CAVA Group, Inc. (CAVA) Earnings

Management highlights

- Overall Business Positioning * CAVA solidified its position as the clear leader in the U.S. Mediterranean cuisine category, sustaining strong momentum amid broader macroeconomic and geopolitical uncertainty, with 6.8% positive traffic growth and ongoing market share gains in significant untapped white space. * The company maintained its long-term strategic focus, avoiding widespread discounting that many peers adopted in response to short-term pressures. It implemented a ~1.4% price increase in January 2026 while holding base and pita pricing flat, with cumulative price increases representing only slightly more than half of cumulative CPI since the end of 2019, reinforcing guest trust. * The business follows four core strategic pillars: expand geographic reach, deepen personal guest relationships, run great restaurants consistently across all locations and shifts, and operate as a high-performing team. - Geographic Expansion * Opened 20 net new restaurants in Q1 2026, ending the quarter with 459 locations across 29 states and D.C. Recent new market entries include Cincinnati, St. Louis, and Columbus, with planned entry into Minneapolis later in 2026 to expand Midwest presence. * The 2026 new restaurant cohort is tracking in line with or ahead of the strong 2025 cohort, with new restaurant productivity trending above 100%, exceeding expectations for both top line and margin performance. - Culinary Innovation * Brought back fan-favorite seasonal roasted white sweet potato, which drove increased visit frequency among returning guests and attracted new guests to the brand. * Launched the company's first permanent-style seafood offering, pomegranate glazed salmon, across all U.S. locations, a natural extension of the Mediterranean menu that increases guest choice. Early performance has been promising, meeting pre-launch expectations. * Roasted garlic shrimp is in the final market test stage of the company's rigorous stage gate process, ahead of a potential national launch. The company maintains a disciplined innovation pace: one major annual tentpole launch plus a small number of seasonal offerings to balance guest excitement and avoid operational complexity. - Digital and Guest Engagement * Leveraged the loyalty program and first-party audience for high-engagement digital experiences, including the in-app Flavor Bracket game and partnerships with WNBA and NCAA sports personalities tied to March Madness, which became one of the company's most engaged digital initiatives to date. Digital sales mix reached nearly 40% in Q1 2026, up from 36% in prior years, with growth across both third-party delivery and first-party digital channels. - Technology and Data Transformation * Achieved key milestones in the multi-year data and technology transformation: launched CAVA Core, a unified modern data platform that provides a scalable foundation for data management and future AI capabilities. Also launched the early version of HavaCurrent, an edge-enabled real-time modular commerce platform that is already processing orders across restaurants, driving more consistent execution and improved visibility. Together, these platforms enable personalized guest experiences, predictive operations for demand forecasting, staffing, and preparation, and build internal control, flexibility, and scalable efficiency. - Talent and Operational Excellence * Expanded the Flavor Your Future talent development initiative, rolling out a new assistant general manager (AGM) position to build a deeper pipeline of role-ready leaders to support growth. Early results are promising: restaurants with AGMs outperform those without, as AGMs add leadership support during peak shifts, strengthen operations, and build sustainable teams. Newly hired COO Doug Thompson has three core priorities for 2026: people development to build leadership pipelines, new restaurant opening excellence to protect guest experience, and elevating consistent warm hospitality across all locations and shifts. - Liquidity Position * Ended Q1 2026 with zero debt outstanding, $403 million in cash and investments, and access to a $150 million revolving credit facility with option to increase liquidity if needed.

Guidance

- CAVA raised its full year 2026 guidance compared to prior estimates: * Net new restaurant openings: revised upward to 75 to 77 openings * Same restaurant sales growth: revised upward to 4.5% to 6.5% (the update reflects strong Q1 performance and Q2 trends tracking above the revised guidance range, but incorporates a moderate mid-single-digit assumption for the balance of the year to account for macroeconomic uncertainty) * Restaurant-level profit margin: guided to 23.7% to 24.3% (the top end of the range was increased 10 bps, but incorporates a 20 to 40 bps headwind from potential elevated energy costs due to ongoing geopolitical uncertainty, plus a ~100 bps headwind from the national salmon launch that will impact the full year, as well as planned further team member wage investments) * Pre-opening costs: guided to $22 million to $22.5 million (increased to reflect earlier onboarding and more comprehensive training for new general managers to improve opening readiness) * Adjusted EBITDA (including pre-opening cost burden): guided to $181 million to $191 million - Full year 2026 general and administrative expenses as a percentage of revenue are expected to remain relatively flat year-over-year, consistent with prior guidance, as the company continues targeted long-term growth investments. - Full year 2026 equity-based compensation is expected to be between $22 million and $24 million, unchanged from prior outlooks. - Full year 2026 effective tax rate is expected to be between 23% and 28%, up from 2025 due to a lower permanent benefit from equity-based compensation.

Segment performance

CAVA operates a single restaurant segment for its Mediterranean fast-casual dining business. In Q1 2026: Total revenue grew 32.2% year-over-year to $434.4 million, with same restaurant sales up 9.7% (driven by 6.8% traffic growth). Total restaurant count reached 459 after 20 net new openings, growing 20.2% year-over-year. System-wide average unit volume is $3 million. Restaurant-level profit was $108.9 million, 25.1% of revenue (flat margin year-over-year, representing a 32.3% increase in absolute profit). Food, beverage, and packaging costs were 29.1% of revenue, down 20 bps year-over-year, driven by favorable mix. Labor and related costs were 25.7% of revenue, flat year-over-year (sales leverage offset a 2% team member wage investment including AGM role expansion). Occupancy and related expenses were 6.9% of revenue, down 50 bps year-over-year due to sales leverage. Other operating expenses were 13.3% of revenue, up 80 bps year-over-year, primarily driven by a higher mix of third-party delivery. General and administrative expenses (excluding equity-based compensation and executive transition costs) were 9.9% of revenue, down 60 bps year-over-year from sales leverage. Pre-opening expenses were $6.2 million, up $1.7 million year-over-year driven by more units under construction. Adjusted EBITDA was $61.7 million, up 37.6% year-over-year. Net income was $23.6 million, and free cash flow was $15.5 million. Operating cash flow was $64.1 million, up from $38.6 million in Q1 2025.

Risks & headwinds

- Broader macroeconomic uncertainty and geopolitical instability could lead to weaker than expected consumer spending, and has already created upward pressure on energy costs, fuel surcharges, and packaging input costs (specifically polyethylene) that could pressure margins for the remainder of 2026. - The national launch of pomegranate salmon is expected to create a ~100 bps headwind to restaurant-level margins for the full year 2026. - The pace of long-term unit growth is constrained by the availability of role-ready trained leadership to open and operate new locations successfully. - Expanding the catering day part requires successful resolution of capacity management and load balancing challenges in existing restaurants, which is still in market testing, creating uncertainty around the timing and scale of this potential revenue stream. - Any accelerated innovation that increases operational complexity could negatively impact consistent execution and guest experience across locations.

Analyst Q&A

• Q: The strong new store productivity is impressive. Is there any correlation between high productivity new stores and honeymoon period sales trends as they enter the comp base? Also, will salmon remain on the menu through the end of the year?

  A: 2026 new stores are exceeding expectations with $3 million AUVs and 100%+ productivity across all geographies and format types, with no market underperforming. As the 2025 cohort enters the 2026 comp base, they are outperforming expectations, continuing positive momentum after 18 months, and performing similarly to the 2024 cohort with no meaningful difference in trend. Salmon launched in Q2 and is expected to run through Q2 and Q3, with the full year guidance also reflecting its impact in Q4.

• Q: You raised same-store sales guidance but only made a small adjustment to restaurant-level margin guidance. What factors are offsetting the benefit of higher revenue, and what drove the upside surprise in other operating expenses this quarter?

  A: The margin guidance already incorporates the headwind from salmon, though salmon is priced to be dollar profit neutral. It also includes a 20-40 bps headwind for elevated energy costs and related input cost impacts that are expected to grow through the second half of the year, plus small additional wage investments for team members. The top end of the margin range was actually raised 10 bps to reflect the benefit of higher sales. The increase in other operating expenses this quarter is primarily driven by higher third-party delivery mix; digital channels are structured to be profit neutral, so this is mostly an optics impact on the line item, and a few immaterial one-time items also contributed.

• Q: What factors drove the stronger than expected same-store sales acceleration in Q1 2026, which outperformed most peer restaurant brands?

  A: The acceleration is driven by a combination of factors rather than one single driver. CAVA's core value proposition of fresh, healthy Mediterranean cuisine aligned with modern consumer desires, paired with consistent warm hospitality and strong long-term value from below-inflation pricing, all contributed. The return of the fan-favorite roasted white sweet potato also drove higher frequency and new guest acquisition. Strength was broad-based across all regions, all restaurant vintages, and all income cohorts, with lower-income cohorts outperforming in the current K-shaped economic environment.

• Q: What have early results for salmon been so far, and will it become a permanent menu offering? Have you had issues with consistent product quality across the store base?

  A: Early salmon performance is exactly in line with expectations from prior market tests. The team completed a rigorous multi-stage testing process to ensure a delicate protein like salmon could be executed consistently at a high level across all stores, and execution across the fleet has met expectations. While management expects salmon to run through at least Q4 2026, the company has not yet committed to making it a permanent everyday offering.

• Q: What is the highest and best use of CAVA's strong balance sheet cash, and will you pursue acquisitions to accelerate unit growth?

  A: The highest and best use of cash right now is organic investment in new restaurant openings, as the primary constraint on faster growth is the pipeline of trained leadership, not capital. The company will keep an open mind to opportunistic asset deals that augment its real estate pipeline, but management finds that organic development of new locations is typically a more efficient capital deployment that is less distracting to the business. The strong balance sheet provides meaningful flexibility and optionality for future investments.