Q3 2023 Cava Group Inc Earnings Call
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to the Q3 2023 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during this call you need assistance, Please press star zero for the operator.
This call is being recorded on Tuesday November 7th 2023, I would now like to turn the conference over to Matt Milanovic. Please go ahead.
Good afternoon, and welcome to <unk> third quarter 2023 financial results Conference call.
Before we begin if you do not already have a copy of the earnings release and related 8-K furnished with the SEC.
Available on our website at Investor <unk> Dot com and Dot com.
The purpose of this conference call is to give investors further details regarding the company's financial results.
As well as provide a general update on the company's progress.
You will find reconciliations of any non-GAAP financial measure discussed on today's call.
It's directly comparable financial measure calculated in accordance with GAAP to the extent available without unreasonable efforts.
In today's earnings release, and supplemental deck, each of which is posted on the company's website.
Before we begin let me remind everyone that this call will contain forward looking statements for this purpose.
Any statements made during this call that are not statements of historical fact.
May be deemed to be forward looking statements.
Investors should be aware that any forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today.
These risk factors are explained in detail in <unk> filings with the SEC. Please refer to these filings for a more detailed discussion of <unk>.
Looking statements and the risks and uncertainties of such statements. All forward looking statements are made as of today and except as required by law <unk> undertakes no obligation.
Publicly update or revise any forward looking statements, whether as a result of new information future developments or otherwise.
And now I will turn the call over to the Companys co founder and CEO Brett Feldman.
Thanks, Matt and welcome to the call everyone. Our results in the third quarter of 2023, clearly demonstrate the continued strength of our business <unk> has broad appeal and the proven portability of our innovative Mediterranean concepts.
In the face of consumer headwinds, we once again delivered strong topline growth and impressive unit economics, while successfully opening new restaurants across the country.
While we're taking a measured approach in this environment, we remain confident in our long term strategy and growth targets.
Cabot is creating in defining the next major cultural cuisine category with substantial white space opportunity.
We have a powerful unit economic engine and we've invested in building an efficient scalable operation.
US in a strong position to gain share and deliver on our extraordinary potential regardless of economic conditions.
In the third quarter of 2023, we delivered a 49, 5% increase in cargo revenue 14, 1% same restaurant sales growth, including a seven 6% increase in traffic.
11, net new restaurants, ending the quarter with 290 restaurants at 35, 5% increase year over year.
Adjusted EBITDA of $19 8 million, a $15 million increase over the third quarter of 2022, and net income of $6 8 million.
Our strong Q3 results and ability to capitalize on the opportunities ahead are grounded in our three strategic pillars.
First we are solidifying our category defining Mediterranean brand.
We opened 11 net new <unk> restaurants during the quarter with continued expansion across Alabama, Arizona, California, Florida, Georgia, the Carolinas and Texas in the fourth quarter. So far we've opened 12 additional restaurants, putting us on track for 70% to 73.
Net new carbo restaurant openings in 2023.
With our last <unk> restaurant conversion completed we are now operating under a single powerful <unk> brand. This important milestone has energized the team and we're seeing that in our results as.
As we share our craveable food and Mediterranean hospitality across the country. We continue to expect annual unit count growth.
<unk>, 15%.
We're excited to enter Chicago in 2024 with at least three new restaurant openings expected in that market.
Like others in the sector, we are seeing changes in the real estate market. However, the pipeline. We built is diverse and not dependent on a small number of markets or landlords. In addition, our real estate team has been building increased buffer into our pipeline over the past year to ensure we are insulated from potential delays in equipment.
Ability permitting and inspection our second strategic pillar is developing a modern best in class organization.
As we scale, we continue to invest in team members and equip them with the tools and training to deliver strong consistent results and run great restaurants every shift every day.
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.
To support sustainable growth, we are building a pipeline of qualified highly engaged leaders with the skills to run great operations and provide fantastic guest experiences.
In 2023, our target is to internally placed 75% of our new restaurants, and we remain on track to achieve that goal.
Our Academy GM network supports this pipeline and serves as a farm system for future leaders at.
At the end of Q3, we had 45 Academy GM, including seven recently promoted to the Multiunit leader position.
Planned to have 50 by the end of the year, enabling localized training in existing markets across the country.
In September we held Carver connect a conference that brings all of our restaurant Gms together for education recognition and celebration.
In addition to celebrating our mission and recognizing team members for exhibiting our values and competencies.
Conference is rooted in education on our guests people and standards initiatives, what we call GPS.
This initiative focuses the team on seven foundational metrics and standards for operational execution.
Over three days leaders participated in robust training sessions on team member development P&L management food safety standards and the guest experience.
Our third strategic pillar is building the infrastructure to successfully scale and grow the business.
We've made investments to support the growth. We know this concept can deliver these investments, which will create leverage over time, our thoughtful and strategic with an emphasis on operational excellence efficiency and creating an exceptional experience for our guests.
Among these investments is our vertically integrated production model <unk>.
By producing our own Gibson spreads were taking complexity out of our restaurants, improving cost overall and maintaining the quality and integrity of our unique recipes.
More than 300 locations cob as crazy as delicious today as it was when guests of our first full service Cobham is it meze restaurants fell in love with it.
Our new facility in Verona, Virginia, which further builds out these capabilities is on pace to commence operations in Q1 2024.
<unk> is complete the management team has been hired and equipment is being delivered and set in place.
Verona, along with our current 30000 square foot facility and Laurel, Maryland will be able to support at least 750 restaurants as well as our CPG business.
Shifting to loyalty Carver has a diverse passionate customer base and we are in the early stages of launching a new loyalty program aimed at developing deeper connections with our guests, creating more frequent relevant experiences and further driving traffic mix and check.
In the next couple of weeks, we will transition all loyalty members to a bankable points model and in December we will pilot new rewards and engagement tactics in the Houston market.
The pilot will inform the rollout of a new loyalty program nationwide expected in late 2024.
Our best in class culinary team continues to innovate inside a robust stage gate process validates new offerings and insurers efficient successful launches.
We recently brought back two limited time only fan favorites.
The balsamic date, chicken bowls, and our sweet and spicy chicken pita.
And soon we will be market testing and exciting new main item.
<unk> is a highly requested item and brings a complementary offering to our existing portfolio of needs. Our Mediterranean take is inspired by flavors from the GNC, including Sun dried tomato coriander and Aleppo pepper showcasing what makes <unk> special and giving us an opportunity to delight existing guests attract new ones.
<unk> and Reengage, those who haven't visited in a while.
<unk> has performed well at each stage gate to date and our operational tests have been successful.
The next stage is a market tests in Dallas, and Boston, which is scheduled to begin next month and if the positive results continue we expect to launch take nationwide later in 2024.
Before I turn the call over to Tricia I'd like to wrap up with Q3 highlights and reiterate the opportunity in front of us.
This quarter's results continued to show the strength of our brand.
Same restaurant sales growth was 14, 1% driven by seven 6% traffic growth.
Powerful unit economics continue to build with a $2 $6 million Adv and 25, 1% copper restaurant level profit margin during Q3, resulting in nearly $20 million of adjusted EBITDA and $7 million of net income.
Finally, I want to express my gratitude to our team members for their generosity and commitment to bringing heart health and humanity to food.
We're living in a world, that's more fluid and challenging than ever online license failed to replace the real life emotional connections humans crave and consumers now say they are looking for restaurants that make them feel welcome warm and cared for restaurants like Cabo.
Is that exceptional hospitality combined with our unique cuisine, where tasting healthy night that embodies our Mediterranean way.
At Cava, everyone is welcome at our table.
With that I'll, let Tricia walk you through the financials.
Thanks, Brent and good afternoon, everyone.
Revenue in the third quarter at 2023, it was 49, 5% year over year to $173 8 million.
Same restaurant sales increased 14, 1% driven by traffic growth of seven 6%.
I would like to take a minute to clarify our same restaurant sales calculation.
Well Ana and conversion.
At the same restaurant sales base and they have been open as a kind of a restaurant for at least 365 days clarifying that the strong growth whenever casing convert to though is the car that is not included in same restaurant sales.
We noted broad base same restaurant sales strength across vintages regions in both suburban and urban locations.
We opened 11 net new restaurants, this quarter, bringing our total Carver restaurant count to 290.
We are off to a strong start in Q4 with 12, new restaurants already opened giving us confidence to raise our new unit guidance range to 70 273 for the year.
New restaurant openings are outperforming the model from the topline and restaurant level margin standpoint.
In addition, we continue to prove our portability with the total overall AUC above $2 6 million and all geographies Uber key point $3 million.
Carver restaurant level profit in the third quarter was $43 6 million or 25, 1% of revenue versus $25 2 million or 21, 7% of revenue in the prior year, representing a 72, 8% increase.
The margin expansion was largely a result of improved food beverage and packaging costs and sales leverage on labor and occupancy.
Our third quarter profitability demonstrates the power of our business model.
Given our current stage of growth and our commitment to continued investments in our restaurants, we do not expect to maintain this level of profit margin in the near term.
Have a speed beverage and packaging costs were 29, 4% of revenue lower than third quarter of 2020 to 190 basis points.
Driven by lower input costs, and higher incidence of premium menu items driving favorable product mix.
On the labor and related costs were 25, 3% down 70 basis points from the third quarter of 2022. The decrease was driven by leverage from increased sales, partially offset by an increase in average hourly wages and an increased mix of new restaurants.
As discussed on our second quarter call, we intend to continue to reinvest in our team members with wage increases and other benefits. We believe that cava is a place for our team members can build a career and not just have a job.
At the beginning of Q4, we made incremental wage investments to ensure we are highly competitive in each market China in Q4 as average wage approximately 8% above Q4 F. 2022 we expect us to have 100 to 120 basis points impact on our restaurant level margins beginning in Q4 of <unk>.
<unk> 2023. In addition, we extended health care benefits to all part time hourly team members.
Types of investments are critical to support our future growth and we expect further investments in 2024.
Occupancy and related expenses were seven 9% of revenue an improvement of 50 basis points from the third quarter of 2022 due to increased sales leverage.
However, other operating expenses were 12, 3% of revenue a decrease of 30 basis points from the third quarter of 2022 due to higher sales.
Just in the overall performance, our general and administrative expense for the quarter, excluding stock based compensation was $21 3 million compared to $15 4 million in Q3 of 2022.
This $5 $9 million increase is primarily driven by recurring public company costs.
Higher performance based accruals and an increase in costs to support growth.
As a percentage of revenue G&A, excluding stock based compensation was 12, 1% in the current quarter, an increase of 100 basis points from the prior year quarter due to recurring public company costs and higher performance based accruals.
Partially offset by leverage from higher sales.
Adjusted EBITDA, including the burden of pre opening costs for the quarter was $19 8 million, which was more than the adjusted EBITDA for all of 2022.
The increase in adjusted EBITDA was driven by 14, 1% common same restaurant sales growth improved Carver restaurant level profit margin and the performance of new openings.
Keep in mind Q3 pre opening costs included expenses related to the restaurant opening in Q3 as well.
Costs related to the 12 units we've opened to date in Q4.
We reported $6 8 million of net income compared with a net loss of $11 9 million in Q3 of 2022, representing an increase of $18 7 million.
We reported diluted earnings per share of <unk> in the quarter compared with a diluted loss per share of $8 96 in Q3 of 2022.
I would like to remind everyone that we expect our share count to be between 117 and $118 million for Q4 of 2023.
Shifting to liquidity.
At the end of the quarter, we had zero debt outstanding $344 million in cash on hand, and access to a $75 million undrawn revolver with an option to increase our liquidity if needed.
We delivered cash flow from operations of $73 1 million for the current year to date period, compared with $5 2 million in the prior year period.
The increase was primarily driven by our improved operations driving increased profitability across the fleet.
Q3 results continue to demonstrate the power of our model and the value we are capable of delivering over the long term.
Having said that and as reflected in our guidance for restaurant level margins delivered in Q3 should not be considered Congress new normal given the continued wage investments in Q3 and Q4.
Turning to our outlook for full year 2023, which includes a 50 <unk> week, we expect the following.
70 to 73 net new Carver restaurant opening.
Kind of a same restaurant sales growth, excluding the impact of the 50 <unk> week between 15% and 16%.
<unk> restaurant level profit margins of at least 24%.
Pre opening costs between $14 5 million and $15 5 million.
And adjusted EBITDA, including the burden of Preopening costs between 70 million and $73 million.
Before turning to Q&A I wanted to provide some high level thoughts for 2024.
Regarding pricing, we expect to return to our historical price increases of two 5% to 3% starting in January.
While we will provide same restaurant sales and restaurant level margin guidance on our next earnings call. We wanted to share with you some initial color.
We are taking into consideration our Q1 2023 benefit and then unseasonably mild winter along with the Q1 2022 on the crime that.
As well as the IPO Halo that benefited Q2 and to a lesser extent Q3 of 2023.
Additionally, as previously discussed we expect a more moderated restaurant level profit margin, reflecting recent labor investment and potential additional investments in 2024.
Finally, as previously projected.
Move to an annual unit growth rate of at least 15% translating to an expected net new unit count of 47 to 15 units in 2024.
Now I will turn the call back over to the operator to open up for Q&A.
Okay.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
You will hear a three pronged acknowledging your request if you are using a speaker phone. Please lift the handset before pressing any case.
In the interest of time, we do ask that you limit yourself to one question and one follow up you may certainly re queue. If you have any additional questions.
First question comes from Andy Barish from Jefferies. Please go ahead.
Yeah, Hey, guys. Great results, just just wanted to clarify if I'm doing the math right on what you've reported year to date.
It implies.
The fourth quarter same store sales are kind of flattish to slightly positive.
Am I missing something there or can.
Can you clarify a little bit on let's say about how that rolls up to the $15 16 for the year.
Hey, Andy it's Tricia and good to hear from you. So the implied guidance is a little positive up to about four 7% or so and what that reflects is the strong comp in the fourth quarter of the prior year at 15%.
I'm, taking to a lesser extent into play the macroeconomic environment and the impact that it may have on the consumer.
Okay.
Got it and then.
Yes, I appreciate some of the early thoughts on 'twenty four and.
We all we all look at.
The calendar turning in the not too distant future.
Are you still thinking.
You know that.
Comps can be positive even lapping.
Some of those really big numbers in the first first half of the year.
Yes.
Tend to look at things on a two year stack and so when you're at a 28% comp in the first quarter of last year and there was a benefit of about 10 points related to weather and omicron and and that is going to make Q1 of 2024 bit challenging for us. So.
I wouldn't expect significant positive comps as we go into Q1, but certainly our long term approach and thinking about low to mid single digits on a same restaurant sales basis annually seems to make sense to us.
Okay. Much appreciate it thanks for the color there.
Thank you. The next question comes from John Ivan <unk> from J P. Morgan. Please go ahead.
Hi, Thank you obviously good results, but I was wondering if you thought you would actually left maybe some customer money on the table in the third quarter and I ask this in the context of stores that have very clearly been very busy in other words do you think that you've really had the throughput in place the premium.
Properly serve all the customers that are brought into the stores and wanted to purchase cava and secondly.
There's been some feedback around digital pickup times that haven't been exactly accurate at least relative to customer expectations I wonder if that's been kind of a specific experience if that's been a broader experience.
You do have some tightening opportunities, perhaps from an operational execution perspective to post even better results than what you already have them. Thank you.
Hey, John it's Brett Thanks for the questions.
First I want to be clear we're building this business for the long term and setting our team members up for success to deliver great guest experiences and working first and foremost on fundamentals of operations and hospitality.
Certainly we always believe there are opportunities to optimize our operations and continue to look at it in all facets as it relates to digital order specifically, we do track digital order accuracy rates as well as our UX scores. So this is.
Customers are rating us in judging us and we've been over four out of a five point scale for over the last 52 weeks, we've actually increased that in.
In the last couple of periods to almost a $4 five so we've seen writ large our guests be very happy and even increasingly happy with our performance, but that's not to say that there arent opportunities to continue to drive that score higher as well as improve the speed in which we operate over time over the long haul, but we're certainly.
Mind full of not overheating the engine certainly from an operation standpoint.
And obviously introducing stake I mean does that mean, one protein necessarily has to come I'll tell you as part of the stage gate process. I mean, it's always an interesting idea of introducing new products that provide more variety more use occasions to the customer, but just talk about how you balance the ability of maintaining that consistent.
Execution as you do add additional skus and perhaps complexity to the system. Thank you.
Yes, Great question, John and I talk about our 38 ingredients with over 17 billion combinations and where we're trying to be really disciplined about not introducing too much menu creep in complexity into the system.
Back almost a year ago, we removed beef meat balls from the menu that opened up a new slot within our means category. So stake would actually be taking a spot that used to exist right. Now. We also have that rotational slot, where spicy falafel currently exists and we will be bringing back our white sweet potato over the winter.
Which was a fan favorite that we're gonna rotate back through but stake would actually be filling that former beef meatballs slot reintroducing a beef item that's been highly requested on our menu.
Perfect. Thank you.
Thank you. The next question comes from David Tarantino from Baird. Please go ahead.
Hi, good afternoon, and congrats on great results here.
Tricia I had a question you mentioned a couple of times that you wouldn't expect the restaurant margin performance had been delivering recently to be the new baseline.
I'm just wondering if you could maybe elaborate on what you think the right underlying baseline should be as we think about.
2024, as a starting point just to make sure we're on the same page.
Yeah, Thanks, David So.
So we mentioned the investments that we're making in wages of about 100 to 120 basis points and that certainly should be something that is reflective of continued reinvestment in the business to make sure that we're well positioned for our continued growth over the long term. So it's something that we've been very focused on historically always.
You know firmly focused on our employees and how important they are to us we view them as assets not as expensive and want to make sure that we're always reinvesting in them remember back in 2016, we went to a $13 starting wage and certainly our commitment to our employees will continue but as you think about our restaurant level margins.
What Q2, and Q3 demonstrated the power of the model and what <unk> can deliver over the long term, but we will make those investments we've already done and continuing to evaluate the opportunity for additional investments in the near term. So that we ensure that we're well positioned for what we can deliver over the long term. So overall and there's at least 100 to 120 basis.
Points that we'll invest in and we have plans to continue.
Continue to invest in 24, as well that will bring restaurant level margins a bit down a bit more.
Got it thank you very much.
One other thing David that I will add to us in 2023, there was a lot of value and benefit and very high same restaurant sales as well as a strong PPA and that strong PPA was the result of premium attachments and attachments and general things like our pita chips that are increasingly.
More popular or honey heres, the chicken and all of that drives leverage throughout the P&L and given the uncertain environment that we're in we're not sure if that will continue into 2020 for them, but we'll certainly be ready if it does.
Makes sense. Thank you.
Yes.
Thank you. The next question comes from Brian <unk> from Morgan Stanley. Please go ahead.
Yes. Thanks, Good evening, guys Trisha I had I had a question too just kind of about that labor lines. So is that the.
Net impact that you would expect I E. You think labor cost as a percent of sales will be up 100 to 120.
I think also just broadly.
Yes.
As you is there a little bit of catch up being played here I know that Thats I think more of an increase in some of your peers are seeing it also does that account for maybe taking wages up in California next year at this point.
Hey, Bryan Thanks for that and so we don't view this as a catch up it is really an investment in our team members and going back to what I said earlier really demonstrates our commitment to them and how we viewed how we run carver them historically and as we go into the future and so that's you know it's it's.
Its wages, it's other benefits and other things so and it's a minimum of 100 to 120, there could be other things, we do in 2024, as well and as it relates to California.
We're not making any changes in price necessarily yet the wages that we're reflecting in California will have about a 30 basis point impact overall on restaurant level margins and when they do increase to $20 in April and that people should be factored in as you think about 24 as well.
Okay, and just on new unit openings, that's obviously come in quite strong.
This year, so maybe that just alludes to.
Some of the pipeline building that.
Brad mentioned, but whats kind of enabling you to run ahead of that target where I.
I think some peers have still seen challenges.
Yeah, there are real estate design and construction teams have done a good job in anticipating the challenge of that.
Lie ahead, and really built in buffers into our timelines as well as into our pipeline. So we raised our buffer from 20% to 30% earlier in the year, creating a robust pipeline that we could leverage and we've been successful in doing so and so you see the opportunity to open more restaurants. This year than we are.
Originally planned.
Thanks.
Thank you. The next question comes from Chris Sakai from Stifel. Please go ahead.
Thanks, Good afternoon, and congrats on a great quarter.
The consumer's willingness to trade up to more premium items has been a factor you guys have alluded to for a few quarters now Tricia can you dig into that point, just a little bit more and help us understand the contribution to the comp you think that that has had maybe this quarter and whether you see.
They're continuing to benefit you over the next several quarters.
Yeah. So I appreciate the follow up question, Chris and so as we look at our incidents in the premium attachments drinks and chips or ita.
Items that we've seen a significant increase year over year. So chips in particular, a couple of points as you look at them third quarter last year's third quarter. This year and then honeys recent chicken as I mentioned is also up a few points as well.
As it relates to comps and it has a modest impact on overall same restaurant sales really the strength in our same restaurant sales goes back to the traffic that we experienced so you know nearly 8% growth in traffic we saw that in across all vintages across all geographies in suburban and urban and really just.
[noise] demonstrates how our food and culinary and hospitality is resonating across the country as we create the next big cultural cuisine category.
Okay. That's helpful and then Brent the comp growth.
Been running ahead of expectations, which I'm sure has made it difficult for the stores to schedule. The right amount of hours, which has led to this margin leverage that you've seen in the last couple of quarters I'm just trying to understand how do you think about addressing that potential I guess it could be considered an issue in terms of labor scheduling, but how do you. How do you get ahead of that and make sure.
Sure that you are making.
You have the right number of hours for the right day part in the right time.
Yes, it seems that a lot of work on this Chris and what they found is that they have the right complement of ours. It's just allocating those hours hours a bit more effectively and efficiently to align with some of the traffic pattern. So we've got a number of different labor deployment tests going on in various markets for the various different day part mixes across.
The fleet and revenue bands to ensure that we're setting our team up for the best success in.
We can then lead into driving potential additional throughput opportunities down the road, but we want to be focused on what is going to be the right staffing complement at the right times of day and the right prep load balancing at the right time of day to make sure that our team members are front footed before we open up additional fire hoses of revenue.
On them I think it's critical to make sure we've got our operators positioned in the best place.
As we drive revenue going forward.
Okay, great. Thanks, guys.
Okay.
Thank you. The next question comes from Jon Tower from Citi. Please go ahead.
Great. Thanks, just a couple of clarifications and then a question first on the.
Comments about the fourth quarter guidance. The implied comp are you seeing a slowdown of that magnitude quarter to date.
So as we've stated prior we are not going to give inter quarter intra quarter guidance as it relates to same restaurant sales and I. So I'll just reinforce what we said earlier, we had a very strong Q4 of 2022 at a 15% comp and so factoring that in as well as the uncertainty in the macroeconomic environment.
We feel comfortable with the guidance that we've outlined today got it okay. And then just on the state itself is that going to be a permanent menu item or is it just.
Slaughter doesn't L T O.
We are still looking at it through the stage gate process to make a final determination and we'll have more on that in future earnings calls.
Okay.
And then just last one other question piece.
You are speaking quite a bit to the idea that the environment the macro environment, there's a lot of uncertainty.
Just trying to think about how cabo breakthrough the noise in an environment, where consumers are being a little bit more discerning on where they spend your brand awareness is pretty low relative to the competitive set.
We're already seeing value messaging, starting to step up across the industry. So what tools does the team have in place to kind of draw in new customers next year is kind of the noise across the industry around value really steps up.
Yes, John it's Brad. Thanks for the question you know I think you called it right. We've got fairly low brand awareness compared to some of our larger peers, yet we're putting up great results, we're seeing great resiliency from our consumer we're seeing people gravitate to the brand. So we feel like Theres a lot of upside for us in the coming months and years.
As Mediterranean becomes a more national cuisine, and cava becomes a more national brands from a brand awareness standpoint when.
When you think about the tools, we have our social team does a phenomenal job, it's amazing the virality and the awareness you can get on a channel like tick Tock. These days and get millions of views and really have our brand awareness.
Have a network effect around markets as well as opening new restaurants, with our community days and the earned media we get in these markets. We found our marketing spend to be incredibly efficient and driving brand awareness increases and market. So you look at some of the markets. We've opened a year or two ago. The brand awareness has already increased from 20% to 40 person.
So again, we're in our infancy and we're in the early stages of this and then when it comes to the value perception, which is why I think our traffic has been resilient in the face of some of these macroeconomic headwinds is the differentiated nature of our cuisine. The uniqueness of our cuisine and the fit of our cuisine to a modern consumer where taste and healthy.
Right right, you think about trying to recreate a combo meal at home or at the grocery store for a similar price or going to appear in getting a similar type of meal that is satisfying flavorful and helpful. For you at a similar price. So we've been leaning into our value proposition Tricia talked about the price increases or the law.
Lack thereof that we've taken compared to many peers working on behalf of our guests trying to drive a great value proposition for them when they are feeling the pressures of inflation.
From other parts of their life, and we think Thats whats kind of translated to the results this quarter and what we're leaning into next year to continue to not only be resilient, but grow market share in the face of those macroeconomic concerns.
Thank you and then just the last one from me I know you.
I spoke about the idea of where you trade investments or wage investments starting in this fourth quarter carrying over into next year are there any other investments, we should think about potentially hitting the P&L in 'twenty four.
Yeah, we're continuing to evaluate other opportunities for investments on the labor line. So that is another area that we're testing different concepts and different ideas that could evolve into something in 'twenty four and as those get more solidified it will give more color on that on our next call.
And then for the rest of the P&L from a restaurant standpoint, we're not anticipating significant labor investments in excuse me significant investments on any of the other line items.
Great Thanks for that.
Yeah.
Thank you. The next question comes from Matt Curtis from William Blair. Please go ahead.
Yeah. Thanks, good evening.
I just wanted to know what your outlook is for commodity inflation in the fourth quarter as.
As well as.
Maybe just a preliminary thoughts on what commodity inflation might look like in 2024.
Yeah sure Thanks, Matt so.
23 has benefited for some from some favorable input pricing, particularly as it relates to chicken and that will continue into fourth quarter and nothing significantly different than what we've already experienced in Q3, but as we go into 2024, we're anticipating low to mid single digit potential commodity inflation.
Okay, great. Thanks, and then.
Just separately.
Was wondering if you could tell us a little bit more about how the class of 2023 openings that's been ramping.
Both in terms of sales and profitability to this point.
And we're very pleased with our 2023 class and they have opened above our expectations. Both on the sales side as well as the restaurant level margin perspective, so really pleased with that cohort and what they've been able to deliver and much like the other vintages prior to that.
We do think as you go into 2020 for us.
Being thoughtful in the new classes themselves and wanting to think about them from an 80% productivity standpoint.
Nothing is concerning us and what we're seeing but on this class has significantly outperformed this year and just wanted to be thoughtful on how we think about classes in future years.
Okay understood thanks for that.
Yeah.
Thank you. The next question comes from Ashwin <unk> from Piper Sandler. Please go ahead.
Hi, This is Ashley on for Brian Congrats on the impressive results today.
My question is on the catering opportunity I believe you're testing in a traditional restaurant format. I was wondering if you could talk about what you're seeing in the test and if it's successful is this something you'd imagine incorporating into all the stores or is it something where you would expect us to influence the design or lay out of new store builds. Thanks.
Yes. This is Brad thanks for the question, we continue to progress on our catering test and we are now up to eight what we call our kind of a hybrid kitchen. So these are new units. We've built with an expanded back of house for centralized catering production. In addition to to your point, we are testing in a traditional carver restaurant and we're growing.
That to a few other units as we expand that format test because we know that there arent all units that really support catering because the <unk> are so significant and the production capacity is so limited that we don't want catering to come at the detriment of the other channels. So we're looking at other formats or.
Other locations around those locations to supplement production to be able to have catering offered across the country. So we're performing these different format tests over the next year or so to understand how we Orient. This production successfully to support what we think is a great opportunity to launch catering nationally across the board.
Ward just an example, we catered almost every single major League baseball team. This summer we catered for the Texas Rangers during their World series, Ryan we cater the Lakers when when they were in the playoffs last spring. So we see this not only office workers or schools, but athletes colleges professional we see our cuisine being a gray.
Fit for our 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.
Great. Thanks for the color.
Thank you. The next question comes from Alton Stump from loop capital. Please go ahead.
Great. Thanks, so much for taking my questions.
Wanted to go back to the.
Input cost front obviously.
You know after almost 18 months to 40 year high inflation things settling down but.
As you know I kind of think about input costs versus pricing heading into next year do you think that.
Particular bucket as a positive or negative to your store level margins next year versus this year.
Yeah. So what we mentioned on the call that we anticipate raising pricing in January and a two 5% to 3% range in the input costs on the commodity side is in the low to mid single digits and then as we also discussed we've got some investments on the labor side that we have made and then are also exploring.
So I think if you take all that into consideration alone I'll give you a good view into what the impacts are going to be overall from a restaurant level margin perspective.
Got it very helpful. Thanks, Tricia and then I guess, one quick follow up I'll hop back in the queue, but just on the pricing front.
As you just touched on what your plans are for early next year.
How competitive environment do you think it will be you guys are actually tracking.
How much of a positive traffic trends almost anyone right now in the space, you've got probably more room than most but just kind of how you feel about the pricing versus your competition moving into next year.
And so we're very mindful of our pricing and where we sit versus the competition well Bret touched on how it's really difficult to create the kind of experience at home, we want to make sure that we're accessible to as many guests as we possibly can be and so as we think about pricing, we're very thoughtful about that and feel that we're very well positioned against our.
<unk> to create that accessibility, but also performed well for the business overall.
Got it great. Thanks, so much on the quarter.
Yes.
Thank you I show no further questions I will turn the call back over to you bet Sheldon CEO and co founder for closing comments.
Thanks, everyone for joining the call today I want to thank our teams once again for delivering an exceptional third quarter, which provides further evidence of the broad appeal of our Mediterranean concept, we have a significant white space opportunity in front of us as we define and create the next large scale cultural cuisine category fueled by powerful unit economic engine.
Access for new restaurant openings across the country and strategic investments in people and the infrastructure, we need to scale, we are extending our clear leadership position, we're keeping a close eye on macroeconomic conditions, but our focus is on building a durable brand that can deliver value over the long term and we couldnt be more excited about what the future holds.
Again for joining us I look forward to speaking with you next quarter and in the meantime, we wish you a happy holiday season.
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Ladies and gentlemen, this concludes your conference.