CAVA CEO Brett Schulman is trying to keep things in perspective. The Mediterranean fast casual went public in June and pulsed the market, selling 14.4 million shares, raising $318 million, and getting to a value of $2.45 billion. The results sailed projections and rocketed shares near $50. CAVA’s first report since its IPO, a Q2 recap announced Tuesday, isn’t likely to quell the buzz.
CAVA topped consensus revenue expectations (per William Blair) by about $10 million to $171.1 million—62.4 percent better than its year-ago measure of $105.3 million—and bested adjusted EBITDA projections by north of 40 percent to $21.6 million versus $5.9 million last year. The chain’s restaurant sales rose 62 percent, year-over-year, as same-store sales climbed 18.2 percent, inclusive of 10.3 percent traffic and 7.9 percent price/mix, a number that not only benefited from price, but enjoyed increased attach of premium items—a sign recent menu innovation, like spicy falafel and fiery broccoli, resonated with diners.
Restaurant-level margin increased 400 basis points to 26.1 percent (also beating William Blair’s estimate of 23 percent). CAVA’s net income of $6.5 million favorably compared to a net loss of $8.2 million in Q2 2022. Digital revenue mix came in at 36.1 percent as well.
CAVA exited the quarter with average-unit volumes of $2.6 million, up from $2.4 million. The company, giving a glance of what could be in store with new-market growth, said every geography in its 279-unit system sits above $2.2 million today.
“As we look at our performance across vintages, across geographies, across formats, whether it’s suburban or urban, we’re seeing consistent strong trends in all of those environments,” Schulman said. “So, can’t really find any one area that’s driving the overall performance for us. And so, we’re very pleased with what we’re seeing, and really demonstrates our proven portability, the powerful unit economics that we have, and the opportunity to really expand on the whitespace as we move forward.”
CAVA opened a net of 16 stores in the quarter. Six of those were conversions of Zoës Kitchen and 10 were new openings. In Q3, CAVA has two remaining conversions, but the rest will be fresh debuts. The overall store count is a 43.1 percent increase year-over-year.
CAVA guided 65–70 net openings this calendar and at least 15 percent unit growth in 2024 and 2025, including entering Chicago for the first time. Traditionally, CAVA aims to open three to five units within a 12-month period when it crashes new territory. So the Windy City debut isn’t likely to be a one-off.
But to put it all plainly, CAVA is off to a busy start. Schulman has grown used to the whirlwind in recent years. The brand—then known as Cava Mezze—began in 2006 as a 1,700-square-foot, full-service Mediterranean restaurant in Rockville, Maryland. Ike Grigoropoulos, Chef Dimitri Moshovitis, and Ted Xenohristos joined Schulman four years later to open CAVA as a fast-casual, assembly line brand. The company entered into a deal to acquire Zoës Kitchen for $300 million in August 2018, thanks, in part, to an equity investment led by Act III Holdings, the vehicle created by Ron Shaich, founder, chairman, and former CEO of Panera Bread.
In a lot of ways, this explosive vision has brewed for some time, and it’s not confined to the present. Schulman told investors Tuesday in his first earnings call that going public, while a milestone, “was not the destination, but the beginning of the next chapter of our journey.” The same was true of Q2’s performance.
One of the reasons CAVA has resonated on the open market owes to that long-term view. CAVA continues to invest like it’s already at 1,000 units. In the spring, CAVA reskinned its app and created an updated brand look and feel that tries to mirror the in-store experience. The app has a warmer, brighter front door and increased functionality that includes the ability to reorder and save favorites. CAVA improved cart and payment functionality and sped up performance, too.
A fresh, unified ecommerce site launched at the end of last year and touts dynamic content management, which Schulman said drives increased conversion and per-person average. Whether starting an order there or checking out via the app, customers’ order state is consistent across either channel with CAVA’s new cart parity feature. The fast casual also completed its microservices initiative, migrating to a platform that supports innovation and scalability. But the key theme overall is the entire suite was designed white label and with the flexibility to scale.
“We believe it’s an in-house digital platform few restaurants our size, much less many larger brands, have,” Schulman said.
CAVA also provided a peek into some of its labor plans as it works to support that lofty pipeline. It has a 2023 target to internally place 75 percent of its GMs, Schulman said. In support, CAVA created what it calls the “Academy GM Network.” These employees are certified to develop and train new GMs and lead training restaurants.
By year’s end, Schulman predicted, CAVA will have at least one Academy GM in each of its “gardens,” or groups of eight restaurants. “The Academy GM Network not only serves as a farm system for new restaurant GMs and future leaders but also supports our work to minimize pre-opening costs by creating training hubs in growth markets,” he said.
There are presently 39 Academy GMs in CAVA’s labor pool, including seven who were recently promoted to the multi-unit leader position. It plans to add 50 by the end of 2023, which will empower localized training for new restaurants in existing markets, Schulman explained.
One he pointed out, Dickson Valdez, began with the company as a 17-year-old roughly six years ago. He progressed from crew to guest experience manager to GM and training to GM. He got certified as an Academy GM and then was promoted to multi-unit leader “proving that, at CAVA, you can build a career, not just have a job,” Schulman said.
The brand has a proprietary, internally developed operations scorecard currently in test as well that gives restaurant leaders operational and financial metrics in a single pane, allowing for real-time, actionable data. In Q2, CAVA launched an improved real estate platform with richer analytics and anonymized mobile data that informs psychographic segmentation and impact studies. The end result is significantly reduced time for real estate managers to put together site analysis packages.
More broadly, though, infrastructure is anchoring CAVA’s ambitions. Namely, its vertically integration production capabilities. Construction of the chain’s food production facility in Verona, Virginia, is underway and should turn on in Q1 2024. The steel framing is up and the exterior envelope nearly finished.
This facility, alongside CAVA’s current 30,000-square-foot operation in Laurel, Maryland, will be able to support at least 750 locations as well as the chain’s CPG arm. “This integrated approach centralizes the production of our dips and spreads, reduces operational complexity in our restaurants, and supports consistent superior product quality,” Schulman said.
Important to note: CAVA had zero debt outstanding at the end of Q2, $352.8 million in cash on hand, and access to a $75 million undrawn revolver with an option to increase liquidity if needed. Also, it has access to a delayed-draw term loan facility with $24 million available to support the construction of the Verona facility.
Getting back to some of the guest engagement levers, CAVA revealed it’s in the early stages of relaunching its loyalty program, which will create a framework to further drive traffic, mix, and check as it grows, Schulman added. The target launch is late 2024. Behind the scenes, CAVA developed foundational customer segmentation capabilities focused on personalization.
Pilots are planned for late 2023 and geared toward encouraging deeper connections with guests and inspiring “relevant experiences that add value for both [customers] and our business,” Schulman said.
CAVA touched on catering as well, which remains in the test stage. “Many businesses, as well as collegiate and professional athletic teams, have embraced our catered products, and we believe catering can be a compelling growth opportunity,” Schulman said. “We continue to test format variations to understand how to maximize production, seizing the catering opportunity without detracting from existing channels.”
There are 10 open digital kitchens that support centralized catering hub production for CAVA as well as digital order pickup. There are also five hybrid kitchens that offer traditional in-store dining alongside digital pickup, but with expanded kitchens to fuel catering. Additionally, CAVA is testing catering in a regular restaurant format where in-restaurant and digital pickup volumes can accommodate production.
Asset evolution, in general, continues to adjust for CAVA. There are more than 20 digital pickup lanes in the fleet today. AUVs at those stores are typically 10–15 percent higher. CFO Tricia Tolivar said she anticipates drive-thrus will represent a larger portion of the portfolio going forward.
Tolivar shared CAVA’s robust Q2 traffic defied an expected consumer slowdown. She credited the “resilience of our guests” and a likely boost from the IPO. Traffic trends have remained positive into Q3, although CAVA started to see a slight shift in delivery to pickup and moderating comps growth as it laps a 3 percent or so price increase from June 2022. CAVA said it doesn’t plan to take any additional price for the remainder of the year. The brand is testing steak, too.
Like Schulman, Tolivar said CAVA’s current growth is more a harbinger of the future than a notch on its frantic timeline. “We continue to see the opportunity to reinvest in the business, reinvest in our people, and build the pipeline of leaders for us to continue on this growth as we move forward into the future,” she said. “Our focus is on the long term and what we can do to remain the category-defining brand, really execute on our proven portability and the powerful unit economics, and really leverage that massive whitespace opportunity.”
