Q2 2024 CAVA Group Inc Earnings Call

August 22, 2024

Operator: Good afternoon, ladies and gentlemen, and welcome to the Cava second quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Good afternoon, ladies and gentlemen, and welcome to the kind of a second quarter 'twenty 'twenty four earnings conference call.

Speaker Change: At this time all lines are in listen only mode.

Speaker Change: During the presentation, we will conduct a question and answer session.

Operator: If at any time during this call, you require immediate assistance, please press star zero for the operator.

Speaker Change: If at any time during this call you require immediate assistance. Please press star zero for the operator.

Operator: This call is being recorded on Thursday, August 22nd, 2024.

Speaker Change: This call is being recorded on Thursday August 22024.

Matt Milanovich: I would now like to turn the conference over to Mr. Matt Milanovich. Please go ahead. Good afternoon and welcome to Cava's second quarter 2024 financial results conference call. Before we begin, if you do not already have a copy, the earnings release and related 8-K, furnished with the SEC, are available on our website at investor.com. The purpose of this conference call is to give investors further details regarding the company's financial results as well as a general update on the company's progress. You will find reconciliations of any non-GAAP financial measure discussed on today's call to the most 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.

Speaker Change: I would now like to turn the conference over to Mr. Matt in your line of Vic. Please go ahead.

Matt: Good afternoon, and welcome to <unk> second quarter 2024 financial results Conference call.

Speaker Change: Before we begin if you do not already have a copy of the earnings release and related 8-K furnished with the SEC are available on our website at investor Dot com or dot com.

Speaker Change: The purpose of this conference call is to give investors further details regarding the company's financial results.

Speaker Change: As well as a general update on the company's progress.

Speaker Change: You will find reconciliations of any non-GAAP financial measure discussed on today's call to the most 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.

Matt Milanovich: 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 Cava's most recent annual report on Form 10-K and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements.

Speaker Change: Before we begin let me remind everyone that this call will contain forward looking statements for this purpose any statements made during this call but 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.

Speaker Change: <unk> from those discussed here today.

Speaker Change: These risk factors are explained in detail in Cabos. Most recent annual report on Form 10-K.

Speaker Change: And other filings with the SEC. Please refer to these filings for a more detailed discussion of forward 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 Carver undertakes no obligation to publicly update or.

Matt Milanovich: All forward-looking statements are made as of today, and except as required by law, Cava undertakes no obligation to public the update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.

Speaker Change: Or revise any forward looking statements.

Speaker Change: Whether as a result of new information future developments or otherwise.

Brett Schulman: And now I'll turn the call over to the company's co-founder and CEO, Brett Schoen. Thanks, Matt. And welcome to the call, everyone. In the second quarter, we once again delivered exceptional results, demonstrating the strength of our category-defining brand, our clear leadership position in Mediterranean, our powerful unit economic engine, and the return on investments we continue to make in our business and our people. Cava was one of just a handful of publicly traded restaurant brands with positive traffic growth in the second quarter. And we believe our performance is a reflection of our unique and compelling value proposition.

Speaker Change: And now I'll turn the call over to the Companys co founder and CEO Brett Showman.

Brett Showman: Thanks, Matt and welcome to the call everyone.

Brett Showman: The second quarter, we once again delivered exceptional results demonstrating the strength of our category defining brand our clear leadership position in Mediterranean are powerful unit economic engine and the return on investments, we continue to make in our business and our people.

Speaker Change: <unk> was one of just a handful of publicly traded restaurant brands with positive traffic growth in the second quarter and we believe our performance is a reflection of our unique and compelling value proposition at a time when consumers are increasingly feeling the pressure of an uncertain economy and are more discerning about where and how they spend their money there.

Brett Schulman: At a time when consumers are increasingly feeling the pressure of an uncertain economy and are more discerning about where and how they spend their money, they are choosing to die in Cava. Consumers have been frustrated and fatigued by higher prices over the past few years. In this post-high inflationary environment, traditional full-service chains are struggling to deliver a compelling value proposition, while conventional fast food chains have raised prices at a faster rate, driving the perception that they have become too expensive. The wave of price discounting in response to these trends is now being referred to as the Value Wars.

Speaker Change: Choosing the diamond Cava.

Speaker Change: Consumers have been frustrated and fatigue by higher prices over the past few years in this post high inflationary environment traditional full service chains are struggling to deliver a compelling value proposition, while conventional fast food chains have raised prices at a faster rate driving the perception that they have become too expensive.

Speaker Change: <unk> price discounting in response to these trends is now being referred to as the value Wars. We believe that's a misnomer price as the cost of a meal while value is its worth and driven by a combination of attributes beyond the headline price, including quality relevant convenience and experience.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Cava second quarter, 2024 earnings conference call.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Cava second quarter, 2024 earnings conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.

Brett Schulman: We believe that's a misnomer. Price is the cost of a meal, while value is its worth and driven by a combination of attributes beyond the headline price, including quality, relevance, convenience, and experience. Lawrence. Our value proposition lies in the quality of our food. The relevance of our differentiated Mediterranean cuisine where taste and health unite, the convenience with which our guests can access that cuisine in our multi-channel format, and the experience they have when they engage with our brand and our hospitality. It's meeting the moments of the modern consumer and positions us at the nexus of consumer convergence where we see guests trade down from traditional full-service chain dining, trade up from fast food, and trade over from legacy fast casual players.

Operator: At this time, all lines are in listen only mode.

Operator: If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 22nd, 2024.

Speaker Change: Our value proposition lies in the quality of our food the relevance of our differentiated Mediterranean cuisine, where tastes and healthy unite the convenience with which our guests can access the acquisition and our multichannel format and the experience they have when they engage with our brand and our hospitality. It's meeting the moment for the modern consumer and positions us.

Matt Milanovich: I would now like to turn the conference over to Mr. Matt Milanovich. Please go ahead.

Operator: Following the presentation, we will conduct a question and answer session.

Matt Milanovich: Good afternoon and welcome to Cava's second quarter, 2024 financial results conference call. Before we begin, if you do not already have a copy, the earnings release and related 8K, furnished with the SEC are available on our website at investor.com. The purpose of this conference call is to give investors further details regarding the company's financial results as well as a general update on the company's progress. You will find reconciliations of any non-gap financial measure discussed on today's call to the most directly comparable financial measure calculated in accordance with Gap 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.

Speaker Change: At the Nexus of consumer convergence, where we see guests trade downturn traditional full service chain dining trade up from fast food and trade over from legacy fast casual players.

Brett Schulman: As we deliver this compelling value proposition, we continue to invest in our guests and the cost of their meals. One example of this is in California, where we did not take incremental price increases in response to AB 1228. While many have commented on decelerating traffic in the market, we have seen sustained momentum. Our strong value proposition and highly portable concept are supporting expansion in new and existing markets. Today we are in 25 states in the District of Columbia, and our powerful unit economic engine continues to gain steam. Our average unit volume or AUV rose again in the quarter.

Speaker Change: As we deliver this compelling value proposition, we continue to invest in our guests and the cost of their meals. One example of this is in California, where we did not take incremental price increases in response to <unk> 28, while many have commented on decelerating traffic in the market, we have seen sustained momentum.

Our strong value proposition and highly portable concept are supporting expansion in new and existing markets today.

Speaker Change: Today, we are in 25 states and the district of Columbia, and our powerful unit economic engine continues to gain steam.

Operator: If at any time during this call, you require immediate assistance, please press star zero for the operator.

Operator: This call is being recorded on Thursday, August 22nd, 2024.

Matt Milanovich: Please refer to these filings for a more detailed discussion of forward-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, Cava undertakes no obligation to public the update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Speaker Change: Our average unit volume or Adv rose again in the quarter, we generated more net income than all of last year, and we delivered our second consecutive quarter of free cash flow. We believe our strong balance sheet and ability to self fund growth allows us to continue to grow market share in this uncertain economic environment.

Brett Schulman: We generated more net income than all of last year, and we delivered our second consecutive quarter of free cashflow. We believe our strong balance sheet and ability to self-fund growth allows us to continue to grow market share in this uncertain economic environment.

Brett Schulman: Our second quarter highlights include a 35.2% increase in COVA revenue, driving AUV of 2.7 million, COVA same restaurant sales growth of 14.4% with traffic growth of 9.5%, 18 net new restaurants, ending the quarter with 341 restaurants, the 22.2% increase year over year, adjusted EBIDA a 34.3 million, a 12.7 million increase over the second quarter of 2023, net income of 19.7 million, and 22.7 million in free cashflow during the quarter. Additional highlights include our expansion into Chicago, which has been our strongest new market entry ever. We now have locations in Wicker Park and Vernon Hills, with a third slated to open in Wicker Park next month.

Speaker Change: Our second quarter highlights include a 35, 2% increase in copper revenue driving <unk> of $2 7 million Carver same restaurant sales growth of 14, 4% with traffic growth of nine 5% 18, net new restaurants, ending the quarter with 341 restaurants B 22 two.

Speaker Change: Percent increase year over year.

Speaker Change: Adjusted EBITDA of $34 3 million, a $12 $7 million increase over the second quarter of 2023 net income of $19 7 million and $22 7 million in free cash flow during the quarter.

Matt Milanovich: I would now like to turn the conference over to Mr. Matt Milanovich.

Brett Schulman: And now I'll turn the call over to the company's co-founder and CEO, Brett Schoen. Thanks, Matt. And welcome to the call, everyone.

Matt Milanovich: Please go ahead.

Brett Schulman: Good afternoon and welcome to Cava's second quarter, 2024 financial results conference call.

Brett Schulman: Before we begin, if you do not already have a copy, the earnings release and related 8K, furnished with the SEC are available on our website at investor.com.

Brett Schulman: In the second quarter, we once again delivered exceptional results, demonstrating the strength of our category-defining brand, our clear leadership position in Mediterranean, our powerful unit economic engine, and the return on investments we continue to make in our business and our people. Cava was one of just a handful of publicly traded restaurant brands with positive traffic growth in the second quarter. And we believe our performance is a reflection of our unique and compelling value proposition.

Speaker Change: Additional highlights include our expansion into Chicago, which has been our strongest new market entry ever.

Speaker Change: We now have locations in Wicker Park in Vernon Hills with a third slated to open in Oak Park next month.

Brett Schulman: During the second quarter, we also launched Grilled Steak, which is far surpassing our expectations. We were confident in Steak's potential that since the national rollout fails to have been significantly higher than we saw in our 7-month market test. This new main protein compliments our existing offerings, fills a perceived gap on our menu, and is giving guests one more reason to visit COVA and come back more often. The success of Steak demonstrates our authority in culinary innovation and our ability to execute, and I want to thank our cross-functional teams that work to bring this successful launch to life.

Brett Schulman: The purpose of this conference call is to give investors further details regarding the company's financial results as well as a general update on the company's progress.

Speaker Change: During the second quarter, we also launched grilled steak, which is far surpassing our expectations. We were confident in stakes potential, but since the national rollout sales have been significantly higher than we saw in our seven month market test.

Brett Schulman: You will find reconciliations of any non-gap financial measure discussed on today's call to the most directly comparable financial measure calculated in accordance with Gap 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.

Brett Schulman: Before we begin, let me remind everyone that this call will contain forward-looking statements.

Brett Schulman: At a time when consumers are increasingly feeling the pressure of an uncertain economy and are more discerning about where and how they spend their money, they are choosing to die in Cava. Consumers have been frustrated and fatigued by higher prices over the past few years. In this post-high inflationary environment, traditional full-service chains are struggling to deliver a compelling value proposition, while conventional fast food chains have raised prices at a faster rate driving the perception that they have become too expensive.

Speaker Change: This new main protein complements our existing offerings fills a perceived gap on our menu and as giving guests one more reason to visit cover and come back more often the.

Brett Schulman: 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.

Speaker Change: The success of steak demonstrates our authority in culinary innovation, and our ability to execute and I want to thank our cross functional teams that work to bring this successful launch to life.

Brett Schulman: These risk factors are explained in detail in Cava's most recent annual report on Form 10K and other filings with the SEC.

Brett Schulman: I'll now turn to an update on our strategic pillars. Our first pillars to expand our Mediterranean-waring communities across the country. We opened 18 net new COVA restaurants during Q2, growing across new markets including Chicago and existing markets including Arizona, California, Connecticut, Florida, New Jersey, and Tennessee, among others. Our new restaurants continue to outperform our expectations, giving us even more confidence in the proven portability of our category-defining brand and the significant white space in front of us. Ellis. As we capture that white space, we are progressing on our project Soul initiative. We believe the demise of the dining room has been greatly exaggerated, with 64% of our occasions in restaurant, and the consumers are seeking great physical experiences.

Speaker Change: I'll now turn to an update on our strategic pillars. Our first pillar is to expand our Mediterranean way in communities across the country.

Brett Schulman: Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements.

Brett Schulman: The wave of price discounting in response to these trends is now being referred to as the value wars. We believe that's a misnomer. Price is the cost of a meal while value is its worth and driven by a combination of attributes beyond the headline price, including quality, relevance, convenience and experience. Lawrence. Our value proposition lies in the quality of our food. The relevance of our differentiated Mediterranean cuisine where taste and health unite, the convenience with which our guests can access that cuisine in our multi-channel format, and the experience they have when they engage with our brand and our hospitality.

We opened 18 net new covert restaurants during Q2 growing across new markets, including Chicago, and existing markets, including Arizona, California, Connecticut, Florida, New Jersey, and Tennessee, among others, our new restaurants continue to outperform our expectations, giving us even more confidence in the proven portability of our cattle.

Brett Schulman: All forward-looking statements are made as of today and except as required by law, Cava undertakes no obligation to public the update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Brett Schulman: And now I'll turn the call over to the company's co-founder and CEO, Brett Schoen.

Brett Schulman: Thanks, Matt.

Brett Schulman: And welcome to the call, everyone.

Lori defining brand and the significant white space in front of us.

Speaker Change: As we capture that white space, we are progressing on our project sole initiative.

Speaker Change: We believe the demise of the dining room has been greatly exaggerated with 64% of our occasions in restaurants and the consumers are seeking great physical experiences.

Brett Schulman: It's meeting the moments of the modern consumer and positions us at the nexus of consumer convergence where we see guests trade down from traditional full-service chain dining, trade up from fast food, and trade over from legacy fast casual players. As we deliver this compelling value proposition, we continue to invest in our guests and the cost of their meals. One example of this is in California where we did not take incremental price increases in response to AB 1228.

Brett Schulman: I recently visited our newest freestanding project Soul location on McPherson Boulevard in Fort Worth, Texas, which has incorporated software seeding, increased greenery, and a warmer brand pilot to create a comfortable, welcoming environment and better express our concept essence. Guests are responding well to the new aesthetic, and we are using what we learn in our iterative process to finalize our go-forward design later this year. With automation and technology increasingly infiltrating the front lines with many concepts, we believe consumers are seeking human connection more than ever. Project Soul provides an environment to foster that connection. We believe our team's unique ability to tap into emerging trends and make Cava part of the cultural conversation is helping to propel our success.

Speaker Change: I recently visited our newest freestanding projects so location on Macpherson Boulevard in Fort Worth, Texas, which has incorporated softer seeding increase greenery and a warmer brand pilot to create a comfortable welcoming environment and better express our concept essence.

Speaker Change: Guests are responding well to the newest static and we are using what we learned in our iterative process to finalize our go forward design later this year.

Speaker Change: With automation and technology increasingly infiltrating the frontline's with many concepts. We believe consumers are seeking human connection more than ever project sold provides an environment to foster that connection.

Brett Schulman: Cava was one of just a handful of publicly traded restaurant brands with positive traffic growth in the second quarter.

Brett Schulman: While many have commented on decelerating traffic in the market, we have seen sustained momentum. Our strong value proposition and highly portable concept are supporting expansion in new and existing markets. Today we are in 25 states in the District of Columbia and our powerful unit economic engine continues to gain steam. Our average unit volume or AUV rose again in the quarter. We generated more net income than all of last year and we delivered our second consecutive quarter of free cashflow. We believe our strong balance sheet and ability to self-fund growth allows us to continue to grow market share in this uncertain economic environment.

Brett Schulman: And we believe our performance is a reflection of our unique and compelling value proposition.

Speaker Change: We believe our team's unique ability to tap into emerging trends that may cover part of the cultural conversation is helping to propel our success, our social media campaign to launch steak for example generated more than $8 6 million social impressions and over 300 million PR impressions display and the efficiency of our marketing efforts.

Brett Schulman: Our social media campaign to launch stake, for example, generated more than 8.6 million social impressions and over 300 million PR impressions, displaying the efficiency of our marketing efforts. Our social media campaigns have been effective because there are organic, authentic, and express the genuine love guests have for Cava. Many of our brand partners were passionate fans of Cava before they worked with us, including U.S. women soccer captain and midfielder Lindsay Huran. Lindsay not only loves our food and incorporates it into her training regimen, but she also has an expensive and growing following, and the unique content she created for us is resonating with consumers.

Brett Schulman: Consumers have been frustrated and fatigued by higher prices over the past few years. In this post-high inflationary environment, traditional full-service chains are struggling to deliver a compelling value proposition, while conventional fast food chains have raised prices at a faster rate driving the perception that they have become too expensive.

Brett Schulman: The wave of price discounting in response to these trends is now being referred to as the value wars.

Brett Schulman: We believe that's a misnomer.

Speaker Change: Our social media campaigns have been effective because they are organic authentic and express the genuine love guests have for cover.

Brett Schulman: Our second quarter highlights include a 35.2% increase in COVA revenue, driving AUV of 2.7 million, COVA same restaurant sales growth of 14.4% with traffic growth of 9.5%, 18 net new restaurants ending the quarter with 341 restaurants, the 22.2% increase year over year, adjusted EBIDA a 34.3 million, a 12.7 million increase over the second quarter of 2023, net income of 19.7 million, and 22.7 million in free cashflow during the quarter. Additional highlights include our expansion into Chicago which has been our strongest new market entry ever.

Lindsay Horan: Many of our brand partners, we're passionate fans of cargo before they work with us, including U S Women's soccer Captain and midfielder Lindsay her at Lindsay not only loves our food and incorporate that into our training regimen, but she also has an extensive and growing following and the unique content. She created for us is resonating with consumers.

Brett Schulman: Congratulations to Lindsay and her teammates on their gold medal victory in France.

Speaker Change: Gratulation still Lindsay and our teammates on the gold medal victory in France.

Brett Schulman: Our second strategic pillar is to develop personal relationships with guests, even as we scale. A foundational component of this pillars are reimagined loyalty program. We expect this project to significantly grow first party data, help us create more frequent, relevant experiences that drive traffic, mix, and check, and share our Mediterranean warmth and hospitality across platforms and occasions in ways that resonate with guests on a personal level. Our pilot has given us confidence in the program's ability to drive frequency and increase loyalty revenue. We now expect a national rollout in October of this year, ahead of schedule.

Speaker Change: Our second strategic pillars to develop personal relationships with guests even as we scale.

A foundational component of this pillars, our re imagine loyalty program we.

Speaker Change: We expect this project to significantly grow first party data help us create more frequent relevant experiences that drive traffic mix and check and share our Mediterranean warmth and hospitality across platforms and occasions in ways that resonate with guests on a personal level.

Brett Schulman: We now have locations in Wicker Park and Vernon Hills with a third slated to open in Wicker Park next month. During the second quarter we also launched Grilled Steak which is far surpassing our expectations. We were confident in Steak's potential that since the national rollout fails to have been significantly higher than we saw in our 7 month market test. This new main protein compliments our existing offerings fills a perceived gap on our menu and is giving guests one more reason to visit COVA and come back more often.

Brett Schulman: The success of Steak demonstrates our authority in culinary innovation and our ability to execute and I want to thank our cross-functional teams that work to bring this successful launch to life.

Our pilot has given us confidence in the program's ability to drive frequency and increase loyalty revenue. We now expect a national rollout in October of this year ahead of schedule.

Brett Schulman: This program will include our new Earn and Bank Points model and a menu of reward redemption options. This initial rewards catalogue will be the first phase of a multi-phase program, which we expect to build on in the months and years to come.

Speaker Change: This program will include our new earn in bank points model at a menu of reward redemption options.

This initial rewards catalog will be the first phase of a multiphase program, which we expect to build on in the months and years to come.

Brett Schulman: Our third strategic pillar, run great restaurants every location, every shift, is focused on making our restaurants more efficient and easier to run. Our Connected Kitchen initiative is a multi-year journey focused on using data-driven and generative AI technologies to simplify restaurant operations and let our team members focus on great food, great service, and creating meaningful connections with guests. We're currently running a small pilot of AI video technology that monitors how quickly ingredients on the in-restaunt make line are being depleted and alerts the team in real time for prep and clip batch amounts. The system is in the learning phase, and we expect it to go live in pilot restaurants in early fall.

Speaker Change: Our third strategic pillar run great restaurants every location every shift is focused on making our restaurants more efficient and easier to run our.

Speaker Change: Our connected kitchen initiative is a multiyear journey focused on using data driven and generative AI technologies to simplify restaurant operations and let our team members focus on great food, great service and creating meaningful connections with guests.

Speaker Change: Currently running a small pilot of AI video technology that monitors how quickly ingredients on the in restaurant make line are being depleted and alerts the team in real time for prep and Cook batch amounts.

Speaker Change: System is in the learning phase and we expect it to go live in pilot restaurants in early fall, we'll update you on the initial results in our next earnings call.

Brett Schulman: Ellis. As we capture that white space, we are progressing on our project soul initiative. We believe the demise of the dining room has been greatly exaggerated with 64% of our occasions in restaurant, and the consumers are seeking great physical experiences. I recently visited our newest freestanding project soul location on McPherson Boulevard in Fort Worth, Texas, which has incorporated software seeding, increased greenery, and a warmer brand pilot to create a comfortable, welcoming environment and better express our concept essence.

Brett Schulman: We'll update you on the initial results in our next earnings call. Paul. While this initiative is still in the very early stages, we believe it can drive quality and consistency, increase order accuracy, boost speed of service, and simplify prep and planning. Our labor model test also continues to progress, and we expect more than 75 restaurants to be in pilot by early fall. The focus of this test is on reallocating hours, putting our team in a position to deliver better food, better hospitality, and more efficient speed of service. Early results are promising, and we have identified opportunities to strategically invest in lower-value restaurants to drive increased revenue over time.

Brett Schulman: Price is the cost of a meal while value is its worth and driven by a combination of attributes beyond the headline price, including quality, relevance, convenience and experience.

While this initiative is still in the very early stages, we believe it can drive quality and consistency increase order accuracy speed of service and simplify prep and planning.

Brett Schulman: Lawrence.

Our labor model Test also continues to progress and we expect more than 75 restaurants to be in pilot by early fall.

Speaker Change: The focus of this test is on reallocating hours, putting our team in a position to deliver better food better hospitality and more efficient speed of service earlier.

Brett Schulman: Guests are responding well to the new aesthetic, and we are using what we learn in our iterative process to finalize our go-forward design later this year. With automation and technology increasingly infiltrating the front lines with many concepts, we believe consumers are seeking human connection more than ever. Project soul provides an environment to foster that connection. We believe our team's unique ability to tap into emerging trends and make Cava part of the cultural conversation is helping to propel our success.

Speaker Change: Early results are promising and we have identified opportunities to strategically invest in lower volume restaurants to drive increased revenue over time we.

Brett Schulman: We expect to continue expanding our test throughout 2024, with a company-wide rollout plan for the beginning of 2025.

Speaker Change: We expect to continue expanding our tests throughout 2024 with a company wide rollout plan for the beginning of 2025.

Brett Schulman: Our fourth and final tiller, Operator the High Performing Team, includes deepening our culture of accountability, developing enhanced data capabilities, and investing in programs and tools to further engage, retain, and connect our teams. As part of our restaurant health initiative, we're testing technology that proactively gathers guest feedback at the restaurant level and in nearly real time. The test is live in 50 restaurants, and we are pleased with the results and expect to launch this new technology company-wide in early 2025. In addition, we continue to reinvest in team members and, by proxy, our guests. Our regular investments in wages and team member development are helping us recruit and retain the top talent we need to support our growth.

Our fourth and final pillar operate as a high performing team includes deepening our culture of accountability developing enhanced data capabilities and investing in programs and tools to further engage retain and connect our teams.

Brett Schulman: Our social media campaign to launch stake, for example, generated more than 8.6 million social impressions and over 300 million PR impressions displaying the efficiency of our marketing efforts. Our social media campaigns have been effective because there are organic, authentic, and express the genuine love guests have for Cava. Many of our brand partners were passionate fans of Cava before they worked with us, including U.S, women soccer captain and midfielder Lindsay Huran. Lindsay not only loves our food and incorporates it into her training regimen, but she also has an expensive and growing following and the unique content she created for us is resonating with consumers. Congratulations to Lindsay and her teammates on their gold medal victory in France.

Speaker Change: As part of our restaurant Health initiative, we're testing technology that proactively gathers guest feedback at the restaurant level and in nearly real time.

Speaker Change: The test is live in 50 restaurants, and we are pleased with the results and expect to launch this new technology companywide in early 2025.

Speaker Change: In addition, we continue to reinvest in team members and by proxy our guests.

Speaker Change: Our regular investments in wages and team member development are helping us recruit and retain the top talent, we need to support our growth.

Brett Schulman: In the second quarter, turnover was down by approximately 28% year-over-year at the hourly level. We don't just want to retain our talent; we want to continue to develop them. To that end, we now have 62 leaders in our Academy GM network, including nine promoted to higher levels as we grow our ranks to build our future leadership pipeline and support of our new restaurant growth. I witness firsthand the power of our Academy GM program on my recent shoulder-to-shoulder shift at our Laurel, Maryland restaurant. Our shoulder-to-shoulder program enlists corporate team members to work a restaurant shift every quarter.

Speaker Change: In the second quarter turnover was down by approximately 28% year over year at the hourly level.

Speaker Change: We don't just want to retain our talent, we want to continue to develop them.

Brett Schulman: Our second strategic pillars to develop personal relationships with guests, even as we scale. A foundational component of this pillars are reimagined loyalty program. We expect this project to significantly grow first party data, help us create more frequent, relevant experiences that drive traffic, mix, and check, and share our Mediterranean warmth and hospitality across platforms and occasions in ways that resonate with guests on a personal level. Our pilot has given us confidence in the program's ability to drive frequency and increase loyalty revenue.

Speaker Change: To that end, we now have 62 leaders in our Academy GM network, including nine promoted to higher levels as we grow our ranks to build our future leadership pipeline in support of our new restaurant growth.

Speaker Change: I witnessed firsthand the power of our Academy GM program on my recent shoulder to shoulder shift at our Laurel, Maryland restaurant.

Our shoulder to shoulder program enlists corporate team members to work our restaurants shift every quarter. This program not only allows corporate team members of frontline view of the opportunities to elevate our operator and guest experiences, but deepens cultural connections amongst our distributed workforce I had the privilege of working alongside Sandra Barrios.

Brett Schulman: This program not only allows corporate team members a frontline view of the opportunities to elevate our operator and guest experiences, but deepened cultural connections amongst our distributed workforce. I had the privilege of working alongside Sandra Barrios, our Laurel GM, who is in the process of seeking her Academy GM certification. Sandra pointed out a few high-potential team members she is looking to nominate for the GM training program. Possibly the best part of my visit was meeting Ramon Canalis, our grill champion at Laurel, whose spicy lamb meatballs are definitely in the running for the best I've ever tasted.

Brett Schulman: We now expect a national rollout in October of this year ahead of schedule. This program will include our new Earn and Bank Points model and a menu of reward redemption options. This initial rewards catalogue will be the first phase of a multi-phase program which we expect to build on in the months and years to come.

Speaker Change: Our Laurel GM, who is in the process of seeking her academy GM certification.

Angela: Angela pointed out a few high potential team members. She is looking to nominate for the GM training program.

Brett Schulman: Our third strategic pillar run great restaurants every location, every shift is focused on making our restaurants more efficient and easier to run. Our Connected Kitchen initiative is a multi-year journey focused on using data driven and generative AI technologies to simplify restaurant operations and let our team members focus on great food, great service, and creating meaningful connections with guests. We're currently running a small pilot of AI video technology that monitors how quickly ingredients on the in-restraunt make line are being depleted and alerts the team in real time for prep and clip batch amounts. The system is in the learning phase and we expect it to go live in pilot restaurants in early fall.

Possibly the best part of my visit was meeting Ramon Canalis, our grilled champion at Laurel, who spicy whammy balls are definitely in the running for the best I've ever tasted Ramon is a true grille champion.

Brett Schulman: Ramon is a true grill champion.

Brett Schulman: I want to thank our Laurel team for hosting me, and I want to thank our teams across the country for delivering an exceptional quarter while staying true to our mission every day. In this uncertain time for the consumer, we believe that delivering on our mission to bring heart, health, and humanity to food will continue to be a powerful formula for success. Consumers are hungry for flavorful, healthy and innovative food, want the convenience of engaging with brands on their terms and, in an increasingly automated world, crave human connection. From our relevant differentiated cuisine to the robust digital and physical experiences we provide and our unique brand of Mediterranean hospitality, we are meeting the moment for the modern consumer.

Speaker Change: Want to thank our loyal team for hosting me and I want to thank our teams across the country for delivering an exceptional quarter, while staying true to our mission every day in this uncertain time for the consumer we believe that delivering on our mission to break heart health and humanity to food will continue to be a powerful formula for success consumers are hungry for.

Speaker Change: Flavorful healthy and innovative food want the convenience of engaging with brands on their terms.

And in an increasingly automated world creative human connection.

Brett Schulman: We'll update you on the initial results in our next earnings call.

Speaker Change: From a relevant differentiated cuisine to the robust digital and physical experiences, we provide and our unique brand of Mediterranean hospitality. We are meeting the moment for the modern consumer.

Brett Schulman: Paul. While this initiative is still in the very early stages, we believe it can drive quality and consistency, increase order accuracy, boost speed of service, and simplify prep and planning. Our labor model test also continues to progress, and we expect more than 75 restaurants to be in pilot by early fall. The focus of this test is on reallocating hours, putting our team in a position to deliver better food, better hospitality, and more efficient speed of service. Early results are promising and we have identified opportunities to strategically invest in lower-value restaurants to drive increased revenue over time.

Brett Schulman: As evidenced by our outstanding second quarter results, our value proposition is resonating with guests, and as we define the next large-scale cultural cuisine category, we are well positioned to create long-term value for our guests, team members, and shareholders.

Speaker Change: As evidenced by our outstanding second quarter results, our value proposition is resonating with guests and as we define the next large scale cultural cuisine category, we are well positioned to create long term value for our guests team members and shareholders.

Tricia Tolivar: With that, I'll let Tricia walk you through the financials.

Speaker Change: With that I'll, let Tricia walk you through the financials.

Tricia Tolivar: Thanks, Brett, and good afternoon everyone. Cava revenue in the second quarter of 2024, through 35.2% year-over-year to 231.4 million. During the quarter, we opened 18 net new Cava restaurants, or 78 net new Cava restaurants during the subsequent to the second quarter of 2023, bringing our total Cava restaurant count to 341. We are pleased with our new restaurant opening, which are continuing to exceed expectations. Cava same restaurant sales increased 14.4%, driven by a 9.5% increase from guest traffic, and a 4.9% increase from menu price and product mix. Our stake log to the beginning of June benefited from a highly productive social media and PR campaign, driving incidents well above test results and original expectations.

Tricia: Thanks, Brett and good afternoon, everyone.

Cost of revenue in the second quarter of 2024 grew 35, 2% year over year to 231 4 million during the quarter. We opened 18 net new corporate restaurants, or 78, net new common restaurant during or subsequent to the second quarter of 2023, bringing our total kind of in a restaurant.

Brett Schulman: We expect to continue expanding our test throughout 2024 with a company-wide rollout plan for the beginning of 2025.

Tricia: Count to 341.

Tricia: We are pleased with our new restaurant openings, which are continuing to exceed expectations.

Tricia: Same restaurant sales increased 14, 4% driven by a nine 5% increase from guest traffic.

Tricia: And a four 9% increase from menu price and product mix.

Brett Schulman: In addition, we continue to reinvest in team members and by proxy our guests. Our regular investments in wages and team member development are helping us recruit and retain the top talent we need to support our growth. In the second quarter, turnover was down by approximately 28% year-over-year at the hourly level. We don't just want to retain our talent, we want to continue to develop them. To that end, we now have 62 leaders in our Academy GM network, including nine promoted to higher levels, as we grow our ranks to build our future leadership pipeline and support of our new restaurant growth.

I think likely at the beginning you can benefited from highly productive social media and PR campaigns, Jiving instance, well of that test results and original expectation.

Tricia Tolivar: Cava restaurant level profit in the second quarter was 61.3 million, or 26.5% of revenue, versus 44.6 million, or 26.1% of revenue in the prior year, representing a 37.3% increase. This increase was due to leverage from higher sales, partially offset by incremental wage investments and the launch of Stake on June 3rd. Cava food, beverage, and packaging costs were 29.4% of revenue, consistent with the second quarter of 2023, as the increase in input costs related to the launch of stake was offset by other lower input costs compared to the same period of the prior year. We anticipate Cava food, beverage, and packaging costs to increase as a percent of revenue for the rest of the year as the result of our stake launch in June.

Tricia: Have a restaurant level profit in the second quarter was $61 3 million or 26, 5% of revenue versus $44 6 million or 26, 1% of revenue in the prior year, representing a 37, 3% increase.

Tricia: This increase was due to leverage from higher sales.

Speaker Change: Actually offset by incremental wage investments and the launch of steak on chemotherapy.

Brett Schulman: I witness firsthand the power of our Academy GM program on my recent shoulder-to-shoulder shift at our Laurel Maryland restaurant. Our shoulder-to-shoulder program enlists corporate team members to work a restaurant shift every quarter. This program not only allows corporate team members a frontline view of the opportunities to elevate our operator and guest experiences, but deepened cultural connections amongst our distributed workforce. I had the privilege of working alongside Sandra Barrios, our Laurel GM, who is in the process of seeking her Academy GM certification.

Speaker Change: Conversely in beverage and packaging costs were 29, 4% of revenue consistent with the second quarter of 2023.

Speaker Change: The increase concentrated to the lines of stake was offset by other lower input costs compared to the same period of the prior year.

Speaker Change: We anticipate the speed beverage and packaging costs to increase as a percent of revenue for the rest of the year as a result of our stake in <unk>.

Tricia Tolivar: Cava labor and related costs were 25.2% of 40 basis points in the second quarter of 2023. The increase reflects investment in our team member wages of 9% year over year, including the impact from AB 1228, which we chose not to offset with menu price increases to the guests. That we discussed in prior calls, partially offset by leverage from increased sales compared to the prior year. Cava occupancy and related expenses were 6.9% of revenue and improvement of 90 basis points from the second quarter of 2023 due to increased sales leverage. Cava other operating expenses were 12% of revenue, which is flat to the second quarter of 2023.

Speaker Change: Labor and related costs were 25, 2% up 40 basis points in the second quarter of 2023 increase reflects investments in our team member wages of 9% year over year, including the impact from AB 228, which we chose not to offset with menu price increases to the guest that we discuss.

Brett Schulman: Sandra pointed out a few high potential team members she is looking to nominate for the GM training program. Possibly the best part of my visit was meeting Ramon Canalis, our grill champion at Laurel who spicy lamb meatballs are definitely in the running for the best I've ever tasted. Ramon is a true grill champion.

In prior calls.

Speaker Change: Offset by leverage from increased sales compared to the prior year.

Brett Schulman: I want to thank our Laurel team for hosting me and I want to thank our teams across the country for delivering an exceptional quarter while staying true to our mission every day.

Speaker Change: The occupancy and related expenses were six 9% of revenue an improvement of 90 basis points from the second quarter of 2023 due to increased sales leverage.

Brett Schulman: In this uncertain time for the consumer, we believe that delivering on our mission to bring heart, health, and humanity to food will continue to be a powerful formula for success. Consumers are hungry for flavorful, healthy and innovative food, want the convenience of engaging with brands on their terms and in an increasingly automated world crave human connection. From our relevant differentiated cuisine to the robust digital and physical experiences we provide and our unique brand of Mediterranean hospitality, we are meeting the moment for the modern consumer, as evidence by our outstanding second quarter results, our value proposition is resonating with guests, and as we define the next large-scale cultural cuisine category, we are well positioned to create long-term value for our guests, team members, and shareholders.

Speaker Change: However, other operating expenses were 12% of revenue, which is flat to the second quarter of 2023.

Brett Schulman: Our value proposition lies in the quality of our food. The relevance of our differentiated Mediterranean cuisine where taste and health unite, the convenience with which our guests can access that cuisine in our multi-channel format, and the experience they have when they engage with our brand and our hospitality.

Tricia Tolivar: Chifting overall performance are general and administrative expenses for the quarter, excluding stock-based compensation and non-recurring public company costs in the prior year quarter were 24.7 million compared to 20.4 million and Q2 of 2023. This increase is primarily driven by investments to support our growth and recurring public company costs. However, as a percentage of revenue, we experienced an improvement of 120 basis points due to leverage from higher sales, partially offset by the previously noted investments and recurring public company costs. Adjusted EBITDA, including the burden of pre-opening costs for the quarter, was 34.3 million, which was 12.7 million higher than Q2 of 2023.

Speaker Change: Shifting to overall performance, our general and administrative expenses for the quarter, excluding stock based compensation and nonrecurring and public company costs in the prior year quarter were $24 7 million compared to $20 4 million in Q2 of 2023.

Speaker Change: This increase is primarily driven by investments to support our growth and recurring public company costs.

Brett Schulman: As we deliver this compelling value proposition, we continue to invest in our guests and the cost of their meals.

Speaker Change: However, as a percentage of revenue we experienced an improvement of 120 basis points due to leverage from higher sales, partially offset by the previously noted investments and recurring public company costs.

Speaker Change: Adjusted EBITDA, including the burden of Preopening costs for the quarter was $34 3 million, which was $12 7 million higher than Q2 of 2023.

Tricia Tolivar: With that, I'll let Tricia walk you through the financials.

Tricia Tolivar: Thanks, Brett, and good afternoon everyone. Cava Revenue in the second quarter of 2024, through 35.2% year-over-year to 231.4 million. During the quarter, we opened 18 net new Cava restaurants, or 78 net new Cava restaurants during the subsequent to the second quarter of 2023, bringing our total Cava restaurant count to 341. We are pleased with our new restaurant opening, which are continuing to exceed expectations. Cava same restaurant sales increased 14.4% driven by a 9.5% increase from guest traffic, and a 4.9% increase from menu price and product mix.

Tricia Tolivar: The increase in the adjusted EBITDA was driven by the number and strength of the performance of new restaurant openings, 14.4% COVA same restaurant sales growth, and leveraging GNA. We reported 19.7 million of net income compared with net income of 6.5 million in Q2 of 2023, representing an increase of 13.2 million. The power of the model is evident with net income in the second quarter of 2024, exceeding total net income generated in all of fiscal year 2023. We reported diluted earnings per share of 17 cents in the quarter compared with diluted earnings per share of 21 cents in Q2 of 2023, which includes the impact of the lower share count prior to the IPO.

The increase in adjusted EBITDA was driven by the number and strength of the performance of New restaurant opening 14, 4% comp same restaurant sales growth and leveraging G&A.

Speaker Change: We reported $19 7 million of net income compared with net income of $6 5 million in Q2 of 2023, representing an increase of $13 2 million.

Power of the model is evident with net income in the second quarter of 2024 exceeding total net income generated in all of fiscal year 2023.

Speaker Change: We reported diluted earnings per share of <unk> 17 in the quarter compared with diluted earnings per share of 21.

Tricia Tolivar: Our stake log to the beginning of June, benefited from a highly productive social media and PR campaign driving incidents well above test results and original expectations. Cava restaurant level profit in the second quarter was 61.3 million, or 26.5% of revenue, versus 44.6 million or 26.1% of revenue in the prior year, representing a 37.3% increase. This increase was due to leverage from higher sales, partially offset by incremental wage investments and the launch of stake on June 3rd.

Q2 of 2023, which includes the impact of a lower share count prior to the Ips.

Tricia Tolivar: Shifting to liquidity. At the end of the quarter, we had zero debt outstanding, 343.7 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 from operations of 48.9 million for the quarter, compared with 21.4 million in the prior year quarter. This increase was primarily driven by our improved operations generating increased profitability across the fleet. Total company free cash flow was 22.7 million in the current quarter.

Speaker Change: Shifting to liquidity.

Speaker Change: At the end of the quarter, we had zero debt outstanding $343 $7 million in cash on hand, and access to the 75 million undrawn revolver with an option to increase our liquidity if needed.

Speaker Change: We delivered cash flow from operations at $48 9 million for the quarter compared with 21 4 million in the prior year quarter. This increase was primarily driven by our improved operations generating increased profitability across the fleet.

Tricia Tolivar: Cava food, beverage, and packaging costs were 29.4% of revenue consistent with the second quarter of 2023, as the increase in input costs related to the launch of stake was offset by other lower input costs compared to the same period of the prior year. We anticipate Cava food, beverage, and packaging costs to increase as a percent of revenue for the rest of the year as the result of our stake launch in June.

Speaker Change: Total company free cash flow was <unk> 7 million in the current quarter.

Tricia Tolivar: None of our outlook for full year 2024, we expect the following. 54 to 57 net new COVA restaurant openings. COVA same restaurant sales growth of 8.5% to 9.5%. COVA restaurant level profit margin between 24.2% and 24.7%. Pre-opening costs between 12 million and 13 million, and adjusted EBITDA, including the burden of pre-opening costs, between 109 million and 114 million.

Speaker Change: None of our outlook for full year 2024, we expect the following.

Speaker Change: 457, net new copper restaurant openings.

Speaker Change: Same restaurant sales growth at eight 5% to nine 5% common.

Speaker Change: Kind of a restaurant level profit margin between 24, 2% and 24, 7%.

Brett Schulman: One example of this is in California where we did not take incremental price increases in response to AB 1228.

Speaker Change: Preopening cost between 12 million and $13 million and adjusted EBITDA, including the burden of Preopening cost between $109 million and $114 million.

Brett Schulman: While many have commented on decelerating traffic in the market, we have seen sustained momentum.

Tricia Tolivar: I want to share some additional color around a revised 2024 outlook. Our real estate development and operations teams have done an incredible job during the first half of 2024 to get restaurants open on time and, in some cases, ahead of schedule. As a result, we have a more front half weighted opening schedule while still raising our full year guidance and avoiding opening restaurants during the busy holiday season. We continue to feel confident in our real estate pipeline and are excited about our 2025 opening plan of at least 15% annual unit growth. Guidance for COVA same restaurant sales growth of 8.5% to 9.5% implies a low double-digit same restaurant sales growth for the remainder of the year.

I wanted to share some additional color around our revised 2020 for outlook, our real estate development and operations teams have done an incredible job during the first half of 2020 for it to get restaurants opened on time and in some cases ahead of schedule.

Brett Schulman: Our strong value proposition and highly portable concept are supporting expansion in new and existing markets.

Speaker Change: As a result, we.

Brett Schulman: Today we are in 25 states in the District of Columbia and our powerful unit economic engine continues to gain steam. Our average unit volume or AUV rose again in the quarter. We generated more net income than all of last year and we delivered our second consecutive quarter of free cashflow.

Tricia Tolivar: Cava other operating expenses were 12% of revenue, which is flat to the second quarter of 2023. Chifting overall performance are general and administrative expenses for the quarter, excluding stock-based compensation and non-recurring public company costs in the prior year quarter were 24.7 million compared to 20.4 million and Q2 of 2023. This increase is primarily driven by investments to support our growth and recurring public company costs. However, as a percentage of revenue, we experienced an improvement of 120 basis points due to leverage from higher sales, partially offset by the previously noted investments and recurring public company costs.

Speaker Change: A more front half weighted opening schedule, while still raising our full year guidance and avoiding opening restaurants during the busy holiday season.

Speaker Change: Continue to feel confident in our real estate pipeline and are excited about our 2025 opening plan.

Speaker Change: Least 15% annual unit growth.

Speaker Change: Guidance for the same restaurant sales growth of eight 5% to 95%.

Speaker Change: Implies a low double digit same restaurant sales growth for the remainder of the year.

Tricia Tolivar: This guidance reflects the strength that we are currently seeing in our business and also contemplates the macroeconomic and election uncertainty in the remainder of the year.

Speaker Change: This guidance reflects the strength that we are currently seeing in our business.

Speaker Change: And also contemplates the macro economic and election uncertainty and the remainder of the year.

Tricia Tolivar: Joseph. As a reminder, to achieve an optimal comparison of fiscal weeks in the Cava same restaurant sales calculation, giving consideration to holiday periods, each week of fiscal 2023 was shifted by one week. As a result of this shift, approximately 3.9 million of revenue was not included in Cava same restaurant sales growth in Q1, which would have resulted in 200 basis points higher same restaurant sales growth. Although the impact of this shift was immaterial to Q2 and expected to be immaterial to Q3, an offsetting impact will occur in Q4. In turning to restaurant level profit margins, note that about half of Q2 was impacted by the June 3rd launch of Stake, which outperformed our expectations.

Tricia Tolivar: Adjusted EBITDA, including the burden of pre-opening costs for the quarter was 34.3 million, which was 12.7 million higher than Q2 of 2023. The increase in the adjusted EBITDA was driven by the number and strength of the performance of new restaurant openings, 14.4% COVA same restaurant sales growth and leveraging GNA. We reported 19.7 million of net income compared with net income of 6.5 million in Q2 of 2023, representing an increase of 13.2 million.

Carla: As a reminder to achieve an optimal comparison of fiscal weeks and Carla same restaurant sales calculation, giving consideration of holiday periods.

Carla: Each week, our fiscal 2023 was shifted by one week at.

Carla: As a result of this shift approximately $3 9 million of revenue was not included in the same restaurant sales growth in Q1, which would have resulted in 200 basis points higher same restaurant sales growth.

Although the impact of this shift was immaterial to Q2 and expect it to be immaterial to Q3.

Carla: Offsetting impact will occur in Q4.

Tricia Tolivar: The power of the model is evident with net income in the second quarter of 2024, exceeding total net income generated in all of fiscal year 2023. We reported delirited earnings per share of 17 cents in the quarter compared with deluded earnings per share of 21 cents in Q2 of 2023, which includes the impact of the lower share count prior to the IPO.

Carla: Turning to restaurant level profit margin note that about half of Q2 was impacted by the genes are a bunch of stake which outperformed our expectations.

Tricia Tolivar: Cava restaurant level profit margin guidance for the full year reflects this higher incidence of stake. Additionally, consistent with last year, we anticipate Q4 is seasonally effective margin to be around 200 basis points lower than full year 2024 restaurant level profit margins. Adjusted Cava dog guidance includes GNA spend as a percent of revenue on a full year basis to be higher than the second quarter of 2024 due to additional investments to support growth and C leverage impacts from lower sales in Q3 and Q4.

Kind of a restaurant level profit margin guidance for the full year reflects this higher incidents of stake.

Carla: Additionally, consistent with last year, we anticipate Q4 is seasonally affected margin to be around 200 basis points lower than full year 2024 restaurant level profit margin.

Brett Schulman: We believe our strong balance sheet and ability to self-fund growth allows us to continue to grow market share in this uncertain economic environment.

Tricia Tolivar: Shifting to liquidity. At the end of the quarter we had zero debt outstanding, 343.7 million in cash on hand, an access to a 75 million undrawn revolver with an option to increase our liquidity if needed. We delivered cash from operations of 48.9 million for the quarter compared with 21.4 million in the prior year quarter. This increase was primarily driven by our improved operations generating increased profitability across the fleet. Total company free cash flow was 22.7 million in the current quarter.

Carla: Adjusted EBITDA guidance includes G&A spend as a percent of revenue on a full year basis to be higher than the second quarter of 2024 due to additional investments to support growth in key leverage impacts from lower sales in Q3 and Q4.

Tricia Tolivar: Last, I want to spend a moment providing an update on tax expectations. Historically, we have had a full valuation of allowance on our deferred tax assets primarily relating to net operating loss care reports, which has resulted in immaterial tax expense. Based on our positive profitability trends, there is a reasonable possibility that within the current fiscal year, we will be in a position to release the valuation allowance, which results in a one-time significant penal benefit as a reduction to tax expense. After this release and valuation allowance, we would begin to have a more normalized effective tax rate in the mid-20s.

Carla: Last I wanted to spend a moment, providing an update on tax expectations. Historically, we have had a full valuation allowance on our deferred tax assets, primarily relating to net operating loss carryforwards, which has resulted in immaterial tax expense.

Tricia Tolivar: None of our outlook for full year 2024 we expect the following. 54 to 57 net new COVA restaurant openings. COVA same restaurant sales growth of 8.5% to 9.5%. COVA restaurant level profit margin between 24.2% and 24.7%. Pre-opening costs between 12 million and 13 million and adjusted EBITDA, including the burden of pre-opening costs between 109 million and 114 million.

Speaker Change: Based on our positive profitability trends there is a reasonable possibility that within the current fiscal year, we will be in a position to release the valuation allowance, which will result in a one time significant P&L benefit as a reduction to tax expense.

Speaker Change: After this release in valuation allowance when we begin to have a more normalized effective tax rate in the mid 20.

Tricia Tolivar: Keep in mind, we expect our cash taxes to continue being immaterial until we fully utilize our net operating losses.

Speaker Change: Keep in mind, we expect our cash taxes to continue be immaterial until we fully utilize our net operating losses.

Tricia Tolivar: Before turning to Q&A, I want to thank our team members for delivering on our commitments, for pairing and serving our amazing cuisine with Cava hospitality to more and more people across the country and making Cava a very special place to work. I recently returned from my first trip to Greece for my husband, and I had a chance to walk through the olive groves of our supplier, who has been with us since our earliest days and continues to produce the olives and the liquid gold olive oil we use in all our restaurants. It was an exciting trip for our family, in part because we were able to see where Cava founders came from and experienced first-hand what inspires them.

Tricia Tolivar: I want to share some additional color around a revised 2024 outlook. Our real estate development and operations teams have done an incredible job during the first half of 2024 to get restaurants open on time and in some cases a head of schedule. As a result we have a more front half weighted opening schedule while still raising our full year guidance and avoiding opening restaurants during the busy holiday season. We continue to feel confident in our real estate pipeline and are excited about our 2025 opening plan of at least 15% annual unit growth.

Before turning to Q&A I want to thank our team members for delivering on our commitments preparing and serving our amazing could mean with Cabo hospitality to more and more people across the country and making a very special thanks to work.

Brett Schulman: Additional highlights include our expansion into Chicago which has been our strongest new market entry ever. We now have locations in Wicker Park and Vernon Hills with a third slated to open in Wicker Park next month. During the second quarter we also launched Grilled Steak which is far surpassing our expectations.

Speaker Change: I recently returned from my first trip to Greece for my husband, and I had a chance to walk through the olive groves of our supplier who has been with us since our earliest days and continues to produce the liquid gold olive oil use in all our restaurants. It was an exciting chip for our family.

Speaker Change: Because we were able to see where Congress founders came from an experienced first hand, what inspires them.

Tricia Tolivar: Guidance for COVA same restaurant sales growth of 8.5% to 9.5% implies a low double digit same restaurant sales growth for the remainder of the year. This guidance reflects the strength that we are currently seeing in our business and also contemplates the macro economic and election uncertainty in the remainder of the year.

Tricia Tolivar: Their vision coupled with the passion and drive of our team members lets us deliver a powerful unit of economics that gets stronger with every new restaurant we open and every new market we enter.

Speaker Change: Their vision, coupled with the passion and drive of our team members lets us deliver powerful unit economics that gets stronger with every new restaurant, we opened and every new market we enter.

Operator: Now I will turn the call back over to the operator and open up for Q&A. Thank you.

Speaker Change: Now I will turn the call back over to the operator and open it up for Q&A.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you will hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed based on number two.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session.

Tricia Tolivar: Joseph. As a reminder, to achieve an optimal comparison of fiscal weeks in the Cava same restaurant sales calculation, giving consideration to holiday periods, each week a fiscal 2023 was shifted by one week. As a result of this shift, approximately 3.9 million of revenue was not included in Cava same restaurant sales growth in Q1, which would have resulted in 200 basis points higher same restaurant sales growth. Although the impact of this shift was immaterial to Q2 and expected to be immaterial to Q3, an offsetting impact will occur in Q4.

Speaker Change: You are using a speaker phone please make sure to lift the handset before pressing any keys.

David Tarantino: David Tarantino. Good afternoon, and congratulations on delivering such strong results. My question is about the second quarter and the strength you saw on the sales. It was quite a big acceleration, it seemed, you know, from the first quarter. And I just wanted to get your thoughts on the factors that drove that large acceleration. I know you mentioned Stake outperforming your expectation, but maybe you could piece together some of the key drivers. And then the second part of the question, Tricia, that looks like the second half you're not quite assuming or assuming quite the same strength that can continue.

Speaker Change: Your first question comes from the line of David Tarantino from Baird. Your line is now open.

Speaker Change: Hi.

Good afternoon, and congratulations on delivering such strong results.

Mike: Mike My question is about the search.

Brett Schulman: We were confident in Steak's potential that since the national rollout fails to have been significantly higher than we saw in our 7 month market test. This new main protein compliments our existing offerings fills a perceived gap on our menu and is giving guests one more reason to visit COVA and come back more often.

Tricia Tolivar: In turning to restaurant level profit margins, note that about half of Q2 was impacted by the June 3rd launch of stake, which outperformed our expectations. Cava restaurant level profit margin guidance for the full year reflects this higher incidence of stake. Additionally, consistent with last year, we anticipate Q4 is seasonally effective margin to be around 200 basis points lower than full year 2024 restaurant level profit margins. Adjusted Cava dog guidance includes GNA spend as a percent of revenue on a full year basis to be higher than the second quarter of 2024 due to additional investments to support growth and C leverage impacts from lower sales in Q3 and Q4.

David Tarantino: <unk> quarter and the strength you saw on the sales of quite a big.

Speaker Change: The acceleration it seems from the first quarter.

Speaker Change: I just wanted to get your thoughts on the factors that drove that large acceleration.

Brett Schulman: I'll now turn to an update on our strategic pillars.

Trisha: Yes, I know you mentioned stake outperforming your expectation, but maybe you could piece together some of the key drivers and then the second part of the question Trisha It looks like.

In the second half Youre not quite assuming are assuming quite the same strength that continue so just wondering how youre thinking about the second half.

David Tarantino: So just wondering how you're thinking about the second half, you know, related to what you just delivered for the second quarter. Thanks.

Speaker Change: Related to what you just delivered for the second quarter.

David Tarantino: Thanks, David. So certainly, as you look at our second quarter, same restaurant sales growth of 14.4%. And compared that to first quarter, there is an acceleration. But really looking at it on a two-year same restaurant sales basis, two-year same restaurant sales in Q1 of 24 were 30.8%, and two-year same restaurant sales in Q2 of 2024 grew to 32.6%. So there certainly is an increase, and you're seeing that in what we were able to deliver in Q2 with a very strong 9.5% traffic growth. When you look at what are the drivers impacting the same restaurant sales, I kind of think of it like a culpable.

David Tarantino: Thanks, David.

Speaker Change: Certainly as you look at our second quarter same restaurant sales growth of 14, 4% and compare that to the first quarter. There is an acceleration, but really looking at on a two year same restaurant sales basis, two year same restaurant sales in Q1 of 24% or 38% and two year same restaurant sales in Q2 of 2000.

Tricia Tolivar: After this release and valuation allowance, we would begin to have a more normalized effective tax rate in the mid-20s. Keep in mind, we expect our cash taxes to continue being immaterial until we fully utilize our net operating losses.

Speaker Change: 24 grew to 32, 6%. So there certainly is an increase in and Youre seeing that and what we were able to deliver in Q2 with a very strong nine 5% traffic growth. When you look at what are the drivers impacting the same restaurant sales I kind of think of it like a comparable terror lots of combinations that blend together.

David Tarantino: There are lots of combinations that blend together to create something truly amazing. And it seems like new culinary innovation, like stake that you've mentioned. It's a strong value perception that we have in the marketplace, increased brand awareness, and certainly our team member execution. And so all that combined together is delivering an outstanding result in the period in quarter that we're proud of. And then in your second question about the second half and how it's not assuming the same strength, we talked about this in our guidance. And while we don't give period-to-period or into the quarter following quarter results, we are seeing strengths in the business itself, but also wanted to be thoughtful around the uncertain macroeconomic environment in the upcoming election and factor that into our guidance.

Speaker Change: To create something truly amazing and it's things like new culinary innovation like Stakes that you mentioned it the strong value perception that we have in the marketplace increased brand awareness and certainly our team member equity execution and so all of that combined together delivering an outstanding result in the period in the quarter.

Brett Schulman: Our first pillars to expand our Mediterranean-waring communities across the country.

Tricia Tolivar: Before turning to Q&A, I want to thank our team members for delivering on our commitments, for pairing and serving our amazing cuisine with Cava hospitality to more and more people across the country and making Cava a very special place to work. I recently returned from my first trip to Greece for my husband and I had a chance to walk through the olive groves of our supplier, who has been with us since our earliest days and continues to produce the olives and the liquid gold olive oil we use in all our restaurants.

Speaker Change: That we're proud of.

Speaker Change: And then on your second question about the second half and how it's not assuming staying the same strength.

Brett Schulman: We opened 18 net new COVA restaurants during Q2 growing across new markets including Chicago and existing markets including Arizona, California, Connecticut, Florida, New Jersey, and Tennessee among others.

Speaker Change: Talked about this in our guidance and while we don't give period to period or into the quarter.

Speaker Change: Following quarter results, we are seeing strength in the business itself, but also wanted to be thoughtful around the uncertain macroeconomic environment in the upcoming election and factor that into our guidance. So those two things together influencing what we've communicated today.

Tricia Tolivar: It was an exciting trip for our family in part because we were able to see where Cava founders came from and experienced first-hand what inspires them. Their vision coupled with the passion and drive of our team members lets us deliver a powerful unit of economics that gets stronger with every new restaurant we open and every new market we enter.

Tricia Tolivar: So there's two things together influencing what we've communicated today. Great. Thank you for that. And Trisha, is there any way to isolate the impact of stake on the comp in the second quarter? I guess, however you look at it from a traffic and make perspective? Yeah, there was a favorable impact on mix and certainly some benefit in traffic, but what we're seeing is strength and traffic across in general and fits much broader than stake by itself. And this really pleased with the traffic and same restaurant sales strengths across all regions of the country and all of our formats, as well as in suburban and urban environments.

Speaker Change: Great. Thank you for that and interest is there any way to isolate the impact of stake.

Brett Schulman: Our new restaurants continue to outperform our expectations giving us even more confidence in the proven portability of our category defining brand and the significant white space in front of us.

Speaker Change: Comp in the second quarter is there I guess.

Speaker Change: We looked at it from a traffic and mix perspective.

Speaker Change: Yes, there was a favorable impact on mix and certainly some benefit in traffic, but what we're seeing is strength in traffic across in general and so it's much broader than stake by itself and this really pleased with the traffic and same restaurant sales strength across all regions of the country in all of our formats as well.

Brett Schulman: Ellis.

Operator: Now I will turn the call back over to the operator and open up for Q&A. Thank you.

Brett Schulman: As we capture that white space, we are progressing on our project soul initiative.

Brett Schulman: We believe the demise of the dining room has been greatly exaggerated with 64% of our occasions in restaurant, and the consumers are seeking great physical experiences.

Operator: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Suburban and urban environment. So just isn't really one thing driving that traffic strength, it's a combination of factors.

David Tarantino: So just isn't really one thing driving that traffic strength. from the United States of the combination of factors. Great, thank you very much.

Speaker Change: Great. Thank you very much.

Brian Harbour: Your next question comes from the line of Brian Harbour from Morgan Stanley.

Speaker Change: Your next question comes from the line of Brian Harbor from Morgan Stanley. Your line is now open.

Brett Schulman: I recently visited our newest freestanding project soul location on McPherson Boulevard in Fort Worth, Texas, which has incorporated software seeding, increased greenery, and a warmer brand pilot to create a comfortable, welcoming environment and better express our concept essence.

David Tarantino: David Tarantino. Good afternoon and congratulations on delivering such strong results. My question is about the second quarter and the strength you saw on the sales. It was quite a big acceleration it seemed, you know, from the first quarter. And I just wanted to get your thoughts on the factors that drove that large acceleration. I know you mentioned stake outperforming your expectation, but maybe you could piece together some of the key drivers.

Brian Harbour: Your line is now open. Yeah, thank you. Good afternoon, guys. One question I guess I was curious about on the margin side was, is there anything else aside from how the stake impact? Is there anything else you're doing on food the rest of the year? And then also, you know, doing plan to make a similar kind of labor investment once we get into the end of the year. How will that kind of play into restaurant margins? Yeah, outside of stake, we're not anticipating significant changes in input costs on the food, beverage, and packaging cost side for the remainder of the year.

Brian Harbor: Yes. Thank you good afternoon guys.

Brett Schulman: Guests are responding well to the new aesthetic, and we are using what we learn in our iterative process to finalize our go-forward design later this year.

One question I guess I'm, just curious about on the margin side was.

Brian Harbor: Is there anything else aside from kind of the steak impact is there anything else youre doing in food the rest of the year and then also.

Speaker Change: Do you plan to make a similar kind of labor investment.

Speaker Change: Once we get into the end of the year, how will that kind of play into restaurant margins.

Speaker Change: Yes outside of stake, we're not anticipating significant changes in input costs on the food beverage and packaging cost side for the remainder of the year and then when you turn and look at labor investments, we mentioned that average wages up 9% year over year, we started making fairly significant investments in wages in the fourth quarter of 2023.

Tricia Tolivar: And then when you turn and look at labor investments, we mentioned that average wage is up 9% year over year. We started making fairly significant investments in wages in the fourth quarter of 2023. And that's what you're seeing the benefit of in the increase in average wage, as well as the decline in turnover that Brett talked about in the prepared remarks.

David Tarantino: And then the second part of the question, Tricia, that looks like the second half you're not quite assuming or assuming quite the same strength that can continue. So just wondering how you're thinking about the second half, you know, related to what you just delivered for the second quarter.

Speaker Change: And Thats, what youre seeing the benefit of.

Speaker Change: In the increase in average wage as well as the decline in turnover that Brett talked about in the prepared remarks at this point, while we're always looking at ways to reinvest into our team members as well as our guests. There are no major plans for an incremental labor investments for the rest of 2024.

Brett Schulman: Thanks. Thanks, David. So certainly as you look at our second quarter, same restaurant sales growth of 14.4%. And compared that to first quarter, there is an acceleration. But really looking at it on a two-year same restaurant sales basis, two-year same restaurant sales in Q1 of 24 were 30.8% and two-year same restaurant sales in Q2 of 2024 grew to 32.6%. So there certainly is an increase and you're seeing that in what we were able to deliver in Q2 with a very strong 9.5% traffic growth.

Brett Schulman: With automation and technology increasingly infiltrating the front lines with many concepts, we believe consumers are seeking human connection more than ever.

Tricia Tolivar: At this point, while we're always looking at ways to reinvest into our team members as well as our guests, there are no major plans for incremental labor investments for the rest of 2024. Okay, sounds good. Thank you.

Brett Schulman: Project soul provides an environment to foster that connection.

Brett Schulman: We believe our team's unique ability to tap into emerging trends and make Cava part of the cultural conversation is helping to propel our success.

Speaker Change: Okay sounds good thank you.

Brian Harbour: And the new labor model that you mentioned, could you tell us more about that, kind of what, what some of the details are, what, what's kind of been most favorable within that so far?

Speaker Change: The new Labor model that you mentioned could you tell us more about that kind of what.

Speaker Change: What some of the details are what whats kind of venmo.

Speaker Change: And then most favorable within that so far.

Brett Schulman: Hey, Brian, it's Brett. I'll speak to that. It's, you know, it's basically taking the same net hours, labor hours, and reallocating them in a much more effective, efficient way so that we put our team members in the right places at the right moments during their shift. So that they're prepping, during down times, their customer facing during peak times to help with speed of service, to help with quality of guest experience. And we're seeing quantitative improvements in the pilot restaurants, as well as qualitative improvements, especially for our general managers or our shift leaders saying, you know, now we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at peak hours.

Speaker Change: Brian It's Brad I'll speak to that.

Brett Schulman: When you look at what are the drivers impacting the same restaurant sales, I kind of think of it like a culpable. There are lots of combinations that blend together to create something truly amazing. And it seems like new culinary innovation like stake that you've mentioned. It's a strong value perception that we have in the marketplace, increased brand awareness, and certainly our team member execution. And so all that combined together is delivering an outstanding result in the period in quarter that we're proud of.

Brad: It's basically taking the same net hours labor hours and reallocating them in a much more effective efficient way. So that we put our team members in the right places at the right moment during their shift so they're prepping during down times their customer facing during peak times to help with speed of service to help with quality of guest experience.

Brett Schulman: Our social media campaigns have been effective because there are organic, authentic, and express the genuine love guests have for Cava.

Brad: And we're seeing quantitative improvements in the pilot restaurants, as well as qualitative improvements, especially for our general managers or our shift leaders, saying.

Brett Schulman: Many of our brand partners were passionate fans of Cava before they worked with us, including U.S, women soccer captain and midfielder Lindsay Huran.

Brett Schulman: Lindsay not only loves our food and incorporates it into her training regimen, but she also has an expensive and growing following and the unique content she created for us is resonating with consumers.

Brett Schulman: Congratulations to Lindsay and her teammates on their gold medal victory in France.

Brad: Now, we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at.

Brett Schulman: Our second strategic pillars to develop personal relationships with guests, even as we scale. A foundational component of this pillars are reimagined loyalty program.

Brett Schulman: And then in your second question about the second half and how it's not assuming the same strength, we talked about this in our guidance. And while we don't give period to period or into the quarter following quarter results, we are seeing strengths in the business itself, but also wanted to be thoughtful around the uncertain macroeconomic environment in the upcoming election and factor that into our guidance. So there's two things together influencing what we've communicated today.

Brett Schulman: So very pleased will be at 75 restaurants this fall with the goal to launch it across all restaurants in early 2025.

Brad: At peak hours. So very pleased we'll be at 75 restaurants. This fall with the goal to launch it across all restaurants in early 2025.

Brett Schulman: We expect this project to significantly grow first party data, help us create more frequent, relevant experiences that drive traffic, mix, and check, and share our Mediterranean warmth and hospitality across platforms and occasions in ways that resonate with guests on a personal level.

Andrew Charles: Your next question comes from the line of Andrew Charles from TD Cohen. Please go ahead. Great. Thank you. You talked about the revamped low to program, you know, guest visiting and spending more than non-low to get.

Speaker Change: Your next question comes from the line of Andrew Charles from TD Cowen. Please go ahead.

Brett Schulman: Our pilot has given us confidence in the program's ability to drive frequency and increase loyalty revenue.

Andrew Charles: Great. Thank you you talked about the revamped loyalty program guests visiting and spending more than non loyalty guests.

Andrew Charles: You know, is it fair to say the low to pilot markets are seeing same store sales materially outperform the overall system. What I'm really looking to understand is that is the low to program same store sales impact factored into the back half guidance for same store sales? Yes, the loyalty we mentioned is going to launch in October, ahead of schedule, and we are seeing benefits as a program in our test market, but we haven't factored anything incremental into our guidance for the rest of the year. Okay, very helpful.

Brett Schulman: Our third strategic pillar run great restaurants every location, every shift is focused on making our restaurants more efficient and easier to run.

Brett Schulman: Our Connected Kitchen initiative is a multi-year journey focused on using data driven and generative AI technologies to simplify restaurant operations and let our team members focus on great food, great service, and creating meaningful connections with guests. We're currently running a small pilot of AI video technology that monitors how quickly ingredients on the in-restraunt make line are being depleted and alerts the team in real time for prep and clip batch amounts. The system is in the learning phase and we expect it to go live in pilot restaurants in early fall.

Tricia Tolivar: Great. Thank you for that. And Trisha, is there any way to isolate the impact of stake on the comp in the second quarter? I guess however you look at it from a traffic and make perspective? Yeah, there was a favorable impact on mix and certainly some benefit in traffic, but what we're seeing is strength and traffic across in general and fits much broader than stake by itself. And this really pleased with the traffic and same restaurant sales strengths across all regions of the country and all of our formats as well as in suburban and urban environments. So just isn't really one thing driving that traffic strength, from the United States of the combination of factors.

Speaker Change: Fair to say the loyalty pilot markets are seeing same store sales materially.

Andrew Charles: This overall system, what I'm really looking to understand is that is the loyalty program same store sales impact factored into the back half guidance for same store sales.

Brett Schulman: We'll update you on the initial results in our next earnings call.

David Tarantino: Great, thank you very much.

Brett Schulman: Paul.

Speaker Change: Yes. The royalty we mentioned is going to launch in October ahead of schedule and we are seeing benefits to the program in our test markets, but we haven't factored anything incremental into our guidance for the rest of the year.

Speaker Change: Okay very helpful. And then Brett just wanted to get an update on catering last time, we caught up I believe you talked about 10 production facilities.

Brett Schulman: And then Brett, just wanted to get an update on catering. Last time we caught up, I believe you talked about 10 production facilities. You know, is this something you expect to lean more into in 2025 versus more of a 2026 opportunity for the system of catering? It's really more looking toward 2026 on a larger scale. 2025 will be a continuation of progression of our test. Very excited about the catering opportunity, but want to be very mindful about how it impacts production in our restaurants. And so we do have 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations across the country, as well as a cluster of regular Cava restaurants that we're testing catering in now.

Speaker Change: You expect to lean more into in 2025, because it's more of a 2026 opportunity for the system of catering.

Speaker Change: It's really more looking towards 2026 on a larger scale 2025 will be a continuation of progression of our test very excited about the catering opportunity, but want to be very mindful about how it impacts production in our restaurants and so we do have 10 digital kitchen hubs and 10 hybrid kitchen hubs.

Brian Harbour: Your next question comes from the line of Brian Harbour from Morgan Stanley. Your line is now open. Yeah, thank you. Good afternoon guys. One question I guess I was curious about on the margin side was, is there anything else aside from how the stake impact? Is there anything else you're doing on food the rest of the year? And then also, you know, doing plan to make a similar kind of labor investment once we get into the end of the year.

Speaker Change: Various locations across the country as well as a cluster of regular carver restaurants that were testing catering and now we will move in 2025 to a full market test of a major metro market to really inform how we would want to go across the country in 2026.

Brett Schulman: We will move in 2020. 2025 to a full market test of a major metro market to really inform how we would want to go across the country in 2026 from a more national perspective, but very excited about the catering opportunity, certainly seeing a lot of demand. We want to make sure we set our operators up for success to deliver on that guest promise.

Brian Harbour: How will that kind of play into restaurant margins? Yeah, outside of stake, we're not anticipating significant changes and input costs on the food beverage and packaging cost side for the remainder of the year. And then when you turn and look at labor investments, we mentioned that average wage is up 9% year over year. We started making fairly significant investments in wages in the fourth quarter of 2023. And that's what you're seeing the benefit of in the increase in average wage as well as the decline in turnover that Brett talked about in the prepared remarks.

Speaker Change: From a more national perspective, but very excited about the catering opportunity certainly seeing a lot of demand we want to make sure. We set our operators up for success to deliver on that gas promise.

Chris Stifel: Next question comes from the line of Chris, so call from Steve, please go ahead. Thanks. Good afternoon, guys. Brett, you mentioned new units are exceeding expectations. What factors do you believe are causing the better-than-expected performance? And then Tricia, whoa, what's been the average investment for new units open this year? And maybe what's been the trend? What does the inflation trend look like recently relative to your old target?

Speaker Change: Our next question comes from the line of Chris So call from Stifel. Please go ahead.

Speaker Change: Thanks, Good afternoon guys.

Brett you mentioned new units are exceeding expectations. What factors do you believe are causing the better than expected performance and then Tricia what's been the average investment for new units opened this year and maybe what's been the trend.

Brian Harbour: At this point, while we're always looking at ways to reinvest into our team members as well as our guests, there are no major plans for incremental labor investments for the rest of 2024. Okay, sounds good. Thank you.

Tricia: The inflation trend looked like recently relative to your own targets.

Brett Schulman: Chris, thanks for the question. I think it's certainly the execution of our team and the increasing awareness of our brand. One of the things we talked about when going public was that this was an opportunity to put our brand and the category we're creating in the public sphere. And that's certainly amplified awareness around the country. And when we do our community days, we've been able to generate great earn media and organic viral word of mouth in these communities that's driven very strong sales out of the gate. So it's been a bit of a, you know, kind of snowball rolling down hill as we open these restaurants and seeing the moment of the openings.

Tricia: Hey, Chris Thanks for the question I think.

Brett Schulman: While this initiative is still in the very early stages, we believe it can drive quality and consistency, increase order accuracy, boost speed of service, and simplify prep and planning.

Brian Harbour: And the new labor model that you mentioned, could you tell us more about that kind of what, what some of the details are, what, what's kind of been most favorable within that so far?

Brett Showman: It's certainly the execution of our team and the increasing awareness of our brand one of the things we've talked about one going public was that this was an opportunity to put our brand and the category, we're creating in the public sphere and Thats certainly amplified awareness around the country and when we do our community days, we've been able to generate great earned media inorganic.

Brett Schulman: Hey, Brian, it's Brett. I'll speak to that. It's, you know, it's basically taking the same net hours, labor hours and reallocating them in a much more effective, efficient way so that we put our team members in the right places at the right moments during their shift.

Brett Schulman: Our labor model test also continues to progress, and we expect more than 75 restaurants to be in pilot by early fall. The focus of this test is on reallocating hours, putting our team in a position to deliver better food, better hospitality, and more efficient speed of service.

Brett Showman: Viral word of mouth in these communities, that's driven very strong sales out of the gate. So it's been a bit of a.

Brett Schulman: So that they're prepping, during down times, their customer facing during peak times to help with speed of service, to help with quality of guest experience. And we're seeing quantitative improvements in the pilot restaurants as well as qualitative improvements, especially for our general managers or our shift leaders saying, you know, now we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at peak hours. So very pleased will be at 75 restaurants this fall with the goal to launch it across all restaurants in early 2025.

Brett Showman: Kind of snowball rolling downhill as we open these restaurants and seeing the momentum of the openings.

Tricia Tolivar: And Chris doesn't relate to cost to those new restaurants. We are experiencing costs of around 1.3 million net, which is in line with what we've expected. Really pleased with the team's performance and managing those costs. And when you ask about inflation, there's been very modest inflation that we've been experiencing. And that's a lot to do with how our real estate design and construction teams address the more work with our general contractor base to expand and strengthen it and conduct RFPs to really make us more effective in our spend. And then overall, when you combine that with the strong returns and sales and operating performance that Brett talked about, it really drives a strong cash-on-cash return that's exceeding our expectations as we go into their first and second year and beyond opening.

Brett Showman: Yeah, Chris as it relates to cost of the new restaurants, we are experiencing cost of around $1 3 million net which is in line with what we've expected really pleased with the team's performance in managing the cost and when you ask about inflation had been very modest inflation that we've been experiencing and that's a lot to do with.

Brett Showman: How are our real estate design and construction team addressed tomorrow at work with our general contractor base to expand and strengthen that and conduct rfps to really make us more effective in our spend and then overall when you combine that with strong returns in sales and operating performance that Brent talked about it really drives.

Andrew Charles: Your next question comes from the line of Andrew Charles from TD Cohen.

Andrew Charles: Please go ahead. Great. Thank you. You talked about the revamped low to program, you know, guest visiting and spending more than non-low to get. You know, is it fair to say the low to pilot markets are seeing same store sales materially outperform the overall system. What I'm really looking to understand is that is the low to program same store sales impact factored into the back half guidance for same store sales? Yes, the loyalty we mentioned is going to launch in October ahead of schedule and we are seeing benefits as a program in our test market, but we haven't factored anything incremental into our guidance for the rest of the year.

Andrew Charles: Okay, very helpful.

Brett Schulman: Early results are promising and we have identified opportunities to strategically invest in lower-value restaurants to drive increased revenue over time.

Brent: Our strong cash on cash return that.

Brent: <unk> our expectations as we go into their first and second year and beyond opening.

Chris Stifel: It's great. Congratulations, guys. Thank you.

Speaker Change: Great Congratulations guys.

Brent: Thank you.

Speaker Change: Yeah.

Andy Bearish: Next question is from the line of Andy Bearish from Jeffries. Please go ahead. Hey guys, I'm just kept telling on that last question and answers. If I'm on project solar. Are there any incremental costs? I mean, we should be thinking about, and then also the other side of that is kind of digital pickup lanes.

Speaker Change: Next question is from the line of Andy Barish from Jefferies. Please go ahead.

Andy Barish: Hey, guys.

Speaker Change: Just dovetailing on that last.

A question and answer.

Patrick solos.

Andy Barish: Are there any incremental costs I mean, we should be thinking about and then also the other side of that is kind of digital pick up lane do you expect any material increase.

Brett Schulman: And do you expect any, you know, material increase in those as a percentage of, you know, kind of the new builds as we look out to 2526. At this point, we're not anticipating significant incremental costs, but we're still evaluating the components that we like in Project Soul, and we'll give updates of the appropriate as we move forward. And when you think about digital pickup lanes, we're up to 45 lanes today, and those incremental costs are not significant as we bring those pickup lanes to life. And, as a percentage of new builds, it's been an increasing percentage.

Brett Schulman: It's really more looking toward 2026 on a larger scale. 2025 will be a continuation of progression of our test. Very excited about the catering opportunity, but want to be very mindful about how it impacts production in our restaurants. And so we do have 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations across the country as well as a cluster of regular Cava restaurants that we're testing catering in now.

Andy Barish: And those as a percentage.

Speaker Change: Kind of the Newbuild as we look out to 'twenty five 'twenty six.

Brett Schulman: We expect to continue expanding our test throughout 2024 with a company-wide rollout plan for the beginning of 2025.

Speaker Change: At this point, we're not anticipating significant incremental costs that we're still evaluating the components that we like and projects and we will give updates as appropriate as we move forward and when you think about digital pickup lanes were up to 45 lanes today and those.

Brett Schulman: As part of our restaurant health initiative, we're testing technology that proactively gathers guest feedback at the restaurant level and in nearly real time. The test is live in 50 restaurants, and we are pleased with the results and expect to launch this new technology company-wide in early 2025.

Speaker Change: Incremental costs they are not significant as we bring those pickup lanes to life and as a percentage of new build I mean, it's been an increasing percentage again, we're not going to establish a target that's suggesting maybe a certain percentage of our openings were being very opportunistic about finding the right sites and making sure making the right economic decision.

Chris Stifel: Next question comes from the line of Chris, so call from Steve, please go ahead. Thanks.

Brett Schulman: Again, we're not going to establish a target that's suggesting we be a certain percentage of our openings; we're being very opportunistic about finding the right sites and making sure we're making the right economic decisions around that site selection process. Gotcha.

Speaker Change: It is around that site selection process.

Brett Schulman: In addition, we continue to reinvest in team members and by proxy our guests.

Speaker Change: Gotcha, and then just one one.

Tricia Tolivar: And then just one follow-up on the input costs. Where did you, I'm assuming, you know, there was some deflation in other areas just given the kind of rolling in for part of the quarter. Is there anything you would, you know, truth to share in terms of the basket, you know, that was deflationary and looking out for the second half, anything of note there? Yeah, we're not; a lot of the improvement was versus prior years, and a lot of change and input costs from Q1 to Q2. Necessarily, we're not expecting outside of state significant changes as we go into Q3 and Q4.

Speaker Change: One follow up on the input costs.

Speaker Change: Where did you I'm assuming.

Speaker Change: There.

Chris Stifel: Good afternoon, guys. Brett, you mentioned new units are exceeding expectations. What factors do you believe are causing the better than expected performance? And then Tricia, whoa, what's been the average investment for new units open this year? And maybe what's been the trend? What does the inflation trend look like recently relative to your old target?

Speaker Change: There was some deflation in other areas just given the.

Brett Schulman: Our regular investments in wages and team member development are helping us recruit and retain the top talent we need to support our growth. In the second quarter, turnover was down by approximately 28% year-over-year at the hourly level. We don't just want to retain our talent, we want to continue to develop them.

Speaker Change: Kind of rolling in for part of the quarter.

Brett Schulman: To that end, we now have 62 leaders in our Academy GM network, including nine promoted to higher levels, as we grow our ranks to build our future leadership pipeline and support of our new restaurant growth.

Speaker Change: Is there anything you would you would you.

Speaker Change: Curious to share in terms of the basket.

Speaker Change: That was deflationary in looking out through the second half any anything of note there.

Speaker Change: No we're not.

Speaker Change: A lot of the improvement versus.

Chris Stifel: Chris, thanks for the question. I think it's certainly the execution of our team and the increasing awareness of our brand. One of the things we talked about when going public was that this was an opportunity to put our brand and the category we're creating and the public sphere. And that's certainly amplified awareness around the country. And when we do our community days, we've been able to generate great earn media and organic viral word of mouth in these communities that's driven very strong sales out of the gate.

Speaker Change: Versus prior year, so not a lot of change in input costs from Q1 to Q2 necessarily we are not expecting outside of steak significant changes as we go into Q3 and Q4.

Brett Schulman: I had the privilege of working alongside Sandra Barrios, our Laurel GM, who is in the process of seeking her Academy GM certification. Sandra pointed out a few high potential team members she is looking to nominate for the GM training program.

Brett Schulman: Possibly the best part of my visit was meeting Ramon Canalis, our grill champion at Laurel who spicy lamb meatballs are definitely in the running for the best I've ever tasted. Ramon is a true grill champion.

Brett Schulman: I want to thank our Laurel team for hosting me and I want to thank our teams across the country for delivering an exceptional quarter while staying true to our mission every day.

Sharon Zackfia: Your next question comes from the line of Sharon Zaxia from William Blair. Please go ahead. Hi, good afternoon. I know that Cava has such a wide bandwidth of a peel across, you know, different demographics and household incomes. And I'm curious kind of how you did in the quarter across those different income bandwidths, and whether you think you're getting straight up as well as straight down.

Speaker Change: Your next question comes from the line of Sharon Zackfia from William Blair. Please go ahead.

Brett Schulman: In this uncertain time for the consumer, we believe that delivering on our mission to bring heart, health, and humanity to food will continue to be a powerful formula for success.

Sharon Zackfia: Hi, good afternoon.

Sharon Zackfia: I know that Tommy has such a wide bandwidth of appeal across different demographics and household incomes and I'm curious kind of how you did in the quarter across those different income bandwidth.

Brett Schulman: Consumers are hungry for flavorful, healthy and innovative food, want the convenience of engaging with brands on their terms and in an increasingly automated world crave human connection.

Chris Stifel: So it's been a bit of a, you know, kind of snowball rolling down hill as we open these restaurants and seeing the moment of the openings. And Chris doesn't relate to cost to those new restaurants. We are experiencing costs of around 1.3 million net, which is in line with what we've expected. Really pleased with the team's performance and managing those costs. And when you ask about inflation, there's been very modest inflation that we've been experiencing.

Brett Schulman: From our relevant differentiated cuisine to the robust digital and physical experiences we provide and our unique brand of Mediterranean hospitality, we are meeting the moment for the modern consumer, as evidence by our outstanding second quarter results, our value proposition is resonating with guests, and as we define the next large-scale cultural cuisine category, we are well positioned to create long-term value for our guests, team members, and shareholders.

Speaker Change: And whether you think youre getting trade up as well as trade down.

Tricia Tolivar: With that, I'll let Tricia walk you through the financials.

Brett Schulman: Yeah, hey, Sharon, I hope you're continuing to recover well. I appreciate the question around performance. So we look at our restaurants based on median household incomes in their areas, and we stratify them. And what we're very pleased to see is that there's strong performance in same restaurant sales across all income strata, and in fact, the lowest income strata has the highest level of sales. So, double-digit same restaurant sales strength across all strata. And then when you drill in and look at the top deathile of restaurants, there's representation from every income strata within the top deathile.

Speaker Change: Yeah, Hey, Sharon I hope, you're continuing to recover well.

Tricia Tolivar: Thanks, Brett, and good afternoon everyone.

Speaker Change: The question around.

Speaker Change: <unk> performance.

Tricia Tolivar: Cava Revenue in the second quarter of 2024, through 35.2% year-over-year to 231.4 million. During the quarter, we opened 18 net new Cava restaurants, or 78 net new Cava restaurants during the subsequent to the second quarter of 2023, bringing our total Cava restaurant count to 341.

Speaker Change: Look at our restaurants based on median household incomes in their areas and we stratify them and what we're very pleased to see is that there is strong performance in same restaurant sales across all income strata and in fact, the lowest income strata has the highest level of sales so double digit same restaurant sales.

Tricia Tolivar: We are pleased with our new restaurant opening, which are continuing to exceed expectations.

Chris Stifel: And that's a lot to do with how our real estate design and construction teams address the more work with our general contractor base to expand and strengthen it and conduct RFPs to really make us more effective in our spend. And then overall, when you combine that with the strong returns and sales and operating performance that Brett talked about, it really drives a strong cash on cash return that's exceeding our expectations as we go into their first and second year and beyond opening.

Tricia Tolivar: Cava same restaurant sales increased 14.4% driven by a 9.5% increase from guest traffic, and a 4.9% increase from menu price and product mix.

Speaker Change: Since across all strata and then when you drill in and look at the top decile of restaurants. There is representation from every income strata within the top decile, so really underscoring.

Brett Schulman: So really underscoring thus far, we've seen a lot of resilience in our guests and what they've been able to deliver and come to Cava. And we think a lot of that has to do with the strong value proposition that we are presenting for them.

Speaker Change: Thus far we've seen a lot of resilience and our guests and what they've been able to deliver and come to copper and we think a lot of that has to do with the strong value proposition that we are presenting for them and really just pleased with the results overall.

Tricia Tolivar: Our stake log to the beginning of June, benefited from a highly productive social media and PR campaign driving incidents well above test results and original expectations.

Chris Stifel: It's great. Congratulations, guys.

Tricia Tolivar: Cava restaurant level profit in the second quarter was 61.3 million, or 26.5% of revenue, versus 44.6 million or 26.1% of revenue in the prior year, representing a 37.3% increase. This increase was due to leverage from higher sales, partially offset by incremental wage investments and the launch of stake on June 3rd.

Chris Stifel: Thank you.

Andy Barish: Next question is from the line of Andy bearish from Jeffries. Please go ahead. Hey guys, I'm just kept telling on that last question and answers. If I'm on project solar. Are there any incremental costs? I mean, we should be thinking about and then also the other side of that is kind of digital pickup lanes. And do you expect any, you know, material increase in those as a percentage of, you know, kind of the new builds as we look out to 2526.

Brett Schulman: And really just pleased with the results overall.

Brett Schulman: Yeah, Sharon, it's something I noted in our prepared remarks. And I've talked about where, you know, you hear a lot about these value wars, and I think it's a bit of a misnomer, and that, you know, people are focused on price, which is the cost of what they're paying versus the value, which is truly worth, and the worth of their meal or their experience. And it was those attributes I talked about: quality, relevance, convenience, and experience put together. And so when you think about some of the challenges of the traditional full service model in many markets to deliver on a proposition like that, we're seeing that trade down.

Sharon Zackfia: Sharon it's something.

Sharon Zackfia: Our prepared.

Sharon Zackfia: Our prepared remarks, and I've talked about where you hear a lot about these value wars and I think it is a bit of a misnomer and that people are focused on price, which is the cost of what they are paying versus the value which is truly worth.

The worth of their meal or their experience and it was those attributes I talked about quality relevance convenience and experience put together and so when you think about some of the challenges of the traditional full service model in many markets to deliver on our proposition like that we're seeing that trade down and we're seeing trade up below us from from traditional fast food where.

Brett Schulman: At this point, we're not anticipating significant incremental costs, but we're still evaluating the components that we like in Project Soul, and we'll give updates of the appropriate as we move forward. And when you think about digital pickup lanes, we're up to 45 lanes today, and those incremental costs are not significant as we bring those pickup lanes to life. And as a percentage of new builds, it's been an increasing percentage. Again, we're not going to establish a target that's suggesting we be a certain percentage of our openings, we're being very opportunistic about finding the right sites and making sure we're making the right economic decisions around that site selection process. Gotcha.

Brett Schulman: And we're seeing trade up below us from traditional fast food where, you know, if you look at the Department of Labor Statistics from the end of 19 to the end of 23, fast food prices have increased upwards of 30%; CPI 18% during that time frame. So now you've got a situation where, for a dollar or two more, or often at parity, you can get a bowl of fresh Mediterranean food for the same price as a traditional fast food freezer to fry or meal. And we see that trade up, and that positions us at the nexus of this with our differentiated Mediterranean cuisine, which is really helping to fuel that traffic.

Speaker Change: If you look at the department of Labor Statistics from the end of <unk> 19 to the end of 'twenty three fab.

Speaker Change: Fast food prices of increase upwards of 30% CPI, 18% during that timeframe, we only took price about 12% during that timeframe. So now you've got a situation where for $1. Two more often at parity you can get a bowl of fresh Mediterranean food for the same price as a traditional fast food freezer to prior meal and we see that trade off.

Speaker Change: And that positions us at the Nexus of this with our differentiated Mediterranean cuisine, which is really helping to fuel that traffic growth.

Tricia Tolivar: And then just one follow-up on the input costs. Where did you, I'm assuming, you know, there was some deflation in other areas just given the kind of rolling in for part of the quarter. Is there anything you would, you know, truth to share in terms of the basket, you know, that was deflationary and looking out for the second half, anything of note there? Yeah, we're not, a lot of the improvement was versus prior years, and a lot of change and input costs from Q1 to Q2, necessarily, we're not expecting outside of state significant changes as we go into Q3 and Q4.

Sharon Zackfia: Groshe. Thanks for that. And the question I need a productivity, if my math is right and we kind of always try to back into this, it looks like you're hitting your two targets in the first year of operation, at least for the frail in 12 months. And we talked about bread a little bit about that kind of brand and the title you're on. I guess at what point do you start to think about changing those new unit hurdles when you think internally about what sites to take and what you're willing to pay for rent, and then externally, of course, with us and how you think about that new unit productivity.

Tricia Tolivar: Cava labor and related costs were 25.2% of 40 basis points in the second quarter of 2023.

Speaker Change: Thanks for that and a question on the productivity.

Speaker Change: My math is right and we kind of always try to back into this it looks like youre hitting your targets in their first year of operation at least for the trailing 12 months and you talked about a little bit about that kind of bring oven and the time for all of your on I guess at what point do you start to think about changing those.

Speaker Change: New unit hurdles when you think of internally about websites to take and what you are willing to pay for rod.

Speaker Change: Then externally of course with us and how you think about that.

Speaker Change: Productivity.

Brett Schulman: Thanks, Sharon. So our new restaurants have been performing very well, and we factor that into our internal assessments of sites as we look at them every two weeks as a cross-functional team to make sure we're making the right decisions as we go forward.

Speaker Change: Yes, thanks, Sharon so R&D restaurants have been performing very well and we factor that into our internal assessments of sites as we look at them. Every two weeks is a cross functional team to make sure we're making the right decisions as we go forward. We do think there is likely an opportunity for us to more broadly communicate.

Sharon Zackfia: Your next question comes from the line of Sharon Zaxia from William Blair. Please go ahead. Hi, good afternoon. I know that Cava has such a wide bandwidth of a peel across, you know, different demographics and household incomes. And I'm curious kind of how you did in the quarter across those different income bandwidth, and whether you think you're getting straight up as well as straight down. Yeah, hey, Sharon, I hope you're continuing to recover well.

Brett Schulman: We do think there is likely an opportunity for us to more broadly communicate how we view new restaurant performance, both the opening year as well as subsequent years, and we'll likely have that to be something to communicate in 2025.

Speaker Change: How we view new restaurant performance, both the opening year as well as subsequent year, then we'll likely have that.

Speaker Change: To be something that communicate in 2025.

Brian Mullin: Your next question comes from the line of Brian Mullin from Piper Sandler. Please go ahead. I thank you.

Sharon Zackfia: I appreciate the question around performance. So we look at our restaurants based on median household incomes in their areas, and we stratify them. And what we're very pleased to see is that there's strong performance in same restaurant sales across all income strata, and in fact, the lowest income strata has the highest level of sales. So, double digit same restaurant sales strength across all strata. And then when you drill in and look at the top deathile of restaurants, there's representation from every income strata within the top deathile.

Speaker Change: Your next question comes from the line of Brian Mullan from Piper Sandler. Please go ahead.

Brett Schulman: Just a question on the Connected Kitchen initiative. Brett, you've heard this as a multi-year journey. As you think about internally, how do you decide how to sequence all the initiatives you have in mind? Is it just the anticipated impact of the business, or are there maybe practical for practical reasons certain order that you need to go on what you have in mind? So just any kind of color on how you expect this journey to evolve.

Brian Mullan: Hey, Thank you just a question on the connected kitchen initiatives Bret you've heard this is a multiyear journey as you think about it internally how do you decide how to sequence all the initiatives you have in mind is it just the anticipated impact of the business, where there maybe pratt.

Speaker Change: Practical for practical reasons certain order orders that you need to go on what you have in mind. So just any kind of color on how you expect this journey to evolve.

Brett Schulman: Thanks, Brian, for the question. I think it's the latter. It's definitely from a practical standpoint. You think about our labor deployment test, getting down those foundational labor deployments and getting that rolled out. We've talked about a new KDS, which has been in test pilot, getting that equipment capability and base capability out there and then bringing behind some of the more sophisticated long-term generative AI type technologies that we think are at the early stage but could prove very beneficial over the long term. So it's kind of crawl, walk, around but starting with very base foundation initiatives and then layering on some of the more sophisticated initiatives that we think can ultimately make our restaurants easier to run and set our team members up to deliver on that great guest experience.

Bret: Yes, Thanks, Brian for the question I think its the latter its definitely from a practical standpoint, you think about our labor deployment task getting down those foundational labor deployments and getting that rolled out we've talked about <unk>, which has been in test pilot getting that equipment capability and base capability out there.

Sharon Zackfia: So really underscoring thus far, we've seen a lot of resilience in our guests and what they've been able to deliver and come to Cava. And we think a lot of that has to do with the strong value proposition that we are presenting for them. And really just pleased with the results overall. Yeah, Sharon, it's something I noted in our prepared remarks. And I've talked about where, you know, you hear a lot about these value wars, and I think it's a bit of a misnomer, and that, you know, people are focused on price, which is the cost of what they're paying versus the value which is truly worth, and the worth of their meal or their experience.

Bret: And then bringing behind some of the more sophisticated long term generative AI type technologies that we think are at the early stage, but could prove very beneficial over the long term. So it's just kind of crawl walk run, but starting with very base Foundation initiatives and then layer on layering on some of the more sophisticated initiatives that we think can.

Tricia Tolivar: The increase reflects investment in our team member wages of 9% year over year, including the impact from AB 1228, which we chose not to offset with menu price increases to the guests.

Tricia Tolivar: That we discussed in prior calls, partially offset by leverage from increased sales compared to the prior year. Cava occupancy and related expenses were 6.9% of revenue and improvement of 90 basis points from the second quarter of 2023 due to increased sales leverage.

Bret: Ultimately make our restaurants easier to run and set our team members up to deliver on that great guest experience.

Tricia Tolivar: Cava other operating expenses were 12% of revenue, which is flat to the second quarter of 2023.

Sharon Zackfia: And it was those attributes I talked about, quality relevance, convenience, and experience put together. And so when you think about some of the challenges of the traditional full service model in many markets to deliver on a proposition like that, we're seeing that trade down. And we're seeing trade up below us from traditional fast food where, you know, if you look at the Department of Labor Statistics from the end of 19 to the end of 23, fast food prices have increased upwards of 30%, CPI 18% during that time frame.

Brett Schulman: Okay, thank you.

Brett Schulman: Then follow up on development. I believe you just recently, within the last few months, maybe hired a new chief development officer role. So could you just comment on any early insights? Maybe he's brought to the organization as far or anything worth calling out.

Speaker Change: Okay. Thank you and then a follow up on development I believe you just recently within the last few months, maybe hired a new Chief development officer role. So could you just kind of any early insights maybe he's brought to the organization, thus far or anything worth calling out.

Tricia Tolivar: However, as a percentage of revenue, we experienced an improvement of 120 basis points due to leverage from higher sales, partially offset by the previously noted investments and recurring public company costs.

Brett Schulman: Yeah, Jeff Golf joined us. He was formerly the global head of store development at Nike. He's been just a great addition to our team. He's hit the ground running like he's been here for years with our ELT. And you know, Jeff certainly has deep experience in scaling large pipelines of growth and has already brought to the table whether it's on the grossing side. Some great value ads to make sure that we're set up as we ramp up that 15% annual compound unit growth rate translating into more and more units every year.

Speaker Change: Yes, Jeff Gardner joined US He was formerly the global head of store development in Nike has been just a great addition to our team has hit the ground running like he's been here for years with our ELC and Jeff certainly has deep experience in scaling.

Sharon Zackfia: So now you've got a situation where, for a dollar or two more or often at parity, you can get a bowl of fresh Mediterranean food for the same price as a traditional fast food freezer to fry or meal. And we see that trade up, and that positions us at the nexus of this with our differentiated Mediterranean cuisine, which is really helping the fuel that traffic. Groshe. Thanks for that. And the question I need a productivity, if my math is right and we kind of always try to back into this, it looks like you're hitting your two targets in the first year of operation, at least for the frail in 12 months.

Speaker Change: Large pipelines of growth and has already brought to the table, whether it's on the landlord side, whether it's on the strategic sourcing side, some great value add to make sure that we're set up as we ramp up that 15% annual compound unit growth rate translating into more and more units every year.

Brett Schulman: Pierre.

John Tower: Your next question comes from the line of John Tower from Sety. Please go ahead. Great. Thanks for taking the question. Just a couple of IMAs. First, I am curious, just following up on the new unit performance. It's been obviously well ahead of expectations. And, you know, the second time this year that the company's taken up its new restaurant opening expectations.

Speaker Change: Your next question comes from the line of Jon Tower from Citi. Please go ahead.

Speaker Change: Okay.

Jon Tower: Great. Thanks for taking the questions just a couple if I may 1st.

Sharon Zackfia: And we talked about bread a little bit about that kind of brand and the title you're on. I guess at what point do you start to think about changing those new unit hurdles when you think internally about what sites to take and what you're willing to pay for rent, and then externally of course with us and how you think about that new unit productivity. Thanks Sharon. So our new restaurants have been performing very well and we factor that into our internal assessments of sites as we look at them every two weeks as a cross-functional team to make sure we're making the right decisions as we go forward.

I am curious.

Jon Tower: Following up on the new unit performance.

Speaker Change: And then obviously well ahead of expectations.

Speaker Change: Second time this year that the company has taken up its new restaurant.

Speaker Change: Opening expectations I'm curious as you're looking beyond 25 or 25.

John Tower: I'm curious, as you're looking beyond 25 or into 25, is that at least a 15% target that you're speaking to? I'm not appear just a bit too conservative given what you're seeing in terms of consumer response and new store productivity and profits that you're generating plus the balance sheet that you have today. I mean, why can't that be closer to 20 percent?

Speaker Change: At least 15% target that youre speaking to.

Speaker Change: Pierre just a bit too conservative given what youre seeing in terms of consumer response in new store productivity and profits that youre generating plus the balance sheet that you have today, I mean, why can't that be closer to 20%.

Brett Schulman: Hey, John, it's Brett. It's really predicated upon developing future leaders. You know, there's certainly the demand out there, clearly. You know, we kind of talk internally. Chicago has been our best new market opening ever. We need to get more restaurants open in Chicago. But we also don't want to open those restaurants and have bad operations. So we want to make sure we've got the proper leaders train, which is why we've invested in our Academy GM network. You heard, you know, we're up to 62 Academy certified Academy GMs and make sure we've got that feeder system of pipeline talent that is properly trained and ready to serve our guests and run our teams in those restaurants.

Tricia Tolivar: We reported 19.7 million of net income compared with net income of 6.5 million in Q2 of 2023, representing an increase of 13.2 million.

Brett Schulman: We do think there is likely an opportunity for us to more broadly communicate how we view new restaurant performance, both the opening year as well as subsequent years and we'll likely have that to be something to communicate in 2025.

Brett Showman: John It's Brett.

John: Really predicated upon developing future leaders.

Speaker Change: There is certainly the demand out there clearly.

We kind of talked internally Chicago has been our best new market opening ever we need to get more restaurants opened in Chicago, but we also don't want to open those restaurants and have bad operations. So we want to make sure. We've got the proper leaders trained which is why we've invested in our Academy GM network. You heard we're up to 62 Academy certified Academy Gms and make sure we've got.

Tricia Tolivar: The power of the model is evident with net income in the second quarter of 2024, exceeding total net income generated in all of fiscal year 2023.

Brian Mullin: Your next question comes from the line of Brian Mullin from Piper Sadler. Please go ahead. I thank you.

Brett Schulman: Just a question on the Connected Kitchen initiative. Brett, you've heard this as a multi-year journey. As you think about internally, how do you decide how to sequence all the initiatives you have in mind? Is it just the anticipated impact of the business or are there maybe practical for practical reasons certain order that you need to go on what you have in mind? So just any kind of color on how you expect this journey to evolve.

Speaker Change: That feeder system of pipeline talent that is properly trained and ready to serve our guests and run our teams in those restaurants and we also just want to have commitments that we can deliver on that we feel comfortable with and not overheat. The engine so to speak and if we see the opportunity to push growth a little bit faster like we have this year.

Brett Schulman: And, you know, we also just want to have commitments that we can deliver on, that we feel comfortable with, and not overheat the engines, so to speak. And if we see the opportunity to push growth a little bit faster, like we have this year, this quarter in particular, then we'll take advantage of that opportunity. But we do not want to get over top our skis on restaurant growth.

Speaker Change: This quarter in particular, then we will take advantage of that opportunity, but we do not want to get over top of our skis on restaurant growth. We are students of history and have seen that that has undermined a lot of great growth brands over over time.

Brett Schulman: Thanks, Brian, for the question. I think it's the latter. It's definitely from a practical standpoint. You think about our labor deployment test getting down those foundational labor deployments and getting that rolled out. We've talked about a new KDS which has been in test pilot getting that equipment capability and base capability out there and then bringing behind some of the more sophisticated long-term generative AI type technologies that we think are at the early stage but could prove very beneficial over the long term.

Brett Schulman: We are students of history and have seen that that has undermined a lot of great growth brands over time. Fair enough.

Speaker Change: Okay.

Brett Schulman: Maybe I just kind of begin to do on. I noticed you guys are doing a connected TV test. I'm curious how many markets it is in today. And maybe what your early results have told you about, you know, testing this platform for building brand awareness in the markets that you're rolled it out to? Yeah, we're, we've only tested in about eight markets today. And it really is just a test. We're testing and learning. I talked about my prepared remarks about the efficiency and effectiveness of our social media and our earned media marketing to date. It's very powerful.

Speaker Change: Fair enough maybe.

Speaker Change: Maybe just kind of speaking with you Brett on I noticed you guys are doing a connected TV tests I'm curious how many markets. It in it's in today.

Speaker Change: Maybe what your early read.

Brett Showman: <unk> told you about.

Brett Showman: Testing.

Speaker Change #100: Platform for building brand awareness in the markets that you rolled it out too yes.

Brett Schulman: So it's kind of crawl walk around but starting with very base foundation initiatives and then layering on some of the more sophisticated initiatives that we think can ultimately make our restaurants easier to run and set our team members up to deliver on that great guest experience. Okay, thank you.

Brett Showman: Yes.

Speaker Change #101: Only tested it in about eight markets today and it really is just the tests, we're testing and learning I talked about my prepared remarks about the efficiency and effectiveness of our social media and our earned media marketing to date, it's very powerful we get tremendous user generated content that the team helps amplify or our own content on <unk>.

Brett Schulman: Then follow up on development. I believe you just recently within the last few months maybe hired a new chief development officer role. So could you just comment any early insights? Maybe he's brought to the organization as far or anything worth calling out. Yeah, Jeff golf joined us. He was formerly the global head of store development at Nike. He's been just a great addition to our team. He's hit the ground running like he's been here for years with with our ELT.

Brett Schulman: We get tremendous user generated content that the team helps amplify or our own content on social media and collaborations, like we noted with Lindsey Haran, that have proven to be incredibly effective, especially with our Gen Z audience. But as we scale across the country and we elevate to a more national stage, we are testing tactics and strategies to understand what really is most effective when we are ready to do a little bit more of that upper funnel activity and out of home activity.

Speaker Change #101: Media and collaborations like we noted with Lindsay who ran that have proven to be incredibly effective, especially with our gen Z audience, but as we scale across the country and we elevate to a more national stage, we are testing tactics and strategies to understand what really is most effective when we are ready to do a little bit more of that up.

Brett Schulman: And you know, Jeff certainly has deep experience in scaling large pipelines of growth and has already brought to the table whether it's on the grossing side. Some great value ads to make sure that we're set up as we ramp up that 15% annual compound unit growth rate translating into more and more units every year.

Speaker Change #101: Our funnel activity in out of home activity.

Brian Vaccaro: Your next question comes from the line over who will grow from JP Morgan. Please go ahead. Good afternoon, guys.

Speaker Change #101: Your next question comes from the line of Rahul Crow from Jpmorgan. Please go ahead.

Rahul Crow: Good afternoon guys.

Brian Vaccaro: How much of this comp performance was driven by the peak hard therapist versus the non-peak day parts or shoulder periods? And also, is there any way we can look at how much of this performance was attributed to existing customers coming more frequently versus the new customers? And I have a follow-up. Okay, thanks a little. So I think your question was around day part and what we were seeing from performance peak versus non-peak. We certainly thought steak would be a driver of an increase in dinner performance, which it was; but we saw tremendous response at lunch as well.

Speaker Change #103: How much of this comp performance was driven by the beef cut throughput versus the non peak day parts our shoulder periods.

Brett Schulman: Pierre.

Tricia Tolivar: We reported delirited earnings per share of 17 cents in the quarter compared with deluded earnings per share of 21 cents in Q2 of 2023, which includes the impact of the lower share count prior to the IPO.

John Tower: Your next question comes from the line of John Tower from Sety. Please go ahead. Great. Thanks for taking the question. Just a couple of IMAs. First, I am curious, just following up on the new unit performance, it's been obviously well ahead of expectations. And, you know, two second time this year that the company's taken up its new restaurant opening expectations. I'm curious, as you're looking beyond 25 or into 25, is that at least 15% target that you're speaking to?

Rahul Crow: So.

Speaker Change #104: Is there any way we can look at how much of this performance was attributed to existing customers coming more frequently with us the new customers under how the follow up.

Tricia Tolivar: None of our outlook for full year 2024 we expect the following.

Okay. Thanks, and also I think your question was around day part and what we were seeing from performance peak versus non peak.

Tricia Tolivar: 54 to 57 net new COVA restaurant openings.

Speaker Change #105: Certainly bought stake would be a driver of an increase in dinner performance, which it was but we saw tremendous response at lunch as well. So consumers are finding it is just a wonderful option for both times of the day.

Tricia Tolivar: COVA same restaurant sales growth of 8.5% to 9.5%. COVA restaurant level profit margin between 24.2% and 24.7%.

Brett Schulman: So consumers are finding it's just a wonderful option for both times of the day and really creating an opportunity to deliver strong traffic results. As you look at existing and new customers, there's certainly a balance. And so, because of the impressions that we've gotten, we've got brought in new customers into the restaurant, but because of the perceived gap in the menu around the lack of a beef item, it certainly has resonated with our existing customers as well.

Tricia Tolivar: Pre-opening costs between 12 million and 13 million and adjusted EBITDA, including the burden of pre-opening costs between 109 million and 114 million.

John Tower: I'm not appear just a bit too conservative given what you're seeing in terms of consumer response and new store productivity and profits that you're generating plus the balance sheet that you have today. I mean, why can't that be closer to 20 percent?

Speaker Change #105: And really creating an opportunity to deliver strong traffic results as you look at existing and new customers. There is certainly a balance and so because of the impressions that we've gotten.

Tricia Tolivar: We continue to feel confident in our real estate pipeline and are excited about our 2025 opening plan of at least 15% annual unit growth.

Brett Schulman: Hey, John, it's Brett. It's really predicated upon developing future leaders. You know, there's certainly the demand out there clearly. You know, we kind of talk internally. Chicago has been our best new market opening ever. We need to get more restaurants open in Chicago. But we also don't want to open those restaurants and have bad operations. So we want to make sure we've got the proper leaders train, which is why we've invested in our Academy GM network.

Speaker Change #105: Got brought in new customers into the restaurants, but because of the perceived gap in the menu around the lack of a beef items certainly has resonated with our existing customers as well.

Tricia Tolivar: Guidance for COVA same restaurant sales growth of 8.5% to 9.5% implies a low double digit same restaurant sales growth for the remainder of the year.

Tricia Tolivar: This guidance reflects the strength that we are currently seeing in our business and also contemplates the macro economic and election uncertainty in the remainder of the year.

Tricia Tolivar: Joseph.

Brett Schulman: Understood, and Brett, as we look at the impressive margin growth trajectory, how do you internally think about the philosophy of reinvesting these margins into what you just defined as the value worth or the quality of experience? And where is the limit for threshold for this brand at which you can directly reinvest into the price through many pricing? I mean, thank you. Thanks for the question. You know, that's kind of, that's our job, right? is to figure out where to make smart investments and a couple examples that we've done in the past years, Trisha noted, 9% year-over-year wage increase to our team, making sure we're positioned to be very competitive in the markets we compete in on wages for our team members, making sure we support them in delivering that great Mediterranean hospitality.

Speaker Change #105: Understood.

Tricia Tolivar: As a reminder, to achieve an optimal comparison of fiscal weeks in the Cava same restaurant sales calculation, giving consideration to holiday periods, each week a fiscal 2023 was shifted by one week. As a result of this shift, approximately 3.9 million of revenue was not included in Cava same restaurant sales growth in Q1, which would have resulted in 200 basis points higher same restaurant sales growth.

Speaker Change #106: As we look at this impressive margin growth trajectory, how do you internally think about the philosophy of reinvesting these margins into what you just defined as the value that the quality of experience and where is the limit.

Tricia Tolivar: Although the impact of this shift was immaterial to Q2 and expected to be immaterial to Q3, an offsetting impact will occur in Q4.

Tricia Tolivar: Additionally, consistent with last year, we anticipate Q4 is seasonally effective margin to be around 200 basis points lower than full year 2024 restaurant level profit margins.

Brett Schulman: You heard, you know, we're up to 62 Academy certified Academy GMs and make sure we've got that feeder system of pipeline talent that is properly trained and ready to serve our guests and run our teams in those restaurants. And, you know, we also just want to have commitments that we can deliver on, that we feel comfortable with and not overheat the engines, so to speak. And if we see the opportunity to push growth a little bit faster, like we have this year, this quarter in particular, then we'll take advantage of that opportunity. But we do not want to get over top our skis on restaurant growth. We are students of history and have seen that that has undermined a lot of great growth brands over time.

Speaker Change #107: Our thresholds for this brand, which you can directly invest in <unk> through menu pricing.

Tricia Tolivar: Adjusted Cava dog guidance includes GNA spend as a percent of revenue on a full year basis to be higher than the second quarter of 2024 due to additional investments to support growth and C leverage impacts from lower sales in Q3 and Q4.

John Tower: Fair enough.

Speaker Change #107: Thank you.

Speaker Change #107: Thanks for the question.

Speaker Change #108: That's our job is to figure out where to make smart investments and a couple of examples that we've done in the past year as Tricia noted, 9% year over year wage increase to our team, making sure we're positioned to be very competitive in the markets. We compete in on wages for our team members, making sure we support.

Tricia Tolivar: Last, I want to spend a moment providing an update on tax expectations.

Tricia Tolivar: Historically, we have had a full valuation of allowance on our deferred tax assets primarily relating to net operating loss care reports, which has resulted in immaterial tax expense. Based on our positive profitability trends, there is a reasonable possibility that within the current fiscal year, we will be in a position to release the valuation allowance, which results in a one-time significant penal benefit as a reduction to tax expense. After this release and valuation allowance, we would begin to have a more normalized effective tax rate in the mid-20s.

Tricia Tolivar: Keep in mind, we expect our cash taxes to continue being immaterial until we fully utilize our net operating losses.

Speaker Change #108: Them and delivering that great Mediterranean hospitality and then another example is on behalf of our guests in California, with AB 12, 28, and absorbing the incremental cost of the legislated wage increases there and so we are looking all the time at different areas of the business.

Tricia Tolivar: Before turning to Q&A, I want to thank our team members for delivering on our commitments, for pairing and serving our amazing cuisine with Cava hospitality to more and more people across the country and making Cava a very special place to work. I recently returned from my first trip to Greece for my husband and I had a chance to walk through the olive groves of our supplier, who has been with us since our earliest days and continues to produce the olives and the liquid gold olive oil we use in all our restaurants.

Brett Schulman: And then another example is on behalf of our guests in California with AB 1228 and absorbing the incremental cost of the legislative wage increases there. And so we are looking all the time at different areas of the business, whether it's an ingredient spec, whether it's team member benefits, or whether it is mitigating price increases. You know, we only took less than 3% in January, which is the only price increase we've taken this year. I noted earlier, from the end of 19 to the end of 23, we only took 12%. And we think that that's all coming together, all of these investments we make to drive that 9.5% traffic in the quarter.

Tricia Tolivar: It was an exciting trip for our family in part because we were able to see where Cava founders came from and experienced first-hand what inspires them.

Brett Schulman: Maybe I just kind of begin to do on, I noticed you guys are doing a connected TV test. I'm curious how many markets it is in today. And maybe what your early results have told you about, you know, testing this platform for building brand awareness in the markets that you're rolled it out to? Yeah, we're, we've only tested in about eight markets today. And it really is just a test. We're testing and learning.

Speaker Change #109: Whether it's an ingredient.

Speaker Change #109: Spec, whether it's team member benefits, whether it is mitigating price increases we only took less than 3% in January which is the only price increase we've taken this year I noted earlier from the end of <unk> 19 to the end of 'twenty three we only took 12% and we think that Thats all coming together all of these investments we make to drive that nine five.

Brett Schulman: I talked about my prepared remarks about the efficiency and effectiveness of our social media and our earned media marketing to date. It's very powerful. We get tremendous user generated content that the team helps amplify or our own content on social media and collaborations, like we, we noted with Lindsey Haran, that have proven to be incredibly effective, especially with our Gen Z audience. But as we scale across the country and we elevate to a more national stage, we are testing tactics and strategies to understand what really is most effective when we are ready to do a little bit more of that upper funnel activity and out of home activity.

Speaker Change #109: 5% traffic in the quarter. So we will continue to look across the business to understand as we grow restaurant level margin, where we can share some of that wealth across our team members our guests and ultimately create long term sustainable restaurant level margin growth and shareholder value.

Jeffrey Bernstein: So we'll continue to look across the business to understand, as we grow restaurant level margin, where we can share some of that wealth across our team members, our guests, and ultimately create long-term sustainable restaurant level margin growth. And shareholder value.

Jeffrey Bernstein: Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is now open. Great.

Speaker Change #110: Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is now open.

Speaker Change #109: Okay.

Brett Schulman: Thank you very much to questions. The first one just on, I guess, sales drivers more broadly, as you mentioned, steak was better than expected and obviously a huge protein enhancement. As I look at the menu, it seems like there's less glaring holes for a significant new protein, for example. But wondering if you can maybe prioritize what you think of the two or three biggest sales drivers over the next 12 months, whether it is product or promotion or technology, advertising, social media. You've got so many different levers. I'm just wondering how you prioritize what you think is the next exciting opportunity, and whether the system can handle that potential increased traffic, and then add one follow-up.

Jeffrey Bernstein: Great. Thank you very much.

Operator: Now I will turn the call back over to the operator and open up for Q&A.

Brian Vicaro: Your next question comes from the line over who will grow from JP Morgan. Please go ahead. Good afternoon, guys.

Jeffrey Bernstein: Two questions. The first one just on the.

Jeffrey Bernstein: I guess sales drivers more broadly.

Operator: Thank you.

Speaker Change #112: As you mentioned stake was better than expected them, obviously, a huge protein enhancement.

Operator: Ladies and gentlemen, we will now begin the question and answer session.

David Tarantino: David Tarantino.

Brett Schulman: How much of this comp performance was driven by the peak hard therapist versus the non peak day parts or shoulder periods? And also, is there any way we can look at how much of this performance was attributed to existing customers coming more frequently versus the new customers? And I have a follow-up. Okay, thanks a little. So I think your question was around day part and what we were seeing from performance peak versus non-peak.

Speaker Change #113: As I look at the menu it seems like Theres less glaring holes for.

Speaker Change #114: Significant new protein for example, but I was wondering if you can maybe prioritize what you think are the two or three biggest sales drivers over the next 12 months, whether it is product promotion or technology advertising social media you have got so many different levers I'm just wondering how you prioritize what you think is the next.

David Tarantino: Good afternoon and congratulations on delivering such strong results.

David Tarantino: My question is about the second quarter and the strength you saw on the sales. It was quite a big acceleration it seemed, you know, from the first quarter.

Speaker Change #115: <unk> opportunity and where the system can handle that potential to increase traffic and then I had one follow up.

David Tarantino: And I just wanted to get your thoughts on the factors that drove that large acceleration.

Brett Schulman: Yeah, so as it relates to the first question, we are launching loyalty in October. That certainly we think can be an enhancement to our guest experience and the overall value to the business. We talked about the longer term catering, can certainly be a driver, and then, you know, my co-founder, partner, Tessina Christos, our Chief Concept Officer leads our culinary innovation team. They are working on a multi-year deep pipeline of innovation to bring new and exciting products to our guests. We think there are still some gaps in the menu that we can address and certainly create greater value for our guests.

Speaker Change #116: Yes, so as it relates to the first question.

David Tarantino: I know you mentioned stake outperforming your expectation, but maybe you could piece together some of the key drivers.

Brett Schulman: We certainly thought steak would be a driver of an increase in dinner performance, which it was, but we saw tremendous response at lunch as well. So consumers are finding it's just a wonderful option for both times of the day and really creating an opportunity to deliver strong traffic results. As you look at existing and new customers, there's certainly a balance. And so because of the impressions that we've gotten, we've got brought in new customers into the restaurant, but because of the perceived gap in the menu around the lack of a beef item, it certainly has resonated with our existing customers as well.

Speaker Change #117: We are launching loyalty in October.

Testino, Chris: Certainly we think can be an enhancement to our guest experience and the overall value to the business, we talked about in the longer term catering can certainly be a driver and then my co founder partner Testino, Chris <unk>, Our Chief concept officer leads our culinary innovation team, they're working on a multi year deep pipeline of innovation to bring.

David Tarantino: And then the second part of the question, Tricia, that looks like the second half you're not quite assuming or assuming quite the same strength that can continue.

David Tarantino: So just wondering how you're thinking about the second half, you know, related to what you just delivered for the second quarter.

David Tarantino: Thanks.

Testino, Chris: New and exciting products to our guests. We think there is still some gaps in the menu that we can address and certainly create greater value for our guests. So there is a number of ways, we feel like over.

Brett Schulman: So there's a number of ways we feel like over the long term can continue to drive value for the business. And lastly, that you think about awareness, and just we are still a newer cuisine and a newer brand in many markets. We're at a 40% awareness versus many more mature brands in our space that are in the 90s. That, as word of mouth spreads, as people become more aware of the benefits of eating the Mediterranean way, that's a natural tailwind in of itself. We think we also have speed of service opportunities, as we've noted in the past.

David Tarantino: Thanks, David.

Brett Schulman: Understood and Brett, as we look at the impressive margin growth trajectory, how do you internally think about the philosophy of reinvesting these margins into what you just defined as the value worth or the quality of experience? And where is the limit for threshold for this brand at which you can directly reinvest into the price through many pricing? I mean, thank you. Thanks for the question. You know, that's kind of, that's our job, right?

Testino, Chris: The long term can continue to drive value for the business and lastly that.

You think about awareness and just we are still a newer cuisine and the newer brand in many markets. We're at a 40% awareness versus many more mature brands in our space that are in the nineties that as word of mouth spreads as people become more aware of the benefits of eating the Mediterranean way, that's a natural tailwind in of itself. We think we also have speed of <unk>.

Brett Schulman: So certainly as you look at our second quarter, same restaurant sales growth of 14.4%.

Testino, Chris: Service opportunities as we've noted in the past and to.

Brett Schulman: And compared that to first quarter, there is an acceleration. But really looking at it on a two-year same restaurant sales basis, two-year same restaurant sales in Q1 of 24 were 30.8% and two-year same restaurant sales in Q2 of 2024 grew to 32.6%.

Brett Schulman: And to the operational piece, we certainly believe we can handle it. I think that's the beauty of our simple operational model. 38 ingredients on the line, offering our guests over 17 billion combinations that walk the line, assembly line, kind of old Henry Ford production line that allows us to do high volumes and do it efficiently. We see it; we have some restaurants doing very significant revenue volumes. So there's no question that the existing fleet, as well as the robust infrastructure we built across the business, can handle and scale that growth. We've talked about this in the past, whether it's our production facilities that can support upwards of at least 750 restaurants today, or our technology infrastructure with our digital order ecosystem, and the new microservices architecture that we deployed in 2022 to be highly scalable.

Testino, Chris: The operational piece, we certainly believe we can handle it I think thats the beauty of our simple operational model 38 ingredients from the line offering our guests over 17 billion combination that walk the line Assembly line kind of old Henry Ford production line that allows us to do high volumes and do it efficiently.

Brett Schulman: Is to figure out where to make smart investments and a couple examples that we've done in the past years, Trisha noted, 9% year-over-year wage increase to our team, making sure we're positioned to be very competitive in the markets we compete in on wages for our team members, making sure we support them in delivering that great Mediterranean hospitality. And then another example is on behalf of our guests in California with AB 1228 and absorbing the incremental cost of the legislative wage increases there.

Testino, Chris: We see it we have some restaurants doing very significant revenue volumes. So there is no question that the existing fleet as well as the robust infrastructure, we've built across the business can handle and scale that growth, we talked about the Holocaust, whether it's our production facilities.

Brett Schulman: And so we are looking all the time at different areas of the business, whether it's an ingredient spec, whether it's team member benefits, whether it is mitigating price increases. You know, we only took less than 3% in January, which is the only price increase we've taken this year. I noted earlier, from the end of 19 to the end of 23, we only took 12%. And we think that that's all coming together, all of these investments we make to drive that 9.5% traffic in the quarter.

Testino, Chris: Can support upwards of at least 750 restaurants today.

Speaker Change #119: Or our technology infrastructure with our digital ordering group ecosystem, and then new micro services architecture that we deployed in 2022 to be highly scalable.

Brett Schulman: We've made investments over time to be positioned to have this growth that we're now embarking upon.

We've made investments over time to be positioned to have this growth that we are now embarking upon.

Brett Schulman: Well, that is sure a lot of levers and a lot of combinations: billions of combinations.

Speaker Change #120: Well that is sure a lot of levers and a lot of combinations billions of combinations.

Brett Schulman: So there certainly is an increase and you're seeing that in what we were able to deliver in Q2 with a very strong 9.5% traffic growth.

Tricia Tolivar: I just wanted to follow up, Trisha, on the restaurant margin. I think you've previously talked about long-term guidance for 20% and kind of don't look at the current run rate as sustainable necessarily. It looks like this year's guidance is now for the mid-24% range. I'm guessing it's sales leverage. It's the biggest driver at the upside, but the AUVs continue to be growing. I was wondering if there's opportunity for further leverage or ability to sustain this best-in-class margin. What do you still believe that over the next couple of years you should see a maybe a more significant pullback in that margin from current levels?

Speaker Change #121: I just wanted to follow up firstly on the restaurant margin I think you previously talked about long term guidance for 20% kind of don't look at the current run rate.

Brett Schulman: So we'll continue to look across the business to understand as we grow restaurant level margin, where we can share some of that wealth across our team members, our guests, and ultimately create long term sustainable restaurant level margin growth. And shareholder value.

Speaker Change #122: A stable necessarily and it looks like this year's guidance is now for the mid 20% 24% range.

I'm guessing it's sales leverage that's the biggest driver of the upside but the movies.

Jeffrey Bernstein: Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is now open. Great.

Speaker Change #123: And to be growing I'm, just wondering if there's opportunity for further leverage your ability to sustain this best in class margin or do you still believe that over the next couple of years you should see.

Brett Schulman: Thank you very much to questions. The first one just on, I guess, sales drivers more broadly, as you mentioned, steak was better than expected and obviously a huge protein enhancement. As I look at the menu, it seems like there's less glaring holes for a significant new protein, for example. But wondering if you can maybe prioritize what you think of the two or three biggest sales drivers over the next 12 months, whether it is product or promotion or technology advertising, social media, you've got so many different levers.

Speaker Change #124: Maybe a more significant pullback in that margin from current levels. Thank you.

Brett Schulman: When you look at what are the drivers impacting the same restaurant sales, I kind of think of it like a culpable.

Tricia Tolivar: Thank you. You're welcome. Certainly, we believe there's opportunity to sustain this level of margins, giving the AUVs that we've been able to deliver out of our restaurant today, but we'll always be looking for the proper investments to make in team members and guests, whether that's in terms of benefits and wages that we're offering to them or investments in price and how we're managing that with the consumers. So a lot depend on what we're experiencing in the market and the economy and how we impact that going forward, but we feel good about what we've been able to deliver over those past few quarters.

Youre welcome certainly we believe there is the opportunity to sustain this level of margins given the <unk>.

Speaker Change #125: That we've been able to deliver out of our restaurants today, but we'll always be looking for the proper investments to make in team members and guests whether that's in terms of benefits and wages that we're offering to them or investments in price and how we're managing that with the consumers. So a lot will depend on what we're experiencing in the market and the.

Brett Schulman: I'm just wondering how you prioritize what you think is the next exciting opportunity, and whether the system can handle that potential increased traffic, and then add one follow-up. Yeah, so as it relates to the first question, we are launching loyalty in October, that certainly we think can be an enhancement to our guest experience and the overall value to the business. We talked about the longer term catering, can certainly be a driver, and then, you know, my co-founder, partner, Tessina Christos, our chief concept officer leads our culinary innovation team.

Speaker Change #125: <unk> and how we impact that going forward, but we feel good about what we've been able to deliver over the past few quarters.

Brian Vaccaro: Your last question comes from the line of Brian Vicaro from Raven James. Please go ahead. Hi, thanks, and good evening.

Speaker Change #125: Our last question comes from the line of Brian Vaccaro from Raymond James. Please go ahead.

Brian Vaccaro: Hi, Thanks, and good evening.

Brian Vaccaro: So, it's something like you're seeing some pretty broad comp strength, and I think it's been a few quarters that I was wondering if you might be able to provide it, maybe a mid-year update on where your regional AUVs are and curious to the degree to which you might be seeing the gaps in the Southeast and the Southwest narrow versus other regions, and if the brand might be hitting sort of a higher gear in terms of awareness, et cetera, where those markets could be seeing really an outsized complex. So we have been experiencing strength in all regions across the country and improving performance, and so when you look at the Southeast and the Southwest, those are our youngest markets, and so their AUVs are naturally going to be lower than all of the other regions across the country, and so really pleased with what we're seeing and the performance that we're delivering and the strength of it throughout the country and every type of format as well.

Speaker Change #127: It sounds like Youre, seeing some pretty broad comp strengthen.

Brian Vaccaro: It's been a few quarters, but I was wondering if you might be able to provide maybe a mid year update on where your regional these are curious to the degree to which you might be seeing the gaps in the southeast and the southwest narrow versus other regions in the brand might be hitting sort of a higher gear in terms of awareness et cetera.

Brett Schulman: They are working on a multi-year deep pipeline of innovation to bring new and exciting products to our guests. We think there are still some gaps in the menu that we can address and certainly create greater value for our guests. So there's a number of ways we feel like over the long term can continue to drive value for the business. And lastly, that you think about awareness, and just we are still a newer cuisine and a newer brand in many markets, we're at a 40% awareness versus many more mature brands in our space that are in the 90s, that as word of mouth spreads, as people become more aware of the benefits of eating the Mediterranean way, that's a natural tailwind in of itself.

Speaker Change #128: Were those markets can be seen really an outsized comp lift.

So we have been experiencing strength in all regions across the country and improving performance and so when you look at the southeast and the southwest those are our youngest markets and so there are naturally going to be lower than all of the other regions.

Speaker Change #128: Cross the country and so really pleased with what we're seeing in the performance that we're delivering and the strength of it.

Speaker Change #129: Throughout the country and every type of format as well so really underscores the proven portability that we've been able to demonstrate and the opportunity for us to bring that across the massive white space ahead of us in and bringing <unk> to more and more guests around the country.

Brett Schulman: We think we also have speed of service opportunities, as we've noted in the past. And to the operational piece, we certainly believe we can handle it. I think that's the beauty of our simple operational model. 38 ingredients on the line offering our guests over 17 billion combinations that walk the line, assembly line, kind of old Henry Ford production line that allows us to do high volumes and do it efficiently. We see it, we have some restaurants doing very significant revenue volumes.

Brett Schulman: So really underscores the proven portability that we've been able to demonstrate and the opportunity for us to bring that across the map of white space that's ahead of us and bring Cava to more and more guests around the country.

Tricia Tolivar: Okay, and if I could just one quick follow-up on the margins, obviously very impressive store margins, but Trisha, I just wanted to ask about the other operating cost line where we haven't really seen leverage on some pretty big costs. Could you just remind us what types of investments you're making in that line, and if that's expected to sustain the rest of this year? Thank you. Yeah, it is likely that we'll continue to see other operating expenses on a dollar per period; it'll be fairly consistent through the remainder of the year, and that reflects investments in our restaurants largely around repair maintenance and really keeping up with the demand and the restaurants and the impact it's having on the facility itself and making sure it's meeting our standards from a guest experience perspective.

Speaker Change #129: Okay, and if I could just one quick follow up on the margins, obviously very impressive store margins Patricia I just wanted to ask about the other operating cost line.

Speaker Change #130: We haven't really seen leverage on some pretty big comps could you just remind us what types of investments you're making in that line and if that's expected to sustain the rest of this year. Thank you.

Brett Schulman: So there's no question that the existing fleet, as well as the robust infrastructure we built across the business can handle and scale that growth. We've talked about this in the past, whether it's our production facilities that can support upwards of at least 750 restaurants today, or our technology infrastructure with our digital order ecosystem, and the new microservices architecture that we deployed in 2022 to be highly scalable. We've made investments over time to be positioned to have this growth that we're now embarking upon.

Speaker Change #131: It is likely that we will continue to see other operating expenses.

A dollar per period, it would be fairly consistent through the remainder of the year and that reflects investments in our restaurants, largely around repairs and maintenance and really keeping up with the demand in the restaurants and the impact it's having on the facility itself and making sure. It's meeting our standards from a guest experience perspective.

Brett Schulman: There are lots of combinations that blend together to create something truly amazing.

Tricia Tolivar: Well, that is sure a lot of levers and a lot of combinations, billions of combinations. I just wanted to follow up, Trisha on the restaurant margin. I think you've previously talked about long-term guidance for 20% and kind of don't look at the current run rate as sustainable necessarily. It looks like this year's guidance is now for the mid-24% range. I'm guessing it's sales leverage. It's the biggest driver at the upside, but the AUVs continue to be growing.

Tricia Tolivar: There's also a little bit of marketing associated with the restaurants that's included in other operating expenses, much lower than many others in the space because we've got such powerful results on the social investments and the other PR initiatives that we have. But outside of that, it's got the typical utilities, which will tend to see higher and warmer summer months and other items like that.

Brett Schulman: And it seems like new culinary innovation like stake that you've mentioned.

Tricia Tolivar: I was wondering if there's opportunity for further leverage or ability to sustain this best-in-class margin. What do you still believe that over the next couple of years you should see a maybe a more significant pullback in that margin from current levels? Thank you. You're welcome. Certainly we believe there's opportunity to sustain this level of margins giving the AUVs that we've been able to deliver out of our restaurant today, but we'll always be looking for the proper investments to make in team members and guests, whether that's in terms of benefits and wages that we're offering to them or investments in price and how we're managing that with the consumers.

Speaker Change #131: There's also a little bit of marketing associated with the restaurants. This included in other operating expenses much lower than many others in the space because we've got such powerful results on the <unk>.

Speaker Change #131: Social investments and the other a PR.

Speaker Change #131: Initiatives that we have but outside of that it's got the typical utilities, which you'll tend to see higher than warm summer months.

Speaker Change #131: And other items like that.

Operator: There are no further questions at this time.

Speaker Change #131: There are no further questions at this time I would like to turn the call over back to Brad Feldmann for closing remarks. Please go ahead Sir.

Brett Schulman: I'd like to turn the call over back to Brad Schulman for closing remarks. Please go ahead, sir. Thanks, everyone, for joining the call today. As we approach the celebration of Labor Day, I once once again acknowledge and thank our more than 10,000 Covet team members who executed our strategies, took care of our guests, and delivered another exceptional quarter. With traffic growth of 9.5%, 18 net new restaurant openings, and second quarter net income higher than all of 2023, we demonstrate the strength of our category-defining Mediterranean brand and the power of our mission to bring heart, health, and humanity to food.

Thanks, everyone for joining the call today as we approach the celebration of Labor day, I want to once again acknowledge and thank our more than 10000 corporate team members, who executed our strategies took care of our guests and delivered another exceptional quarter with traffic growth of nine 5% 18, net new restaurant openings in <unk>.

Brett Schulman: It's a strong value perception that we have in the marketplace, increased brand awareness, and certainly our team member execution.

Speaker Change #131: Quarter net income higher than all of 2023, we demonstrated the strength of our category defining Mediterranean brand and the power of our mission to bring heart health and humanity to food. Thanks again for joining us have a happy labor day weekend and I look forward to speaking with you next quarter.

Brett Schulman: And so all that combined together is delivering an outstanding result in the period in quarter that we're proud of.

Tricia Tolivar: So a lot of depend on what we're experiencing in the market and the economy and how we impact that going forward, but we feel good about what we've been able to deliver over those past few quarters.

Brett Schulman: Thanks again for joining us. Have a happy Labor Day weekend, and I look forward to speaking with you next quarter.

Brian Vicaro: Your last question comes from the line of Brian Vicaro from Raven James. Please go ahead. Hi, thanks and good evening.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.

Speaker Change #132: Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.

Brett Schulman: And then in your second question about the second half and how it's not assuming the same strength, we talked about this in our guidance.

Brett Schulman: And while we don't give period to period or into the quarter following quarter results, we are seeing strengths in the business itself, but also wanted to be thoughtful around the uncertain macroeconomic environment in the upcoming election and factor that into our guidance. So there's two things together influencing what we've communicated today.

Brett Schulman: So, it's something like you're seeing some pretty broad comp strength, and I think it's been a few quarters that I was wondering if you might be able to provide it, maybe a mid-year update on where your regional AUVs are and curious to the degree to which you might be seeing the gaps in the southeast and the Southwest narrow versus other regions, and if the brand might be hitting sort of a higher gear in terms of awareness, et cetera, where those markets could be seeing really an outsized complex. So we have been experiencing strength in all regions across the country and improving performance, and so when you look at the southeast and the Southwest, those are our youngest markets, and so their AUVs are naturally going to be lower than all of the other regions across the country, and so really pleased with what we're seeing and the performance that we're delivering and the strength of it throughout the country and every type of format as well.

David Tarantino: David Tarantino, David Tarantino

Speaker Change #132: [noise].

David Tarantino: Great.

David Tarantino: Thank you for that.

Tricia Tolivar: And Trisha, is there any way to isolate the impact of stake on the comp in the second quarter?

Tricia Tolivar: Okay, and if I could just one quick follow up on the margins, obviously very impressive store margins, but Trisha, I just wanted to ask about the other operating cost line where we haven't really seen leverage on some pretty big costs. Could you just remind us what types of investments you're making in that line, and if that's expected to sustain the rest of this year? Thank you.

Tricia Tolivar: I guess however you look at it from a traffic and make perspective?

Tricia Tolivar: Yeah, there was a favorable impact on mix and certainly some benefit in traffic, but what we're seeing is strength and traffic across in general and fits much broader than stake by itself.

Tricia Tolivar: Yeah, it is likely that we'll continue to see other operating expenses on a dollar per period, it'll be fairly consistent through the remainder of the year, and that reflects investments in our restaurants largely around repair maintenance and really keeping up with the demand and the restaurants and the impact it's having on the facility itself and making sure it's meeting our standards from a guest experience perspective. There's also a little bit of marketing associated with the restaurants that's included in other operating expenses much lower than many others in the space because we've got such powerful results on the social investments and the other PR initiatives that we have. But outside of that, it's got the typical utilities, which will tend to see higher and warmer summer months and other items like that.

Brett Schulman: There are no further questions at this time. I'd like to turn the call over back to Brad Schulman for closing remarks. Please go ahead, sir. Thanks, everyone, for joining the call today. As we approach the celebration of Labor Day, I once once again acknowledge and thank our more than 10,000 Covet team members who executed our strategies took care of our guests and delivered another exceptional quarter. With traffic growth of 9.5%, 18 net new restaurant openings, and second quarter net income higher than all of 2023, we demonstrate the strength of our category defining Mediterranean brand and the power of our mission to bring heart, health and humanity to food. Thanks again for joining us. Have a happy Labor Day weekend, and I look forward to speaking with you next quarter.

Tricia Tolivar: And this really pleased with the traffic and same restaurant sales strengths across all regions of the country and all of our formats as well as in suburban and urban environments.

Tricia Tolivar: So just isn't really one thing driving that traffic strength, from the United States of the combination of factors.

Tricia Tolivar: Great, thank you very much.

Brian Harbour: Your next question comes from the line of Brian Harbour from Morgan Stanley.

Brian Harbour: Your line is now open.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation.

Brian Harbour: Yeah, thank you.

Brian Harbour: Good afternoon guys.

Operator: You may now disconnect. David Tarantino, David Tarantino

Tricia Tolivar: One question I guess I was curious about on the margin side was, is there anything else aside from how the stake impact?

Tricia Tolivar: Is there anything else you're doing on food the rest of the year?

Tricia Tolivar: And then also, you know, doing plan to make a similar kind of labor investment once we get into the end of the year.

Tricia Tolivar: How will that kind of play into restaurant margins?

Tricia Tolivar: Yeah, outside of stake, we're not anticipating significant changes and input costs on the food beverage and packaging cost side for the remainder of the year.

Tricia Tolivar: And then when you turn and look at labor investments, we mentioned that average wage is up 9% year over year. We started making fairly significant investments in wages in the fourth quarter of 2023. And that's what you're seeing the benefit of in the increase in average wage as well as the decline in turnover that Brett talked about in the prepared remarks.

Tricia Tolivar: Okay, sounds good.

Tricia Tolivar: Thank you.

Brett Schulman: Hey, Brian, it's Brett.

Brett Schulman: I'll speak to that.

Brett Schulman: It's, you know, it's basically taking the same net hours, labor hours and reallocating them in a much more effective, efficient way so that we put our team members in the right places at the right moments during their shift. So that they're prepping, during down times, their customer facing during peak times to help with speed of service, to help with quality of guest experience.

Brett Schulman: And we're seeing quantitative improvements in the pilot restaurants as well as qualitative improvements, especially for our general managers or our shift leaders saying, you know, now we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at peak hours.

Brett Schulman: So very pleased will be at 75 restaurants this fall with the goal to launch it across all restaurants in early 2025.

Andrew Charles: Your next question comes from the line of Andrew Charles from TD Cohen.

Andrew Charles: Please go ahead.

Andrew Charles: Great.

Andrew Charles: Thank you.

Andrew Charles: You talked about the revamped low to program, you know, guest visiting and spending more than non-low to get.

Andrew Charles: You know, is it fair to say the low to pilot markets are seeing same store sales materially outperform the overall system.

Andrew Charles: What I'm really looking to understand is that is the low to program same store sales impact factored into the back half guidance for same store sales?

Andrew Charles: Yes, the loyalty we mentioned is going to launch in October ahead of schedule and we are seeing benefits as a program in our test market, but we haven't factored anything incremental into our guidance for the rest of the year.

Andrew Charles: Okay, very helpful.

Brett Schulman: And then Brett, just wanted to get an update on catering.

Brett Schulman: Last time we caught up, I believe you talked about 10 production facilities.

Brett Schulman: You know, is this something you expect to lean more into in 2025 versus more of a 2026 opportunity for the system of catering?

Brett Schulman: It's really more looking toward 2026 on a larger scale.

Brett Schulman: 2025 will be a continuation of progression of our test.

Brett Schulman: Very excited about the catering opportunity, but want to be very mindful about how it impacts production in our restaurants.

Brett Schulman: And so we do have 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations across the country as well as a cluster of regular Cava restaurants that we're testing catering in now.

Brett Schulman: We will move in 2020.

Brett Schulman: 2025 to a full market test of a major metro market to really inform how we would want to go across the country in 2026 from a more national perspective, but very excited about the catering opportunity, certainly seeing a lot of demand.

Brett Schulman: We want to make sure we set our operators up for success to deliver on that guest promise.

Chris Stifel: Next question comes from the line of Chris, so call from Steve, please go ahead.

Chris Stifel: Thanks.

Chris Stifel: Good afternoon, guys.

Brett Schulman: Brett, you mentioned new units are exceeding expectations.

Brett Schulman: What factors do you believe are causing the better than expected performance?

Tricia Tolivar: And then Tricia, whoa, what's been the average investment for new units open this year?

Tricia Tolivar: And maybe what's been the trend?

Tricia Tolivar: What does the inflation trend look like recently relative to your old target?

Brett Schulman: Chris, thanks for the question.

Brett Schulman: I think it's certainly the execution of our team and the increasing awareness of our brand.

Brett Schulman: One of the things we talked about when going public was that this was an opportunity to put our brand and the category we're creating and the public sphere.

Brett Schulman: And that's certainly amplified awareness around the country.

Brett Schulman: And when we do our community days, we've been able to generate great earn media and organic viral word of mouth in these communities that's driven very strong sales out of the gate.

Brett Schulman: So it's been a bit of a, you know, kind of snowball rolling down hill as we open these restaurants and seeing the moment of the openings.

Tricia Tolivar: And Chris doesn't relate to cost to those new restaurants.

Tricia Tolivar: We are experiencing costs of around 1.3 million net, which is in line with what we've expected. Really pleased with the team's performance and managing those costs.

Tricia Tolivar: And when you ask about inflation, there's been very modest inflation that we've been experiencing.

Tricia Tolivar: And that's a lot to do with how our real estate design and construction teams address the more work with our general contractor base to expand and strengthen it and conduct RFPs to really make us more effective in our spend.

Tricia Tolivar: And then overall, when you combine that with the strong returns and sales and operating performance that Brett talked about, it really drives a strong cash on cash return that's exceeding our expectations as we go into their first and second year and beyond opening.

Tricia Tolivar: It's great.

Tricia Tolivar: Congratulations, guys.

Tricia Tolivar: Thank you.

Andy Barish: Next question is from the line of Andy bearish from Jeffries.

Andy Barish: Please go ahead.

Andy Barish: Hey guys, I'm just kept telling on that last question and answers.

Brett Schulman: If I'm on project solar.

Brett Schulman: Are there any incremental costs?

Brett Schulman: I mean, we should be thinking about and then also the other side of that is kind of digital pickup lanes.

Brett Schulman: And do you expect any, you know, material increase in those as a percentage of, you know, kind of the new builds as we look out to 2526.

Brett Schulman: And when you think about digital pickup lanes, we're up to 45 lanes today, and those incremental costs are not significant as we bring those pickup lanes to life.

Brett Schulman: And as a percentage of new builds, it's been an increasing percentage.

Brett Schulman: Again, we're not going to establish a target that's suggesting we be a certain percentage of our openings, we're being very opportunistic about finding the right sites and making sure we're making the right economic decisions around that site selection process.

Brett Schulman: Gotcha.

Tricia Tolivar: And then just one follow-up on the input costs.

Tricia Tolivar: Where did you, I'm assuming, you know, there was some deflation in other areas just given the kind of rolling in for part of the quarter.

Tricia Tolivar: Is there anything you would, you know, truth to share in terms of the basket, you know, that was deflationary and looking out for the second half, anything of note there?

Tricia Tolivar: Yeah, we're not, a lot of the improvement was versus prior years, and a lot of change and input costs from Q1 to Q2, necessarily, we're not expecting outside of state significant changes as we go into Q3 and Q4.

Sharon Zackfia: Your next question comes from the line of Sharon Zaxia from William Blair.

Sharon Zackfia: Please go ahead.

Sharon Zackfia: Hi, good afternoon.

Sharon Zackfia: I know that Cava has such a wide bandwidth of a peel across, you know, different demographics and household incomes.

Sharon Zackfia: And I'm curious kind of how you did in the quarter across those different income bandwidth, and whether you think you're getting straight up as well as straight down.

Sharon Zackfia: Yeah, hey, Sharon, I hope you're continuing to recover well.

Sharon Zackfia: I appreciate the question around performance.

Sharon Zackfia: So we look at our restaurants based on median household incomes in their areas, and we stratify them.

Sharon Zackfia: And what we're very pleased to see is that there's strong performance in same restaurant sales across all income strata, and in fact, the lowest income strata has the highest level of sales. So, double digit same restaurant sales strength across all strata.

Sharon Zackfia: And then when you drill in and look at the top deathile of restaurants, there's representation from every income strata within the top deathile.

Sharon Zackfia: So really underscoring thus far, we've seen a lot of resilience in our guests and what they've been able to deliver and come to Cava.

Brett Schulman: And we think a lot of that has to do with the strong value proposition that we are presenting for them.

Brett Schulman: And really just pleased with the results overall.

Brett Schulman: Yeah, Sharon, it's something I noted in our prepared remarks.

Brett Schulman: And I've talked about where, you know, you hear a lot about these value wars, and I think it's a bit of a misnomer, and that, you know, people are focused on price, which is the cost of what they're paying versus the value which is truly worth, and the worth of their meal or their experience.

Brett Schulman: And it was those attributes I talked about, quality relevance, convenience, and experience put together.

Brett Schulman: And so when you think about some of the challenges of the traditional full service model in many markets to deliver on a proposition like that, we're seeing that trade down.

Brett Schulman: So now you've got a situation where, for a dollar or two more or often at parity, you can get a bowl of fresh Mediterranean food for the same price as a traditional fast food freezer to fry or meal.

Brett Schulman: And we see that trade up, and that positions us at the nexus of this with our differentiated Mediterranean cuisine, which is really helping the fuel that traffic.

Sharon Zackfia: Groshe.

Sharon Zackfia: Thanks for that.

Sharon Zackfia: And the question I need a productivity, if my math is right and we kind of always try to back into this, it looks like you're hitting your two targets in the first year of operation, at least for the frail in 12 months.

Sharon Zackfia: And we talked about bread a little bit about that kind of brand and the title you're on.

Sharon Zackfia: I guess at what point do you start to think about changing those new unit hurdles when you think internally about what sites to take and what you're willing to pay for rent, and then externally of course with us and how you think about that new unit productivity.

Sharon Zackfia: Thanks Sharon.

Brett Schulman: So our new restaurants have been performing very well and we factor that into our internal assessments of sites as we look at them every two weeks as a cross-functional team to make sure we're making the right decisions as we go forward.

Brett Schulman: We do think there is likely an opportunity for us to more broadly communicate how we view new restaurant performance, both the opening year as well as subsequent years and we'll likely have that to be something to communicate in 2025.

Brian Mullin: Your next question comes from the line of Brian Mullin from Piper Sadler.

Brian Mullin: Please go ahead.

Brian Mullin: I thank you.

Brett Schulman: Just a question on the Connected Kitchen initiative.

Brett Schulman: Brett, you've heard this as a multi-year journey.

Brett Schulman: As you think about internally, how do you decide how to sequence all the initiatives you have in mind?

Brett Schulman: Is it just the anticipated impact of the business or are there maybe practical for practical reasons certain order that you need to go on what you have in mind?

Brett Schulman: So just any kind of color on how you expect this journey to evolve.

Brett Schulman: Thanks, Brian, for the question.

Brett Schulman: I think it's the latter.

Brett Schulman: It's definitely from a practical standpoint.

Brett Schulman: You think about our labor deployment test getting down those foundational labor deployments and getting that rolled out.

Brett Schulman: We've talked about a new KDS which has been in test pilot getting that equipment capability and base capability out there and then bringing behind some of the more sophisticated long-term generative AI type technologies that we think are at the early stage but could prove very beneficial over the long term.

Brett Schulman: Okay, thank you.

Brett Schulman: Then follow up on development.

Brett Schulman: I believe you just recently within the last few months maybe hired a new chief development officer role.

Brett Schulman: So could you just comment any early insights?

Brett Schulman: Maybe he's brought to the organization as far or anything worth calling out.

Brett Schulman: Yeah, Jeff golf joined us.

Brett Schulman: He was formerly the global head of store development at Nike.

Brett Schulman: He's been just a great addition to our team.

Brett Schulman: He's hit the ground running like he's been here for years with with our ELT.

Brett Schulman: And you know, Jeff certainly has deep experience in scaling large pipelines of growth and has already brought to the table whether it's on the grossing side.

Brett Schulman: Some great value ads to make sure that we're set up as we ramp up that 15% annual compound unit growth rate translating into more and more units every year.

Brett Schulman: Pierre.

John Tower: Your next question comes from the line of John Tower from Sety.

John Tower: Please go ahead.

John Tower: Great.

John Tower: Thanks for taking the question.

John Tower: Just a couple of IMAs.

John Tower: First, I am curious, just following up on the new unit performance, it's been obviously well ahead of expectations.

John Tower: And, you know, two second time this year that the company's taken up its new restaurant opening expectations.

John Tower: I'm curious, as you're looking beyond 25 or into 25, is that at least 15% target that you're speaking to?

John Tower: I mean, why can't that be closer to 20 percent?

Brett Schulman: Hey, John, it's Brett.

Brett Schulman: It's really predicated upon developing future leaders.

Brett Schulman: You know, there's certainly the demand out there clearly.

Brett Schulman: You know, we kind of talk internally.

Brett Schulman: Chicago has been our best new market opening ever. We need to get more restaurants open in Chicago.

Brett Schulman: But we also don't want to open those restaurants and have bad operations.

Brett Schulman: So we want to make sure we've got the proper leaders train, which is why we've invested in our Academy GM network.

Brett Schulman: And, you know, we also just want to have commitments that we can deliver on, that we feel comfortable with and not overheat the engines, so to speak.

Brett Schulman: And if we see the opportunity to push growth a little bit faster, like we have this year, this quarter in particular, then we'll take advantage of that opportunity.

Brett Schulman: But we do not want to get over top our skis on restaurant growth.

Brett Schulman: We are students of history and have seen that that has undermined a lot of great growth brands over time.

Brett Schulman: Fair enough.

Brett Schulman: Maybe I just kind of begin to do on, I noticed you guys are doing a connected TV test.

Brett Schulman: I'm curious how many markets it is in today.

Brett Schulman: And maybe what your early results have told you about, you know, testing this platform for building brand awareness in the markets that you're rolled it out to?

Brett Schulman: Yeah, we're, we've only tested in about eight markets today.

Brett Schulman: And it really is just a test.

Brett Schulman: We're testing and learning.

Brett Schulman: I talked about my prepared remarks about the efficiency and effectiveness of our social media and our earned media marketing to date.

Brett Schulman: It's very powerful.

Brett Schulman: We get tremendous user generated content that the team helps amplify or our own content on social media and collaborations, like we, we noted with Lindsey Haran, that have proven to be incredibly effective, especially with our Gen Z audience.

Brett Schulman: But as we scale across the country and we elevate to a more national stage, we are testing tactics and strategies to understand what really is most effective when we are ready to do a little bit more of that upper funnel activity and out of home activity.

Who Will Grow: Your next question comes from the line over who will grow from JP Morgan.

Who Will Grow: Please go ahead.

Who Will Grow: Good afternoon, guys.

Who Will Grow: How much of this comp performance was driven by the peak hard therapist versus the non peak day parts or shoulder periods?

Who Will Grow: And also, is there any way we can look at how much of this performance was attributed to existing customers coming more frequently versus the new customers?

Who Will Grow: And I have a follow-up.

Who Will Grow: Okay, thanks a little.

Who Will Grow: So I think your question was around day part and what we were seeing from performance peak versus non-peak. We certainly thought steak would be a driver of an increase in dinner performance, which it was, but we saw tremendous response at lunch as well.

Brett Schulman: So consumers are finding it's just a wonderful option for both times of the day and really creating an opportunity to deliver strong traffic results.

Brett Schulman: As you look at existing and new customers, there's certainly a balance.

Brett Schulman: And so because of the impressions that we've gotten, we've got brought in new customers into the restaurant, but because of the perceived gap in the menu around the lack of a beef item, it certainly has resonated with our existing customers as well.

Brett Schulman: And where is the limit for threshold for this brand at which you can directly reinvest into the price through many pricing?

Brett Schulman: I mean, thank you.

Brett Schulman: Thanks for the question.

Brett Schulman: You know, that's kind of, that's our job, right?

Brett Schulman: And then another example is on behalf of our guests in California with AB 1228 and absorbing the incremental cost of the legislative wage increases there.

Brett Schulman: You know, we only took less than 3% in January, which is the only price increase we've taken this year.

Brett Schulman: I noted earlier, from the end of 19 to the end of 23, we only took 12%.

Brett Schulman: And we think that that's all coming together, all of these investments we make to drive that 9.5% traffic in the quarter.

Brett Schulman: And shareholder value.

Jeffrey Bernstein: Your next question comes from the line of Jeffrey Bernstein from Barclays.

Jeffrey Bernstein: Your line is now open.

Jeffrey Bernstein: Great.

Jeffrey Bernstein: Thank you very much to questions.

Jeffrey Bernstein: The first one just on, I guess, sales drivers more broadly, as you mentioned, steak was better than expected and obviously a huge protein enhancement.

Jeffrey Bernstein: As I look at the menu, it seems like there's less glaring holes for a significant new protein, for example.

Jeffrey Bernstein: But wondering if you can maybe prioritize what you think of the two or three biggest sales drivers over the next 12 months, whether it is product or promotion or technology advertising, social media, you've got so many different levers.

Jeffrey Bernstein: I'm just wondering how you prioritize what you think is the next exciting opportunity, and whether the system can handle that potential increased traffic, and then add one follow-up.

Brett Schulman: Yeah, so as it relates to the first question, we are launching loyalty in October, that certainly we think can be an enhancement to our guest experience and the overall value to the business.

Brett Schulman: We talked about the longer term catering, can certainly be a driver, and then, you know, my co-founder, partner, Tessina Christos, our chief concept officer leads our culinary innovation team.

Brett Schulman: They are working on a multi-year deep pipeline of innovation to bring new and exciting products to our guests.

Brett Schulman: We think there are still some gaps in the menu that we can address and certainly create greater value for our guests. So there's a number of ways we feel like over the long term can continue to drive value for the business.

Brett Schulman: And lastly, that you think about awareness, and just we are still a newer cuisine and a newer brand in many markets, we're at a 40% awareness versus many more mature brands in our space that are in the 90s, that as word of mouth spreads, as people become more aware of the benefits of eating the Mediterranean way, that's a natural tailwind in of itself.

Brett Schulman: We think we also have speed of service opportunities, as we've noted in the past.

Brett Schulman: And to the operational piece, we certainly believe we can handle it.

Brett Schulman: I think that's the beauty of our simple operational model.

Brett Schulman: 38 ingredients on the line offering our guests over 17 billion combinations that walk the line, assembly line, kind of old Henry Ford production line that allows us to do high volumes and do it efficiently.

Brett Schulman: We see it, we have some restaurants doing very significant revenue volumes.

Brett Schulman: Well, that is sure a lot of levers and a lot of combinations, billions of combinations.

Tricia Tolivar: I just wanted to follow up, Trisha on the restaurant margin.

Tricia Tolivar: I think you've previously talked about long-term guidance for 20% and kind of don't look at the current run rate as sustainable necessarily. It looks like this year's guidance is now for the mid-24% range.

Tricia Tolivar: I'm guessing it's sales leverage.

Tricia Tolivar: It's the biggest driver at the upside, but the AUVs continue to be growing.

Tricia Tolivar: I was wondering if there's opportunity for further leverage or ability to sustain this best-in-class margin.

Tricia Tolivar: What do you still believe that over the next couple of years you should see a maybe a more significant pullback in that margin from current levels?

Tricia Tolivar: Thank you.

Tricia Tolivar: You're welcome.

Tricia Tolivar: Certainly we believe there's opportunity to sustain this level of margins giving the AUVs that we've been able to deliver out of our restaurant today, but we'll always be looking for the proper investments to make in team members and guests, whether that's in terms of benefits and wages that we're offering to them or investments in price and how we're managing that with the consumers.

Brian Vicaro: Your last question comes from the line of Brian Vicaro from Raven James.

Brian Vicaro: Please go ahead.

Brian Vicaro: Hi, thanks and good evening.

Brian Vicaro: So, it's something like you're seeing some pretty broad comp strength, and I think it's been a few quarters that I was wondering if you might be able to provide it, maybe a mid-year update on where your regional AUVs are and curious to the degree to which you might be seeing the gaps in the southeast and the Southwest narrow versus other regions, and if the brand might be hitting sort of a higher gear in terms of awareness, et cetera, where those markets could be seeing really an outsized complex.

Brett Schulman: So we have been experiencing strength in all regions across the country and improving performance, and so when you look at the southeast and the Southwest, those are our youngest markets, and so their AUVs are naturally going to be lower than all of the other regions across the country, and so really pleased with what we're seeing and the performance that we're delivering and the strength of it throughout the country and every type of format as well.

Tricia Tolivar: Could you just remind us what types of investments you're making in that line, and if that's expected to sustain the rest of this year?

Tricia Tolivar: Thank you.

Tricia Tolivar: There's also a little bit of marketing associated with the restaurants that's included in other operating expenses much lower than many others in the space because we've got such powerful results on the social investments and the other PR initiatives that we have.

Tricia Tolivar: But outside of that, it's got the typical utilities, which will tend to see higher and warmer summer months and other items like that.

Operator: There are no further questions at this time.

Brett Schulman: I'd like to turn the call over back to Brad Schulman for closing remarks.

Brett Schulman: Please go ahead, sir.

Brett Schulman: Thanks, everyone, for joining the call today.

Brett Schulman: As we approach the celebration of Labor Day, I once once again acknowledge and thank our more than 10,000 Covet team members who executed our strategies took care of our guests and delivered another exceptional quarter.

Brett Schulman: With traffic growth of 9.5%, 18 net new restaurant openings, and second quarter net income higher than all of 2023, we demonstrate the strength of our category defining Mediterranean brand and the power of our mission to bring heart, health and humanity to food.

Brett Schulman: Thanks again for joining us.

Brett Schulman: Have a happy Labor Day weekend, and I look forward to speaking with you next quarter.

Operator: Ladies and gentlemen, this concludes today's conference.

Operator: Thank you for your participation.

Operator: You may now disconnect.

David Tarantino, David Tarantino

Q2 2024 CAVA Group Inc Earnings Call

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