CAVA shows no signs of slowing momentum

On November 14, 2024By Littum

CAVA once again bucked industry-wide trends in the third quarter, achieving an 18.1% increase in same-store sales, driven largely by a 12.9% increase in traffic.

Additionally, average unit volume grew to $2.8 million from $2.6 million in Q3 2023, while restaurant-level profit margins grew to 25.6% from 25.1% in the same period a year ago.

During the company’s post-market earnings call Tuesday, CEO Brett Schulman said a “confluence of factors are coming together to drive growth,” including CAVA’s position as a “category-defining brand,” a compelling value proposition and a focus on execution.

Mediterranean cuisine, he added, is poised to become America’s next big culinary category and “meets the moment.” In fact, Technomic reported that Mediterranean cuisine was one of the fastest growing segments, with a growth rate of 9.5% from 2017 to 2022.

Schulman added that CAVA’s focus on hospitality has also helped insulate the brand amid a challenging environment, citing consumer desire for such hospitality.

“Over the past two decades, as the world interacts more often with screens than people, we’ve lost 24 hours a month of personal connection. As technology and automation infiltrate everyday life and the front lines of more concepts, consumer touchpoints are increasingly transactional, which takes the joy of humanity out of the experience,” he said, adding that CAVA is implementing technology to “create warm, personal moments and support. team members connect with guests.”

“Our business is built on the idea of welcoming everyone to our table, and we are focused on creating the authentic human connections consumers crave. This is at the core of our brand essence,” he said.

CAVA leverages its reimage loyalty rewards program to translate this hospitality digitally. The program has a model for earning and bank points with multiple redemption options. Since launch, the loyalty percentage of sales has grown by more than 200 basis points, executives said.

“This initial phase of a multi-phased approach will expand our fist party data and share our hospitality across platforms in a way that resonates with guests on a personal level,” Schulman said.

In addition to striving to create more human connection, CAVA also benefited during the quarter from menu launches, including its first-ever variation of its signature pia chips with a Garlic Ranch flavor, as well as a continued tailwind from its beef launch last quarter. Schulman said this new menu innovation has helped increase brand awareness by 8% since its initial public offering last year.

In addition, CAVA added 11 new restaurants during the quarter, bringing the system total to 352, and is aiming for 17% unit growth by 2025, including access to South Florida and “at least two additional new markets.” Executives said the 2024 restaurant class is the company’s strongest yet and is exceeding expectations.

“Our new restaurants are opening very strongly, resulting in higher cash-on-cash returns even earlier than we expected,” said CFO Tricia Tolivar. “We’re seeing really strong results both on the top line as well as overall margin at the restaurant level in the new locations, and that’s been consistent. It’s really giving us momentum as we expand into the huge white space that we have in front of us.”

In addition to the white space, CAVA executives are bullish in the short term for other reasons as well. Last week, for example, the chain rolled out a new work planning and deployment model ahead of schedule. The system, Schulman said, puts the right employees in the right places at peak times.

“The new model reorders ideal expected hours more effectively and efficiently with better alignment to team member tasks, channel mix and revenue curves,” he said. “Early results are promising and we have identified opportunities to strategically invest in lower volume restaurants to drive increased revenue over time.”

Tolivar added that the company added “a little bit more labor” to lower-volume restaurants during the pilot and saw a “modest increase” in sales and improvement in guest scores.

“That’s where we think we have an opportunity,” she said. “We’re really happy to see it improve speed and service.”

CAVA also continues to make progress on its multi-year Connected Kitchen initiative, a generative artificial intelligence solution that monitors ingredient consumption on the line to alert employees in real-time about cooking and cooking batch quantities. The pilot has been completed and the technology is now live in four restaurants. Additionally, new kitchen display systems are now being tested in 25 locations and are expected to improve productivity and accuracy.

Schulman added that the continued development of CAVA’s loyalty program is expected to be a comp driver in the next year, as are additional menu innovations. He said the culinary team is building a multi-year pipeline across categories, from “the bases, the grains, the beans, toppings, as well as in the attachments. Beverages and desserts are also in focus, as are pita chip flavor extensions.

Perhaps the biggest reason for the managers’ optimism in the short term, however, comes from CAVA’s broad appeal. As the chain continues to grow, Schulman said its traffic comes from all age and income demographics — though it skews toward younger cohorts because of its strong social media presence. Tolivar added that the chain also performs consistently across geographies and dayparts.

“We’re really finding strengths across the board,” she said.

CAVA Q3 by the numbers

Revenue grew 39% to $241.5 million

Same-store sales grew 18.1% driven by a 12.9% increase in traffic and a 5.2% increase in price and product mix

Restaurant margin improved 50 basis points to 25.6% of sales. The increase was due to leverage from higher sales, partially offset by incremental payroll investments and input costs associated with the grilled steak launch

Adjusted EBITDA was $33.5 million and came in at 13.7% of revenue

Net income of $18 million in the quarter after reporting $6.8 million in operating income a year ago

Contact Alicia Kelso at (email protected)