CAVA Group, Inc. (NYSE:CAVA) Q4 2023 Earnings Call Transcript

Brett Schulman: Hey, Sharon. It’s Brett. We have updated our local store marketing campaign to drive increased local press awareness and elevated our community day. I’m excited that our recent opening in Hollywood, California, had a record-setting community day of raising donations for our philanthropic partner in the market. So, I think, the team has done some nice tactical improvements to drive greater awareness around openings at a local level. So we have done some things around that. And as we open up Chicago, given the size and scale of the market, we will be doing a bit more of upper-funnel type campaign to announce our arrival in the market.

Sharon Zackfia: Okay. Great. Looking forward to Chicago. Thank you.

Brett Schulman: Thanks.

Operator: Thank you. Our next question comes from the line of Andrew Charles at TD Cowen. Please go ahead. Your line is open.

Andrew Charles: Great. Thanks. I wanted to ask about the digital pickup lanes. How is that performing versus the original expectations for about 10% to 15% higher volumes? And what I’m really trying to understand is if you’re approaching the point where it makes sense to either ramp the mix of new stores above the 50% run rate or test retrofits or relocations, just given the favorable ROIC you’re likely observing.

Tricia Tolivar: Hey, Andrew. So we’ve got 31 pickup lanes today, and the pickup lanes do continue to look better from an overall AUV perspective and slightly higher from a restaurant-level margin perspective. What we’re thinking about and how we’re executing is making sure we’re being thoughtful around the choices we’re making on pickup lanes and don’t get pressured into chasing a number. And so, while you mentioned a 50% target itself, we’re likely going to be over one-third, but less than 50%as we think about pickup lanes going forward. Our focus is driving the best cash-on-cash return that we possibly can and making sure that we’re exceeding those 35% targets for cash-on-cash return and really delivering a lot of value.

So what we don’t want to do is feel a lot of pressure to really go into a site and compete with a Raising Cane’s or a Chick-fil-A on something and that we really can’t underwrite in the same way and get us in a spot that doesn’t drive those returns in the attempt to meet a goal to have as many pickup lanes as possible. Great news is, we perform really well, whether we’re in line, freestanding, or have a pickup lane, and so we’re just making sure we can optimize those returns in the best way possible.

Andrew Charles: That makes sense. And then, Tricia, last quarter, you flagged to not expect materially positive comps for 1Q 2024, given the tough comparison. In other words, 2 months into the year with unfavorable weather for the industry in January that’s improved in February, are there any other PSAs that you call out for modeling 1Q comps?

Tricia Tolivar: Thanks for the question, Andrew. As you all know, we don’t give intra-quarter guidance, so we’re not going to speak to what we’re seeing in Q1 itself. But I will say that nothing’s changed our approach to our guide of 3% to 5% as we thought about it last year and into this year.

Andrew Charles: Appreciate it. Thanks.

Operator: Thank you. And our next question comes from the line of Nick Setyan at Wedbush Securities. Please go ahead. Your line is open.

Nick Setyan: Thanks. I just wanted to hone in on margins a bit, just what you guys expect in terms of food cost inflation in 2024. And with 3% pricing, particularly with the upside in Q4, why we couldn’t see flat to down COGS in 2024.

Tricia Tolivar: Nick, thanks for the question. When we think about food cost inflation, we’re thinking low- to mid-single-digits, but there are some increases, particularly around chicken and olives and olive oil. So our chicken, we had great pricing last year related to chicken. And as we go into next year, there’ll be some increase in that area. And then also olives and olive oil were impacted by an unseasonably warm climate or temperatures overseas in Europe, where we secure our products that have some impact overall. So we wanted to take that into account as we’re thinking about COGS and what that will look like. The other piece around COGS is 2023, and we’ve talked about this before, but really benefited from very high same restaurant sales growth that was creating efficiencies in COGS from a waste perspective and other items. And so that will drive into the impact on COGS as you go into 2024 itself.

Nick Setyan: And then just in terms of the unit growth outlook, would you mind telling us what Q1’s number of units might look like?

Tricia Tolivar: From a Q1 perspective, we’ve already opened 11. Keep in mind, Q1 has 16 weeks, and I’m anticipating that openings will be fairly even throughout the year.

Nick Setyan: Thank you.

Operator: Thank you. Our next question comes from the line of Brian Vaccaro at Raymond James. Please go ahead. Your line is open.

Brian Vaccaro: Hi. Thanks. Just following up on Nick’s question on store margins. Could you help us parse out the incremental labor versus other investments that are embedded within that guidance? And then I had a quick follow-up.