Good afternoon, ladies and gentlemen, and welcome to the CAVA Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, the 15th of August 2023. I would now like to turn the conference over to Matt Milanovich. Please go ahead.

Good afternoon, and welcome to CAVA Second Quarter 2023 Financial Results Conference Call. Before we begin, if you do not already have a copy, the earnings release and related 8-K filed 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. To the extent any non-GAAP financial measure is discussed in today’s call, you will find a reconciliation of that measure to the most directly comparable financial measure calculated in accordance with GAAP in today’s earnings release, which is posted on the company’s website. Before we begin, let me remind everyone that this call may 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 filings with the SEC and in today’s earnings release. 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. Let me start by welcoming everyone to CAVA’s first quarterly call as a publicly held company. We’re pleased with how the market has received CAVA. But as you’ll hear, our focus is on the long term, that’s running a great business and building a durable brand that consistently delivers results. Becoming a public company, while a milestone event, was not the destination but the beginning of the next chapter of our journey. CAVA is creating and defining the next cultural cuisine category, and our results in the second quarter of 2023 demonstrates the broad appeal of our innovative, authentic Mediterranean concept and the significant white space opportunity in front of us. We’re successfully opening restaurants in new and established markets. We continue to deliver powerful unit economics, and we’ve already made significant investments in building an efficient, scalable organization, putting the company in a strong position to deliver on our extraordinary potential for growth. We are proving that bringing heart, health and humanity to food is a powerful formula for success. In the second quarter of 2023, we delivered CAVA revenue growth of 62%; 18.2% CAVA same-restaurant sales growth, including 10.3% traffic growth; 16 net new restaurants, ending the quarter with 279 restaurants; a 43.1% increase year-over-year; adjusted EBITDA of $21.6 million, a $15.7 million increase over the second quarter of 2022; and net income of $6.5 million. Our Q2 results and ability to capitalize on the opportunities ahead are grounded in our 3 strategic pillars. First, we are solidifying our category-defining Mediterranean brand. Our broad appeal and proven portability supports strong restaurant openings in new and existing markets. We opened 16 net new CAVA restaurants during the second quarter, including 2 new states, Missouri and Rhode Island, along with continued expansion in Massachusetts, Texas, Georgia and Colorado.…

Thanks, Brett, and good afternoon, everyone. Before I begin, I want to remind you that our typical fiscal year calendar includes 13 4-week periods. The first quarter has 16 weeks and the remaining quarters have 12 weeks. Also, please keep in mind that 2023 includes a 53rd week, which will create a 13-week fourth quarter. As Brett mentioned, CAVA revenue in the second quarter of 2023 grew 62.4% year-over-year to $171.1 million. Same-restaurant sales increased 18.2%, driven by traffic growth of 10.3%. While we anticipated a consumer slowdown this year, the resilience of our guests and likely increased brand awareness from our IPO, delivered strong traffic growth in Q2. We continue to see positive traffic trends into Q3. However, we are beginning to see a slight shift in delivery to pickup and moderating overall same-restaurant sales growth as we are lapping an approximate 3% menu price increase in June of 2022 that we did not nor plan to take in Q2 or Q3 of 2023. We opened 16 net new CAVA restaurants this quarter, bringing our total CAVA restaurant count to 279. We have strong unit-level economics across every geography as well as in suburban, urban and specialty markets, and our overall AUV now above $2.6 million. All geographies are over $2.2 million. CAVA restaurant-level profit in the second quarter was $44.6 million or 26.1% of revenue versus $23.3 million and 22.1% of revenue in the prior year, representing a 91.9% increase. The margin expansion was largely a result of sales leverage on labor and occupancy and improved food, beverage and packaging costs. Our second quarter profitability demonstrates the power of our business model. But given our current stage of rapid growth, we do not expect to maintain this level of profit margin in the near term. I will share…

[Operator Instructions] Your first question comes from the line of John Ivankoe from JPMorgan.

I remember when we spoke about the first quarter, and first quarter obviously had exceptional comps, I mean, by any measure, and I think it was truly above your own expectation. You talked about not quite able to kind of get the costs into the system that you would have wanted to, based on those elevated sales. I wonder if a similar type of dynamic happened in the second quarter, especially with some of the IPO publicity. Do you feel that you were properly staffed or spending all the money that you wanted to in the stores? Were you happy with your execution? In other words, you did the costs, at least in the second quarter, catch up with what, once again, was a very strong same-store sales number. Thank you, and congratulations.

Thanks, John. So second quarter was certainly a very strong quarter with 18% same-restaurant sales. And while we did make some investments in the quarter, we continue to see the opportunity to reinvest in the business, reinvest in our people and build the pipeline of leaders for us to continue on this growth as we move forward into the future. Our focus is on the long term and what we can do to remain the category-defining brand, really execute on our proven portability and the powerful unit economics and really leverage that massive white space opportunity.

Your next question comes from the line of Andy Barish from Jefferies.

Nice results. Just a follow-up and then a question on your stage gate process. Pricing, it sounds like you’re comfortable with just the first quarter menu pricing at this point for the ‘23 year. Is that how we should interpret that?

We don’t have any plans to raise pricing for the remainder of the year. We’re certainly very sensitive to our guests and any pressure that they might be experiencing. So we did increase price at the beginning of 2023 and don’t have any plans. We remain a very strong value proposition for our guests, our brand health surveys reinforce that with us. And what we find is that we’re hard to recreate at home. We provide a very unique and differentiated offering for our guests, but want to make sure that we are accessible for them no matter what the economic environment is. So we’re certainly reflecting that in our plans as we move forward for the rest of the year.

And then just on the new product innovation and testing. We’ve noticed steak for the first time testing in a couple of restaurants. Can you just explain sort of how your stage gate process works? And how important innovation is as you move forward on both proteins as well as other areas?

Andy, it’s Brett. Good to speak with you. We are testing steak in a market test. We start our process in a single restaurant test and vetted operationally as well as from a customer standpoint and then move it into a market test and then a broader market test. So we pressure test it from both an operational and consumer perspective before rolling it out in a more broad-based fashion. You saw in the quarter 2 items that had worked their way through that process, Spicy Falafel and Fiery Broccoli, that we successfully brought to market. So excited to have steak as one of the items in the pipeline. And if it progresses through all the testing, you will see it in the market in the future.

Your next question comes from the line of David Tarantino from Baird.

Congratulations on the results. I have a question maybe about the guidance for the second half of the year, Tricia. I think it implies a pretty material step down in the same-store sales. And I know you’re rolling over some pricing, but I’m wondering if you’re starting to see some weakness in the underlying traffic or if the guidance just reflects maybe comparisons or some conservatism. Any perspective you could offer would be helpful.

Yes, David, thanks. You certainly called out a lot of the things that we were speaking to and that lapping the increase in price of around 3%. Also wanted to call out Q2, certainly, we believe there was an amplification of our brand awareness in Q2 that we wouldn’t necessarily expect as we go into the back half of the year. And then even more so is really being mindful of potential headwinds with consumers around gas pricing or other options. So we wanted to reflect a very cautious approach and how we’re thinking about this uncertain macroeconomic environment that we may face as we go into Q3 and Q4.

Yes, David, it’s Brett. I think from a macro perspective, we’re really mindful of a lot of pressures facing our guests outside of their CAVA experience, whether it’s the gas prices Tricia touched on that have spiked recently, some of the utility build cost pressures related to the extreme heat that’s hit a lot of the parts of the country. You have student debt loan repayment hanging in the wings this fall. And you have a hawkish Fed that has also signaled that they’re looking to temper growth to ensure they tamp out any potential inflation reigniting. So we’re mindful of those pressures, which is why we’ve leaned into our value proposition. And as Tricia noted, have no plans to take price the rest of the year and have taken minimal price increases year-over-year to put forward a really great value proposition for our guests regardless of what the macroeconomic conditions bring.

Your next question comes from the line of Jon Tower from Citi.

I was curious, I think you had mentioned on the call the loyalty test being pushed out into later ‘24 for a launch. So -- and I believe based on some of our earlier conversations that that’s a little bit later than -- at least what I was anticipating. Maybe I just had the wrong expectation. But I’m curious to hear your insights as to perhaps why it’s a little bit later in ‘24. And the difference that you’re expecting between the existing program today, which I believe is more transactional. This one is going to move to a more surprise and delight. But any thoughts and color you could provide around that would be welcomed.

Yes, Jon, thanks for the question. We had talked earlier about the back half of ‘24 and really looking toward the end of the year. We will be testing and learning starting late this year into next year. I think we’ve had the same program since 2013. As you noted, it’s very transactional. And we see an opportunity to really evolve it and build deeper, more meaningful connections with our guests, leverage all those users within our current loyalty pool and create much greater value for them and for our business, utilizing personalization, utilizing the power of our concept and our customization and driving greater frequency, mix and traffic. So you’ll see some tests beginning at the end of this year. And as I mentioned, we’re building out the customer segmentation data work as a foundational piece to be able to really drive that unique personalization where we’re speaking to each of our guests based on their needs, their preferences, their profile in a very one-to-one way.

Got it. And then just circling back to the conversation on comp guidance. I know you -- Tricia, you had mentioned that you’d had a strong start to the third quarter. Curious if perhaps you can give us a little bit of cadence on the breakdown of comps on a monthly basis during the second quarter, if you exited stronger than you entered, that would be helpful.

Yes, Jon, we don’t intend to give intra-quarter guidance on how the comps progressed on a quarter -- on a month-by-month basis, and certainly did have positive traffic and continue to see that as we go into Q3.

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

Yes. Maybe just within the strong same-store sales in the second quarter and also the first quarter. Did you see kind of some of the similar impacts across your newer stores versus your more mature stores, i.e., kind of the brand awareness halo. Was that observable across the system? And I guess the question is also just how much do you think some of the year 2 stores, all the conversions you’ve recently completed, how much are those driving these same-store sales numbers right now?

Brian, thanks for the question. So as we look at our performance across vintages, across geographies, across formats, whether it’s suburban or urban, we’re seeing consistent strong trends in all of those environments. So can’t really find any one area that’s driving the overall performance for us. And so we’re very pleased with what we’re seeing and really demonstrates our proven portability, the powerful unit economics that we have and the opportunity to really expand on the white space as we move forward.

Your next question comes from the line of Brian Mullan from Piper Sandler.

Just a question on development. Just hoping you could talk about the locations with the drive-thru pickup capability. Maybe just remind us how many you have today, how those are doing from an AUV and a margin perspective versus the rest of the base. And then just related to that, as you look out to 2024 and beyond, do you anticipate those formats will become an increasingly bigger part of the pipeline over time? Just trying to hear a bit more about where that format sits in your plans.

Yes. We have more than 20 pickup lanes, digital pickup lanes in our pipeline today -- or excuse me, in our fleet of restaurants today. And the AUVs are typically 10% to 15% higher than other locations in their market as a result of that. Certainly, as we look at our pipeline of new restaurant openings in 2023 -- the rest of ‘23 and ‘24 and beyond, we do anticipate that our drive-thru digital pickup lanes will be a larger portion of the portfolio. We just want to make sure that we’re being thoughtful around investing in those and delivering the right returns as we move forward.

Your next question comes from the line of Chris O’Cull from Stifel. Chris O’Cull: Brett, I know there were relatively limited number of organic openings in ‘22. But I was hoping you could just give us an update on how those stores are performing in comparison with kind of your new unit targets. And then Tricia, the company added 16 units this quarter, with about half of them conversions. Going forward, I guess you could be opening a similar number of units but no conversions. How should we think about the impact to profitability of opening new CAVA units versus conversions?

Chris, thanks for the question. I’ll speak to the first part and hand it off to Tricia. We’re very pleased with the performance of the 2022 fleet. They are outperforming our expectations. And just to clarify, in the quarter, we opened 10 de novo units and 6 conversions. So you’re seeing already the transition away from conversions. And in Q3, we have 2 remaining conversions to open and the rest of the openings will be de novo units. And I’ll hand it to Tricia to answer the balance of the question.

Chris, as it relates to profitability, our new restaurants are exceeding our expectations as we deliver against our underwriting models that we have for those restaurants themselves. And so we’re not anticipating a significant negative impact on overall restaurant-level profit margins as a result of the new openings either this year or going forward. Chris O’Cull: Great. Congrats, guys.

Thank you.

[Operator Instructions] Your next question comes from the line of Sharon Zackfia from William Blair.

I have to say I’m selfishly glad to hear about Chicago. But I’m also curious, as you talk about Chicago, I mean, it’s probably the first new big greenfield market for you in a while. I mean how do you think about attacking a market like Chicago in terms of how quickly you densify it, or the cadence of densification, whether it’s urban, suburban, how you plan to build the brand awareness?

Yes. Sharon, thanks for the question. We’ve earned our stripes over this over the years. Our second market away from Washington, D.C., our home market, the DMV was Los Angeles. And that is a large urban sprawl market, and we really learned how to build out new markets and have opened many subsequent major markets. And so we’re excited to get to Chicago. It’s been a highly requested market. And we also learned in our early years, when we enter these markets, we want to open 3 to 5 units within a 12-month period. So we’ve lined up an entry that we feel gets us to that kind of critical mass, both from a supply chain, an operational integrity and a consumer brand awareness standpoint. And given our proven portability and broad appeal, it allows us to really go into a market in a multitude of ways where we can pair some more urban sites with suburban sites, high-profile suburban trade areas and urban trade areas. So really gives us an area -- an ability to touch markets in unique ways. And then I would also say that we’ve been in Whole Foods Markets and grocery in that market for almost 9 years now, and we do brand health surveys and awareness surveys. And really pleased with the existing awareness in the Chicago market of the brand without even having a restaurant there. And when we go into the market, we’ll do our traditional community days, which really helps generate great interest as well as give back to the communities where we invite our neighbors, our new neighbors for a free lunch or dinner service and suggest donations, not required. But if any donation, we match, and they go to a philanthropic partner in the community typically addressing food security. So I’m excited to bring CAVA closer to you next year.

There are no further questions at this time. I will now hand over to Brett. Please continue.

I want to thank our teams once again for a record second quarter. CAVA is a fast-growing brand that’s creating the next cultural cuisine category. Our performance in the second quarter reflects the diverse appeal and proven portability of our concept, and as demonstrated by our strong unit-level economics and expanding clear leadership position, we are making the most of this massive white space opportunity in front of us. While we are closely watching the potential macroeconomic headwinds on the horizon, we remain confident in the durability of our brand and the long-term value creation opportunity in front of us. We are focused on sustainably scaling our business and fulfilling our mission to bring heart, health and humanity to food. Thanks again for joining us, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.