CAVA bucked some industry trends, in a big way, with its third-quarter earnings. The Washington, D.C.-based Mediterranean restaurant chain saw a 7.8% traffic increase. This is especially profound as the industry is widely seeing 3.5% to 4% traffic decreases.
So far, we’ve seen a few restaurants come out of the gate with positive traffic numbers, but CAVA blows them all away. For the chain’s second quarter as a public company, it’s certainly making a name for itself.
Possibly because of the honeymoon phase, or its “IPO halo,” as the company called it, CAVA has performed much better than some of its counterparts in its first quarters as a public company, and is profitable already.
In Q3, CAVA saw a positive net income of $6.8 million, an increase of $18.7 million from Q3 2022 where the chain’s net loss was $11.9 million.
The chain’s leaders believe there is whitespace for CAVA to grow despite a projected flat comp rate for Q4. That quarter will overlap 15% comps.
“We’ve got fairly low brand awareness compared to some of our larger peers, yet we’re putting up great results,” said CEO Brett Schulman. “We’re seeing great resiliency from our consumers.”
“You look at some of the markets we opened a year or two ago, the brand awareness has already increased from 20% to 40%,” he continued.
Schulman also pointed out the difficulty of creating a CAVA bowl at home, despite the brand’s sauces being sold as CPG. This, he said, is why the chain has room to grow.
“CAVA is creating and defining the next major cultural cuisine category with substantial white space opportunity,” he said.
The fast-casual chain, which purchased Zoë’s Kitchen a few years ago, has finally completed the conversions of all Zoë’s units, meaning the company is now “operating under a single powerful CAVA brand,” according to Schulman.
And the chain isn’t done growing. Despite adding 70-73 units in 2023, the chain believes it has so much further to go.
“We continue to expect annual unit count growth of at least 15%,” said Schulman.
Part of that means entering the Chicago market in 2024, with three new openings in the city.
The brand opened a new fulfillment facility in Verona, Va., which joined the 30,000-square-foot facility in Laurel, Md., to support the chain’s growth. The company said these two facilities can support up to 750 restaurants and the chain’s CPG business.
“By producing our own dips and spreads, we're taking the complexity out of our restaurants, improving costs overall, and maintaining the quality and integrity of our unique recipes,” said Schulman.
CAVA is also in the process of creating a new loyalty app. The new app will be tested in the Houston market before a nationwide rollout in late 2024.
CAVA is also testing steak across certain markets. According to the company, the test has been successful internally. The chain is set to test the menu item in two test markets, Dallas and Boston, next month. If the tests are positive, CAVA plans to launch the menu item in late 2024.
CAVA saw same-store sales growth of 14.1% for the third quarter with a 49.5% increase in revenue year-over-year. The company saw $2.6 million AUVs and 25.1% restaurant-level profit margin during Q3, resulting in nearly $20 million of adjusted EBITDA and $7 million of net income. The company has been profitable for two quarters in a row.
The brand opened 11 net new restaurants in the quarter, bringing the total number of CAVA units to 290. So far in Q4, the chain has already opened 12 new units, bringing the year’s guidance to 70-73 restaurants for 2023.
CAVA expects to return to “historical” price increases of 2.5-3% starting in January.
According to CEO Brett Schulman, CAVA has 38 ingredients with over 17 billion combinations, something leaders are conscious of when adding a new item to the menu.
When it comes to California, CAVA’s “not making any changes in price necessarily yet” but has factored in the added expense of a $20 minimum wage that will hit in April. That will encompass 30 basis points out of the chain’s 100 to 120 basis point increase for labor in 2024.
At the beginning of Q4, CAVA raised wages approximately 8% over Q4 2022.
As for add-ons, the brand is seeing an increase in add-ons like pita chips and drinks.
Catering is also a new investment for CAVA. The test has moved up to what CAVA calls “hybrid kitchens.” These are new units built with an expanded back-of-house for centralized catering production. However, Schulman was quick to point out that not all units can afford to do this with their already high AUVs, which could decrease if catering was introduced, taking up workers’ precious time.
“We catered almost every single Major League Baseball team this summer,” said Schulman. “We catered for the Texas Rangers during their World Series run. We catered to the Lakers when they were in the playoffs last spring. So, we see this — not only [for] office workers or [students] but athletes, colleges, professionals, we see our cuisine being a great fit for our catering channel.”