# CAVA GROUP, INC. (CAVA) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CAVA GROUP, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1639438/000162828024007277/cava-20231231.htm
Accession: 0001628280-24-007277
Filing date: 2024-02-27
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CAVA/
All MD&A years: /company/CAVA/mda/
Next year: /company/CAVA/mda/fy2024/ (FY 2024)

Item 7. 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 audited consolidated financial statements and the related notes included in Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. For a discussion of the year ended December 25, 2022 compared to December 26, 2021, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our prospectus dated June 14, 2023 as filed with the U.S. Securities and Exchange Commission on June 16, 2023. 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” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Overview

CAVA Group, Inc. (together with its wholly owned subsidiaries, referred to as the “Company,” “CAVA,” “we,” “us,” and “our” unless specified otherwise) was formed as a Delaware corporation in 2015, and prior to that, the first CAVA restaurant opened in 2011 in Bethesda, Maryland. The Company is headquartered in Washington, D.C. and, as of December 31, 2023, operates 309 fast-casual CAVA restaurants in 24 states and Washington, D.C. The number of CAVA restaurants excludes two locations operating under a licensing arrangement and digital kitchens. The Company’s authentic Mediterranean cuisine unites taste and health, with a menu that features chef-crated and customizable bowls and pitas. Our dips, spreads and dressings are centrally produced and sold in grocery stores.

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 March 2, 2023, we no longer operate any Zoes Kitchen locations. Our CPG operations are included in Other.

Initial Public Offering

On June 20, 2023, we completed an initial public offering (the “IPO”) of 16.6 million shares of common stock at a price of $22.00 per share, which included 2.2 million 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. In connection with the IPO, 95.2 million outstanding shares of preferred stock were converted into an equivalent number of shares of common stock. See Item 8. “Financial Statements and Supplementary Data”, Note 2 (Basis of Presentation and Significant Accounting Policies) and Note 9 (Redeemable Preferred Stock and Stockholders’ Equity) for more information.

Key Factors Affecting Our Business

We have continued to see growth in revenue due to our Net New CAVA Restaurant openings and strong CAVA Same Restaurant Sales Growth. CAVA Restaurant-Level Profit Margin increased to 24.8% in fiscal 2023 from 20.3% in fiscal 2022. The increase in CAVA Restaurant-Level Profit Margin was primarily driven by lower food, beverage, and packaging as a percentage of revenue, driven by lower input costs and higher incidence of premium menu items driving favorable product mix, as well as sales leverage, partially offset by incremental wage investments made in the fourth quarter of fiscal 2023. Consistent with the CAVA culture of investing in our Team Members, we made additional investments in restaurant labor during the fourth quarter of fiscal 2023.

In fiscal 2023, we successfully opened 72 Net New CAVA Restaurants, including 28 converted from Zoes Kitchen locations, and completed our Zoes Kitchen conversion strategy. We achieved these goals in the face of nationwide delays in construction permitting and increased construction costs.

Future operating and development results will be impacted by our ability to successfully expand our restaurant base and navigate challenges and uncertainties such as macroeconomic conditions including commodity inflation, mandated minimum wage increases, the impacts of COVID-19 or other such pandemics, and supply chain constraints.

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Fiscal Calendar and Seasonality

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. Fiscal year 2023 was a 53-week period that ended on December 31, 2023 and fiscal year 2022 was a 52-week period that ended on December 25, 2022.

Fiscal 2023 includes a 53rd week that is not included in fiscal 2022. We estimate the 53rd week contributed an increase of approximately $11 million to revenue and approximately $2.5 million to income from operations. Fiscal 2023 results for CAVA Same-Restaurant Sales Growth and CAVA AUV have been adjusted to exclude the 53rd week for comparability. See the subsections under “Key Performance Measures” for more information.

Historically, seasonal factors have caused our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth fiscal quarters due to reduced traffic as a result of colder temperatures and the holiday season. However, as we have expanded into new geographies, seasonal factors have had less of an impact on our revenue per restaurant, and we expect our results to continue to be less seasonal over time.

As a result of these factors and the differences among our fiscal quarters, our quarterly operating results and comparable restaurant sales, as well as our key performance measures, may fluctuate significantly from quarter to quarter and our results for any one quarter are not indicative of any other quarter.

Key Performance Measures

In assessing the performance of our business, in addition to considering a variety of measures in accordance with U.S. Generally Accepted Accounting Principles (“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.

The following table sets forth our key performance measures for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022","","Change"],["CAVA Revenue","$","717,060","","","$","448,594","","","$","268,466"],["CAVA Same Restaurant Sales Growth1","17.9","%","","14.2","%","","3.7","%"],["CAVA AUV2","$","2,639","","","$","2,398","","","$","241"],["CAVA Restaurant-Level Profit","$","177,488","","","$","91,093","","","$","86,395"],["CAVA Restaurant-Level Profit Margin","24.8","%","","20.3","%","","4.5","%"],["CAVA Restaurants3","309","","","237","","","72"],["Net New CAVA Restaurant Openings","72","","","73","","","(1)"],["CAVA Digital Revenue Mix","36.0","%","","34.5","%","","1.5","%"],["Net income (loss)","$","13,280","","","$","(58,987)","","","$","72,267"],["Adjusted EBITDA4","$","73,825","","","$","12,615","","","$","61,210"],["Net income (loss) margin","1.8","%","","(10.5)","%","","12.3","%"],["Adjusted EBITDA margin4","10.1","%","","2.2","%","","7.9","%"]]
[[/GREPCENT_TABLE]]

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__________________

1    CAVA Same Restaurant Sales Growth for fiscal 2023 is presented excluding the impact of the 53rd week.

2    For purposes of calculating CAVA AUV for fiscal 2023, the applicable measurement period is the trailing thirteen periods ended December 31, 2023, excluding the 53rd week. For purposes of calculating CAVA AUV for fiscal 2022, the applicable measurement period is the trailing thirteen periods ended December 25, 2022.

3    As of the end of the specified reporting period.

4    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. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue.

CAVA Revenue

CAVA Revenue represents all revenue attributable to CAVA restaurants in the specified period, excluding two restaurants operating under a licensing arrangement. We use CAVA Revenue to evaluate and track the aggregate sales of food and beverages in CAVA restaurants. Several factors affect CAVA Revenue in any given period, including the number of CAVA restaurants in operation, guest traffic, menu prices, and product mix.

CAVA Same Restaurant Sales Growth

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). We use CAVA Same Restaurant Sales Growth to assess the performance of existing CAVA restaurants that have been open for 365 days or longer, as the impact of new restaurant openings is excluded. As of December 31, 2023 and December 25, 2022, there were 236 and 163 CAVA restaurants, respectively, in such restaurant base. The 53rd week in fiscal 2023 has been excluded from the calculation of CAVA Same Restaurant Sales Growth.

CAVA Average Unit Volume (CAVA AUV)

CAVA AUV represents total revenue of operating CAVA Restaurants that were open for the entire trailing thirteen periods and includes sales from CAVA digital kitchens for such period, divided by the number of operating CAVA Restaurants that were open for the entire trailing thirteen periods. We use CAVA AUV to assess and understand changes in guest spending patterns and the overall performance of operating restaurants opened for the entire period. CAVA AUV is impacted by changes in guest traffic, menu prices and product mix. We gather daily sales data and regularly analyze our guest traffic and the mix of menu items sold to aid in developing menu pricing, food offerings, and promotional strategies designed to grow CAVA AUV. CAVA AUV may also be impacted by the number of newer CAVA restaurants that are included in calculating CAVA AUV, as such restaurants typically achieve lower sales when they first open, which then increases as they mature. The 53rd week in fiscal 2023 has been excluded from the calculation of CAVA AUV.

CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin

CAVA Restaurant-Level Profit represents CAVA Revenue in the specified period less food, beverage, and packaging, labor, occupancy, and other operating expenses, excluding depreciation and amortization, in the period. CAVA Restaurant-Level Profit excludes pre-opening costs. We use CAVA Restaurant-Level Profit as a segment measure of profit and loss.

CAVA Restaurant-Level Profit Margin represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue. We use CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin as measures of CAVA restaurants’ profitability.

CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin are not indicative of the overall results of the Company and do not accrue directly to the benefit of our shareholders, as corporate-level expenses are excluded from such measures.

CAVA Restaurants

The following table details CAVA Restaurants for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","2023","","2022"],["Beginning of period","237","","","164"],["New CAVA restaurant openings, including converted Zoes Kitchen locations","73","","","74"],["Permanent closure","(1)","","","(1)"],["End of period","309","","","237"]]
[[/GREPCENT_TABLE]]

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CAVA Digital Revenue Mix

CAVA Digital Revenue Mix represents the portion of CAVA revenue related to digital orders as a percentage of total CAVA revenue. Digital orders consist of 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. We use CAVA Digital Revenue Mix to evaluate and track the effectiveness of our coordinated digital infrastructure and network of delivery partners. We charge increased prices for delivery orders to account for the delivery fees and commissions payable by us to our third-party delivery partners and therefore are generally agnostic between in-restaurant and digital sales, as it relates to profitability.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is net income (loss) adjusted to exclude interest (income) expense, 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 Adjusted EBITDA as a percentage of revenue. We use 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. See “Non-GAAP Financial Measures” below for a reconciliation of Adjusted EBITDA to net income (loss).

Components of Results of Operations

Revenue includes sales of food and beverage in our CAVA and Zoes Kitchen locations and CPG sales. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. CAVA restaurants generally operate at higher revenue levels than the predecessor Zoes Kitchen locations prior to conversion.

Food, beverage, and packaging consists primarily of food, beverage, and packaging costs, including manufacturing costs and costs associated with our production facilities. The components of food, beverage, and packaging are variable in nature, increase as sales volumes increase and are influenced by sales mix, commodity costs, and inflation.

Labor includes all restaurant-level management and hourly labor costs, including salaries, wages, benefits, bonuses, payroll taxes, and other indirect labor costs. Factors that influence labor costs include the minimum wage in the jurisdictions in which we operate, payroll tax legislation, inflation, the strength of the labor market for hourly Team Members, benefit costs, health care costs, and the number, size, and location of our restaurants. As we open new restaurants, we typically incur higher labor following the initial opening of such restaurant due to increased training costs. We expect labor to increase in the aggregate as we continue to open new restaurants.

Occupancy consists of restaurant-level occupancy including rent, common area expenses, real estate, and other taxes, and disposal fees. Occupancy excludes expenses associated with unopened restaurants, which are recorded in pre-opening costs, expenses associated with closed restaurants, which are recorded in restructuring and other costs, and expenses related to support centers, which are recorded in general and administrative expenses. Occupancy varies from location to location and is impacted by macroeconomic conditions, including inflation. We expect occupancy to increase in the aggregate as we continue to open new restaurants but to decrease as a percentage of revenue in the long-term as we continue to leverage higher CAVA Same Restaurant Sales Growth.

Other operating expenses include all other restaurant-level operating expenses, such as kitchen supplies, utilities, repairs and maintenance, travel costs, credit card and bank fees, recruiting, third-party delivery service fees, marketing expenses, and costs associated with our distribution network.

General and administrative expenses include expenses associated with our Collaboration Center Organization that supports the development and operation of restaurants, including compensation and benefits, travel expenses, equity-based compensation, legal and professional fees, technology fees, and rent and other costs related to our collaboration centers. We expect general and administrative expenses to increase in the aggregate as we continue to expand our business but to decrease as a percentage of revenue in the long-term as our business grows.

Depreciation and amortization primarily consists of depreciation of assets related to CAVA new restaurant openings, including leasehold improvements and equipment, and technology improvements.

Restructuring and other costs consist mainly of expenses incurred in connection with closed Zoes Kitchen locations, public company readiness costs prior to our IPO, and costs related to our collaboration center relocation in fiscal 2022.

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Pre-opening costs consist of expenses incurred prior to opening a new restaurant (including a new restaurant that is converted from a Zoes Kitchen location) and are made up primarily of manager salaries, relocation costs, supplies, recruiting expenses, payroll and training costs, and travel costs. Pre-opening costs also include occupancy costs recorded during the period between the date of possession and the date we begin operations at a location. Pre-opening costs are expensed as incurred.

Impairment and asset disposal costs consist of losses recognized on the write-down of the carrying value of property and equipment, net and operating lease assets and the loss on disposal of assets.

Interest (income) expense, net includes interest income from our short-term investments, partially offset by cash and non-cash charges related to our 2022 Credit Facility, including the amortization of debt issuance costs.

Provision for income taxes represent federal and state current and deferred income tax expense.

Results of Operations

Our results of operations, on a consolidated basis and by segment, for fiscal 2023 and 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 of March 2, 2023, we no longer operate any Zoes Kitchen locations, and on October 20, 2023 our conversion strategy was completed with the last conversion restaurant opening. 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.

The following table summarizes our segment results for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["(in thousands)","2023","","2022"],["Revenue"],["CAVA","$","717,060","","","$","448,594"],["Zoes Kitchen","3,867","","","108,392"],["Other","7,773","","","7,133"],["Total revenue","728,700","","","564,119"],["Restaurant-level operating expenses1"],["CAVA","539,572","","","357,501"],["Zoes Kitchen","4,044","","","102,292"],["Other","4,738","","","6,342"],["Total restaurant-level operating expenses","548,354","","","466,135"],["Restaurant-level profit (loss)"],["CAVA","177,488","","","91,093"],["Zoes Kitchen","(177)","","","6,100"],["Other","3,035","","","791"],["Total restaurant-level profit","180,346","","","97,984"],["Reconciliation of restaurant-level profit to income (loss) before income taxes:"],["General and administrative expenses","101,491","","","70,037"],["Depreciation and amortization","47,433","","","42,724"],["Restructuring and other costs","6,080","","","5,923"],["Pre-opening costs","15,718","","","19,313"],["Impairment and asset disposal costs","4,899","","","19,753"],["Interest (income) expense, net","(8,852)","","","47"],["Other income, net","(471)","","","(919)"],["Income (loss) before income taxes","$","14,048","","","$","(58,894)"]]
[[/GREPCENT_TABLE]]
__________________

1    Restaurant-level operating expenses consist of food, beverage, and packaging (excluding depreciation and amortization), labor, occupancy, and other operating expenses.

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Comparison of Fiscal 2023 and 2022

CAVA Segment Results

The following table summarizes the results of the CAVA segment for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","2023","","2022","","Change"],["($ in thousands)","$","","% of Revenue","","$","","% of Revenue","","$","","%"],["Restaurant revenue","$","717,060","","","100.0","%","","$","448,594","","","100.0","%","","$","268,466","","","59.8","%"],["Restaurant operating expenses (excluding depreciation and amortization):"],["Food, beverage, and packaging","208,237","","","29.0","","","140,760","","","31.4","","","67,477","","","47.9"],["Labor","185,820","","","25.9","","","121,318","","","27.0","","","64,502","","","53.2"],["Occupancy","57,811","","","8.1","","","40,855","","","9.1","","","16,956","","","41.5"],["Other operating expenses","87,704","","","12.2","","","54,568","","","12.2","","","33,136","","","60.7"],["Total restaurant operating expenses","539,572","","","75.2","","","357,501","","","79.7","","","182,071","","","50.9"],["Restaurant-level profit","$","177,488","","","24.8","%","","$","91,093","","","20.3","%","","$","86,395","","","94.8","%"]]
[[/GREPCENT_TABLE]]

CAVA Revenue

The increase in CAVA Revenue was primarily due to a $177.4 million increase from the 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022, of which the majority was attributable to the 91 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 17.9%, which consists of 10.4% from guest traffic increases and 7.5% from menu price increases and product mix, and the impact of a 53rd week in fiscal 2023.

CAVA Food, Beverage, and Packaging

The increase in CAVA food, beverage, and packaging was primarily due to a $54.2 million increase from the 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022, of which the majority was attributable to the 91 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 17.9% and the impact of a 53rd week in fiscal 2023.

As a percentage of CAVA Revenue, CAVA food, beverage, and packaging decreased primarily due to lower input costs and a higher incidence of premium menu items driving favorable product mix.

CAVA Labor

The increase in CAVA labor was primarily due to a $49.2 million increase from the 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022, of which the majority was attributable to the 91 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 17.9% and the impact of a 53rd week in fiscal 2023. 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.

CAVA Occupancy

The increase in CAVA occupancy was primarily due to a $14.4 million increase from 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022, of which the majority was attributable to the 91 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 higher sales.

CAVA Other Operating Expenses

The increase in CAVA other operating expenses was primarily due to a $22.8 million increase from 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022, of which the majority was attributable to the 91 CAVA

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restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 17.9% and the impact of a 53rd week in fiscal 2023.

As a percentage of CAVA Revenue, CAVA other operating expenses was flat primarily due to operating leverage, partially offset by higher insurance costs in the current year and investments in the integrity of our physical spaces in support of our increased restaurant volumes.

Zoes Kitchen Segment Results

The following table summarizes the results of the Zoes Kitchen segment for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","2023","","2022","","Change"],["($ in thousands)","$","","% of Revenue","","$","","% of Revenue","","$","","%"],["Restaurant revenue","$","3,867","","","100.0","%","","$","108,392","","","100.0","%","","$","(104,525)","","","N/M"],["Restaurant operating expenses (excluding depreciation and amortization):"],["Food, beverage, and packaging","1,141","","","29.5","","","33,367","","","30.8","","","(32,226)","","","N/M"],["Labor","1,506","","","38.9","","","36,573","","","33.7","","","(35,067)","","","N/M"],["Occupancy","508","","","13.1","","","12,814","","","11.8","","","(12,306)","","","N/M"],["Other operating expenses","889","","","23.0","","","19,538","","","18.0","","","(18,649)","","","N/M"],["Total restaurant operating expenses","4,044","","","104.6","","","102,292","","","94.4","","","(98,248)","","","N/M"],["Restaurant-level (loss) profit","$","(177)","","","(4.6)","%","","$","6,100","","","5.6","%","","$","(6,277)","","","N/M"]]
[[/GREPCENT_TABLE]]

__________________

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.

Other Results

The following table summarizes remaining activity related to our CPG operations for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","2023","","2022","","Change"],["($ in thousands)","$","","% of Revenue","","$","","% of Revenue","","$","","%"],["Revenue","$","7,773","","","100.0","%","","$","7,133","","","100.0","%","","$","640","","","9.0","%"],["Food, beverage, and packaging","4,080","","","52.5","","","5,861","","","82.2","","","(1,781)","","","(30.4)"],["Other operating expenses","658","","","8.5","","","481","","","6.7","","","177","","","36.8"]]
[[/GREPCENT_TABLE]]

The increase in Other revenue was primarily the result of increased sales of dips, spreads, and dressings. The decrease in food, beverage, and packaging was due in part to lower input costs.

Consolidated Results

The following table summarizes our consolidated results of operations for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","2023","","2022","","Change"],["($ in thousands)","$","","% of Revenue","","$","","% of Revenue","","$","","%"],["Revenue","$","728,700","","","100.0","%","","$","564,119","","","100.0","%","","$","164,581","","","29.2","%"],["Operating expenses:"],["Restaurant operating costs (excluding depreciation and amortization)"],["Food, beverage, and packaging","213,458","","","29.3","","","179,988","","","31.9","","","33,470","","","18.6"],["Labor","187,326","","","25.7","","","157,891","","","28.0","","","29,435","","","18.6"],["Occupancy","58,319","","","8.0","","","53,669","","","9.5","","","4,650","","","8.7"],["Other operating expenses","89,251","","","12.2","","","74,587","","","13.2","","","14,664","","","19.7"],["Total restaurant operating expenses","548,354","","","75.3","","","466,135","","","82.6","","","82,219","","","17.6"],["General and administrative expenses","101,491","","","13.9","","","70,037","","","12.4","","","31,454","","","44.9"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Depreciation and amortization","47,433","","","6.5","","","42,724","","","7.6","","","4,709","","","11.0"],["Restructuring and other costs","6,080","","","0.8","","","5,923","","","1.0","","","157","","","2.7"],["Pre-opening costs","15,718","","","2.2","","","19,313","","","3.4","","","(3,595)","","","(18.6)"],["Impairment and asset disposal costs","4,899","","","0.7","","","19,753","","","3.5","","","(14,854)","","","(75.2)"],["Total operating expenses","723,975","","","99.4","","","623,885","","","110.6","","","100,090","","","16.0"],["Income (loss) from operations","4,725","","","0.6","","","(59,766)","","","(10.6)","","","64,491","","","N/M"],["Interest (income) expense, net","(8,852)","","","(1.2)","","","47","","","\u2014","","","(8,899)","","","N/M"],["Other income, net","(471)","","","(0.1)","","","(919)","","","(0.2)","","","448","","","(48.7)"],["Income (loss) before income taxes","14,048","","","1.9","","","(58,894)","","","(10.4)","","","72,942","","","N/M"],["Provision for income taxes","768","","","0.1","","","93","","","\u2014","","","675","","","N/M"],["Net income (loss)","$","13,280","","","1.8","%","","$","(58,987)","","","(10.5)","%","","$","72,267","","","N/M"]]
[[/GREPCENT_TABLE]]

__________________

N/M    Data not meaningful

Revenue

The increase in consolidated revenue was primarily driven by a $268.5 million increase in our CAVA segment, partially offset by a $104.5 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 $67.5 million increase in our CAVA segment, partially offset by a $32.2 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 $64.5 million increase in our CAVA segment, partially offset by a $35.1 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 $17.0 million increase in our CAVA segment, partially offset by an $12.3 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 a $33.1 million increase in our CAVA segment, partially offset by a $18.6 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 incentive compensation associated with strong results, investments in our Collaboration Center Organization, including headcount, to support future growth, higher equity-based compensation associated with awards made in connection with the IPO, recurring public company costs, higher legal accruals, 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 145 Net New CAVA Restaurant Openings during or subsequent to fiscal 2022 and technology improvements, partially offset by the disposal of assets at 125 closed Zoes Kitchen locations.

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Restructuring and Other Costs

The increase in restructuring and other costs was primarily due to costs associated with closed Zoes Kitchen locations and public company readiness, partially offset by costs incurred in the prior year in connection with the relocation of our collaboration center.

Pre-Opening Costs

The decrease in pre-opening costs was due to improved cost efficiencies, partially offset by the timing and volume of Net New CAVA Restaurant Openings.

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 due to interest income associated with an increase in short term investments as a result of proceeds from the IPO.

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.

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 any applicable 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;

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•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 any applicable 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 fiscal years indicated:

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022"],["Net income (loss)","$","13,280","","$","(58,987)"],["Non-GAAP Adjustments"],["Interest (income) expense, net","(8,852)","","47"],["Provision for income taxes","768","","93"],["Depreciation and amortization","47,433","","42,724"],["Equity-based compensation","9,575","","3,981"],["Other income, net","(471)","","(919)"],["Impairment and asset disposal costs","4,899","","19,753"],["Restructuring and other costs","6,080","","5,923"],["Certain non-recurring public company costs","1,113","","\u2014"],["Adjusted EBITDA","$","73,825","","$","12,615"],["Revenue","$","728,700","","$","564,119"],["Net income (loss) margin","1.8","%","","(10.5)","%"],["Adjusted EBITDA margin","10.1","%","","2.2","%"]]
[[/GREPCENT_TABLE]]

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- 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 required initial capital investments, such costs were typically significantly lower for a conversion as compared to a new opening. Therefore, we expect that the capital expenditure requirements relating to Net New CAVA Restaurant Openings on a per restaurant basis in future periods will be significantly higher than we have experienced in the past few years as our conversion strategy is complete as of October 20, 2023.

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 and foreseeable future, 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 8. “Financial Statements and Supplementary Data”, Note 8 (Debt) and Note 11 (Leases) to our consolidated financial statements for more information. Our sources of liquidity could be affected by factors described Part I, Item 1A. “Risk Factors.” 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 $332.4 million and $39.1 million as of December 31, 2023 and December 25, 2022, respectively, the increase of which was primarily due to net proceeds received in connection with the IPO.

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For fiscal 2023, our operations were primarily funded from cash flows from operations that, together with the IPO proceeds, funded capital expenditures. Our principal uses of liquidity for fiscal 2023 were to fund new restaurant openings, including the conversion of Zoes Kitchen locations into CAVA restaurants, the construction of our new production facility in Verona, VA and working capital needs.

Cash Flows

The following table summarizes our cash flows for the fiscal years indicated:

[[GREPCENT_TABLE]]
[["","","","","","Change"],["($ in thousands)","2023","","2022","","$","","%"],["Net cash provided by operating activities","$","97,101","","","$","6,038","","","$","91,063","","","N/M"],["Net cash used in investing activities","(138,806)","","","(104,161)","","","(34,645)","","","33.3","%"],["Net cash provided by (used in) financing activities","335,008","","","(3,084)","","","338,092","","","N/M"],["Net change in cash and cash equivalents","$","293,303","","","$","(101,207)","","","$","394,510","","","(389.8)","%"]]
[[/GREPCENT_TABLE]]

__________________

N/M    Data not meaningful

Operating Activities

The increase in net cash provided by operating activities for fiscal 2023 was primarily due to improved operating performance, the impact of working capital changes primarily in accrued expenses and other associated with performance-based incentive compensation, and interest income associated with an increase in short term investments as a result of proceeds from the IPO.

Investing Activities

The increase in net cash used in investing activities for fiscal 2023 was primarily due to our investments in capital expenditures as a result of Net New CAVA Restaurant Openings, construction of our new production facility, and technology improvements.

Financing Activities

The increase in net cash provided by financing activities for fiscal 2023 was primarily due to net proceeds received from our IPO, which closed on June 20, 2023.

Material Cash Commitments

The following table summarizes current and long-term material cash requirements as of December 31, 2023, which we expect to fund primarily with operating cash flows:

[[GREPCENT_TABLE]]
[["","Payments Due by Fiscal Year"],["(in thousands)","Total","","2024","","2025-2026","","2027-2028","","Thereafter"],["Operating leases1","$","435,517","","","$","51,572","","","$","111,307","","","$","100,939","","","$","171,699"],["Purchase obligations2","7,553","","","6,626","","","927","","","\u2014","","","\u2014"]]
[[/GREPCENT_TABLE]]

__________________

1    Refer to Item 8. “Financial Statements and Supplementary Data”, Note 11 (Leases) for more information on our operating leases.

2    Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. We have excluded agreements that are cancellable without penalty. The majority of our purchase obligations related to amounts owed for produce and other ingredients and supplies, including supplies and materials used for new restaurant openings.

Credit Facility

Refer to Item 8. “Financial Statements and Supplementary Data”, Note 8 (Debt), for a description of our 2022 Credit Facility.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent asset and liabilities as of the balance sheet date, as well as the reported amounts of

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revenue and expenses during the period. We base our estimates on historical experience, known trends and events, as well as management’s judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could vary materially from the estimates based on assumptions used in the preparation of our financial statements. We evaluate our judgments and estimates on an ongoing basis in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, are reflected in the financial statements prospectively from the date of change in estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other significant accounting policies. Accordingly, these are the policies we believe are the most critical to understanding when evaluating our consolidated financial condition and results of operations. Our significant accounting policies are more fully described in Note 2 (Basis of Presentation and Significant Accounting Policies) to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Leases

We adopted ASC 842 in the first quarter of fiscal 2022, the impact of which did not have a material impact on our consolidated statement of operations or consolidated statement of cash flows. The adoption of ASC 842 did have a material impact on our consolidated balance sheet resulting in the recognition of operating lease assets and liabilities. The disclosure below reflects the impact of our adoption of ASC 842.

We lease all of our restaurants, our production facility in Maryland, our collaboration center in Washington, D.C., and our support centers in Brooklyn, New York, and Plano, Texas under various non-cancelable lease agreements that expire on various dates through 2039. At inception of a lease, we determine its classification as an operating or financing lease. All of our restaurant leases are classified as operating leases. Restaurants are located on sites leased from third parties. When determining the lease term, the Company includes reasonably certain option periods.

The Company makes judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as well as the amount of straight-line rent expense recognized in a period. Typically, restaurant leases have initial terms of 10 years and include five-year renewal options. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement that we will exercise the options. Restaurant leases provide for fixed minimum rent payments and in some cases include contingent rent payments based upon sales in excess of specified breakpoints. When achievement of sales breakpoints is probable, contingent rent is accrued. Fixed minimum rent payments are recognized on a straight-line basis over the lease term starting on the date we take control of the leased space.

Operating lease assets and liabilities are recognized at the lease’s commencement date. We measure the lease liability at lease commencement by discounting the future minimum lease payments. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, initial direct costs, lease incentives, and impairment. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

Income Taxes

The Company is taxed as a C corporation under which income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities, reflecting the impact of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s historical and forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is the cumulative loss incurred over the most recent three-year period. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2023 and December 25, 2022, a valuation allowance of $83.7 million and $88.4 million, respectively, has been recorded to recognize only the portion of the deferred tax assets that is more likely than not to be realized. The

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amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

The Company has considered its income tax positions, including any positions that may be considered uncertain by the relevant tax authorities in the jurisdictions in which the Company operates. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company did not have any uncertain tax positions as of December 31, 2023 and December 25, 2022.

The Company’s primary tax jurisdiction is in the United States. Generally, federal, state, and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 31, 2023.

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 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 8. “Financial Statements and Supplementary Data”, Note 2 (Basis of Presentation and Significant Accounting Policies).

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.