Financing

Cava drives double-digit comps with the help of a 7.6% increase in traffic

The honeymoon continues for the newly public fast-casual Mediterranean chain, but officials say there are challenges ahead.
Cava restaurant exterior
Cava's same store sales were up 14.1% for the third quarter. |Photo: Shutterstock

Cava Group Inc.’s honeymoon period as a newly minted public company continued in the third quarter with same-store sales up 14.1%, driven by a 7.6% increase in traffic.

Revenues increased nearly 50% to $173.8 million for the Oct. 1-ended quarter with 11 new units opening for a total of 290. The chain’s average unit volume ticked up to $2.6 million from the previous $2.4 million.

In fact, the Washington, D.C.-based company upped its guidance for the year, saying it expects comparable sales of 15%-16%, rather than the 13%-15% that had been projected, and 70 to 73 net new openings. Restaurant-level margins are expected to hit at least 24% for the year, up from the 23% expected earlier.

But company officials warned that investors should not expect these stellar results to be the new normal for the fast-casual chain, which held its initial public offering in June.

There are challenges ahead, albeit some that result from lapping those stellar results, Cava CFO Tricia Tolivar said. In the fourth quarter, for example, Cava will be lapping a comp sales increase of 15% last year.

To be fair, the third-quarter results marked a slight slowing of traffic from the second quarter this year, when Cava reported traffic growth of 10.3% and revenues up more than 62%.

And there are potentially margin-eroding investments underway.

Cava, for example, is investing in its workers, with wages expected to be up 8% in the fourth quarter, compared with a year ago. The company also rolled out healthcare benefits to part-time hourly workers, and more labor investments are coming in 2024.

“We’re committed to being the employer of choice by creating an exceptional culture, and, from a compensation perspective, ensuring we’re positioned competitively among leading brands and markets across the country,” said Brett Schulman, Cava’s CEO and co-founder.

The moves are also intended to help Cava maintain its momentum as the Mediterranean concept grows, with 47 to 50 net new units expected to open next year.

“We view [employees] as assets, not as expenses, and we want to make sure that we’re always reinvesting in them,” said Tolivar. “These types of investments are critical to support our future growth.”

Cava instituted a small menu price increase earlier this year, but has largely held off on price hikes out of concern for more price-sensitive diners.

But, starting in January, the chain is planning a 2.5% to 3% price increase, which marks a return to a more normal pre-pandemic cadence, Tolivar said.

And though Cava units in California will face a fast-food minimum wage increase to $20 per hour in April next year, Tolivar said the company has made no immediate plans to raise menu prices to offset that cost just yet—so that’s another potential hit to margins next year, she noted.

Schulman, however, said the results so far this year—it’s only the second earnings report since the IPO—demonstrate the strength of Cava’s model.

It’s the largest fast-casual Mediterranean brand and Schulman sees it a carving out a new category of “cultural cuisine,” one that appeals to health-focused consumers with a menu that can’t be easily replicated at home.

The chain is planning to roll out a new loyalty program next year, which is being piloted in Houston.

Cava also plans to begin testing a new Mediterranean-spiced steak at units in Boston and Dallas next month, which is expected to be a new protein addition next year. The steak would replace the beef meatballs that dropped off the menu last year.

The chain is also testing various iterations of catering, both out of hybrid restaurants with an expanded back of house to better support the additional production of catering, and out of traditional units. Schulman said the chain expects to roll out catering systemwide next year.

“We catered almost every single Major League Baseball team this summer. We catered the Texas Rangers during their World Series run. We catered the Lakers when they were in the playoffs last spring,” said Schulman. “We see our cuisine being a great fit for a catering channel. We just want to be thoughtful about how we build out the production capabilities to deliver a great guest experience when we’re ready to launch it nationally.”

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