CAVA's sales outlook rises. Why is the profit upgrade so small?

CAVA is raising its annual sales-growth target and planning more restaurant openings. Yet the midpoint of its adjusted profit forecast is only $500,000 higher than it was in August.

The Mediterranean restaurant chain is still expanding quickly. The harder task is turning that growth into profit and cash while opening costs rise and traffic growth slows.

More sales, with a bigger opening bill

CAVA now expects sales at restaurants open at least a year to rise 6% to 7% in fiscal 2026, compared with its earlier range of 4.5% to 6.5%. It plans 76 to 78 net new restaurants, one more at each end of its previous range.

Its annual adjusted EBITDA forecast narrowed to $184 million to $189 million from $181 million to $191 million. That puts the midpoint at $186.5 million, barely above the previous $186 million. This profit measure excludes interest, taxes, depreciation, amortization and selected other charges.

Costs incurred before new restaurants open are now expected to reach $28.5 million to $29.5 million, up from $22 million to $22.5 million. Those costs remain in adjusted EBITDA. In the latest quarter, they rose to $8.4 million from $4.9 million as CAVA had more restaurants under construction and invested more in their openings.

Traffic has lost much of its first-half pace

Third-quarter restaurant revenue rose 22.1% to $353.7 million, with new locations supplying most of the increase. CAVA opened 24 restaurants during the 12 weeks ended October 4, reaching 500 locations.

Sales at comparable restaurants rose 3.1%, mostly from prices and the mix of items ordered. Traffic, which CAVA measures by entrées ordered, increased just 0.1%. That compares with traffic growth of 5.3% in the second quarter and 6.8% in the first.

CAVA estimates that Cyclospora and wider concerns about fresh produce reduced quarterly comparable-sales growth by about 1.5 percentage points. It says no ingredients in its supply chain were implicated.

Restaurant-level profit still rose 16.2% to $82.7 million, but the margin fell to 23.4% from 24.6% a year earlier. Higher labor investment, delivery fees and repairs weighed on that margin. Pre-opening costs are excluded from this restaurant-level measure and affect the broader company result separately.

Quarterly adjusted EBITDA rose 5.7% to $42.3 million. Reported net income fell to $13.2 million from $14.7 million, with higher depreciation and share-based compensation contributing to the decline.

Expansion is using more quarterly cash

Research by Ticker Byline shows that third-quarter free cash flow was negative $7.7 million, compared with positive $1.4 million a year earlier. We calculated the quarter from the latest and previous year-to-date cash-flow reports, using CAVA's definition of operating cash minus property and equipment spending.

The broader cash record remains stronger: free cash flow for the first 40 weeks rose to $37.1 million from $23.3 million. CAVA held $297.9 million in cash and another $130 million in fixed-income investments, with no loans drawn on its revolving credit facility.

The next results will test how well new restaurants convert strong sales into profit as CAVA absorbs the higher opening bill. The CAVA company profile tracks the changing forecasts, restaurant economics and cash investment behind that expansion.