CAVA's Growth Wins Over Investors and Fuels Stock Surge

    The brand was valued as much as $5.3 billion on Thursday. 

    Preserved Lemon Vinaigrette.
    CAVA has more than 250 restaurants in the U.S.

    For years, CAVA customers have asked for an opportunity to invest, CFO Tricia Tolivar says. 

    Their wish was granted Thursday as the fast casual made its debut on the New York Stock Exchange. And the investment community wasn't bluffing about wanting to pump money into CAVA. 

    The Mediterranean chain revealed Wednesday that it priced its IPO at $22 per share, above its projected range of $19–$20. The restaurant sold 14.4 million shares, meaning it raised roughly $318 million. Based on more than 111 million outstanding shares, it was valued at $2.45 billion. The fast casual said in an SEC filing it will use net proceeds from the IPO to fund restaurant development and pay off debt. 

    After CAVA started trading, it reached as high as $47.89 per share on Thursday, putting its value at $5.3 billion. 

    "CAVA is a category-defining brand that is bringing Mediterranean to many more people across the country with proven portability and high unit economics and a lot of white space," Tolivar says. "So it's an exciting opportunity for us."

    The company earned $564.1 million in revenue in 2022, an increase from $500 million during the previous year. Same-store sales rose 14.2 percent last year and 23.6 percent against 2019, and AUV reached $2.4 million last year. Comp sales skyrocketed 28.4 percent in the first quarter, marking the brand's ninth straight quarter of positive growth. 

    READ MORE: CAVA Forges Ahead, the Disruptor it’s Always Been

    Digital mixed 35 percent in 2022, growth of 51 percent year-over-year. In 2019, CAVA introduced its digital drive-thru prototype, which typically achieves higher sales. The fast casual anticipates most openings in 2023 and beyond to have a drive-thru. Plus, The chain's roughly 3.7 million loyalty members—mixing 25 percent—increased 56 percent in Q1 year-over-year, with roughly 14,000 members per restaurant.

    "We want to be available to guests whenever, wherever, and however they want," Tolivar says. "So whether it's coming into our restaurants—65 percent of our sales are dine-in—or using third party delivery or white label delivery or the digital platform to come order and pick it up, we just want to be there so that we can adjust to whatever needs our guests may have. So there's not a specific target that we're shooting for. We just want to make it easy and accessible and convenient for the guests to interact with."

    Tolivar attributes CAVA's sales streak to a diverse guest base and daypart mix. Fifty-five percent of customers are female, and in terms of age, 28 percent are 25-34 years old, followed by 55 and older (23 percent), 35-44 (21 percent), 45-54 (19 percent), and 19-24 (9 percent). As for household income levels, $150,000-plus leads the way at 37 percent, followed by $100,000-$150,000 (22 percent), less than $50,000 (16 percent), $75,000-$100,000 (13 percent), and $50,000-$75,000 (12 percent).  

    Then with dayparts, lunch mixes 55 percent while dinner accounts for 45 percent. 

    "We’re just an intuitive choice," Tolivar says. "We roast, we grill, we braze. And it's our amazing cuisine. There are 38 ingredients delivering 17.4 billion combinations. We can meet all dietary tastes and preferences and really present a wonderful option where taste and health unite. So that coupled with the success in all different geographies, as well as a success in suburban and urban locations, drives to a very appealing choice for our guests where they want to keep coming back and drive traffic into our restaurants."

    "In addition, we've been thoughtful around pricing," she adds. "So our in-restaurant menu price increases last year were less than 5 percent."

    The brand had 263 U.S. restaurants as of April 16, a significant increase from 22 units in 2016. A majority of expansion came from CAVA's $300 million purchase of Zoes Kitchen in 2018. In the past five years, the fast casual has converted Zoes Kitchen locations into CAVA while also pursuing new unit expansion. Since that acquisition, the company has converted 145 Zoes Kitchen locations and opened 51 new CAVA units. 

    Tolivar says the Zoes Kitchen purchase helped CAVA extend its growth strategy, which involves moving across the country in the form of a smile—from California to Arizona, Texas, Oklahoma, and the Southeast, and then up to the Mid-Atlantic. CAVA also combatted COVID headwinds by acquiring equipment ahead of time and adding timeline buffers to address longer permitting and inspection times. Even with the chain's pipeline, the company ensures there's 20-30 percent more than it intends to open. This effort requires cross-department teamwork among real estate, design, construction, operations, and finance, Tolivar says. 

    In 2022 alone, the brand debuted a net of 73 restaurants, including 63 Zoes Kitchen conversions. The final Zoes Kitchen units will be converted before 2023 is over. 

    CAVA expects to reach 1,000 locations by 2032. 

    "We believe that we're well-positioned to do that," Tolivar says. "We've opened over 70 restaurants last year alone, and this year we're on track to open 60-70 restaurants. And over the past few years, we've built an incredibly robust real estate pipeline of locations that we will open as we move forward, as well as a pipeline of people that will be amazing general managers to help continue to deliver on our mission and also bring hospitality and amazing cuisine to our restaurants. So given that we've got these robust pipelines and a pattern of delivering and opening a significant number of restaurants each year, we have a high degree of confidence in our ability to deliver at a 15 percent growth rate annually in the future."

    Although CAVA has seen years of success, it hasn't made a profit yet. Net loss was $59 million in 2022, up from $37.4 million in 2021. Net loss was $132 million in 2020 and $186 million in 2021. However, there have been improvements as of late. In Q1, net loss was $2 million, better than $20 million in the year-ago period. 

    In response, Tolivar notes that CAVA's unit economics are "incredible." To her point, restaurant-level profit margin was 20.3 percent in the first quarter. 

    "Our restaurants are the oxygen of what drives the business," Tolivar says. "And so that coupled with investments we've made in our infrastructure ahead of our growth, making sure that we could grow successfully in the near term, as well as the long term, leads us to believe that we should see leverage over time as those investments have already been baked in and delivered on. And so as the restaurants themselves improve and we add more restaurants, it creates a great opportunity for us ahead."

    The fast casual has grown solely through company-owned growth. Tolivar says that given CAVA's high cash-on-cash returns, the brand intends to continue without franchising. The executive clarifies that the company will always evaluate all options, but a shift won't happen in the foreseeable future. When it comes to more acquisitions, Tolivar won't rule it out. But right now, the primary focus is growing organically. And the IPO will certainly help with that. 

    "[Going public] is just really helping us bring to more and more people across the country as we deliver on our mission to bring heart health and humanity to food," Tolivar says.