fFast casual Mediterranean restaurant chain Cava has become one of 2024's most talked about stocks on Wall Street. Cava seems to have found a magic formula. No real competitors out there, and it's clearly Pulling ahead of everyone else. It's one of those ones that's got a ton of potential Growth on there. I mean, I think you're talking about Double-digit growth for at least the next five years. The food's. Delicious. The company's been well managed. They hit free cash flow out of the gate. Its stock has grown by more than 480%, and its market Cap by 200% since going public in 2023. It's 341. Restaurants are valued at $43 million each. We're creating a defining. What we believe to be the next large-scale cultural Cuisine category, and that's our unique Mediterranean Cuisine. But Cava's concept is nothing new. A bowl and a healthy mix of protein, carbs and Veggies, something fast-casual competitors have had Huge success with. The question is, could Cava become the next Chipotle? If they can continue to grow successfully and no other Major competitors enter the space, they have an Opportunity to become the next Chipotle. Good morning everybody.
Good morning. Happy Friday. Happy Friday. It's a typical weekday morning at this Lower Manhattan Cava restaurant. I think I have maybe 6 or 7 people coming in the Morning. Um, they're making the topics from scratch, You know, cutting the parsley, cutting the cilantro, Mixing the the items together, marinating the chicken, Making the spice mix as well. Everything that we have is fresh, which I think is the Beauty about cava. That's 38 items and 17 billion combinations, the Company says. We think that value is a combination of attributes, and For us, that's the quality of our food. It's the relevance of our Mediterranean cuisine. It's the convenience in which you can access that Food. When you put all that together, we think that's A compelling value proposition that's really helping Drive those results and the momentum that we see Today. That momentum has translated into financial results. In its Q2 2024 results, the company grew revenue by 35.2% from the same quarter the year prior and opened 18 new locations in the period. Cava has bucked industry trends, with near double- Digit-same-store sales and traffic growth, and Wall Street is responding between January and September 2024, its share price has more than tripled. In an industry where you can count restaurants that Have positive transaction growth. On literally one hand, uh, you know, quarter after Quarter has been posting tremendous transaction Growth. And so that's really what what stands out.
The company's early success is due to a variety of Factors. For one, the company is vertically integrated And works largely with single-source suppliers. That allows us, you know, large-scale purchasing Directly from our grower rancher, producer partners. And we manage a lot of the inbound freight to our Distributor partners who work as last mile Transportation. So that allows us some some Efficiencies of scale and cost effectiveness, but Still delivering those high quality ingredients. And then you think about our production model that Walk the line format that Henry Ford type production Line. The company has also stayed away from what most in the Industry haven't price hikes. It has drawn high-income consumers who've moved away From traditional dine -in restaurants in favor of Cheaper options. We were the only limited brand that didn't take Incremental price because we wanted to work on behalf Of our guests and again, bring them the best value Proposition we can. That relative value advantage, if they so choose, is Just going to expand over time. And that's really the biggest competitive advantage That they have. While Cava has plenty of competitors in the fast-casual Dining category, Mediterranean chains of that scale Are few and far between. In 2018, the company acquired direct competitor Zoe's Kitchen for $300 million and converted 153 locations Into Cava's. It allowed us to kind of turbocharge our growth at the Time and get a large footprint in a part of the
Country we were trying to expand to. So that was the Sun Belt and kind of doubled down on Our presence in the suburbs. First founded as a full-service restaurant in Bethesda, Maryland, in 2006, cava was rebranded as a fast-casual Chain in 2010. Co-founder and CEO Brett Schulman is still here after 14 years. The fact that he's been very conservative around Pricing, and he's been ahead of the curve in terms of Investing in in labor. We judge leadership based on based on results and what They've been able to achieve. And and I think it Speaks for itself. In 1993, Chipotle revolutionized fast casual dining When it launched a new concept allowing customers to Customize their order using fresh, high quality Ingredients. I think consumers saw this as I can go out and eat Healthy, I can be substantially satisfied and I can do It for a reasonable amount of money. Chipotle's service assembly line strategy prioritized Efficiency and customization, all while spending less On labor. Its model took off. Just check out the stock chart right here. In the restaurant industry. Imitation is the greatest source of flattery. And what we see is when there's one successful Concept, it can be replicated certainly within the Same menu category like Mexican. But because Cava took it to Mediterranean, they Shifted the focus away from the competitive set of Mexican. It hasn't always been replicated successfully.
Sweetgreen for example, another fast casual bowl Concept is not yet profitable. It went public in November 2021. Cava accomplished the feat in its first quarter after Its IPO. Like Chipotle, cava priced its IPO at $22 per share, With both stocks doubling in value at closing. When food giant McDonald's decided to invest millions Into Chipotle in the late 90s, the company quickly Expanded its store count to more than 500 before going Public in January 2006. Mcdonald's sold its shares in the Mexican chain later That year. As of Q2 2024, Chipotle's store count is Around 3500, and it has a long term goal to double That. Cava, on the other hand, has less than 400 Restaurants, though it's aiming for 1000 by 2032. Restaurants do not scale like SaaS software. It takes a lot of people, a lot of infrastructure, Whether it's Bryant Park in New York City or Back Bay In Boston or Fayetteville in North Carolina, or Fayetteville in Arkansas. We're seeing this so well received in the cities, in The suburbs, in small towns. So it's just a matter of when can we bring this? I do think they're going to follow the same path. Chipotle is the one that's actually right now in the Process of discovering what that opportunity is. All Cava has to do is just kind of follow in those Footsteps. And they're really going to get there. In 2024's most recent quarter. Cava's same-store sales growth and transaction growth Outperformed that of Chipotle's. Cava's stores are valued nearly twice that of Chipotle's.
The reason why each Cava is being valued at a Significantly higher premium than each Chipotle is Simply the fact that there's much longer of a runway Ahead of one. Ahead of Cava. Right? So right now you're not necessarily buying 400 Stores. You're really buying 4000 or 8000 units at Some point in the future. While the company is boasting impressive financials, Cava isn't immune to risks. Supply chain disruptions, whether in quality or price, Could harm any company, especially one that operates Under the single source model. Cost increases are real to labor. Being one of the main diversification is another Limitation. Although the company is currently piloting Catering in some cities. And lastly, competition. Though Cava is ahead of the curve. Fast casual is an extremely competitive category. They just have to kind of focus on the blocking and Tackling and make sure that they that they protect and Grow the brand and the various brand equities that Have worked for them so far. As you grow, it just forces you to think about how do You do what you do. You know, at 20 or 30 restaurants, at a couple hundred Restaurants, or hopefully eventually 1000 restaurants, How do we build a team and build process and continue To nurture our culture so that that last person on Sunday night, that might be 3000 miles away from me Feels that same passion, has that same clarity of Purpose and mission that we're trying to deliver, Because ultimately that's what's going to help us be Successful.
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