CAVA Group, Inc.

Good afternoon, and welcome to CABA's second quarter 2025 financial results conference call. Before we begin, if you do not already have a copy, the earnings release and related 8K burners with the SEC are available on our website at investor.caba.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. 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. All forward-looking statements are made as of today And except it's required by law, COVA 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 Shulman. Thanks, Matt, and welcome to the call, everyone.

In the second quarter of 2025, we continue to cement Mediterranean as the next major cultural cuisine category bringing together bold, flavorful food with the modern consumer's desire for health and human connection. It's a category we've pioneered and one we continue to have dominant leadership and grow market share. With significant white space still ahead, the strength of our model and the passion of our guests give us confidence in the growth yet to come. Our second quarter highlights include a 20.3% increase in CAVA revenue, and a 62.6% increase over the last two years, have the same restaurant sales growth of 2.1%, restaurant level profit margin of 26.3%, 16 net new restaurants ending the quarter with 398 restaurants, a 16.7% increase year over year, adjusted EBITDA of 42.1 million, a 22.6% increase over the second quarter of 2024, net income of $18.4 million, and $21.9 million in year-to-date free cash flow. While strong prior year results, including the launch of steak, our most significant protein launch in a number of years, impacted the quarterly same restaurant sales comparison, we remain deeply confident in the long-term trajectory and the structural strength of our business. Surpassing $1 billion in revenue on a trailing 12-month basis last quarter was a meaningful milestone. But as we noted then, it was just the beginning of the next chapter of our journey and ambitions. Our confidence is reinforced by the strength we're seeing in our 2025 new restaurant class, which is on track to deliver average unit volumes above $3 million and is opening higher than 2024's record-setting cohort. We're defining a category with powerful long-term tailwinds in Mediterranean, a concept and brand built on strong culinary credibility that resonates with guests, and delivers high AUVs and a competitive leadership position that is difficult to replicate with over 400 restaurants and no scaled competition. We remain focused on the road ahead, guided by the proven portability and profitability of our model and the clear demand for Mediterranean across the country. This demand comes to life through our first strategic pillar, expand our Mediterranean way in communities across the country. In the quarter, we opened 16 net new restaurants, bringing our total restaurant count to 398 locations across 27 states and the District of Columbia. This summer, we also celebrated two new market entries, Pittsburgh and our 28th state, Michigan, where our teams were met with long lines and warm welcomes from excited guests. As we expand our footprint into new regions like the Midwest and Southern Florida, while broadening our presence in more established markets, We're inspired by the enthusiasm we're seeing from guests who are embracing Cava as part of their daily lives. The strength of this demand and the performance of our recent new openings give us even greater confidence in reaching our next major milestone of at least 1,000 restaurants by 2032, and we look forward to sharing more about our restaurant expansion in the quarters ahead. We are anchored in our belief that the human experience in our restaurants is essential, and we continue to remain focused on our Project Soul initiative, which brings our Mediterranean way to life through warm, inviting spaces designed for connection. Our Project Soul prototype will be finished by this fall, and the complete set of design features is expected to roll out across all 2026 new restaurant openings. In addition to our inviting spaces and warm hospitality, we know that what keeps our guests coming back to us is what's in their bowl or pita. bold, flavorful, and satisfying food that reflects the vibrancy of the Mediterranean. As part of our disciplined innovation process, we're thrilled to share that we've been testing chicken shawarma in our Dallas and Tampa markets since late April, and we're very encouraged by the results. This protein is our modern take on a Mediterranean classic. Juicy roasted chicken breasts marinated in a signature spice blend, hand-stacked on a spit, and shaved thin to deliver one of the region's most iconic flavors. With consumers increasingly seeking new protein options, this main offers an all-white meat chicken option that satisfies both healthy and flavorful cravings. We're pleased with the market test results to date, and we expect to roll out Chicken Shawarma as a limited time offering company-wide in early fall. And while Chicken Shawarma strengthens the core of our menu, we're also leaning into the growing success of our fan-favorite pita chips as a platform for flavor innovation. This fall, we'll introduce cinnamon sugar pita chips, our sprouted grain chips dusted with a perfect blend of cinnamon, sugar, and a hint of cardamom, accompanied by a side of honey for dipping, bringing a Mediterranean-inspired twist to both snacking and dessert occasions. Our culinary innovation pipeline is robust. showcasing both our ability to reimagine Mediterranean classics like chicken shawarma and to introduce new proteins like salmon, an ingredient that aligns naturally with our concept essence. Salmon has just entered its market testing phase as part of the stage gate process, and we're excited about its potential to complement our existing menu in a way that feels authentic to Caba. This disciplined, methodical approach to introducing new menu items is key to our goal of delivering the bold, vibrant flavors our guests know and love every time they visit, while keeping them excited about what's next. We look forward to sharing more in the coming quarters as salmon progresses through our testing process. And as we continue to innovate on the culinary front while expanding our geographic presence, we know it's more important than ever to stay true to the heart of our brand and continue to lean into our second strategic pillar, deepen personal relationships with guests, even as we scale. This past quarter, we welcomed back our beloved team member, Peter Chip, as part of our summer solstice celebration. On our last call, we shared how we intentionally aligned Peter Chip's birthday with National PETA Day, offering complimentary PETA chips to all CAVA Rewards members. This summer, we brought that same spirit of generosity to life once again, inviting Rewards members to celebrate the solstice with free PETA chips. The result was our second highest day ever for app downloads and digital revenue. By building on Peter Chip's journey, we're creating narrative continuity that deepens guest relationships and reinforces the emotional connection at the heart of our brand. In fact, just yesterday, we dropped our latest Peter Chip promotion featuring four different flavors of blind bag Peter Chip plushies as part of a limited edition hot harissa meal. This playful extension of the story gives fans a tangible way to bring a little piece of kava home with them. Our Reimagine Loyalty program serves as the platform that enables these efforts, allowing us to engage with guests in more customized, impactful, and creative ways. Later this year, we'll introduce the next phase of our rewards program, a tiered structure designed to recognize our most passionate guests while enhancing long-term engagement by aligning rewards more closely with guest preferences. Heart, health, and humanity are at our core, and we're committed to ensuring that every interaction, whether in our restaurants or through our digital channels, reflects that same sense of care and connection. We know that as we grow, our ability to innovate and build personal connections with guests is underpinned by a strong operational foundation. Our third strategic pillar, run great restaurants, every location, every shift, is central to delivering the consistency, efficiency, quality, and hospitality that defines us. As part of this pillar, our connected kitchen initiative shows how we're leveraging technology to empower our teams and elevate the guest experience. We are on track to expand the rollout of our new kitchen display screen system to 270 locations by the end of the year, with the new system now live in 95 locations. The new KDS continues to deliver improvements in guest satisfaction scores driven by better digital accuracy and more proactive guest communications. Alongside our KDS expansion, we're rolling out our new Turbo Chef ovens in every restaurant, further enhancing speed, consistency, and quality in our kitchens. Together, these innovations represent our commitment to operational excellence that provides the foundation for future innovations and makes our restaurants easier to operate. Another advancement under the Connected Kitchen platform is our AI camera vision technology. After several quarters in a test and learn phase, We're encouraged by the results and plan to expand to 21 additional locations by the end of the year. By leveraging historical and real-time depletion data, the technology helps guide our teams toward more accurate food production, reducing waste, and ensuring freshness. Finally, I'm also pleased to announce that we've recently made an investment in Hyphen, a leader in developing automated make lines designed to improve the speed and efficiency of food production. In addition, we plan to begin a pilot test of Hyphen equipment in the coming quarters. The focus of this test is on our second digital make line, not our in-restaurant serving lines. As with all of our operational initiatives, this investment is rooted on our belief that technology should enhance, not replace, the human experience. At the heart of our success are our people. From our restaurants to our support center, our ability to innovate and scale is grounded in our fourth strategic pillar, operate as a high-performing team. The team members in our restaurants embody heart, health, and humanity every day, and we remain deeply committed to fostering a workplace where they can grow and thrive in their careers. Building on what we shared last quarter, we're advancing work on a comprehensive talent development strategy aimed at strengthening every stage of the employee life cycle. This effort is grounded in our belief that growing and running great restaurants at scale starts with attracting, developing, and retaining the leaders who bring Cava to life every day. As part of this work, we've begun rolling out two programs designed to elevate leadership and growth within our restaurants. First, beginning in 2026, general managers will be eligible annually for equity compensation, inspiring an owner-operator mindset and deepening their connection to the business. This approach reflects the critical role GMs play in driving operational excellence and shaping the culture in every restaurant. Second, we are expanding a test of our new assistant general manager role across many of our restaurants. This role will provide a seasoned leader that not only strengthens the GM pipeline, but also equips our teams with more hands-on leadership support, ensuring they can deliver exceptional hospitality and consistent performance shift after shift. By providing a clear, intentional path for advancement, we're setting up our future leaders and our brand for sustained success. We look forward to sharing more about how these new programs roll up under our holistic development program next quarter. These efforts are all about investing in our people, giving them the tools, opportunities, and support they need to grow as leaders and deliver the kind of hospitality that defines our brand. And it's that same spirit of care and connection we see throughout CAVA in both big and small moments. Before we wrap, I want to leave you with a story from our restaurant in Palm Harbor, Florida, that brings this idea to life. Shortly after our CavaConnect conference earlier this summer, a guest held the door open for another guest on a motorized scooter. It was a small, simple act of kindness, but one that sparked something extraordinary. Moved by what he witnessed, our general manager used the love button to celebrate the gesture, setting the tone for what happened next. For the following hour and a half, every person in line paid it forward, covering the meal for the guests behind them, no matter the cost. It all started with that one moment and grew into a wave of generosity that moved our entire team to tears. Moments like these are why we do what we do and are a powerful reminder that heart, health, and humanity isn't just our mission. It's what happens in our restaurants every day, brought to life by our thousands of team members. To them and all of you who believe in our purpose and our journey, Thank you. And with that, I'll pass the call off to Tricia to walk you through the financials.

Thanks, Brett. And hello, everyone. CAVA revenue in the second quarter of 2025 grew 20.3% year over year to $278.2 million and 62.6% compared to the second quarter of 2023. CAVA same restaurant sales increased 2.1%, primarily from menu price and product mix, with guest traffic approximately flat. On a two-year and three-year stack basis, same restaurant sales increased 16.5% and 34.7% respectively. During the quarter, we opened 16 net new kava restaurants, bringing our total kava restaurant count to 398. Despite the macroeconomic pressures impacting the broader industry, pressures to which we are not immune, We entered the second quarter with strong same restaurant sales momentum in line with the guidance we provided in the first quarter. However, as we move through June, we saw a deceleration in same restaurant sales, driven in part by the timing of our steak launch last year, a protein that filled a meaningful gap on our menu. At the same time, we saw a honeymoon effect from our 2024 new restaurant class, a dynamic we have not experienced before, which significantly outperformed expectations, opening at higher than anticipated sales volume. In fact, the strength of this class has driven year one cash on cash returns above 40%, already meeting our year two expectations. Same restaurant sales regained momentum in the latter part of the quarter, re-accelerating as we exited Q2 and continued into Q3, and we are encouraged by this sequential improvement. As Brett mentioned, our 2025 openings are also exceeding expectations, trending above 3 million in first year average unit volumes compared to our 2.3 million target. With new restaurant productivity of roughly 109%, further demonstrating the strength and proven portability of our operating model. Despite a more modest same restaurant sales increase, CAVA restaurant level profit in the second quarter was 73.3 million or 26.3% of revenue versus $61.3 million or 26.5% of revenue in the second quarter of 2024, representing a 19.6% increase. This outcome reflects the power of our operating model and its ability to consistently generate attractive returns regardless of near-term sales variability. Call the food, beverage and packaging costs for 29.5% of revenue higher than the second quarter of 2024 by 10 basis points. This slight increase reflects the impact of steak, which launched mid second quarter last year, partially offset by other lower input costs compared to the same period of the prior year. COVA labor and related costs were 25% of revenue and improvement of approximately 20 basis points from the second quarter of 2024. This improvement in labor and related costs reflects leverage from higher sales, partially offset by investments in our team member wages of approximately 2%. CAVA occupancy and related expenses were 6.8% of revenue, an improvement of 10 basis points from the second quarter of 2024, driven primarily by increased sales leverage. CAVA other operating expenses were 12.4% of revenue, reflecting an increase of 40 basis points from the second quarter of 2024. This increase was primarily due to individually insignificant items partially offset by increased sales leverage. Shifting to overall performance, our general and administrative expenses for the quarter excluding stock-based compensation were 9.8% of revenue compared with 10.6% of revenue in Q2 of 2024. This 80 basis point improvement was primarily due to lower performance-based incentive compensation, leverage from higher sales, and timing of legal costs in the prior year quarter, partially offset by investments to support our future growth, including our CAVA Connect Conference. Pre-opening expenses were $5.1 million in the current quarter, compared with $3.3 million in the prior year quarter. The $1.8 million increase includes a higher number of units under construction and the timing of openings. Adjusted EBITDA for the second quarter was 42.1 million, a 22.6% increase versus Q2 of 2024. The increase in adjusted EBITDA was primarily driven by the number of and continued strength in new restaurant openings, improved operations across the system, and leverage in general and administrative expenses. Equity-based compensation was 4.6 million in the second quarter, which includes 2025 grants, compared with $3.6 million in the prior year quarter. We continue to anticipate full-year equity-based compensation to be between $20 and $22 million, with the remaining portion of equity expense to be spread evenly over the remainder of the year. In the second quarter, our effective tax rate was 22.5%. which includes the impact of a discrete benefit from equity-based compensation of approximately 1.7 million. We do not anticipate any further benefits for the remainder of the year. For the full year fiscal 2025, we expect our effective tax rate to be between 12 and 15%, which implies an effective tax rate of approximately 30% in Q3 and Q4. As a reminder, our cash taxes will continue to be immaterial until we fully utilize our net operating losses. During the second quarter, we reported $18.4 million of GAAP net income compared to $16.8 million of adjusted net income in Q2 of 2024. Diluted EPS was $0.16 in the second quarter compared with adjusted diluted EPS of 14 cents in the second quarter of 2024. Turning to liquidity, at the end of the quarter, we had zero debt outstanding, 385.8 million in cash and investments, and access to a $75 million undrawn revolver with an option to increase our liquidity if needed. Year-to-date Q2 cash flow from operations was 98.9 million, compared to $87.3 million during the year-to-date period in 2024. Year-to-date Q2 free cash flow was $21.9 million. Now to our outlook for full year 2025, we expect the following. 68 to 70 net new CAVA restaurant openings. CAVA same restaurant sales growth of 4% to 6%. have a restaurant-level profit margin between 24.8% and 25.2%, pre-opening costs between $15.5 million and $16.5 million, and adjusted EBITDA, including the burden of pre-opening costs between $152 million and $159 million. Our guidance for same restaurant sales embeds our Q2 results the re-acceleration we saw exiting the second quarter, and the changing dynamics amidst the current macroeconomic landscape. Our conviction in the long-term trajectory and structural strength of our business remains unwavering, grounded in the momentum of our category, the power of our concepts, and the durability of our competitive positioning. The Mediterranean category continues to show strength, reflected in our three-year traffic growth of 19.7% in our growing market share. Our concept is deeply resonating with a robust culinary innovation pipeline, a differentiated in-restaurant and digital experience, and a value proposition that delivers compelling unit economics and attractive cash-on-cash returns. Finally, our competitive position continues to strengthen, giving us confidence in our path toward at least 1,000 restaurants by 2032. Together, these elements reinforce a business built for the long term, one that's anchored in our mission to bring heart health and humanity to food, and that continues to create meaningful experiences for the guests we serve every day. Now, I will turn the call back over to the operator and open it up for Q&A.