There were very few exceptions to an otherwise dismal second-quarter earnings season for the restaurant industry. On Thursday, we learned that CAVA was one of them.
The company reported a same-store sales increase of 14.4% for the quarter, ended July 14, driven by a staggering 9.5% increase in traffic. This performance laps an 18.2% increase during Q2 2023, resulting in a two-year sales increase of nearly 33%.
CAVA debuted on the public market a little over a year ago, and executives attributed some of its recent success to a continued IPO halo.
“One of the things we talked about when going public was that this was an opportunity to put our brand and the [Mediterranean] category we're creating in the public sphere, and that's amplified awareness around the country. And when we do our community days, we've been able to generate great earned media and organic viral word of mouth that's driven very strong sales out of the gate. So, it's been a bit of a snowball rolling downhill,” chief executive officer Brett Schulman said during the earnings call.
That said, CAVA’s tailwind has been created by several other factors as well, including and especially its value proposition – a critical component for consumers who have reined in their restaurant visits as of late. In California, for instance, CAVA did not take incremental price increases in response to the minimum wage hike that went into effect April 1. This decision, Schulman noted, has supported sustained traffic momentum.
“As we deliver this compelling value proposition, we continue to invest in our guests and the cost of their meals,” he said. “Consumers have been frustrated and fatigued by higher prices over the past few years. In this post-high inflationary environment, traditional full-service chains are struggling to deliver a compelling value proposition, while conventional fast-food chains have raised prices at a faster rate, driving the perception that they have become too expensive.”
Schulman acknowledged the so-called value wars that have manifested this summer to win consumers back, but added that value is more broadly defined by consumers than just price. It also includes quality, relevance, convenience, differentiation, and experience, he said, and that is where CAVA has found the sweet spot. As a result, CAVA has seen customers trade down from traditional full-service chains, trade up from QSRs, and trade over from legacy fast-casual brands. As such, CAVA is performing well across all income cohorts, according to chief financial officer Tricia Tolivar.
“We’re very pleased to see that there’s strong performance in same-restaurant sales across all income strata. And, in fact, the lowest income strata has the highest level of sales,” Tolivar said. “When you drill in and look at the top decile of restaurants, there's representation from every income strata. So, thus far, we've seen a lot of resilience in our guests … and we think a lot of that has to do with the strong value proposition that we are presenting for them.”
She added that the early June launch of grilled steak boosted the company’s value perception. Executives said the launch far surpassed expectations and initial test results, while filling a menu gap and providing a new reason for customers to visit more frequently. Indeed, Tolivar said steak had a favorable impact on both mix and traffic.
What’s next
Looking forward, CAVA expects to maintain its momentum through several initiatives. The chain has moved up the launch date of its reimagined loyalty program to October, for instance, which is expected to drive more frequency and higher checks. It is also piloting an artificial intelligence video platform that monitors how quickly ingredients on the in-restaurant makeline are being depleted and alerts the team in real time for prep and cook batch amounts. The system is currently in a “learning phase,” and is expected to go live in some test restaurants in early fall.
“It’s basically taking the same labor hours and reallocating them in a much more effective, efficient way so we put our team members in the right places at the right moments during their shift. So, they’re prepping during downtimes, customer-facing during peak times …” Schulman said. “While this initiative is still in the very early stages, we believe it can drive quality and consistency, increase order accuracy, boost speed of service, and simplify prep and planning,” Schulman said.
Additionally, CAVA is testing a new labor model, with 75 restaurants expected to be online in the fall. The model reallocates hours based on peak time to ensure speed and a better experience. A company-wide rollout is expected in the beginning of 2025.
Finally, there remain gaps on the menu, which Schulman said presents a major opportunity as evidenced by the success of the steak launch. The culinary innovation team, he said, is working on a multiyear pipeline of products.
“We think there's still some gaps in the menu that we can address and certainly create greater value for our guests,” he said. “So, there's a number of ways we feel like over the long term can continue to drive value for the business.”
CAVA Q2 by the numbers
- 35.2% increase in revenue
- AUVs of $2.7 million
- Same-store sales growth of 14.4%, with traffic growth of 9.5%
- 18 net new restaurants, ending the quarter with 341 restaurants; a 22.2% increase year-over-year
- Adjusted EBITDA of $34.3 million, a $12.7 million increase over the second quarter of 2023
- Net income of $19.7 million
- $22.7 million in free cash flow during the quarter
Contact Alicia Kelso at [email protected]
