Release Date: May 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cava Group Inc (CAVA, Financial) reported a 30.3% increase in revenue for Q1 2024.
- The company achieved its first-ever quarter of positive free cash flow, amounting to $4.7 million.
- Cava Group Inc (CAVA) opened 14 net new restaurants in Q1, ending the quarter with 323 restaurants, a 22.8% increase year-over-year.
- The company reported a net income of $14 million, surpassing the total net income for all of 2023.
- Cava Group Inc (CAVA) has a strong balance sheet with $329.1 million in cash on hand and no debt outstanding.
Negative Points
- Same-restaurant sales growth was only 2.3%, with a decline in traffic of 1.2%.
- The company anticipates an increase in food, beverage, and packaging costs due to the launch of a new steak offering.
- Labor and related costs increased by 30 basis points year-over-year, reflecting higher team member wages.
- Other operating expenses rose by 70 basis points, driven by investments in physical spaces.
- Despite strong new unit openings, there is a potential traffic headwind as the company anniversaries the IPO buzz from summer 2023.
Q & A Highlights
Q: Tricia, can you disaggregate the comp guidance and explain the current business trends that give you confidence in the updated guidance?
A: Our guidance reflects the strength we're seeing in our results through the year. For the rest of the year, it implies mid- to high single-digit same-restaurant sales guidance. We're seeing strong performance across all income categories, with no real change over time in the strength of the lower-income strata. We're also not seeing any change in delivery mix and are seeing strength in per person average (PPA) even when adjusting for normalized price. β Tricia K. Tolivar, CFO
Q: Brett, what are the initial learnings from the steak test that lead you to be excited about rolling it out system-wide?
A: The steak fills a perceived gap on our menu and has been methodically tested in Boston and Dallas for over 7 months. It helps lean into the dinner day part, which is now approximately 46% of our business. The positive mix shift and the unique Mediterranean flavors make it a strong addition to our menu. β Brett Schulman, Co-Founder, CEO, President & Director
Q: Tricia, can you comment on whether you're seeing a step-up in the business exiting Q1 and into Q2, and whether the current run rate is enough to meet the guidance range for the rest of the year?
A: We don't give intra-quarter guidance, but we are seeing strength in our performance throughout the year, which gives us confidence in our guidance of 4.5% to 6.5% same-restaurant sales growth for the full year. The steak rollout is included in our guidance but is not a significant component of the overall increase. β Tricia K. Tolivar, CFO
Q: Sharon, are you still looking at $2.3 million in year 2 as the right bogey for new unit productivity, given the strong performance of new units?
A: Our new units are performing very well, and while we haven't changed our overall view on year 1 and year 2 AUV of $2.3 million, we are monitoring their performance closely. The Chicago performance has been phenomenal and could influence our approach to new markets going forward. β Tricia K. Tolivar, CFO
Q: Brett, can you comment on the changing competitive intensity in legacy urban markets and the performance of your drive-through units?
A: In urban environments, we're getting a larger piece of a smaller pie due to slow return to office. We're focusing on suburban expansion but taking advantage of urban opportunities where there is a residential component. For drive-through units, we have 38 pickup lanes open, showing 10% to 15% higher AUVs and slightly higher margins. We will continue to add them opportunistically. β Brett Schulman, Co-Founder, CEO, President & Director and Tricia K. Tolivar, CFO
Q: Ivan, can you expand on the incremental wage investments and their impact on labor costs, especially in California?
A: We increased average wages by 8% year-over-year and continue to evaluate wages quarterly. In California, we had already made investments, so the recent mandated wage increases had minimal impact, and we did not increase pricing to offset it. Our labor deployment initiative is reallocating hours to improve guest experience and speed of service. β Tricia K. Tolivar, CFO and Brett Schulman, Co-Founder, CEO, President & Director
Q: Brian, can you talk more about store margins and any changes in underlying food cost trends for the rest of the year?
A: We don't anticipate significant inflation in COGS, but the steak rollout will have some impact. We are seeing pressure in the chicken space due to strong demand and lower production. Other operating expenses are higher due to investments in physical spaces. For restaurant-level margins, consider the shape by quarter in 2023 and layer in the steak impact for 2024. β Tricia K. Tolivar, CFO
Q: Jon, does the success in Chicago alter your thinking about new market mix going forward? And where is the brand today with respect to entrees per peak 15?
A: The strength in Chicago and new openings gives us optionality for greater weighting on greenfield expansion. For speed of service, we are focused on balancing guest experience with efficiency. Our labor deployment test has shown positive results, and we are expanding it to more restaurants. β Brett Schulman, Co-Founder, CEO, President & Director
Q: Jeffrey, if traffic didn't revert back positive, what levers would you pull to drive traffic? And can you share the components of the new comp guidance?
A: We don't plan to get into discounting but will continue to offer the best value proposition. Our new production facility helps deliver quality and cost-effectiveness at scale. For the new comp guidance, we took less than 3% in price at the beginning of the year and don't plan additional price increases. The rest of the guidance is a combination of traffic and mix. β Brett Schulman, Co-Founder, CEO, President & Director and Tricia K. Tolivar, CFO
Q: Brian, can you expand on the catering business and its potential?
A: We're pleased with the progress of our catering test and are learning a lot about capacity and equipment needs. Our food is a great fit for catering, and we are preparing for a wider rollout. We've catered for many professional sports teams and office headquarters, showing strong demand. β Brett Schulman, Co-Founder, CEO, President & Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
