Cava Cuts Sales Outlook as Fast Casual Customers Pull Back

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00:00How has the shutdown hurt business and how does it look from here on out if indeed we see the

00:04government start opening? Hi, Carol. It's good to be with you today. Certainly, as we experienced

00:11the shutdown and around the middle of October, around the time when people in the District

00:16of Maryland and Virginia stopped receiving their paychecks, we did see a slight step down in spend

00:21in those markets. Certainly not anything acute, but certainly an impact that we noticed in the

00:26business overall. So as we look forward to hopefully a return to work in the near future,

00:32it's likely that it will have a benefit. But really what we're wanting to do more focused is on the

00:37long term and what that means for Kava to be able to provide incredible food, abundant offerings with

00:43amazing flavor that make you feel good while you're eating it and after. And we believe that

00:47relevance will continue to drive benefit for the business over the long term. The other thing to

00:52keep in mind is that we were actually, we are anniversaring or lapping very strong same restaurant

00:58sales in the prior year, fourth quarter at 21%. And so that is what's influencing our outlook for the

01:05rest of the year in 25. And as we go into 2026, I'm looking forward to the culinary offerings that we

01:11have that we can bring to our guests every day. Tricia, thanks for joining us again. I'm just wondering

01:15in terms of your view of the consumer, we've seen restaurant chains, not just you, but also others

01:21reporting weaker results and cutting forecasts. What's your view of the consumer from here?

01:26We've heard a lot about the K-shaped economy where sort of well-off people are doing well,

01:31but the weaker income bands are just spending less. Is that something that you're concerned about?

01:37Certainly you can see from the high frequency data with credit cards that the consumer is feeling

01:42some more pressure as well as just the consumer sentiment in general. There've been a lot of

01:47challenges as the consumers are facing them in the near term. And as we experience those in our

01:52business, what we're finding is that consumers continue to lean into our premium items. So our

01:57amazing steak and our new chicken shawarma, as well as attaching with incremental items like our fan

02:03favorite pita chips. Right now we've got cinnamon sugar pita chips with a drizzle of honey. That's

02:07incredibly tasty. I'm hungry. I know, I know. I had them for lunch today. So it was, they're incredible.

02:15But they're, that as well as our house made juices. So those are continuing to attach and increase.

02:20And also when you look at our restaurants and how they're positioned based on median household income

02:27in their markets, we're finding that the lower income consumers actually experiencing those

02:32restaurants higher same restaurant sales than the rest of our cohorts of restaurants. So from that

02:38standpoint, it's encouraging to see that we are becoming more accessible for the lower income

02:42consumer and driving increase in sales in those areas. How does the weaker results that you reported

02:48in the quarter, how does that impact your thing, your planning on future growth? Like I know that

02:54you wanted or are planning to open as many restaurants next year roughly as you open this year. Is that still

03:01the plan? We do intend to continue to increase the opening of our restaurants with at least 16% growth

03:09in restaurants in 2026. This year we'll open at least 68 to 70 restaurants. And what we're seeing is that

03:16despite the challenges we see with the consumer today, we're very encouraged about the strength of the

03:22business and what we're able to offer. So our new restaurants that are opening or have opened in 2025, those

03:28restaurants are delivering average unit volumes above $3 million, which is above our chain average. And that

03:34really underscores the power of the brand itself. The excitement around the consumers that we come into

03:40new markets and existing markets and gives us the confidence in our white space opportunities that we will

03:45continue to lean into our growth in new restaurants as we move forward. Certainly new restaurants a big part of

03:51CapEx this year and next year, but where else are you investing? We're always looking for ways to make

03:58our operations and our restaurants easier to run for our team members. So some of the investments we're

04:03making are in equipment in the restaurants to streamline operations like our kitchen display systems,

04:09which works with our digital ordering systems on the back of the house, which supplies our digital

04:14customers. Those tools allow our operators and our team members to fill orders more easily and

04:21create a higher level of accuracy. We've also equipped our restaurants with turbo chef ovens.

04:27Many of our restaurants didn't have them. And in this year, we made those investments. It streamlines

04:32cook times, creates better quality and efficiency, and simplifies operations for the team members

04:37overall. Our view at Cava is a happy team member equates to a happy guest and a happy P&L. And we're

04:43always looking for ways to reinvest in the business to drive that. Let's talk P&L. And I'm just curious about,

04:48you know, in your earnings, tariffs talked about how they have hit your, or you guys talked about

04:53how tariffs have hit your restaurant level profitability through higher food, beverage,

04:56and packaging costs. Is that just the new reality and new normal that will stay with us for longer

05:02or perhaps forever? I'm just curious how you, what's your read on that? And then how does it play

05:07into pricing? Because I think you guys were still looking to limit price hikes now and also into 2026,

05:13but is that maybe up in the air? Yes. So tariffs have certainly been an evolving and ever-changing

05:20area. Luckily, one of our values is to act with agility. So our team members on the supply chain

05:25side have done an incredible job in minimizing that impact as much as possible. But the tariffs did

05:30have about a 20 basis impact on our food, beverage, and packaging costs in the quarter. And I expect those

05:35to continue into 2026 as well. And what we've done from a pricing perspective is really try to minimize

05:41that impact. We took no incremental price in 2025 related to those incremental costs that we were

05:47incurring. We didn't believe we should put that on our guests and wanted to absorb that and try to

05:52continue to elevate our value proposition, which is quite high amongst our peers. And then as we think

05:58about it going into 2026, we're also going to be very mindful about price increases and anticipate

06:04very modest increases. Since the end of 2019 to the end of the third quarter, we've only raised price

06:12less than 10% below CPI or inflation and less than half of many of our industry peers. And that's

06:18something that we feel very strongly about and a trend we expect to continue to do despite the

06:23pressures we may experience on our input costs. Trisha, so I get that. So it sounds like you are being

06:28incredibly and have been mindful in terms of price increases on consumers. Having said that,

06:33if no price increases, but you did say that the tariffs have hit you guys on a couple of different

06:38levels, does that mean margins take a hit? Or where do you squeeze costs out? Is it workers? Is it

06:45the supply chain? Where do you squeeze price, you know, some of the cost of this out?

06:51So certainly in 25, we took no incremental price related to tariffs. And in 26, there'll be modest

06:57menu price increases. That helps minimize any inflation that we experience on the labor side

07:02as well as the input cost side. And then there are other opportunities from an efficiency standpoint

07:07as we grow and scale that we will continue to deploy to minimize the impact on the P&L overall.

07:14Trisha, your share price is down quite a bit this year. I'm just wondering,

07:17from a CFO perspective, is there room for shareholder returns? Like, are you thinking about buybacks?

07:22What's the measure to get your share price back up?

07:25Well, what we've always said since the beginning is this is a journey and a long-term journey overall.

07:31And so while the share price can go up and down, we want to remain focused on the business over

07:35the long-term and what that we can do to make sure that we drive that. And we stay focused on

07:41our strategy and committed to that. We'll always explore opportunities to strengthen and maximize

07:46those returns. And right now, we're just going to continue to remain focused on the strategy we have

07:50at hand. And that is opening and expanding the Mediterranean way across the country and running

07:55great restaurants, every location, every shift, and deepening personal relationships with our guests

08:00with a high-performing team.

08:02You have stores in more than a dozen states and D.C. So this question is dependent on geography. But

08:08in general, the labor market right now, our team has reported on Walgreens cutting pay for hourly

08:14workers after its private equity buyout. Is the labor market better for hiring people right now?

08:21You know, we're in 28 states and the district in Columbia across the country. And the labor market

08:26is one that we keep a very close eye on. And our focus is making sure that we're paying a very fair

08:31wage in every market across the country. So I work closely with our operations and people and culture

08:36team on a quarterly basis to evaluate our wages, to make sure that we're in the top quartile of pay

08:42so that we don't have as much pressure on wage and can bring on high-quality team members that can

08:47lead the future growth of our business overall.

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