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