Release Date: August 22, 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 35.2% increase in revenue for Q2 2024, reaching $231.4 million.
- The company saw a 14.4% growth in same-restaurant sales, driven by a 9.5% increase in guest traffic.
- Cava Group Inc (CAVA) opened 18 net new restaurants in Q2, bringing the total to 341, a 22.2% increase year-over-year.
- The launch of grilled steak surpassed expectations, contributing significantly to sales and customer visits.
- The company generated $22.7 million in free cash flow during the quarter and reported a net income of $19.7 million, exceeding the total net income for all of 2023.
Negative Points
- Cava Group Inc (CAVA) anticipates an increase in food, beverage, and packaging costs for the rest of the year due to the steak launch.
- Labor and related costs increased by 40 basis points year-over-year, reflecting a 9% wage investment.
- General and administrative expenses rose to $24.7 million, driven by investments to support growth and recurring public company costs.
- The company is cautious about the uncertain macroeconomic environment and upcoming election, which could impact future performance.
- Despite strong performance, the company did not factor in any incremental benefits from the upcoming loyalty program into their guidance for the rest of the year.
Q & A Highlights
Q: Hi, good afternoon, and congratulations on delivering those strong results. My question is about the second quarter and the strength you saw on the sales was quite a big acceleration it seemed from the first quarter. And I just wanted to get your thoughts on the factors that drove the large acceleration. I know you mentioned steak outperforming your expectation, but maybe you could piece together some of the key drivers. And then the second part of the question, Tricia, that looks like the second half, you're not quite assuming -- or assuming quite the same strength to continue. So just wondering how you're thinking about the second half related to what you just delivered for the second quarter? Thanks.
A: Thanks, David. So certainly, as you look at our second quarter of same-restaurant sales growth of 14.4% and compare that to first quarter, there is an acceleration, but really looking at it on a two-year same-restaurant sales basis, two-year same restaurant sales in Q1 of '24 were 30.8% and two-year same-restaurant sales in Q2 of 2024 grew to 32.6%. So there certainly is an increase, and you're seeing that in what we were able to deliver in Q2 with a very strong 9.5% traffic growth. When you look at what are the drivers impacting in the same restaurant sales, I kind of think of it like a comparable. There are lots of combinations that blend together to create something truly amazing. And it's things like new culinary innovation like steak that you mentioned, it's the strong value perception that we have in the marketplace, increased brand awareness and certainly our team member execution, and so all that combined together is delivering an outstanding result in the period and the quarter that we're proud of. And then your second question about the second half and how it's not assuming, say, the same strength, we talked about this in our guidance and why we don't give period-to-period or into-the-quarter following quarter results. We are seeing strength in the business itself but also want to be thoughtful around the uncertain macroeconomic environment and the upcoming election and factor that into our guidance. So those two things together are influencing what we've communicated today.
Q: Great. Thank you for that. And Tricia, is there any way to isolate the impact of steak on the comp in the second quarter? Is there -- however you look at it from a traffic and mix perspective?
A: Yeah. There was a favorable impact on mix and certainly some benefit in traffic. But what we're seeing is strength in traffic across in general and fits much broader than steak by itself. Really pleased with the traffic and same-restaurant sales strength across all regions of the country in all of our formats as well as in suburban and urban environments. So it just isn't really one thing driving that traffic strength. It's a combination of factors.
Q: One question, I guess I was just curious about the margin side was, is there anything else -- aside from the steak impact -- is there anything else you're doing on food for the rest of the year? And then also, June plan to make a similar kind of labor investment from once we get into the end of the year, how will that kind of play into restaurant margins?
A: Yeah. Outside of steak, we're not anticipating any significant changes in input costs on the food, beverage and packaging cost side for the remainder of the year. And then when you turn and look at labor investments, we mentioned that average wage is at 9% year over year. We started making a fairly significant investments in wages in the fourth quarter of 2023. And that's what you're seeing the benefit of in the increase in average wage as well as the decline in turnover that Brett talked about in the prepared remarks. At this point, while we're always looking at ways to reinvest into our team members as well as our guests, there are no major planned for an incremental labor investments for the rest of 2024.
Q: Okay. Sounds good. Thank you. And the new labor model that you mentioned, could you tell us more about that -- what some of the details are, what's kind of been most favorable within that so far?
A: Hey, Brian, it's Brett. I'll speak to that. It's basically taking that same net hours -- labor hours and reallocating them in a much more effective and efficient way so that we put our team members in the right places at the right moments during their shift. So they're prepping during down times, they're customer-facing during peak times sales to help with speed of service, to help with quality of guest experience. And we're seeing quantitative improvements in the pilot restaurants as well as qualitative improvements, especially for our general managers or our shift leader saying, now we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at peak hours. So very pleased. We will be at 75 restaurants this fall with the goal to launch it across all restaurants in early 2025.
Q: Great. Thank you. You talked about the revamped loyalty program, guests visiting and spending more than non-loyalty guests. Is it fair to say the loyalty pilot markets are seeing same-store sales materially optimal performance overall system? What I'm really looking to understand is that is the loyalty program same-store sales impact factored into the back-half guidance for same-store sales?
A: Yeah. So loyalty we mentioned is going to launch in October, ahead of schedule, and we are seeing benefit through the program in our test markets, but we haven't factored anything incremental into our guidance for the rest of the year.
Q: Okay, very helpful. Then Brett, just wanted to get an update on catering. Last time we caught up, I believe you talked about 10 production facilities. Is this something you expect to lean more into in 2025, or is this more of a 2026 opportunity for the system of catering?
A: It's really more larger scale. 2025 will be a continuation of progression of our tests. Very excited about the catering opportunity, but want to be very mindful about how it impacts production in our restaurants. And so we do have 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations across the country as well as a cluster of regular CAVA restaurants that we're testing catering in now. We will move, in 2025, to a full market test of a major metro market to really inform how we would want to go across the country in 2026 from a more national perspective. But very excited about the catering opportunity. Certainly seeing a lot of demand. We want to make sure we set our operators up for success to deliver on that guest promise.
Q: Thanks. Good afternoon, guys. Brett, you mentioned new units are exceeding expectations. What factors do you believe are causing the better-than-expected performance? And then Tricia, what's
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
