S-1 1 cava-sx1.htm S-1 Document

As filed with the Securities and Exchange Commission on May 19, 2023.
Registration No. 333-            
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CAVA Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware581247-3426661
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
14 Ridge Square NW, Suite 500
Washington, D.C. 20016
202-400-2920
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Robert Bertram
Chief Legal Officer
CAVA Group, Inc.
14 Ridge Square NW, Suite 500
Washington, D.C. 20016
202-400-2920
(Name, address, including zip code, and telephone number, including area code, of registrant’s agent for service)
With copies to:
Kenneth B. Wallach, Esq.
Xiaohui (Hui) Lin, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
Laura A. Kaufmann Belkhayat, Esq.
Ryan J. Dzierniejko, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
395 9th Avenue
New York, New York 10001
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.



The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED               , 2023
PRELIMINARY PROSPECTUS
                           Shares
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CAVA GROUP, INC.
Common Stock
This is CAVA Group, Inc.’s initial public offering of our common stock (“common stock”). We are offering                          shares of common stock. Prior to this offering, there has been no public market for our common stock. We expect that the initial public offering price of our common stock will be between $         and $         per share. We intend to apply to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “CAVA.”
See “Risk Factors” beginning on page 22 to read about factors you should consider before buying shares of our common stock.
We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to do so in future filings.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Per shareTotal
Initial public offering price$$
Underwriting discounts and commissions(1)
$$
Proceeds, before expenses, to us$$
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(1)See “Underwriting” for additional information regarding underwriting compensation.
At our request, the underwriters have reserved          % of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to certain tiers of eligible CAVA Rewards members, certain suppliers, certain individuals identified by our executive team and other certain individuals affiliated with us. See “Underwriting.”
We have granted the underwriters the right, for a period of 30 days from the date of this prospectus, to purchase up to              additional shares of common stock from us at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on or about               , 2023.
J.P. MorganJefferiesCitigroup
Morgan StanleyPiper Sandler
BairdStifelWilliam Blair
                 , 2023



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TABLE OF CONTENTS
Page
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Through and including the 25th day after the date of this prospectus, all dealers that effect transactions in these shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we nor the underwriters have authorized anyone to provide you with different information. Neither we nor any of the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or any free writing prospectus, as the case may be, or any sale of shares of our common stock. Our business, results of operations and financial condition may have changed since such date.
For investors outside the United States: we are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
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INDUSTRY AND MARKET DATA
Within this prospectus, we reference information and statistics regarding the industry in which we operate. We have obtained this information and statistics from various independent third-party sources, independent industry publications, reports by market research firms and other independent sources. Some data and other information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of internal surveys and independent sources, including the CAVA Brand Health Survey. The information is as of its original publication dates (and not as of the date of this prospectus). Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within these industries. While we believe such information is reliable, we have not independently verified any third-party information. While we believe our internal company research, data and estimates are reliable, such research and estimates have not been verified by any independent source.
In addition, assumptions and estimates of our and our industry’s future performance are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Forward-Looking Statements.” As a result, you should be aware that market, ranking, and other similar industry data included in this prospectus, and estimates and beliefs based on that data may not be reliable. Neither we nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus.
TRADEMARKS, SERVICE MARKS, TRADENAMES, AND COPYRIGHTS
We own a number of registered and common law trademarks and pending applications for trademark registrations in the United States. Unless otherwise indicated, all trademarks, service marks, trade names, and copyrights appearing in this prospectus are proprietary to us, our affiliates, and/or licensors. This prospectus also contains trademarks, tradenames, service marks, and copyrights of third parties, which are the property of their respective owners. Solely for convenience, the trademarks, tradenames, service marks, and copyrights referred to in this prospectus may appear without the ®, ™, ℠, or © symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, tradenames, service marks, and copyrights. We do not intend our use or display of other parties’ trademarks, tradenames, service marks, or copyrights to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
BASIS OF PRESENTATION
The following terms are used in this prospectus and have the following meanings unless otherwise noted or indicated by the context:
“Adjusted EBITDA” is defined as net income (loss) adjusted to exclude interest expense (income), net, provision for (benefit from) income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, and restructuring and other costs;
“Adjusted EBITDA Margin” is defined as Adjusted EBITDA as a percentage of revenue;
“Cash on Cash Returns” is defined as CAVA Restaurant-Level Profit for the second full year of operations of new CAVA restaurant openings, excluding conversions of Zoes Kitchen locations, divided by their cash build-out expenses, net of landlord incentives and excluding pre-opening costs;
“CAVA Average Unit Volume” or “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;
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“CAVA Brand Health Survey” refers to CAVA’s brand health survey of approximately 2,500 survey participants that was conducted in summer of 2022 and administered by Kantar;
“CAVA digital kitchen” is defined to include kitchens used for third-party marketplace and native delivery, digital order pickup and/or centralized catering production, and that has neither in-restaurant dining nor customer-facing make lines;
“CAVA Digital Revenue Mix” represents the portion of CAVA revenue related to digital orders as a percentage of total CAVA revenue;
“CAVA hybrid kitchen” is defined to include kitchens that have enhanced kitchen capabilities to support centralized catering production and that also have in-restaurant dining and customer-facing make lines;
“CAVA Restaurant-Level Profit,” a segment measure of profit and loss, 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;
“CAVA Restaurant-Level Profit Margin” represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue;
“CAVA Restaurants” is defined to include all CAVA restaurants, including converted Zoes Kitchen locations and CAVA hybrid kitchens, that are open as of the end of the specified period. CAVA Restaurants exclude one restaurant operating under a license agreement and CAVA digital kitchens;
“CAVA Revenue” is defined to include all revenue attributable to CAVA restaurants in the specified period, excluding one restaurant operating under a license agreement;
“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);
the “Company,” “we,” “us,” and “our” mean the business of CAVA Group, Inc. and its subsidiaries;
“CPG” means Consumer Packaged Goods;
“digital orders” means 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;
“eNPS” represents Employee Net Promoter Score, a measurement regarding the strength of employees’ commitment to their organization;
“guest traffic” means the number of entrees ordered in-restaurant and through digital orders;
“Mediterranean category” means restaurants serving food that is based on traditional cuisine from Greece and the Levant region;
“Net New CAVA Restaurant Openings” is defined as new CAVA restaurant openings (including CAVA restaurants converted from a Zoes Kitchen location) during a specified reporting period, net of any permanent CAVA restaurant closures during the same period;
“preferred stock” refers to our Series A Preferred Stock, $0.0001 par value, Series B Preferred Stock, $0.0001 par value, Series C Preferred Stock, $0.0001 par value, Series D Preferred Stock, $0.0001 par value, Series E Preferred Stock, $0.0001 par value, and Series F Preferred Stock, $0.0001 par value; and
“specialty locations” include college campuses and transit hubs.
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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. References to any “year” and “quarter” mean “fiscal year” and “fiscal quarter,” respectively, unless the context requires otherwise. References to “fiscal 2023,” “fiscal 2022,” “fiscal 2021,” “fiscal 2020,” “fiscal 2019,” and “fiscal 2016” relate to our fiscal years ended December 31, 2023, December 25, 2022, December 26, 2021, December 27, 2020, December 29, 2019, and December 25, 2016, respectively, unless the context otherwise requires. References to “first quarter of 2022” refers to the sixteen weeks ended April 17, 2022 and “first quarter of 2023” refers to the sixteen weeks ended April 16, 2023. References to “thirteen periods” are to the 13 accounting periods we have in each fiscal year, with each accounting period being four weeks, except in a 53-week fiscal year which will contain one accounting period of five weeks.
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
NON-GAAP FINANCIAL MEASURES
This prospectus contains “non-GAAP financial measures” that are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Specifically, we make use of the non-GAAP financial measures “Adjusted EBITDA” and “Adjusted EBITDA Margin.”
We present Adjusted EBITDA and Adjusted EBITDA Margin in this prospectus 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. For a discussion of the use of these measures and a reconciliation of the most directly comparable GAAP measures, see “Summary―Summary Historical Financial and Other Data.”
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SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including “Risk Factors” and our financial statements included elsewhere in this prospectus, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties.
Our Mission
To Bring Heart, Health, And Humanity To Food
CAVA: Defining A Category
CAVA is the category-defining Mediterranean fast-casual restaurant brand, bringing together healthful food and bold, satisfying flavors at scale. Rooted in our rich Mediterranean heritage, we bring a timeless approach to modern wellness through our authentic cuisine and vibrant brand experience. Guided by our mission, we believe food is a unifier for a more diverse and inclusive world for our guests, Team Members, and our grower and rancher partners, where all are welcome at our table. We believe that consumers should not have to choose between taste and health – our innovative cuisine appeals to a wide variety of preferences, satisfying the modern consumer’s desires for flavorful, craveable, and nutritious food without compromise.
Over the past 12 years, we have established ourselves as the only national player at scale in the fast-growing Mediterranean category, with more than twice the number of restaurants compared to our next largest competitor in the category. Our brand and our opportunity transcend the Mediterranean category to compete in the large and growing limited-service restaurant sector as well as the health and wellness food category. CAVA serves guests across gender lines, age groups, and income levels and benefits from generational tailwinds created by consumer demand for healthy living and a demographic shift towards greater ethnic diversity. We meet consumers’ desire to engage with convenient, authentic, purpose-driven brands that view food as a source of self-expression. The broad appeal of our food combined with these favorable industry trends drive our vast opportunity for continued growth.
We have assembled an experienced and passionate team and made significant investments in differentiated digital and manufacturing infrastructure to drive powerful national growth and unit economics. Our strong results reflect our broad appeal and are highlighted by having:
Driven total revenue from $45.4 million in fiscal 2016 to $564.1 million in fiscal 2022, a 52.2% compound annual growth rate (“CAGR”), and from $159.0 million in the first quarter of 2022 to $203.1 million in the first quarter of 2023, an increase of 27.7%;
Driven CAVA Revenue from $41.2 million in fiscal 2016 to $448.6 million in fiscal 2022, a 49.0% CAGR, and from $112.0 million in the first quarter of 2022 to $196.8 million in the first quarter of 2023, an increase of 75.7%;
Achieved CAVA Same Restaurant Sales Growth for fiscal 2022 of 14.2% (when compared to fiscal 2021) and 23.6% (when compared to fiscal 2019), and 28.4% for the first quarter of 2023 (when compared to the first quarter of 2022);
Delivered net loss of $59.0 million in fiscal 2022 compared to $37.4 million in fiscal 2021, and $2.1 million in the first quarter of 2023 compared to $20.0 million in the first quarter of 2022, and delivered Adjusted EBITDA of $12.6 million in fiscal 2022 compared to $14.6 million in fiscal 2021, and $16.7 million in the first quarter of 2023 compared to $(1.6) million in the first quarter of 2022; and
Proven portability across 22 states and Washington, D.C., with a 82% suburban, 14% urban, and 4% specialty location mix as of April 16, 2023.
Number of CAVA Restaurants
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Total Revenue and Net Loss
($ in millions)
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(1)For fiscal 2019, fiscal 2020, fiscal 2021, fiscal 2022, first quarter 2022, and first quarter 2023, less than 1%, 1.1%, 9.1%, 30.8%, 23.0%, and 44.5%, respectively, of total revenue was attributable to CAVA Restaurants that were converted from a Zoes Kitchen location.
CAVA Revenue
($ in millions)
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(1)For fiscal 2019, fiscal 2020, fiscal 2021, fiscal 2022, first quarter 2022, and first quarter 2023, less than 1%, 2.4%, 16.4%, 38.7%, 32.7%, and 45.9%, respectively, of CAVA Revenue was attributable to CAVA Restaurants that were converted from a Zoes Kitchen location.
CAVA Restaurant-Level Profit and Margin
($ in millions)
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The CAVA Experience – What Makes Us Unique
We believe that our guests should not have to make sacrifices to eat better. With the variety and choice we provide, every order is built upon a unique combination of fresh flavors and textures, customized to suit our guests’ tastes and preferences, with no compromises in health, flavor, or satisfaction.
No Compromises – Where Taste and Health Unite
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Vibrant Mediterranean Flavors to Discover and Crave
CAVA offers something for every palate and preference. Whether our guests are looking for indulgent and hearty or healthful and flavorful meals, our authentic Mediterranean cuisine delivers. Our offerings are well-suited for multiple dayparts and occasions, from an everyday option at lunch to a hearty dinner and to catered meals, all of which can be conveniently delivered as our food travels well. This drives a balanced daypart split of 55% / 45% between lunch and dinner and a diversified channel mix of 65% / 35% between in-restaurant and digital for fiscal 2022.
We source 85% of our ingredients (based on total spend for fiscal 2022) directly from growers, ranchers, and producers to provide our guests with high-quality ingredients while maintaining high standards for quality, sustainability, and transparency. Rooted in a sustainable sourcing ethos, we use ingredients that are clean label and in certain products, such as our CPG hummus, are certified organic. Our proprietary dips and spreads are centrally produced to provide our guests with a delicious and consistent offering.
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We believe food is an outlet for self-expression, so we offer endless customization. With 38 thoughtfully curated, high-quality ingredients presented to guests in a walk-the-line format, approximately 80% of our guests opt for a custom meal option.
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We also offer chef-curated selections for our guests. From our colorful Harissa Avocado Bowl to seasonal favorites like our Roasted White Sweet Potato + Feta Bowl, we meet our guests’ desire for an effortlessly delicious and nutritious meal while introducing them to new flavor experiences.
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Broad Appeal with Diversity at Our Core
We believe the attractiveness and diversity of our food, flavors, and formats result in a differentiated, broad guest appeal. CAVA is a destination of choice across incomes, ages, geographies, and walks of life, from time-starved professionals to families enjoying a meal together. Our menu fulfills a broad range of dietary preferences,
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from hearty and indulgent to vegan, vegetarian, gluten-free, dairy-free, paleo, keto, and nut-free diets. The attractive pricing of our food, when combined with generous portions, provides substantial value to our guests.
The broad appeal of the CAVA experience underpins the rich diversity of our guests. Our guests span gender lines and age groups, with a strong Millennial and a growing Gen Z contingent, as well as all income brackets:
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(1)As measured from February 4, 2022 to February 3, 2023.
(2)The underlying survey excludes individuals 18 years and younger.
Scalable Multi-Channel and Digitally Connected Experience
Our multi-channel strategy is built around our guest experience and is continually evolving to meet guests where, when, and how they want CAVA. We have developed an extensive multi-channel experience that consists of in-restaurant dining, digital pick-up, drive-thru pick-up, delivery, catering, and CPG offerings fully supported by our robust digital infrastructure. The foundation of this infrastructure is a micro-services platform that is designed to easily scale with current and future growth. Our success across channels is reflected in our 51% growth in digital sales in fiscal 2022 and a 27% higher average guest check for digital orders compared to in-restaurant orders. Moreover, our digital guests typically engage with us in more than one channel.
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Inviting And Efficient In-Restaurant Experience
We individually design our restaurants for their communities, while maintaining our brand essence. Our dining rooms are oriented to encourage community gathering, while the aesthetic of our open kitchens stimulates our guests’ senses, creating an inviting, transparent, and memorable culinary experience. Our restaurant operating model supports high volumes with speed through our labor-efficient walk-the-line production format. We are focused on continually enhancing our restaurant operations and reducing complexity to maximize efficiency while delivering an exceptional guest experience.
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Established, Flexible Off-Premises Platform
Our robust digital platform supports our guest demand for convenience. We enable delivery, digital pick-up, drive-thru pick-up, and catering powered by dedicated, second “digital make lines” in all restaurants. We also operate CAVA digital kitchens to further optimize off-premises production in select markets and trade areas. Using the CAVA app or website, our guests can effortlessly customize their favorite dish and choose to either pick it up from their local CAVA restaurant or have it delivered. A scalable digital infrastructure and an extensive network of fully integrated delivery partners back our simple and intuitive guest experience.
Personalized In-App Experience
Our CAVA app, which includes our patented technology, merges our in-restaurant and digital experience to create a personalized guest experience. We have designed our interfaces to provide a feeling of ‘digital hospitality,’ including a visual bowl and pita builder bridging the digital and physical experience. These tools create a highly visual experience with easy navigation, allowing users to utilize the walk-the-line ordering process they experience at our restaurants. From quick reordering of favorite meals to in-app delivery to streamlined payment options, the app enhances the on-the-go CAVA experience. In fiscal 2022, we increased the monthly active users on the CAVA app by 63%. In addition, between January 2022 and August 2022, the CAVA app was the third fastest year-over-year growing quick-service restaurant app by monthly active users according to an independent third-party publication.
Integrated Loyalty Program
Our loyalty program creates a value-added experience for guests both in-restaurant and through our digital channels, enabling them to earn rewards as they purchase. Our payment and loyalty pass is integrated, including the ability to use digital wallets such as Apple Pay, creating greater utility and convenience for our guests. As of April 16, 2023, we had approximately 3.7 million loyalty members, representing a 56% year over year increase in loyalty membership.
Scalable Data-Driven Growth Engine
Our flexible and scalable data architecture, together with our data analytics, position us to better understand guests’ preferences, connecting that insight to digital experiences to develop a personalized relationship, incentivize habituation, and drive growth. We have designed our guest user interfaces to leverage our data architecture for dynamic merchandising based on a wide range of variables to surface highly relevant and impactful content. Our significant investments in data infrastructure allow us to continuously improve the guest experience to drive deeper engagement.
Added Access with Consumer Packaged Goods
Our CPG offering acts as an extension of the CAVA brand, allowing our guests to take the essence of CAVA home with them. We offer a full line of dips and spreads, ranging from Crazy Feta to Traditional Hummus to Tzatziki, as well as dressings, such as Lemon Herb Tahini and Yogurt Dill. A range of our dips and spreads are sold nationally through grocery stores, including Whole Foods Markets, and our dressings are available at grocery stores in select markets.
Devoted Team Members Driving Culture and Hospitality
Inspired by the Mediterranean Way and defined by a genuine expression of hospitality and warmth, we want our Team Members – who carry on the CAVA culture every day – to build a career and not merely find employment. We continuously nurture our talent-rich pipeline by offering a clear promotional track for Team Members to become General Managers, with a goal of filling more than 75% of General Manager positions through internal promotions.
We invest in programs to support our Team Members personally and professionally, from our Employee Assistance Program and mental health benefits for all Team Members to our CAVAYou Continuing Education Program and our non-profit Goodness Fund, which we created to support our Team Members in times of need. The
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results of these initiatives are evidenced by our eNPS score in the 71st percentile, which indicates a high level of commitment according to Denison Consulting, which conducted our 2022 Team Member engagement survey. In addition, on average, we rank in the top quintile within the diversity and inclusion category, based on our Team Members’ responses to our 2022 Team Member engagement survey. Embodying the CAVA ethos of hospitality, our devoted Team Members deliver positive guest experiences, as reflected in our Yext score, an analytical tool measuring customer reviews, of 4.3, which reflects 88% of our restaurants performing in the top quartile of similar Yext businesses.
Experienced, Founder-Led Management Team
Our highly experienced and passionate team is inspired by our Co-Founders, Ike Grigoropoulos, Chef Dimitri Moshovitis, and Ted Xenohristos, our Chief Concept Officer, and led by our Chief Executive Officer and Co-Founder Brett Schulman, in creating a powerful culture that serves as a strong foundation for our shared success, grounded in the Mediterranean Way. We have assembled an accomplished and talented senior management team with extensive experience, including Tricia Tolivar (Chief Financial Officer), Jennifer Somers (Chief Operations Officer), Chris Penny (Chief Manufacturing Officer), Kelly Costanza (Chief People Officer), and Rob Bertram (Chief Legal Counsel). Our senior team contributes deep industry insights and expertise from years of industry experience at leading restaurant and consumer companies such as Taco Bell, Mattel, AutoZone, and Ollie’s Bargain Outlet. Our Co-Founders and senior management team have transformed CAVA into a nationwide concept, seamlessly managing the integration of our Zoes Kitchen acquisition in 2018, and agilely growing the Company through the COVID-19 pandemic to where it is today.
Strong Financial Results Driven By Powerful Unit Economics
Our category-defining brand, authentic offering, and attractive business model are supported by powerful unit economics that drive our strong performance. We increased the number of CAVA Restaurants from 22 as of the end of fiscal 2016 to 263 as of April 16, 2023, representing a CAGR of 49%. We have steadily grown CAVA Revenue each year since 2016, except for a slight decline in fiscal 2020 as a result of the COVID-19 pandemic. Since the Zoes Kitchen acquisition, through April 16, 2023, we have successfully converted 145 Zoes Kitchen locations into CAVA restaurants, in addition to opening 51 new CAVA restaurants during such period. At the same time, we have successfully managed through the mid-to-high-single digit inflationary environment and were able to expand CAVA Restaurant-Level Profit Margin to 20.3% in fiscal 2022, despite only increasing our in-restaurant menu price by less than 5%.
We have meaningfully grown CAVA Same Restaurant Sales each fiscal quarter for the past nine fiscal quarters. We will continue to focus on maximizing the potential of our existing CAVA restaurants to drive CAVA Same Restaurant Sales Growth.
CAVA Same Restaurant Sales Growth
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(1)CAVA Same Restaurant Sales Growth was materially impacted in fiscal 2021 due to the temporary impacts of the COVID-19 pandemic on CAVA Revenue during fiscal 2020.
(2)For purposes of calculating CAVA Same Restaurant Sales Growth compared to the corresponding period in fiscal 2019, we only include CAVA restaurants that were open as of the beginning or during the corresponding period in fiscal 2019.
We have demonstrated the ability to drive strong unit economics alongside rapid growth. Over the course of hundreds of new restaurant openings and conversions, our team has worked continuously to refine every aspect of our restaurant opening playbook. We have developed a clear framework and significant operating expertise, enabling us to confidently expand in new and existing markets. We aim to grow average unit volumes (“AUV”) and restaurant-level profit margins as we increase CAVA’s brand awareness. The following chart sets forth our target economics for new CAVA restaurant openings, excluding conversions of Zoes Kitchen locations:
Target Average New Unit Economics ($ in millions)
AUV(1)
$2.3
CAVA Restaurant-Level Profit Margin(1)
20%
Net Capital Expenditures(2)
$1.3
Cash On Cash Returns(1)
35%
__________________
(1)Reflects targets for the second full year of operations.
(2)Reflects capital expenditures incurred to open a restaurant, net of tenant allowances.
Our target new unit economics are substantiated by our strong track record of AUV growth and our aggregate Cash on Cash Returns of approximately 40%, which is calculated on a combined basis for all CAVA restaurants opened prior to fiscal 2018 to exclude the impact of the COVID-19 pandemic. In addition, in fiscal 2022 and the first quarter of 2023, we achieved CAVA AUV of $2.4 million and $2.5 million, respectively, with CAVA Restaurant-Level Profit Margin of 20.3% and 25.4%, respectively.
We have achieved success across 22 states and Washington, D.C. with strong AUV across regions and across formats in suburban, urban, and specialty locations. With proven portability across diverse market types and geographies, we see further opportunities to leverage our trade areas and further penetrate our existing markets.
CAVA Restaurants by Geography(1)
CAVA Restaurants by Format(1)
($ in millions)Restaurants
Average Age(2)
CAVA AUV(3)
($ in millions)Restaurants
CAVA AUV(3)
Mid-Atlantic595.0$2.6Suburban137$2.5
West154.8$2.9Urban31$2.8
Northeast244.3$3.3Specialty7$2.5
Southeast352.3$2.2
Southwest422.0$2.3
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(1)For CAVA restaurants open for at least thirteen periods as of April 16, 2023.
(2)Average age represents, as of April 16, 2023, the period of years that CAVA restaurants have been open to guests.
(3)For the trailing thirteen periods ended April 16, 2023.
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Our strong financial results, proven portability, and broad appeal of our brand are further evidenced by substantial diversity across geographies and formats and revenue diversity across dayparts and channels, as shown in the charts below.
business11a.jpg
__________________
(1)Based on CAVA Revenue for fiscal 2022.
(2)Based on CAVA Restaurant count as of April 16, 2023.
Significant Market Opportunity Supported By Accelerating Consumer Trends
We compete in the large and growing U.S. limited service restaurant industry, which was estimated to be more than $325 billion in 2021. We believe that our differentiated offerings and broad appeal provides us with significant whitespace opportunity in the Mediterranean and health and wellness food category, and we also expect to benefit from several strong and emerging trends:
Evolving Consumer Preferences for Authentic and Ethnic Cuisine
The ethnic diversity of the U.S. population continues to increase with approximately 48% of Gen Z consumers identifying as members of a minority group, as compared to 39% of Millennials. This melting pot of cultures fuels the ever-growing consumer interest in exploring new and exciting cuisines, and we believe CAVA is optimally positioned to capitalize on this generational shift. The Mediterranean category, which was estimated to be almost $40 billion in 2021, is a notable growth area within the restaurant industry as the American palate becomes more drawn to unique and exciting flavors while still focusing on health. As the first and only Mediterranean brand at scale, CAVA shapes and defines the category; we believe Mediterranean cuisine is growing significantly as consumers become more familiar with our brand and our strong, authentic, craveable, on-trend flavors.
Increased Focus on Health and Wellness
Consumers across various age groups are focused on improving their health and wellness, with 70% wanting to be healthier and approximately 50% placing healthy eating as a top priority according to an independent third-party survey. This focus on health and wellness has allowed the global health and wellness food category to grow to approximately $840 billion in 2022.
The Mediterranean diet has been ranked the #1 best diet overall by U.S. News & World Report for six years in a row. We believe that the health and nutrition of our food, together with our walk-the-line model, enables our guests to customize and optimize their well-being and meet their specific health and dietary needs while enjoying the flavors they crave, and allows us to compete effectively in the health and wellness food category, where we believe we have significant whitespace opportunity.
Emphasis on Combined Quality and Convenience
Modern consumers expect to be able to customize where, when, and how they enjoy their food, without compromising the quality of their food or experience. Whether it is an in-restaurant order, an order picked up in-restaurant, a drive-thru pick-up order or a delivery order, CAVA’s easy and quick access has been key to our success and is expected to strengthen as we further enhance channels of access for our guests. The rise and focus on digital channels have been reinforced by the impact of COVID-19 on the restaurant industry. For example, CAVA Digital Revenue Mix was 35% in fiscal 2022, compared to 13% pre-pandemic.
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Our Growth Opportunities
We intend to expand our business and passion for the Mediterranean Way by executing the following growth strategies:
New Restaurants – A Substantial Whitespace Opportunity
We are in the early stages of fulfilling our total restaurant potential. We have driven strong and consistent performance across our diverse base of restaurants, with more than 80% of our restaurants in suburban locations and the remainder in high-footfall city center and specialty locations throughout the continental United States – from Lancaster, PA, to Los Angeles, CA, and from Back Bay in Boston, MA to Birmingham, AL.
As of April 16, 2023, we had 263 restaurants across 22 states and Washington, D.C. We anticipate having 34 to 44 Net New CAVA Restaurant Openings in the remainder of fiscal 2023, which includes opening the remaining 8 conversions of Zoes Kitchen locations that we expect to complete by the fall of 2023. Based on our internal analysis and third-party research, we believe there is potential to have more than 1,000 CAVA restaurants in the United States by 2032. We currently have a strong new restaurant pipeline with 100 new sites for which we have signed letters of intent as of April 16, 2023, which is well in excess of our planned new restaurant openings in 2023 and 2024. These new openings are expected to be in both existing markets where there is unfulfilled consumer demand and new markets waiting to experience CAVA. For example, in 2024, we intend to enter and develop attractive new geographies, such as the Midwest.
Grow Within Existing Markets
The lines at our restaurants, the continued increase in digital adoption, and the historical and recent research we have obtained through the CAVA Brand Health Survey confirm the significant demand for CAVA in existing markets. We believe there is an opportunity to increase density within our existing markets while continuing to grow AUV in those markets. Historically in certain markets, the restaurants we subsequently open after the fourth restaurant opening achieve higher starting AUV as compared to the initial restaurants opened in those markets. Furthermore, we expect the 59 and 73 restaurants that we opened in fiscal 2021 and 2022, respectively, will continue to grow and generate higher AUV as they mature. When a new CAVA restaurant is opened, we generally observe significant organic sales growth over time, driven by the excitement around the novelty of our brand and sustained by the broad appeal of our offering.
Enter and Scale New Markets
We have demonstrated the relevance and portability of the CAVA brand as evidenced by success in 22 states and Washington, D.C. as of April 16, 2023. We believe the whitespace for CAVA extends nationwide, underpinned by our brand strength, well-developed pipeline of talent across key functional and operating areas, corporate infrastructure, new restaurant opening playbook, and attractive unit economic model supporting the execution of our new market growth strategy. Before entering new markets, we develop a comprehensive market plan that plots a clear path for future development. In addition, when determining new locations, we use a data-driven approach to heat-map demographic and psychographic data and identify trends that historically correlate with a trade area’s revenue potential to meet our unit-level returns criteria.
Drive Culinary Innovation
We believe the excitement we build around our menu will attract more traffic to our restaurants and across our digital channels. We are focused on menu innovation to continue delighting our guests with vibrant Mediterranean flavors and healthful food. We intend to introduce new and unique items to our core staples like Harissa Honey Chicken, while also offering limited-time menu items through seasonal innovation such as our White Sweet Potato + Feta Bowl. Our culinary innovation engine will continue to keep our passionate fans engaged and constantly excited to experience CAVA.
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Leverage our Digitally Enabled Multi-Channel Offering
Our digital platform has been an important contributor to our growth. We will continue to enhance our channel offerings in order to maximize our value proposition to our guests while making it easy to engage with CAVA. We intend to leverage our interconnected physical and digital ecosystem to continue to increase convenience and access to our brand while enhancing our adaptability across trade areas.
Format Flexibility to Drive Growth
We are introducing new formats, such as CAVA digital kitchens, CAVA hybrid kitchens and drive-thru pick-up lanes, to better suit evolving consumer demands and to tailor to our guests’ preferred channels. We are currently piloting CAVA digital kitchens in select markets to serve as centralized production hubs, and we are also currently piloting CAVA hybrid kitchens in select markets where we believe there is strong demand for our catering services. In addition, we have seen success since our initial launch of restaurants with drive-thru pick-up locations in 2019. Restaurants with drive-thru pick-up capabilities generally achieve higher sales compared to other restaurants. We currently expect that a significant portion of our new restaurants opening in fiscal 2023 and beyond will have drive-thru pick-up capabilities. We plan to continue driving growth with new and improved formats and convenience channels tailored to our guest preferences.
Improved Digital Customization
Our digital strategy is a key element to our future growth as consumers evolve and look for more convenient and personalized ways to engage with CAVA. Our ability to dynamically surface content across various modes of engagement, whether through the CAVA app, website, or in-restaurant, has allowed effortless navigation and personalized experiences. For example, leveraging our in-restaurant digital menu boards and CAVA app, we plan to highlight top trending mixes and provide our guests with loyalty program rewards when they select those combinations. We continue to make targeted digital investments that provide a personalized end-to-end guest experience guided by data. We also have several initiatives, such as in-restaurant one-tap loyalty and pay, loyalty program enhancements, and catering customer relationship management (“CRM”), in development.
Enhanced Loyalty Offering
Our approximately 3.7 million loyalty members represented 25% of our sales for the first quarter of 2023. We see a large growth opportunity in driving new and existing guests to join our loyalty program. We intend to leverage our in-house data architecture to engage with our guests in effective ways as we continue to refine and evolve our loyalty program, including introducing menu exclusives to drive adoption, enhancing targeting capabilities to amplify conversion, and instituting engagement challenges to motivate frequency and rekindle lapsing guest relationships. In addition, we plan to adopt a more tailored approach to our loyalty program by providing unique personalized digital content in the CAVA app powered by our digital ecosystem, offering physical items such as merchandise, and making cross-channel offers to develop a richer emotional connection with our guests.
Broaden our Catering Offering
We are currently in the early stages of our catering program and plan to expand our catering capabilities to more CAVA locations around the country by leveraging our kitchen production. We believe this will help to drive CAVA Same Restaurant Sales across our restaurant base.
Grow Consumer Packaged Goods
We have built a well-established CPG business consisting of CAVA dips, spreads, and dressings. Our CPG offerings are currently sold in more than 650 grocery stores nationwide, including Whole Foods Markets across the country. We will continue to innovate in this highly attractive category by increasing our SKUs as well as channels of distribution.
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Increase Brand Awareness
Each new restaurant we open increases our brand awareness and allows us to introduce the Mediterranean Way to, and reach, more guests. With our focus on hospitality and our ability to execute at a high-level, the expansion of our restaurant base is an effective and cost-efficient way of marketing our purpose-driven, authentic brand, in addition to being an important growth driver. Our aided brand awareness has grown from 41% in the first half of fiscal 2021 to 44% in the second half of fiscal 2022, with significant runway to further increase brand awareness and guest engagement in both our existing and new markets, which will allow us to create, capture, and retain new demand.
To further increase brand awareness, we will also focus on the following:
Local Community Engagement
As we enter into new markets, we tailor our marketing, media, and outreach to engage each local market. For example, we host Community Days when we open a new restaurant, where we provide free meals to all who come through our doors. We suggest and match donations received on Community Days to benefit local nonprofit partners that focus on underserved neighborhoods. This increases our brand awareness while simultaneously supporting our mission by bringing heart, health, and humanity to food in each new community we enter.
Amplify our Brand Expression Through Collaborations
We have recently tapped into a new mode of guest engagement through brand collaborations with genuine CAVA fans. Our first campaign with top influencer, Emma Chamberlain, in 2022 drove incremental traffic, increased brand awareness with the Gen Z audience, and helped CAVA be voted for the first time as one of upper income female Gen Z’s top five favorite restaurant brands in a third-party survey. We see opportunities to build upon this success and execute other brand collaborations to fortify our brand awareness across attractive demographics.
Grow our Social Community
A core strength of our brand is our passionate fan base that engages on social media. With hundreds of thousands of followers across our social communities and over 2.6 million engaged ‘likes’ on TikTok, these channels allow us a deeper way to engage our guests and reinforce our brand essence. We intend to continue to use dynamic content, relevant cultural moments, micro-influencer partnerships, and other partnerships to grow our community and drive brand awareness.
Leverage our CPG Offerings
Our Consumer Packaged Goods, sold in over 650 grocery stores nationwide, give us an opportunity to engage with consumers through multiple, high-value touchpoints that amplify brand awareness. Whether on a grocery store shelf or in a refrigerator in a guest’s home, this channel allows for increased awareness of the CAVA brand.
Capitalizing on our Significant Investments in Infrastructure
We have made significant investments in our infrastructure across critical areas of our business to support our future growth and provide operating leverage, including the following:
Technology Infrastructure: Our robust infrastructure, including a unified data warehouse and master data management platform, allows for clean, consistent, and actionable data across the enterprise.
Digital Platform: We have built a fully integrated digital platform based on an agile, flexible, and scalable micro-services architecture, including dynamic content management and order flow throttling capabilities.
Catering: Our proprietary catering CRM supports our channel growth opportunity.
Manufacturing: We currently operate a 30,000-square-foot production facility in Maryland and recently commenced building a state-of-the-art production facility in Virginia. Our proprietary dips and spreads are
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centrally produced to enable our restaurants to focus on all other aspects of food preparation. We expect that our production facilities will support at least 750 restaurants, as well as our CPG business, with the potential to add additional capacity over time.
Supply Chain: We have established a direct sourcing model comprised of trusted grower, rancher, and producer partners who will enable us to maintain the quality and consistency of our ingredients as we scale.
People: We have made significant hires across key functional and operational areas.
We believe these investments will continue to enable consistent, cost-effective production while deepening our competitive advantage and extending our leadership in the Mediterranean category.
Summary of Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider all of the risks described in “Risk Factors” before deciding to invest in our common stock. If any of the risks actually occurs, our business, results of operations, prospects, and financial condition may be materially adversely affected. In such case, the trading price of our common stock may decline and you may lose part or all of your investment. Below is a summary of some of the principal risks we face:
our industry is highly competitive;
our ability to open new restaurants while managing our growth effectively and maintaining our culture;
our historical growth may not be indicative of our future growth;
our ability to successfully identify appropriate locations and develop and expand our operations in existing and new markets;
the impact of changes in guest perception of our brand;
the impact of food safety issues and food-borne illness concerns;
the risks associated with leasing property;
our ability to manage our manufacturing and supply chain effectively;
our ability to successfully optimize, operate, and manage our production facilities;
the risks associated with our reliance on third parties;
the impact of increases in food, commodity, energy, and other costs;
the impact of increases in labor costs, labor shortages, and our ability to identify, hire, train, motivate and retain the right Team Members;
our ability to attract, develop, and retain our management team and key Team Members;
the impact of any cybersecurity breaches;
the impact of failures, or interruptions in, or our inability to effectively scale and adapt, our information technology systems;
the impact of economic factors and guest behavior trends;
the impact of evolving rules and regulations with respect to environmental, social, and governance (“ESG”) matters;
the impact of climate change and volatile adverse weather conditions; and
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the other factors discussed under “Risk Factors.”
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, in this prospectus, we (i) have presented only two years of audited financial statements; and (ii) have not included a compensation discussion and analysis of our executive compensation programs. In addition, for so long as we are an emerging growth company, among other exemptions, we will:
not be required to engage an independent registered public accounting firm to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);
not be required to comply with the requirement in Public Company Accounting Oversight Board Auditing Standard 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, to communicate critical audit matters in the auditor’s report;
be permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our periodic reports and registration statements, including in this prospectus;
not be required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation; or
not be required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes.”
We will remain an “emerging growth company” until the earliest to occur of:
our reporting of $1.24 billion or more in annual gross revenue;
our becoming a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;
our issuance, in any three year period, of more than $1.0 billion in non-convertible debt; and
the fiscal year end following the fifth anniversary of the completion of this initial public offering.
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act.
Our Corporate Information
CAVA Group, Inc. was originally incorporated in Delaware on February 27, 2015. Our principal offices are located at 14 Ridge Square NW, Suite 500, Washington, D.C. 20016. Our telephone number is 202-400-2920. We maintain a website at cava.com. The reference to our website is intended to be an inactive textual reference only. The information contained on, or that can be accessed through, our website is not part of this prospectus.
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The Offering
Issuer
CAVA Group, Inc.
Common stock offered by us
          shares (or          shares if the underwriters exercise their option to purchase additional shares of common stock in full).
Option to purchase additional shares of our common stock
We have granted the underwriters a 30-day option from the date of this prospectus to purchase up to           additional shares of our common stock at the initial public offering price, less underwriting discounts, and commissions.
Common stock to be outstanding immediately after this offering
          shares (or          shares if the underwriters exercise their option to purchase additional shares of common stock in full ).
Use of proceeds
We estimate that the net proceeds to us from this offering will be approximately $          million (or approximately $          million, if the underwriters exercise their option to purchase additional shares of common stock in full), assuming an initial public offering price of $           per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. For a sensitivity analysis as to the offering price and other information, see “Use of Proceeds.”

We intend to use the net proceeds to us from this offering for new restaurant openings and for general corporate purposes. See “Use of Proceeds.”
Dividend policy
We have no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors (our “Board of Directors”) and will depend on, among other things, our results of operations, cash requirements, financial condition, legal, tax, regulatory, and contractual restrictions, including restrictions in the agreements governing our indebtedness, and other factors that our board of directors may deem relevant. See “Dividend Policy.”
Concentration of Ownership
Following completion of this offering, our executive officers, directors, and each of our stockholders who own 5% or more of our outstanding common stock and their affiliates, in the aggregate, will beneficially own approximately           % of the outstanding shares of our common stock, based on the number of shares outstanding as of          , 2023.
Directed Share Program
At our request, the underwriters have reserved           % of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to certain tiers of eligible CAVA Rewards members, certain suppliers, certain individuals identified by our executive team and other certain individuals affiliated with us. The number of shares of our common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Any shares sold under the directed share program, other than to our directors, officers, and existing significant stockholders, will not be subject to the terms of any lock-up agreement. See “Underwriting.”
Risk factors
Investing in shares of our common stock involves a high degree of risk. See “Risk Factors” beginning on page 22 for a discussion of factors you should carefully consider before investing in shares of our common stock.
Proposed trading symbol
“CAVA.”
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Unless we indicate otherwise or the context otherwise requires, this prospectus:
reflects and assumes:
no exercise by the underwriters of their option to purchase additional shares of our common stock;
an initial public offering price of $          per share of our common stock, which is the mid-point of the estimated price range set forth on the cover page of this prospectus;
the automatic conversion of           shares of our preferred stock outstanding on a one-to-one basis into shares of our common stock at the consummation of this offering;
the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the consummation of this offering; and
a                -for-                forward stock split of our Common Stock, which will occur prior to the consummation of this offering;
does not reflect shares of our common stock issuable upon exercise of outstanding stock options (“Options”) at a weighted average exercise price of $          per share; and
does not reflect          shares of our common stock reserved for future issuance under our 2015 Equity Incentive Plan (the “2015 Equity Incentive Plan”), and our new 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”) and 2023 Employee Stock Purchase Plan (the “ESPP”), each of which we intend to adopt in connection with this offering. See “Management―Executive Compensation―Compensation Arrangements to be Adopted in Connection with this Offering―Employee Stock Purchase Plan.”
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SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
Set forth below is our summary historical financial and other data as of the dates and for the periods indicated. The summary statements of operations and summary cash flow data for the years ended December 25, 2022 and December 26, 2021, and the balance sheet data as of December 25, 2022 and December 26, 2021, have been derived from our audited financial statements included elsewhere in this prospectus. The summary statements of operations and summary cash flow data for the sixteen weeks ended April 16, 2023 and April 17, 2022, and the balance sheet data as of April 16, 2023, have been derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the financial information contained in those statements. The results of operations for any period are not necessarily indicative of the results to be expected for any future period, and our results for any interim period are not necessarily indicative of the results that may be expected for any full fiscal year.
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.
You should read the following summary financial and other data below together with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this prospectus. Share and per share data in the table below does not reflect the                -for-one forward stock split, which will occur prior to the consummation of the offering.
Sixteen Weeks EndedFiscal
($ in thousands, except per share amounts)April 16,
2023
April 17,
2022
20222021
Statement of Operations Data
Revenue
$203,083 $159,011 $564,119 $500,072 
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Food, beverage, and packaging59,118 50,904 179,988 154,772 
Labor
52,154 47,022 157,891 143,395 
Occupancy
16,599 16,740 53,669 49,299 
Other operating expenses
24,648 22,201 74,587 70,453 
Total restaurant operating expenses
152,519 136,867 466,135 417,919 
General and administrative expenses
29,024 20,937 70,037 64,792 
Depreciation and amortization
12,859 12,819 42,724 44,538 
Restructuring and other costs
2,215 1,284 5,923 6,839 
Pre-opening costs
5,999 3,566 19,313 8,194 
Impairment and asset disposal costs
2,719 3,431 19,753 10,542 
Total operating expenses
205,335 178,904 623,885 552,824 
Loss from operations:
(2,252)(19,893)(59,766)(52,752)
Interest expense, net
25 343 47 4,810 
Other income, net
(174)(258)(919)(20,288)
Loss before income taxes
(2,103)(19,978)(58,894)(37,274)
Provision for income taxes
38 40 93 117 
Net loss
$(2,141)$(20,018)$(58,987)$(37,391)
Loss per common share:
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Net loss per share, basic and diluted
$(3.90)$(46.25)$(133.23)$(153.18)
Weighted average outstanding, basic and diluted
548,973 432,840 442,753 244,100 
Pro forma net loss per share, basic and diluted
Pro forma weighted average outstanding, basic and diluted
Balance Sheet Data (as of end of period)
Cash and cash equivalents
$22,716 $39,125 $140,332 
Total assets
603,954 583,883 362,195 
Total liabilities
392,687 370,078 92,908 
Preferred stock
662,308 662,308 662,308 
Total stockholders’ equity
(451,041)(448,503)(393,021)
Cash Flow Data
Cash flows provided by operating activities
$25,679 $(2,363)$6,038 $3,393 
Cash flows used in investing activities
(39,097)(22,291)(104,161)(56,309)
Cash flows provided by (used in) financing activities
(2,991)(1,355)(3,084)143,152 
Other Financial Data and Key Performance Measures (unaudited)
CAVA Revenue(1)
$196,761 $112,006 $448,594 $278,219 
CAVA Same Restaurant Sales Growth(2)
28.4 %19.9 %14.2 %45.2 %
CAVA AUV(3)
$2,547 $2,375 $2,398 $2,305 
CAVA Restaurant-Level Profit(4)
$49,983 $19,592 $91,093 $50,884 
CAVA Restaurant-Level Profit Margin(5)
25.4 %17.5 %20.3 %18.3 %
CAVA Restaurants(6)
263 177 237 164 
Net New CAVA Restaurant Openings(7)
26 13 73 59 
CAVA Digital Revenue Mix(8)
36.6 %35.3 %34.5 %37.4 %
Adjusted EBITDA(9)
$16,746 $(1,576)$12,615 $14,642 
Net loss margin(1.1)%(12.6)%(10.5)%(7.5)%
Adjusted EBITDA Margin(9)
8.2 %(1.0)%2.2 %2.9 %
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(1)“CAVA Revenue” is defined to include all revenue attributable to CAVA restaurants in the specified period, excluding one restaurant operating under a license agreement.
(2)“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). CAVA Same Restaurant Sales Growth was materially impacted in fiscal 2021 due to the temporary impacts of the COVID-19 pandemic on CAVA Revenue during fiscal 2020. CAVA Same Restaurant Sales Growth for fiscal 2021, as compared to fiscal 2019, would have been 23.6%. For purposes of calculating CAVA Same Restaurant Sales Growth compared to fiscal 2019, we only include CAVA restaurants that were open as of the beginning or during fiscal 2019.
(3)“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, divided by the number of operating CAVA Restaurants that were open for the entire trailing thirteen periods. For purposes of calculating CAVA AUV for the sixteen weeks ended April 16, 2023 and April 17, 2022, the applicable measurement period is the entire trailing thirteen periods ended April 16, 2023 and April 17, 2022, respectively.
(4)“CAVA Restaurant-Level Profit,” a segment measure of profit and loss, 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.
(5)“CAVA Restaurant-Level Profit Margin” represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue.
(6)“CAVA Restaurants” is defined to include all CAVA restaurants, including converted Zoes Kitchen locations and CAVA hybrid kitchens, that are open as of the end of the specified period. CAVA Restaurants exclude one restaurant operating under a license agreement and CAVA digital kitchens.
(7)“Net New CAVA Restaurant Openings” is defined as new CAVA restaurant openings (including CAVA restaurants converted from a Zoes Kitchen location) during a specified reporting period, net of any permanent CAVA restaurant closures during the same period.
(8)“CAVA Digital Revenue Mix” represents the portion of CAVA revenue related to digital orders as a percentage of total CAVA revenue.
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(9)“Adjusted EBITDA” is defined as net income (loss) adjusted to exclude interest expense (income), net, provision for (benefit from) income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, and restructuring and other costs. We describe these adjustments reconciling net loss to Adjusted EBITDA in the table below. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA as a percentage of revenue.
We present Adjusted EBITDA and Adjusted EBITDA Margin in this prospectus 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 our 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;
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 indebtedness.
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The following tables provides a reconciliation of net loss to Adjusted EBITDA and net loss margin to Adjusted EBITDA Margin for the periods presented:
Sixteen Weeks EndedFiscal
($ in thousands)April 16,
2023
April 17,
2022
20222021
Net loss
$(2,141)$(20,018)$(58,987)$(37,391)
Non-GAAP Adjustments:
Interest expense, net
25 343 47 4,810 
Provision for income taxes
38 40 93 117 
Depreciation and amortization
12,859 12,819 42,724 44,538 
Equity-based compensation
1,205 783 3,981 5,475 
Other income, net
(174)(258)(919)(20,288)
Impairment and asset disposal costs
2,719 3,431 19,753 10,542 
Restructuring and other costs
2,215 1,284 5,923 6,839 
Adjusted EBITDA
$16,746 $(1,576)$12,615 $14,642 
Sixteen Weeks EndedFiscal
($ in thousands, other than percentages)April 16,
2023
April 17,
2022
20222021
Revenue
$203,083 $159,011 $564,119 $500,072 
Net loss margin
(1.1)%(12.6)%(10.5)%(7.5)%
Adjusted EBITDA Margin
8.2 %(1.0)%2.2 %2.9 %
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider all of the risks and uncertainties described below and the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, results of operations, prospects, and financial condition may be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Forward-Looking Statements.”
Risks Related to Our Business and Our Industry
We operate in a highly competitive industry.
The restaurant industry is highly competitive with respect to, among other things, food quality and presentation, taste preferences, price, brand reputation, digital engagement, service, value, and location. The food manufacturing industry is also highly competitive with respect to, among other things, food quality, taste, functional benefits, nutritional value and ingredients, convenience, brand loyalty and positioning, food variety, product packaging, shelf space, price, and promotional activities. We face significant competition from national, regional, and locally-owned restaurants, including limited service restaurants, particularly within the fast-casual dining and traditional fast-food categories, who offer in-restaurant, carry-out, delivery, and/or catering services. We also compete with grocery stores, convenience stores, meal subscription services, and delivery kitchens, especially those that target guests who seek high-quality food. Our CPG business also faces competition from other producers of dips, spreads, and dressings and other pantry and food items. Further, as we continue to innovate upon our digital strategy and offer more ways to reach our guests through digital channels, such as the CAVA app and the CAVA website, we expect to face increasing competition from food delivery services, which promote a wide variety of restaurant options on their websites.
Many of our competitors have been operating for longer and have a more established market presence than us, and have better locations, greater name recognition and resources than we do, and, as a result, these competitors may be better positioned to attract guests. Our larger competitors may also be able to take advantage of greater economies of scale than we can and may be better able to increase prices to reflect cost pressures and increase their marketing and promotional activity, including through discount strategies. Our competitors may also be able to identify and adapt to changes in guest preferences more quickly than us due to their resources and scale. Changes in guests’ tastes, nutritional and dietary trends, methods of ordering, and number and location of competing restaurants often affect the restaurant industry. If we are unable to successfully compete, our sales volume and/or pricing may be subject to downward pressure and we may not be able to increase, or sustain, our growth rate or revenue or reach profitability.
Further, as we expand our geographic presence and develop our digital channels, we anticipate we will face increased competition for channel access. Our competitors will likely grow in number as the Mediterranean food category grows, and we may face the risk that new or existing competitors will mimic our business model, menu offerings, marketing strategies, and overall concept.
Any of the above competitive factors may materially adversely affect our business, financial condition, and results of operations.
Our future growth depends on our ability to open new restaurants while managing our growth effectively and maintaining our culture, and our historical growth may not be indicative of our future growth.
Our growth depends on our ability to successfully open a significant number of new restaurants on a profitable basis. As of April 16, 2023, we owned and operated 263 CAVA restaurants in 22 states and Washington, D.C. Since the Zoes Kitchen acquisition, through April 16, 2023, we have successfully converted 145 Zoes Kitchen locations into CAVA restaurants. In fiscal 2022, we had 73 Net New CAVA Restaurant Openings, which includes the conversion of 63 Zoes Kitchen locations. We anticipate having 34 to 44 Net New CAVA Restaurant Openings in the remainder of fiscal 2023, which includes opening the remaining 8 conversions of Zoes Kitchen locations that we
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expect to complete by the fall of 2023. A significant number of new restaurants we opened in the last few years have been conversions of Zoes Kitchen locations, which has helped drive the growth of our business. If we are unable to sustain the pace of new restaurant openings, all of which are expected to be from greenfield expansions following the conversions of the remaining Zoes Kitchen locations, our growth rate may decline. In addition, given the size and scale we have achieved, we expect our growth rates in percentage terms to moderate in the future. Therefore, our historical growth rates are not indicative of our future growth.
Our ability to open new restaurants depends on various factors, some of which are outside of our control. For example, delays in construction and increased construction costs, including as a result of the COVID-19 pandemic, as well as delays in inspections and the receipt of necessary permits, have caused, and may continue to cause, a delay in opening restaurants, resulting in increased costs and lower than anticipated sales. Furthermore, while we work to manage cost overrun risks for our new restaurant development projects with detailed architectural plans, guaranteed or fixed price contracts, forward buys of certain equipment and materials, and close supervision by our executives and personnel, we have in the past experienced, and expect we will continue to experience, increased construction costs. In addition, we may not be able to anticipate and adapt to all of the changing demands that our planned expansion will impose on our existing digital infrastructure, including our restaurant management systems and back office technology systems and processes, as well as financial and management controls, and we may not be able to hire and retain the management and personnel necessary to support such expansion at a reasonable costs, or at all, all of which could harm our guest experience and our business.
Our ability to manage our growth effectively will require us to continue to enhance these systems, processes, and controls and identify, hire, train, motivate, and retain management and operating personnel, particularly in new restaurant locations. In addition, we must maintain our culture as our operations expand and as we onboard new Team Members, as we believe our culture is a key competitive advantage and an important contributor to our success. Our business, financial condition and results of operations could be negatively affected if we are unable to manage our growth effectively while preserving our culture.
We may not be able to successfully identify appropriate locations and develop and expand our operations in existing and new markets.
Our ability to successfully execute on our growth strategy requires us to identify target markets where we can gain a foothold or expand our existing footprint on a profitable basis. As part of that strategy, we sometimes enter into geographic markets in which we have little or no prior operating experience. For example, we plan to expand into the Midwest where we currently do not have a presence and have no restaurant operating experience.
We may not be able to develop presence in new target markets, which may have more competitive conditions or different guest tastes and discretionary spending patterns as compared to our existing markets. It is also possible that our Mediterranean cuisine will be of limited appeal in any new market. We may incur higher costs in a new market, particularly to make significant investments in advertising and promotional activity to build brand awareness and attract new guests. We may also incur additional costs relating to the transportation and distribution of supplies and entering into contracts with new third parties, and we may face more competitive labor conditions in a new market. Until we attain a critical mass in a market, the restaurants we open in that market may incur higher food distribution costs and reduced operating leverage. As a result, restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis. If we are unable to successfully enter new markets, it could have an adverse effect on our business, financial condition, and results of operations.
After identifying a new market, we must then identify and secure quality locations within such market. Each new location requires that we take into account numerous factors in order to be profitable, such as:
negotiating leases with acceptable terms;
obtaining licenses, permits, and approvals on a timely basis;
complying with applicable zoning, land use, environmental, health and safety, and other governmental rules and regulations (including interpretations of such rules and regulations);
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unforeseen engineering or environmental problems;
proximity of a potential location to an existing location;
identifying, hiring, and training qualified Team Members to meet staffing needs;
local economic trends, population density, and area demographics; and
longer permitting or inspection cycles and availability of construction and restaurant equipment and services.
Our Zoes Kitchen acquisition provided us with an extensive portfolio of real estate, allowing us to rapidly expand by converting Zoes Kitchen locations into CAVA restaurants. However, all Zoes Kitchen locations have since either been converted or closed or are in the process of being converted and we cannot guarantee that we will be able to develop a robust new restaurant pipeline, which would impact our future growth. We may not be able to successfully identify and secure a sufficient number of attractive restaurant locations in new or existing markets. For those locations where we are able to secure an attractive restaurant location, our progress in developing and subsequently opening new restaurants may be slower than desired, resulting in increased costs and lower than expected sales. Our inability to appropriately identify sites and develop and open new restaurants could impact our growth strategy and have a material adverse effect on our business, financial condition, and results of operations.
New restaurants may not be profitable, and may negatively affect sales at our existing locations.
Although we institute certain operating and financial performance targets for new restaurants, these new restaurants may not meet these targets or may take longer than anticipated to do so. We typically incur the most significant portion of pre-opening costs associated with a given restaurant within the three months preceding the opening of the restaurant. Historically, labor and operating costs associated with a newly opened restaurant are materially greater in the first six months of operations, both in aggregate dollars and as a percentage of revenue. Our new restaurants typically take a period of time to reach planned operating efficiency, due to costs and challenges associated with identifying, hiring, training, and retaining qualified Team Members, including General Managers, and instilling and enforcing CAVA standards, among other reasons. Any new restaurants that we open may not be profitable or achieve operating results similar to those of our existing restaurants on a similar time frame or at all, our historical pre-opening costs may not be indicative of future pre-opening costs and increases in CAVA AUV that we have experienced in the past may not be indicative of future results. Newer restaurants may also reduce CAVA AUV as these restaurants typically achieve lower sales when they first open. If our new restaurants do not perform as planned, our business, financial condition, and results of operations could be harmed.
In addition, the opening of new restaurants in or near markets in which we already have a restaurant could adversely affect sales at existing restaurants, particularly in markets where we have a high concentration of restaurants, such as the Washington, D.C./Maryland/Virginia metropolitan area. Existing restaurants within a market could also make it more difficult to build our guest base for a new restaurant in the same market. While our plan is to open new restaurants that are not expected to materially affect sales at our existing restaurants, it is possible that new restaurants may cannibalize sales at our existing restaurants, which could adversely affect our profitability.
Negative changes in guest perception of our brand could negatively impact our business.
Our reputation for quality food and our brand’s connection to guests have been critical to our business and to our success in existing markets, and will continue to be critical to our success as we enter new markets. Any incident that diminishes guest loyalty or guests’ positive perception of our food could significantly damage the value of our brand and, in turn, damage our business and prospects.
Negative publicity, regardless of its accuracy, may adversely affect our business and brand value. These could include concerns about our food’s quality and safety, the impact that our food and products (including our packaging) may have on the environment, data security breaches, third-party service providers (including relating to delivery services and information technology), employment-related claims, or government or industry findings concerning our restaurants or our industry, or other concerns, which may be outside our control. Moreover, the
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negative impact of adverse publicity relating to any one CAVA restaurant or any of our CPG offerings may extend far beyond such restaurant to affect some or all of our other restaurants and our other product offerings. Negative publicity generated by such incidents may be amplified by the use of social media and platforms that enable guests to review our restaurants and food, which allows individuals to access a broad audience of our guests and other interested persons. See “—Our inability or failure to utilize, recognize, respond to, and effectively manage the immediacy of social media could have a material adverse effect on our business.” The risks associated with such negative publicity, cannot be completely mitigated and may result in damage to our brand.
Our efforts to market our restaurants and brand may not be successful.
Due to the highly competitive nature of our industry, we must effectively and efficiently promote and market our restaurants and brand to attract and retain guests and sustain our competitive position. Marketing investments may be costly. Our marketing strategy primarily includes using public relations, digital and social media, promotions, and in-restaurant messaging, and we may from time to time change our marketing strategies and spending. We expect to increase our investment in advertising and promotional activities as we expand, including targeted marketing offers to incentivize and reward loyal guests, and attract guests in new markets. If our marketing initiatives are unsuccessful or ineffective and do not meet our performance targets, such as the introduction of new menu offerings that do not generate the level of sales that we expect, our business, financial condition, and results of operations may be adversely affected.
Additionally, some of our competitors are able to devote more resources to marketing and advertising than we are able to. If our competitors increase spending on marketing and advertising, if our funds available for marketing funds decrease, if our marketing strategies or pricing methodologies are less effective than those of our competitors or if we are otherwise unable to adequately respond to changes in our competitors’ marketing strategies, our business, financial condition, and results of operations may be adversely impacted.
Food safety issues and food-borne illness concerns may harm our business.
We handle high-risk foods, such as uncooked meats, in our restaurants. Although our proprietary dips and spreads are centrally produced, we freshly prepare most of our menu items at our restaurants, and food safety issues (such as food-borne illness and food contamination outbreaks) may occur. Although we have instituted food safety policies and procedures in each of our restaurants, incidents may nonetheless result both from our restaurant personnel’s failure to comply with such policies and procedures and for other reasons beyond our control. If any guest becomes, or is under the belief that they have become, ill due to a food safety issue, we may temporarily close some restaurants, which would adversely impact our results of operations.
Food safety issues may be caused by a variety of factors, many of which are out of our control. For example, these incidents may occur when guests or other individuals, including Team Members, enter our restaurant while ill and contaminate ingredients, surfaces, or other individuals. We cannot guarantee that food items will be properly maintained throughout the supply and delivery chain. Our third-party distributors and suppliers may not fully comply with our or their own food safety programs, and these third parties could cause food-borne illness incidents. For example, we have previously experienced food safety incidents we believe were attributable to issues at a third-party supplier. Any food safety issue arising from a distributor or supplier will likely affect multiple restaurants rather than a single restaurant. The risk of food safety issues is also increased with respect to catering orders and orders delivered through third-party delivery service providers, as we often have limited or no control over how the food is delivered or served. In addition, our restaurants and production facilities are subject to review and examination by local, state and federal authorities, which may result in temporary or permanent closures. Such closures may negatively impact results and damage our brand.
Food items produced at our and our third-party co-manufacturers’ facilities are vulnerable to spoilage, contamination and food safety issues. Although we have instituted processes and systems at our production facilities designed to ensure compliance with applicable food safety regulations and standards, we cannot guarantee that the CPG offerings that are manufactured at our facilities will not be recalled, for example due to possible human error or manufacturing defects. Furthermore, while we require our third-party co-manufacturers to comply with our food safety standards, we do not have control over their manufacturing and packaging processes. In addition, we also do
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not have control over handling procedures once our food has been shipped for distribution. We may need to recall or withdraw some or all of our food if it becomes damaged, contaminated, adulterated, misbranded, whether caused by us or someone in our manufacturing or supply chain. A recall or withdrawal could result in destruction of food ingredients and inventory, negative publicity, temporary facility closings for us or our third-party contract manufacturers, supply chain interruption, substantial costs of compliance or remediation, fines, and increased scrutiny by federal, state, and foreign regulatory agencies. New scientific discoveries regarding food safety and food manufacturing may bring additional risks and latent liability. If consumption of any food causes or is alleged to cause injury, we may be subject to litigation and may be liable for monetary damages as a result of a judgment against us or fines by federal, state, and foreign regulatory agencies.
In the event of a food safety or food packaging incident, the protocols and procedures that we have in place and the public statements we make in response to such incident may not be sufficient to address the potential impact to the safety of our guests and our reputation. Furthermore, any food safety or food packaging incident, whether actual or perceived, could result in negative publicity and public speculation and adversely impact our brand, reputation, and sales. This risk is exacerbated by the fact that social media enables negative publicity, whether or not accurate, to be rapidly disseminated before there is any meaningful opportunity to investigate, respond to and address an issue. In addition, any food safety or food packaging incident that occurs, whether solely at a competitor’s restaurant, or at one of our manufacturing partners’ facilities, or at our facilities, could result in negative publicity about the restaurant industry generally or with respect to our CPG offerings, which could in turn have an adverse effect on our business. In addition, the health and environmental risks of organic fluorine and per- and polyfluoroalkyl substances (“PFAS”) have been the subject of increased regulatory scrutiny and litigation involving us and others in the restaurant industry. See “Business—Legal Proceedings.”
Lastly, the occurrence of food-borne illnesses or food safety issues could result in a temporary supply disruption and adversely affect the price and availability of affected ingredients.
All of these factors could have an adverse impact on our brand and our ability to attract guests, which could in turn have a material adverse effect on our business, financial condition (including our ability to obtain financing) and results of operations.
If we are unable to maintain or increase prices, our margins may decrease.
We strive to use high-quality ingredients that are often more costly than lower quality ingredients and/or ingredients that are farmed through less environmentally conscious methods. Our continued success depends on our ability to persuade our guests that the variety and choice of healthful, flavorful food that we provide is worth the higher prices compared to eating at many of our competitors. If we are unable to persuade our guests about the quality of our food, we may be required to change our pricing, advertising, or promotional strategies to retain existing guests or attract new guests, which could adversely affect the strength of our brand and our business, financial condition, and results of operations.
We rely in part on price increases from time to time to offset cost increases, including the cost of ingredients, commodities, insurance, labor, marketing, taxes, real estate and other key operating costs, and improve the profitability of our business. We have increased the prices of our food over the past few years, and we expect to further increase prices in the future. Our ability to maintain prices or effectively implement price increases may be affected by a number of factors, including competition, the effectiveness of our marketing programs, the continuing strength of our brand, and general economic conditions, including inflationary pressures. During challenging economic times, consumers may be less willing or able to dine out or purchase pre-packaged dips, spreads, and dressings, making it more difficult for us to maintain prices and/or effectively implement price increases. In addition, increasing prices could negatively affect the loyalty of our existing guest base and cause them to reduce their spending with us or impact our ability to attract new guests, particularly as we expand our footprint into new geographies where guests might have greater price sensitivity. If our price increases are not accepted by guests and reduce sales volume, or are insufficient to offset increased costs, our business, financial condition, and results of operations could be adversely affected.
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The growth of our business depends on our ability to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings.
Our success is dependent, in part, upon our ability to respond effectively to changes in guests’ eating habits and government regulations and to adapt our menu offerings to trends in eating habits. The success of our business depends on our ability to identify these changing preferences and behaviors, to distinguish between short-term trends and long-term changes in such preferences and behaviors, and to continue to develop and offer food that appeals to guests through the channels that they prefer. Consumer preference and behavior changes include dietary trends, attention to different nutritional aspects of foods and beverages (see “—Risks Related to Legal and Governmental Regulation—We are subject to extensive laws and regulatory requirements, and failure to comply with, or changes in, these laws or regulations could have an adverse impact on our business.”), preferences for certain sales channels, reduced demand for food away from home as a result of the recent increase in remote and hybrid working arrangements, concerns regarding the health effects of certain foods and beverages, attention to sourcing practices relating to ingredients, animal welfare concerns, environmental concerns regarding packaging, among others. These changes in guests’ eating habits can occur rapidly, which requires us to adapt with similar speed. To the extent we are unwilling or unable to timely respond to shifting guest preferences, guests’ demand for our food and offerings may be reduced.
If guests’ eating habits change, we must timely and appropriately respond to such changes, which may include the modification or removal of certain menu items, which could cause us to incur implementation costs and be operationally burdensome. In particular, the introduction of innovative menu offerings and CPG offerings involves considerable risk. It may be difficult to establish new supplier relationships for new menu or CPG offerings and determine appropriate menu and CPG offering ingredients. Any new menu or CPG offering may not generate sufficient guest interest and sales to become profitable or to cover the costs of its development and promotion and may reduce our operating income. If our efforts are not successful, or if there is a significant shift in guest demand away from our menu or CPG offerings, our business could be adversely affected.
If we are unable to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings, our brand, business, financial condition, and results of operations may be materially adversely affected.
We are subject to risks associated with leasing property.
We operate all of our restaurants in leased facilities. Many of our current leases do not contain early termination options and we expect restaurants that we open in the future will be subject to similar long-term leases without early termination options. It is challenging to locate and secure leases on favorable terms for new restaurants as competition for locations in our target markets is intense, and development and leasing costs may continue to increase.
When our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close restaurants in desirable locations and result in negative publicity concerning any such termination or non-renewal. We may not be able to control increases in occupancy costs, particularly increases driven by macroeconomic factors, such as the current inflationary environment, or in geographies where the real estate market conditions favor landlords and developers. These potential increased occupancy costs and closed restaurants could have an adverse effect on our business, financial condition, and results of operations. Furthermore, the inability to renew an existing lease in key target markets could adversely affect our ability to execute on our overall growth strategy.
In addition, we may choose to close or relocate a restaurant if it fails to meet our performance targets, which may cause us to incur significant lease termination expenses as well as additional expenses in connection with securing a new lease and construction and other costs in opening a new replacement restaurant. Conversely, if we deem the lease termination and relocation expenses to be too high, we may decide to keep an underperforming restaurant open, or sublease it, which may hurt our overall profitability and results of operations. We currently sublease certain properties and face future liability if subtenants default or incur contingent liabilities. If we continue to sublease properties, we may be unable to enter into such arrangements on acceptable terms and, even if we do,
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such arrangements may result in our incurring liabilities and expenses in future periods or the rent payments that we receive from subtenants being less than our rent obligations under the leases.
CAVA Group, Inc. has guaranteed the obligations of various of its subsidiaries, as the tenant, under a number of leases. In addition, we have provided credit support in respect of our leases in the form of letters of credit and cash security deposits. If there were to be a default under any of our leases, the applicable landlords could draw under the letters of credit and/or seize the security deposit, which could adversely affect our financial condition and liquidity.
Payments under our operating leases account for a significant portion of our operating expenses, and represented 9.8% and 11.0% of our revenue in fiscal 2022 and fiscal 2021, respectively. These substantial operating lease obligations could have negative consequences to our financial condition and results of operations, including requiring a substantial portion of our available cash to be applied to pay our rental obligations, thus reducing cash available for other purposes, as well as limiting our flexibility in planning for, and reacting to, changes in our business or our industry.
We may not be able to successfully expand our digital and delivery business, which is subject to risks outside of our control.
For fiscal 2022 and fiscal 2021, CAVA Digital Revenue Mix was 34.5% and 37.4%, respectively. The expansion of our digital and delivery business is important to the growth of our business. Our ability to expand our digital business will depend in part on our ability to improve and evolve our technology, including our website, the CAVA app and use of third-party delivery marketplaces, to remain competitive within the industry. The CAVA app and online ordering system could be interrupted by technological failures or user errors, or be subject to cyber-attacks, which could adversely impact our sales and brand image.
Substantially all of our delivery orders, including native delivery orders, are fulfilled through our third-party delivery partners. If a third-party delivery service we utilize (particularly for our native delivery orders) fails to deliver food orders to our guests in a timely manner or provides unsatisfactory delivery service, our guests may attribute the bad experience to us and may choose to stop ordering from us. If a third-party delivery service we utilize ceases or curtails operations, experiences damage to its brand image, increases its fees, or gives greater priority or promotions on its platforms to our competitors, our delivery business and our sales may be negatively impacted. Furthermore, the third-party food delivery service industry has been consolidating and may continue to consolidate, which may give third-party delivery companies more leverage in negotiating the terms and pricing of contracts, which in turn could negatively affect our profitability.
In addition, from time to time, our employees make deliveries to guests who have placed catering and delivery orders. As a result, we may be subject to additional workplace injury and other claims, such as personal injury claims and claims with respect to damaged property if such employees were to be involved in an accident, or otherwise act outside of their job function, while making food deliveries to our guests. We could also be held vicariously liable for any acts, omissions, and/or negligence of employees that deliver our food and may be subject to various claims asserting other forms of liability, including tort actions, brought by, or against, us and our employees. We could experience a higher rate of accidents or mishaps to the extent such deliveries are made by employees using modes of transport that are not owned or maintained by the Company. The risk of these claims may increase, and the cost to the Company to insure against such perils may rise or become more difficult to obtain, as the number of catering and delivery orders we fulfill increases.
Finally, as we expand our proprietary delivery services for services such as catering and native delivery, we expect to face competition from third-party delivery marketplaces who may have greater financial resources to spend on marketing and advertising. We would also face increased risks relating to shortage of delivery personnel in our markets, accidents, or other incidents involving delivery personnel while delivering our food, and any errors or delays in providing delivery services to our guests could result in a failure to meet our guests’ expectations and have an adverse impact on our business and brand.
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Our inability or failure to utilize, recognize, respond to, and effectively manage the immediacy of social media could have a material adverse effect on our business.
Social media and internet-based communication or review platforms give individual users immediate access to a broad audience. However, these platforms can facilitate rapid dissemination of negative publicity, such as negative guest or Team Member experiences. Adverse publicity, regardless of its accuracy, concerning our restaurants and our brand, may be shared on such platforms at any time and have the potential to quickly reach a wide audience. The resulting harm to our reputation from negative publicity on social media may be immediate, without affording us an opportunity to correct or otherwise respond to the information or circumstance that is the subject of such publicity. It is challenging to monitor and anticipate developments on social media in order to effectively and timely respond and our failure to do so, or to do so successfully, may have a material adverse effect on our business.
However, social media platforms are a rapidly evolving and important marketing tool, which we utilize to help us engage with guests and potential guests. For example, we maintain Facebook, Instagram, and TikTok accounts, among other accounts, and have partnered, and expect to continue to partner, with social media influencers who promote our brand and may also produce content for us. As the landscape of social media platforms develops, we must maintain our presence on existing platforms and establish a presence on emerging platforms. Many of our competitors are expanding their use of social media. Our continued success will depend on our ability to continuously innovate and develop our social media strategies to best maintain broad appeal with guests, brand relevance, and effectively compete with our peers, and we may not do so effectively. In addition, a ban of a social media platform, such as TikTok, on which we, and social media influencers that we partner with, have acquired significant followers, may adversely affect our ability to engage with guests and promote our brand.
There are a variety of additional factors associated with our use of social media that may harm our business and result in negative publicity, including the possibility of improper disclosure of proprietary information, exposure of personally identifiable information of our Team Members or guests, the failure by us or our Team Members to comply with applicable law and regulations, any inappropriate use of social media platforms by our Team Members, fraud, hoaxes, or malicious dissemination of false information. Furthermore, association with influencers or celebrities who become embroiled in controversy, regardless of whether such controversy is related to our business, could damage our reputation, and our partnership with any such influencer or celebrity could be difficult and costly to unwind and otherwise address.
We have a history of losses and, especially if we continue to grow at an accelerated rate, we may not achieve or maintain profitability in the future.
We have incurred operating losses each year since our inception, including net losses of $59.0 million and $37.4 million for fiscal 2022 and fiscal 2021, respectively. We anticipate that our operating expenses will increase substantially in the foreseeable future, in particular, as we continue to open new restaurants, expand marketing channels and operations, hire additional Team Members and increase other general and administrative costs. Furthermore, as a public company, we will incur additional legal, accounting, and other expenses that we did not incur as a private company. As a result, our net losses may continue for the foreseeable future. In addition, while conversions require initial capital investments, such costs are typically significantly lower for a conversion as compared to a new restaurant opening. Therefore, following the completion of conversions of all remaining Zoes Kitchen locations, which we expect to complete by the fall of 2023, we expect that the capital expenditure requirements to open a new restaurant will be significantly higher than we have experienced in the past few years. Further, we currently expect that a significant portion of our new restaurants opening in fiscal 2023 and beyond will have drive-thru pick-up capabilities, which require significant additional capital expenditures as restaurants with drive-thru pick-up capabilities are typically larger, resulting in higher real estate costs as well as incremental infrastructure and construction costs.
These efforts and additional expenses may prove more expensive than we expect, and we cannot guarantee that we will be able to increase our revenue to offset such expenses. Our revenue growth may slow or our revenue may decline for a number of other reasons, including reduced demand for our food, increased competition, or if we cannot capitalize on growth opportunities. If our revenue does not grow at a greater rate than our operating expenses, we will not be able to achieve profitability.
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We may not realize the anticipated benefits from past and potential future acquisitions, investments or other strategic initiatives, including our acquisition of Zoes Kitchen and the associated conversions to CAVA restaurants.
From time to time we may consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, or products, or enter into strategic initiatives, that may enhance our capabilities, expand our manufacturing network, complement our current offerings, or expand the breadth of our markets. For example, we acquired Zoes Kitchen in 2018 with the goal of significantly expanding the size and geographic scope of our business.
Entering into acquisitions and investments and other strategic initiatives involve numerous risks, including:
expenses, delays, or difficulties in integrating acquired business, facilities, technologies, or products into our organization, including the failure to realize expected synergies and the inability to retain and integrate personnel;
expending significant cash or incur substantial debt to finance acquisitions, which indebtedness may restrict our business or require the use of available cash to make interest and principal payments;
issues maintaining uniform standards, procedures, controls, and policies;
diversion of management’s attention and resources from operating our business to effectively execute the integration;
adverse effects on existing business relationships with suppliers, distributors, and partners;
guest acceptance of the acquired company’s offerings;
our ability to meet our targeted revenue, profit, and cash flow from acquired companies;
the possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions;
the inability to identify all material issues concerning the companies we acquire or invest in; and
the possibility that investments we have made may decline significantly in value, which could lead to the potential impairment of the carrying value of goodwill associated with acquired businesses.
We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms or at all or whether we will be able to successfully integrate any acquired business, facilities, technologies, or products into our business or retain any key personnel, suppliers, or guests. In particular, the success of our Zoes Kitchen acquisition depends in part on our ability to complete the profitable conversion of the Zoes Kitchen locations into CAVA restaurants, and we cannot guarantee that each conversion of a Zoes Kitchen location will function as we anticipate. Furthermore, we may in the future acquire restaurants with the plan of converting those restaurants into CAVA restaurants and we may not be able to do so successfully while ensuring that the converted restaurant meets our CAVA standards. Our failure to successfully complete or integrate such acquisitions could have a material adverse effect on our financial condition and results of operations. Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete, and integrate suitable target businesses, facilities, technologies, and products and to obtain any necessary financing. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations.
We may not be able to manage our manufacturing and supply chain effectively, which may adversely affect our results of operations.
There is risk in our ability to effectively scale production and processing and effectively manage our manufacturing and supply chain requirements. For example, we rely on a limited number of suppliers, and, in some
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cases, on single-source suppliers, for several ingredients. Some of these suppliers are small family-owned business or sole proprietors who may not be able to quickly scale their production to match our growth, or at all. As we continue to grow our business, if we are unable to obtain the desired amount of ingredients from these suppliers, we may be forced to modify our CPG and menu offerings or our recipes, or obtain ingredients from different suppliers that may be at a higher cost or may be of a lower quality than our original ingredients. Any of these changes could result in changes to our food taste and quality and could be less appealing to our guests, and any increase in costs could have an adverse impact on our profitability and results of operations. See “—Risks Related to Supply Chain—Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.”
We must accurately forecast demand for each of our CPG and menu offerings to ensure that we have adequate available manufacturing capacity and supply. Our forecasts are based on multiple assumptions which may cause our estimates to be inaccurate and affect our ability to obtain adequate manufacturing capacity and quantities from our distributors, suppliers, and manufacturing partners in order to meet demand, which could prevent us from meeting partner and guest demand and harm our brand and our business.
We must also continuously monitor our inventory against forecasted demand. If we underestimate demand, we risk having inadequate supplies. On the other hand, if we have too much food inventory on hand, it may reach its expiration date and become unusable. If we are unable to manage our supply chain effectively, our operating costs could increase and our profit margins could decrease.
We may not successfully optimize, operate, and manage our production facilities.
As we continue to expand our menu and CPG offering, we may need to add or enhance our production capabilities and our production operations may become increasingly complex and challenging. Failure to successfully address such challenges in a cost-effective manner could harm our business and results of operations. The expansion of our production capabilities requires investments of capital and we cannot guarantee that we will be able to obtain the capital necessary to support such expansion on favorable terms, or at all. In addition, a substantial delay in bringing any new facility, including our new production facility in Virginia, up to full production on our projected schedule would put pressure on the rest of our business operations to meet demand and production schedules and may hinder our ability to produce all the food needed to meet guest and consumer demand and/or to achieve our expected financial performance. Furthermore, the opening of a new facility requires the efforts and attention of our management and other personnel, which has and will continue to divert resources from our existing business operations. We will also need to hire and retain more skilled Team Members to operate any new facility, including the facility in Virginia. Even if a new facility is brought up to full production according to our current schedule, the capital expenditures and other investment expenses for such new facility may be greater than the corresponding sales and it may not provide us with all the operational and financial benefits that we expect to receive.
Our production facilities infrastructure is tailored to meet the specific needs of our business. A natural disaster, severe weather, fire, power interruption, work stoppage, labor shortages or unrest, restrictive governmental actions, outbreaks of pandemics or diseases (such as the COVID-19 pandemic), or other calamity at our production facilities would significantly disrupt our ability to operate our business. The facilities and the manufacturing equipment we use is costly to replace or repair and may require substantial lead-time to do so. Suppliers that provide spare parts and external service engineers for maintenance, repairs and calibration face risks of disruption or disturbance to their businesses, including as a result of the COVID-19 pandemic or other related factors, which may lead to disruption in our production. In addition, our ability to procure new processing and packaging equipment may face more lengthy lead times than is typical.
We may experience plant shutdowns or periods of reduced production as a result of regulatory issues, equipment failure, or delays in deliveries. Any such disruption or unanticipated event may cause significant interruptions or delays in our business and loss of inventory and/or data, or render us unable to produce food items for our restaurants or for our CPG operations in a timely manner, or at all. We currently have property and business disruption insurance coverage in place for our Maryland facility, and plan to obtain similar coverage for our Virginia facility upon completion of its construction. The Virginia facility is currently covered by a builder’s risk policy, and
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we have plans to extend insurance coverage to certain long-lead time items and materials. However, such insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.
If we do not have sufficient production capacity or experience a problem with our production facilities, our restaurants may experience delays or stoppages in receiving certain of our food items and our ability to meet guest and consumer demand could be impacted, which could in turn adversely affect our brand, business, financial condition, and results of operations.
Risks Related to Supply Chain
Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.
We engage with third-party suppliers for some of our food items and products, including packaging, and we rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program for our restaurants. For example, we currently utilize a sole supplier for high-pressure processing. Due to our reliance on certain suppliers, distributors, and third-party contract manufacturers, the change in terms or cancellation of our arrangements with any one of our suppliers, distributors, or third-party contract manufacturers or the disruption, delay, or inability of these parties to deliver such food items or materials to our restaurants, may materially and adversely affect our results of operations while we establish alternative supply and distribution channels.
Although we believe that alternative supply and distribution are available, we may not be able to easily locate replacement suppliers or distributors who provide ingredients or products that meet our high-quality standards. For example, the olive oil we use is sourced from a specific supplier meeting our high standards for taste and quality. Any failure to timely replace or engage suppliers or distributors who meet our specifications could increase our expenses, cause delays in our production and cause food and item shortages for our CPG production and at our restaurants. A shortage at a restaurant could, in turn, cause such restaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales during the shortage and thereafter, if guests change their dining habits as a result. Alternatively, if we are required to lower or otherwise change our specifications in order to obtain sufficient supply, it could impact the taste and quality of our food, which could in turn impact demand for our food and offerings. Our focus on key ingredients would make the consequences of a shortage of such an ingredient, or a change in the quality of our ingredients, more severe. In addition, we cannot guarantee that we will be able to identify or negotiate with alternative suppliers or distributors on terms that are commercially reasonable to us.
Moreover, given that we do not control the businesses of our suppliers and distributors, our efforts to specify and monitor the standards under which they perform may not be successful. Certain food items are perishable and/or may be contaminated, and we have limited control over whether these items will be delivered to us in appropriate condition for use in our restaurants. If any of our distributors or suppliers perform inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financial condition, and results of operations could be materially adversely affected.
We may experience shortages, delays, or interruptions in the delivery of food items and other products.
Our restaurants and CPG operations are dependent on frequent deliveries of fresh food that meets our specifications. Shortages, delays, or interruptions in the supply or delivery of food items and other supplies to our restaurants and CPG operations, whether by third-party partners or us, may be caused by severe weather or weather changes resulting in destruction of crops, changes in the quality of the crops, or ingredients that do not meet our specifications; natural disasters such as hurricanes, tornadoes, floods, droughts, wildfires, and earthquakes; macroeconomic conditions resulting in disruptions to the shipping and transportation industries; labor issues such as increased costs or worker shortages, or other operational disruptions at our distributors, suppliers, vendors, or other service providers; the inability of our service providers to manage adverse business conditions or remain solvent; cyber-attacks and technological failures; and other conditions beyond our control. We have in the past, and may in the future experience shortages, delays or interruption in other supplies and materials, such as food packaging,
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which are required and/or desired to operate our restaurants and/or produce our CPG offerings. Such shortages, delays, or interruptions could adversely affect the availability, quality, and cost of the items we buy, the operations of our restaurants, and our CPG operations. Recent supply chain disruptions have increased some of our costs and limited the availability of certain food and other items for our restaurants and may continue to do so.
In addition, we have in the past, and may from time to time, experience shortages of, and delays in receiving, construction materials, restaurant equipment and other supplies required to build out and open a new CAVA restaurant or convert a Zoes Kitchen location. This may require us to incur higher costs to procure these materials, equipment and supplies from alternative sources, or cause a delay in the opening of a new restaurant.
If we encounter supply shortages, delay, or interruptions, are unable to identify alternative sources at a reasonable cost, or at all, or otherwise incur higher costs, our business, financial condition, and results of operations could be adversely affected.
We may face increases in food, commodity, energy, and other costs.
Our profitability depends in part on our ability to anticipate and react to changes in food, commodity, energy, and other costs. The prices we pay are subject to fluctuations beyond our control, such as problems in production, or distribution, food safety concerns, government regulation, livestock markets, food recalls, climate conditions, labor strikes or shortages, and macroeconomic conditions. In particular, we purchase substantial quantities of chicken, which is subject to significant price fluctuations due to conditions affecting weather, feed and chicken prices, industry demand, and other factors. Our results of operations may also be adversely affected by increases in the price of utilities, such as natural gas, electric, and water, the costs of insurance, labor, marketing, taxes, and real estate, all of which could increase due to inflation, changes in laws, shortages or interruptions in supply, competition, or other events beyond our control.
For example, due to the recent inflationary environment, we experienced mid- to high-single digit increases relating to food and packaging costs, which put pressure on our gross margins. To moderate the effects of these rising costs, we instituted proactive initiatives to create efficiencies in our in-bound logistics and other supply chain costs, such as an increased focus on food portioning, food production during off-peak hours and food waste management. We also modestly increased our in-restaurant menu prices by less than 5% in fiscal 2022 in response to the inflationary environment. We cannot assure you that we will be able to effectively mitigate any inflationary pressures in the future, whether by instituting further operating efficiency initiatives or by increasing menu prices.
Any increase in the prices of the ingredients most critical to our menu and offerings, such as chicken, would have an adverse effect on our results of operations. If the cost of one or more ingredients significantly increases, or there are certain unforeseen events, such as poor weather conditions that damage the quality of an ingredient, we may choose to temporarily suspend serving menu items that use such ingredients or modify our menu offerings rather than pay the increased cost and/or provide a lower quality product.
In addition, some of our produce items are imported. Any restrictions on the import of products imposed by government authorities, as well as any new or increased import duties, tariffs, sanctions, or taxes, geopolitical developments, such as the ongoing armed conflict in Ukraine, or other changes in U.S. trade or tax policy, could result in higher food and supply costs. Furthermore, new or heightened COVID-19 restrictions or supply chain disruptions in such countries may cause us to face shortages of one or more ingredients.
We have chosen to enter into contracts for some but not all of our ingredients. In addition, we generally do not have long-term supply pricing agreements with our ingredient suppliers. We purchase some of our raw materials in the open market, and although we may decide to enter into certain forward pricing arrangements with our suppliers and distributors, some of which contain variable trigger events, these arrangements generally are relatively short in duration and may provide only limited protection from price changes, and the extent to which we use these arrangements may vary from time to time. Furthermore, the use of these arrangements may limit our ability to benefit from favorable price movements, may cause us to incur increased transaction expense and may expose us to complex or unforeseen market risks, such as counterparty or interest rate risk. Our efforts to mitigate future price risk through forward contracts, careful planning, and other activities may not fully insulate us from increases in commodity costs. Furthermore, some of our raw materials are sourced from a limited number of suppliers and we
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cannot guarantee that we will be able to continue to obtain such materials from our existing suppliers, or alternate suppliers, at the same or lower prices or at all. See “—Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.”
We cannot guarantee that any cost increases can be offset by increased prices, that increases in prices will be fully absorbed by our guests without any resulting change to their demand for our food, or that we will generate sales growth in an amount sufficient to offset inflationary and other cost pressures, particularly with the high rates of inflation in fiscal 2022. Any cost increases could have an adverse effect on our profitability, business, financial condition, and results of operations.
Risks Related to Human Capital
We may face increases in labor costs, labor shortages, and difficulties in identifying, hiring, training, motivating, and retaining the right Team Members.
We believe that our continued success will depend on our ability to identify, hire, train, motivate, and retain Team Members who understand and appreciate our culture and are able to effectively represent our brand. If we are unable to identify, hire, train, motivate, and retain our Team Members, our restaurants could be short-staffed, we may be forced to incur overtime expenses, our ability to operate our current restaurants may be limited and our expansion into new restaurants could be delayed. We may also suffer disruptions to our CPG operations. The restaurant industry generally has a high turnover rate. While we have taken, and will continue to take, a number of steps in order to reduce our turnover, we cannot be certain that our turnover rates will decrease in the future. We have and may be forced to temporarily close restaurants, or reduce restaurant hours or CPG production, as a result of labor shortages, which could result in reduced revenue. Furthermore, if our Team Members decide to and successfully unionize, this could result in a change to our culture, an increase in our labor and other costs, and disruptions to our business, as well as impact the speed at which we can make changes to our organization. In addition, our responses to any union organizing efforts could negatively impact how our brand is perceived and have adverse effects on our business and expose us to legal risk.
The market for qualified talent is competitive and we must provide increasingly attractive wages, benefits, and workplace conditions to retain qualified Team Members, particularly with respect to restaurant managerial positions where the pool of qualified candidates can be small. Increases in wage and benefits costs, including as a result of increases in minimum wages and other governmental regulations affecting labor costs, may significantly increase our labor costs and operating expenses and make it more difficult to fully staff our restaurants. From time to time, legislative proposals are made to increase the minimum wage at the U.S. federal, state, and local level, such as California Assembly Bill No. 257, the Fast Food Accountability and Standards Recovery Act (the “FAST Act”), which passed in September 2022 and which proposes to create a council to set, among other things, minimum wages and working condition standards in the broadly defined fast food industry. Because we employ a large workforce, any wage increases and/or expansion of benefits mandates will have a particularly significant impact on our labor costs. In addition, our suppliers, distributors, and business partners may be similarly impacted by wage and benefit cost inflation, and many have or will increase their prices for goods and services in order to offset their increasing labor costs.
Furthermore, maintaining appropriate staffing and hiring and training new staff, both for our restaurants and our facilities, requires precise workforce planning, which has become more complex due to, among other things:
significant staffing and hiring issues in the restaurant industry throughout the country, which have been exacerbated by the COVID-19 pandemic;
laws related to wage and hour violations or predictive scheduling, such as “Fair Workweek” or “secure scheduling,” in certain geographic areas where we operate as well as New York City’s “just cause” termination legislation;
low levels of unemployment, which has resulted in aggressive competition for talent, wage inflation, and pressure to improve benefits and workplace conditions to remain competitive; and
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the so-called “great resignation” trend.
In particular, several jurisdictions in which we operate, including New York City, have implemented “Fair Workweek” legislation, which requires fast food employers to provide employees with specified notice in scheduling changes and pay premiums for changes made to employees’ schedules, among other requirements. The regulations are often complex to administer and have evolved over time and may continue to do so. Furthermore, similar legislation may be enacted in other jurisdictions in which we operate, and in jurisdictions where we may enter in the future, and such regulatory structures, in turn, could result in missed corporate opportunities due to diverted management attention, as well as increased costs, both in terms of ongoing compliance and resolution of alleged violations.
We face many of these same risks with respect to the Team Members who work within our support center departments. Our information technology and other systems are critical to the management and growth of our business, and our success will depend in part on our ability to hire, motivate, and retain these qualified personnel.
Additionally, we engage a number of independent contractors to work for us in various aspects of our business, in particular in our information technology and marketing departments. Therefore, we are subject to federal, state, and local laws regarding independent contractor classification, which are subject to judicial and agency interpretation and may change from time to time. In the event of a reclassification of the independent contractors as employees, we could be exposed to various liabilities and additional costs. These liabilities and additional costs could include exposure (for prior and future periods) under federal, state, and local laws, and workers’ compensation, unemployment benefits, labor, and employment laws, as well as potential liability for penalties and interest.
If we fail to hire, motivate, and retain Team Members, experience higher labor costs, and/or fail to appropriately plan our workforce for any of the reasons described above, our ability to open new restaurants, manage our information technology systems and grow sales at existing restaurants may be adversely affected.
Our success depends on our ability to attract, develop, and retain our management team and key Team Members.
Our success depends largely upon the continued service of our executive leadership team and other key management personnel, particularly our Co-Founder and Chief Executive Officer, Brett Schulman, and our Co-Founder and Chief Concept Officer, Ted Xenohristos. Members of our leadership team, both individually and as a group, play an integral role in the development and growth of our company. We also rely on our leadership team in setting our strategic direction, spearheading innovation, operating our business, managing vendor relationships, identifying, recruiting, and training key personnel, identifying expansion opportunities, arranging necessary financing, and leading general and administrative functions. From time to time, there may be changes in our senior management team, which could disrupt our business, particularly if non-compete clauses in employment agreements are deemed to be unenforceable for any reason, including as a result of regulatory restrictions. Moreover, the replacement of one or more of our leadership team or other key management personnel could involve significant time and expense and may significantly delay or prevent the achievement of our business objectives. In addition, we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. We currently do not maintain any key person life insurance policies for any of our executive officers. If we are unable to attract, hire, retain, and incentivize sufficiently experienced and capable management personnel, our business and financial results may suffer.
Risks Related to Information Technology Systems, Cybersecurity, Data Privacy, and Intellectual Property
Security breaches of our electronic processing of credit and debit card transactions, the CAVA app, or confidential guest or Team Member information (including personal information) may adversely affect our business.
Operating our business requires the collection, use, storage, retention, adaptation, alteration, processing, disclosure, transfer, transmission, and protection (“Processing”) of large volumes of personal information (which may also be referred to as “personal data” or “personally identifiable information”) of guests, Team Members, and others, and other sensitive, proprietary, and confidential information, including credit and debit card numbers. Our
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reliance on technology has grown as we have grown, and the scope and severity of risks posed to our systems from compromises to our information technology systems and cyber threats has increased in part due to the sophistication of attacks as well as the legal and regulatory framework pertaining to privacy and data security matters.
From time to time, we have been, and likely will continue to be, the target of attempts to compromise our information technology systems and data, such as credential stuffing, distributed denial-of-service attacks, ransomware, viruses, malware, phishing attacks, break-ins, social engineering, security breaches, or other cybersecurity incidents to our data, network, or systems. In addition, if any of our critical suppliers or distributors is the subject of a cyber or ransomware attack, we could experience a significant disruption in our supply chain and possibly shortages of key ingredients. The techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been ongoing for a period of time. While we continue to make significant investment in physical and technological security measures, Team Member training, and third-party services designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure, and those of third parties with which we have business relationships, could be vulnerable to damage, disruptions, shutdowns, or breaches of personal or confidential information. Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error, or inadvertent releases of data all threaten our and our business partners’ information systems and records. Due to these scenarios, we cannot provide assurance that we will be successful in adequately responding to, or preventing, such breaches or data loss.
Any intentional attack or an unintentional event that results in unauthorized access to systems to disrupt operations, corrupt data, or steal or expose intellectual property, personal or confidential information of our guests, Team Members or ourselves could result in widespread negative publicity, damage to our reputation, a loss of guests, disruption of our business and legal liabilities, resulting in operational inefficiencies and a loss of sales.
The majority of our restaurant sales are paid with credit or debit cards, but we accept certain other payment methods such as Apple Pay, and we may offer new payment options in the future. The use of these payment options subjects us to rules, regulations, contractual obligations, and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements and related interpretations may change over time, which has made and could continue to make compliance more difficult or costly. In connection with credit or debit card transactions in-restaurant, we collect and transmit confidential information, including payment information, to card processors. The systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic payments themselves, all of which can put electronic payment at risk, are determined and controlled by the payment card industry, not by us, through enforcement of compliance with the Payment Card Industry - Data Security Standards (as modified from time to time, “PCI DSS”). We must abide by the PCI DSS in order to accept electronic payment transactions. If we fail to abide by the PCI DSS, we could be subject to fines, penalties, or litigation, which could adversely affect our results of operations. Furthermore, the payment card industry requires vendors to be compatible with smart chip technology for payment cards (“EMV-Compliant”), or else bear full responsibility for certain fraud losses, referred to as the EMV Liability Shift. To become EMV-Compliant, merchants often utilize EMV-Compliant payment card terminals at the point-of-sale and obtain a variety of certifications. We may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents.
Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and cybersecurity.
There are numerous U.S. federal, state, local, and international laws and regulations regarding privacy, data protection, and cybersecurity that govern the Processing of personal information and other information. The scope of these laws and regulations is expanding and evolving, subject to differing interpretations, may be inconsistent among jurisdictions, or conflict with other rules. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and cybersecurity.
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For example, the California Consumer Privacy Act of 2018 (“CCPA”) took effect on January 1, 2020, which broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for certain violations. Furthermore, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020 (“CPRA”), which amends and expands CCPA with additional data privacy compliance requirements and establishes a regulatory agency dedicated to enforcing those requirements. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, creating the second comprehensive U.S. state privacy law, which took effect on January 1, 2023 (the same day as CPRA took effect). Additional states, such as Colorado, Connecticut, Iowa, and Utah, have since also passed comprehensive state privacy laws that impose additional obligations and requirements on businesses. Data privacy laws and regulations are constantly evolving and can be subject to significant change or interpretive application. Varying jurisdictional requirements could increase the costs and complexity of our compliance efforts and violations of applicable data privacy laws can result in significant penalties. In addition, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices and the internet are applicable to our business, including the Telephone Consumer Protection Act (the “TCPA”) and the Controlling the Assault of Non‑Solicited Pornography and Marketing Act (“CAN-SPAM Act”). The TCPA places certain restrictions on making outbound calls, faxes and text messages to consumers. The CAN-SPAM Act imposes penalties for the transmission of commercial emails that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from the sender. Any failure, or perceived failure, by us to comply with applicable data protection or other laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.
Additionally, the information, security, and privacy requirements imposed by governmental regulation are increasingly demanding and evolving. Laws require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security incidents affecting personal information. Such laws are not all consistent, and compliance in the event of a widespread security incident is complex and costly and may be difficult to implement. Our existing general liability and cyber liability insurance policies may not cover, or may cover only a portion of, any potential claims related to security breaches to which we are exposed or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed.
Significant theft, loss, or misappropriation of, or access to, guests’, or other proprietary data, or other breach of our or our business partners’ information technology systems could result in fines, legal claims, or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation, and expose us to claims from guests and Team Members, any of which could have a material adverse effect on our business, financial condition, and results of operations.
We may not be able to adequately protect or enforce our rights in our intellectual property.
We rely on a combination of trademark, patent, trade secret, copyright laws, as well as contractual provisions, confidentiality, and inventions assignment agreements, and other intellectual property laws to protect our proprietary and intellectual property assets and rights. Our intellectual property, particularly our trademarks, is material to the conduct of our business and our marketing efforts as our brand recognition is one of our key differentiating factors from our competitors. The success of our business depends in part on our ability to use our trademarks, service marks, and other proprietary intellectual property, including our name and logos and the unique character, atmosphere, and ambiance of our restaurants, to increase brand awareness and further develop our brand reputation in the market.
However, the steps we have taken to protect our intellectual property in the United States may not be adequate. We have registered and applied to register trademarks and other intellectual property in the United States, but we cannot guarantee that our trademark applications will be approved. We may not be able to adequately protect our trademarks and other intellectual property, and third parties may oppose and successfully challenge the validity and/or enforceability of our trademarks and other intellectual property. In the event that our trademarks are successfully challenged, we could be forced to rebrand our goods and services, which could result in loss of brand recognition, and could require us to devote substantial resources to advertising and marketing new brands that may not ultimately
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be successful. Moreover, even if we successfully register our trademarks and other intellectual property, our competitors may develop similar menu items and concepts, and adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and other intellectual property. We have in the past instituted and may from time to time in the future be required to institute, litigation, or other proceedings to enforce our trademarks and other intellectual property. Such litigation or other proceedings could result in substantial costs and diversion of resources and could negatively affect our sales, profitability, and prospects regardless of whether we are able to successfully enforce our rights.
In addition, any success we have had registering and protecting our intellectual property in the United States does not guarantee that we will have similar success in other jurisdictions. We do not currently own any material registered intellectual property outside the United States. Although we do not currently operate outside the United States, should we choose in the future to expand our operations outside the United States, a failure to protect and maintain our brand in such other jurisdictions could adversely affect our business, results of operations, and financial condition.
We maintain a policy requiring our Team Members to enter into an agreement to protect our intellectual property rights and other proprietary information. However, we cannot guarantee that such agreements adequately protect our intellectual property rights and other proprietary information. We cannot guarantee that these agreements will not be breached, that we will have adequate remedies in the event of a breach, or that the respective Team Members will not assert rights to our intellectual property rights or other proprietary information. In addition, we may fail to enter into confidentiality agreements with all parties who have access to our trade secrets or other proprietary information. Failing to protect and maintain the secrecy of our trade secrets or other confidential information for any reason could adversely affect our business, results of operations, and financial condition.
We have been, and may in the future be, subject to claims that we violated certain third-party intellectual property rights.
Third parties may assert, including in a lawsuit, that we infringe, misappropriate, or otherwise violate their intellectual property rights. In addition, we periodically receive communications that claim we have infringed, misappropriated, or otherwise violated others’ intellectual property rights. Any claim against us relating to intellectual property, with or without merit, could be time consuming, expensive to settle or litigate, and could divert the attention of our management, even if we were ultimately successful. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters. Any claims successfully brought against us could subject us to significant liability for damages, and we may be required to stop using brands, products, technology, or other intellectual property alleged to be in violation of a third-party’s rights in one or more jurisdictions where we do business. We also might be required to seek a license for third-party intellectual property or enter into a settlement or coexistence agreement that may limit our rights or the scope of our business operations in some way. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which could increase our operating expenses. We may also be required to develop alternative non-infringing branding or products, which could require significant time and expense. If we cannot license or develop replacements for any allegedly infringing aspect of our business, we could be forced to limit our service and may be unable to compete effectively. Any of these results could adversely affect our business, financial condition, and results of operations.
We rely heavily on information technology systems and failures, or interruptions in, or not effectively scaling and adapting, our information technology systems could harm our business.
We rely heavily on information technology systems, including the point-of-sale and payment processing system in our restaurants, our restaurant management systems, technologies supporting our digital and delivery business, such as our website, the CAVA app, and online and mobile ordering platforms, management of our supply chain, our rewards program, collection of cash, credit, and debit card transactions, technologies that facilitate marketing and promotion initiatives, Team Member engagement and payroll processing, payment card transactions, and various other processes and transactions. Many of the critical information technology systems that we rely on are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security and availability of our systems and their systems. In addition, some of our critical
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information technology systems are managed by our Team Members, and our continued ability to manage our business efficiently and effectively will depend on our ability to identify, hire, train, motivate, and retain information technology Team Members who understand and appreciate our culture. See “—Risks Related to Human Capital—We may face increases in labor costs, labor shortages, and difficulties in hiring, training, motivating, and retaining the right Team Members.” Our ability to manage our business efficiently and effectively depends significantly on the availability, reliability, and security of these systems.
We may from time to time experience service interruptions, outages, or other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of guests accessing our technology infrastructure simultaneously, downtime or outages of third-party services, and denial of service attacks or other malicious activity. These information technology systems, including our online and mobile ordering platforms, may now or in the future contain undetected errors, bugs, or vulnerabilities which may cause the systems to malfunction or be interrupted. Although we have operational safeguards in place, these safeguards may not be effective in preventing degradations or interruptions of our information technology systems or platforms to operate effectively and be available.
As our business expands, it may become more difficult to scale, maintain and improve our online and mobile ordering platforms. If our online and mobile ordering platforms are unreliable, unavailable, compromised, or otherwise fail when guests attempt to access them or they do not load as quickly as guests expect, guests may seek other services, and may not return to our platforms as often in the future. In some instances, we may not be able to identify the cause of performance problems within an acceptable period of time, and, in cases where we rely on third-party information technology infrastructure, we may not have sufficient contractual recourse against such third parties to make us whole for losses resulting from the failure of such infrastructure. Remediation of such problems could result in significant, unplanned capital investments and harm our business, financial condition, and results of operations.
To the extent that we do not effectively address capacity constraints, respond adequately to service interruptions and degradations, upgrade our systems as needed or continually develop and deploy our technology and network architecture to accommodate actual and anticipated changes in guest demand, our business and results of operations would be harmed.
The successful operation of our business depends upon the performance and reliability of internet, mobile, and other infrastructure, as well as of our third party vendors, none of which are under our control.
Our business and ability to acquire, retain, and serve our guests are highly dependent upon the reliable performance of our website and the CAVA app and the underlying network and server infrastructure.
Our in-restaurant and online and mobile ordering businesses depend on the performance and reliability of internet, mobile, and other infrastructures that are not under our control. Almost all access to the internet is maintained through telecommunication operators who have significant market power that could take actions that degrade, disrupt, or increase the cost of users’ ability to access our platform.
Disruptions in internet infrastructure, cloud-based hosting, or the failure of telecommunications network operators to provide us with the bandwidth we need to provide our services, could temporarily shut down our in-restaurant ordering business and could interfere with the speed and availability of our online and mobile ordering platforms. If our online and mobile ordering is unavailable when guests attempt to access them, or if our online and mobile ordering does not load as quickly as guests expect, guests may not return to our online and mobile ordering platforms as often in the future, or at all, and may use our competitors’ platforms more often. In addition, we have no control over the costs of the services provided by national telecommunications operators. If mobile internet access fees or other charges to internet users increase, our digital orders may decrease, which may in turn cause our revenue to significantly decrease.
We also use various third-party vendors, such as software as a service and infrastructure as a service, to provide support to our restaurant operations, core enterprise, and supply chain systems, cybersecurity solutions and cloud based hosting of our proprietary applications. We also outsource certain accounting, payroll and human resource functions to business process service providers. The failure of any service provider or vendor to fulfill their
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obligations could disrupt our operations. Additionally, any changes we may make to the services we obtain from our vendors, or from any new vendors we employ, may disrupt our operations.
Any of these events could damage our reputation, significantly disrupt our operations, and subject us to liability, which could adversely affect our business, financial condition, and results of operations.
Risks Related to Legal and Governmental Regulation
We are subject to extensive laws and regulatory requirements, and failure to comply with, or changes in, these laws or regulations could have an adverse impact on our business.
Our restaurants are subject to U.S. federal, state, and local licensing and regulation by health, sanitation, food, occupational safety, and other agencies, which are subject to change from time to time. Our license requirements include those relating to the preparation and sale of food and beverages as well as food safety requirements. In addition, the development and operation of our restaurants depends to a significant extent on the selection and acquisition of suitable locations, which are subject to zoning, land use, environmental, and other regulations and requirements. Difficulties or failure to maintain or obtain the required licenses, permits, and approvals could adversely affect our existing restaurants and delay or result in our decision to cancel the opening of new restaurants, which would adversely affect our business, financial condition, and results of operations.
Various U.S. federal, state, and local employment and labor laws and regulations govern our relationships with our Team Members. These laws and regulations relate to, among other matters, overtime, wage and hour requirements, unemployment tax rates, workers’ compensation rates, mandatory health benefits, healthcare laws, immigration status, and other wage and benefit requirements. Complying with these laws and regulations subjects us to substantial expense and non-compliance could expose us to significant liabilities. We may incur legal costs to defend against, and we could suffer losses from, these and similar cases. The amount of such losses or costs could be significant.
Our operations are also subject to, among other U.S. federal, state, and local laws and regulations, the following:
the Americans with Disabilities Act, which provides civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other areas, including our restaurants;
the U.S. Food and Drug Administration (“FDA”), which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling, and nutritional content;
the U.S. Equal Employment Opportunity Commission, which is a federal agency that was established to administer and enforce civil rights laws against workplace discrimination;
the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime;
the U.S. Occupational Safety and Health Act, which governs worker health and safety, as well as rules and regulations regarding the COVID-19 pandemic; and
the FAST Act, which proposes to create a council to set, among other things, minimum wages and working condition standards in the broadly defined fast food industry. See “—Risks Related to Human Capital—We may face increases in labor costs, labor shortages, and difficulties in hiring, training, motivating, and retaining the right Team Members.”
In addition, we are subject to changes in U.S. federal, state, and local regulations that impact the ingredients and nutritional content of the food and beverages we offer. For example, there are various menu labeling laws requiring multi-unit restaurant operators to disclose to guests certain nutritional information, and there are other laws restricting the use of certain types of ingredients in restaurants. An unfavorable report on, or reaction to, our ingredients, the size of our portions, or the nutritional content of our menu items and products could negatively influence the demand for our offerings. Furthermore, any changing requirements with respect to labeling would increase our costs.
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All of these regulations impose obligations on us, and any increase in our obligations thereunder could increase our costs of doing business and require us to make changes to our business model.
Compliance with U.S. federal, state, and local laws and regulations, and new laws or changes in these laws, or regulations that impose additional requirements, can be costly (some or all of which costs may not be covered by insurance) and require significant resources and attention from our senior management. Any failure, or perceived failure, to comply with laws or regulations could result in, among other things, revocation of required licenses, civil and criminal liability to us or our personnel, higher Team Member turnover and negative publicity, and could expose us to litigation, or governmental investigations, or proceedings, which could have a material adverse effect our business, financial condition, and results of operations.
We are subject to various claims and legal actions that could distract management, increase our expenses, or subject us to monetary damages or other remedies.
We have been, and will likely continue to be, subject to various claims and legal actions that may adversely affect our business. These legal proceedings, which could include class action lawsuits and allegations of illegal, unfair, or inconsistent employment practices, including wage and hour, discrimination, harassment, wrongful termination, and vacation and family leave laws; food safety issues including related to food-borne illness, food packaging or food contamination and adverse health effects from consumption of our food; the nutritional content of food sold; disclosure and advertising practices; exposure to COVID-19; data security or privacy breaches and other cybersecurity incidents, claims, and allegations; intellectual property infringement; lease issues; violation of the federal securities laws or state corporations law, or other concerns.
Even if the allegations against us in current or future legal matters are unfounded or we ultimately are not held liable, the costs to defend ourselves may be significant and may cause a diversion of management’s attention and resources, and a negative impact on our business, financial condition, and results of operations. In addition, such allegations may generate negative publicity, which could impact our brand and reputation and reduce sales.
Although we maintain what we believe to be adequate levels of insurance to cover any of these liabilities, insurance may not be available at all or in sufficient amounts with respect to these or other matters. See “Business—Legal Proceedings.” A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, financial condition, and results of operations.
If tax laws change or we experience adverse outcomes resulting from examination of our tax returns or disagreements with taxing authorities, it could adversely affect our business, financial condition, and results of operations.
We are subject to federal, state, and local tax laws and regulations in the United States. The application and interpretation of these laws in different jurisdictions affect our operations in complex ways and are subject to change, and some changes may be retroactively applied. Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in tax laws, including impacts of the Tax Cuts and Jobs Act of Public Law No. 115-97 (the “TCJA”) and the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The United States is also actively considering changes to existing U.S. tax laws that, if enacted, could increase our tax obligations or require us to change the manner in which we operate our business. For example, in August 2022, the Inflation Reduction Act (the “IRA”) was signed into law. The IRA, among other things, includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases, subject to certain exceptions.
In addition, we are subject to the examination of our income and other tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws, or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition, and results of operations.
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Our ability to use our net operating loss carryforwards may be limited.
We have incurred substantial federal and state net operating losses (“NOLs”). Our ability to use these NOLs to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOLs, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs. In addition, under the rules of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its NOLs to offset its post-change taxable income or taxes annually may be limited. The applicable rules generally operate by focusing on changes in ownership among holders owning, directly or indirectly, 5% or more of the stock of a company, as well as changes in ownership arising from new issuances of stock by the company. Similar rules may apply under state tax laws. As a result of these rules, if we experience ownership changes as a result of this offering or future transactions in our stock, then we may be limited in our ability to use our NOL carryforwards to offset our future taxable income if any.
Furthermore, under the TCJA, as amended by the CARES Act, NOLs generated in taxable years beginning after December 31, 2017, may be utilized to offset no more than 80% of taxable income annually for taxable years beginning after December 31, 2020. For state income tax purposes, there may also be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.
General Risk Factors
Economic factors and guest behavior trends, which are uncertain and largely beyond our control, may adversely affect guests’ behavior and our ability to maintain or increase sales at our restaurants.
The restaurant industry depends on guests’ discretionary spending, which is affected by macroeconomic conditions that are beyond our control, such as depressed economic activity, recessionary economic cycles, inflation, guests’ income levels, financial market volatility (which may be exacerbated due to the recent turmoil in the banking industry), investment losses, reduced access to credit, increased levels of unemployment, reduced home values and increased foreclosure rates, slow or stagnant pace of economic growth, increased energy costs, interest rates, social unrest, political dynamics, and other economic factors that may negatively affect the restaurant industry.
Current macroeconomic conditions and events, such as inflation, high interest rates, and recent turmoil in the banking industry, may increase the risk of a recession. Guests’ preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely affected. Therefore, sales volume in our restaurants could decline if guests choose to reduce the amount they spend on meals, choose to dine out less frequently or reduce the amount they spend on meals while dining out. The demand for our CPG offerings could also decline. If negative economic conditions persist for a long period of time or become pervasive, guests’ changes to their discretionary spending behavior that would otherwise be transitory, including the frequency with which they dine out, may become permanent.
Furthermore, we cannot predict the effects that actual or threatened armed conflicts, including the ongoing armed conflict in Ukraine, terrorist attacks, efforts to combat terrorism, heightened security requirements, or a failure to protect information systems for critical infrastructure could have on our operations, the economy, or guests’ confidence generally. Any of these events could affect guests spending patterns or result in increased costs for us due to heightened security measures we may need to take.
Any of the above factors, or other unfavorable changes in macroeconomic conditions affecting our guests or us, could have an adverse impact on guests’ demand for our food and cause us to, among other things, reduce the number and frequency of new restaurant openings, which could have the effect of having a material adverse effect on our business, financial condition, and results of operations.
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Pandemics and outbreaks, such as the ongoing COVID-19 pandemic, have had, and may continue to have, an adverse impact on our business.
Pandemics and outbreaks, such as the ongoing COVID-19 pandemic, and the related efforts to contain pandemics, such as travel restrictions, shelter-in-place orders, and business slowdowns, have affected all of the regions in which we conduct business and in which our guests and partners are located and have adversely impacted global economic activity.
The COVID-19 pandemic has had, and may continue to have, adverse effects on our sales volumes and the ability to adequately staff our restaurants. For example, during periods of the COVID-19 pandemic, government restrictions have required us to temporarily close some of our restaurants, offer only pick-up, and impose social distancing requirements. In addition, we experienced staffing shortages due to illness, quarantine requirements, and fear of contracting COVID-19, as well as government mandates requiring our Team Members to be fully vaccinated against COVID-19 in order to operate indoor dining. We also experienced temporary disruptions in certain supplies, transportation bottlenecks, increased raw material, and food costs, as well as higher costs associated with the purchase of personal protective equipment and other measures that we took to ensure compliance with changing regulations relating to restaurants and running our business. The COVID-19 pandemic also adversely affected our ability to execute our growth plans, including delaying the construction of new restaurants and conversions of Zoes Kitchen locations into CAVA restaurants, increasing the costs of such constructions and conversions, and making it more challenging to successfully enter into new markets. The extent of the impacts from the COVID-19 pandemic is affected in part by the extent of the government restrictions as well as differences in attitudes and reactions to the restrictions in the locations where we have our restaurants and from which we source our food and supplies.
Currently, none of our restaurants are subject to any pandemic-related government restrictions. However, we continue to experience labor shortages, temporary supply chain disruptions, and delays in both the construction of new restaurants and the conversions of Zoes Kitchen locations into CAVA restaurants. While we have developed, and expect to continue to develop, plans to help mitigate the negative impact of the COVID-19 pandemic on our business, our efforts may not be effective, and a protracted economic downturn may limit the effectiveness of our mitigation efforts.
If we are to experience any other pandemic or outbreak, our business, financial condition, and results of operations could be adversely impacted, including in ways similar to the impact of the COVID-19 pandemic.
We are subject to evolving rules and regulations with respect to ESG matters.
We are subject to a variety of ESG-related rules and regulations promulgated by a number of governmental and self-regulatory organizations. ESG-related rules and regulations continue to evolve in scope and complexity, and the increase in costs to comply with such evolving rules and regulations, as well as any risk of noncompliance, could adversely impact our business, financial condition, and results of operations. In addition, there is an increasing public focus by regulators, guests, investors, and other stakeholders on ESG matters. Evolving ESG rules, regulations and stakeholder expectations increase general and administrative expenses and may divert management’s attention to the consideration and measurement of metrics and standards related to these rules, regulations, and stakeholder expectations.
We may communicate certain aspirational initiatives and goals regarding ESG-related matters to our stakeholders. These aspirational initiatives and goals could be difficult and expensive to quantify and implement. In addition, such aspirational initiatives and goals are subject to risks and uncertainties, many of which may not be foreseeable or may be outside of our control. We may be criticized for the scope or nature of such aspirational initiatives or goals, for any revisions to such initiatives or goals, or for failing, or being perceived to have failed, to achieve such initiatives or goals.
If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our, and our industry’s ESG-related aspirational goals, it could lead to private, regulatory, or administrative challenges or proceedings, including with respect to our disclosure controls and procedures, as well as adverse publicity, any of which could damage our reputation and our business.
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Climate change and volatile adverse weather conditions could adversely affect our restaurant sales or results of operations.
Climate change has caused, and may continue to cause, more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations. Adverse weather conditions have in the past and may in the future negatively affect sales at our restaurants, and, in more severe cases such as regional winter storms, hurricanes, tornadoes, wildfires, or other natural disasters, may cause temporary restaurant closures, all of which negatively impact our restaurant sales, as well as temporary production stoppages at our production facilities. Climate change could also adversely impact our production facilities, our distribution channels, and our third-party contract manufacturers’ operations, particularly where certain food is primarily sourced from a single location. Similarly, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could result in higher instances of food spoilage. It is possible that weather conditions may impact our business more than other businesses in our industry because of the significant concentration of our restaurants in certain locations, such as the risk of earthquakes in Southern California, coastal winds in New York and North Carolina, wind and water intrusion in southeast coastal areas, and winter storms and freezes in the northeast.
In addition, our supply chain is subject to increased costs caused by the effects of climate change. Increasing weather volatility and changes in global weather patterns can reduce crop size and crop quality, which could result in decreased availability or higher pricing for our produce and other ingredients. These factors are beyond our control and, in many instances, unpredictable. Climate change and government regulation relating to climate change could also result in construction delays for new restaurants and interruptions to the availability or increases in the cost of utilities.
Furthermore, our business could be adversely affected if we are unable to effectively address increased concerns from the public, stockholders, and other stakeholders on climate change and related environmental sustainability and governance matters. See “—We are subject to evolving rules and regulations with respect to ESG matters.” The ongoing and long-term costs of these impacts related to climate change and other sustainability related issues could have a material adverse effect on our business, financial condition, and results of operations.
Our inability or failure to execute a comprehensive business continuity plan at our support centers following a disaster or force majeure event could have a material adverse impact on our business.
Our operations depend upon our ability to protect our critical information technology equipment and systems against physical theft and damage from power loss, cybersecurity attacks (including ransomware), improper or unauthorized usage by Team Members, telecommunications failures or other catastrophic events, such as fires, earthquakes, tornadoes and hurricanes, climate change, widespread power outages caused by severe storms, as well as from internal and external security breaches, incidents, malware, viruses, worms, and other disruptive problems. Any damage, failure, or breach of our information systems that causes an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. To mitigate potential risk posed by natural disasters or other catastrophic events, we have disaster recovery procedures and business continuity plans in place and back up and off-site locations for recovery of certain electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations, and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation, and exposure to administrative and other legal claims. In addition, these threats are constantly evolving, which increases the difficulty of accurately and timely predicting, planning for and protecting against the threat. As a result, our disaster recovery procedures and business continuity plans may not adequately address all threats we face or protect us from loss.
The failure of any bank in which we deposit our funds could have an adverse effect on our financial condition.
Although we generally seek to diversify our cash and cash equivalents across several financial institutions in an attempt to minimize exposure to any one of these entities, we currently have cash and cash equivalents deposited in
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several financial institutions significantly in excess of federally insured levels. If any of the financial institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000 at such financial institutions, and/or we may be required to move our accounts to another financial institution, which could cause operational difficulties, such as delays in making payments to our partners and employees, which could have an adverse effect on our business and financial condition.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control, and could fail to meet investors’ expectations for various reasons, including:
negative publicity about the safety of our food, packaging, employment-related issues, litigation, or other issues involving our restaurants;
fluctuations in supply costs, including as a result of inflation, particularly for our most significant ingredients, and our inability to offset the higher cost with price increases without adversely impacting guest spending;
labor availability and wages of Team Members, including as a result of inflation;
increases in marketing or promotional expenses;
the timing of new restaurant openings and related revenue and expenses, such as increased labor expenses, and the operating costs at newly opened restaurants;
the impact of inclement weather and natural disasters, such as freezes and droughts, which could decrease sales volumes and increase the costs of ingredients;
the amount and timing of equity-based compensation;
litigation, settlement costs, and related legal expenses;
tax expenses, asset impairment charges, and non-operating costs; and
variations in general economic conditions and events, including the impact of inflation and recent turmoil in the banking industry.
Historically, seasonal factors have also 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. Furthermore, we operate on a 52-week or 53-week fiscal year. In a 52-week fiscal year, the first quarter contains sixteen weeks as compared to twelve weeks for the second, third, and fourth quarters (and thirteen weeks for the fourth quarter in a 53-week fiscal year).
As a result of these factors and the differences among our fiscal quarters, our quarterly operating results as well as our key performance measures, such as CAVA Same Restaurant Sales Growth and CAVA Restaurant-Level Profit Margin, may fluctuate significantly from quarter to quarter and our results for any one quarter are not indicative of any other quarter.
Following completion of this offering, our executive officers, directors, and holders of 5% or more of our common stock will collectively beneficially own approximately          % of the outstanding shares of our common stock, which may limit your ability to influence the outcome of important transactions.
Following completion of this offering, our executive officers, directors, and each of our stockholders who own 5% or more of our outstanding common stock and their affiliates, in the aggregate, will beneficially own approximately           % of the outstanding shares of our common stock, based on the number of shares outstanding as of           . While these stockholders currently do not act together as a group, if some or all of them were to do so in the future, such group of stockholders may exercise significant influence over or control matters requiring approval by our stockholders, including the election and removal of directors and the approval of mergers,
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acquisitions, or other extraordinary transactions, as a result of their aggregate ownership. They may also have interests that conflict or differ from yours and may vote in a way with which you disagree, and which may be adverse to your interests. This concentration of ownership may also have the effect of delaying, preventing, or deterring a change in control of our company, and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or by discouraging others from making tender offers for our shares, which may ultimately affect the market price of our common stock.
Risks Related to Our Indebtedness
Our ability to incur a substantial level of indebtedness may reduce our financial flexibility, affect our ability to operate our business, and divert cash flow from operations for debt service.
As of April 16, 2023, we had no outstanding indebtedness, and $105.0 million of undrawn availability, under our Credit Facility (as defined below), including the Delayed Draw Facility (as defined below).
We may incur substantial indebtedness under our Credit Facility or other debt instruments in the future, and, if we do so, the risks related to our level of indebtedness could increase. Our future borrowings will require interest payments and in the case of the Delayed Draw Facility, quarterly principal payments, and will need to be repaid or refinanced, which could require us to divert funds identified for other purposes to debt service and could create additional cash demands or impair our liquidity position and add financial risk. We may also sell additional debt or equity securities to help repay or refinance our borrowings. However, we do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
Our future level of indebtedness could affect our operations in several ways, including but not limited to the following:
increase our vulnerability to changes in general economic, industry, and competitive conditions;
require us to dedicate a portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;
place us at a competitive disadvantage compared to our competitors that are less leveraged and therefore potentially more able to take advantage of opportunities that our level of indebtedness would prevent us from pursuing; and
impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, or other purposes.
In addition, the Credit Facility contains, and agreements governing future indebtedness may contain, restrictive covenants that limits our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness. See “—Risks Related to Our Indebtedness—The Credit Facility contains restrictions on our ability to operate our business and to pursue our business strategies.”
Borrowings under the Credit Facility bear interest at variable rates based on prevailing conditions in the financial markets, and changes to such variable market rates may affect both the amount of cash we must pay for interest as well as our reported interest expense. Assuming our Credit Facility (including the Delayed Draw Term Loans (as defined below) were to be fully drawn, a 100-basis point increase to the applicable variable rate of interest would increase the amount of interest expense by $1.05 million per annum. If we are unable to generate sufficient cash flows to pay the interest expense on our debt, future working capital, borrowings, or equity financing may not be available from which to pay or refinance such debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”
In addition, if any of the financial institutions that provide loan commitments to us were to fail, our liquidity could be adversely impacted and we may not be able to obtain financing for working capital, capital expenditures, acquisitions, and other purposes. In such event, our ability to operate and compete effectively, and our ability to
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execute on our growth strategies, could be adversely affected, which in turn would have an adverse impact on our business, results of operations and financial condition.
The Credit Facility contains restrictions on our ability to operate our business and to pursue our business strategies.
The Credit Facility restricts, subject to certain exceptions, among other things, our ability and the ability of our subsidiaries to:
incur additional indebtedness and guarantee indebtedness;
prepay, redeem, or repurchase certain debt;
create or incur liens;
make investments and loans;
pay dividends or make other distributions, in respect of, or repurchase or redeem, capital stock;
engage in mergers, consolidations, or sales of all or substantially all of our assets;
sell or otherwise dispose of assets;
amend, modify, waive, or supplement certain subordinated indebtedness to the extent such amendments would be materially adverse to the interests of the lenders; and
engage in certain transactions with affiliates.
In addition, we are required to maintain specified financial covenant ratios and satisfy other financial condition tests. Any future financing arrangements entered into by us or any of our subsidiaries may contain similar restrictions or maintenance covenants. As a result of these covenants and restrictions, we and our subsidiaries are, and will be, limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The terms of any future indebtedness we or our subsidiaries may incur could include more restrictive covenants. We cannot guarantee that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our or our subsidiaries’ failure to comply with the restrictive covenants described above as well as other covenants contained in our or our subsidiaries’ future debt instruments from time to time could result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their maturity. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations, and financial condition could be adversely affected.
Our failure to comply with the Credit Facility, including as a result of events beyond our control, could result in an event of default that could materially adversely affect our business, financial condition, and results of operations.
If there were an event of default under the Credit Facility, the lenders under the Credit Facility could cause all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay borrowing under the Credit Facility if accelerated upon an event of default. Furthermore, if we are unable to repay, refinance, or restructure our Credit Facility, the lenders under the Credit Facility could proceed against the collateral granted to them to secure such indebtedness, which could force us into bankruptcy or liquidation. As a result, any default by us on our debt could have a materially adverse effect on our business, financial condition, and results of operations.
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Risks Related to this Offering and Ownership of our Common Stock
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company,” among other exemptions, we will:
not be required to engage an independent registered public accounting firm to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
not be required to comply with the requirement in Public Company Accounting Oversight Board Auditing Standard 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, to communicate critical audit matters in the auditor’s report;
be permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our periodic reports and registration statements, including in this prospectus;
not be required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation; or
not be required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes.”
In addition, the JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period and, as a result, our financial statements may not be comparable with similarly situated public companies.
We will remain an “emerging growth company” until the earliest to occur of (1) our reporting of $1.24 billion or more in annual gross revenue; (2) our becoming a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) our issuance, in any three year period, of more than $1.0 billion in non-convertible debt; and (4) the fiscal year end following the fifth anniversary of the completion of this initial public offering.
We cannot predict if investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be as comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.
We will incur significant increased costs and become subject to additional regulations and requirements as a result of becoming a public company, and our management will be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business.
As a public company, we will incur significant legal, regulatory, finance, accounting, investor relations, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, and related rules implemented by the SEC, and the NYSE. The expenses incurred by public companies for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more
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time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements, diverting the attention of management away from revenue-producing activities. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, and other regulatory action and potentially civil litigation.
Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.
As a privately held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act (“Section 404”). As a public company, we will be subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environment, and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. Once we are no longer an “emerging growth company,” our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis.
In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by us or our independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, or the subsequent testing (if required) by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Any material weaknesses could result in a material misstatement of our annual or quarterly financial statements or disclosures that may not be prevented or detected.
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report (to the extent it is required to issue a report), investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.
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No market currently exists for our common stock, and an active, liquid trading market for shares of our common stock may not develop or be sustained, which may cause shares of our common stock to trade at a discount from the initial public offering price and make it difficult to sell the shares of common stock you purchase.
Prior to this offering, there has not been a public trading market for shares of our common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling your shares of our common stock at an attractive price or at all. The initial public offering price per share of common stock will be determined by agreement among us and the representatives of the underwriters, and may not be indicative of the price at which shares of our common stock will trade in the public market after this offering. The market price of our common stock may decline below the initial public offering price and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all.
Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. You may not be able to resell your shares at or above the initial public offering price due to a number of factors, including those listed in “—Risks Related to Our Business and Our Industry.”
Furthermore, the stock markets in general have experienced extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Investors in this offering will incur immediate and substantial dilution.
The initial public offering price per share of common stock will be substantially higher than the as adjusted net tangible book value (deficit) per share immediately after this offering. As a result, you will pay a price per share of common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of common stock than the amounts paid by our existing stockholders. Assuming an initial public offering price of $          per share of common stock, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in an amount of $           per share of common stock. If the underwriters exercise their option to purchase additional shares, you will experience additional dilution. See “Dilution.”
Your percentage ownership in our Company may be diluted by future issuances of our common stock, which could reduce your influence over matters on which stockholders vote.
After this offering we will have approximately          shares of common stock authorized but unissued. Our amended and restated certificate of incorporation to become effective immediately prior to the consummation of this offering will authorize us to issue these shares of common stock, other equity or equity-linked securities, options, and other equity awards relating to our common stock for the consideration and on the terms and conditions established by our Board of Directors in its sole discretion, whether in connection with acquisitions or otherwise. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote, and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock, if any.
We have reserved, or will reserve in the future, shares for issuance under the 2015 Equity Incentive Plan, and for grants under the 2023 Equity Incentive Plan and the ESPP. See “Management—Executive Compensation—
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Compensation Arrangements to be Adopted in Connection with this Offering—Employee Stock Purchase Plan.” Any common stock that we issue, including under the 2015 Equity Incentive Plan, the 2023 Equity Incentive Plan, the ESPP, or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase common stock in this offering. In the future, we may also issue our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.
Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your shares of common stock for a price greater than that which you paid for it.
We have no current plans to pay cash dividends on our common stock. The declaration, amount, and payment of any future dividends will be at the sole discretion of our Board of Directors, and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreements and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. See “Dividend Policy.”
As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than your purchase price.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market following the completion of this offering could cause the market price for our common stock to decline.
The sale of substantial amounts of shares of our common stock in the public market after this offering, or the perception that such sales could occur, including sales by our founders, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Upon completion of this offering, we will have a total of          shares of our common stock outstanding (or          shares if the underwriters exercise their option to purchase additional shares). Of the outstanding shares, the          shares sold in this offering (or          shares if the underwriters exercise their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers, and other affiliates, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”
The remaining outstanding          shares of common stock held by our existing stockholders after this offering will be deemed restricted securities under the meaning of Rule 144 and may be sold in the public market only if registered or if they qualify for an exemption from registration, including the exemptions pursuant to Rule 144 and Rule 701 under the Securities Act. In addition, we, our executive officers, directors, and all of our significant stockholders will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock and certain other securities held by them for 180 days following the date of this prospectus. J.P. Morgan Securities LLC and Jefferies LLC may, in their sole discretion and at any time without notice, release all or any portion of the shares or securities subject to any such lock-up agreements. See “Underwriting” for a description of these lock-up agreements.
Upon the expiration of the lock-up agreements described above, all of such          shares will be eligible for resale in a public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144.
In addition, pursuant to the Fifth Amended and Restated Investors’ Rights Agreement, dated as of March 26, 2021, by and among CAVA Group, Inc. and the other parties named therein (as amended, the “Investors’ Rights Agreement”), certain of our existing stockholders have the right, subject to certain conditions, to require us to
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register the sale of their shares of our common stock under the Securities Act. See “Certain Relationships and Related Party Transactions―Investors’ Rights Agreement.” By exercising their registration rights and selling a large number of shares, such existing stockholders could cause the prevailing market price of our common stock to decline. Following completion of this offering, the shares covered by registration rights would represent approximately          % of common stock outstanding (or          % if the underwriters exercise their option to purchase additional shares in full). Registration of any of these outstanding shares of our common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to the 2015 Equity Incentive Plan, the 2023 Equity Incentive Plan, and the ESPP. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover          shares of common stock.
As restrictions on resale end, or if the existing stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions in our organizational documents and under Delaware law could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions will provide for, among other things:
a classified board of directors, as a result of which our Board of Directors will be divided into three classes, with each class serving for staggered three-year terms;
the ability of our Board of Directors to issue one or more series of preferred stock;
advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;
certain limitations on convening special stockholder meetings;
the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3% of the shares of common stock entitled to vote generally in the election of directors; and
the required approval of at least 662/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to adopt, amend, or repeal certain provisions of our amended and restated certificate of incorporation.
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Further, we are subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. This provision will make it more difficult for a person who would be an “interested stockholder”to effect various business combinations with the Company for a three-year period.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. These provisions also may have the effect of preventing changes in our Board of Directors and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. See “Description of Capital Stock.”
Our Board of Directors will be authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Our amended and restated certificate of incorporation will authorize our Board of Directors, without the approval of our stockholders, to issue          shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series, and the qualifications, limitations, or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware (or if such court does not have jurisdiction, another state or the federal courts (as appropriate) located within the State of Delaware) will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
Our amended and restated certificate of incorporation will provide that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if such court does not have jurisdiction, another state or the federal courts (as appropriate) located within the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee, or stockholder of the Company to the Company or our stockholders, (iii) action asserting a claim against the Company or any current or former director or officer of the Company arising pursuant to any provision of the DGCL, or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) action asserting a claim governed by the internal affairs doctrine of the State of Delaware. Our amended and restated certificate of incorporation further will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including any claims under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”). However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder and accordingly, we cannot be certain that a court would enforce such provision. See “Description of Capital Stock—Exclusive Forum.”
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation, except our stockholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our
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current or former directors, officers, other employees, or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Our management may use the proceeds of this offering in ways with which you may disagree or that may not be profitable.
Although we anticipate using the net proceeds from this offering as described under “Use of Proceeds,” we will have broad discretion as to the application of the net proceeds and could use them for purposes other than those contemplated by this offering. At this time, we have not specifically identified a large single use for which we intend to use the net proceeds and, accordingly, we are not able to allocate the net proceeds for specific uses due to a variety of factors. You may not agree with the manner in which our management chooses to allocate and use the net proceeds. Our management may use the proceeds for corporate purposes that may not increase our profitability or otherwise result in the creation of stockholder value. In addition, pending our use of the proceeds, we may invest the proceeds primarily in instruments that do not produce significant income or that may lose value.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements are included throughout this prospectus, including in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” and relate to matters such as our industry, business strategy, goals, and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources, and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words or similar terms and phrases to identify forward-looking statements in this prospectus.
The forward-looking statements contained in this prospectus are based on management’s current expectations and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved. Actual results may differ materially from these expectations due to changes in global, regional, or local economic, business, competitive, market, regulatory, and other factors, many of which are beyond our control. We believe that these factors include but are not limited to those described under “Risk Factors” and the following:
our operation in a highly competitive industry;
our ability to open new restaurants while managing our growth effectively and maintaining our culture;
our historical growth may not be indicative of our future growth;
our ability to successfully identify appropriate locations and develop and expand our operations in existing and new markets;
the profitability of new restaurants, and any impact to sales at our existing locations;
the impact of changes in guest perception of our brand;
our ability to successfully market our restaurants and brand;
the impact of food safety and food-borne illness concerns;
our ability to maintain or increase prices;
our ability to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings;
the risks associated with leasing property;
our ability to successfully expand our digital and delivery business;
our ability to utilize, recognize, respond to, and effectively manage the immediacy of social media;
our ability to achieve or maintain profitability in the future, especially if we continue to grow at an accelerated rate;
our ability to realize the anticipated benefits from past and potential future acquisitions, investments or other strategic initiatives;
our ability to manage our manufacturing and supply chain effectively;
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the impact of shortages, delays, or interruptions in the delivery of food items and other products;
our ability to successfully optimize, operate, and manage our production facilities;
the risks associated with our reliance on third parties;
the impact of increases in food, commodity, energy, and other costs;
the impact of increases in labor costs, labor shortages, and our ability to identify, hire, train, motivate and retain the right Team Members;
our ability to attract, develop, and retain our management team and key Team Members;
the impact of any cybersecurity breaches;
the impact of failures, or interruptions in, or our inability to effectively scale and adapt, our information technology systems;
our ability to comply with, or changes in, the extensive laws or regulations requirements to which we are subject;
the impact of economic factors and guest behavior trends;
the impact of evolving rules and regulations with respect to ESG matters;
the impact of climate change and volatile adverse weather conditions; and
the other factors discussed under “Risk Factors.”
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.
Any forward-looking statement made by us in this prospectus speaks only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments, or other strategic transactions we may make. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $          million from the sale of          shares of our common stock in this offering, assuming an initial public offering price of $          per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, the net proceeds to us will be approximately $          million.
We intend to use the net proceeds to us from this offering for new restaurant openings and for general corporate purposes.
An increase (decrease) of 1,000,000 shares from the expected number of shares of common stock to be sold by us in this offering, assuming no change in the assumed initial public offering price per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $          million. A $1.00 increase (decrease) in the assumed initial public offering price of $           per share, based on the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $           million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
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DIVIDEND POLICY
We currently expect to retain all future earnings for use in the operation and expansion of our business and have no current plans to pay dividends on our common stock. The declaration, amount and payment of any future dividends will be at the sole discretion of our Board of Directors, and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreements and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. If we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of April 16, 2023:
on an actual basis;
on a pro forma basis after giving effect to the automatic conversion of            shares of preferred stock into           shares of our common stock at the consummation of this offering; and
on a pro forma as adjusted basis after giving effect to (i) the automatic conversion of          shares of preferred stock into          shares of our common stock at the consummation of this offering, and (ii) the issuance and sale of          shares of our common stock offered by us in this offering at an assumed initial public offering price of $           per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds to us therefrom as described under “Use of Proceeds.”
You should read this table in conjunction with the information contained in “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Certain Indebtedness” as well as our financial statements included elsewhere in this prospectus.
As of April 16, 2023
($ in thousands, other than share and par value)
Actual
Pro Forma
Pro Forma As Adjusted(1)
Cash and cash equivalents
$22,716 $22,716 $
Debt:
Credit Facility(2)
$— $— $— 
Preferred stock, $0.0001 par value, 37,291,370 shares authorized, actual; 31,734,518 shares issued and outstanding;          shares authorized, as adjusted; no shares issued and outstanding, as adjusted
$662,308 $$
Stockholders’ equity:
Common stock, $0.0001 par value per share, 50,000,000 shares authorized, actual; 567,745 shares issued and outstanding, actual;           shares authorized, as adjusted;          shares issued and outstanding, as adjusted
Treasury stock, at cost; 343,500 shares
(7,987)
Additional paid-in capital
20,030
Accumulated deficit
(463,084)
Total stockholders’ equity
(451,041)
$$
Total capitalization
$661,857 $$
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(1)To the extent we change the number of shares of common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the assumed initial public offering price of $          per share, the mid-point of the estimated price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price of $          per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds that we receive in this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $          , assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price of $           per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering and each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $           after deducting the underwriting discount and commissions and estimated offering expenses payable by us.
(2)For a further description of our Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Description of Certain Indebtedness.”
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DILUTION
If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value (deficit) per share of our common stock after giving effect to this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to the shares of our common stock held by existing stockholders.
Our net tangible book value (deficit) as of April 16, 2023, was approximately $     million, or $          per share of our common stock. We calculate net tangible book value (deficit) per share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities and preferred stock, and then dividing that amount by the total number of shares of common stock outstanding.
After giving effect to the automatic conversion of          shares of preferred stock into          shares of common stock at the consummation of this offering, which will result in the issuance of           shares of common stock immediately prior to the consummation of this offering, our net tangible book value would have been $         million, or $          per share.
After giving further effect to (i) our sale of          shares of common stock in this offering at an assumed initial public offering price of $          per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the application of the net proceeds to us from this offering as set forth under “Use of Proceeds,” our as adjusted net tangible book value (deficit) as of April 16, 2023 would have been $           million, or $          per share of our common stock. This amount represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $           per share to existing stockholders and an immediate and substantial dilution in net tangible book value (deficit) of $           per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share of our common stock$
Net tangible book value (deficit) per share of our common stock as of April 16, 2023
Increase in net tangible book value per share attributable to conversion of outstanding preferred stock
Increase in tangible book value per share attributable to new investors purchasing shares of our common stock in this offering
As adjusted net tangible book value per share of our common stock after giving effect to this offering
Dilution per share of our common stock to new investors in this offering$
Dilution is determined by subtracting as adjusted net tangible book value (deficit) per share of common stock after this offering from the initial public offering price per share of common stock.
If the underwriters exercise their option to purchase additional shares of our common stock in full, the as adjusted net tangible book value (deficit) per share after giving effect to this offering and the use of proceeds therefrom would be $           per share. This represents an increase in as adjusted net tangible book value (or a decrease in as adjusted net tangible book deficit) of $           per share to the existing stockholders and results in dilution in as adjusted net tangible book value (deficit) of $          per share to new investors.
Assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, a $1.00 increase (decrease) in the assumed initial public offering price of $          per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the tangible book value attributable to new investors purchasing shares in this offering by $          per
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share and the dilution to new investors by $           per share and increase (decrease) the as adjusted net tangible book value (deficit) per share after giving effect to this offering by $          per share.
The following table summarizes the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares of our common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid. The table below assumes an initial public offering price of $         per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:
Shares PurchasedTotal ConsiderationAverage Price
Per Share
(in thousands, except percentages)NumberPercentAmountPercent
Existing stockholders$$
New investors
Total$$
If the underwriters were to exercise their option to purchase          additional shares of our common stock from us in full, the percentage of shares of our common stock held by existing stockholders who are directors, officers or affiliated persons as of April 16, 2023 would be          % and the percentage of shares of our common stock held by new investors would be          %.
Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $          million, $           million and $          per share, respectively.
To the extent that we grant options to our employees in the future and those options are exercised or other issuances of common stock are made, there will be further dilution to new investors.
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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 “SummarySummary Historical Financial and Other Data” and the accompanying financial statements included elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties, and 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 “Risk Factors” and “Forward-Looking Statements.”
Overview
CAVA is the category-defining Mediterranean fast-casual restaurant brand, bringing together healthful food and bold, satisfying flavors at scale. Our brand and our opportunity transcend the Mediterranean category to compete in the large and growing limited-service restaurant sector as well as the health and wellness food category. CAVA serves guests across gender lines, age groups, and income levels and benefits from generational tailwinds created by consumer demand for healthy living and a demographic shift towards greater ethnic diversity. We meet consumers’ desires to engage with convenient, authentic, purpose-driven brands that view food as a source of self-expression. The broad appeal of our food combined with these favorable industry trends drive our vast opportunity for continued growth.
Our co-founders first opened CAVA Mezze, a full-service restaurant, in 2006. Encouraged by the popularity of CAVA Mezze, they started selling dips and spreads in grocery stores in 2008. Taking everything our co-founders learned from CAVA Mezze, we introduced our fast-casual concept in 2011, leveraging the format’s potential to bring high-quality Mediterranean food to a large market, with the speed that guests increasingly desired. We saw that our cuisine and brand resonated with consumers and we rapidly expanded our presence, growing from four restaurants as of the end of 2012 to 72 restaurants by the end of 2018. In 2018, we saw an attractive opportunity to accelerate our growth and acquired Zoes Kitchen, which provided us with significant scale and access to a large portfolio of quality real estate in target markets. As of April 16, 2023, we owned and operated 263 CAVA restaurants in 22 states and Washington, D.C., having successfully converted 145 Zoes Kitchen locations into CAVA restaurants and opened 51 new CAVA restaurants since our acquisition of Zoes Kitchen. We anticipate having 34 to 44 Net New CAVA Restaurant Openings in the remainder of fiscal 2023, which includes opening the remaining 8 conversions of Zoes Kitchen locations that we expect to complete by the fall of 2023.
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Below are some of the most important milestones in our journey:
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Note: The bars in the chart above represent the number of CAVA Restaurants. The end of each of fiscal 2019, fiscal 2020, fiscal 2021, fiscal 2022, and the sixteen weeks ended April 16, 2023 include 1, 8, 62, 125, and 145 CAVA restaurants, respectively, that were converted from Zoes Kitchen locations as of such date.
To efficiently produce our food at scale, achieve consistency across all locations and enable our restaurants to focus on all other aspects of food preparation, we opened our first production facility in 2016. In October 2022, we broke ground at our state-of-the art production facility and expect to commence operations at this second facility by the first fiscal quarter of 2024. Our new production facility will add further scale and consistency to fuel our rapid growth, while further simplifying our in-restaurant operations. We expect that our production facilities will support at least 750 restaurants, as well as our CPG business, with the potential to add additional capacity over time.
We believe that we are still in the early innings of reaching our full potential and intend to increase density within our existing markets and continue to enter and scale new markets. In fiscal 2022, we achieved strong AUV of at least $2.0 million across geographies and formats in suburban, urban, and specialty locations. Our proven portability and powerful unit economics, combined with the infrastructure that we have built for scale, position us well for the next stage of our growth.
For fiscal 2022, we generated $564.1 million of total revenue, a 12.8% increase from $500.1 million of total revenue for fiscal 2021. For fiscal 2022, CAVA Revenue was $448.6 million, a 61.2% increase from $278.2 million of CAVA Revenue for fiscal 2021. The increase in CAVA Revenue was primarily due to 132 Net New CAVA Restaurant Openings in fiscal 2022 and fiscal 2021, of which 117 were conversions of Zoes Kitchen locations that occurred in fiscal 2022 and fiscal 2021, which accounted for $118.3 million of the increase. The increase in CAVA Revenue was also driven by CAVA Same Restaurant Sales Growth of 14.2% for fiscal 2022. For fiscal 2022, we had $59.0 million of net loss, compared to $37.4 million of net loss for fiscal 2021. In addition, for fiscal 2022, we generated $12.6 million of Adjusted EBITDA, compared to $14.6 million of Adjusted EBITDA for fiscal 2021, the decrease of which was primarily due to higher pre-opening costs as we increased Net New CAVA Restaurant Openings in fiscal 2022.
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For the first quarter of 2023, we generated $203.1 million of total revenue, a 27.7% increase from $159.0 million of total revenue for the first quarter of 2022. For the first quarter of 2023, CAVA Revenue was $196.8 million, a 75.7% increase from $112.0 million of CAVA Revenue for the first quarter of 2022. The increase in CAVA Revenue was primarily due to a $52.0 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of which the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations during or subsequent to the sixteen weeks ended April 17, 2022. The increase in CAVA Revenue was also driven by CAVA Same Restaurant Sales Growth of 28.4% for the first quarter of 2023.
For the first quarter of 2023, we had $2.1 million of net loss, compared to $20.0 million of net loss for the first quarter of 2022. In addition, for the first quarter of 2023, we generated $16.7 million of Adjusted EBITDA, compared to $(1.6) million of Adjusted EBITDA for the first quarter of 2022. The increase in Adjusted EBITDA was primarily driven by CAVA Same Restaurant Sales Growth, improved CAVA Restaurant-Level Profit Margin, and the continued conversions of Zoes Kitchen locations, which have achieved significantly stronger post-conversion financial results as compared to pre-conversion results, which was partially offset by increased general and administrative expenses and pre-opening costs due to increased Net New CAVA Restaurant Openings in the first quarter of 2023 compared to the first quarter of 2022. We have achieved very strong results of operations for the first quarter of 2023 and expect to continue to drive the growth of our business through the expansion of our base of CAVA Restaurants and CAVA Same Restaurant Sales Growth. Due to our very strong business performance in the first quarter of 2023, we expect that our growth in future quarters may moderate in comparison to the first quarter of 2023. For a reconciliation of Adjusted EBITDA to net loss, see “—Non-GAAP Financial Measures” below.
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 operate. As of April 16, 2023, we operated 263 CAVA restaurants. We are currently in the process of converting the remaining 8 Zoes Kitchen locations, which we expect to be complete by the fall of 2023. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. Our CPG operations are included in Other.
Key Factors Affecting Our Performance
We believe CAVA is well-positioned to benefit from evolving consumer trends focused on health and wellness demographic trends towards greater ethnic diversity, as well as the increased emphasis on combined quality and convenience by modern consumers. These favorable trends, combined with the broad appeal of our food, provide us with a significant opportunity to drive the growth of our business.
Our future performance will also be driven by our ability to:
Grow our Restaurant Base - We have rapidly grown our base of CAVA restaurants in the last few years, expanding from 22 restaurants as of the end of 2016 to 263 as of April 16, 2023. While this rapid expansion was aided by our Zoes Kitchen acquisition, which provided us with access to a large portfolio of quality real estate and allowed us to convert 145 Zoes Kitchen locations into CAVA restaurants, as of April 16, 2023, the future growth of the number of our CAVA restaurant base will be primarily driven by new CAVA restaurant openings. We currently have a strong new restaurant pipeline with 100 new sites for which we have signed letters of intent as of April 16, 2023, which is well in excess of our planned new restaurant openings in 2023 and 2024.
We have demonstrated the ability to drive strong unit economics in conjunction with rapid growth of the number of CAVA Restaurants. In fiscal 2022, we achieved CAVA AUV of $2.4 million with CAVA Restaurant-Level Profit Margin of 20.3%. We have achieved these strong unit economics for CAVA restaurants across geographies and market types, whether for new CAVA restaurant openings or CAVA restaurants converted from Zoes Kitchen locations. For example, the 54 CAVA restaurants converted in fiscal 2021 from Zoes Kitchen locations achieved post-conversion CAVA AUV of $2.0 million during fiscal 2022, compared to pre-conversion AUV of $1.4 million during fiscal 2019.
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We believe there is an opportunity to increase density in our existing markets with continued AUV growth. In addition, we expect the 59 and 73 restaurants that we opened in fiscal 2021 and 2022, respectively, will continue to grow and generate higher AUV as they mature, which is consistent with our historical results. When a new CAVA restaurant is opened, we generally observe significant organic sales growth over time, driven by the excitement around newness of our brand and sustained by the broad appeal of our offering.
Furthermore, we aim to enter and successfully scale new markets, driven by our brand strength, well-developed pipeline of talent across key functional and operating areas, corporate infrastructure, new restaurant opening playbook, and attractive unit economic model. We plan to target year 2 AUV of $2.3 million, year 2 CAVA Restaurant-Level Profit Margins of 20%, net capital expenditures (representing capital expenditures incurred to open a restaurant, net of tenant allowances) of $1.3 million and year 2 Cash on Cash Returns of 35%. Our target new unit economics are substantiated by our strong track record of AUV growth and our aggregate Cash on Cash Returns of approximately 40%, which is calculated on a combined basis for all CAVA restaurants opened prior to fiscal 2018 to exclude the impact of the COVID-19 pandemic.
Drive Culinary Innovation - We focus on menu innovation to continue offering our guests vibrant Mediterranean flavors and healthful food, which builds excitement around our menu and attracts more traffic to our restaurants and increases demand through our digital channels. For example, the introduction of our curated pita sandwich allowed us to capture guest demand for sandwiches and has doubled the incidence rate of our pitas.
Leverage our Digitally Enabled Multi-Channel Offering - We leverage our interconnected physical and digital ecosystem to continue to increase convenience and access to our brand and drive frequency. We expect to introduce new and improved formats and convenience channels tailored to our guest preferences, continue to improve and personalize ways for guests to engage with CAVA, enhance our loyalty offering, broaden our catering program, and grow our CPG business. Digital orders have a 27% higher average guest check compared to in-restaurant orders.
Increase Brand Awareness - We focus on creating, capturing, and retaining new demand by increasing our brand awareness while also increasing our value proposition to our existing guests. We aim to continue to increase our brand awareness through opening new CAVA restaurants, as well as continued local community engagement, brand collaborations with genuine CAVA fans, growing our social community and leveraging our CPG offerings. We believe that an increase in our brand awareness will drive increased guest traffic.
Our business will also be impacted by our ability to successfully navigate challenges and uncertainties, such as:
Macroeconomic Conditions and Inflationary Environment - We demonstrated our ability to navigate adverse macroeconomic conditions and an inflationary environment throughout fiscal 2021 and fiscal 2022. In those two years, we instituted proactive initiatives to moderate the effects of rising inflation and commodity costs while gaining scale. Our initiatives created efficiencies in our in-bound logistics and other supply chain costs that offset the mid- to high-single digit inflation we experienced related to food and packaging costs.
In addition, consistent with the CAVA culture of investing in our Team Members, we implemented a $13 per hour starting wage across the country in 2016, which was higher than minimum wage requirements at that time. As a result, this reduced our need for significant wage increases during the past few years compared to many others in our industry. These factors allowed us to only increase our in-restaurant menu price by less than 5% in fiscal 2022, while still expanding CAVA Restaurant-Level Profit Margin.
Hybrid and Remote Work Arrangements - With the increase in remote and hybrid working arrangements, restaurants and food services catering to office workers or located within business districts may be adversely affected. Thus far, we have not been significantly impacted by these trends, due in part to our mix of restaurant locations, with a 82% suburban, 14% urban, and 4% specialty location mix as of April 16, 2023, as well as our balanced daypart split, which was 55% / 45% between lunch and dinner for fiscal
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2022. In addition, while we have restaurants located within business districts, many of our urban locations are not substantially dependent on the office crowd. Our ability to successfully weather these potential challenges further demonstrates our differentiated, broad guest appeal.
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.
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.
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 GAAP, our management team also considers a variety of non-GAAP measures. The key non-GAAP 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 non-GAAP 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 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 periods presented:
Sixteen Weeks EndedFiscal
($ in thousands)April 16, 2023April 17, 2022Change20222021Change
CAVA Revenue$196,761 $112,006 $84,755 $448,594 $278,219 $170,375 
CAVA Same Restaurant Sales Growth(1)
28.4 %19.9 %8.5 %14.2 %45.2 %(31.0)%
CAVA AUV(2)
$2,547 $2,375 $172 $2,398 $2,305 $93 
CAVA Restaurant-Level Profit$49,983 $19,592 $30,391 $91,093 $50,884 $40,209 
CAVA Restaurant-Level Profit Margin25.4 %17.5 %7.9 %20.3 %18.3 %2.0 %
CAVA Restaurants(3)
263 177 86 237 164 73 
Net New CAVA Restaurant Openings26 13 13 73 59 14 
CAVA Digital Revenue Mix36.6 %35.3 %1.3 %34.5 %37.4 %(2.9)%
Net Loss$(2,141)$(20,018)$17,877 $(58,987)$(37,391)$(21,596)
Adjusted EBITDA(4)
$16,746 $(1,576)$18,322 $12,615 $14,642 $(2,027)
Net Loss Margin(1.1)%(12.6)%11.5 %(10.5)%(7.5)%(3.0)%
Adjusted EBITDA Margin(4)
8.2 %(1.0)%9.2 %2.2 %2.9 %(0.7)%
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(1)CAVA Same Restaurant Sales Growth was materially impacted in fiscal 2021 due to the temporary impacts of the COVID-19 pandemic on CAVA Revenue during fiscal 2020. CAVA Same Restaurant Sales Growth for fiscal 2021, as compared to fiscal 2019, would have been 23.6%. For purposes of calculating CAVA Same Restaurant Sales Growth compared to fiscal 2019, we only include CAVA restaurants that were open as of the beginning or during fiscal 2019.
(2)For purposes of calculating CAVA AUV for the sixteen weeks ended April 16. 2023 and April 17, 2022, the applicable measurement period is the entire trailing thirteen periods ended April 16, 2023 and April 17, 2022, respectively.
(3)As of the end of the specified 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 loss, the most directly comparable GAAP measure to Adjusted EBITDA. 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 one restaurant operating under a license agreement. 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 April 16, 2023 and April 17, 2022, there were 176 CAVA restaurants (including 75 CAVA restaurants converted from a Zoes Kitchen location prior to April 17, 2022) and 111 CAVA restaurants (including 13 CAVA restaurants converted from a Zoes Kitchen location prior to April 18, 2021), respectively, in such restaurant base. As of December 25, 2022 and December 26, 2021, there were 163 CAVA restaurants (including 62 CAVA restaurants converted from a Zoes Kitchen location prior to December 25, 2021) and 104 CAVA restaurants (including 8 CAVA restaurants converted from a Zoes Kitchen location prior to December 27, 2020), respectively, in such restaurant base. CAVA Same Restaurant Sales Growth includes CAVA digital kitchen sales attributable to locations in the restaurant base.
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.
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.
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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 and Net New CAVA Restaurant Openings
We define CAVA Restaurants to include all CAVA restaurants, including converted Zoes Kitchen locations and CAVA hybrid kitchens, that are open as of the end of the specified period. CAVA Restaurants exclude restaurants operating under license agreements and CAVA digital kitchens. As of April 16, 2023, we had one CAVA restaurant operating under a license agreement and ten CAVA digital kitchens.
We define Net New CAVA Restaurant Openings as new CAVA restaurant openings (including CAVA restaurants converted from a Zoes Kitchen location) during a specified reporting period, net of any permanent CAVA restaurant closures during the same period.
We use CAVA Restaurants and Net New CAVA Restaurant Openings to assess and track the growth of our base of CAVA restaurants as it generally positively correlates to the growth of our business and CAVA revenue.
The following table details CAVA restaurant unit data for the periods indicated.
Sixteen Weeks EndedFiscal
April 16, 2023April 17, 202220222021
CAVA Restaurants
Beginning of period237 164 164 104 
New CAVA restaurant openings, including converted Zoes Kitchen locations27 13 74 59 
Re-opening from temporary closure due to COVID-19— — — 
Permanent closure(1)— (1)— 
End of period263 177 237 164 
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 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 expense (income), net, provision for (benefit from) income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, and restructuring and other 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 loss.
Components of Results of Operations
Revenue includes sales of food and beverage in our owned CAVA and Zoes Kitchen locations and sales of consumer-packaged goods, net of promotional allowances. CAVA restaurants generally operate at higher revenue levels than the predecessor Zoes Kitchen locations prior to conversion.
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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. As a percentage of CAVA food, beverage, and packaging in fiscal 2022, protein, produce, and grocery made up 26%, 24% and 23%, respectively. The other 27% includes our dips and spreads, beverages, packaging, and other miscellaneous items.
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 for six to eight months 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 costs, and expenses related to support centers, which are recorded in general and administrative expenses. Occupancy varies from location to location and are 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 corporate function 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 support 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 consist of depreciation of fixed assets including all equipment and leasehold improvements, and amortization of intangible assets such as trademarks.
Restructuring and other costs consist mainly of expenses incurred in connection with closed Zoes Kitchen locations, public company readiness costs, and costs related to our collaboration center relocation.
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 including the loss on disposal of assets primarily related to permanently closed restaurants, and restaurant conversions.
Interest expense, net includes cash and non-cash charges related to our Credit Facility, including the amortization of debt issuance costs, and interest income from our short-term investments.
Other income, net primarily consists of amounts received from forgiveness of PPP Loans.
Provision for (benefit from) income taxes represent federal, state and local, current, and deferred income tax expense.
75


Results of Operations
Our results of operations, on a consolidated basis and by segments, for the sixteen weeks ended April 16, 2023 and April 17, 2022 and for fiscal 2022 and fiscal 2021 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 we continue to convert Zoes Kitchen locations into CAVA restaurants. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. We are currently in the process of converting the remaining 8 Zoes Kitchen locations, which we expect to complete by the fall of 2023. 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.
Comparison of the sixteen weeks ended April 16, 2023 and April 17, 2022
The following table summarizes our segment results for the sixteen weeks ended April 16, 2023 and April 17, 2022:
Sixteen Weeks Ended
($ in thousands)
April 16,
2023
April 17,
2022
Revenue
CAVA$196,761 $112,006 
Zoes Kitchen3,867 44,741 
Other2,455 2,264 
Total revenue203,083 159,011 
Restaurant-Level operating expenses
CAVA146,778 92,414 
Zoes Kitchen4,044 42,632 
Other1,697 1,821 
Total Restaurant-Level operating expenses152,519 136,867 
Restaurant-Level profit
CAVA49,983 19,592 
Zoes Kitchen(177)2,109 
Other758 443 
Total Restaurant-Level profit50,564 22,144 
Reconciliation of Restaurant-Level profit to loss before income taxes:
General and administrative expenses29,024 20,937 
Depreciation and amortization12,859 12,819 
Restructuring and other costs2,215 1,284 
Pre-opening costs5,999 3,566 
Impairment and asset disposal costs2,719 3,431 
Interest expense, net25 343 
Other income, net(174)(258)
Loss before income taxes$(2,103)$(19,978)
__________________
(1)Restaurant-Level operating expenses consist of food, beverage, and packaging, labor, occupancy, and other operating expenses.
76


The following table summarizes our consolidated results of operations for the sixteen weeks ended April 16, 2023 and April 17, 2022:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Revenue $203,083 100.0 %$159,011 100.0 %$44,072 27.7 %
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization)
Food, beverage, and packaging59,118 29.1 50,904 32.0 8,214 16.1 
Labor52,154 25.7 47,022 29.6 5,132 10.9 
Occupancy16,599 8.2 16,740 10.5 (141)(0.8)
Other operating expenses24,648 12.1 22,201 14.0 2,447 11.0 
Total restaurant operating expenses152,519 75.1 136,867 86.1 15,652 11.4 
General and administrative expenses29,024 14.3 20,937 13.2 8,087 38.6 
Depreciation and amortization12,859 6.3 12,819 8.1 40 0.3 
Restructuring and other costs2,215 1.1 1,284 0.8 931 72.5 
Pre-opening costs5,999 3.0 3,566 2.2 2,433 68.2 
Impairment and asset disposal costs2,719 1.3 3,431 2.2 (712)(20.8)
Total operating expenses205,335 101.1 178,904 112.5 26,431 14.8 
Loss from operations(2,252)(1.1)(19,893)(12.5)17,641 (88.7)
Interest expense, net25 — 343 0.2 (318)(92.7)
Other income, net(174)(0.1)(258)(0.2)84 (32.6)
Loss before income taxes(2,103)(1.0)(19,978)(12.6)17,875 (89.5)
Provision for income taxes38 0.0 40 0.0 (2)(5.0)
Net loss$(2,141)(1.1)%$(20,018)(12.6)%$17,877 (89.3)%
77


CAVA Segment Results
The following table summarizes the results of the CAVA segment for the sixteen weeks ended April 16, 2023 and April 17, 2022:
Sixteen Weeks Ended
April 16,
2023
April 17,
2022
Change
($ in thousands)
$% of Revenue$% of Revenue$%
Restaurant revenue
$196,761 100.0 %$112,006 100.0 %$84,755 75.7 %
Restaurant operating expenses, excluding depreciation and amortization:
Food, beverage, and packaging56,454 28.7 35,587 31.8 20,867 58.6 
Labor
50,648 25.7 31,429 28.1 19,219 61.2 
Occupancy
16,091 8.2 11,436 10.2 4,655 40.7 
Other operating expenses
23,585 12.0 13,962 12.5 9,623 68.9 
Total restaurant operating expenses
146,778 74.6 92,414 82.5 54,364 58.8 
Restaurant-Level profit
$49,983 25.4 %$19,592 17.5 %$30,391 155.1 %
CAVA Revenue:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Restaurant revenue$196,761 $112,006 $84,755 75.7 %
The increase in CAVA Revenue was primarily due to a $52.0 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of which the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations during or subsequent to the sixteen weeks ended April 17, 2022. The remainder of the increase in CAVA Revenue was driven by CAVA Same Restaurant Sales Growth of 28.4%, which consists of 18.4% from guest traffic increases and 10.0% from menu price increases and product mix.
CAVA Food, beverage, and packaging:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Food, beverage, and packaging$56,454 $35,587 $20,867 58.6 %
As a percentage of CAVA Revenue28.7 %31.8 %n/a(3.1)%
The increase in CAVA food, beverage, and packaging was primarily due to a $15.8 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of which the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 28.4%.
As a percentage of CAVA Revenue, CAVA food, beverage, and packaging decreased primarily due to greater economies of scale as we continued to expand our restaurant footprint and higher incidence of premium menu items driving favorable product mix.
78


CAVA Labor:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Labor$50,648 $31,429 $19,219 61.2 %
As a percentage of CAVA Revenue25.7 %28.1 %n/a(2.4)%
The increase in CAVA labor was primarily due to a $14.6 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of which the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 28.4%. These increases include the impact of higher average hourly wages.
As a percentage of CAVA Revenue, CAVA labor decreased due to strong sales, partially offset by an increase in average hourly wages and an increased mix of new restaurants, which have a higher labor investments for six to eight months following the initial opening of a restaurant.
CAVA Occupancy:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Occupancy$16,091 $11,436 $4,655 40.7 %
As a percentage of CAVA Revenue8.2 %10.2 %n/a(2.0)%
The increase in CAVA occupancy was primarily due to an $4.2 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of which the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations.
As a percentage of CAVA Revenue, CAVA occupancy decreased largely due to the addition of CAVA restaurants that were converted from Zoes Kitchen locations, as these restaurants generally have lower occupancy expenses than restaurants in the pre-existing CAVA Restaurants due to geographic mix, as well as improved leverage associated with CAVA Same Restaurant Sales Growth.
CAVA Other operating expenses:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Other operating expenses$23,585 $13,962 $9,623 68.9 %
As a percentage of CAVA Revenue12.0 %12.5 %n/a(0.5)%
The increase in CAVA other operating expenses was primarily due to a $6.3 million increase from the 99 Net New CAVA Restaurant Openings during or subsequent to the sixteen weeks ended April 17, 2022, of the significant majority was attributable to the 83 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 28.4%.
As a percentage of CAVA Revenue, CAVA other operating expenses improved as a result of operating leverage associated with CAVA Same Restaurant Sales Growth.
79


Zoes Kitchen Segment Results
The following table summarizes the results of the Zoes Kitchen segment for the sixteen weeks ended April 16, 2023 and April 17, 2022:
Sixteen Weeks Ended
April 16,
2023
April 17,
2022
Change
($ in thousands)
$% of Revenue$% of Revenue$%
Revenue
$3,867 100.0 %$44,741 100.0 %$(40,874)(91.4)%
Restaurant operating expenses, excluding depreciation and amortization:
Food, beverage, and packaging1,141 29.5 13,647 30.5 (12,506)(91.6)
Labor
1,506 38.9 15,593 34.9 (14,087)(90.3)
Occupancy
508 13.1 5,304 11.9 (4,796)(90.4)
Other operating expenses
889 23.0 8,088 18.1 (7,199)(89.0)
Total restaurant operating expenses
4,044 104.6 42,632 95.3 (38,588)(90.5)
Restaurant-Level profit
$(177)(4.6)%$2,109 4.7 %$(2,286)(108.4)%
Zoes Kitchen Revenue:
The decrease in Zoes Kitchen revenue was primarily due to the 125 Zoes Kitchen locations closed or converted during or subsequent to the sixteen weeks ended April 17, 2022.
Zoes Kitchen Food, beverage, and packaging:
The decrease in Zoes Kitchen food, beverage, and packaging was primarily due to the 125 Zoes Kitchen locations closed or converted during or subsequent to the sixteen weeks ended April 17, 2022.
As a percentage of Zoes Kitchen revenue, Zoes Kitchen food, beverage, and packaging decreased slightly due to lower input costs.
Zoes Kitchen Labor:
The decrease in Zoes Kitchen labor was primarily due to the 125 Zoes Kitchen locations closed or converted during or subsequent to the sixteen weeks ended April 17, 2022.
As a percentage of Zoes Kitchen revenue, Zoes Kitchen labor increased primarily due to higher average hourly wages and lower same restaurant sales.
Zoes Kitchen Occupancy:
The decrease in Zoes Kitchen occupancy was primarily due to the 125 Zoes Kitchen locations closed or converted during or subsequent to the sixteen weeks ended April 17, 2022.
As a percentage of Zoes Kitchen revenue, Zoes Kitchen occupancy expenses increased primarily due to lower same restaurant sales.
Zoes Kitchen Other operating expenses:
The decrease in Zoes Kitchen other operating expenses was primarily due to the 125 Zoes Kitchen locations closed or converted during or subsequent to the sixteen weeks ended April 17, 2022.
As a percentage of Zoes Kitchen revenue, Zoes Kitchen other operating expenses increased primarily due to increased third-party delivery fees and commissions and lower same restaurant sales.
80


Other Results
The following table summarizes remaining activity related to our CPG operations for the sixteen weeks ended April 16, 2023 and April 17, 2022 the impact of which is not material.
Sixteen Weeks Ended
April 16,
2023
April 17,
2022
Change
($ in thousands)
$% of Revenue$% of Revenue$%
Revenue
$2,455 100.0 %$2,264 100.0 %$191 8.4 %
Food, beverage, and packaging1,523 62.0 1,670 73.8 (147)(8.8)
Other operating expenses
$174 7.1 %$151 6.7 %$23 15.2 %
Consolidated Results
Revenue:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Revenue$203,083 $159,011 $44,072 27.7 %
The increase in consolidated revenue was primarily driven by a $84.8 million increase in CAVA Revenue as a result of the continued expansion of the number of CAVA Restaurants, partially offset by a $40.9 million decrease in our Zoes Kitchen revenue as we continue to convert Zoes Kitchen locations into CAVA restaurants.
Food, beverage, and packaging:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Food, beverage, and packaging$59,118 $50,904 $8,214 16.1 %
The increase in consolidated food, beverage, and packaging was primarily driven by a $20.9 million increase in food, beverage, and packaging within our CAVA segment as we continue to expand CAVA Restaurants, partially offset by a $12.5 million decrease in our Zoes Kitchen food, beverage, and packaging as we continue to convert Zoes Kitchen locations into CAVA restaurants.
Labor:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Labor$52,154 $47,022 $5,132 10.9 %
The increase in consolidated labor was primarily driven by a $19.2 million increase in labor for our CAVA segment as a result of the continued expansion of the number of CAVA Restaurants, partially offset by a $14.1 million decrease in our Zoes Kitchen labor as we continue to convert Zoes Kitchen locations into CAVA restaurants.
81


Occupancy:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Occupancy$16,599 $16,740 $(141)(0.8)%
Consolidated occupancy was relatively flat as the $4.7 million increase from 99 Net New CAVA Restaurant Openings and increased variable rent from strong performance was offset by the $4.8 million decrease from 125 closed or converted Zoes Kitchen restaurants.
Other operating expenses:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
Other operating expenses$24,648 $22,201 $2,447 11.0 %
The increase in consolidated other operating expenses was primarily driven by a $9.6 million increase in other operating expenses for our CAVA segment as a result of the continued expansion of CAVA Restaurants, partially offset by a $7.2 million decrease in our Zoes Kitchen other operating expenses as we continue to convert Zoes Kitchen locations into CAVA restaurants.
General and administrative expenses:
Sixteen Weeks EndedChange
($ in thousands)
April 16,
2023
April 17,
2022
$%
General and administrative expenses$29,024 $20,937 $8,087