WEBVTT - Cava CEO & Co-Founder Brett Schulman Talks Earnings 0:00:02.520 --> 0:00:07.080 Bloomberg Audio Studios, Podcasts, radio news. 0:00:07.400 --> 0:00:10.440 A bad day for Kava, but it's been an incredible 0:00:10.440 --> 0:00:12.600 growth story since it went public and twenty four and 0:00:12.640 --> 0:00:13.240 we should. 0:00:13.039 --> 0:00:14.960 Point out despite some of the results, this is a 0:00:14.960 --> 0:00:17.720 company that is still growing and pleased to say, joining 0:00:17.800 --> 0:00:19.959 us here in Studio two in New York is the 0:00:20.000 --> 0:00:22.720 co founder and CEO of Kava, Fret Schulman. 0:00:22.840 --> 0:00:24.400 Great to have you, Thanks for having me. 0:00:24.520 --> 0:00:26.840 Two point one percent comp sales growth the street we're 0:00:26.880 --> 0:00:29.480 looking for almost trouble that basically about six percent. 0:00:29.560 --> 0:00:32.160 What happened well, when you zoom out on a two 0:00:32.200 --> 0:00:35.000 year basis, our same restaurant sales actually accelerated from Q 0:00:35.040 --> 0:00:36.800 one Q two, and on a three year basis, we 0:00:36.840 --> 0:00:39.680 grew traffic twenty percent in the quarter. In the quarter 0:00:39.720 --> 0:00:43.000 specifically this year, we were lapping very difficult compares, including 0:00:43.080 --> 0:00:45.760 last year's launch of steak, which was our most significant 0:00:45.800 --> 0:00:48.360 protein in a number of years, which led to a 0:00:48.400 --> 0:00:50.519 more pronounced impact on the quarterly results. 0:00:50.600 --> 0:00:52.560 When you say impact, that was on the bottom line 0:00:52.600 --> 0:00:55.720 though no no on on the same restaurant sales, So 0:00:55.840 --> 0:00:58.560 hurdling that high number on the bottom line on the. 0:00:58.480 --> 0:01:01.840 IBADA and restaurant level margin. We actually an endps. We 0:01:01.880 --> 0:01:03.600 actually beat estimates. 0:01:03.680 --> 0:01:05.560 But I am curious when you say that it affected. 0:01:05.800 --> 0:01:07.880 Was it that more people weren't coming in because of 0:01:08.280 --> 0:01:10.200 those offerings or they didn't feel like you had the 0:01:10.240 --> 0:01:11.120 right offerings for them? 0:01:11.160 --> 0:01:13.520 One, it was lapping the trial period. Marketing team did 0:01:13.560 --> 0:01:15.160 a great job. We had a tremendous trial. 0:01:15.240 --> 0:01:17.640 And then more about the comparison. Yeah, more about the comparison. 0:01:17.880 --> 0:01:20.759 I'm looking at the two year stacked same store sales 0:01:20.800 --> 0:01:24.560 growth on our MODL page here, and I see like 0:01:24.680 --> 0:01:28.399 ie popping growth in twenty twenty two sixty five percent, 0:01:28.440 --> 0:01:30.920 then in twenty twenty three thirty five percent, then in 0:01:30.920 --> 0:01:33.360 twenty twenty four to thirty three percent, and now our 0:01:33.400 --> 0:01:35.640 analysts are estimating twenty one percent for this year and 0:01:35.680 --> 0:01:38.440 fourteen percent for this year. So you see that trend 0:01:38.520 --> 0:01:40.920 is coming down. You can't continue to grow at the 0:01:40.959 --> 0:01:43.000 speed that you were. How do you deal with that 0:01:43.040 --> 0:01:44.000 as a public company. 0:01:44.160 --> 0:01:46.759 Yeah, we've grown our average INGDA volumes from two point 0:01:46.760 --> 0:01:48.840 three to three million dollars over the last few years. 0:01:48.880 --> 0:01:53.120 So those are very robust numbers, huge powerful unit economic model. 0:01:53.160 --> 0:01:57.120 We're free cash flow positive funding, eighteen percent plus unit 0:01:57.120 --> 0:01:59.760 growth so we're building a very robust culinary pipeline to 0:01:59.840 --> 0:02:02.840 keep that excitement, that newness and then take advantage of 0:02:02.840 --> 0:02:05.640 the massive white space opportunity of new unit growth. We've 0:02:05.640 --> 0:02:08.919 been growing about eighteen nineteen percent over four hundred restaurants 0:02:08.919 --> 0:02:11.200 now on our way to our next target of one 0:02:11.240 --> 0:02:14.680 thousand restaurants by twenty thirty two, so really delivering that 0:02:14.760 --> 0:02:17.000 powerful growth in union economic val But I'm. 0:02:16.840 --> 0:02:18.240 Hereus in terms of store openings. 0:02:18.280 --> 0:02:20.560 I mean that also was a metric that came in 0:02:20.639 --> 0:02:23.359 below street expectations that I am curious was there any 0:02:23.400 --> 0:02:26.360 slowdown in the plan roll out heading into that quarter. 0:02:26.600 --> 0:02:29.120 We actually raise our guidance for the full year to 0:02:29.280 --> 0:02:32.920 sixty eight to seventy restaurants, So we're going to outperform 0:02:32.960 --> 0:02:34.679 over deliver on the unit growth for the year. 0:02:35.160 --> 0:02:37.959 When you grow that fast, can you continue to grow 0:02:38.000 --> 0:02:40.080 the operating margin? This is a metric that continues to 0:02:40.080 --> 0:02:43.720 get bigger and bigger and bigger every year, right from 0:02:44.120 --> 0:02:46.960 basically nothing in twenty two and twenty three or negative 0:02:47.000 --> 0:02:50.160 two four and a half percent this year, maybe five 0:02:50.200 --> 0:02:52.639 percent next year, six percent the year after that. According 0:02:52.680 --> 0:02:54.480 to the estimates, I'm looking at, where do you want 0:02:54.480 --> 0:02:55.239 to see that number. 0:02:55.320 --> 0:02:57.080 Well, that's the power of the brand of the model, right, 0:02:57.120 --> 0:03:00.640 we keep steady positive same restaurant sales. Over the long term, 0:03:00.800 --> 0:03:03.960 we continue this exceptional unit growth and really start to 0:03:04.040 --> 0:03:08.640 drive that exponential growth of EBITA, of net income and 0:03:08.720 --> 0:03:11.320 ultimately EPs and free cash flow. You know, we've been 0:03:11.639 --> 0:03:14.400 driving free cash flow this year, even funding that eighteen 0:03:14.400 --> 0:03:17.000 percent unit growth, And that's the power of the economic model. 0:03:17.040 --> 0:03:19.440 Why we while we at the same time we're bringing 0:03:19.440 --> 0:03:21.519 our Mediterranean cuisine to communities across the country. 0:03:21.639 --> 0:03:23.640 There has been some debate as of late about just 0:03:23.680 --> 0:03:26.840 the business model of the type of fast casual or 0:03:26.840 --> 0:03:28.800 I don't know how we want to categorize it. We 0:03:28.840 --> 0:03:30.560 had earnings out of Sweet Green, which has a kind 0:03:30.600 --> 0:03:33.440 of a similar business model to Kava. They're having some 0:03:33.480 --> 0:03:35.760 issues and it's more about just the foot traffic, not 0:03:35.800 --> 0:03:38.400 necessarily just about costs and inputs and things like that, 0:03:38.440 --> 0:03:40.680 but the idea that maybe the price points are too 0:03:40.760 --> 0:03:43.440 high or people have just moved on to other types 0:03:43.480 --> 0:03:44.800 of ways to feed themselves. 0:03:44.840 --> 0:03:48.760 What are you see, Yeah, we're not seeing anything underneath 0:03:49.040 --> 0:03:52.200 structurally in the business fay thing. We're seeing greater structural strength. 0:03:52.640 --> 0:03:55.320 So when you think about how much we've grown over 0:03:55.360 --> 0:03:57.400 in recent years. You think about how we've been able 0:03:57.440 --> 0:04:00.440 to drive our value proposition. So in recent years we've 0:04:00.440 --> 0:04:03.320 now underpriced CPI by nine hundred basis points. So again, 0:04:03.480 --> 0:04:06.320 our value scores continue to improve. We continue to make 0:04:06.320 --> 0:04:09.200 our food more accessible and really try and mitigate any 0:04:09.200 --> 0:04:11.360 of the impacts of say tariffs, and not have to 0:04:11.400 --> 0:04:13.600 pass along to our guests. So in January we only 0:04:13.680 --> 0:04:16.680 took one point seven incremental menu price adjustment and we 0:04:16.720 --> 0:04:18.560 have no plans to take further price for the rest 0:04:18.600 --> 0:04:21.080 of the year. So continue to drive that overall value. 0:04:21.160 --> 0:04:23.760 And you know, when you look at our depart mix, right, 0:04:23.800 --> 0:04:27.480 we've got fifty percent lunch, fifty percent dinner. Roughly, we 0:04:27.520 --> 0:04:29.840 work in the suburbs, we work in this city. We 0:04:29.880 --> 0:04:32.160 cook with fire, We roasty girlry braves, so people can 0:04:32.200 --> 0:04:33.599 come to us for dinner, they can get a great 0:04:33.600 --> 0:04:36.320 meal for lunch. And then with our channel mix, we 0:04:36.400 --> 0:04:39.720 have sixty five percent in restaurant, thirty five percent digital, 0:04:40.000 --> 0:04:42.560 so people are accessing us for a quick digital order 0:04:42.640 --> 0:04:45.320 lunch or to sit down in the suburbs on Wednesday 0:04:45.400 --> 0:04:46.640 nights have a great family dinner. 0:04:46.760 --> 0:04:48.560 You said one point seven though on the take, and 0:04:48.640 --> 0:04:50.520 I am curious, does that mean that you're and you 0:04:50.720 --> 0:04:53.480 expect that not to increase. Does that mean you don't 0:04:53.480 --> 0:04:56.559 expect any material increase in your cost and the cost 0:04:56.560 --> 0:05:00.000 of the ingredients or the cost of labor. 0:05:00.040 --> 0:05:02.159 Well, that's a credit to our team, right, we're working 0:05:02.200 --> 0:05:05.160 to be more efficient and offset and mitigate that. Our 0:05:05.160 --> 0:05:07.880 restaurant level margin came in above expectations at twenty six 0:05:07.880 --> 0:05:10.800 point three percent, so I'll stand a unit economics where 0:05:10.800 --> 0:05:12.880 we didn't have to pass along any of those impacts 0:05:12.880 --> 0:05:14.960 we're seeing from Terrace because we're able to offset it 0:05:15.120 --> 0:05:16.359 in other areas of the business. 0:05:16.560 --> 0:05:20.120 I was talking with our lovely producer Finley while we 0:05:20.120 --> 0:05:21.760 were looking at your website and she saw that little 0:05:21.760 --> 0:05:24.320 peta keychain toy and she said, I have to have 0:05:24.360 --> 0:05:25.880 one of those. And I actually talked to somebody on 0:05:25.920 --> 0:05:28.400 the desk over here Bridget She also said that are 0:05:28.400 --> 0:05:30.680 really a hot trend. What's the story with that? 0:05:30.760 --> 0:05:32.640 Well, I've got a couple of Peter Chip plushies here 0:05:32.680 --> 0:05:35.680 with me that we can give to after the take. 0:05:36.000 --> 0:05:37.880 But you know, it's a way for us to again 0:05:37.920 --> 0:05:41.600 build emotional connection. We launched Peter Chip on National p today, 0:05:41.920 --> 0:05:44.920 and plushies are certainly hot, you know, the little Boo 0:05:44.920 --> 0:05:47.080 Boo craze, and it's a way for people to really 0:05:47.120 --> 0:05:49.080 connect with the brand and have a unique way to 0:05:49.120 --> 0:05:50.719 take a bit of kava homework. 0:05:50.760 --> 0:05:52.200 One of the other things I learned from bridget over 0:05:52.200 --> 0:05:54.520 here is that her sister is thinking about going to 0:05:54.560 --> 0:05:57.960 a cava near like a big successful bank and grabbing 0:05:57.960 --> 0:06:01.000 somebody else's order, so that that got calls her later. 0:06:01.279 --> 0:06:02.480 Have you heard of this sort of. 0:06:02.480 --> 0:06:05.719 Me cute smari, I have seen this, I have read 0:06:05.720 --> 0:06:08.480 about especially in the city, and you know, I think 0:06:08.520 --> 0:06:10.240 CoV is a great place to meet someone. And that's 0:06:10.279 --> 0:06:13.000 what we're about, human connection. That's why we're investing in 0:06:13.000 --> 0:06:15.520 our dining rooms. We've got projects sold to really enhance 0:06:15.839 --> 0:06:18.080 our experience in the dining room. So it's a place 0:06:18.080 --> 0:06:20.320 you want to come down, share a meal, or maybe meet. 0:06:20.279 --> 0:06:21.480 Us as key. That's key. 0:06:21.520 --> 0:06:24.880 You don't want to just be like a salad conveyor bill. 0:06:25.080 --> 0:06:26.760 You want to have a place where people want to 0:06:26.800 --> 0:06:28.320 hang out and occasionally, if they're not going to go 0:06:28.360 --> 0:06:30.760 back to the office, sit down and eat launch What I. 0:06:30.640 --> 0:06:33.599 Am curious about to that point though, because there's been 0:06:33.600 --> 0:06:35.480 a lot of talk about how do you reimagine stores 0:06:35.480 --> 0:06:37.600 like this. Of course, Starbucks, which kind of move to 0:06:37.680 --> 0:06:39.920 kind of a takeout model, is now sort of dialing 0:06:39.960 --> 0:06:41.560 that back and saying we want to be a place 0:06:41.560 --> 0:06:42.320 where people. 0:06:42.040 --> 0:06:44.760 Come and linger and sit. What do you want your 0:06:44.800 --> 0:06:45.520 customer to do? 0:06:45.640 --> 0:06:47.320 Yeah, we don't think it's an either or. We think 0:06:47.320 --> 0:06:48.960 it's an end. If you're in a hurry. We've got 0:06:49.000 --> 0:06:52.560 great digital channels, We've got sixty drive through pickup windows. 0:06:53.440 --> 0:06:55.400 But if you want a great physical experience, you can 0:06:55.440 --> 0:06:57.440 have that walk the line experience, see the food, smell 0:06:57.480 --> 0:06:59.560 the food, interact with our team members. Part of our 0:06:59.560 --> 0:07:02.400 brand as this is our Maditerranean hospitality. Our mission is 0:07:02.440 --> 0:07:04.400 to bring heart, health and humanity to food. So we 0:07:04.400 --> 0:07:06.160 want to deliver that humanity in the four walls of 0:07:06.160 --> 0:07:08.279 our restaurants and have a great environment for you to 0:07:08.400 --> 0:07:09.880 enjoy your madterranean meal. 0:07:09.840 --> 0:07:11.320 And maybe meet the love of your life. 0:07:11.400 --> 0:07:15.520 Yes, that's right. There you go making some connections there, Brett, 0:07:15.520 --> 0:07:17.560 thanks so much for coming. Really appreciated. Bres Shulman there. 0:07:18.040 --> 0:07:20.160 Kava co founder and CEO