Q1 2024 Earnings Summary
- New restaurant openings are exceeding expectations in both top line and margin performance, indicating strong unit economics and potential for profitable growth. Tricia Tolivar stated that "we are pleased with our new restaurant openings, which are exceeding expectations in both top line and margin performance." During the Q&A, she reiterated that new units are performing very well and that this strong performance could influence future growth strategies.
- Increased guidance for same-restaurant sales growth to 4.5% to 6.5% for full year 2024, reflecting confidence in continued sales momentum. This includes expectations of mid- to high single-digit same-restaurant sales growth for the remainder of the year, driven by traffic and mix, with no additional price increases planned. Tricia mentioned, "the rest of that mid- to high single digits expectation... is a combination of traffic and mix."
- Successful introduction of new menu offerings, particularly the upcoming grilled steak launch, expected to drive sales and enhance dinner offerings. Brett Schulman highlighted that the steak launch is anticipated to provide a tailwind to comp sales while delivering consistent penny profit. The steak has been testing well in markets and is expected to strengthen the dinner day part, which currently makes up approximately 46% of sales.
- CAVA's urban locations are facing challenges due to the slow return to office, resulting in lower sales in these markets. CEO Brett Schulman stated, "We are getting a larger piece of a smaller historical pie as it relates to pre-COVID with return to office still creeping back pretty slowly."
- Competition for real estate is limiting the expansion of drive-through units, which may constrain future growth opportunities. CFO Tricia Tolivar mentioned, "We don't want to get into bidding wars or get into competing with others that have higher opportunities for underwriting, so the likes of Chick-fil-A or Raising Cane's when you're looking at those locations."
- Increasing investments in labor and physical spaces are pressuring margins. Tricia Tolivar noted, "We're continuing to invest in the integrity of our physical spaces, and we see an opportunity to continue to do that for the rest of the year... We are seeing a little bit of pressure in the chicken space... that may have a very modest impact overall on COGS for a short period of time."
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Guidance Update & Steak Impact
Q: Are you seeing stronger trends than expected and what's the steak's contribution?
A: Management has raised full-year same-restaurant sales guidance to mid-single-digit to high single-digit growth, with the low end 200 basis points higher than Q1 results. Strength is seen across all income cohorts, including lower-income consumers. The steak rollout is included in the guidance but is not a significant component of the overall increase. -
New Unit Productivity & Chicago Success
Q: Are new units exceeding expectations, and how does Chicago inform future growth?
A: New units are performing very well, though the $2.3 million AUV target for year two remains unchanged. Management is monitoring performance to determine if adjustments are needed. The Chicago market has been phenomenal, indicating strong potential in greenfield markets, which may influence future expansion plans. -
Competitive Landscape & Drive-Throughs
Q: How is competition affecting urban markets, and what's the outlook for drive-through units?
A: In urban markets, CAVA is capturing a larger share of a smaller pre-COVID market due to slow return-to-office trends. They focus on suburban expansion (90% of pipeline) but will seize urban opportunities where viable. They have 38 pickup lanes open, showing 10-15% higher AUVs and slightly higher margins. More will be added opportunistically without aggressive bidding. -
Labor Investments & California Wages
Q: What's the impact of wage investments, especially in California?
A: Average wages increased by 8% year-over-year. No price increases were made in California after wage hikes, as prior investments minimized impact. The company emphasizes investing in team members to drive long-term value, with no significant wage changes planned for the rest of the year. -
Store Margins & Food Costs
Q: Are food cost trends affecting margins?
A: No significant COGS inflation is expected, but steak pricing targets penny profit neutrality, causing slight margin headwinds. There's modest pressure on chicken costs due to strong demand and lower production. Other operating expenses are slightly higher due to investments in physical spaces. The geographic shift towards the Sunbelt reduces weather-related margin impacts. -
Throughput Improvements & Labor Deployment
Q: How is labor deployment improving throughput and guest experience?
A: A labor deployment initiative in 29 restaurants reallocates hours more effectively without increasing net hours or costs. This enhances guest experience and speed of service, with plans to expand to another 30 restaurants. A connected kitchen pilot in four restaurants is starting to further streamline operations. -
Top-Line Trends & Traffic Drivers
Q: If traffic slows, what actions will you take, and what's driving comps?
A: Rather than discounting, management focuses on delivering high-quality food, service, and value. They benefit from consumers trading down from full-service dining and trading up from traditional fast food. For 2024, less than 3% price increase was taken, with no further increases planned; comps will be driven by traffic and mix. -
Catering Expansion
Q: Can you update on the catering business expansion?
A: The catering test is progressing well, exploring capacity and equipment needs. They've catered for major sports teams and see strong fit in the catering channel. While no national rollout date is set, they're preparing to ensure operational readiness. -
Conversions vs. New Units Performance
Q: How are converted units performing compared to new ones?
A: Converted units are performing consistently with new (de novo) units, with similar sales ramps. Slightly lower initial AUVs were due to simultaneous market entries. All conversions are complete, with some entering the same-restaurant sales base in Q1.