Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: A bad day for Kava, but it's been an incredible
Speaker 2: growth story since it went public and twenty four and
Speaker 2: we should.
Speaker 3: Point out despite some of the results, this is a
Speaker 3: company that is still growing and pleased to say, joining
Speaker 3: us here in Studio two in New York is the
Speaker 3: co founder and CEO of Kava, Fret Schulman.
Speaker 1: Great to have you, Thanks for having me.
Speaker 3: Two point one percent comp sales growth the street we're
Speaker 3: looking for almost trouble that basically about six percent.
Speaker 4: What happened well, when you zoom out on a two
Speaker 4: year basis, our same restaurant sales actually accelerated from Q
Speaker 4: one Q two, and on a three year basis, we
Speaker 4: grew traffic twenty percent in the quarter. In the quarter
Speaker 4: specifically this year, we were lapping very difficult compares, including
Speaker 4: last year's launch of steak, which was our most significant
Speaker 4: protein in a number of years, which led to a
Speaker 4: more pronounced impact on the quarterly results.
Speaker 3: When you say impact, that was on the bottom line
Speaker 3: though no no on on the same restaurant sales, So
Speaker 3: hurdling that high number on the bottom line on the.
Speaker 4: IBADA and restaurant level margin. We actually an endps. We
Speaker 4: actually beat estimates.
Speaker 1: But I am curious when you say that it affected.
Speaker 3: Was it that more people weren't coming in because of
Speaker 3: those offerings or they didn't feel like you had the
Speaker 3: right offerings for them?
Speaker 4: One, it was lapping the trial period. Marketing team did
Speaker 4: a great job. We had a tremendous trial.
Speaker 1: And then more about the comparison. Yeah, more about the comparison.
Speaker 2: I'm looking at the two year stacked same store sales
Speaker 2: growth on our MODL page here, and I see like
Speaker 2: ie popping growth in twenty twenty two sixty five percent,
Speaker 2: then in twenty twenty three thirty five percent, then in
Speaker 2: twenty twenty four to thirty three percent, and now our
Speaker 2: analysts are estimating twenty one percent for this year and
Speaker 2: fourteen percent for this year. So you see that trend
Speaker 2: is coming down. You can't continue to grow at the
Speaker 2: speed that you were. How do you deal with that
Speaker 2: as a public company.
Speaker 4: Yeah, we've grown our average INGDA volumes from two point
Speaker 4: three to three million dollars over the last few years.
Speaker 4: So those are very robust numbers, huge powerful unit economic model.
Speaker 4: We're free cash flow positive funding, eighteen percent plus unit
Speaker 4: growth so we're building a very robust culinary pipeline to
Speaker 4: keep that excitement, that newness and then take advantage of
Speaker 4: the massive white space opportunity of new unit growth. We've
Speaker 4: been growing about eighteen nineteen percent over four hundred restaurants
Speaker 4: now on our way to our next target of one
Speaker 4: thousand restaurants by twenty thirty two, so really delivering that
Speaker 4: powerful growth in union economic val But I'm.
Speaker 1: Hereus in terms of store openings.
Speaker 3: I mean that also was a metric that came in
Speaker 3: below street expectations that I am curious was there any
Speaker 3: slowdown in the plan roll out heading into that quarter.
Speaker 4: We actually raise our guidance for the full year to
Speaker 4: sixty eight to seventy restaurants, So we're going to outperform
Speaker 4: over deliver on the unit growth for the year.
Speaker 2: When you grow that fast, can you continue to grow
Speaker 2: the operating margin? This is a metric that continues to
Speaker 2: get bigger and bigger and bigger every year, right from
Speaker 2: basically nothing in twenty two and twenty three or negative
Speaker 2: two four and a half percent this year, maybe five
Speaker 2: percent next year, six percent the year after that. According
Speaker 2: to the estimates, I'm looking at, where do you want
Speaker 2: to see that number.
Speaker 4: Well, that's the power of the brand of the model, right,
Speaker 4: we keep steady positive same restaurant sales. Over the long term,
Speaker 4: we continue this exceptional unit growth and really start to
Speaker 4: drive that exponential growth of EBITA, of net income and
Speaker 4: ultimately EPs and free cash flow. You know, we've been
Speaker 4: driving free cash flow this year, even funding that eighteen
Speaker 4: percent unit growth, And that's the power of the economic model.
Speaker 4: Why we while we at the same time we're bringing
Speaker 4: our Mediterranean cuisine to communities across the country.
Speaker 3: There has been some debate as of late about just
Speaker 3: the business model of the type of fast casual or
Speaker 3: I don't know how we want to categorize it. We
Speaker 3: had earnings out of Sweet Green, which has a kind
Speaker 3: of a similar business model to Kava. They're having some
Speaker 3: issues and it's more about just the foot traffic, not
Speaker 3: necessarily just about costs and inputs and things like that,
Speaker 3: but the idea that maybe the price points are too
Speaker 3: high or people have just moved on to other types
Speaker 3: of ways to feed themselves.
Speaker 4: What are you see, Yeah, we're not seeing anything underneath
Speaker 4: structurally in the business fay thing. We're seeing greater structural strength.
Speaker 4: So when you think about how much we've grown over
Speaker 4: in recent years. You think about how we've been able
Speaker 4: to drive our value proposition. So in recent years we've
Speaker 4: now underpriced CPI by nine hundred basis points. So again,
Speaker 4: our value scores continue to improve. We continue to make
Speaker 4: our food more accessible and really try and mitigate any
Speaker 4: of the impacts of say tariffs, and not have to
Speaker 4: pass along to our guests. So in January we only
Speaker 4: took one point seven incremental menu price adjustment and we
Speaker 4: have no plans to take further price for the rest
Speaker 4: of the year. So continue to drive that overall value.
Speaker 4: And you know, when you look at our depart mix, right,
Speaker 4: we've got fifty percent lunch, fifty percent dinner. Roughly, we
Speaker 4: work in the suburbs, we work in this city. We
Speaker 4: cook with fire, We roasty girlry braves, so people can
Speaker 4: come to us for dinner, they can get a great
Speaker 4: meal for lunch. And then with our channel mix, we
Speaker 4: have sixty five percent in restaurant, thirty five percent digital,
Speaker 4: so people are accessing us for a quick digital order
Speaker 4: lunch or to sit down in the suburbs on Wednesday
Speaker 4: nights have a great family dinner.
Speaker 3: You said one point seven though on the take, and
Speaker 3: I am curious, does that mean that you're and you
Speaker 3: expect that not to increase. Does that mean you don't
Speaker 3: expect any material increase in your cost and the cost
Speaker 3: of the ingredients or the cost of labor.
Speaker 4: Well, that's a credit to our team, right, we're working
Speaker 4: to be more efficient and offset and mitigate that. Our
Speaker 4: restaurant level margin came in above expectations at twenty six
Speaker 4: point three percent, so I'll stand a unit economics where
Speaker 4: we didn't have to pass along any of those impacts
Speaker 4: we're seeing from Terrace because we're able to offset it
Speaker 4: in other areas of the business.
Speaker 2: I was talking with our lovely producer Finley while we
Speaker 2: were looking at your website and she saw that little
Speaker 2: peta keychain toy and she said, I have to have
Speaker 2: one of those. And I actually talked to somebody on
Speaker 2: the desk over here Bridget She also said that are
Speaker 2: really a hot trend. What's the story with that?
Speaker 4: Well, I've got a couple of Peter Chip plushies here
Speaker 4: with me that we can give to after the take.
Speaker 4: But you know, it's a way for us to again
Speaker 4: build emotional connection. We launched Peter Chip on National p today,
Speaker 4: and plushies are certainly hot, you know, the little Boo
Speaker 4: Boo craze, and it's a way for people to really
Speaker 4: connect with the brand and have a unique way to
Speaker 4: take a bit of kava homework.
Speaker 2: One of the other things I learned from bridget over
Speaker 2: here is that her sister is thinking about going to
Speaker 2: a cava near like a big successful bank and grabbing
Speaker 2: somebody else's order, so that that got calls her later.
Speaker 2: Have you heard of this sort of.
Speaker 4: Me cute smari, I have seen this, I have read
Speaker 4: about especially in the city, and you know, I think
Speaker 4: CoV is a great place to meet someone. And that's
Speaker 4: what we're about, human connection. That's why we're investing in
Speaker 4: our dining rooms. We've got projects sold to really enhance
Speaker 4: our experience in the dining room. So it's a place
Speaker 4: you want to come down, share a meal, or maybe meet.
Speaker 1: Us as key. That's key.
Speaker 2: You don't want to just be like a salad conveyor bill.
Speaker 2: You want to have a place where people want to
Speaker 2: hang out and occasionally, if they're not going to go
Speaker 2: back to the office, sit down and eat launch What I.
Speaker 3: Am curious about to that point though, because there's been
Speaker 3: a lot of talk about how do you reimagine stores
Speaker 3: like this. Of course, Starbucks, which kind of move to
Speaker 3: kind of a takeout model, is now sort of dialing
Speaker 3: that back and saying we want to be a place
Speaker 3: where people.
Speaker 1: Come and linger and sit. What do you want your
Speaker 1: customer to do?
Speaker 4: Yeah, we don't think it's an either or. We think
Speaker 4: it's an end. If you're in a hurry. We've got
Speaker 4: great digital channels, We've got sixty drive through pickup windows.
Speaker 4: But if you want a great physical experience, you can
Speaker 4: have that walk the line experience, see the food, smell
Speaker 4: the food, interact with our team members. Part of our
Speaker 4: brand as this is our Maditerranean hospitality. Our mission is
Speaker 4: to bring heart, health and humanity to food. So we
Speaker 4: want to deliver that humanity in the four walls of
Speaker 4: our restaurants and have a great environment for you to
Speaker 4: enjoy your madterranean meal.
Speaker 1: And maybe meet the love of your life.
Speaker 2: Yes, that's right. There you go making some connections there, Brett,
Speaker 2: thanks so much for coming. Really appreciated. Bres Shulman there.
Speaker 2: Kava co founder and CEO