CAVA GROUP, INC. Q1 FY2025 earnings call

• Brand strength: Continued to cement Mediterranean as a major cultural cuisine category, sustained momentum despite broader uncertainty, with positive traffic and expanded reach. - First quarter highlights: 28.2% revenue increase, 10.8% same restaurant sales growth (7.5% traffic), 15 net new restaurants, adjusted EBITDA up 34.6%, net income up 83.7%, free cash flow $2.7 million, trailing 12-month revenue over $1 billion. - Strategic pillars: - Expand Mediterranean way: Entered Indiana, deepened presence in Florida, with upcoming new market entries in Detroit and Pittsburgh, aiming for at least 1,000 restaurants by 2032. - Project Soul: Creating in-restaurant experiences with natural light, softer seating, etc., recognized in Fast Company's World's 50 Most Innovative Companies. - Spice World campaign: Launched bold spicy offerings like Hot Harissa Pita Chips and new chef-curated bowls. - National Pita Day: Celebrated with complementary pita chips for CAVA Rewards members, driving increased reach and rewards redemption. - Loyalty program: Sales through the program up 340 basis points since relaunch, total membership approaching 8 million, planning tiered structure rollout later in 2025. - Operations: Rolled out new labor deployment and scheduling model, progressing with Connected Kitchen initiative including Kitchen Display System and AI video technology. - Team member development: CAVA Connect conference focused on developing leaders, with examples like Dani Morales' journey.

CAVA revenue in the first quarter of 2025 grew 28.2% year-over-year to $328.5 million. CAVA same restaurant sales increased 10.8%, driven by traffic growth of 7.5%. On a three-year stack basis, same restaurant sales increased 41.5%, driven by traffic growth of 24.7%. During the quarter, 15 net new CAVA restaurants were opened, bringing the total CAVA restaurant count to 382. Adjusted EBITDA for the quarter was $44.9 million, a 34.6% increase versus the first quarter of 2024. Net income was $25.7 million, an 83.7% increase over the first quarter of 2024. Free cash flow was $2.7 million. On a trailing 12-month basis, CAVA has surpassed $1 billion in revenue. CAVA restaurant level profit in the first quarter was $82.3 million or 25.1% of revenue versus $64.6 million or 25.2% of revenue in the first quarter of 2024, representing a 27.4% increase. Food, beverage and packaging costs were 29.3% of revenue, labor and related costs were 25.7% of revenue, occupancy and related expenses were 7.4% of revenue, other operating expenses were 12.5% of revenue, general and administrative expenses (excluding stock-based compensation) were 10.5% of revenue.

• Full year 2025 expects 64 to 68 net new CAVA restaurant openings. - CAVA same restaurant sales growth of 6% to 8%. - CAVA restaurant level profit margin between 24.8% and 25.2%. - Preopening costs between $14.5 million and $15.5 million. - Adjusted EBITDA, including the burden of preopening costs, between $152 million and $159 million. - Full year fiscal 2025 effective tax rate expected between 14% and 18%, with additional discrete-benefit from equity-based compensation in Q2 of approximately $1 million to $2 million. - Monitoring supply chain, including tariffs, with limited exposure and mitigation tactics in place.

• Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed, including macroeconomic uncertainty, potential impacts from tariffs and other supply chain issues, and policy changes.

Q: Sharon Zackfia from William Blair asked about the loyalty program's tiered structure and the driver of engagement since the relaunch.

A: Brett Schulman said the loyalty program moved to 'earn and bank points' to drive engagement, with 340 basis points of revenue growth from the program, and later in 2025, a tiered structure will be rolled out.

Q: Danilo Gargiulo from Bernstein asked about the impact of KDS on throughput and differences among stores.

A: Brett Schulman said KDS allows for increased productivity and order accuracy, and Tricia Tolivar said top decile stores have even demand distribution, bottom quartile have younger restaurants, and top quartile have high AUVs and margins.

Q: John Ivankoe from JPMorgan asked about local/regional supply growth and TAM.

A: Brett Schulman said consistent performance across the country, and traffic growth shows people choosing CAVA, with all regions having strong AUVs.

Q: Andy Barish from Jefferies asked about marketing innovation after Spice World.

A: Brett Schulman said a new protein tentpole moment is expected later in 2025.

Q: Allison Arfstrom from Piper Sandler asked about chicken shawarma testing.

A: Brett Schulman said chicken shawarma is testing well in Dallas and Florida, is a staple in the Levant region, and could be a complementary addition to the protein portfolio.

Q: Jeff Bernstein from Barclays asked about restaurant margin prioritization and expansion.

A: Tricia Tolivar said AUVs help margins, and reinvestment includes compensating team members and limited menu price increases.

Q: Chris O'Cull from Stifel asked about labor deployment model success.

A: Brett Schulman said productivity enhancements seen, with opportunity to refine labor deployments for better adherence.

Q: Sara Senatore from Bank of America asked about three-year stack comps and demand environment.

A: Tricia Tolivar said guidance reflects Q1 results, no consumer challenges seen, positive traffic across all geographies.

Q: David Tarantino from Baird asked about three-year stack comps and new markets.

A: Tricia Tolivar said guidance reflects Q1 results, new markets like Indiana and Miami performing well.