Cava Group, Inc 10-Q for FY2023 Q2
Cava Group, Inc. (CAVA)
10-Q
2023-08-16
For: 2023-07-09
View Original
Added on
April 11, 2026
About this 10-Q
Cava Group, Inc filed this 10-Q on August 16, 2023, covering the quarter ended July 9, 2023 (FY2023 Q2).
Headline figures
Quarter ended July 9, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $172.89M
- up 27.2% from $135.92M a year earlier
- Net income
- $6.54M
- compared with a net loss of $8.23M a year earlier
- Diluted EPS
- $0.21
- compared with -$6.23 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended July 09, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______
Commission File Number 001-41721
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o | |||||||||||
| x | Smaller reporting company | |||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The registrant had outstanding 113,583,513 shares of common stock as of August 11, 2023.
Glossary
The following definitions apply to these terms as used in this Quarterly Report on Form 10-Q:
“Adjusted EBITDA” is defined as net income (loss) adjusted to exclude interest expense (income), net, provision for income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, restructuring and other costs, and certain non-recurring public company costs;
“Adjusted EBITDA Margin” is defined as Adjusted EBITDA as a percentage of revenue;
“CAVA Average Unit Volume” or “CAVA AUV” represents total revenue of operating CAVA Restaurants that were open for the entire trailing thirteen periods, and digital kitchens sales for such period, divided by the number of operating CAVA Restaurants that were open for the entire trailing thirteen periods;
“CAVA digital kitchen” is defined to include kitchens used for third-party marketplace and native delivery, digital order pickup and/or centralized catering production, and that has neither in-restaurant dining nor customer-facing make lines;
“CAVA Digital Revenue Mix” represents the portion of CAVA revenue related to digital orders as a percentage of total CAVA revenue;
“CAVA hybrid kitchen” is defined to include kitchens that have enhanced kitchen capabilities to support centralized catering production and that also have in-restaurant dining and customer-facing make lines;
“CAVA Restaurant-Level Profit,” a segment measure of profit and loss, represents CAVA Revenue in the specified period less food, beverage, and packaging, labor expenses, occupancy expenses, and other operating expenses, excluding depreciation and amortization, in the period. CAVA Restaurant-Level Profit excludes pre-opening costs;
“CAVA Restaurant-Level Profit Margin” represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue;
“CAVA Restaurants” is defined to include all CAVA restaurants, including converted Zoes Kitchen locations and CAVA hybrid kitchens, that are open as of the end of the specific period. CAVA Restaurants exclude one restaurant operating under a license agreement and CAVA digital kitchens;
“CAVA Revenue” is defined to include all revenue attributable to CAVA restaurants in the specified period, excluding one restaurant operating under a license agreement;
“CAVA Same Restaurant Sales Growth” is defined as the period-over-period sales comparison for CAVA restaurants that have been open for 365 days or longer (including converted Zoes Kitchen locations that have been open for 365 days or longer after the completion of the conversion to a CAVA restaurant);
“digital orders” means orders made through catering, digital channels, such as the CAVA app and the CAVA website. Digital orders include orders fulfilled through third-party marketplace and native delivery and digital order pick-up;
“guest traffic” means the number of entrees ordered in-restaurant and through digital orders; and
“Net New CAVA Restaurant Openings” is defined as new CAVA restaurant openings (including CAVA restaurants converted from a Zoes Kitchen location) during a specified reporting period, net of any permanent CAVA restaurant closures during the same period.
We operate on a 52-week or 53-week fiscal year that ends on the last Sunday of the calendar year. In a 52-week fiscal year, the first fiscal quarter contains sixteen weeks and the second, third, and fourth fiscal quarters each contain twelve weeks. In a 53-week fiscal year, the first fiscal quarter contains sixteen weeks, the second and third fiscal quarters each contain twelve weeks, and the fourth fiscal quarter contains thirteen weeks. References to “thirteen periods” are to the 13 accounting periods we have in each fiscal year, with each accounting period being four weeks, except in a 53-week fiscal year which will contain one accounting period of five weeks.
Certain numerical figures have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals, and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources, and other financial and operating information. These statements may include words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” “outlook,” the negative version of these words or similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on management’s current expectations and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved. Actual results may differ materially from these expectations due to changes in global, regional, or local economic, business, competitive, market, regulatory, and other factors, many of which are beyond our control. We believe that these factors include but are not limited to the following: our operation in a highly competitive industry; our ability to open new restaurants while managing our growth effectively and maintaining our culture; our ability to successfully identify appropriate locations and develop and expand our operations in existing and new markets; the profitability of new restaurants, and any impact to sales at our existing locations; the impact of changes in guest perception of our brand; our ability to successfully market our restaurants and brand; the impact of food safety and food-borne illness concerns, including at our manufacturing facilities; our ability to maintain or increase prices; our ability to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings; the risks associated with leasing property; our ability to successfully expand our digital and delivery business; our ability to utilize, recognize, respond to, and effectively manage the immediacy of social media; our ability to achieve or maintain profitability in the future, especially if we continue to grow at an accelerated rate; our ability to realize the anticipated benefits from past and potential future acquisitions, investments or other strategic initiatives; our ability to manage our manufacturing and supply chain effectively; the impact of shortages, delays, or interruptions in the delivery of food items and other products; our ability to successfully optimize, operate, and manage our production facilities; the risks associated with our reliance on third parties; the impact of increases in food, commodity, energy, and other costs; the impact of increases in labor costs, labor shortages, and our ability to identify, hire, train, motivate and retain the right team members; our ability to attract, develop, and retain our management team and key team members; the impact of any cybersecurity breaches; the impact of failures, or interruptions in, or our inability to effectively scale and adapt, our information technology systems; our ability to comply with, or changes in, the extensive laws or regulations requirements to which we are subject, including those related to privacy; the impact of economic factors and guest behavior trends; the impact of evolving rules and regulations with respect to environmental, social and governance matters; and the impact of climate change and volatile adverse weather conditions; and each of the other factors set forth under the heading “Risk Factors” in our filings with the United States Securities and Exchange Commission.
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
3
Table of Contents
| Page | |||||
| Part I - Financial Information | |||||
| Part II - Other Information | |||||
i
Part I - Financial Information
Item 1. Financial Statements
| CAVA GROUP, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| ($ in thousands, except per share amounts) | July 9, 2023 | December 25, 2022 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net | |||||||||||
| Other accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other | |||||||||||
| Operating lease liabilities - current | |||||||||||
| Total current liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 11) | |||||||||||
| Preferred stock: | |||||||||||
Redeemable preferred stock, par value $ | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock, par value $ | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | ( | ||||||||||
| Total liabilities, preferred stock and stockholders' equity | $ | $ | |||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | |||||||||||
1
| CAVA GROUP, INC. | |||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| (in thousands, except per share amounts) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Restaurant operating costs (excluding depreciation and amortization) | |||||||||||||||||||||||
| Food, beverage, and packaging | |||||||||||||||||||||||
| Labor | |||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Other operating expenses | |||||||||||||||||||||||
| Total restaurant operating expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Restructuring and other costs | |||||||||||||||||||||||
| Pre-opening costs | |||||||||||||||||||||||
| Impairment and asset disposal costs | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income (loss) from operations | ( | ( | |||||||||||||||||||||
| Interest (income) expense, net | ( | ( | |||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | ( | ( | |||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||||||||
| Net income (loss) per share, basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net income (loss) per share, diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted average shares outstanding, basic | |||||||||||||||||||||||
| Weighted average shares outstanding, diluted | |||||||||||||||||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | |||||||||||||||||||||||
2
| CAVA GROUP, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Twelve Weeks Ended July 9, 2023 and July 10, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock | Common Stock | Treasury Stock | Additional Paid in Capital | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—April 17, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock upon RSU vesting | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance—July 10, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance—April 16, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock upon RSU vesting | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from initial public offering, net of underwriting fees and offering costs of $ | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | ( | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—July 9, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3
| CAVA GROUP, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Twenty-Eight Weeks Ended July 9, 2023 and July 10, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock | Common Stock | Treasury Stock | Additional Paid in Capital | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 26, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock upon RSU vesting | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of ASC 842 adoption | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance—July 10, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 25, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock upon RSU vesting | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from initial public offering, net of underwriting fees and offering costs of $ | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—July 9, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4
| CAVA GROUP, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| Twenty-Eight Weeks Ended | |||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of intangible assets | |||||||||||
| Equity-based compensation | |||||||||||
| Impairment and asset disposal costs | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | ( | ( | |||||||||
| Other accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other | ( | ||||||||||
| Operating lease assets | ( | ( | |||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses and other | ( | ||||||||||
| Operating lease liabilities | |||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Payments on long-term debt | ( | ||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Stock options exercised | |||||||||||
Proceeds from initial public offering, net of underwriting fees of $ | |||||||||||
| Offering costs paid | ( | ||||||||||
| Payment of loan acquisition fees | ( | ( | |||||||||
| Payments on finance lease obligations | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents - beginning of year | |||||||||||
| Cash and cash equivalents - end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Offering costs not yet paid | $ | $ | |||||||||
| Cash paid for interest related to long-term debt | |||||||||||
| Cash paid for income taxes | |||||||||||
| Change in accrued purchases of property and equipment | |||||||||||
| Conversion of redeemedable preferred stock into common stock in connection with initial public offering | |||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||
5
CAVA GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
CAVA Group, Inc. (together with its wholly owned subsidiaries, referred to as the “Company”, “we”, “us”, and “our” unless specified otherwise) was formed as a Delaware corporation on February 27, 2015, as a holding company. On April 3, 2015, the Company acquired all of the outstanding membership interests in CAVA Foods, LLC, which includes the Consumer Packaged Goods (“CPG”) business consisting of the Company’s proprietary dips, spreads and dressings. On November 21, 2018, the Company acquired all of the outstanding common stock of Zoes Kitchen, Inc. as part of the Company’s strategic expansion initiative.
The Company is headquartered in Washington D.C. and, as of July 9, 2023, the Company operated 279 fast-casual CAVA restaurants in 24 states and Washington D.C. The number of CAVA restaurants excludes one location operating under a licensing arrangement and digital kitchens. The Company’s restaurants serve healthful, fast-casual Mediterranean fare. The Company’s dips and spreads, which are centrally produced, are sold nationally through grocery stores, including Whole Foods Markets, while its dressings are available at grocery stores in select markets.
The Company’s operations are conducted as two reportable segments: CAVA and Zoes Kitchen. These segments were determined on the same basis that the Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), manages, evaluates, and makes key decisions regarding the business. As of March 2, 2023, the Company no longer operates any Zoes Kitchen locations.
The Company has been focused on a strategy of converting Zoes Kitchen restaurants into CAVA restaurants, which is substantially complete, in addition to opening new CAVA restaurants. The first conversion restaurant opened on November 8, 2019. As of July 9, 2023, the Company has opened 151 conversion restaurants and plans to open the remaining two conversion restaurants in the second half of 2023.
Initial Public Offering—On June 20, 2023, we completed an initial public offering (the “IPO”) of 16,611,110 shares of common stock at a price of $22.00 per share, which included 2,166,666 shares sold to the underwriters pursuant to their option to purchase additional shares. After underwriting discounts and commissions of $22.8 million and offering expenses of $6.5 million, we received net proceeds from the offering of $336.1 million, of which $3.5 million of offering expenses were unpaid as of July 9, 2023. In connection with the IPO, 95,203,554 outstanding shares of preferred stock were converted into an equivalent number of shares of common stock. See Note 8 (Redeemable Preferred Stock and Stockholders’ Equity) for more information.
Interim Financial Statements—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“US GAAP”) for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.
Certain information and footnote disclosures normally included in annual financial statements presented in accordance with US GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Due to the seasonality of our business, results for any interim financial period are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations may be impacted by the timing and amount of sales and costs associated with opening new restaurants. These interim unaudited condensed consolidated financial statements do not represent complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 25, 2022 included in our final prospectus filed with the SEC on June 16, 2023 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.
6
2. REVENUE
The Company’s revenue was as follows for the periods indicated:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Restaurant revenue | $ | $ | $ | $ | |||||||||||||||||||
| CPG revenue and other | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
Revenue from the sale of the Company’s gift cards and loyalty program is included in restaurant revenue. Refer to Note 6 (Accrued Expenses and Other) for the Company’s gift card and loyalty liabilities balances. Revenue recognized from the redemption of gift cards, including breakage, that was included in the gift card liability at the beginning of the year was $0.1 0.4 million and $0.5 million during the twenty-eight weeks ended July 9, 2023 and July 10, 2022, respectively. The full amount of the outstanding loyalty liability as of July 9, 2023 is expected to be recognized within one year due to the expiration of loyalty rewards being less than one year.
7
3. FAIR VALUE
4. PROPERTY AND EQUIPMENT, NET
The following table presents the Company’s property and equipment, net as of the periods indicated:
| ($ in thousands) | July 9, 2023 | December 25, 2022 | |||||||||
| Land | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Computer hardware and software | |||||||||||
| Vehicles | |||||||||||
| Construction in progress | |||||||||||
| Total property and equipment, gross | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Construction in progress relates to CAVA new restaurant openings, including conversion of Zoes Kitchen restaurants in connection with the Company’s conversion strategy, construction of the new production facility in Verona, VA, as well as technology improvements.
In connection with the Company’s conversion strategy described in Note 1 (Nature of Operations and Basis of Presentation), the Company recognized impairment losses related to operating lease assets of closed restaurants within the Zoes Kitchen segment of $0.7 million during the twenty-eight weeks ended July 9, 2023, and $0.6
5. GOODWILL AND INTANGIBLE ASSETS, NET
8
The following tables present the Company’s intangible assets, net as of the periods indicated:
| July 9, 2023 | |||||||||||||||||
| ($ in thousands) | Carrying Value | Accumulated Amortization | Net | ||||||||||||||
| Trademark | $ | $ | — | $ | |||||||||||||
| Other | — | ||||||||||||||||
| Total intangible assets not subject to amortization | — | ||||||||||||||||
| Intangibles, net | $ | $ | — | $ | |||||||||||||
As of July 9, 2023 all of our intangible assets subject to amortization were fully amortized.
| December 25, 2022 | |||||||||||||||||
| ($ in thousands) | Carrying Value | Accumulated Amortization | Net | ||||||||||||||
| Total intangible assets subject to amortization, customer relationships | $ | $ | ( | $ | |||||||||||||
| Trademark | — | ||||||||||||||||
| Other | — | ||||||||||||||||
| Total intangible assets not subject to amortization | — | ||||||||||||||||
| Intangibles, net | $ | $ | ( | $ | |||||||||||||
6. ACCRUED EXPENSES AND OTHER
The following table presents the Company’s accrued expenses and other as of the periods indicated:
| ($ in thousands) | July 9, 2023 | December 25, 2022 | |||||||||
| Accrued payroll and payroll taxes | $ | $ | |||||||||
| Accrued capital purchases | |||||||||||
| Sales and use tax payable | |||||||||||
| Gift card and loyalty liabilities | |||||||||||
| Other accrued expenses | |||||||||||
| Total accrued expenses and other | $ | $ | |||||||||
7. DEBT
JPMorgan Chase Bank Revolving Line of Credit—On February 15, 2023, the Company entered into a second amendment with respect to its revolving credit agreement with JP Morgan Chase Bank, N.A. as administrative agent dated March 11, 2022, collectively known as the “2022 Credit Facility.” The amendment provides for a $30.0 million delayed draw term loan facility (the “Delayed Draw Facility” and the loans thereunder, the “Delayed Draw Term Loans”) to finance construction and capital expenditures in respect of the Company’s production facility in Verona, VA.
On May 31, 2023, the Company borrowed $6.0 75.0 million, together with an incremental revolving credit commitment up to an aggregate amount of $25.0 million and $24.0 million under the Delayed Draw Facility (after giving effect to the May 31, 2023 borrowing). The 2022 Credit Facility has a five-year term and matures on March 11, 2027. As of July 9, 2023, the Company had unamortized loan origination fees of $1.1 million related to the 2022 Credit Facility recorded within other long-term assets on the accompanying unaudited condensed consolidated balance sheet.
We may draw additional amounts under the Delayed Draw Facility until the earliest of (i) August 15, 2024, (ii) the date of the fifth funding of Delayed Draw Term Loans (immediately after giving effect to such funding) and (iii) the date the full $30.0 million is drawn under the Delayed Draw Facility. Delayed Draw Term Loans outstanding under the 2022 Credit Facility bear interest at a rate consistent with the 2022 Credit Facility. The Company is required to pay a ticking fee on the amount of available delayed draw term loan commitments. The ticking fee ranges from 0.20 % to 0.35 % based on
9
Total Rent Adjusted Net Leverage Ratio (as defined under the 2022 Credit Facility). Delayed Draw Term Loans have a maturity date of March 11, 2027 (the “Delayed Draw Term Loan Maturity Date”).
Beginning the first full calendar quarter ending after the termination of all the delayed draw term loan commitments, the Company is obligated to make mandatory quarterly principal payments of Delayed Draw Term Loans in an amount equal to the product of (i) the original aggregate principal amount of all funded Delayed Draw Term Loans, multiplied by (ii) 1.25 % for the first eight payments and 1.875 % for all subsequent payments occurring prior to the Delayed Draw Term Loan Maturity Date.
Interest on loans under the 2022 Credit Facility are based on the one, three or six months Adjusted Term Secured Overnight Financing Rate (as described in the 2022 Credit Facility), as applicable, plus an applicable margin of 1.50 % to 2.50 % based on the Company’s Total Rent Adjusted Net Leverage Ratio (as defined in the 2022 Credit Facility). The Company also has the ability to draw overnight borrowings for which interest rates are calculated based on the Alternative Base Rate (as defined in the 2022 Credit Facility). The Company had no borrowings under the 2022 Credit Facility as of July 9, 2023.
The 2022 Credit Facility is unconditionally guaranteed by our domestic restricted subsidiaries, other than immaterial subsidiaries and other excluded subsidiaries. The 2022 Credit Facility is secured, subject to permitted liens and other exceptions, by a first-priority security interest in certain tangible and intangible assets of the borrower and the guarantors and a first-priority pledge of the capital stock of each domestic restricted subsidiary of the borrower and the guarantors, subject to certain exceptions.
The 2022 Credit Facility includes customary restrictive covenants, including limitations on additional indebtedness, creation of liens, dividend payments, investments and certain transactions with affiliates. The 2022 Credit Facility also includes covenants that require compliance with certain leverage ratios. The availability of certain baskets and the ability to enter into certain transactions may be subject to compliance with such leverage ratios. In addition, the 2022 Credit Facility contains other customary covenants, representations and events of default. As of July 9, 2023, the Company was in compliance with these financial and other covenants.
Previous SunTrust Revolving Line of Credit—On November 21, 2018, the Company entered into a revolving credit agreement with SunTrust Bank (as amended, the “2020 Credit Facility”). The 2020 Credit Facility provided for aggregate borrowings outstanding of up to $38.7 million. On March 11, 2022, the Company terminated the 2020 Credit Facility.
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
The Company has reserved shares of common stock for issuance as follows as of the periods indicated:
| July 9, 2023 | December 25, 2022 | ||||||||||
| Conversion of outstanding shares of preferred stock | |||||||||||
| Awards outstanding under the 2015 and 2023 Equity Incentive Plans | |||||||||||
| Shares available for future issuance under the 2015 and 2023 Equity Incentive Plans | |||||||||||
| Shares available for future issuance under the 2023 Employee Stock Purchase Plan | |||||||||||
| Total reserved shares of common stock | |||||||||||
On June 20, 2023, we issued 95,203,554 shares of common stock, par value $0.0001 per share, of the Company upon conversion on a one -for-one basis of all outstanding shares of its Series A Preferred Stock, par value $0.0001 per share, Series B Preferred Stock, par value $0.0001 per share, Series C Preferred Stock, par value $0.0001 per share, Series D Preferred Stock, par value $0.0001 per share, Series E Preferred Stock, par value $0.0001 per share, and Series F Preferred Stock, par value $0.0001 per share, pursuant to the Company’s Sixth Amended and Restated Certificate of Incorporation, as amended, and in connection with the Company’s IPO. Conversion of the preferred stock into shares of common stock occurred automatically. As of July 9, 2023 there were no outstanding shares of preferred stock. See Note 1 (Nature of Operations and Basis of Presentation) for more information on the Company’s IPO.
Preferred stock consisted of the following as of December 25, 2022:
| ($ in thousands) | Shares Authorized | Shares Issued & Outstanding | Liquidation Preference | Carrying Value | |||||||||||||||||||
| Series A | $ | $ | ( | ||||||||||||||||||||
10
| Series B | |||||||||||||||||||||||
| Series C | |||||||||||||||||||||||
| Series D | |||||||||||||||||||||||
| Series E | |||||||||||||||||||||||
| Series F | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
9. INCOME TAXES
10. LEASES
The weighted average remaining lease term and discount rate were as follows as of the period indicated:
| July 9, 2023 | December 25, 2022 | ||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Weighted average discount rate | % | % | |||||||||
The components of lease cost were as follows for the periods indicated:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | |||||||||||||||||||||||||
| ($ in thousands) | Classification | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||||
| Operating lease cost | Occupancy, General and administrative expenses | $ | $ | $ | $ | |||||||||||||||||||||
| Pre-opening lease cost | Pre-opening costs | |||||||||||||||||||||||||
| Closed store lease cost | Restructuring and other costs | |||||||||||||||||||||||||
| Short-term lease costs | General and administrative expenses | |||||||||||||||||||||||||
| Variable lease cost | Occupancy | |||||||||||||||||||||||||
| Sublease income | Other income | ( | ( | ( | ( | |||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
Supplemental disclosures of cash flow information related to leases were as follows for periods indicated:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Cash paid for operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
Operating lease assets obtained in exchange for operating lease liabilities (1) | |||||||||||||||||||||||
| Derecognition of operating lease assets due to termination or impairment | |||||||||||||||||||||||
(1) Amount presented for the twenty-eight weeks ended July 10, 2022 includes a $ | |||||||||||||||||||||||
Refer to Note 4 (Property and Equipment, net) for a description of impairment charges that resulted in a reduction to operating lease assets.
11
Future minimum lease payments for operating leases consisted of the following as of July 9, 2023:
| ($ in thousands) | Operating leases | ||||
| 2023 (remainder) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | |||||
| Less: imputed interest | |||||
| Operating lease liabilities (current and non-current) | $ | ||||
11. COMMITMENTS AND CONTINGENCIES
Purchase Obligations—The Company enters into various purchase obligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to amounts owed for produce and other ingredients and supplies, including supplies and materials used for new restaurant openings.
Letters of Credit—As of July 9, 2023 and December 25, 2022, the Company had eight 1.3
Litigation—The Company is currently involved in various claims and legal actions that arise in the ordinary course of its business, including claims resulting from employment related matters. Except for the matters described below, none of these claims, most of which are covered by insurance, are expected to have a material effect on the Company’s business, financial condition, results of operations, or cash flows. However, a significant increase in the number of these claims or an increase in amounts owed under successful claims could materially and adversely affect our business, financial condition, results of operations, or cash flows.
In April 2022, the Company was named as a defendant in a purported class action complaint relating to organic fluorine and per- and polyfluoroalkyl substances (“PFAS”) in the packaging of its grain and salad bowls. Hamman et al. v. Cava Group, Inc. was filed on April 27, 2022 in the U.S. District Court for the Southern District of California. An amended complaint was subsequently filed on August 18, 2022. After an initial round of motion to dismiss briefing, the court granted in part and denied in part our motion to dismiss on February 8, 2023. Thereafter, plaintiffs filed a second amended complaint on March 1, 2023 seeking, among other relief, compensatory damages in an unspecified amount and medical monitoring. The complaint alleges that certain of our products are unfit for human consumption due to the packaging containing allegedly heightened levels of organic fluorine and unsafe PFAS, and that consumers were misled by certain marketing claims asserted by us regarding the health and sustainability of our products. The complaint further alleges that our products may have caused bodily injuries to the putative class members who consumed our products. On April 14, 2023, we filed a motion to dismiss for failure to state a claim. On May 30, 2023, the plaintiffs filed their opposition to the motion to dismiss, and we responded to the opposition on June 30, 2023. As of the date hereof, this motion is pending.
In April 2023, the Company was served with a demand letter alleging that we use unhealthy and unsustainable PFAS in our packaging, that our products contain synthetic biocides, and that our “healthy” and “sustainable” marketing claims constitute false and deceptive advertising. The letter demanded that the Company take certain actions, including refraining from using or sourcing packaging containing PFAS and adding certain product warnings, and further threatened to file an action styled as GMO Free USA v. Cava Group, Inc. in the Superior Court of the District of Columbia Civil Division. As of the date hereof, the suit has not yet been filed.
In connection with Hamman et al. v. Cava Group, Inc., on September 21, 2022, Travelers Property Casualty Company of America sought a declaratory judgment that they are not liable in relation to matters related to PFAS and sought recoupment of the Company’s legal costs in the Hamman action. Travelers Property Casualty Company of America et al v. Cava Group, Inc. was filed September 21, 2022 in the Superior Court of the State of California, County of Orange. On November 9, 2022, we removed the action to the U.S. District Court for the Central District of California. On December
12
16, 2022, we filed a motion to dismiss, which is pending. Depending on the outcome of the Travelers’ action as a whole, we may not be able to recover from our insurance the full amount of any damages we might incur in matters related to PFAS.
We are vigorously defending ourselves in these matters, which are still in their early stages, and the respective plaintiffs have not stated any specific amount of damages to be sought from the Company. As a result, an estimate of reasonably possible losses or range of losses (if any) cannot be made and the final outcomes are uncertain.
12. RELATED PARTY TRANSACTIONS
We were party to a consulting agreement (the “Consulting Agreement”) with CMRG Inc. (“CMRG”), which is primarily owned by certain of the founders of the Company including Theodoros Xenohristos who serves on our Board of Directors. Under the terms of the Consulting Agreement, the founders provided culinary, branding, food products, and restaurant operation services to one of our subsidiaries, CAVA Mezze Grill, in exchange for an annual consulting fee. During the twelve and twenty-eight weeks ended July 10, 2022, $0.1
We were party to a management services agreement (“MSA”) with Act III Management, LLC (“Act III Management”), which is one of our stockholders and is controlled by Ronald Shaich, who is Chair of our Board of Directors. Act III Management provided consulting in the areas of information technology, strategy, finance, off-premises sales, and restaurant operations. During the twelve and twenty-eight weeks ended July 10, 2022, $0.2 million and $0.5 million, respectively, was paid to Act III Management under the MSA. The MSA was terminated in accordance with its terms on December 31, 2022.
13. EQUITY-BASED COMPENSATION
2023 Equity Incentive Plan—In connection with the Company’s IPO, the Company adopted the 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan includes 9,398,771 authorized shares of the Company’s common stock for issuance to employees, directors, and consultants through non-qualified stock options and incentive stock options, restricted shares of our common stock, restricted stock units (“RSUs”), performance stock units and other equity-based awards tied to the value of our shares. The number of shares reserved for issuance under the 2023 Plan will automatically increase on the first day of each fiscal year beginning with fiscal 2024 by a number of shares equal to the lesser of (i) the positive difference between 1 % of the then-outstanding shares of our common stock on the last day of the preceding fiscal year minus the plan reserve of the last day of the immediately preceding fiscal year and (ii) a lesser number of shares determined by our Board of Directors.
2015 Equity Incentive Plan—Prior to the Company’s IPO, the Company granted incentive stock options, non-statutory stock options, and restricted stock unit awards to employees, directors, and consultants under the 2015 Equity Incentive Plan (the “2015 Plan”). Following effectiveness of the 2023 Plan in connection with our IPO, no further awards will be granted under the 2015 Plan; however, awards outstanding under the 2015 Plan will continue to be governed by their existing terms.
During the twelve weeks ended July 9, 2023 and July 10, 2022, the Company recognized compensation expense (including applicable payroll taxes) related to awards under the 2015 Plan and 2023 Plan of $1.7 million and $1.0 million, respectively. During the twenty-eight weeks ended July 9, 2023 and July 10, 2022, the Company recognized compensation expense (including applicable payroll taxes) related to awards under the 2015 Plan and 2023 Plan of $3.0 million and $1.8 million, respectively.
Stock Options—Prior to the IPO, under the 2015 Plan, our Board of Directors determined the option exercise price and granted all stock options at exercise prices that were equal or exceed the fair value of the common stock on the date of grant. Under the 2023 Plan, the terms of all stock options may not exceed 10 years. Vesting terms are determined by our Board of Directors and generally vest over four years of continuous service, except for 647,123 options that were granted to our CEO in connection with the IPO that will vest over five years of continuous service.
13
A summary of the Company’s stock option activity is as follows:
| Weighted Average | |||||||||||||||||||||||
| ($ in thousands except per share amounts) | Number Of Options | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||
| Outstanding - December 26, 2021 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited or expired | ( | ||||||||||||||||||||||
| Outstanding - July 10, 2022 | $ | $ | |||||||||||||||||||||
| Exercisable - July 10, 2022 | $ | ||||||||||||||||||||||
| Vested and Expected to Vest - July 10, 2022 | $ | $ | |||||||||||||||||||||
| Outstanding - December 25, 2022 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited or expired | ( | ||||||||||||||||||||||
| Outstanding - July 9, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable - July 9, 2023 | $ | ||||||||||||||||||||||
| Vested and Expected to Vest - July 9, 2023 | $ | $ | |||||||||||||||||||||
The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options. The following table reflects the weighted-average assumptions utilized in the Black-Scholes option pricing model during the periods indicated:
| Twenty-Eight Weeks Ended | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
Expected term (in years)1 | |||||||||||
Volatility2 | |||||||||||
| Risk-free interest rate | |||||||||||
| Dividend rate | |||||||||||
| Weighted-average grant date fair value per share | $ | $ | |||||||||
| (1) Expected life was calculated using the simplified method, which is an average of the contractual term and vesting period of the option, as we do not have sufficient historical data for determining the expected term of our stock option awards. | |||||||||||
| (2) Volatility was based on a group of industry peers with sufficient history. | |||||||||||
As of July 9, 2023, there was $14.2 million of unrecognized compensation costs related to option awards. This cost is expected to be recognized over a period of 4.3 years.
Restricted Stock Units—Vesting terms of RSUs are determined by our Board of Directors and generally vest annually in equal installments over four years of continuous service, except for 332,386 RSUs that were granted to our CEO in connection with the IPO that will vest over five years of continuous service.
14
A summary of the Company’s restricted stock unit activity is as follows:
| ($ in thousands, except per share amounts) | Number of Units | Weighted-Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||
| Non-Vested - December 26, 2021 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Vested | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Non-vested - July 10, 2022 | $ | $ | |||||||||||||||
| Non-vested - December 25, 2022 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Vested | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Non-vested - July 9, 2023 | $ | $ | |||||||||||||||
As of July 9, 2023, there was $33.1 million of unrecognized compensation expense related to RSU awards. This cost is expected to be recognized over a period of 3.8 years.
2023 Employee Stock Purchase Plan—In connection with the IPO, the Company’s Board of Directors adopted the 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP authorizes issuance of 1,762,270 shares of common stock to the Company’s employees. The number of shares of the Company’s common stock reserved for issuance will automatically increase on the first day of each fiscal year ending on December 29, 2032 by the lesser of (i) 1 % of the outstanding common stock of the Company on the last day of the immediately preceding fiscal year and (ii) a lower number of shares of our common stock as determined by the Board of Directors.
The 2023 ESPP allows eligible employees to acquire shares of the Company’s common stock through payroll deduction over offering periods that are approximately six months. The per share purchase price is equal to 85 % of the lesser of the fair market value of a share of the Company’s common stock on (i) the first day of the offering period or (ii) the last day of the offering period.
14. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period. Diluted net income (loss) per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of outstanding equity awards for the period using the treasury-stock method.
The following table sets forth the computation of earnings (loss) per common share for the periods indicated:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| (in thousands, except per share amounts) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-Average common shares outstanding, basic | |||||||||||||||||||||||
| Dilutive awards outstanding | |||||||||||||||||||||||
| Weighted average shares outstanding, diluted | |||||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
15
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share as their impact would have been anti-dilutive for the periods indicated:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| (in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
| Preferred stock (as converted to common shares) | |||||||||||||||||||||||
| Total common stock equivalents | |||||||||||||||||||||||
During the twelve and twenty-eight weeks ended July 9, 2022, the Company’s potentially dilutive securities, which include preferred stock and outstanding awards under the 2015 Plan, have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive in a net loss position.
15. SEGMENT REPORTING
16
Financial information for the Company’s reportable segments was as follows for the periods presented:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| CAVA | $ | $ | $ | $ | |||||||||||||||||||
| Zoes Kitchen | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
Restaurant-Level operating expenses (1) | |||||||||||||||||||||||
| CAVA | |||||||||||||||||||||||
| Zoes Kitchen | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total Restaurant-Level operating expenses | |||||||||||||||||||||||
| Restaurant-Level profit | |||||||||||||||||||||||
| CAVA | |||||||||||||||||||||||
| Zoes Kitchen | ( | ||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total Restaurant-Level profit | |||||||||||||||||||||||
| Reconciliation of Restaurant-Level profit to income (loss) before income taxes: | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Restructuring and other costs | |||||||||||||||||||||||
| Pre-opening costs | |||||||||||||||||||||||
| Impairment and asset disposal costs | |||||||||||||||||||||||
| Interest (income) expense, net | ( | ( | |||||||||||||||||||||
| Other (income) expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| (1)Restaurant-level operating expenses consist of food, beverage and packaging (excluding depreciation and amortization), labor, occupancy and other operating expenses. | |||||||||||||||||||||||
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q, and our final prospectus filed with the United States Securities and Exchange Commission (the “SEC”) on June 16, 2023 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Prospectus”). In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties, and other factors outside the Company’s control, as well as assumptions, such as our plans, objectives, expectations, and intentions. Our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including those described under the sections entitled “Cautionary Statement Concerning Forward-Looking Statements” above and “Risk Factors” in the Prospectus and our other filings with the SEC.
Overview
CAVA is the category-defining Mediterranean fast-casual restaurant brand, bringing together healthful food and bold, satisfying flavors at scale. Our brand and our opportunity transcend the Mediterranean category to compete in the large and growing limited-service restaurant sector as well as the health and wellness food category. CAVA serves guests across gender lines, age groups, and income levels and benefits from generational tailwinds created by consumer demand for healthy living and a demographic shift towards greater ethnic diversity. We meet consumers’ desires to engage with convenient, authentic, purpose-driven brands that view food as a source of self-expression. The broad appeal of our food combined with these favorable industry trends drive our vast opportunity for continued growth.
As of July 9, 2023, we owned and operated 279 CAVA restaurants in 24 states and Washington, D.C., which includes 151 Zoes Kitchen locations successfully converted into CAVA restaurants. We anticipate having 23 to 28 Net New CAVA Restaurant Openings in the remainder of fiscal 2023, which includes opening 2 conversions of Zoes Kitchen locations that we expect to complete by the fall of 2023.
Segments
We have two reportable segments: CAVA and Zoes Kitchen. CAVA reflects the financial results of all CAVA restaurants we operate. Zoes Kitchen reflects the financial results of all Zoes Kitchen locations we previously operated. As of July 9, 2023, we operated 279 CAVA restaurants. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. Our Consumer Packaged Goods (“CPG”) operations are included in Other.
Initial Public Offering
On June 20, 2023, we completed an initial public offering (the “IPO”) of 16,611,110 shares of common stock at a price of $22.00 per share, which included 2,166,666 shares sold to the underwriters pursuant to their option to purchase additional shares. After underwriting discounts and commissions of $22.8 million and offering expenses of $6.5 million, we received net proceeds from the offering of $336.1 million, of which $3.5 million of offering expenses were unpaid as of July 9, 2023. In connection with the IPO, 95,203,554 outstanding shares of preferred stock were converted into an equivalent number of shares of common stock. See Item 1, Financial Statements, Note 1 (Nature of Operations and Basis of Presentation) and Note 8 (Redeemable Preferred Stock and Stockholders’ Equity) for more information.
Key Performance Measures
In assessing the performance of our business, in addition to considering a variety of measures in accordance with GAAP, our management team also considers a variety of other key performance measures, including non-GAAP measures. The key performance measures used by our management for determining how our business is performing are: CAVA Revenue, CAVA Same Restaurant Sales Growth, CAVA AUV, CAVA Restaurant-Level Profit, CAVA Restaurant-Level Profit Margin, CAVA Restaurants, Net New CAVA Restaurant Openings, CAVA Digital Revenue Mix, Adjusted EBITDA, and Adjusted EBITDA Margin.
We believe that these key financial measures provide useful information to users of our financial statements in understanding and evaluating our results of operations in the same manner as our management team. The presentation of these key performance measures, including Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. See “Non-GAAP Financial Measures” below.
18
The following table sets forth our key performance measures for the periods presented:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | Change | July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||
| CAVA Revenue | $ | 171,089 | $ | 105,327 | $ | 65,762 | $ | 367,850 | $ | 217,333 | $ | 150,517 | |||||||||||||||||||||||
| CAVA Same Restaurant Sales Growth | 18.2 | % | 13.3 | % | 4.9 | % | 23.5 | % | 16.6 | % | 6.9 | % | |||||||||||||||||||||||
CAVA AUV (1) | $ | 2,599 | $ | 2,399 | $ | 200 | $ | 2,599 | $ | 2,399 | $ | 200 | |||||||||||||||||||||||
| CAVA Restaurant-Level Profit | $ | 44,616 | $ | 23,253 | $ | 21,363 | $ | 94,599 | $ | 42,845 | $ | 51,754 | |||||||||||||||||||||||
| CAVA Restaurant-Level Profit Margin | 26.1 | % | 22.1 | % | 4.0 | % | 25.7 | % | 19.7 | % | 6.0 | % | |||||||||||||||||||||||
CAVA Restaurants (2) | 279 | 195 | 84 | 279 | 195 | 84 | |||||||||||||||||||||||||||||
| Net New CAVA Restaurant Openings | 16 | 18 | (2) | 42 | 31 | 11 | |||||||||||||||||||||||||||||
| CAVA Digital Revenue Mix | 36.1 | % | 33.9 | % | 2.2 | % | 36.3 | % | 34.6 | % | 1.7 | % | |||||||||||||||||||||||
| Net income (loss) | $ | 6,539 | $ | (8,230) | $ | 14,769 | $ | 4,398 | $ | (28,248) | $ | 32,646 | |||||||||||||||||||||||
Adjusted EBITDA (3) | $ | 21,601 | $ | 5,866 | $ | 15,735 | $ | 38,347 | $ | 4,290 | $ | 34,057 | |||||||||||||||||||||||
| Net income (loss) margin | 3.8 | % | (6.1) | % | 9.9 | % | 1.2 | % | (9.6) | % | 10.8 | % | |||||||||||||||||||||||
Adjusted EBITDA margin (3) | 12.5 | % | 4.3 | % | 8.2 | % | 10.2 | % | 1.5 | % | 8.7 | % | |||||||||||||||||||||||
(1) For purposes of calculating CAVA AUV for the reporting periods ended July 9, 2023 and July 10, 2022, the applicable measurement period is the entire trailing thirteen periods ended July 9, 2023 and July 10, 2022, respectively. | |||||||||||||||||||||||||||||||||||
| (2) As of the end of the specified reporting period. | |||||||||||||||||||||||||||||||||||
(3) See “Non-GAAP Financial Measures” below for a discussion of Adjusted EBITDA and Adjusted EBITDA Margin and a reconciliation of Adjusted EBITDA to net income/(loss), the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue. | |||||||||||||||||||||||||||||||||||
CAVA Restaurants and Net New CAVA Restaurant Openings
The following table details CAVA restaurant unit data for the periods indicated.
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| CAVA Restaurants | |||||||||||||||||||||||
| Beginning of period | 263 | 177 | 237 | 164 | |||||||||||||||||||
| New CAVA restaurant openings, including converted Zoes Kitchen locations | 16 | 19 | 43 | 32 | |||||||||||||||||||
| Permanent closure | — | (1) | (1) | (1) | |||||||||||||||||||
| End of period | 279 | 195 | 279 | 195 | |||||||||||||||||||
Results of Operations
Our results of operations, on a consolidated basis and by segment, for the twelve and twenty-eight weeks ended July 9, 2023 and July 10, 2022 are set forth below. We present our segment results before our consolidated results as we believe that our CAVA segment is more useful and meaningful in assessing the performance of our business, which is mainly driven by our CAVA segment as we continue to convert Zoes Kitchen locations into CAVA restaurants. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. We are currently in the process of converting the remaining two Zoes Kitchen locations, which we expect to complete by the fall of 2023. As a result, we have limited our discussion of the Zoes Kitchen segment. In addition, because our consolidated results of operations include the results of our Zoes Kitchen segment, we believe that our consolidated results of operations are less indicative of our performance as compared to our CAVA segment.
19
The following table summarizes our segment results for the twelve and twenty-eight weeks ended July 9, 2023 and July 10, 2022:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| CAVA | $ | 171,089 | $ | 105,327 | $ | 367,850 | $ | 217,333 | |||||||||||||||
| Zoes Kitchen | — | 28,823 | 3,867 | 73,564 | |||||||||||||||||||
| Other | 1,805 | 1,765 | 4,260 | 4,029 | |||||||||||||||||||
| Total revenue | 172,894 | 135,915 | 375,977 | 294,926 | |||||||||||||||||||
Restaurant-Level operating expenses (1) | |||||||||||||||||||||||
| CAVA | 126,473 | 82,074 | 273,251 | 174,488 | |||||||||||||||||||
| Zoes Kitchen | — | 26,602 | 4,044 | 69,234 | |||||||||||||||||||
| Other | 990 | 1,634 | 2,687 | 3,455 | |||||||||||||||||||
| Total Restaurant-Level operating expenses | 127,463 | 110,310 | 279,982 | 247,177 | |||||||||||||||||||
| Restaurant-Level profit | |||||||||||||||||||||||
| CAVA | 44,616 | 23,253 | 94,599 | 42,845 | |||||||||||||||||||
| Zoes Kitchen | — | 2,221 | (177) | 4,330 | |||||||||||||||||||
| Other | 815 | 131 | 1,573 | 574 | |||||||||||||||||||
| Total Restaurant-Level profit | 45,431 | 25,605 | 95,995 | 47,749 | |||||||||||||||||||
| Reconciliation of Restaurant-Level profit to income (loss) before income taxes: | |||||||||||||||||||||||
| General and administrative expenses | 23,321 | 16,284 | 52,345 | 37,221 | |||||||||||||||||||
| Depreciation and amortization | 10,709 | 8,946 | 23,568 | 21,765 | |||||||||||||||||||
| Restructuring and other costs | 1,853 | 1,650 | 4,068 | 2,934 | |||||||||||||||||||
| Pre-opening costs | 3,400 | 4,484 | 9,399 | 8,050 | |||||||||||||||||||
| Impairment and asset disposal costs | 386 | 2,579 | 3,105 | 6,010 | |||||||||||||||||||
| Interest (income) expense, net | (699) | 34 | (674) | 377 | |||||||||||||||||||
| Other (income) expense, net | (118) | (198) | (292) | (456) | |||||||||||||||||||
| Income (loss) before income taxes | $ | 6,579 | $ | (8,174) | $ | 4,476 | $ | (28,152) | |||||||||||||||
| (1)Restaurant-level operating expenses consist of food, beverage and packaging (excluding depreciation and amortization), labor, occupancy and other operating expenses. | |||||||||||||||||||||||
Comparison of the twelve weeks ended July 9, 2023 and July 10, 2022
CAVA Segment Results
The following table summarizes the results of the CAVA segment for the twelve weeks ended July 9, 2023 and July 10, 2022:
| Twelve Weeks Ended | |||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
| Restaurant revenue | $ | 171,089 | 100.0 | % | $ | 105,327 | 100.0 | % | $ | 65,762 | 62.4 | % | |||||||||||||||||||||||
| Restaurant operating expenses (excluding depreciation and amortization) | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 50,181 | 29.3 | 33,269 | 31.6 | 16,912 | 50.8 | |||||||||||||||||||||||||||||
| Labor | 42,417 | 24.8 | 28,241 | 26.8 | 14,176 | 50.2 | |||||||||||||||||||||||||||||
| Occupancy | 13,400 | 7.8 | 8,931 | 8.5 | 4,469 | 50.0 | |||||||||||||||||||||||||||||
| Other operating expenses | 20,475 | 12.0 | 11,633 | 11.0 | 8,842 | 76.0 | |||||||||||||||||||||||||||||
| Total restaurant operating expenses | 126,473 | 73.9 | 82,074 | 77.9 | 44,399 | 54.1 | |||||||||||||||||||||||||||||
| Restaurant-level profit | $ | 44,616 | 26.1 | % | $ | 23,253 | 22.1 | % | $ | 21,363 | 91.9 | % | |||||||||||||||||||||||
20
CAVA Revenue:
The increase in CAVA Revenue was primarily due to a $46.4 million increase from the 102 Net New CAVA Restaurant Openings during or subsequent to the twelve weeks ended July 10, 2022, of which the significant majority was attributable to the 76 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase in CAVA Revenue was driven by CAVA Same Restaurant Sales Growth of 18.2%, which consists of 10.3% from guest traffic increases and 7.9% from menu price increases and product mix.
CAVA Food, beverage, and packaging:
The increase in CAVA food, beverage, and packaging was primarily due to a $14.0 million increase from the 102 Net New CAVA Restaurant Openings during or subsequent to the twelve weeks ended July 10, 2022, of which the significant majority was attributable to the 76 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 18.2%.
As a percentage of CAVA Revenue, CAVA food, beverage, and packaging decreased primarily due to lower input costs and higher incidence of premium menu items driving favorable product mix.
CAVA Labor:
The increase in CAVA labor was primarily due to a $12.3 million increase from the 102 Net New CAVA Restaurant Openings during or subsequent to the twelve weeks ended July 10, 2022, of which the significant majority was attributable to the 76 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 18.2%. These increases include the impact of higher average hourly wages.
As a percentage of CAVA Revenue, CAVA labor decreased due to strong sales, partially offset by an increase in average hourly wages and an increased mix of new restaurants, which have a higher labor investment for six to eight months following the initial opening of a restaurant due to increased training costs.
CAVA Occupancy:
The increase in CAVA occupancy was primarily due to a $3.4 million increase from 102 Net New CAVA Restaurant Openings during or subsequent to the twelve weeks ended July 10, 2022, of which the significant majority was attributable to the 76 CAVA restaurants that were converted from Zoes Kitchen locations.
As a percentage of CAVA Revenue, CAVA occupancy decreased primarily due to improved operating leverage associated with CAVA Same Restaurant Sales Growth. In addition, contributing to the decrease was the impact of CAVA restaurants that were converted from Zoes Kitchen locations, as these restaurants generally have lower occupancy expenses than restaurants in the pre-existing CAVA restaurant base due to geographic mix.
CAVA Other operating expenses:
The increase in CAVA other operating expenses was primarily due to a $5.8 million increase from 102 Net New CAVA Restaurant Openings during or subsequent to the twelve weeks ended July 10, 2022, of which the significant majority was attributable to the 76 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 18.2%.
As a percentage of CAVA Revenue, CAVA other operating expenses increased primarily due to a reduction to an insurance accrual in the twelve weeks ended July 10, 2022.
21
Zoes Kitchen Segment Results
The following table summarizes the results of the Zoes Kitchen segment for the twelve weeks ended July 9, 2023 and July 10, 2022:
| Twelve Weeks Ended | ||||||||||||||||||||||||||||||||
| ($ in thousands) | July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||
| $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||
| Restaurant revenue | $ | — | — | % | $ | 28,823 | 100.0 | % | $ | (28,823) | (100.0) | % | ||||||||||||||||||||
| Restaurant operating expenses (excluding depreciation and amortization) | ||||||||||||||||||||||||||||||||
| Food, beverage and packaging | — | — | 8,935 | 31.0 | (8,935) | (100.0) | ||||||||||||||||||||||||||
| Labor | — | — | 9,490 | 32.9 | (9,490) | (100.0) | ||||||||||||||||||||||||||
| Occupancy | — | — | 3,283 | 11.4 | (3,283) | (100.0) | ||||||||||||||||||||||||||
| Other operating expenses | — | — | 4,894 | 17.0 | (4,894) | (100.0) | ||||||||||||||||||||||||||
| Total restaurant operating expenses | — | — | 26,602 | 92.3 | (26,602) | (100.0) | ||||||||||||||||||||||||||
| Restaurant-level profit | $ | — | — | % | $ | 2,221 | 7.7 | % | (2,221) | (100.0) | % | |||||||||||||||||||||
As of March 2, 2023, the Company no longer operates any Zoes Kitchen locations, which resulted in the decrease from $28.8 million of revenue and $2.2 million in restaurant-level profit in the twelve weeks ended July 10, 2022 to zero in the twelve weeks ended July 9, 2023.
Other Results
The following table summarizes remaining activity related to our CPG operations for the twelve weeks ended July 9, 2023 and July 10, 2022:
| Twelve Weeks Ended | |||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
| Revenue | $ | 1,805 | 100.0 | % | $ | 1,765 | 100.0 | % | $ | 40 | 2.3 | % | |||||||||||||||||||||||
| Food, beverage, and packaging | 819 | 45.4 | 1,537 | 87.1 | (718) | (46.7) | |||||||||||||||||||||||||||||
Other operating expenses | 171 | 9.5 | % | 97 | 5.5 | % | 74 | 76.3 | % | ||||||||||||||||||||||||||
The increase in Other revenue was primarily as a result of increased sales of dips, spreads, and dressings. The decrease in food, beverage, and packaging was primarily due to lower input costs.
Consolidated Results
The following table summarizes our consolidated results of operations for the twelve weeks ended July 9, 2023 and July 10, 2022:
| Twelve Weeks Ended | |||||||||||||||||||||||||||||||||||
($ in thousands) | July 9, 2023 | July 10, 2022 | Change | ||||||||||||||||||||||||||||||||
| $ | % of Revenue | $ | % of Revenue | $ | % | ||||||||||||||||||||||||||||||
| Revenue | $ | 172,894 | 100.0 | % | $ | 135,915 | 100.0 | % | $ | 36,979 | 27.2 | % | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Restaurant operating costs (excluding depreciation and amortization) | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 51,000 | 29.5 | 43,741 | 32.2 | 7,259 | 16.6 | |||||||||||||||||||||||||||||
| Labor | 42,417 | 24.5 | 37,731 | 27.8 | 4,686 | 12.4 | |||||||||||||||||||||||||||||
| Occupancy | 13,400 | 7.8 | 12,214 | 9.0 | 1,186 | 9.7 | |||||||||||||||||||||||||||||
| Other operating expenses | 20,646 | 11.9 | 16,624 | 12.2 | 4,022 | 24.2 | |||||||||||||||||||||||||||||
| Total restaurant operating expenses | 127,463 | 73.7 | 110,310 | 81.2 | 17,153 | 15.5 | |||||||||||||||||||||||||||||
22
| General and administrative expenses | 23,321 | 13.5 | 16,284 | 12.0 | 7,037 | 43.2 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 10,709 | 6.2 | 8,946 | 6.6 | 1,763 | 19.7 | |||||||||||||||||||||||||||||
| Restructuring and other costs | 1,853 | 1.1 | 1,650 | 1.2 | 203 | 12.3 | |||||||||||||||||||||||||||||
| Pre-opening costs | 3,400 | 2.0 | 4,484 | 3.3 | (1,084) | (24.2) | |||||||||||||||||||||||||||||
| Impairment and asset disposal costs | 386 | 0.2 | 2,579 | 1.9 | (2,193) | (85.0) | |||||||||||||||||||||||||||||
| Total operating expenses | 167,132 | 96.7 | 144,253 | 106.1 | 22,879 | 15.9 | |||||||||||||||||||||||||||||
| Income (loss) from operations | 5,762 | 3.3 | (8,338) | (6.1) | 14,100 | (169.1) | |||||||||||||||||||||||||||||
| Interest (income) expense, net | (699) | (0.4) | 34 | — | % | (733) | N/M | ||||||||||||||||||||||||||||
| Other income, net | (118) | (0.1) | (198) | (0.1) | 80 | (40.4) | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | 6,579 | 3.8 | (8,174) | (6.0) | 14,753 | (180.5) | |||||||||||||||||||||||||||||
| Provision for income taxes | 40 | — | 56 | — | (16) | (28.6) | |||||||||||||||||||||||||||||
| Net income (loss) | $ | 6,539 | 3.8 | % | $ | (8,230) | (6.1) | % | $ | 14,769 | (179.5) | % | |||||||||||||||||||||||
| N/M data not meaningful | |||||||||||||||||||||||||||||||||||
Revenue:
The increase in consolidated revenue was primarily driven by a $65.8 million increase in our CAVA segment, partially offset by a $28.8 million decrease in our Zoes Kitchen segment, which was no longer operating as of March 2, 2023. Refer to CAVA Segment Results above for more information.
Food, beverage, and packaging:
The increase in consolidated food, beverage, and packaging was primarily driven by a $16.9 million increase in our CAVA segment, partially offset by a $8.9 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
Labor:
The increase in consolidated labor was primarily driven by a $14.2 million increase in our CAVA segment, partially offset by a $9.5 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
Occupancy:
The increase in consolidated occupancy was primarily driven by a $4.5 million increase in our CAVA segment, partially offset by a $3.3 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
Other operating expenses:
The increase in consolidated other operating expenses was primarily driven by an $8.8 million increase in our CAVA segment, partially offset by a $4.9 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
General and administrative expenses:
The increase in general and administrative expenses was primarily due to higher performance-based accruals associated with strong results, investments in our corporate functions, including headcount, to support future growth, $1.1 million in certain non-recurring IPO costs, and higher equity-based compensation associated with awards made in connection with the IPO.
Depreciation and amortization:
The increase in depreciation and amortization was driven by the addition of assets from 102 New Net CAVA Restaurants Openings, partially offset by the disposal of assets from 125 closed Zoes Kitchen locations, and the addition of corporate assets related to technology improvements.
23
Restructuring and other costs:
The increase in restructuring and other costs was primarily due to increased public company readiness costs and costs associated with closed Zoes Kitchen locations.
Pre-opening costs:
The decrease in pre-opening costs was primarily due to lower labor and travel expenses.
Impairment and asset disposal costs:
The decrease in impairment and asset disposal costs was primarily due to higher costs in the prior year in connection with Zoes Kitchen actual and anticipated closures.
Interest (income) expense, net
The increase in interest (income) expense, net, was primarily due to an increase in short term investments as a result of proceeds from the IPO.
Other income, net:
Other income, net was relatively flat.
Income (loss) before income taxes:
The increase in income before income taxes was due to the factors described above.
Provision for income taxes:
Provision for income taxes was an immaterial amount for each of the twelve weeks ended July 9, 2023 and July 10, 2022.
Net income (loss):
Our net income increased as a result of the factors described above.
Comparison of the twenty-eight weeks ended July 9, 2023 and July 10, 2022
CAVA Segment Results
The following table summarizes the results of the CAVA segment for the twenty-eight weeks ended July 9, 2023 and July 10, 2022:
| Twenty-Eight Weeks Ended | |||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Restaurant revenue | $ | 367,850 | 100.0 | % | $ | 217,333 | 100.0 | % | $ | 150,517 | 69.3 | % | |||||||||||||||||||||||
| Restaurant operating expenses, excluding depreciation and amortization: | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 106,635 | 29.0 | 68,856 | 31.7 | 37,779 | 54.9 | |||||||||||||||||||||||||||||
Labor | 93,065 | 25.3 | 59,670 | 27.5 | 33,395 | 56.0 | |||||||||||||||||||||||||||||
Occupancy | 29,491 | 8.0 | 20,367 | 9.4 | 9,124 | 44.8 | |||||||||||||||||||||||||||||
Other operating expenses | 44,060 | 12.0 | 25,595 | 11.8 | 18,465 | 72.1 | |||||||||||||||||||||||||||||
Total restaurant operating expenses | 273,251 | 74.3 | 174,488 | 80.3 | 98,763 | 56.6 | |||||||||||||||||||||||||||||
Restaurant-Level Profit | $ | 94,599 | 25.7 | % | $ | 42,845 | 19.7 | % | $ | 51,754 | 120.8 | % | |||||||||||||||||||||||
CAVA Revenue:
The increase in CAVA Revenue was primarily due to a $99.9 million increase from the 115 Net New CAVA Restaurant Openings during or subsequent to the twenty-eight weeks ended July 10, 2022, of which the significant majority was attributable to the 89 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the
24
increase in CAVA Revenue was driven by CAVA Same Restaurant Sales Growth of 23.5%, which consists of 14.5% from guest traffic increases and 9.0% from menu price increases and product mix.
CAVA Food, beverage, and packaging:
The increase in CAVA food, beverage, and packaging was primarily due to a $29.8 million increase from the 115 Net New CAVA Restaurant Openings during or subsequent to the twenty-eight weeks ended July 10, 2022, of which the significant majority was attributable to the 89 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 23.5%.
As a percentage of CAVA Revenue, CAVA food, beverage, and packaging decreased primarily due to lower input costs and higher incidence of premium menu items driving favorable product mix.
CAVA Labor:
The increase in CAVA labor was primarily due to a $26.6 million increase from the 115 Net New CAVA Restaurant Openings during or subsequent to the twenty-eight weeks ended July 10, 2022, of which the significant majority was attributable to the 89 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 23.5%. These increases include the impact of higher average hourly wages.
As a percentage of CAVA Revenue, CAVA labor decreased due to strong sales, partially offset by an increase in average hourly wages and an increased mix of new restaurants, which have a higher labor investment for six to eight months following the initial opening of a restaurant due to increased training costs.
CAVA Occupancy:
The increase in CAVA occupancy was primarily due to a $7.5 million increase from 115 Net New CAVA Restaurant Openings during or subsequent to the twenty-eight weeks ended July 10, 2022, of which the significant majority was attributable to the 89 CAVA restaurants that were converted from Zoes Kitchen locations.
As a percentage of CAVA Revenue, CAVA occupancy decreased largely due to improved operating leverage associated with CAVA Same Restaurant Sales Growth. In addition, contributing to the decrease was the impact of CAVA restaurants that were converted from Zoes Kitchen locations, as these restaurants generally have lower occupancy expenses than restaurants in the pre-existing CAVA restaurant base due to geographic mix.
CAVA Other operating expenses:
The increase in CAVA other operating expenses was primarily due to a $12.1 million increase from 115 Net New CAVA Restaurant Openings during or subsequent to the twenty-eight weeks ended July 10, 2022, of which the significant majority was attributable to the 89 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 23.5%.
As a percentage of CAVA Revenue, CAVA other operating expenses increased primarily due to a reduction to an insurance accrual in the twenty-eight weeks ended July 10, 2022.
25
Zoes Kitchen Segment Results
The following table summarizes the results of the Zoes Kitchen segment for the twenty-eight weeks ended July 9, 2023 and July 10, 2022:
| Twenty-Eight Weeks Ended | |||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Revenue | $ | 3,867 | 100.0 | % | $ | 73,564 | 100.0 | % | $ | (69,697) | N/M | ||||||||||||||||||||||||
| Restaurant operating expenses, excluding depreciation and amortization: | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 1,141 | 29.5 | 22,582 | 30.7 | (21,441) | N/M | |||||||||||||||||||||||||||||
Labor | 1,506 | 38.9 | 25,083 | 34.1 | (23,577) | N/M | |||||||||||||||||||||||||||||
Occupancy | 508 | 13.1 | 8,587 | 11.7 | (8,079) | N/M | |||||||||||||||||||||||||||||
Other operating expenses | 889 | 23.0 | 12,982 | 17.6 | (12,093) | N/M | |||||||||||||||||||||||||||||
Total restaurant operating expenses | 4,044 | 104.6 | 69,234 | 94.1 | (65,190) | N/M | |||||||||||||||||||||||||||||
Restaurant-Level Profit (loss) | $ | (177) | (4.6) | % | $ | 4,330 | 5.9 | % | $ | (4,507) | N/M | ||||||||||||||||||||||||
| N/M data not meaningful | |||||||||||||||||||||||||||||||||||
As of March 2, 2023, the Company no longer operates any Zoes Kitchen locations, which resulted in the decreases above. As of July 9, 2023, 151 Zoes Kitchen locations were converted to CAVA restaurants.
Other Results
The following table summarizes remaining activity related to our CPG operations for the twenty-eight weeks ended July 9, 2023 and July 10, 2022:
| Twenty-Eight Weeks Ended | |||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Revenue | $ | 4,260 | 100.0 | % | $ | 4,029 | 100.0 | % | $ | 231 | 5.7 | % | |||||||||||||||||||||||
| Food, beverage, and packaging | 2,342 | 55.0 | 3,207 | 79.6 | (865) | (27.0) | |||||||||||||||||||||||||||||
Other operating expenses | $ | 345 | 8.1 | % | $ | 248 | 6.2 | % | $ | 97 | 39.1 | % | |||||||||||||||||||||||
The increase in Other revenue was primarily as a result of increased sales of dips, spreads, and dressings. The decrease in food, beverage, and packaging was primarily due to lower input costs.
Consolidated Results
The following table summarizes our consolidated results of operations for the twenty-eight weeks ended July 9, 2023 and July 10, 2022:
| Twenty-Eight Weeks Ended | |||||||||||||||||||||||||||||||||||
($ in thousands) | July 9, 2023 | July 10, 2022 | Change | ||||||||||||||||||||||||||||||||
| $ | % of Revenue | $ | % of Revenue | $ | % | ||||||||||||||||||||||||||||||
| Revenue | $ | 375,977 | 100.0 | % | $ | 294,926 | 100.0 | % | $ | 81,051 | 27.5 | % | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Restaurant operating costs (excluding depreciation and amortization) | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 110,118 | 29.3 | 94,645 | 32.1 | 15,473 | 16.3 | |||||||||||||||||||||||||||||
| Labor | 94,571 | 25.2 | 84,753 | 28.7 | 9,818 | 11.6 | |||||||||||||||||||||||||||||
| Occupancy | 29,999 | 8.0 | 28,954 | 9.8 | 1,045 | 3.6 | |||||||||||||||||||||||||||||
| Other operating expenses | 45,294 | 12.0 | 38,825 | 13.2 | 6,469 | 16.7 | |||||||||||||||||||||||||||||
| Total restaurant operating expenses | 279,982 | 74.5 | 247,177 | 83.8 | 32,805 | 13.3 | |||||||||||||||||||||||||||||
26
| General and administrative expenses | 52,345 | 13.9 | 37,221 | 12.6 | 15,124 | 40.6 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 23,568 | 6.3 | 21,765 | 7.4 | 1,803 | 8.3 | |||||||||||||||||||||||||||||
| Restructuring and other costs | 4,068 | 1.1 | 2,934 | 1.0 | 1,134 | 38.7 | |||||||||||||||||||||||||||||
| Pre-opening costs | 9,399 | 2.5 | 8,050 | 2.7 | 1,349 | 16.8 | |||||||||||||||||||||||||||||
| Impairment and asset disposal costs | 3,105 | 0.8 | 6,010 | 2.0 | (2,905) | (48.3) | |||||||||||||||||||||||||||||
| Total operating expenses | 372,467 | 99.1 | 323,157 | 109.6 | 49,310 | 15.3 | |||||||||||||||||||||||||||||
| Income (loss) from operations | 3,510 | 0.9 | (28,231) | (9.6) | 31,741 | (112.4) | |||||||||||||||||||||||||||||
| Interest (income) expense, net | (674) | (0.2) | 377 | 0.1 | (1,051) | (278.8) | |||||||||||||||||||||||||||||
| Other income, net | (292) | (0.1) | (456) | (0.2) | 164 | (36.0) | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | 4,476 | 1.2 | (28,152) | (9.5) | 32,628 | (115.9) | |||||||||||||||||||||||||||||
| Provision for income taxes | 78 | — | 96 | — | (18) | (18.8) | |||||||||||||||||||||||||||||
| Net income (loss) | $ | 4,398 | 1.2 | % | $ | (28,248) | (9.6) | % | $ | 32,646 | (115.6) | % | |||||||||||||||||||||||
Revenue:
The increase in consolidated revenue was primarily driven by a $150.5 million increase in our CAVA segment, partially offset by a $69.7 million decrease in our Zoes Kitchen segment, which was no longer operating as of March 2, 2023. Refer to CAVA Segment Results above for more information.
Food, beverage, and packaging:
The increase in consolidated food, beverage, and packaging was primarily driven by a $37.8 million increase in our CAVA segment, partially offset by a $21.4 million decrease in our Zoes Kitchen segment, which was no longer operating as of March 2, 2023. Refer to CAVA Segment Results above for more information.
Labor:
The increase in consolidated labor was primarily driven by a $33.4 million increase in our CAVA segment, partially offset by a $23.6 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
Occupancy:
The increase in consolidated occupancy was primarily driven by a $9.1 million increase in our CAVA segment, partially offset by an $8.1 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
Other operating expenses:
The increase in consolidated other operating expenses was primarily driven by a $18.5 million increase in our CAVA segment, partially offset by a $12.1 million decrease in our Zoes Kitchen segment. Refer to CAVA Segment Results above for more information.
General and administrative expenses:
The increase in general and administrative expenses was primarily due to higher performance-based accruals associated with strong results, investments in our corporate functions, including headcount, to support future growth, higher equity-based compensation associated with awards made in connection with the IPO, and $1.1 million in certain non-recurring IPO costs.
Depreciation and amortization:
The increase in depreciation and amortization was primarily driven by the addition of assets from 115 Net New CAVA Restaurant Openings, partially offset by the disposal of assets at 125 closed Zoes Kitchen locations, and the addition of corporate assets related to technology improvements.
27
Restructuring and other costs:
The increase in restructuring and other costs was primarily due increased public company readiness costs and costs associated with closed Zoes Kitchen locations. .
Pre-opening costs:
The increase in pre-opening costs was primarily due to the timing of 43 new CAVA restaurant openings in twenty-eight weeks ended July 9, 2023, as compared to 32 new CAVA restaurant openings in twenty-eight weeks ended July 10, 2022.
Impairment and asset disposal costs:
The decrease in impairment and asset disposal costs was primarily due to higher costs in the prior year period in connection with Zoes Kitchen actual and anticipated closures.
Interest expense, net:
The increase in interest (income) expense, net, was primarily due to an increase in short term investments as a result of proceeds from the IPO.
Other income, net:
Other income, net was relatively flat.
Loss before income taxes:
The increase in income before income taxes was due to the factors described above.
Provision for income taxes:
Provision for income taxes was an immaterial amount for each of the twenty-eight weeks ended July 9, 2023 and July 10, 2022.
Net income (loss):
Our net income increased as a result of the factors described above.
Non-GAAP Financial Measures
In addition to our consolidated financial statements, which are prepared in accordance with GAAP, we present Adjusted EBITDA and Adjusted EBITDA Margin as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our operating performance. Management believes Adjusted EBITDA and Adjusted EBITDA Margin are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone provide.
Adjusted EBITDA and Adjusted EBITDA Margin are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or net income (loss) margin as measures of financial performance, or cash provided by operating activities as measures of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be measures of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, and debt service requirements. Because not all companies use identical calculations, the presentation of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
28
Our Adjusted EBITDA and Adjusted EBITDA Margin measures have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:
•Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
•Adjusted EBITDA does not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;
•Adjusted EBITDA does not reflect the impact of earnings or cash charges resulting from matters we consider not to be indicative of our ongoing operations;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.
The following tables provides a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) margin to Adjusted EBITDA Margin for the periods presented:
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||
($ in thousands) | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Net income (loss) | $ | 6,539 | $ | (8,230) | $ | 4,398 | $ | (28,248) | |||||||||||||||
| Non-GAAP Adjustments | |||||||||||||||||||||||
| Interest (income) expense, net | (699) | 34 | (674) | 377 | |||||||||||||||||||
| Provision for income taxes | 40 | 56 | 78 | 96 | |||||||||||||||||||
| Depreciation and amortization | 10,709 | 8,946 | 23,568 | 21,765 | |||||||||||||||||||
| Equity-based compensation | 1,778 | 1,029 | 2,983 | 1,812 | |||||||||||||||||||
| Other income, net | (118) | (198) | (292) | (456) | |||||||||||||||||||
| Impairment and asset disposal costs | 386 | 2,579 | 3,105 | 6,010 | |||||||||||||||||||
| Restructuring and other costs | 1,853 | 1,650 | 4,068 | 2,934 | |||||||||||||||||||
| Certain non-recurring public company costs | 1,113 | — | 1,113 | — | |||||||||||||||||||
| Adjusted EBITDA | $ | 21,601 | $ | 5,866 | $ | 38,347 | $ | 4,290 | |||||||||||||||
| Revenue | $ | 172,894 | $ | 135,915 | $ | 375,977 | $ | 294,926 | |||||||||||||||
| Net income (loss) margin | 3.8 | % | (6.1) | % | 1.2 | % | (9.6) | % | |||||||||||||||
| Adjusted EBITDA margin | 12.5 | % | 4.3 | % | 10.2 | % | 1.5 | % | |||||||||||||||
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short-term and long-term basis are for the expansion of our restaurant base and manufacturing capabilities, working capital, and other capital expenditures.
Our rapid expansion has been significantly aided by the Zoes Kitchen acquisition, which enabled us to expand our CAVA restaurant base in a capital-efficient manner. While conversions require initial capital investments, such costs are typically significantly lower for a conversion as compared to a new opening. Therefore, following the completion of
29
conversions of the remaining Zoes Kitchen locations, which we expect to complete by the fall of 2023, we expect that the capital expenditure requirements to open a new restaurant will be significantly higher than we have experienced in the past few years.
We believe that cash provided by operating activities and existing cash on hand, together with amounts available under our 2022 Credit Facility, will be sufficient to satisfy our anticipated cash requirements for the next twelve months, including our expected capital expenditures for expansion of our CAVA restaurant base and manufacturing capabilities, operating lease obligations, working capital obligations, and debt service requirements. See Item 1, Financial Statements, Note 7 (Debt) and Note 10 (Leases) to our consolidated financial statements for more information. Our sources of liquidity could be affected by factors described under the section entitled “Risk Factors” in the Prospectus. Depending on the severity and direct impact of these factors on us, we may not be able to secure additional financing on acceptable terms, or at all.
Cash Overview
We had cash and cash equivalents of $352.8 million and $39.1 million as of July 9, 2023 and December 25, 2022, respectively, the increase of which was primarily due to net proceeds received in connection with the IPO.
For the twenty-eight weeks ended July 9, 2023, our operations were primarily funded from cash flows from operations that, together with the IPO proceeds and prior sale and issuance of our Series F Preferred Stock in fiscal 2021, funded capital expenditures. Our principal uses of liquidity for the twenty-eight weeks ended July 9, 2023 were to fund our conversion of Zoes Kitchen locations into CAVA restaurants, new restaurant openings, and working capital needs.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Twenty-Eight Weeks Ended | Change | ||||||||||||||||||||||
($ in thousands) | July 9, 2023 | July 10, 2022 | $ | % | |||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 47,110 | $ | (1,432) | $ | 48,542 | N/M | ||||||||||||||||
| Net cash used in investing activities | (72,478) | (45,612) | (26,866) | 58.9 | % | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 339,088 | (1,630) | 340,718 | N/M | |||||||||||||||||||
| Net change in cash and cash equivalents | $ | 313,720 | $ | (48,674) | $ | 362,394 | (744.5) | % | |||||||||||||||
| N/M data not meaningful | |||||||||||||||||||||||
Operating Activities:
The increase in net cash provided by operating activities was primarily due to higher net income as well as the impact of working capital changes.
Investing Activities:
The increase in net cash used in investing activities was primarily due to our investments in capital expenditures as a result of Net New CAVA Restaurant Openings, construction of our new manufacturing facility, and capitalized technology improvements.
Financing Activities:
The increase in net cash provided by financing activities was primarily due to net proceeds received from our IPO, which closed on June 20, 2023.
Material Cash Commitments
There has been no significant changes to the material cash commitments as disclosed in the Prospectus for the fiscal year ended December 25, 2022, other than those payments made in the ordinary course of business.
Credit Facility
Refer to Item 1, Financial Statements, Note 7 (Debt), for a description of our 2022 Credit Facility.
30
Critical Accounting Estimates
Our critical accounting policies related to revenue recognition, leases and income taxes have not materially changed from those disclosed in the Prospectus. Our critical accounting policy related to equity-based compensation is as follows:
Equity-Based Compensation
The Company has issued stock options and restricted stock units (“RSUs”). Equity-based compensation expense is measured based on the grant date fair value of those awards and is recognized on a straight-line basis over the requisite service period. Equity-based compensation expense is based on awards outstanding, and forfeitures are recognized as they occur. Equity-based compensation expense is included in general and administrative expenses in the consolidated statements of operations.
The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to estimate the fair value of stock options at the grant date. The use of the Black-Scholes option-pricing model requires the use of highly subjective assumptions, including the expected term, risk-free interest rate, expected volatility, and expected dividend yield of the underlying common stock. The fair value of RSUs is equal to the fair value of our common stock at the date of grant.
Recent Accounting Pronouncements
Refer to Item 1, Financial Statements, Note 1 (Nature of Operations and Basis of Presentation.)
JOBS Act Election
We are currently an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of business. The primary risks we face area commodity and food price risks, interest rate risk, and the effects of inflation. Except as described below, there have been no material changes to our exposure to market risks as described in the Prospectus.
Interest Rate Risk
We are exposed to interest rate risk through fluctuations of interest rates on our investments through our cash in our money market accounts. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of July 9, 2023, we had $352.8 million of cash and cash equivalents consisting of bank accounts and money market funds. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical decrease of 100 basis points to current prevailing market rates applied to our cash and cash equivalents balance as of July 9, 2023, would result in a decrease of $3.5 million in investment income over a twelve month period.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s
31
rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended July 9, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
Part II - Other Information
Item 1. Legal Proceedings
The information required with respect to this Part II, Item 1 can be found under Item1, Financial Statements, Note 11 (Commitments and Contingencies), to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in the Prospectus.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchase of Securities
Initial Public Offering
On June 20, 2023, we completed our initial public offering (“IPO”), in which we issued and sold 16,611,110 shares of our common stock (including the full exercise by the underwriters of their option to purchase up to 2,166,666 shares of our common stock) at an initial public offering price of $22.00 per share. We raised net proceeds of $336.1 million, after deducting the underwriting discount of $22.8 million and offering expenses of $6.5 million. All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333-272068), as amended (the “Registration Statement”), declared effective by the SEC on June 14, 2023. J.P. Morgan Securities LLC, Jefferies LLC and Citigroup Global Markets Inc. acted as representatives of the underwriters for the offering. The offering terminated after the sale of all securities registered pursuant to the Registration Statement. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. In connection with the IPO, 95,203,554 outstanding shares of preferred stock were converted into an equivalent number of shares of common stock.
As contemplated in the Registration Statement, we intend to use the net proceeds from the IPO to fund future new restaurant openings. To the extent our capital expenditure requirements in respect of new restaurant openings are less than anticipated and less than the net proceeds of the IPO, we will use any remaining proceeds for general corporate purposes, which may include the repayment of Delayed Draw Term Loans. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our Registration Statement for the IPO.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
33
Item 6. Exhibits
| Exhibit Number | Exhibit Description | Filed Herewith | ||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 † | ||||||||
| 10.2 † | ||||||||
| 10.3 † | ||||||||
| 10.4 † | ||||||||
| 10.5 | X | |||||||
| 31.1 | X | |||||||
| 31.2 | X | |||||||
| 32.1 * | X | |||||||
| 32.2 * | X | |||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document | X | ||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||
| † Indicates a management contract or any compensatory plan, contract or arrangement | ||||||||
| X Filed Herewith | ||||||||
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act. | ||||||||
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
34
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Washington, D.C., on August 15, 2023.
| CAVA GROUP, INC. | |||||
| By: | /s/ Tricia Tolivar | ||||
| Name: Tricia Tolivar | |||||
| Title: Chief Financial Officer (principal financial officer) | |||||
35
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made between CAVA Group, Inc. (“Employer”) and Ted Xenohristos (“Executive”) (together, the “Parties” and each a “Party”), dated August 10, 2023 and effective as of May 22, 2023 (the “Effective Date”).
WHEREAS, in the course of Executive’s employment by Employer, the Executive may receive, be taught, or otherwise have access to Employer’s information that is confidential and proprietary;
WHEREAS, Employer and its subsidiaries and affiliates have acquired and/or developed certain trade secrets and confidential information, as more fully described in the CPIN Agreement (as defined in Article 6), and has expended significant time and expense in acquiring or developing its trade secret or confidential information, and expends significant time and expense on an ongoing basis in supporting its employees, including Executive;
WHEREAS, Employer wishes to continue to employ Executive as Employer’s Chief Concept Officer on the terms and conditions set forth herein; and
WHEREAS, Executive wishes to continue such employment on such terms and conditions in accordance with this Agreement.
ACCORDINGLY, in consideration of, and on the basis of the representations, warranties, and covenants contained in this Agreement, and other good and valuable consideration, the Parties agree as follows:
1.ARTICLE 1 – EMPLOYMENT AND TERM
1.aEmployment. Effective on the Effective Date, Employer employs Executive as its Chief Concept Officer, and Executive accepts such employment, on the terms and conditions set forth in this Agreement, it being the intent and agreement of the Parties that Executive’s employment be and is continuous. Executive’s employment shall be deemed by the Parties to be continuous until terminated pursuant to this Agreement. Executive shall report directly to the Chief Executive Officer (the “CEO”).
1.bTerm. The term of employment under this Agreement shall commence on the Effective Date and shall continue for a period of three (3) years thereafter (such three-year period, the “Initial Term”), unless the Parties otherwise renew or earlier terminate Executive’s employment in accordance with this Agreement. Subject to earlier termination pursuant to Article 4 of this Agreement, the employment relationship hereunder shall extend for successive one-year terms after the Initial Term (each such one-year term an “Extended Term”), unless either party shall have given not less than sixty (60) days prior written notice to the other prior to the expiration of the Initial Term of this Agreement, or the Extended Term, as applicable, that it does not wish to extend this Agreement. If such written notice is given, then this Agreement shall expire as of the last day of the Initial Term or Extended Term to which such written notice relates. As used in this Agreement, the “Term” shall include the Initial Term and any Extended Term, and any period of employment through the date on which Executive’s employment ends or this Agreement is terminated in accordance with Article 4 of this Agreement.
2.ARTICLE 2 – DUTIES OF THE EXECUTIVE
2.◦Duties. Executive agrees to undertake and perform all duties required as Chief Concept Officer of Employer. Executive shall perform the services contemplated herein faithfully, diligently, to the best of Executive’s ability, and in the best interests of Employer, in a
diligent, trustworthy, professional, and efficient manner, and shall comply with Employer’s policies and procedures in all material respects. Executive agrees during the Term to serve without any additional compensation as an officer or director of any subsidiary of Employer, as may be reasonably requested by the Board from time to time. Executive shall at all times perform such services in compliance with (and, to the extent of Executive’s actual knowledge and authority, shall ensure to the best of her ability that Employer is in compliance with) any and all laws, rules, regulations, and policies applicable to Employer of which Executive is aware. Executive shall, at all times during the Term, adhere to and obey reasonable written rules and policies governing the conduct of Employer’s employees and executives, as established or modified from time to time; provided, however, that, in the event of any conflict between the provisions of this Agreement and any such rules or policies, the provisions of this Agreement shall control.
2.◦Exclusive Services. Except as set forth in this Section 2.2, during her employment by Employer, Executive shall not, without the prior written consent of the Board, accept other employment for compensation, perform services for compensation for a Person other than Employer and its subsidiaries and affiliated entities, or serve as an officer or director of any other Person. In cases where no material, bona fide business conflict exists, such consent shall not be unreasonably withheld. Executive shall not engage in any activity that would impair Executive’s ability to act and exercise judgment in the best interest of Employer. For purposes of this Agreement, the term “Person” means an individual, a partnership, a corporation, a limited liability company, an association, an organization, a joint-stock company, a trust, a joint venture, an unincorporated association, a government entity, any department, agency or political subdivision of a government entity, or any other form of entity.
2.◦Indemnification. Employer shall, to the maximum extent to which it is empowered by Employer’s Bylaws and the Laws of the State of Delaware and any other laws that may apply to the benefit of Executive, defend, indemnify and hold harmless Executive from and against any and all demands, claims, and causes of action made against Executive concerning or relating to her service, actions or omissions on behalf of Employer and its subsidiaries and affiliated entities as an employee, director, officer, shareholder, unitholder, or agent.
3.ARTICLE 3 – COMPENSATION, BENEFITS AND EXPENSE REIMBURSEMENT
As the total consideration for the services that Executive renders under this Agreement, Executive shall be entitled to the following:
3.aBase Salary. Commencing on the first day of the Term, Employer shall pay to Executive a base salary at the annual rate of $400,000, less income tax and other applicable withholdings (the “Salary”) payable in accordance with Employer’s regular payroll practices. Such Salary will be reviewed for purposes of determining whether a salary increase is warranted, at least annually. The Salary, as adjusted, shall not be reduced during the Term. The reference to the Salary at an annual rate in this Agreement shall not entitle Executive to payment of the Salary beyond any Salary earned through Executive’s performance of services under this Agreement through the date of termination of Executive’s employment, except as set forth in this Agreement.
3.bAnnual Bonus. Commencing with calendar year 2023 and during the period Executive is employed with Employer, Executive shall be eligible to earn for Executive’s services to be rendered under this Agreement a discretionary annual cash bonus with a target annual bonus opportunity in an amount equal to fifty percent (50%) of the then-current Salary and a maximum annual bonus opportunity in an amount equal to one hundred percent (100%) of
2
the then-current Salary (the “Annual Bonus”), subject to review and upward adjustment by Employer in the sole discretion of the Board, payable subject to standard federal and state payroll withholding requirements. Whether or not Executive earns any bonus will be dependent upon (a) Executive’s continuous performance of services to Employer through the date any bonus is paid (other than as provided in Article 4 below); and (b) the actual achievement by Executive and Employer of the applicable performance targets and goals set by the CEO based on recommendations from the Compensation Committee of the Board. The annual period over which performance is measured for purposes of this bonus is January 1 through December 31. The Board will determine in its sole discretion the extent to which Executive and the Employer have achieved the performance goals upon which the bonus is based and the amount of the bonus. Any bonus shall be subject to the terms of any applicable incentive compensation plan adopted by Employer. Any bonus, if earned, will be paid to Executive within the time period set forth in the incentive compensation plan, or if no such time period was established, within two and one-half months following the end of the year during which the bonus is earned.
3.cEquity Participation. In connection with Executive’s employment hereunder, Executive shall be entitled to participate in the Company’s equity incentive plan, as in effect from time to time, pursuant to the terms of such plan, an award agreement and such other documents Executive is required to execute pursuant to the terms of such plan (the plan, the award agreement, and such other documents collectively, the “Equity Documents”), in accordance with Company practices for other senior executives. Executive’s equity participation shall be exclusively governed by the terms of the Equity Documents. Without limiting the foregoing, Executive acknowledges that the Restricted Stock Unit grant made to Executive on May 22, 2023 was made in consideration of Executive’s intention to enter into this Agreement, and shall be governed by the Equity Documents applicable to such grant.
3.dEmployer Executive Benefits. Executive shall be entitled to participate in Employer’s group health, life, and disability insurance plans and any and all other employee benefits, including 401(k) and deferred compensation plans, pursuant to the terms of the applicable benefit plans and to the same extent and on the same basis as Employer’s other senior executives. Employer shall pay the costs for group health, life, and disability insurance plans and all other employee benefits for Executive and any spouse or domestic partner and children of Executive to the same extent that it pays for the costs for other senior executive of Employer.
3.eReimbursement for Business Expenses. Employer shall reimburse Executive for any and all reasonable business expenses that Executive incurs from time to time in the performance of her duties under this Agreement, including authorized business expenses incurred by Executive at the request of, or on behalf of, Employer, in accordance with Employer’s policies and subject to any reporting and documentation requirements set forth in such policies. Employer shall also pay the reasonable costs for electronic communication devices, including smart phones and/or portable computer devices reasonably necessary for the performance of Executive’s duties under this Agreement, including any service plans related thereto.
3.fVacation. Executive shall be eligible for the same vacation benefits offered to other senior executives of Employer. The scheduling of vacation shall be consistent with Employer’s vacation policy and operational needs.
4.ARTICLE 4 – TERMINATION
4.aTermination. Either party shall have the right to terminate this Agreement before the expiration of the Term, subject to the terms of this Article 4, and with the consequences described in this Agreement.
3
4.bTermination for Cause by Employer. Executive’s employment may be terminated by Employer for Cause (as defined below) at any time (subject to any opportunities to cure set forth in such definition), upon delivery to Executive of written notice (and effective on the date such notice is given unless another date is specified in such notice). If Executive is terminated for Cause, Employer shall pay to Executive (a) any Salary due under Section 3.1 to the date of termination, (b) benefits set forth in Section 3.5, if any, to the date of termination, (c) all accrued but unused and unpaid vacation due under Section 3.7 to the date of termination, and (d) expenses reimbursable under Section 3.6 incurred but not yet reimbursed to Executive to the date of termination. Executive shall have no right to receive any further compensation or benefits otherwise payable under any other provision of this Agreement. For purposes of this Agreement, Termination for “Cause” shall mean the termination of Executive’s employment for any of the following reasons: (i) refusal by the Executive to materially perform her duties hereunder (other than any such failure or refusal resulting from her incapacity due to physical or mental illness), provided, however, that Employer shall provide Executive with written notice of such refusal and Executive shall not have substantially remedied such failure or refusal within thirty (30) days after such written notice is given; (ii) the commission by Executive of any material act of dishonesty or breach of trust or gross misconduct or gross negligence in connection with the performance of her duties hereunder; (iii) a conviction of, or pleading guilty or no contest to, any felony or any crime having as its predicate element fraud, dishonesty, or misappropriation; (iv) any act or omission aiding or abetting a competitor, supplier or customer of Employer to the material disadvantage or detriment of Employer, (v) Executive’s material failure to comply with one or more of the material policies of the Employer (including any applicable code of conduct or ethics, policies relating to sexual harassment or business conduct) or Executive’s material breach of her obligations under this Agreement or under the CPIN Agreement, provided, however, that Employer shall provide Executive with written notice of such breach and Executive shall not have substantially cured such breach (if curable) within thirty (30) days after such written notice is given. For purposes of this paragraph, no failure or refusal on the part of Executive shall be deemed “willful” if done, or omitted to be done, by Executive in the reasonable belief that her failure or refusal was in the best interest of Employer or that the requested act was unlawful.
4.cTermination Without Cause by Employer. Employer may terminate Executive’s employment without Cause upon notice to Executive provided in accordance with Section 4.7. If Employer terminates Executive’s employment without Cause at any time during Executive’s employment, including without limitation any notice by Employer of non-extension or intent to terminate under Sections 1.2 and 4.3 of this Agreement, Employer shall pay to Executive (a) the same payments and benefits set forth in Section 4.2 and, in addition thereto, subject to Executive’s compliance with the obligations in the last sentence of this Section 4.3, (b) Salary for 12 months following termination of employment, paid in normal payroll installments consistent with Employer’s payroll practices as in effect from time to time; (c) if Executive timely elects health insurance continuation coverage (“COBRA Coverage”) under Employer’s group health plan pursuant to Section 4980B of the Internal Revenue Code and Part 6 of Subtitle B of Title I of ERISA, and so long as Executive abides at all times by the requirements of COBRA, Employer will pay the cost of Executive’s COBRA premiums for the 12 months following termination of employment (subject to the remainder of this Section 4.3); and (d) a pro-rated Annual Bonus for the year in which the termination of employment occurs, based on the Employer’s performance during such year, pro-rated based on the number of days elapsed during such year prior to termination of employment, which shall be paid on the date on which annual bonuses are paid to other senior executives of Employer for such year (items (b), (c) and (d), referred to herein as, the “Severance”). Notwithstanding anything to the contrary herein, Executive’s COBRA Coverage shall terminate when Executive becomes eligible under any employee benefit plan made available by another employer covering substantially similar health and dental benefits. Executive shall notify Employer within ten (10) days after becoming eligible for any such benefits. It is agreed and understood that Executive shall be entitled to
4
receive the Severance if and only if within sixty (60) days following termination of employment (the “Release Period”) Executive has executed and delivered to Employer the General Release substantially in the accordance with Employer’s standard release form (the “General Release”), a form of which is attached hereto as Exhibit “A,” and the General Release has become effective, and so long as Executive has not revoked or breached the provisions of the General Release or breached any of the provisions of Articles 6, and/or 8 hereof, including the provisions of the CPIN Agreement. In the event that the Release Period includes two calendar years, the Severance payments shall be made in the second calendar year.
4.dTermination for Good Reason by Executive. Executive may voluntarily terminate her employment at any time for Good Reason (as defined below) upon written notice to Employer (and effective on the date such notice is given unless another date is specified in such notice). In the event of any such termination for Good Reason by Executive, Employer shall pay and provide to Executive the same payments and benefits as are set forth in Section 4.3, above and on the same terms and conditions as if Executive had been terminated by Employer without Cause. For purposes of this Agreement, a termination for “Good Reason” shall mean the termination by Executive of Executive’s employment for any of the following reasons occurring without Executive’s prior written consent, provided Executive has not previously been notified in accordance with the notice provisions of this Agreement of Employer’s intention to terminate Executive’s employment: (a) assigning to her duties materially inconsistent with her position, title, authority, or duties which results in a material diminution of such position, title, authority or duties; provided, however, that Executive has given written notice to Employer within sixty (60) days after the first occurrence of such event or, if later, ten (10) days after the most recent occurrence, which has not be remedied by Employer within thirty (30) days and Executive has performed her reasonable duties during such notice period and prior to any cure; (b) Employer’s direction to Executive to engage in any unlawful act or act of dishonesty, provided, however, that Executive has given written notice to Employer within sixty (60) days after the first occurrence of such event or, if later, ten (10) days after the most recent occurrence, which has not been remedied by Employer within thirty (30) days; or (c) Employer’s material breach of its obligations under this Agreement, provided, however, that Executive shall provide Employer with written notice within sixty (60) days after the first occurrence of such breach or, if later, ten (10) days after the most recent occurrence and Employer shall not have substantially cured such breach (if curable) within thirty (30) days after such written notice is given. Notwithstanding the foregoing, in order to resign for Good Reason, Executive must resign from all positions Executive then holds with Employer, effective not later than sixty (60) days after the expiration of the cure period if such event is not reasonably cured within such period. Any actions taken by Employer to accommodate a disability of Executive or pursuant to the Family and Medical Leave Act shall not be a Good Reason for purposes of this Agreement. For the avoidance of doubt, any such resignation(s) shall have no effect on Executive’s rights as a shareholder of Employer.
4.eTermination Without Good Reason by Executive. Executive may terminate her employment without Good Reason upon notice to Employer given in accordance with Section 4.7. If Executive terminates her employment without Good Reason, including without limitation any notice by Executive of non-extension or intent to terminate under Sections 1.2 or 4.5 of this Agreement, Employer shall pay and provide to Executive an amount equivalent to that set forth in Section 4.2, above.
4.fTermination by Employer for Death or Disability. Executive’s employment shall terminate immediately upon Executive’s death without notice. Employer may terminate Executive’s employment upon the date of termination specified in a written notice of termination by reason of Executive’s illness, incapacity or injury which results in Executive’s absence from her duties with Employer or failure to render the services contemplated by this Agreement for three (3) consecutive calendar months, or for shorter periods aggregating four (4)
5
calendar months in any twelve (12) month period. Prior to any termination under this paragraph for any reason other than death of Executive, Employer shall provide thirty (30) days’ prior written notice of its intent to terminate under this paragraph. Executive may then provide medical certification within the 30-day notice period that he will be able to and intends to perform her duties as set forth in this Agreement. If, within the 30-day notice period, Executive provides such medical certification and commences and/or continues to perform her duties under this Agreement, Employer shall not terminate this Agreement under this paragraph. For any termination of employment under this Section 4.6, Executive shall be entitled to the same payments and benefits set forth in Section 4.2, above.
4.gTermination Date. Except as provided specifically above, any termination under this Article 4 shall be effected by not less than sixty (60) days’ advance written notice, or, at Employer’s option, pay in lieu of such notice. The effective date of the termination (the “Termination Date”) shall be the date specified in such notice of such termination or, if no date is so specified, the date that is the sixtieth day after the date notice is given. Notices shall be given in accordance with Section 8.8 of this Agreement.
5.ARTICLE 5 – SECTION 409A COMPLIANCE
5.aIntent. The intent of the Parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. In no event whatsoever shall Employer be liable for any additional tax, interest or penalty that may be imposed on Executive by Code Section 409A.
5.bSpecified Employee. Notwithstanding any other payment schedule provided herein to the contrary, if Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment shall be made on the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of such “separation from service” of Executive, and (ii) the date of Executive’s death (the “Delay Period”) to the extent required under Code Section 409A. Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 5.2 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to Executive in a lump sum with interest accruing commencing on the date payment would have otherwise been made at the prime rate of interest most recently published in The Wall Street Journal as of such date, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.
5.cExpense Reimbursement Payments. All expenses or other reimbursements under this Agreement shall be made within a reasonable period of time following the satisfaction of Employer’s reasonable requirements with respect to reporting and documentation of such expenses, but in no event later than on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive (provided that if any such reimbursements constitute taxable income to Executive, such reimbursements shall be paid no later than March 15th of the calendar year following the calendar year in which the expenses to be reimbursed were incurred), any right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit, and no such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year.
6
5.dInstallment Payments. For purposes of Code Section 409A, Executive’s right to receive any installment payment pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
6.ARTICLE 6 – CONFIDENTIAL AND PROPRIETARY INFORMATION AND NON-COMPETITION
6.aAs a condition of this Agreement, the grant provided for in Section 3.4, and the Executive’s employment with Employer, the Executive will execute the Confidential and Proprietary Information and Non-Competition Agreement in the form that has been provided herewith as Exhibit “B” based on comparable agreements with other senior executives of Employer (the “CPIN Agreement”) on or before the date on which this Agreement is signed, and Employer’s obligations hereunder, including the obligations to pay the Severance, are contingent on the Executive’s complying with such CPIN Agreement at all times as described therein.
7.ARTICLE 7 – COOPERATION AND CORPORATE OPPORTUNITIES
7.aCooperation. Upon the receipt of reasonable notice from Employer (including, without limitation, notice on behalf of Employer by its outside counsel), Executive agrees that while employed by Employer and, subject to Executive’s other business commitments, thereafter, Executive will respond and provide information with regard to matters in which Executive has knowledge as a result of Executive’s employment with Employer and will provide reasonable assistance to Employer, and affiliated entities and their respective representatives in defense of any claims that may be made against Employer or any affiliated entities of Employer, and will assist Employer and any affiliated entities in the prosecution of any claims that may be made by Employer or such affiliated entity, to the extent that such claims may relate to Executive’s employment or to Executive’s prior employment by Employer. Executive agrees to promptly inform Employer if Executive becomes aware of any lawsuits involving such claims that may be filed or threatened against Employer or any of Employer’s affiliated entities. Executive also agrees to promptly inform Employer (to the extent Executive is legally permitted to do so) if Executive is asked to assist in any investigation of Employer or any affiliated entities (or their respective actions), regardless of whether a lawsuit or other proceeding has then been filed against Employer or any affiliated entities with respect to such investigation, and shall not do so unless legally required. If Executive is required to provide any services pursuant to this Section 7.1 following the termination of Executive’s employment, upon presentation of appropriate documentation, Employer shall reimburse Executive for reasonable out-of-pocket expenses incurred in connection with the performance of such services. In addition, if and to the extent that Executive is required to devote more than two hours during a calendar year to fulfill the obligations set forth in this Section 7.1 at a time when he is no longer being compensated by Employer in any way, it will compensate Executive for such cooperation at an hourly rate based on Executive’s Salary during the last pay period of Executive’s active employment by the Employer.
7.bCorporate Opportunity. During the Term, Executive shall submit to Employer all bona-fide business, commercial and investment opportunities or offers presented to Executive or to which Executive becomes aware which relate to Employer’s business or the business of any of Employer’s affiliated entities at any time during such employment (“Corporate Opportunities”). Unless approved by Employer, Executive shall not accept or pursue, directly or indirectly, any Corporate Opportunities on Executive’s own behalf.
8.ARTICLE 8 – MISCELLANEOUS
8.aTax Withholding. Employer is authorized to withhold from any payment or benefit provided hereunder, the amount of withholding taxes due any federal, state or local
7
authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of Employer to satisfy all obligations for the payment of such withholding taxes. In the event Employer does not make such deductions or withholdings, Executive shall indemnify Employer for any amounts paid with respect to any such taxes, together with any interest, penalties and related expenses thereto.
8.bKey Person Insurance. Employer, in the sole and absolute discretion of the Board, has the right throughout the term of Executive’s employment with Employer to obtain or increase insurance on Executive’s life in such amount as the Board determines, in the name of Employer or an affiliated entity chosen by the Board for Employer’s sole benefit. Any insurance obtained by the Board or the Employer for the Executive will be communicated to the Executive prior to any final purchase. Upon reasonable advance notice, Executive will cooperate in any and all necessary physical examinations without expense to Executive, supply information, and sign documents, and otherwise cooperate fully with Employer as Employer may request in connection with any such insurance. Executive further agrees, on behalf of himself and her estate, heirs, successors and assigns (collectively, the “Executive Estate”), that the Executive Estate shall have no interest in or rights to receive the benefits of, any key person life insurance policy covering the life of the Executive which is purchased by Employer or an affiliated entity and names Employer or an affiliated entity as the beneficiary under such policy.
8.cSeverable Provisions. The provisions of this Agreement are separate and distinct, and if any provisions are determined to be invalid, void, unenforceable or against public policy, in whole or in part, the remaining provisions of this Agreement, and the enforceable parts of any partially invalid, void or unenforceable provisions or provisions partially against public policy, shall nevertheless remain in full force and effect and shall be enforceable. Any unenforceable provisions shall be severed.
8.dSuccessors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their personal or legal representatives, executors, administrators, heirs, distributes, devisees, legatees, and permitted successors and assigns. Executive may not assign or delegate her rights and duties under this Agreement.
8.eGoverning Law/Venue. This Agreement in all respects shall be governed by and interpreted in accordance with the laws of the state of Delaware, both procedural and substantive, without regard to conflicts of law, except to the extent that federal laws and regulations preempt otherwise applicable law. The Parties agree that any and all legal action that may arise out of or relate to this Agreement or Executive’s employment or termination of employment shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place other than the state of Delaware. The Parties agree that they will submit to the jurisdiction of the state of Delaware. Any appellate proceedings shall take place in the appropriate courts having appellate jurisdiction over the courts set forth in this paragraph.
8.fHeadings. Article and paragraph headings are not a part of this Agreement. They are included solely for convenience and reference, and they in no way define, limit, or describe the scope of this Agreement or the intent of any of its provisions.
8.gIntegration/Waiver. Except as set forth in this Section 8.7, this Agreement, including, without limitation, any documents expressly incorporated into it by the terms of this Agreement, constitutes the entire agreement between the Parties and supersedes all prior oral and written agreements, understandings, negotiations, and discussions relating to the subject matter of this Agreement. Any supplement, modification, waiver, or termination of this Agreement and the terms and conditions hereof is valid only if it is set forth in a writing signed by both Parties, or in the case of a waiver, by the Party waiving compliance. The waiver of any
8
provision of this Agreement shall not constitute a waiver of any other provisions and, unless otherwise stated, shall not constitute a continuing waiver.
8.hNotice. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been given (a) if personally delivered, when so delivered, (b) if mailed, three (3) days after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the party to whom it is directed at the address listed below, (c) if sent by reputable overnight courier for overnight delivery to the party to whom it is directed at the address listed below, one (1) business day after delivery to such courier, or (d) if given by electronic mail if sent during normal business hours of the recipient, and if not, then on the next business day:
If to Employer:
CAVA Group, Inc.
14 Ridge Square NW, Suite 500
Washington, DC 20016
Email: [***]
If to Executive:
Ted Xenohristos
[***]
[***]
Email: [***]
In order for a Party to change its address or other information for the purpose of this Section, the Party must first provide notice of that change in the manner required by this Section.
8.iCounterparts. This Agreement may be executed in counterparts (including, but not limited to, by electronic means such as .PDF), each of which shall be deemed an original, but all of which shall constitute one and the same instrument.
[Signature Page Follows]
9
EACH PARTY ACKNOWLEDGES that it or he has had an opportunity to negotiate, carefully consider, and receive advice of counsel on the terms of this Agreement before signing it.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of August 10, 2023.
Employer:
CAVA Group, Inc.
By: /s/ Robert Bertram
Its: Chief Legal Officer
Executive:
/s/ Ted Xenohristos
Ted Xenohristos
Signature Page to Employment Agreement (Ted X)
Exhibit A
Form of General Release
GENERAL RELEASE
THIS GENERAL RELEASE (this “General Release”) is made between CAVA Group, Inc. (“Employer”) and Ted Xenohristos (“Executive”) (together, the “Parties” and each a “Party”) effective as of _____________________ (the “Effective Date”).
WHEREAS, Executive and Employer entered into an Employment Agreement dated August 10, 2023 and effective as of May 22, 2023 (the “Employment Agreement”).
WHEREAS, pursuant to Section 5.3 of the Employment Agreement, in the event of a termination of employment of Executive under such section, Executive shall be entitled to receive Severance (as defined in the Employment Agreement) if and only if within the Release Period (as defined in the Employment Agreement) Executive has executed and delivered to Employer an effective form of this General Release, among any other conditions as more particularly set forth in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, Employer and Executive hereby agree as follows:
1.General Release. Executive expressly acknowledges that the payments and benefits set forth in the Employment Agreement shall be in lieu of any other termination or severance payments or other benefits of any kind or to which Executive may claim, all of which are fully waived and released by Executive. Executive acknowledges that Employer shall have no further financial or benefit obligations once the Employer has fulfilled its obligations as detailed in the Employment Agreement. Except for any claims that cannot be released under applicable law, Executive, on behalf of Executive and Executive’s heirs, executors, representatives, administrators, agents, insurers, and assigns (collectively, the “Releasor Parties”), knowingly and voluntarily release and forever discharge Employer and Employer’s parents, subsidiaries, affiliates, predecessors, successors, and assigns, and each of its and their respective agents, officers, directors, employees, in their corporate and individual capacities (collectively, the “Released Parties”), from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present through the Effective Date and whether known or unknown, suspected, or claimed against any of the Released Parties which any of the Releasor Parties may have, which arise out of or are connected with Executive’s employment with, or Executive’s separation or termination from, Employer, including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act (the “OWBPA”) (the “ADEA”); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or any their state or local counterparts; or any other federal, state or local civil or human rights law, or any other local, state, or federal law, regulation or ordinance; or any public policy, contract or tort, or common law; or any policies, practices or procedures of Employer; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in any of the foregoing matters) (all of
11
the foregoing collectively, the “Claims”). The Releasor Parties acknowledge that Executive has (i) received all compensation due to Executive as a result of services performed for Employer with the receipt of Employer’s final paycheck; (ii) reported to Employer any and all work-related injuries or occupational disease incurred by Executive during Executive’s employment by Employer; (iii) been properly provided any leave requested under the Family and Medical Leave Act or similar state or local laws and has not been subjected to any improper treatment, conduct or actions due to a request for or taking such leave; (iv) provided Employer with written notice of any and all concerns regarding material ethical and compliance issues or violations on the part of any of the Released Parties; and (v) not filed any complaints, claims, or actions against any of the Released Parties. The Releasor Parties agree that if any of the Releasor Parties violate this General Release in any action against any of the Released Parties, such Releasor Parties agree to pay all costs and expenses of defending against such action incurred by such Released Parties, including reasonable attorneys’ fees, costs and related expenses.
2.Exclusions. This General Release shall not apply to (a) any claim under the workers compensation or unemployment compensation statutes or any other claim, which, as a matter of law, cannot be released by private agreement, (b) any claims or rights that may arise from events that occur after the date that Executive signs this General Release, (c) any rights to vested benefits, such as pension or retirement benefits, the rights to which are governed by the terms of the applicable plan documents and award agreements, (d) indemnification rights that any of the Releasor Parties has against Employer pursuant to a written agreement, or (e) any claims or rights that cannot be waived by law. Furthermore, nothing in this General Release (a) limits or affects any of the Releasor Parties’ rights to challenge the validity of this General Release under the ADEA or the OWBPA, (b) prevents any of the Releasor Parties from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board, the Securities and Exchange Commission, or any other federal, state or local agency charged with the enforcement of any laws, or (c) prevents any of the Releasor Parties from exercising their rights under Section 7 of the National Labor Relations Act to engage in protected, concerted activity with other employees, although by signing this General Release, the Releasor Parties hereby waive their right to recover any individual relief (including any money damages, reinstatement or other legal or equitable relief) in any charge, complaint, or lawsuit or other proceeding brought by any of the Releasor Parties or on any of their behalf by any third party, except where such a waiver is prohibited.
3.Miscellaneous. This General Release constitutes the entire agreement and understanding of the Parties and supersedes all prior negotiations and/or agreements, proposed or otherwise, written or oral, concerning the subject matter hereof. No modification of this General Release shall be binding unless in writing and signed by each of the parties hereto. If any provision of this General Release is declared or determined by any court to be illegal or invalid, then the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this General Release. The failure or refusal of a Party to insist upon strict compliance with any of the terms of this General Release upon the occurrence of a breach by the other Party shall not be considered to be a waiver of any such terms nor shall it affect the right of such Party to insist upon strict compliance herewith at any time thereafter. This General Release shall be governed by and construed and performed in accordance with the laws of the State of Delaware without reference to conflict of laws principles. The Parties agree that any and all legal action that may arise out of or relate to this General Release shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place other than the State of Delaware. In the event an ambiguity or question of intent or interpretation arises, this General Release shall be construed as if drafted together by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of authorship of any provision of this General Release. In entering into this General Release, the
12
Parties acknowledge that they have had ample opportunity to receive advice from attorneys of their own choosing and that the terms hereof are fully understood and voluntarily accepted by each such Party. This General Release may be executed in two or more counterparts (including electronic counterparts, such as portable document format (PDF) counterparts), each of which shall be deemed to be an original, and all of which together shall constitute one and the same agreement.
[Signature Page Follows]
13
IN WITNESS WHEREOF, the Parties hereto have caused this General Release to be executed as of ___________________, 202__.
Employer:
CAVA Group, Inc.
By:
Its:
Executive:
Ted Xenohristos
Exhibit B
Form of Confidential and Proprietary Information and Non-Competition Agreement
CONFIDENTIAL AND PROPRIETARY INFORMATION
AND NON-COMPETITION AGREEMENT
I, Ted Xenohristos, in consideration of the terms and conditions of my employment agreement with CAVA Group Inc. (“Company”) dated August 10, 2023 and effective as of May 22, 2023 (the “Employment Agreement”), and the compensation and other consideration that may hereafter be paid to me, agree to the following:
1. EMPLOYEE WARRANTIES
I represent and warrant that: (i) I am free to enter into the terms of this Confidential And Proprietary Information And Non-Competition Agreement (“Agreement”); (ii) I have no obligations inconsistent with the terms and conditions of the Employment Agreement or this Agreement; (iii) my performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by Company; (iv) I have not and will not disclose any such confidential information to Company; and (v) I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
I agree to: (i) devote my entire business time, attention, and energies to the business of Company and its operation, (ii) faithfully and competently perform all duties in connection with my employment, (iii) comply with Company’s policies and procedures, and (iv) not take any steps or engage in any actions to prepare to compete with Company while I am an employee of Company.
2. NO ASSURANCES OF CONTINUED EMPLOYMENT
I understand and agree that nothing in this Agreement or any discussions I have had with Company or any of its representatives shall be construed to give me any right or assurance of continued employment by Company beyond any terms and conditions of the Employment Agreement.
3. CONFLICTING EMPLOYMENT
I agree that during the term of my employment with Company I will not engage in any other employment, occupation, consulting or other business activity related to the business in which Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to Company.
4. CONFIDENTIAL NATURE; PUBLIC STATEMENTS
4.1 I shall keep confidential the terms of this Agreement except to the extent such terms become known or available to the public other than by my act(s) or omission(s) in breach of this Agreement. A breach of this confidentiality undertaking shall relieve Company of any of its undertakings and obligations set forth herein.
4.2 The provisions of Subsection 4.1 notwithstanding, it shall not be deemed a violation of my duty to keep the terms hereof confidential should:
(i) disclosure be compelled by applicable law or by order of either a court of competent jurisdiction or governmental or administrative authority; or
(ii) disclosure of this Agreement be made by me to members of my immediate family, or to professionals consulted by me for advice regarding this Agreement, including, without limitation, lawyers and certified public accountants; provided that any person to whom such disclosure is authorized shall agree to be bound by the terms of Section 4.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION
5.1 I understand and acknowledge that in the course of my employment, I have received and/or will receive and/or may receive and/or have access to certain "Confidential Information" (as defined below) of Company. I hereby acknowledge that such Confidential Information constitutes a valuable and proprietary asset of Company which Company desires to protect.
5.2 For purposes of this Agreement, “Confidential Information” shall include, but not be limited to, the following: this Agreement; trade secrets; operating techniques, procedures and methods; product specifications; customer lists and customer information (including, but not limited to catering customers and credit card information); customer information (including, but not limited to, credit card information); account information; price lists; discount schedules; budgets; correspondence with customers (including, but not limited to catering customers), vendors, competitors, employees, partners, franchisees or any other entity or person; drawings; software; samples; leads from any source; marketing techniques; procedures and methods; employee lists; internal financial reports (including, but not limited to, internal sales and/or profit and loss reports) of Company and its affiliates and/or franchisees; sourcing lists; recruiting lists; Company strategies, business plans, or research; and any other such proprietary information, but shall not include any such information which has become generally known to or available for use by the public other than by my act(s) or omission(s).
5.3 I agree that during the term of this Agreement and at any time thereafter, I will not, without the written authorization of Company or except as permitted under this Agreement: (i) disclose any Confidential Information to any person or entity for any purpose whatsoever; or (ii) make use of any Confidential Information for my own purposes or for the benefit of any other person or entity, other than Company, and it is expressly understood and agreed that this prohibition restricts me from using any Confidential Information in competition with Company at any time. I understand that I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
5.4 I understand that my obligations under this Section 5 are in addition to, and not in limitation of, my obligations under Company’s policies and procedures.
5.5 I agree that all Work Product (defined below) and Intellectual Property Rights (defined below) shall be the sole and exclusive property of Company. “Work Product” means all writings, inventions, discoveries, ideas and other work product of any nature whatsoever that I create on my own or in collaboration with others during my employment with Company and that relates to the business, contemplated business, research or development of Company. “Intellectual Property Rights” means all rights in and to copyrights, trade secrets, trademarks (and related goodwill), patents and other intellectual property rights arising out of the Work Product, in any jurisdiction throughout the world, and all related rights of priority under international conventions. I acknowledge that, by reason of being employed by Company, all of the Work Product is, to the extent permitted by law, “work made for hire” as defined in the Copyright Act of 1976 (17 U.S.C. § 101) and is the property of Company. To the extent that any Work Product is not “work made for hire,” I hereby irrevocably assign to Company, for no additional consideration, my entire right, title and interest in and to all Work Product and Intellectual Property Rights therein. During and after my employment, I agree to reasonably cooperate with Company to (i) apply for, obtain, perfect and transfer to Company the Work Product and any Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (ii) maintain, protect and enforce the same. I hereby irrevocably grant Company power of attorney to execute and deliver any such documents on my behalf and in my name and to do all other lawfully permitted acts to transfer the Work Product to Company and further the transfer, issuance, prosecution and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, in the event that I do not promptly cooperate with Company’s
request. The power of attorney is coupled with an interest and shall not be affected by my subsequent incapacity.
6. COVENANTS NOT TO COMPETE
6.1 I covenant and agree that I will not engage in any “Competitive Activity” (as defined below) at any time during my employment with Company and/or within the twelve (12) month period following the date of my termination from Company for any reason or no reason and I agree that these restrictions are reasonable and appropriate for purposes of protecting Company’s legitimate business interests.
6.2 “Competitive Activity” shall include the following:
(i) directly or indirectly being employed by, advising, consulting in, or acting in any way as an agent for any company listed on Attachment A (the “Listed Competitors”); or
(ii) directly or indirectly being employed by, advising, consulting in, or acting in any way as an agent for any entity engaged, in whole or in part, in any retail food establishment (including any fast food, fast casual or casual dining restaurant, home delivery, caterer or bakery) in which bowls and salads, combined, amount to at least twenty percent (20%) of “restaurant revenues,” excluding those restaurants where the customer orders from a server at the customer’s table; or
(iii) providing any services, directly or indirectly, to any division or direct or indirect parent company of any Listed Competitor (including the parent companies listed on Attachment A), or any Other Competitor, or to any other affiliated company of a Listed Competitor or Other Competitor; other than any entity that owns a minority interest in a Listed Competitor or Other Competitor solely as a passive investor, without any involvement in the management of such Listed Competitor or Other Competitor; or
(iv) having, or acquiring any interest in (whether as proprietor, partner, member, stockholder, consultant, officer, director, or any type of principal whatsoever) any Listed Competitor, Other Competitor or in any division, or direct or indirect parent company of any Listed Competitor or Other Competitor, except that the direct or indirect ownership of five percent (5%) or less of the stock of a company whose shares are listed on a national securities exchange or are quoted on the National Association of Securities Dealers Automated Quotation System shall not be deemed having or acquiring any such interest.
6.3 Both during the term of my employment with Company and at any time within the twenty-four (24) month period following my termination from Company for any reason or no reason, I hereby agree not to directly or indirectly solicit or otherwise attempt to induce, influence, or encourage any employee, independent contractor, consultant, supplier, catering customer or franchisee of Company to terminate and/or modify in any way his/her and/or its employment or other such business relationship with Company and/or its affiliates.
6.4 For purposes of Section 6, references to “Other Competitor” shall mean the entity and/or entities described in 6.2 (ii).
6.5 For purposes of Section 6, references to “where Company is engaged in business” and/or “where Company is attempting to engage in business” and/or “where Company may reasonably be expected to engage in business”, shall mean any and/or all current and/or future franchisee operations as well as any current and/or future Company operations.
6.6 For purposes of Section 6.2(ii), reference to “restaurant revenues” shall mean all sales at retail including through catering and delivery. Such term does not include products sold as consumer packaged goods.
6.7 At any time, I may request a waiver, in whole or in part, of Section 6 by notifying Company in writing of my request. Within 15 days of my providing Company with all relevant information pertaining to such a waiver request and my providing such written information as Company may request regarding the potential violation of these covenants, Company, through the Chief Executive Officer and/or his/her designee, will consider such a request and communicate with me.
7. RETURN OF COMPANY DOCUMENTS; COOPERATION; NON-DISPARAGEMENT
7.1 When I leave the employ of Company, I will deliver to Company any and all drawings, notes, memoranda, specifications, devices, formulas, and any other documents pertaining to Company and/or Company’s business, including, but not limited to, computer files, together with all copies thereof, and any other material containing or disclosing any Confidential Information as defined in Section 5 above (collectively “such Documents”). The above shall include any and all such Documents contained on, for example, a home computer system. I further agree not to retain in any way any such Documents, and I will, for example, first return such Documents and then delete such Documents from any home computer system. I further agree that any property situated on Company’s premises and/or owned by Company, including
disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice.
7.2 I agree that during my employment and thereafter, at Company’s reasonable expense, I will do all things including, but not limited to, the giving of evidence in suits and other proceedings which Company shall deem necessary or appropriate to obtain, maintain or assert rights accruing to, and defending claims against, Company, its affiliates and/or franchisees in connection with which I have knowledge, information or expertise; provided, however, that Company shall not unreasonably disrupt my current employment and Company shall compensate me for the value of my time spent assisting in such matters at my then current compensation rate if I am not so compensated by my then current employer.
7.3 I agree that during my employment, and after my employment with Company ends for any reason, I will not make any false or disparaging statement(s) about Company, its affiliates, its employees, or its business to any other employees, customers, vendors or any other third party. I understand that nothing in this Agreement shall be construed to prohibit me from reporting alleged improper or unlawful conduct to, or participating in any investigation or proceeding conducted by, any federal or state government agency or self-regulatory agency.
8. REMEDIES
I acknowledge that Company’s remedy at law for a breach of Sections 4, 5, 6 and 7 of this Agreement would be inadequate, and I hereby expressly agree that Company shall be entitled to apply to any court, having jurisdiction, for an injunction restraining me in the event of a breach, actual or threatened, of the covenants contained in this Agreement without the necessity of proof of actual damages. Such right shall be in addition to any other remedies provided for in this Agreement, the Employment Agreement, the Option Agreement, or otherwise available at law or equity, including forfeiture of any severance and options. I further waive any requirement that a bond be posted or that irreparable damage be demonstrated as a condition to any injunctive relief. I further agree that to the extent permissible by applicable law the twelve (12) month and twenty-four (24) month time periods for the restrictive covenants set forth in Sections 6.1 and 6.3 of this Agreement shall be tolled for any period of time where I am in breach of Sections 6.1 and 6.3, and I understand that the periods of restriction shall be extended for a period equal to the period of time where I am in breach.
9. GOVERNING LAW/VENUE
This Agreement in all respects shall be governed by and interpreted in accordance with the laws of the state of Delaware, both procedural and substantive, without regard to conflicts of
law, except to the extent that federal laws and regulations preempt otherwise applicable law. The Parties agree that any and all legal action that may arise out of or relate to this Agreement or Executive’s employment or termination of employment shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place other than the state of Delaware. The Parties agree that they will submit to the jurisdiction of the state of Delaware. Any appellate proceedings shall take place in the appropriate courts having appellate jurisdiction over the courts set forth in this paragraph. In the event any litigation or similar proceeding arises with respect to any provision of this Agreement, the non-prevailing party to such litigation or similar proceeding shall reimburse the prevailing party for the reasonable costs and expenses (including reasonable attorneys’ and expert witness fees) thereof incurred in connection with such litigation or similar proceeding.
10. NOTICES
Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing.
(i) All notices to me shall be addressed to me at such other place(s) as I may designate by written notice to Company.
(ii) All notices to Company shall be addressed to the Company’s General Counsel or to such other place(s) as Company may designate by written notice to me.
11. NOTIFICATION OF NEW EMPLOYER
I agree that for twenty-four (24) months after termination of my employment with Company I will advise any prospective employer of the covenants and restrictions of this Agreement before accepting any offer from another employer and such notification shall not be a breach of Subsection 4.1.
12. DEATH
This Agreement and all obligations of Company hereunder shall terminate upon my death.
13. MISCELLANEOUS
13.1 No waiver by Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement shall be construed as a waiver of any other right. Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
13.2 In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, and each provision of this Agreement shall, if necessary, be deemed to be independent of each other and each supported by valid consideration. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
13.3 To the extent necessary to provide Company with the full and complete benefit of this Agreement, the provisions in this Agreement and my obligations hereunder shall survive the termination of this Agreement and shall not be affected by such termination. The provisions of this Agreement shall also survive the assignment of this Agreement by Company to any successor in interest or other assignee.
13.4 This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of Company, its successors, and its assigns.
13.5 The captions and headings throughout this Agreement are for convenience and reference only, and they shall in no way be held or deemed to define, modify or add to the meaning, scope or intent of any provision of this Agreement.
13.6 Except as otherwise contemplated in Subsection 5.4 hereof, this Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
13.7 This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original but all of which counterparts shall together constitute but one agreement.
13.8 By signing below, I acknowledge receiving a copy of this Agreement; I acknowledge and agree that I am entering into this Agreement voluntarily and of my own free will; and I acknowledge and agree that I have not been coerced or suffered any duress in order to induce me to enter into this Agreement.
13.9 This Agreement shall be effective as of the first date signed below.
14. ATTORNEY REVIEW
I acknowledge that I have been expressly advised by Company to review this Agreement with an attorney prior to executing it.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND THE MEANING OF ITS VARIOUS TERMS AND THE CONSEQUENCES OF SIGNING THIS AGREEMENT.
I HAVE BEEN GIVEN MORE THAN REASONABLE TIME TO CONSIDER AND ACCEPT THE CONDITIONS OF THIS AGREEMENT.
| /s/ Ted Xenohristos | ||
| Signature | ||
Aug 15, 2023 | ||
Date Ted Xenohristos | ||
| Name (typed or printed) | ||
ACCEPTED AND AGREED TO:
COMPANY
| By: | /s/ Robert Bertram | ||||
| Name: | Robert Bertram | ||||
| Title: | Chief Legal Officer | ||||
| Dated: | Aug 15, 2023 | ||||
Attachment A: Listed Competitors
•Chipotle
•Starbucks
•Sweetgreen
•Tender Greens
•Dig Inn
•Noodles and Co
•Honeygrow
•Mendocino Farms
•Lemonade
•Shake Shack
•Roti
•Naf Grill
•Luna Grill
•Garbanzo
•JAB Holding Company-owned companies, including but not limited to Panera/Au Bon Pain, KKD, Caribou/Einstein’s/Bruegger's/Noah's, Peets, Pret A Manger, Intelligentsia, Stumptown, and anything else created or acquired by JAB Holding Company
•Roark Capital Group or Inspire Brands-owned companies, including but not limited to Focus Brands, Jimmy John's, Applebee's, Arby’s, and Sonic.
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brett Schulman, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Cava Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.[Omitted];
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 15, 2023 | By: | /s/ Brett Schulman | ||||||
| Brett Schulman | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tricia Tolivar, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Cava Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.[Omitted];
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 15, 2023 | By: | /s/ Tricia Tolivar | ||||||
| Tricia Tolivar | ||||||||
| Chief Financial Officer (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Cava Group, Inc. (the “Company”) for the quarterly period ended July 9, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brett Schulman, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| August 15, 2023 | By: | /s/ Brett Schulman | ||||||
| Brett Schulman | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Cava Group, Inc. (the “Company”) for the quarterly period ended July 9, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tricia Tolivar, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| August 15, 2023 | By: | /s/ Tricia Tolivar | ||||||
| Tricia Tolivar | ||||||||
| Chief Financial Officer (Principal Financial Officer) | ||||||||