1 00:00:02,520 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:07,400 --> 00:00:10,440 Speaker 2: A bad day for Kava, but it's been an incredible 3 00:00:10,440 --> 00:00:12,600 Speaker 2: growth story since it went public and twenty four and 4 00:00:12,640 --> 00:00:13,240 Speaker 2: we should. 5 00:00:13,039 --> 00:00:14,960 Speaker 3: Point out despite some of the results, this is a 6 00:00:14,960 --> 00:00:17,720 Speaker 3: company that is still growing and pleased to say, joining 7 00:00:17,800 --> 00:00:19,959 Speaker 3: us here in Studio two in New York is the 8 00:00:20,000 --> 00:00:22,720 Speaker 3: co founder and CEO of Kava, Fret Schulman. 9 00:00:22,840 --> 00:00:24,400 Speaker 1: Great to have you, Thanks for having me. 10 00:00:24,520 --> 00:00:26,840 Speaker 3: Two point one percent comp sales growth the street we're 11 00:00:26,880 --> 00:00:29,480 Speaker 3: looking for almost trouble that basically about six percent. 12 00:00:29,560 --> 00:00:32,160 Speaker 4: What happened well, when you zoom out on a two 13 00:00:32,200 --> 00:00:35,000 Speaker 4: year basis, our same restaurant sales actually accelerated from Q 14 00:00:35,040 --> 00:00:36,800 Speaker 4: one Q two, and on a three year basis, we 15 00:00:36,840 --> 00:00:39,680 Speaker 4: grew traffic twenty percent in the quarter. In the quarter 16 00:00:39,720 --> 00:00:43,000 Speaker 4: specifically this year, we were lapping very difficult compares, including 17 00:00:43,080 --> 00:00:45,760 Speaker 4: last year's launch of steak, which was our most significant 18 00:00:45,800 --> 00:00:48,360 Speaker 4: protein in a number of years, which led to a 19 00:00:48,400 --> 00:00:50,519 Speaker 4: more pronounced impact on the quarterly results. 20 00:00:50,600 --> 00:00:52,560 Speaker 3: When you say impact, that was on the bottom line 21 00:00:52,600 --> 00:00:55,720 Speaker 3: though no no on on the same restaurant sales, So 22 00:00:55,840 --> 00:00:58,560 Speaker 3: hurdling that high number on the bottom line on the. 23 00:00:58,480 --> 00:01:01,840 Speaker 4: IBADA and restaurant level margin. We actually an endps. We 24 00:01:01,880 --> 00:01:03,600 Speaker 4: actually beat estimates. 25 00:01:03,680 --> 00:01:05,560 Speaker 1: But I am curious when you say that it affected. 26 00:01:05,800 --> 00:01:07,880 Speaker 3: Was it that more people weren't coming in because of 27 00:01:08,280 --> 00:01:10,200 Speaker 3: those offerings or they didn't feel like you had the 28 00:01:10,240 --> 00:01:11,120 Speaker 3: right offerings for them? 29 00:01:11,160 --> 00:01:13,520 Speaker 4: One, it was lapping the trial period. Marketing team did 30 00:01:13,560 --> 00:01:15,160 Speaker 4: a great job. We had a tremendous trial. 31 00:01:15,240 --> 00:01:17,640 Speaker 1: And then more about the comparison. Yeah, more about the comparison. 32 00:01:17,880 --> 00:01:20,759 Speaker 2: I'm looking at the two year stacked same store sales 33 00:01:20,800 --> 00:01:24,560 Speaker 2: growth on our MODL page here, and I see like 34 00:01:24,680 --> 00:01:28,399 Speaker 2: ie popping growth in twenty twenty two sixty five percent, 35 00:01:28,440 --> 00:01:30,920 Speaker 2: then in twenty twenty three thirty five percent, then in 36 00:01:30,920 --> 00:01:33,360 Speaker 2: twenty twenty four to thirty three percent, and now our 37 00:01:33,400 --> 00:01:35,640 Speaker 2: analysts are estimating twenty one percent for this year and 38 00:01:35,680 --> 00:01:38,440 Speaker 2: fourteen percent for this year. So you see that trend 39 00:01:38,520 --> 00:01:40,920 Speaker 2: is coming down. You can't continue to grow at the 40 00:01:40,959 --> 00:01:43,000 Speaker 2: speed that you were. How do you deal with that 41 00:01:43,040 --> 00:01:44,000 Speaker 2: as a public company. 42 00:01:44,160 --> 00:01:46,759 Speaker 4: Yeah, we've grown our average INGDA volumes from two point 43 00:01:46,760 --> 00:01:48,840 Speaker 4: three to three million dollars over the last few years. 44 00:01:48,880 --> 00:01:53,120 Speaker 4: So those are very robust numbers, huge powerful unit economic model. 45 00:01:53,160 --> 00:01:57,120 Speaker 4: We're free cash flow positive funding, eighteen percent plus unit 46 00:01:57,120 --> 00:01:59,760 Speaker 4: growth so we're building a very robust culinary pipeline to 47 00:01:59,840 --> 00:02:02,840 Speaker 4: keep that excitement, that newness and then take advantage of 48 00:02:02,840 --> 00:02:05,640 Speaker 4: the massive white space opportunity of new unit growth. We've 49 00:02:05,640 --> 00:02:08,919 Speaker 4: been growing about eighteen nineteen percent over four hundred restaurants 50 00:02:08,919 --> 00:02:11,200 Speaker 4: now on our way to our next target of one 51 00:02:11,240 --> 00:02:14,680 Speaker 4: thousand restaurants by twenty thirty two, so really delivering that 52 00:02:14,760 --> 00:02:17,000 Speaker 4: powerful growth in union economic val But I'm. 53 00:02:16,840 --> 00:02:18,240 Speaker 1: Hereus in terms of store openings. 54 00:02:18,280 --> 00:02:20,560 Speaker 3: I mean that also was a metric that came in 55 00:02:20,639 --> 00:02:23,359 Speaker 3: below street expectations that I am curious was there any 56 00:02:23,400 --> 00:02:26,360 Speaker 3: slowdown in the plan roll out heading into that quarter. 57 00:02:26,600 --> 00:02:29,120 Speaker 4: We actually raise our guidance for the full year to 58 00:02:29,280 --> 00:02:32,920 Speaker 4: sixty eight to seventy restaurants, So we're going to outperform 59 00:02:32,960 --> 00:02:34,679 Speaker 4: over deliver on the unit growth for the year. 60 00:02:35,160 --> 00:02:37,959 Speaker 2: When you grow that fast, can you continue to grow 61 00:02:38,000 --> 00:02:40,080 Speaker 2: the operating margin? This is a metric that continues to 62 00:02:40,080 --> 00:02:43,720 Speaker 2: get bigger and bigger and bigger every year, right from 63 00:02:44,120 --> 00:02:46,960 Speaker 2: basically nothing in twenty two and twenty three or negative 64 00:02:47,000 --> 00:02:50,160 Speaker 2: two four and a half percent this year, maybe five 65 00:02:50,200 --> 00:02:52,639 Speaker 2: percent next year, six percent the year after that. According 66 00:02:52,680 --> 00:02:54,480 Speaker 2: to the estimates, I'm looking at, where do you want 67 00:02:54,480 --> 00:02:55,239 Speaker 2: to see that number. 68 00:02:55,320 --> 00:02:57,080 Speaker 4: Well, that's the power of the brand of the model, right, 69 00:02:57,120 --> 00:03:00,640 Speaker 4: we keep steady positive same restaurant sales. Over the long term, 70 00:03:00,800 --> 00:03:03,960 Speaker 4: we continue this exceptional unit growth and really start to 71 00:03:04,040 --> 00:03:08,640 Speaker 4: drive that exponential growth of EBITA, of net income and 72 00:03:08,720 --> 00:03:11,320 Speaker 4: ultimately EPs and free cash flow. You know, we've been 73 00:03:11,639 --> 00:03:14,400 Speaker 4: driving free cash flow this year, even funding that eighteen 74 00:03:14,400 --> 00:03:17,000 Speaker 4: percent unit growth, And that's the power of the economic model. 75 00:03:17,040 --> 00:03:19,440 Speaker 4: Why we while we at the same time we're bringing 76 00:03:19,440 --> 00:03:21,519 Speaker 4: our Mediterranean cuisine to communities across the country. 77 00:03:21,639 --> 00:03:23,640 Speaker 3: There has been some debate as of late about just 78 00:03:23,680 --> 00:03:26,840 Speaker 3: the business model of the type of fast casual or 79 00:03:26,840 --> 00:03:28,800 Speaker 3: I don't know how we want to categorize it. We 80 00:03:28,840 --> 00:03:30,560 Speaker 3: had earnings out of Sweet Green, which has a kind 81 00:03:30,600 --> 00:03:33,440 Speaker 3: of a similar business model to Kava. They're having some 82 00:03:33,480 --> 00:03:35,760 Speaker 3: issues and it's more about just the foot traffic, not 83 00:03:35,800 --> 00:03:38,400 Speaker 3: necessarily just about costs and inputs and things like that, 84 00:03:38,440 --> 00:03:40,680 Speaker 3: but the idea that maybe the price points are too 85 00:03:40,760 --> 00:03:43,440 Speaker 3: high or people have just moved on to other types 86 00:03:43,480 --> 00:03:44,800 Speaker 3: of ways to feed themselves. 87 00:03:44,840 --> 00:03:48,760 Speaker 4: What are you see, Yeah, we're not seeing anything underneath 88 00:03:49,040 --> 00:03:52,200 Speaker 4: structurally in the business fay thing. We're seeing greater structural strength. 89 00:03:52,640 --> 00:03:55,320 Speaker 4: So when you think about how much we've grown over 90 00:03:55,360 --> 00:03:57,400 Speaker 4: in recent years. You think about how we've been able 91 00:03:57,440 --> 00:04:00,440 Speaker 4: to drive our value proposition. So in recent years we've 92 00:04:00,440 --> 00:04:03,320 Speaker 4: now underpriced CPI by nine hundred basis points. So again, 93 00:04:03,480 --> 00:04:06,320 Speaker 4: our value scores continue to improve. We continue to make 94 00:04:06,320 --> 00:04:09,200 Speaker 4: our food more accessible and really try and mitigate any 95 00:04:09,200 --> 00:04:11,360 Speaker 4: of the impacts of say tariffs, and not have to 96 00:04:11,400 --> 00:04:13,600 Speaker 4: pass along to our guests. So in January we only 97 00:04:13,680 --> 00:04:16,680 Speaker 4: took one point seven incremental menu price adjustment and we 98 00:04:16,720 --> 00:04:18,560 Speaker 4: have no plans to take further price for the rest 99 00:04:18,600 --> 00:04:21,080 Speaker 4: of the year. So continue to drive that overall value. 100 00:04:21,160 --> 00:04:23,760 Speaker 4: And you know, when you look at our depart mix, right, 101 00:04:23,800 --> 00:04:27,480 Speaker 4: we've got fifty percent lunch, fifty percent dinner. Roughly, we 102 00:04:27,520 --> 00:04:29,840 Speaker 4: work in the suburbs, we work in this city. We 103 00:04:29,880 --> 00:04:32,160 Speaker 4: cook with fire, We roasty girlry braves, so people can 104 00:04:32,200 --> 00:04:33,599 Speaker 4: come to us for dinner, they can get a great 105 00:04:33,600 --> 00:04:36,320 Speaker 4: meal for lunch. And then with our channel mix, we 106 00:04:36,400 --> 00:04:39,720 Speaker 4: have sixty five percent in restaurant, thirty five percent digital, 107 00:04:40,000 --> 00:04:42,560 Speaker 4: so people are accessing us for a quick digital order 108 00:04:42,640 --> 00:04:45,320 Speaker 4: lunch or to sit down in the suburbs on Wednesday 109 00:04:45,400 --> 00:04:46,640 Speaker 4: nights have a great family dinner. 110 00:04:46,760 --> 00:04:48,560 Speaker 3: You said one point seven though on the take, and 111 00:04:48,640 --> 00:04:50,520 Speaker 3: I am curious, does that mean that you're and you 112 00:04:50,720 --> 00:04:53,480 Speaker 3: expect that not to increase. Does that mean you don't 113 00:04:53,480 --> 00:04:56,559 Speaker 3: expect any material increase in your cost and the cost 114 00:04:56,560 --> 00:05:00,000 Speaker 3: of the ingredients or the cost of labor. 115 00:05:00,040 --> 00:05:02,159 Speaker 4: Well, that's a credit to our team, right, we're working 116 00:05:02,200 --> 00:05:05,160 Speaker 4: to be more efficient and offset and mitigate that. Our 117 00:05:05,160 --> 00:05:07,880 Speaker 4: restaurant level margin came in above expectations at twenty six 118 00:05:07,880 --> 00:05:10,800 Speaker 4: point three percent, so I'll stand a unit economics where 119 00:05:10,800 --> 00:05:12,880 Speaker 4: we didn't have to pass along any of those impacts 120 00:05:12,880 --> 00:05:14,960 Speaker 4: we're seeing from Terrace because we're able to offset it 121 00:05:15,120 --> 00:05:16,359 Speaker 4: in other areas of the business. 122 00:05:16,560 --> 00:05:20,120 Speaker 2: I was talking with our lovely producer Finley while we 123 00:05:20,120 --> 00:05:21,760 Speaker 2: were looking at your website and she saw that little 124 00:05:21,760 --> 00:05:24,320 Speaker 2: peta keychain toy and she said, I have to have 125 00:05:24,360 --> 00:05:25,880 Speaker 2: one of those. And I actually talked to somebody on 126 00:05:25,920 --> 00:05:28,400 Speaker 2: the desk over here Bridget She also said that are 127 00:05:28,400 --> 00:05:30,680 Speaker 2: really a hot trend. What's the story with that? 128 00:05:30,760 --> 00:05:32,640 Speaker 4: Well, I've got a couple of Peter Chip plushies here 129 00:05:32,680 --> 00:05:35,680 Speaker 4: with me that we can give to after the take. 130 00:05:36,000 --> 00:05:37,880 Speaker 4: But you know, it's a way for us to again 131 00:05:37,920 --> 00:05:41,600 Speaker 4: build emotional connection. We launched Peter Chip on National p today, 132 00:05:41,920 --> 00:05:44,920 Speaker 4: and plushies are certainly hot, you know, the little Boo 133 00:05:44,920 --> 00:05:47,080 Speaker 4: Boo craze, and it's a way for people to really 134 00:05:47,120 --> 00:05:49,080 Speaker 4: connect with the brand and have a unique way to 135 00:05:49,120 --> 00:05:50,719 Speaker 4: take a bit of kava homework. 136 00:05:50,760 --> 00:05:52,200 Speaker 2: One of the other things I learned from bridget over 137 00:05:52,200 --> 00:05:54,520 Speaker 2: here is that her sister is thinking about going to 138 00:05:54,560 --> 00:05:57,960 Speaker 2: a cava near like a big successful bank and grabbing 139 00:05:57,960 --> 00:06:01,000 Speaker 2: somebody else's order, so that that got calls her later. 140 00:06:01,279 --> 00:06:02,480 Speaker 2: Have you heard of this sort of. 141 00:06:02,480 --> 00:06:05,719 Speaker 4: Me cute smari, I have seen this, I have read 142 00:06:05,720 --> 00:06:08,480 Speaker 4: about especially in the city, and you know, I think 143 00:06:08,520 --> 00:06:10,240 Speaker 4: CoV is a great place to meet someone. And that's 144 00:06:10,279 --> 00:06:13,000 Speaker 4: what we're about, human connection. That's why we're investing in 145 00:06:13,000 --> 00:06:15,520 Speaker 4: our dining rooms. We've got projects sold to really enhance 146 00:06:15,839 --> 00:06:18,080 Speaker 4: our experience in the dining room. So it's a place 147 00:06:18,080 --> 00:06:20,320 Speaker 4: you want to come down, share a meal, or maybe meet. 148 00:06:20,279 --> 00:06:21,480 Speaker 1: Us as key. That's key. 149 00:06:21,520 --> 00:06:24,880 Speaker 2: You don't want to just be like a salad conveyor bill. 150 00:06:25,080 --> 00:06:26,760 Speaker 2: You want to have a place where people want to 151 00:06:26,800 --> 00:06:28,320 Speaker 2: hang out and occasionally, if they're not going to go 152 00:06:28,360 --> 00:06:30,760 Speaker 2: back to the office, sit down and eat launch What I. 153 00:06:30,640 --> 00:06:33,599 Speaker 3: Am curious about to that point though, because there's been 154 00:06:33,600 --> 00:06:35,480 Speaker 3: a lot of talk about how do you reimagine stores 155 00:06:35,480 --> 00:06:37,600 Speaker 3: like this. Of course, Starbucks, which kind of move to 156 00:06:37,680 --> 00:06:39,920 Speaker 3: kind of a takeout model, is now sort of dialing 157 00:06:39,960 --> 00:06:41,560 Speaker 3: that back and saying we want to be a place 158 00:06:41,560 --> 00:06:42,320 Speaker 3: where people. 159 00:06:42,040 --> 00:06:44,760 Speaker 1: Come and linger and sit. What do you want your 160 00:06:44,800 --> 00:06:45,520 Speaker 1: customer to do? 161 00:06:45,640 --> 00:06:47,320 Speaker 4: Yeah, we don't think it's an either or. We think 162 00:06:47,320 --> 00:06:48,960 Speaker 4: it's an end. If you're in a hurry. We've got 163 00:06:49,000 --> 00:06:52,560 Speaker 4: great digital channels, We've got sixty drive through pickup windows. 164 00:06:53,440 --> 00:06:55,400 Speaker 4: But if you want a great physical experience, you can 165 00:06:55,440 --> 00:06:57,440 Speaker 4: have that walk the line experience, see the food, smell 166 00:06:57,480 --> 00:06:59,560 Speaker 4: the food, interact with our team members. Part of our 167 00:06:59,560 --> 00:07:02,400 Speaker 4: brand as this is our Maditerranean hospitality. Our mission is 168 00:07:02,440 --> 00:07:04,400 Speaker 4: to bring heart, health and humanity to food. So we 169 00:07:04,400 --> 00:07:06,160 Speaker 4: want to deliver that humanity in the four walls of 170 00:07:06,160 --> 00:07:08,279 Speaker 4: our restaurants and have a great environment for you to 171 00:07:08,400 --> 00:07:09,880 Speaker 4: enjoy your madterranean meal. 172 00:07:09,840 --> 00:07:11,320 Speaker 1: And maybe meet the love of your life. 173 00:07:11,400 --> 00:07:15,520 Speaker 2: Yes, that's right. There you go making some connections there, Brett, 174 00:07:15,520 --> 00:07:17,560 Speaker 2: thanks so much for coming. Really appreciated. Bres Shulman there. 175 00:07:18,040 --> 00:07:20,160 Speaker 2: Kava co founder and CEO