Cava stock experienced a significant drop of 16% in afternoon trading on Wednesday, marking it as the latest fast-casual chain to face Wall Street's scrutiny following disappointing quarterly sales. This downturn is particularly stark given that just a year ago, restaurants such as Chipotle Mexican Grill and Cava were celebrating double-digit same-store sales growth, even as the overall restaurant industry grappled with declining traffic and sagging sales.
The landscape for fast-casual dining has shifted dramatically this spring, as many chains experienced a decline in foot traffic and overall sales. Executives attribute this downturn to cautious diners, with Sweetgreen CEO Jonathan Neman describing consumers as being in a "cautious" mindset. Meanwhile, Cava CFO Tricia Tolivar referred to the current economic climate as an "economic fog" affecting spending habits.
As consumers tighten their belts, investors have begun to reduce their holdings in fast-casual chains. In 2025 alone, stocks have taken a hit, with Shake Shack shares down 16%, Chipotle shares down 28%, Cava shares down 37%, and Sweetgreen stock plunging 70%. In stark contrast, Wingstop remains a bright spot, with a 20% increase in stock value this year.
Investor sentiment has shifted dramatically, as indicated in a recent research note from UBS. Concerns about weak traffic trends and consumer spending have made investors cautious about restaurant stocks. Even traditionally resilient fast-food chains are feeling the squeeze, struggling with traffic declines and sluggish sales growth despite their reputation as a safer investment during economic downturns.
Fast-casual chains are not just dealing with company-specific issues; broader economic uncertainties are impacting consumer behavior. For instance, Chipotle CEO Scott Boatwright noted a noticeable drop in traffic from low-income consumers, contributing to a 4% decline in same-store sales in the second quarter. He pointed out that consumers are gravitating toward budget-friendly options, highlighting the shift towards more affordable dining experiences amid low consumer sentiment.
The University of Michigan's index of consumer sentiment hit a low of 52.2 in April, before rising to 60.7 in June. This fluctuation reflects the economic anxieties felt by consumers, which fast-casual chains are increasingly recognizing in their research. Wingstop CEO Michael Skipworth mentioned that their consumers express concerns about high prices and job security, contributing to a 1.9% decline in same-store sales for the quarter, a sharp contrast to the 28.7% growth reported in the same period last year.
During a recent earnings call, Sweetgreen's Neman noted that the chain has faced a more cautious consumer environment since April, coinciding with a downturn in consumer sentiment. This challenging backdrop, particularly in urban markets, led to a significant decline in same-store sales and prompted the company to lower its full-year forecast for the second consecutive quarter. Sweetgreen also cited tough comparisons to last year’s successful steak launch as a contributing factor to its underperformance.
To enhance its value perception among consumers, Sweetgreen is implementing several strategies, including increasing portion sizes for chicken and tofu by 25% and offering promotional pricing for its loyalty program members.
Cava, which had previously impressed investors with robust same-store sales growth post-IPO, reported a modest 2.1% increase in same-store sales this quarter, falling short of Wall Street expectations of 6.1%. This figure is particularly disappointing when compared to last year's 14.4% growth, which was driven by strong demand during the launch of a new steak option.
Despite the current challenges, Cava's executives acknowledge the presence of economic concerns among diners. CEO Brett Schulman stated that while the company is navigating a fluid macroeconomic environment, it hasn't seen a significant shift towards cheaper protein options or other alarming business trends. Looking ahead, Cava is optimistic about improvements in same-store sales as it enters the third quarter.
As consumer sentiment shows signs of recovery in June and July, several fast-casual chains are hopeful for a rebound in the latter half of the year. Chipotle reported an uptick in traffic as it exited the quarter, while Sweetgreen has also observed modest improvements in same-store sales. Although Wingstop continues to face weaker demand, the chain anticipates easier comparisons to last year's performance.
In conclusion, while the fast-casual industry faces significant challenges amid shifting consumer sentiment and economic uncertainties, there are glimmers of hope for recovery as brands adapt their strategies in response to evolving market conditions.
