CAVA and Dutch Bros Sell Off as Slowing Traffic and Rising Costs Challenge Growth

Restaurant Growth Stocks Face a Tougher Market Test

Shares of CAVA Group (CAVA) and Dutch Bros (BROS) fell sharply on Thursday, November 5, following third-quarter earnings reports that highlighted growing pressure on two expanding restaurant and beverage chains. CAVA declined approximately 10%, while Dutch Bros plunged more than 20%.

Although both companies reported substantial revenue growth and continued opening new locations, investors focused on slowing sales momentum at existing stores, rising operating costs and uncertainty surrounding future profitability. The selloffs reflected a growing distinction between expanding a restaurant network and maintaining strong performance at established locations.

Key Points

• CAVA faces slowing traffic and margin pressure: Revenue grew 22%, but same-restaurant sales slowed sharply, while labor and operating investments weighed on profitability.
• Dutch Bros drops despite strong revenue growth: Sales increased nearly 30%, but softer customer traffic, a reduced profit outlook and concerns about future store performance triggered a steep selloff.
• Expansion remains central to both companies: CAVA reached 500 restaurants, while Dutch Bros plans approximately 250 new shops in 2027, putting greater attention on the profitability of new and existing locations.

Why Did CAVA Stock Fall After Its Earnings Report?

CAVA reported third-quarter revenue of approximately $356.4 million, up 22% from a year earlier but slightly below Wall Street expectations. Earnings came in at $0.11 per share, compared with the approximately $0.12 consensus estimate, while net income declined to $13.2 million from $14.7 million a year earlier.

The more significant concern was the slowdown in same-restaurant sales, which measure performance at established locations. They increased 3.1%, down from 9% in the second quarter, and nearly all the growth came from menu pricing and product mix, with customer traffic only slightly positive. Management attributed part of the slowdown to consumer concerns surrounding a Cyclospora outbreak and fresh produce consumption. The food safety issues were not directly connected to CAVA, but the company estimated that the broader concerns reduced comparable sales growth by approximately 1.5 percentage points. Higher gasoline prices also contributed to uneven customer traffic, although management reported improving trends toward the end of the quarter and into October.

Restaurant Margins Narrow as CAVA Invests in Operations

CAVA's restaurant-level profit margin declined to 23.4% from 24.6% a year earlier. Higher labor investments, increased use of third-party delivery services and spending on restaurant maintenance contributed to the decline, and the company is also investing in employee training, staffing and operational improvements to support its expanding restaurant network.

Despite the quarterly slowdown, CAVA raised its full-year same-restaurant sales growth outlook to 6%–7%, up from its previous range of 4.5%–6.5%. However, it narrowed its restaurant-level profit margin forecast to 23.7%–24%, reflecting continued pressure on operating profitability. The combination of weaker traffic growth and narrower margins overshadowed the stronger full-year sales outlook.

Dutch Bros Shares Plunge Despite Strong Revenue Growth

Dutch Bros reported third-quarter revenue of approximately $550 million, representing nearly 30% year-over-year growth. Adjusted earnings reached $0.25 per share, slightly above the FactSet consensus estimate of $0.24, while adjusted EBITDA increased 30% to approximately $101 million. The company also delivered its 14th consecutive quarter of positive systemwide same-shop sales growth.

However, investors focused on signs that sales momentum at established locations was moderating. Systemwide same-shop sales increased 4.4%, while company-operated same-shop sales rose 5.4%. Customer visits grew more slowly, increasing just 0.4% across the system and 1% at company-operated shops. The softer traffic trends raised questions about how quickly Dutch Bros can sustain growth as comparisons become more challenging.

Profit Outlook and Expansion Costs Add Pressure

Dutch Bros expects full-year revenue of at least $2.1 billion and systemwide same-shop sales growth of at least 5%. However, the company reduced its adjusted EBITDA outlook to approximately $380 million from its previous forecast of $385 million to $390 million. Management cited higher utility and freight costs, while elevated coffee prices are expected to continue affecting profitability into 2027. Fourth-quarter margins are also expected to decline from third-quarter levels, partly because the company will no longer benefit from tariff refunds received during the latest period.

Another concern involves Dutch Bros' aggressive expansion strategy. The company plans to open approximately 250 shops in 2027, with most new locations expected in states where it already operates. Management acknowledged that placing additional shops closer together could increase sales transfers between locations, a phenomenon known as cannibalization.

Several analysts lowered their price targets following the results, including Stephens, TD Cowen and Baird. Oppenheimer also reduced its target while maintaining an Outperform rating, describing the market reaction as excessive despite concerns about slowing comparable sales.

Expansion Continues, but Store Productivity Becomes the Focus

Despite the sharp stock declines, both companies continue reporting strong demand for new locations. CAVA opened 24 net new restaurants during the third quarter, reaching 500 locations across 30 states and Washington, D.C. Its average restaurant sales volume increased to approximately $3.1 million from $2.9 million a year earlier, while newly opened restaurants continued performing near established productivity benchmarks. The company now expects 76 to 78 restaurant openings in 2026 and at least 16% unit growth in 2027. CAVA is also investing in menu innovation, restaurant design and employee development, and management reported encouraging demand in smaller markets and lower-income communities, where comparable sales have outperformed the broader system.

Dutch Bros opened 48 shops during the quarter, bringing its total to 1,273. New locations are generating annualized revenue of approximately $2 million, above the company's $1.8 million year-two planning benchmark, and management reported that it has visibility into the real estate pipeline needed to reach 2,029 shops by 2029. Beyond physical expansion, the company is developing additional sources of customer engagement. Energy drinks now account for approximately 27% of its beverage mix, while mobile Order Ahead transactions represent about 17% of customer visits. Its Dutch Rewards program accounts for approximately 74% of visits, providing customer data to support marketing and product development.

What It Means for Investors

The declines illustrate how investors are responding to restaurant companies that keep growing quickly but face mounting pressure on sales productivity and margins. New store openings alone are not enough to offset concerns about slowing customer visits or rising costs.

CAVA faces the challenge of rebuilding traffic momentum while absorbing investments in labor and restaurant operations. Dutch Bros must demonstrate that its accelerated development strategy can coexist with healthy same-shop sales and margins, particularly as it opens more locations within existing markets. Both management teams acknowledged volatility in customer spending patterns, and higher operating expenses continue to influence profitability. For investors evaluating restaurant growth stocks, the latest reports place greater emphasis on the performance of established locations, the economics of new openings and the sustainability of profit margins.

Conclusion

CAVA and Dutch Bros delivered substantial third-quarter revenue growth, but their reports exposed different pressures on their expansion strategies. CAVA's results were affected by slowing restaurant traffic, temporary consumer concerns surrounding fresh produce and higher operating investments, while Dutch Bros' strong revenue and adjusted earnings growth was offset by softer customer visits, a reduced profit outlook and potential sales cannibalization. Both companies remain committed to opening new locations, and their future earnings reports will provide a clearer picture of whether expanding store networks can support sustained profitability alongside growth.

FAQs

Why did CAVA stock fall after its third-quarter earnings?

CAVA shares declined after quarterly revenue and earnings missed Wall Street expectations. Same-restaurant sales growth slowed to 3.1%, while higher labor expenses, delivery costs and restaurant investments reduced profit margins.

Why did Dutch Bros stock plunge despite strong revenue growth?

Dutch Bros shares fell more than 20% as investors focused on slower customer traffic growth, a reduced full-year adjusted EBITDA outlook and concerns about future margins. These issues overshadowed nearly 30% revenue growth and stronger adjusted earnings.

How did the Cyclospora outbreak affect CAVA?

CAVA estimated that consumer concerns surrounding Cyclospora and fresh produce consumption reduced third-quarter same-restaurant sales growth by approximately 1.5 percentage points. The food safety issues were not directly connected to CAVA.

How quickly are CAVA and Dutch Bros expanding?

CAVA reached 500 restaurants during the third quarter and expects 76 to 78 openings in 2026. Dutch Bros ended the quarter with 1,273 shops and plans approximately 250 new locations in 2027.

What are the main challenges facing CAVA and Dutch Bros?

Both companies face the challenge of sustaining customer traffic and profitability while expanding. CAVA is managing higher labor and restaurant operating costs, while Dutch Bros faces elevated coffee expenses, potential sales cannibalization and pressure on future margins.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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