CAVA once again bucked industry-wide trends in the third quarter, turning in a same-store sales increase of 18.1% driven largely by a 12.9% increase in traffic.
Further, average unit volumes 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 earnings call Tuesday after market, chief executive officer Brett Schulman said a “confluence of factors are coming together to fuel 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 be America’s next major culinary category and is “meeting the moment.” Indeed, 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 consumers’ desire for such hospitality.
“Over the last two decades, as the world interacts more often with screens than people, we’ve lost 24 hours a month in personal connection. As technology and automation infiltrate everyday life and the front lines of more concepts, consumer touchpoints are becoming increasingly transactional, removing the joy in humanity from the experience,” he said, adding that CAVA is deploying technology to “create warm, personal moments and support team members in connecting 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 are hungry for. This is core to our brand essence,” he said.
CAVA is leveraging its reimaged loyalty rewards program to translate that hospitality digitally. The program features an earn and bank points model with several redemption options. Since its launch, loyalty percentage of sales has grown more than 200 basis points, executives said.
“This initial phase of a multi-phase approach will grow our fist-party data and share our hospitality across platforms in a way that resonates with guests on a personal level,” Schulman said.
Aside from aspiring to create more human connection, CAVA also benefited during the quarter from menu launches, including its first-ever variation on its signature pia chips with a Garlic Ranch flavor, as well as a continued tailwind from its steak launch last quarter. Schulman said this new menu news has helped drive brand awareness by 8% since its initial public offering last year.
Additionally, CAVA added 11 new restaurants during the quarter, bringing the system total to 352, and is targeting 17%-unit growth for 2025, including entry into South Florida and “at least two additional new markets.” Executives said the 2024 restaurant class is the company’s strongest yet and is outperforming expectations.
“Our new restaurants are opening very strong, so that’s resulting in higher cash-on-cash returns even earlier than we anticipated,” chief financial officer Tricia Tolivar said. “We’re seeing really strong results both on the sales line as well as overall restaurant level margin in those new locations and it’s been consistent. It gives us real momentum as we expand into that enormous white space we have ahead of us.”
In addition to that white space, CAVA executives are bullish on the near term for other reasons as well. Last week, for instance, the chain rolled out a new labor scheduling and deployment model ahead of schedule. The system, Schulman said, puts the right employees in the right places during peak times.
“The new model reallocates ideal forecasted 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 experienced a “modest increase” in sales and improvement in guest scores.
“That’s where we think we have an opportunity,” she said. “We’re really excited to see it improve speed and service.”
CAVA also continues to progress on its multi-year Connected Kitchen initiative, a generative artificial intelligence solution that monitors ingredient usage on the line to alert employees in real time for prep and cook batch amounts. The pilot is complete, and the technology is now live in four restaurants. Further, new kitchen display systems are now in test in 25 locations and are expected to improve productivity and accuracy.
Schulman added that the continued evolution of CAVA’s loyalty program is expected to be a comp driver in the next year, as will additional menu innovations. He said the culinary team is building a multi-year pipeline across categories, from “the bases, the grains, the beans, the toppings, as well as in attachments. Beverages and desserts are also in focus, as are pita chip flavor extensions.
Perhaps the biggest reason for executives’ near-term optimism, however, comes from CAVA’s broad-based appeal. As the chain continues to grow, Schulman said its traffic is coming from all age and income demographics – though it skews toward younger cohorts because of its strong social media presence. Tolivar added that the chain is performing consistently across geographies and dayparts as well.
“We’re really finding strengths across the board,” she said.
CAVA Q3 by the numbers
- Revenue grew by 39% to $241.5 million
- Same-store sales grew by 18.1% driven by a 12.9% increase in traffic and a 5.2% increase in price and product mix
- Restaurant-level profit margin improved 50 basis points to 25.6% of sales. The increase was due to leverage from higher sales, partially offset by incremental wage investments and input costs associated with the launch of grilled steak
- Adjusted EBITDA was $33.5 million and came in at 13.7% of revenue
- Net income of $18 million during the quarter after reporting $6.8 million in operating income a year ago
Contact Alicia Kelso at [email protected]
