Cava Group, Inc. Q2 FY2025 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the CAVA Second Quarter 2025 Earnings Conference Call. This call is being recorded on Tuesday, August 12, 2025. I would now like to turn the conference over to Matt Milanovich. Please go ahead.

Good afternoon, and welcome to CAVA's Second Quarter 2025 Financial Results Conference Call. Before we begin, if you do not already have a copy, the earnings release and related 8-K 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 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 on 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 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. 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 consumers' 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 2 years; CAVA 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 2 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 the 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 the 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 CAVA. 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 Pita Day, offering complimentary pita 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 pita 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 4 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 CAVA home with them. Our reimagined 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 kitchen display system continues to deliver improvements in guest satisfaction scores driven by better digital accuracy and more proactive guest communications. Alongside our kitchen display system expansion, we're rolling out our new TurboChef 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 in 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 2 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 general managers 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 general manager 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 CAVA Connect 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 1.5 hours, every person in line paid it forward, covering the meal for the guest 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 2-year and 3-year stack basis, same-restaurant sales increased 16.5% and 34.7%, respectively. During the quarter, we opened 16 net new CAVA restaurants, bringing our total CAVA 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 moved 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 volumes. In fact, the strength of this class has driven year 1 cash-on-cash returns above 40%, already meeting our year 2 expectations. Same-restaurant sales regained momentum in the latter part of the quarter, reaccelerating as we exited Q2 and continued into Q3, and we are encouraged by the 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's 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. CAVA's food, beverage, and packaging costs were 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. CAVA labor and related costs were 25% of revenue, an 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. Preopening 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 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 million 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 $0.14 in the second quarter of 2024. Turning to liquidity, at the end of the quarter, we had 0 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%; CAVA restaurant-level profit margin between 24.8% and 25.2%; preopening costs between $15.5 million and $16.5 million; and adjusted EBITDA, including the burden of preopening costs, between $152 million and $159 million. Our guidance for same-restaurant sales embeds our Q2 results, the reacceleration 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 concept, and the durability of our competitive positioning. The Mediterranean category continues to show strength reflected in our 3-year traffic growth of 19.7% and 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 to 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.

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

Could you provide more details on same-store sales? Do you believe the macroeconomic pressures had an impact on your performance in the second quarter? Was this effect widespread among the restaurants? Additionally, regarding the honeymoon dynamic you mentioned, do you think it played a larger role in those numbers, possibly with some of the older stores performing better in same-store sales? Can you break down the factors that influenced this in the second quarter?

Yes. Sure, Brian. Good to hear from you. So certainly, we're operating in a fluid macroeconomic environment, and it's one that sort of creates a fog for consumers where things are changing constantly. It's hard to see clearly. And during those times, they tend to step off of the gas. We didn't see changes in our premium attachments or incident rates or other items driving the business overall. But certainly, it's present in there, and it's something that we're not immune to in this space. As we think about the honeymoon effect, what we're experiencing is incredible results from our 2024 class as well as our 2025 class, with the 2024 class coming into the base and having an impact on sales from a same-restaurant sales perspective, but outperforming all of our expectations. So think about that restaurant class delivering their year 2 cash-on-cash returns in year 1, so well above the revenue expectations that we had, and delivering strong cash-on-cash returns while having a modest impact overall on same-restaurant sales in the period itself. I think when you look at Q2, where we really started to see the deceleration is when we were lapping the launch of steak during the quarter. And that was a new menu item on our menu offering itself, one that was a perceived gap and resonated very well. And so it was the lapping of the steak during that period and what we saw as we exited the quarter and then entered into Q3, we're seeing a reacceleration in same-restaurant sales. What we're excited about is that we are participating in a category that has tremendous strength in Mediterranean, driving tailwinds from a same-restaurant sales perspective and traffic overall with a concept that's resonating with consumers and a strong brand and then going back and delivering great cash-on-cash returns with a competitive position with no scaled competitor in the space overall.

Your next question is from the line of Chris O'Cull from Stifel.

Tricia, just a follow-up on your comments. Can you help level set where you're trending in the third quarter today, just given how far we're into the quarter at this point?

Yes. So when you look at our numbers, you look from Q1 to Q2, there was an acceleration in our 2-year same-restaurant sales stack, and we're seeing that trend continue into Q3, a continued acceleration of that 2-year trend.

Okay. And then, Brett, has the company evaluated its marketing media mix now that you've achieved higher awareness in a lot of these new markets? Obviously, new stores are opening up really well. I'm just wondering if there's an opportunity to reallocate the spend or even just increase it maybe as a percentage of sales.

Yes, Chris, thank you for your question. There is certainly an opportunity here. As you can see, we do not spend a high percentage of our revenue on marketing. We have been actively testing our media mix modeling and have observed some very positive results. This is something we can definitely focus on if we continue to face macroeconomic challenges. As Tricia pointed out, when we look at the two-year quarter-over-quarter performance, we have actually seen an acceleration. The changes in our comparable sales over the last few years have been substantial. Last quarter, we provided guidance on a three-year basis to reduce noise, but when examining the two-year data, it shows strengthening. We are being mindful of this as we consider our near-term actions, and definitely, media mix modeling plays a role in that, while also staying committed to our long-term strategy and initiatives. We have discussed this extensively since our IPO: this journey is a marathon, not a sprint. We are focused on the next ten years, not just the next ten weeks, and aim to execute our long-term strategic plan, while being cautious in responding to macroeconomic headwinds and exploring ways to drive increased awareness and adoption in the short term.

Your next question is from the line of Sara Senatore from Bank of America.

I have a clarification followed by a question. Regarding the honeymoon period, does that imply that the first-year comparisons are negative or flat, or are you simply not seeing that 10% increase? I'm trying to grasp the extent of the change. My question pertains to the Harissa Meal. I understand you discussed its branding aspect, but was there also a value element involved? It seems from your comments about attachment and premiumization that you aren't observing value-seeking behavior. I'm trying to comprehend the kind of change you might be experiencing and whether that influenced the meal's development.

Yes. Thanks, Sara. I'll take the latter part of your question and then hand it back to Tricia to speak to the new restaurant comp complexion. So the meal is not really geared to be a value meal, more so to really tap into the emotional connection of our guests and to celebrate their excitement over our pita chips and give them a little piece of CAVA to take home with them and certainly play off some of the cultural trends that we're seeing in regards to plushies. Again, this is a long-term brand building exercise and something that people can get excited about and drive conversation and drive awareness, and we've seen that. We sold out at a number of our restaurants in the first day and have been very pleased with the response. So again, this is how we think about it in the long term and was not geared specifically to be a value meal per se.

Regarding the 2024 class, there are indeed restaurants in that category that are meeting our economic model expectations, achieving an average unit volume of $2.3 million and generating 10% cash-on-cash returns. However, some of these successful locations are experiencing negative overall comparisons, which is affecting our same-restaurant sales. This situation represents a new development following an initial favorable period, and we will monitor it closely. Overall, the restaurants are clearly demonstrating the strength and demand for CAVA, as well as the consumer interest in our brand.

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

I guess another question on the comp trend you're seeing recently or maybe 2 questions. One is if I look at the guidance for the full year, the midpoint would assume something in the neighborhood of 3% or a little bit better than that in the second half. And Tricia, could you just maybe comment on whether your current trend line is tracking to achieve that kind of number or not? And then I guess my other question is as you diagnose some of the slowdown that occurred, you talked a lot about macro issues and perhaps cycling steak and a small impact from the honeymoon. But are you looking at any brand metrics or operating metrics that might have changed over the last 3 to 6 months that might indicate there's something in the operations or consumer experience that may have changed?

Yes. Thanks, David. Our current trend line is in line with your expectations. So we saw strength as we exited the quarter above the 2.1% that we delivered, and we're continuing to see that accelerate as we move through Q3. I'll let Brett answer the second part of your question.

Yes, David. We haven't seen any atypical nature in a region, in an income cohort, urban versus suburban. The fleet has been moving very consistently. And then we recently did another run of our brand health scores. Our NPS actually went up. Again, we're #2 in the entire limited service space. We've seen our value scores continue to improve. And every external survey that we've looked into, we've seen that data strong as well from a value proposition standpoint. And then as Tricia spoke to earlier, no trade-down, no check management. So again, thinking more in the terms of the dynamic of the challenging hurdles, the launch of steak, as well as what you've seen across the industry in consumer discretionary of the headwinds that consumers are facing in general. So nothing that we've seen structural and if anything, more confidence in the structural strength and long-term trajectory of the business with the health of our NROs and the consistency, no matter if it's Nashua, New Hampshire; Burlington, North Carolina; Plantation, Florida; recently opened in Pittsburgh, only gets us more excited for the white space opportunity in front of us.

Next question is from the line of Danilo Gargiulo from Bernstein.

I have 2-part question really. First of all, Tricia, as you're thinking about your guidance for the second half, I mean, you were saying in the second quarter, same-store sales were impacted by the steak lapping. So as you're looking in the second half of the year, how much of the guidance is actually derisked? Or are you expecting to see another potential revision in terms of your expectations on the steak lapping? And then the other question I have is a little bit more general and looking in 2026 and beyond. I mean I'm trying to understand how you're thinking about the potential benefit that might be coming from the One Big Beautiful Bill in terms of accelerated depreciation and interest deductibility in terms of the accelerated unit growth that you might be seeing in 2026 and beyond.

Yes. To address your first question about the steak lapping and our outlook for the rest of the year, we have successfully completed the trial phase for steak in the second quarter. As we move into Q3 and Q4, we are excited about our strong culinary innovation pipeline, which includes chicken shawarma launching soon and the introduction of cinnamon sugar pita chips. Pita chips are becoming an important avenue for flavor innovation, along with enhancements to our loyalty program. We have many initiatives planned that will boost same-restaurant sales, which gives us confidence in our business outlook and the trends we are currently observing. Concerning the implications of the Big Beautiful Bill, one notable aspect is the impact on income taxes. We expect to benefit from delaying our use of NOLs for another two years, which is advantageous from a cash flow perspective. Additionally, while not directly related to your question, changes in the tariff situation remain fluid. As we look ahead to Q3 and Q4, we anticipate some modest tariff impacts due to sourcing some products from affected countries. This has been factored into our guidance, and there are no other significant issues anticipated. We are very optimistic about our capacity to continue investing in new restaurants. The team has done an excellent job managing tariffs on both the supply chain and the design, development, and construction fronts, ensuring that we do not expect major changes in our growth capabilities or in the strong pace of new restaurant openings we have been experiencing.

Your next question is from the line of Andrew Charles from TD Cowen.

Just one clarification in the near term. What do you attribute to the July improvement? You mentioned that the two-year trends are improving, but I'm curious if this is just due to easier comparisons. Did you also observe any improvements in the three-year trend? The broader question is whether the strong sales volumes in 2024 and 2025 will result in a lower new store maturation tailwind, which might make you think long-term same-store sales will trend closer to low single digits given this abundance of opportunities. It's a good problem to have. However, do you believe that in the next few years, with the strategy you outlined, you can maintain a performance closer to your mid-single-digit track record?

Yes. So regarding your first question, what do you attribute the improvement in July to, it's really the lap of steak. Steak was launched at the beginning of June. And so after we get through that lap, that helps accelerate the business, but also coupled with making sure we're delivering and enhancing our guest experience, being very relevant in the cultural conversation itself, and as Brett talked about a little while ago, continuing to test and optimize from a media mix modeling perspective. So those are the factors that helps contribute to the acceleration after the lap of steak and then bring us into Q3 as we move forward. Now regarding long-term same-restaurant sales growth, I appreciate your color on being very fortunate to be in this place and driving outsized returns early on. We're going to keep a very close eye on it and continue to update. There isn't anything about the business that causes us any concern. And we'll continue to focus on those restaurants in the upcoming quarters, give you updates.

Your next question is from the line of Sharon Zackfia from William Blair.

I guess I wanted to ask about the assistant manager addition. So Brett, can you talk about how that's planned to be rolled out? And is that more of a human resources pipeline building initiative? Or is there something you're seeing in the restaurants that you really want the assistant managers to focus on to elevate operations?

We will begin the rollout in November and over the next six months, we aim to staff about two-thirds of our restaurants with the assistant general manager position. Regarding our three-year comparable store sales and our public offering, our average unit volume model was $1.9 million in the first year, which increased to $2.1 million, and we then recalibrated it to $2.3 million. Currently, the entire class of restaurants is trending above $3 million. These locations are achieving significant sales volumes, and we want to ensure we continue to invest in our team, our business, and our guest experience by providing the necessary support in our restaurants. This includes adding more seasoned leadership with a second managerial position. While we have General Manager in Training roles in many locations, the assistant general manager position offers more experience, which supports not just the general manager but also promotes better shift balance and increased support during peak times. Additionally, this role helps us cultivate our leadership pipeline for future restaurant openings. We are very enthusiastic about this initiative, and we consistently strive to stay ahead operationally, focusing on investments in our guests and our team. This addition strengthens our leadership, particularly in our high-volume restaurants.

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

Can you talk to the 2Q mix? Part of the comp component looked a little bit lower, maybe a little more promotional activity or something going on during the quarter. And then looking forward with chicken shawarma, do you expect that to be at a premium price versus chicken items on the menu, so maybe a little bit of a mix driver there?

Yes. We didn’t see significant changes in our mix overall. Premium attachments remain consistent with previous trends, and we've also noticed an increase in pita chip attachments. Regarding chicken shawarma, it will be priced at a premium, though not as high as steak, and it has a slightly higher cost due to the hand stacking, marinating, and processing required for our restaurants. As for promotions, we were not highly promotional. While others attempted to boost sales through discounts in the quarter, that's not our strategy. We prefer not to devalue our brand. Our focus is on the long term, continuing to invest in our team members and guests and expanding CAVA's reach across the country.

The next question is from the line of John Ivankoe from JPMorgan.

I wanted to revisit the question on marketing. Now that you've surpassed $1 billion in trailing system sales, congratulations on that achievement. What marketing opportunities could potentially open up for you? Specifically, are there platforms, services, or other ways to reach customers that you can now access more frequently as you gain visibility as a larger company? That's part A of the question. Part B involves competition in a market like New York, which is notably evolving and changing. I would argue that the competition is increasing in many trade areas that clearly want your customer base. Can you comment on the competition, particularly if you've noticed short-term impacts and how you've typically managed those impacts over several months or quarters?

Yes, John, regarding competition, it remains consistent with what we've always experienced in the restaurant industry. The challenge is attracting guests to choose our restaurant over the three nearby competitors. This dynamic shifts, but it has always been our responsibility to create a compelling and relevant experience for our guests and offer them strong value. In particular, we haven't noticed anything unique about the New York market compared to others nationwide. There are no specific areas of weakness related to competition. On the marketing side, we have not yet utilized this essential tool in a significant way. We do have culinary innovations and are benefiting from the long-term appeal of the Mediterranean category that we lead and shape. These favorable trends have supported us for the past few years, and marketing is an additional tactic we can apply at the right moment. As we surpass $1 billion in revenue, we're achieving scale in some markets, allowing us to spread and maximize our investments effectively. We have tested various marketing strategies, including CCTV, over-the-top ads, outdoor promotions, and upper-funnel activities. We find that paid advertising remains highly efficient and effective, particularly at the lower funnel. We conducted tests in the last quarter to explore the effectiveness of this approach further. This marketing lever is definitely something we will consider tapping into at the right time, and it hasn't been factored into our comparisons so far.

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

Wanted to ask what you said in the prepared remarks about Hyphen. Maybe just talk a little bit about how that came together. What makes you think that technology could be an attractive option for CAVA? And just kind of related to that, as you move to the pilot that you mentioned, what are the key things you'll be watching? Just talk about what success looks like short term and long term there.

Yes. We've been speaking with the team for a few years now. We've looked at a lot of different automation companies. We are familiar with the space. We have a lot of automated equipment in our manufacturing facilities, our pneumatic fillers. What we like about the approach of the Hyphen team and the progress that they've made. We look at it, again, as how do we make our restaurants easier to run, how do we free up our team members to deliver human connection. When you look at our channel, our multichannel experience, one of the biggest opportunities we have is digital order accuracy. We know that on the digital channel, our guest priorities are convenience, speed, and accuracy. This is where automation can come and deliver that on behalf of our team members and help our team members alleviate some of the labor requirements on those second make lines to free that labor component up to be able to interact with our guests, be in the dining room, be on the main serving line in the restaurant and delivering that human connection. We see it with a couple of benefits and second-order benefits of making our restaurants easier to run, delivering better, more accurate, consistent guest experiences, and allowing us to reallocate labor to deliver that great Mediterranean hospitality.

The next question is from the line of Jon Tower from Citi.

I'm following up on the technology investments you mentioned earlier, specifically regarding KDS and the AI camera. I'm interested to know if you can provide any insights on the store profit improvements those technologies are bringing, even though I understand they are still in testing. Additionally, as you plan to implement these technologies across your store base, do you anticipate using some of the savings generated to support AGM investments in the stores over the next year?

The kitchen display screen system is currently in 95 restaurants and is expected to be in 270 by the end of the year. We are observing improvements in accuracy and productivity in some of these restaurants, although we have not quantified it yet. The kitchen display screen system and the TurboChef ovens, now in 188 restaurants and anticipated to be in all locations by the end of the year, are making our operations easier. We are also seeing better guest improvement scores. In the pilot test of the AGM position, we've observed that this role has been self-funded due to some growth in transactions, supported by a stronger management presence across all shifts throughout the day.

Your next question is from the line of Jeffrey Bernstein from Barclays.

I have a question regarding the margin and earnings flow-through. The upside in the second quarter, despite the shortfall in comparisons, likely caught you off guard in June. However, it's impressive that you were able to surpass those expectations significantly. I'm interested in your broader thoughts on over-earning. Is there an opportunity to reinvest in the system? Are there areas that could boost long-term sales, whether in value or labor hours? It seems like a great advantage to see the margin and earnings upside, giving you the chance to reinvest, or do you believe you should maintain the current levels and therefore have limited opportunities for reinvestment?

In the quarter, the strong performance from new restaurant openings helped us manage lower-than-expected same-restaurant sales. At these average unit volumes, it's easier to handle disruptions or sales that fall short of expectations. The team excelled at adapting and closely monitoring the business daily and weekly. These factors combined certainly played a role. Regarding reinvestments, we consistently evaluate the business for opportunities to reinvest, whether in team members or guests. This quarter, we did not make any outside investments, but we still met our expectations for restaurant-level margin and adjusted EBITDA.

Your next question is from the line of Dennis Geiger from UBS.

Just another one on the strong new store opens. Any additional commentary on kind of what year 2 could look like, how the algorithm could change? Or is it just too early given the strength you're seeing across these recent cohorts? I guess more importantly, as you think about this dynamic, which is a strong issue or whatever the right word is to have, do you contemplate what you do to support that year 2 performance, whether it's marketing or something else? Or again, is it really just a function of that really strong year 1 and then you don't worry too much about how to support that year 2 on these stronger cohorts?

Yes. So when we look at the 2023 cohort and how they're performing in year 2, they're outpacing our expectations from a cash-on-cash return perspective and delivering at a 50% cash-on-cash return. As I mentioned, the 2024 cohort is delivering at above 40% cash-on-cash returns, which was what we thought they would do a year from now. Looking at those restaurants, it's a combination of higher sales performance as well as better-than-expected restaurant-level margins in those restaurants with a very stable CapEx investment. So I don't see that changing very significantly. The dynamic is we're just accelerating and pulling forward that good value and investment return for us. I will continue to look at it and we will work and share more information. At this point, we're not going to revise anything. We believe that opening year 1 at $2.3 million and growing 10% makes sense. When you perform above that, we naturally would have to think that might be a pull-forward that you'd have to reflect appropriately.

Your next question is from the line of Brian Vaccaro from Raymond James.

Just back to the Q2 comps, I think you said no regional differences. But curious if you're seeing any differences from a daypart or day of the week perspective. And as it relates to sales transfer and as you build out existing markets, I'm curious to what degree that might have increased and maybe having a greater impact on comps.

Yes. We are not seeing any shifts in daypart, seeing consistent performance between urban, suburban, and specialty markets, saw a slight increase in our digital mix, partially driven by delivery but more so by in-restaurant pickup. There really isn't anything that stands out overall. When we think about sales transfer, that's a natural part of our growth and development. What we find is that when we do open restaurants and there's some sales transfer, 1 plus 1 ends up being 3, which is what drives continued value. The strength we're seeing gives us the confidence in that white space opportunity and for us to be at least 1,000 restaurants by 2032.

Your last question is from the line of Eric Gonzalez from KeyBanc.

I wanted to ask about throughput. Maybe perhaps you could speak to any metrics you're willing to share. And do you think there's an opportunity to capture more of the excess demand as your stores develop that muscle memory over time?

Yes. Thanks for the question. We've talked about in the past, we want to be mindful of not pushing our team and our guests too hard, too fast. This is many guests first time experiencing Mediterranean, certainly experiencing the CAVA brand. We've seen some of that negative impact in some of our peers that have overly focused on it. Having said that, we want to make sure guests aren't frustrated getting through the line and that the long lines we have in our restaurants don't intimidate folks from coming in and getting their CAVA meal. We are working to support our team to help them naturally do that, whether that's our kitchen display screen system or whether it was the new labor deployment model we rolled out late last year. We do track it internally, and we do track at peak, are they using the proper labor deployments and complement of hours. We are seeing improvements where the teams are adhering to those disciplines. We continue to work with them. As I talked about the AGM test, the assistant general manager test, having more seasoned leadership across all shifts is also an opportunity to drive improved speed of service and transaction growth as we roll that program out. We are very focused on striking the right balance as we are in brand-building mode and growth mode and many guests first time experiencing us, but also mindful of not having the lines be too long and frustrating other guests.

Thank you very much. There are no further questions at this time. I'd like to turn the call over to CEO and Co-Founder, Mr. Brett Schulman, for closing comments. Sir, please go ahead.

I want to thank everyone for joining us today. Before we wrap, I want to take a moment to share my gratitude for our entire team. Just days ago, we celebrated our 400th restaurant, a milestone that reflects how far we've come and how deeply we remain rooted in our mission to bring heart, health, and community to food. As summer draws to a close, we're also mindful of the recent floods in Texas and the many lives impacted. Our thoughts are with those affected, and we remain committed to supporting our communities. Through meal donations to first responders and local residents, we're reminded that nourishing our communities and showing care are at the heart of who we are. Thank you for your time and support, and we look forward to continuing this journey together and speaking with you next quarter.

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