CAVA Group, Inc.

Good afternoon and welcome to CAVA's fourth quarter and full year 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.cava.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 measures 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 relief and supplemental deck, each of which is posted on the company's website. Before we begin, let me remind everyone that this call will contain forward-looking statements. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in CAVA's most recent annual report on Form 10-K, quarterly report on Form 10-Q, and other filings of 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, CAVA undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise. And now, I'll turn the call over to the company's co-founder and CEO, Brett Schulman.

Thanks, Matt, and welcome to the call, everyone. 2024 was another extraordinary year for CAVA, thanks to our more than 10,000 team members and their dedication to bringing heart, health, and humanity to food. I'm inspired not just by their accomplishments, but by their spirit of generosity and how they take care of our guests, communities, and one another. In 2024, their contributions allowed us to firmly establish Mediterranean as the next major cultural cuisine category. And as our unique value proposition continued to resonate with consumers, we were one of just a few publicly traded restaurant brands that generated positive traffic growth. Our success in 2024 demonstrated our broad appeal, the power of our unit economic engine, and the impact of the investments we have made in our teams, guests, and infrastructure to support our growth. In our first full fiscal year as a public company, we delivered four consecutive quarters of free cash flow. Our fourth quarter highlights include, excluding the 53rd week in 2023, a 36.8% increase in CAVA revenue, 21.2% CAVA same restaurant sales growth, including a 15.6% increase in traffic, 15 net new restaurant openings, ending the year with 367 restaurants, an 18.8% increase year over year, Adjusted EBITDA of $25.1 million, a 60% increase over the fourth quarter of 2023. Net income of $78.6 million and adjusted net income of $6.5 million, a 216% increase over the fourth quarter of 2023. And for the full year, we increased CAVA revenue 35%, excluding the 53rd week in 2023, generated 13.4% CAVA same restaurant sales growth, including an 8.7% increase in traffic, opened 58 net new restaurants, delivered adjusted EBITDA of 126.2 million, a 71% increase over the full year of 2023, produced net income of 130.3 million, and adjusted net income of 50.2 million, a 278% increase over full year 2023, and drove $52.9 million in free cash flow during the year. It is clear that our unique value proposition, the quality and relevance of our Mediterranean cuisine, the convenience of our multi-channel format, and the experiences we provide across our physical and digital channels is meeting the moment for the modern consumer. We have significant white space opportunity ahead and we're proud to say that 2024 is trending to be one of our strongest new restaurant classes yet. Our most anticipated and successful market opening to date, Chicago, marked our entry into the Midwest and expanded our presence to 25 states and the District of Columbia. These new restaurants amplify our brand, many of them incorporating elements of our project's soul design, and their performance demonstrates our broad appeal across socioeconomic, demographic, and regional lines. Last quarter, we announced plans to enter South Florida. Today, I'm excited to share that we are expanding our presence in the Midwest with openings planned in Detroit and Indianapolis later this year. In addition, we will continue to grow our Mid-Atlantic footprint with our first restaurant openings in Pittsburgh, Pennsylvania. As we move forward with our expansion efforts, we remain committed to deepening personal relationships with our guests, whether they are gathering in our dining rooms or engaging with our digital channels. Our reimagined loyalty program is a foundational element of this strategy, and its new Earning Banks Points model has been warmly received, driving increased engagement and frequency while setting the stage for future innovation. Since we first introduced Rewards Reimagined, we've seen a 230 basis point increase in loyalty percent of sales. As we move into 2025, we will build on our multi-phase plan by leveraging first party data to deepen guest insights using enhanced rewards, tiers, and tailored communications to develop personal touchpoints across all of our channels. On the culinary front, I'm incredibly proud of our best in class team. We continue to innovate and create newness across our menu while being thoughtful and operationally disciplined as we go through our stage gate process. Guest reception of grilled steak, which we introduced in the summer of 2024, exceeded our expectations and incidence of this new main has remained strong. Similarly, we unveiled our new limited time garlic ranch pita chips, introducing a platform for future flavor innovation and further expansion into the snacking category. In 2025, we will continue to build on our robust pipeline of culinary innovation, which we'll speak to in the coming quarters. Our culinary launches in 2024 demonstrated our use of social and earned media to drive trial, awareness, and affinity for our brand. In 2024, we generated 340 million social media impressions and over 50 billion earned media impressions by tapping into the organic love for Cava through partnerships with like-minded influencers and creators who were genuine fans even before collaborating with us. The most recent of these partners is Olympic gold medal sprinter, Gabby Thomas, who fuels her training regimen and her life with kava. Gabby partnered with us to launch our latest new seasonal menu items. This campaign focused on abundance rather than restriction, highlighting the benefits of eating Mediterranean cuisine. We're pleased with the response to the ongoing campaign and we are seeing an incremental increase of our premium protein and avocado incidents as a result. Shifting over to our team members, we are focused on empowering our leaders with the right tools, strategies, and processes to run great restaurants at every location, every shift. Our new labor and deployment model helps us put the right people in the right places at the right moments, improving the team member experience, and giving them more time to focus on our guests. While we are still in the early innings, we're already starting to see increased productivity across both day parts. Reception from the team has been positive, with restaurants refining and optimizing the tools. In 2025, we will continue to build on this initial deployment with a focus on improving speed and service. In 2024, our multi-year connected kitchen initiative advanced on multiple fronts. A key milestone was the completion of the test and learn phase for our generative AI video technology, which is now live in four restaurants, and we intend to expand to more restaurants in 2025. Additionally, early results from our new kitchen display system, currently live in 25 locations, are promising. This technology has improved digital order accuracy and productivity while reducing customer experience complaints in the test locations. Encouraged by these outcomes, we are planning a broader rollout of the new KDS in 2025. Including new and existing restaurants, we expect to expand the technology to 250 restaurants by year end. Building on our exceptional 2024, we will continue to define the category we have created, Mediterranean, by anchoring in our four strategic pillars as a guiding force. In 2025, We will expand our Mediterranean way in communities across the country by opening restaurants in new and existing markets, offering warm and welcoming spaces to gather and delight guests with innovative flavors and menu creations. As we move into the next phase of our reimagined loyalty program, we will continue to develop personal relationships with guests even as we scale, spreading our Mediterranean hospitality and creating a sense of connectedness across all our channels. As we focus on running great restaurants, every location, every shift, we will integrate new technologies and tools to support our team members and enhance the guest experience. And finally, knowing great people are key to unlocking our significant white space opportunity. We will continue to operate as a high performing team, build out our talent pipeline and create not just jobs, but career opportunities. In a world where screens and automation are infiltrating our everyday lives, we remain committed to using technology to enhance the human experience, not replace it. We're leveraging data personalization to help people feel seen for who they are and piloting AI technology that can improve team members' experience and give them more time to take care of our guests. As the spaces and experiences that once brought us together are being replaced by virtual interactions, we are creating inviting places for people to gather. We know consumers are hungry to feel cared for, and we believe that our success is driven not just by our category-defining brand and our unique value proposition, but also by our ability to authentically connect with the people we serve. This spirit of connection was beautifully illustrated recently when we had the honor of participating in a 100th birthday celebration for Mike in New York, whose great-grandson wrote to us about Mike's love of kava and asked if we could be part of this special day. Whether it's Mike's 100th birthday or Anastasia, a high school student in New Jersey who wrote to us about her tradition of sharing a meal with her sister every Friday at Cava and how to strengthen their bond, we're demonstrating the power and appeal of our brand to connect not just across geographies, but across generations. Cava was built on the idea of welcoming everyone to our table. And at a time when people are craving happiness and connection, we are delivering on that promise and proving that bringing heart, health, and humanity to food is a powerful formula for success. And with that, I'll pass the call over to Tricia to walk you through the financials.

Thanks, Brent. CAVA revenue in the fourth quarter of 2024, excluding the impact of the 53rd week of 2023, grew 36.8% year-over-year to $225.1 million. Cava same restaurant sales increased 21.2%, driven by traffic growth of 15.6%. 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. Had this shift not been made, Cava's same restaurant sales growth would have been 18.3% for the quarter, representing the expected offset from Q1 of 2024. The impact of this shift was not material for the full year. During the quarter, we opened 15 net new Cava restaurants, bringing our total Cava restaurant count to 367. We continue to be pleased with our new restaurant openings, with newer vintages trending to be some of our strongest cohorts to date. In addition, our proven portability is reflected in our overall AUV, which increased from 2.6 million at the end of 2023 to 2.9 million at the end of 2024. Excluding the benefit of the 53rd week in fiscal 2023, CAVA restaurant level profit margin increased by 50 basis points to 22.4% of revenue. This improvement was primarily due to operating leverage from higher sales, partially offset by an increase in food, beverage, and packaging costs driven by our national rollout of steaks in the summer of 2024 and incremental wage investments. CAVA's food, beverage, and packaging costs were 29.9% of revenue, an increase of 110 basis points as compared to the fourth quarter of 2023. This anticipated increase as a percent of revenue was the result of the launch of the stake in June of 2024. COVID labor and related costs were 27.3%, a decrease of 50 basis points from the fourth quarter of 2023. This decrease reflects leverage from increased sales partially offset by investments in our team member wages of 4%, including the impact of AB 1228, which we chose to not offset with menu price increases to the guests. CAVA occupancy and related expenses were 7.6% of revenue, an improvement of 70 basis points from the fourth quarter of 2023 due to sales leverage. CAVA other operating expenses were 12.8% of revenue, an increase of 10 basis points relative to the fourth quarter of 2023, reflecting investments in the integrity of our physical spaces in support of our increased restaurant volume. Shifting to overall performance, our general and administrative expenses for the quarter, excluding stock-based compensation, were $23.6 million, or 10.4% of revenue, compared to 21.3 million, or 12% of revenue, in the fourth quarter of 2023. The 160 basis point improvement was driven by leverage from higher sales, partially offset by investments to drive future growth. Equity-based compensation was 17.1 million in 2024, and as a result of the IPO pull-forward grant in June of 2023, did not include a significant impact from new 2024 grants. In 2025, we expect stock-based compensation to be between $20 million and $22 million, which includes new 2025 grants, and approximately 60% of this expense will be recognized in the first half of the year given the timing of payroll taxes associated with RSU vestings and the extra period in Q1. Adjusted EBITDA, including the burden of pre-opening costs for the quarter, was $25.1 million, an increase of 60% versus the fourth quarter of 2023. The increase in adjusted EBITDA was driven by the number and continued strength of new restaurant openings, 21.2% CAVA same restaurant sales growth, and leverage in G&A. During the fourth quarter, we reported $78.6 million of net income, As I mentioned on our last earnings call, we historically have had a full valuation allowance on our deferred tax assets, primarily relating to net operating loss carry forwards, which has resulted in immaterial tax expense. Based on our continued positive profitability trends, we released this valuation allowance in the fourth quarter, which resulted in a one-time significant net P&L benefit of $80.1 million as a reduction to tax expense. Keep in mind, we expect our cash taxes to continue to be immaterial until we fully utilize our net operating losses. In fiscal 2025, we expect our effective tax rate to be between 15 and 20%, which includes the expected permanent equity benefit of RSU awards vesting at a higher stock price relative to their grant date. Excluding the impact of the 80.1 million benefit, and applying a consistent effective tax rate to each quarter in fiscal 2024 adjusted net income with $6.5 million during the fourth quarter of 2024, compared with net income of $2 million in the fourth quarter of 2023. This represents an increase of 216%, further demonstrating the strength of our business. We reported gaps diluted earnings per share of 66 cents in the quarter. After accounting for the aforementioned net benefit, adjusted diluted EPS was $0.05 in the fourth quarter compared to $0.02 in the prior year quarter. Shifting over to liquidity, at the end of the quarter, we had zero debt outstanding, $366.1 million in cash on hand and access to a $75 million undrawn revolver with an option to increase our liquidity if needed. When looking at full year 2024, cash flow from operations was $161 million compared to $97.1 million during full year 2023. This increase is primarily driven by our improved operations generating increased profitability across the fleet. Free cash flow in 2024 was $52.9 million, an increase of $94.6 million compared to the full year of 2023. Before turning to our outlook for 2025, I would like to touch on some of the evolving dynamics amongst our most recent NRO classes. Our team has done an incredible job of delivering on its commitments, and as brand awareness and the appeal of Mediterranean cuisine continue to strengthen, we are exceeding our previous new unit economic model. Based on data from the most recent NRO classes, we now anticipate Year one average unit volumes to increase to 2.3 million from 2.1 million and year two average unit volumes to increase to 2.5 million from 2.3 million. Year one revenue growth rate to remain at 10% and year two revenue growth rate to remain at 8%. Year two restaurant level profit margin to increase from 20% to 22 percent capital expenditures net of tenant allowances at 1.375 million per restaurant and finally year two average cash on cash returns to increase from at least 35 percent to at least 40 percent consistent with our prior earnings call we expect net new restaurant growth of at least 17 percent during 2025 and we anticipate the openings to be slightly back half weighted. Now to our outlook for full year 2025, we expect the following, 62 to 66 net new CAVA restaurant openings, CAVA same restaurant sales growth of 6% to 8%, CAVA restaurant level profit margin between 24.8% to 25.2%, pre-opening costs between 14 million and 15 million, and adjusted EBITDA, including the burden of pre-opening costs between $150 to $157 million. I want to share a few additional thoughts on our outlook. Turning to same restaurant sales, as mentioned earlier, we anticipate 6% to 8% growth this year. Given the dynamic performance we've seen over the past few years, we believe the best way to think about same restaurant sales on a normalized basis just to view it as a three-year stack. We anticipate our three-year stack to remain robust in the high 30s, with higher one-year same-restaurant sales growth in Q1 and moderating over the course of 2025. As it relates to restaurant-level margin, as of January 2025, we implemented an approximate 1.7% in-restaurant menu price adjustment And at this time, we have no plans for further price increases this year. Additionally, I'd like to remind everyone that we introduced stake in early June last year and expect the approximate 100 basis point imperative impact on food, beverage and packaging cost as a percent of sales to roll off by the summer of 2025. Further, our traditional seasonality, where the fourth quarter is typically approximately 200 basis points lower than the full year, experienced a more dramatic impact in 2024 as a result of the state launch that we do not expect to reoccur in 2025. Our guidance takes into consideration what we are currently seeing in the business and the fluidity of the macroeconomic policy environment. Our business continues to be and remain strong and resilient, and that strength is appropriately reflected in our guidance. COVID's economic model is powerful, and as we mentioned on prior calls, we will continue to make prudent investments in the business to drive long-term growth. Before turning to Q&A, I want to take a moment to reflect on what an incredible year 2024 has been. None of these results would have been possible without the hard work, dedication, and commitment of our restaurant, manufacturing, and collaboration center team. I often say Cobb is a very special place to work, and it's the passion and perseverance of our people that make it so. Together, we're building something truly remarkable as we continue to push forward with our mission of bringing heart, health, and humanity to food. And with that, I'll pass it over to the operator for Q&A.