Q3 2024 Earnings Summary
- Strong traffic growth driving same-restaurant sales: CAVA reported a 12.9% increase in guest traffic during Q3, contributing to an 18.1% same-restaurant sales growth, indicating strong customer demand and enjoyment of CAVA offerings.
- New restaurants exceeding expectations with higher returns: New restaurant openings are performing very well and exceeding expectations, resulting in higher cash-on-cash returns even earlier than anticipated. This strong performance is consistent across all markets and supports expansion into the enormous white space ahead.
- Growing brand awareness across all demographics: Since the IPO, CAVA's brand awareness has increased by 8 percentage points, with growth consistent across all age groups and income levels, particularly among Gen Z and Gen Alpha customers, driven by effective marketing and social media engagement.
- Accelerated unit growth may increase execution risk: The company plans to increase net new restaurant unit growth to at least 17% in 2025, up from the prior guidance of 15% annual growth. This acceleration, especially into new markets, could strain resources and pose operational challenges.
- Rising labor costs may pressure margins: Labor and related costs were 25.4% of revenue, up 10 basis points from the prior year, reflecting team member wage investments of 8%, including impacts from legislation such as AB 1228. The company chose not to offset these costs with menu price increases, which could pressure margins and profitability.
- Potential slowing of same-restaurant sales growth: While same-restaurant sales increased by 18.1% in the quarter, the two-year stack shows consistent trends (33% in Q2 vs. 32% in Q3). As the company begins to lap strong performance, there may be challenges in sustaining this growth, especially if contributions from new menu items like steak are not significant. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased approximately 39% from $175.553M in Q3 2023 to $243.817M in Q3 2024 | Strong top‐line growth was driven by continued momentum from net new restaurant openings and improved same-restaurant sales, building on prior quarter gains seen in Q2. This expansion and favorable market response helped boost revenue from $175.553M to $243.817M. |
Restaurant Revenue | Dominated at $241.499M, representing roughly 99% of total revenue | Restaurant revenue led the overall performance as it nearly accounted for all of the company’s revenue, reflecting ongoing successes in operational execution and customer demand that were already apparent in previous periods. |
Operating Income (EBIT) | Surged 391% from $2.795M in Q3 2023 to $13.768M in Q3 2024 | Operating margins improved dramatically due to enhanced cost efficiencies, better sales leverage, and a more favorable expense structure, building on earlier improvements in Q2 where cost management and pricing actions began to bear fruit. |
Net Income | Jumped 162% from $6.833M in Q3 2023 to $17.966M in Q3 2024 | Net income surged as a result of higher same-restaurant sales, margin expansion, and streamlined operations (including the positive effects of converting former Zoes Kitchen units to CAVA) that continued to drive improved profitability relative to prior quarterly performance. |
EPS | Reversed from negative in Q3 2023 (–$0.08 basic, –$0.05 diluted) to $0.15 (diluted) in Q3 2024 | EPS turned positive because the significant net income boost, despite an increased share count from the IPO, outweighed dilution effects. The turnaround built on the operating improvements initiated in previous quarters. |
Net Change in Cash | Positive $23.412M in Q3 2024 | Improved liquidity was realized due to stronger operating cash flows and lower investing outlays compared to the IPO-driven financing boost seen in earlier quarters, marking a more stable cash generation environment relative to past performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net New Restaurant Openings | FY 2024 | 54 to 57 | 56 to 58 | raised |
Same-Restaurant Sales Growth | FY 2024 | 8.5% to 9.5% | 12% to 13% | raised |
Restaurant-Level Profit Margin | FY 2024 | 24.2% to 24.7% | 24.5% to 25% | raised |
Preopening Costs | FY 2024 | $12 million to $13 million | $12 million to $13 million | no change |
Adjusted EBITDA | FY 2024 | $109 million to $114 million | $121 million to $126 million | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Same-restaurant Sales Growth | Q1 reported modest gains (2.3% with adjustments ); Q2 noted strong growth (14.4% with improved guest traffic ); Q4 delivered solid performance at 11.4% (though with cautious outlook ) | Q3 achieved 18.1% growth driven by higher traffic (12.9%) and mix improvements, with uncertainties removed from guidance | Recurring with robust improvement in both performance and sentiment |
New Restaurant Openings | Q1 highlighted strong new openings (14 net new restaurants with strong productivity ); Q2 emphasized strong performance with cautious management of accelerated growth ; Q4 showed excellent unit performance with a diversified geographic pipeline | Q3 reiterated strong new restaurant openings with plans to grow net new restaurants by at least 17% in 2025, while acknowledging emerging execution risks | Recurring focus with evolving execution risk management and increased growth targets |
Rising Labor Costs | Q1 noted increased labor costs (26% of revenue with proactive wage investments ); Q2 discussed rising labor costs (25.2% of revenue with labor model optimization ); Q4 revealed further cost pressures (27.8% of revenue, with measures to gain productivity ) | Q3 reported labor costs at 25.4% of revenue, introduced a new labor scheduling model to reallocate hours more effectively, and continued strategic investments | Recurring challenge that is progressively mitigated through operational refinements |
Menu Innovation & New Product Launches (Steak) | Q1 introduced the steak rollout as a new offering expected to drive dinner sales ; Q2 celebrated the success of the steak launch (driving traffic and mix improvements) despite caution on sustainability ; Q4 planned an upcoming system-wide steak launch based on successful tests | Q3 continued to leverage menu innovation with the national rollout of steak—boosting product mix by 5.2% but also raising food, beverage, and packaging costs—while questioning its long-term sustainability | Recurring focus with evolving cost considerations and sustainability concerns |
National Loyalty Program | Q1 mentioned the transition to a bankable points model with initial tests in select markets ; Q2 outlined a national rollout scheduled for October 2024 with promising pilot results ; Q4 highlighted transitioning all loyalty members and testing new rewards in regional markets | Q3 unveiled the reimagined loyalty program featuring an "earn and bank" model with a diversified rewards catalog, showing over 200 basis point growth in loyalty sales as a percentage of revenue | Consistent rollout with positive evolution and deeper guest engagement |
Brand Awareness (Gen Z & Gen Alpha) | Q2 emphasized efforts to grow brand awareness among Gen Z through social media and innovative campaigns ; Q1 and Q4 did not mention this topic | Q3 highlighted strong growth in brand awareness among both Gen Z and Gen Alpha driven by social channels and targeted marketing efforts | Emerging emphasis in recent periods, marking a new focus on younger demographics |
Operational Efficiency Initiatives (Connected Kitchen) | Q1 discussed the early stages of Connected Kitchen along with labor deployment tests to improve service and efficiency ; Q2 provided detailed updates on the multiyear Connected Kitchen initiative and related labor model optimizations ; Q4 reiterated its role as a long‐term, data-driven journey | Q3 did not provide any commentary on these initiatives | Recurring in earlier periods but now receiving diminished emphasis in current commentary |
Real Estate & Location Challenges | Q1 addressed urban versus suburban dynamics and discussed drive-through performance and strategic site selection ; Q2 and Q4 discussed having a robust, balanced real estate pipeline with buffers for development delays | Q3 did not mention any details about real estate challenges or drive-through competition | Recurring topics in earlier periods that have now diminished in focus |
Macroeconomic & Political Uncertainty | Q4 mentioned ongoing geopolitical and macroeconomic uncertainty impacting cost structures ; Q2 factored in election and macro uncertainties into cautious guidance ; Q1 did not discuss this topic explicitly | Q3 removed prior uncertainties from guidance due to the strength and clarity of business performance | Recurring headwind that has recently receded due to improved sentiment and performance |
Food Cost Inflation | Q4 highlighted food cost inflation concerns in areas like chicken, olives, and olive oil, with anticipated increases due to external factors ; Q1 noted only modest pressures with expectations for neutrality, and Q2 did not anticipate significant cost changes aside from the steak impact | Q3 mentioned that food, beverage, and packaging costs increased by 50 basis points (to 29.9% of revenue) due to the steak launch, without broader inflation concerns | Previously a prominent concern that is now less emphasized outside of specific product impacts |
Leadership & Organizational Development | Q1 detailed new leadership hires (e.g. Chief Development Officer) and emphasized investing in team growth ; Q2 discussed leadership development challenges and investments in the Academy GM network (62 certified GMs) ; Q4 noted positive internal promotions and strong organizational metrics | Q3 did not mention leadership or organizational development challenges | A recurring focus in earlier periods that is not highlighted in the current period |
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Unit Growth Outlook
Q: Will unit growth exceed prior guidance?
A: The company anticipates at least 17% unit growth in 2025, up from the previously discussed 15%, driven by a strong pipeline and confidence in new markets. They aim to balance growth between new and existing markets without overstraining the system, ensuring they have the right general managers to support expansion. -
Restaurant Margin Outlook
Q: How do you view restaurant margins long term?
A: With restaurant-level margins at 25%, they see outstanding performance and recognize leverage as average unit volumes increase. They plan to continue investing in team members and guests to drive long-term value, being mindful not to overearn in the short term. -
Returns on New Units
Q: Any changes in returns on new stores?
A: New restaurants are exceeding expectations, leading to higher cash-on-cash returns earlier than anticipated. Costs to build are well-managed, and strong sales and margins are consistent across new markets, providing momentum for expansion into the significant white space ahead. -
Same-Store Sales Drivers
Q: How will you maintain comp growth next year?
A: They plan to have one or two major promotional events and seasonal offerings to keep excitement while simplifying operations. Key drivers include enhancing their new loyalty program, which launched as the first phase of a multiphase plan, and expanding menu innovations like steak and Garlic Ranch pita chips to attract and retain customers. -
Impact of Loyalty Program
Q: What's the impact of the loyalty program?
A: Loyalty sales increased by 200 basis points this quarter as a percentage of revenue. While it's early to measure frequency impacts, they anticipate benefits and are encouraged by initial results, planning to monitor and update progress. -
New Labor Model Impact
Q: How does the new labor model affect sales?
A: By redeploying existing labor hours to peak times and clarifying roles, they saw a modest sales increase and improved guest experience in lower-volume restaurants during the pilot. Though affecting a small portion of stores, they're optimistic it can help drive average weekly sales moving into 2025 by enhancing speed and service. -
New Market Entry Strategy
Q: How are you approaching new market entries?
A: Maintaining a balanced pipeline, they allocate 10-20% of growth to established markets, 20-30% to new (greenfield) markets, and the rest to emerging markets. Success in new restaurants allows them to lean more into greenfield markets like South Florida, using effective, cost-efficient marketing like community days and social media without significant incremental spend. -
Brand Awareness Growth
Q: Where is brand awareness increasing most?
A: Brand awareness has risen by 8 points since the IPO, growing consistently across all age groups and income levels. Notably, there's strong growth among Gen Z and Gen Alpha, driven by social media efforts that connect with younger customer segments. -
Steak's Contribution and Menu Innovation
Q: How did steak impact comps, and future menu plans?
A: Steak contributed modestly to the 12.9% traffic growth, influencing mix with its premium pricing. Looking ahead, they have a multi-year pipeline for menu innovation across all categories, including new flavors like Garlic Ranch pita chips, beverages, and desserts, aiming to excite guests while keeping operations simple. -
Comps Details and AUVs
Q: Any outsized growth in dayparts or AUVs?
A: They observe strength across all vintages, geographies, and income cohorts, with a good balance between lunch and dinner; dinner is increasing modestly but not driving comps disproportionately. New units are performing above expectations, but specific AUV numbers are not disclosed.