With both the Nasdaq Composite(NASDAQINDEX: ^IXIC) and the S&P 500 index (SNPINDEX: ^GSPC) having fallen into correction territory, there is clearly a lot of fear on Wall Street.
One of the big negatives is that, according to a fairly large number of companies, consumers appear to be facing increasing financial strain. That, in turn, is expected to lead to a spending slowdown.
That's not good news for restaurant companies like Chipotle Mexican Grill(NYSE: CMG), Wingstop(NASDAQ: WING), and Cava Group(NYSE: CAVA). But don't count these still growing companies out.
Where the trouble is going to show up
When consumers are facing financial strain, or sometimes even if they just feel like economic weakness is on the rise, they tend to pull back on spending. Not across the board, of course. There are some products, like consumer staples, that have to be bought no matter what is going on in the economy or in the stock market. Not eating isn't an option. But there are some areas where it is easier to pull back.
Image source: Getty Images.
A good example is the consumer discretionary arena. You can easily put off buying the latest model cellphone or, going back to the food example, not go out to eat quite as often. This is exactly what a lot of restaurants are telling investors to expect. The key metric to watch is same-store sales, which measure sales at restaurants that have been open for at least a year. It provides an indication of how well a company's core business is running.
Chipotle's same-store sales rose 7.4% in 2024, but were up only 5.4% in the fourth quarter of the year. So same-store sales have been softer of late. And the company told investors to expect this metric to fall somewhere in the low- to mid-single-digit range in 2025. So flat to down relative to the fourth quarter's already less impressive number.
Wingstop and Cava basically echoed that sentiment. Wingstop's same-store sales in its U.S. restaurants rose a huge 19.9% in 2024, but it is also guiding for low to mid single digits for 2025. Cava's same-store sales rose 13.4% in 2024. It is expecting same-store sales to fall between 6% and 8% in 2025.
This isn't good news, as it suggests that all three of these growing restaurant concepts are going to have a tough year in 2025. But that doesn't mean they won't be growing. In fact, they might still grow rather impressively.
The biggest growth driver for restaurants
Same-store sales are important, but normally something in the low single digits is considered a good number. Chipotle, Wingstop, and Cava are going from outperforming on this measure to something more pedestrian.
So long as they can keep same-store sales flat to slightly higher, however, they will likely still grow their top lines quite nicely. That's because same-store-sales growth isn't the primary driver of growth for these still expanding concepts.
A few percentage points from same-store sales gets dwarfed by the impact of new stores, as each new location adds materially to the income statement's top line.
For example, Chipotle's sales rose 14.6% in 2024, nearly twice as much as its same-store-sales growth. Wingstop's sales jumped 36.8% last year, far above its 19.9% same-store-sales growth. And Cava's top line grew by 33.1%, more than twice the growth of its same-store sales in 2024.
The driver in each case was new locations. Chipotle opened 304 new locations last year, Wingstop chartered 349 new restaurants, and Cava brought 58 new shops online.
Despite the slowdown that each company expects in same-store sales in 2025, their new opening plans remain robust. Chipotle's goal is 315 to 345 new locations. Wingstop is targeting a 14% to 15% increase in its store count. And Cava is looking to open 62 to 66 new restaurants.
If the companies get close to those figures they will very likely put up another year of solid top line growth even as consumers pull back in 2025.
Fear in the face of uncertainty is realistic, but don't overdo it
There are a lot of worrying events taking place right now on the geopolitical front, the economic front, and on Wall Street. Taking a step back and assessing where things stand for you and your portfolio makes a lot of sense.
But if you are a long-term growth investor and you own Chipotle, Wingstop, and/or Cava because of the growth opportunity ahead of these restaurants, don't cut and run out of fear. Take the time to understand what is really happening at the businesses. Indeed, even in the face of a difficult year these three restaurants are telling investors to expect another year of growth.
Should you invest $1,000 in Cava Group right now?
Before you buy stock in Cava Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cava Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $745,726!*
Now, it’s worth notingStock Advisor’s total average return is830% — a market-crushing outperformance compared to164%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Wingstop and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
