Alexander Slagle

Alex Slagle asked for a dissection of the Q2 food service business dynamics, specifically the impact of Cheney Brothers' investments and cheese/poultry deflation on elevated OpEx, and the cadence of these investments. Alex Slagle also inquired about the convenience segment's EBITDA margin opportunity, the potential for food service penetration, and its long-term implications for overall convenience EBITDA margins.

Answer

CEO Scott McPherson affirmed the strategic value of the Cheney acquisition but noted higher-than-anticipated costs due to new facility investments and public company integration. He also acknowledged the impact of cheese and poultry deflation on margins. Regarding convenience, CEO Scott McPherson highlighted the positive margin impact from continued food service growth and the secular tailwind of non-combustible nicotine product sales.

Alex Slagle asked for a dissection of the food service business dynamics in Q2 2026, specifically the impact of Cheney Brothers' investments and cheese/poultry deflation, and the cadence of these investments. He also inquired about the convenience segment's EBITDA margin opportunity, considering food service growth and other mix items, and what this could mean for overall convenience EBITDA margins over time.

Answer

Scott McPherson, EVP and Chief Field Operations Officer, Performance Food Group Company, highlighted the strategic fit and cultural success of the Cheney acquisition, but noted higher-than-anticipated costs due to new facilities and integration into a public company. He confirmed strong market share growth in independent and chain food service, with margin benefits from the independent mix, and identified Cheney costs and deflation as the primary reasons for missing the upper half of guidance. For convenience, Mr. McPherson pointed to food service growth and the shift towards non-combustible nicotine products as secular tailwinds improving margin profile.

Alexander Slagle of Jefferies inquired about the key drivers behind the record EBITDA margins across PFG's divisions, including the impact of inventory holding gains. He also asked for clarification on the reported stability in trends, given the visible uncertainty among restaurant operators.

Answer

COO Scott McPherson attributed the strong margins primarily to favorable sales mix and excellent OpEx leverage across all three segments. CFO Patrick Hatcher noted that inventory gains were a slight benefit in Q4 but are not factored into the 2026 guidance. Regarding trends, McPherson acknowledged a 'haves and have-nots' environment among restaurants but pointed to improving overall traffic and PFG's success in partnering with growing chains as sources of stability.

Alexander Slagle of Jefferies sought clarification on improving trends in the Convenience segment, the impact of a tough Q4 comparison, and any notable differences in volume dynamics between chain and independent restaurants.

Answer

CEO George Holm clarified that the Convenience segment's improvement stems from market penetration and new business wins, not a recovery in the underlying industry. COO Scott McPherson added that despite a difficult prior-year comparison, the segment's underlying EBITDA trends are strong. George Holm also noted that recent trends show independent restaurants performing better than chains, with casual dining remaining particularly challenged.

Alexander Slagle inquired about the potential impact of new immigration enforcement actions on the business and the broader industry. He also asked for an update on new restaurant formation trends.

Answer

CFO Patrick Hatcher noted that all PFG employees are documented and they don't foresee a direct impact on the company. COO Scott McPherson added that the company's workforce is in great shape. CEO George Holm commented that he sees continued growth in independent restaurants as closed chain locations are reoccupied, suggesting a healthy environment for new customer acquisition.

Alexander Slagle asked about the financial magnitude of the recent hurricanes' impact, the factors that allowed the Cheney acquisition to close so quickly, and the company's visibility on cheese inflation.

Answer

CEO George Holm reported that the financial impact from the hurricanes was not material, as business from remaining open restaurants offset losses from closures. He credited the swift closing of the Cheney deal to PFG's complementary, specialized business footprint in Florida, which streamlined the process. On inflation, Holm noted that while cheese prices remain elevated year-over-year, they have been declining sequentially for the past couple of months.

Alexander Slagle inquired about the Sysco Brand mix, which is still trending down year-over-year, the path to achieving positive mix, and the importance of expanding the value tier to drive future earnings tailwinds.

Answer

CEO Kevin Hourican noted nominal improvement in Sysco Brand mix from Q1 to Q2, with expectations for meaningful progress in H2 FY26, aiming for positive year-over-year penetration by the end of the second half. This will be driven by three factors: merchandising (expanding the value tier, Sysco Reliance, over the calendar year 2026), pricing architecture (leveraging technology to ensure Sysco Brand offers value), and sales force focus (intentional presentation of Sysco Brand 'Swap and Save' products). CFO Kenny Cheung added that Sysco Brand is a significant part of the top line, and its penetration is expected to stabilize and improve, especially with Local business growth, while sourcing efforts benefit overall gross profit margins.

Alex Slagle inquired about the Sysco Brand mix, which is still trending down year-over-year, asking about the path to positive penetration, its importance to future earnings, and the strategy for expanding the value tier.

Answer

Kevin Hourican, Chair of the Board and CEO, noted a nominal improvement in Sysco Brand mix from Q1 to Q2 and expects positive year-over-year penetration in the second half of fiscal 2026. He outlined three drivers: merchandising (filling voids in the value tier, Sysco Reliance, which is a constructive, calendar-year effort), pricing architecture (leveraging technology for competitive Sysco Brand pricing), and sales force focus (intentional presentation of Sysco Brand products, including 'swap and save' suggestions via AI 360). Kenny Cheung, CFO, added that local business growth, with its approximately 50% Sysco Brand penetration, and strategic sourcing efforts for both Sysco and non-Sysco brands contribute to gross profit margin expansion.

Alex Slagle asked about local salesforce productivity, including metrics on new hires reaching productivity hurdles, and how tenure and retention correlate with the observed step-up in local case growth, particularly in September and October when industry trends were sluggish. He also inquired about potential conservatism in Sysco's back-half earnings guidance.

Answer

Kevin Hourican, Chair and CEO of Sysco, highlighted a 130 basis point improvement in Q1, with a rate of improvement twice the overall market traffic, and anticipated at least an additional 100 basis points of progress in Q2. He attributed this momentum to stabilized sales colleague retention, exceeding targets, and improving overall productivity, supported by growth initiatives like Sysco Your Way, Total Team Selling, Perks 2.0, and AI 360. Kenny Cheung, CFO, added that new customer onboarding and penetration improved by 90 basis points quarter-over-quarter, driven by sales development representatives (SDs) climbing the productivity curve. Regarding guidance, Kenny expressed strong confidence due to sustained momentum, self-driven initiatives, a robust P&L, a strong investment-grade balance sheet, and a diversified portfolio.

Alex Slagle asked about local Salesforce productivity, including metrics on new hires reaching productivity hurdles, and how tenure and retention correlate to the local case growth step-up observed in September and October, especially given industry sluggishness.

Answer

Kevin Hourican, Chair and CEO, highlighted a 130 basis point progress in Q1, outpacing industry traffic by two times, with October showing stronger momentum than Q1. He attributed this to stabilized sales colleague retention and the impact of growth initiatives like Sysco Your Way, Total Team Selling, Perks 2.0, and AI 360. Kenny Cheung, CFO, added that sales consultants are becoming more productive, leading to the highest increase in new customer onboarding and a 90 basis point improvement in penetration quarter-over-quarter.

Alexander Slagle from Jefferies LLC questioned the outlook for the international segment, asking if its recent strong growth momentum is expected to moderate and what specific drivers provide visibility for continued strength.

Answer

CEO Kevin Hourican asserted that international success is expected to continue, not moderate, driven by adding sales resources in key metro areas, deploying technology like 'Sysco Your Way', and expanding strategic sourcing globally. CFO Kenny Cheung added that there is no structural barrier to international margins reaching U.S. levels and noted that recent acquisitions in Ireland and Great Britain are performing ahead of their deal models.

Alexander Slagle of Jefferies inquired about the investments in Sysco's local business sales headcount and sought tangible evidence of their effectiveness, such as organic case growth or market share gains.

Answer

CEO Kevin Hourican stated that sales headcount is expected to grow by approximately 4% year-over-year. He pointed to stronger performance in March and April and a record new customer win rate as proof points. He noted these gains are currently offset by a headwind from higher sales consultant turnover in the first half of the year, which he expects to become a tailwind in fiscal 2026. CFO Kenny Cheung added that many new hires are now reaching their peak productivity phase, which should benefit Q4 local volume.

Alexander Slagle from Jefferies inquired about the long-term international margin opportunity and its expected trajectory. He also asked for clarification on the treatment of a sale-leaseback gain within adjusted earnings.

Answer

CEO Kevin Hourican expressed high confidence in the international segment, stating it will be a key growth engine for years with no structural barriers to margin expansion, driven by initiatives like assortment expansion and M&A. CFO Kenny Cheung framed sale-leasebacks as a routine part of their capital allocation strategy, used to redeploy capital from certain assets to fund higher-return growth projects, consistent with their focus on ROIC.

Alexander Slagle from Jefferies inquired about the U.S. gross margin, asking about the impact of product and customer mix dynamics and whether external factors like competition or consumer trade-downs are intensifying.

Answer

CEO Kevin Hourican identified three primary drivers for the nominal gross margin decline: customer mix (stronger national sales), timing of strategic sourcing benefits, and a slight dip in Sysco brand penetration. CFO Kenny Cheung emphasized that most of the expected margin improvement in the second half will come from controllable internal actions, such as specialty growth and logistics optimization, rather than market lift, underpinning their confidence in the full-year outlook.

Alex Slagle sought clarification on the first quarter same-store sales trend, asking if the net-net for Q1 was similar to Q4 or showed improvement, especially after recent slowdowns. He also asked about the $5.5 million incremental marketing spend in Q4, whether management was satisfied with its return, and if there's an opportunity for similar spending in 2026.

Answer

CEO Lance Tucker noted that while Q4 saw improvements, Q1 maintained or slightly improved beyond Q4's exit, despite recent slowdowns due to stronger comparisons and the government shutdown, which are now normalizing. He confirmed the consumer reacted better to the barbell strategy. Regarding marketing spend, Mr. Tucker explained it supported the Bonus Jack, a $5 Smashed Jack app offer tied to a sporting event, and shored up the marketing fund. He expressed satisfaction with the improved transactions and brand introduction, aiming not to need similar contributions in 2026 but keeping options open. Chief Customer and Digital Officer Ryan Ostrom emphasized the focus on consistent value messaging.

Alex Slagle sought clarification on the Q1 2026 same-store sales trend relative to Q4 2025, especially after recent slowdowns, and inquired about the effectiveness and future potential of the $5.5 million incremental marketing spend in Q4 2025.

Answer

CEO Lance Tucker noted that Q1 2026 started with maintained or slightly improved performance compared to Q4's exit, despite recent slowdowns due to stronger comparisons and the government shutdown, with trends now normalizing. He stated the incremental marketing spend in Q4, which supported value offers and a $5 Smashed Jack promotion, led to improved transactions and significant impressions, and while happy with the results, the goal is not to require similar contributions in 2026 due to expected better performance. Chief Customer and Digital Officer Ryan Ostrom concurred.

Alex Slagle of Jefferies inquired about franchisee interest in the restaurant remodel program and asked for more clarity on the expected cadence of the 'Jack on Track' store closures for the remainder of the calendar year.

Answer

CEO Lance Tucker described franchisee interest in remodels as 'very favorable,' noting over 1,000 applications for the initial 300-400 slots. The new plan aims to touch an additional 1,000 stores with a significant corporate contribution. Regarding closures, he estimated that at least half of the remaining 65-70 closures for the calendar year would occur by the end of the fiscal year, with the rest following in fiscal 2026.

Alexander Slagle asked for more detail on the 'back to basics' operational approach for Jack in the Box in 2025, particularly concerning digital execution.

Answer

CEO Darin Harris explained the focus is on improving the guest experience, especially by creating a frictionless digital pickup process. Key initiatives include enhancing order accuracy for both digital and drive-thru channels to reduce guest alerts. CFO Brian Scott added that these operational improvements are underpinned by foundational technology investments like the new app, loyalty program, and POS system.

Alexander Slagle inquired about the 'people pipeline' and Brinker's ability to hire experienced operators, the quality of their teams, and how this contributes to a competitive advantage.

Answer

Kevin Hochman, President and CEO of Brinker International, confirmed they are attracting more and higher-quality candidates, no longer being a 'talent donor.' He outlined their focus on upgrading talent, providing significant ownership training (Act 2 of their turnaround), and eventually changing incentive structures to foster long-term ownership among managers.

Alexander Slagle inquired about the people pipeline, the ability to hire experienced operators, and the overall quality of teams at both Chili's and Maggiano's.

Answer

CEO Kevin Hochman confirmed that Chili's is attracting more and higher-quality candidates, no longer being a 'talent donor' to competitors. He outlined a focus on upgrading talent, providing significant ownership training (Act 2 of the turnaround), and eventually implementing long-term ownership incentives for managers to foster a sense of ownership at the restaurant level.

Alexander Slagle from Jefferies inquired about the sales mix opportunity for the newly upgraded Ribs platform and the strategy to drive traffic and frequency with this item.

Answer

CEO Kevin Hochman stated that since the upgrade, rib incidents are already up over 20% without advertising, driven by menu merchandising and product quality. The plan is to turn on digital marketing in Q2 to leverage the 'wow' factor of the product to drive traffic. While not expected to be as large as burgers, he sees a significant opportunity to grow the category.

Alexander Slagle asked about any new operational dynamics emerging from the sustained high traffic volumes and what restaurant teams are identifying as their most pressing needs.

Answer

CEO Kevin Hochman identified continued operational simplification and equipment upgrades to handle volume as key needs. He mentioned a 'Heart of House 2030' project looking at investments like faster TurboChef ovens and increased fryer capacity. CFO Mika Ware added that they are closely monitoring the labor model and have added positions like bussers to ensure service levels are maintained with higher traffic.

Alex Slagle inquired about the expected flow of margin gains in 2026, particularly if more would come from the OpEx side, and if the OpEx margin is expected to return to pre-cyber incident levels. He also asked about the current tariff impact and any remaining unknowns.

Answer

President and CFO Matteo Tarditi outlined four key drivers for EBITDA growth from 2025 to 2026: the $50 million non-repeat of cyber incident losses, EBITDA accretion from exiting an unprofitable contract/DC, continuous progress in shrink and supplier funds, and productivity actions (full-year realization of 2025 initiatives, lean deployment, and indirect spend optimization). CEO Sandy Douglas stated that UNFI is closely partnering with suppliers and customers to navigate tariffs, monitoring developments, scenario planning, and providing product alternatives to help customers keep prices low.

Alex Slagle inquired about the expected flow-through of margin gains in 2026, particularly on the OpEx side, and whether the OpEx margin is expected to return to 1Q-3Q levels. He also asked about the current tariff impact and any unknowns UNFI is navigating.

Answer

President and CFO Matteo Tarditi outlined four blocks for EBITDA expansion: the $50 million cyber incident losses being non-recurring, EBITDA accretion from exiting an unprofitable contract, continuous progress in shrink and supplier funds, and productivity actions including full-year realization of 2025 initiatives and indirect spend focus. CEO Sandy Douglas addressed tariffs, stating UNFI is closely partnering with suppliers and customers, monitoring developments, and providing product alternatives to help manage costs and drive growth.

Alex Slagle of Jefferies requested more detail on the supplier go-to-market programs, including specific examples of their impact, and asked for clarification on growth rates mentioned for the natural and organic portfolio.

Answer

CEO Sandy Douglas gave an example of a large supplier recapturing 35,000 distribution points and smaller suppliers using new data for targeted programming. He clarified that the high growth rates mentioned (mid-single to mid-teens) referred to three specific brands within UNFI's natural private brands portfolio, not the entire category.

Inquired about near-term actions to improve the guest experience, the timing and cadence of incremental marketing spend for the 'First Choice' plan, and the reason for the revised lower company-owned unit count at year-end.

Answer

Management stated that improving the guest experience is a holistic effort involving facility investments, technology upgrades, and marketing. Incremental marketing spend will be about the same in the back half as the first half, but represents a year-over-year increase in Q3 and Q4. The unit count was revised down because while some stores improved and were removed from the closure list, the company found favorable opportunities to exit other underperforming locations sooner.

Alexander Slagle inquired about near-term actions to improve the guest experience beyond remodels, the cadence of incremental marketing spend for the second half of the year, and the reason for the lower year-end target for company-owned restaurants.

Answer

President and CEO Dave Pace described a holistic approach including facility investments and new technology. He also clarified that the lower unit count target is due to successful early lease terminations, noting that performance improvements have actually removed about 20 restaurants from the potential closure list. CFO Todd Wilson detailed that H2 marketing spend will be split evenly between Q3 and Q4, representing a year-over-year increase in both quarters.

Alexander Slagle of Jefferies LLC inquired about the high-level strategic shifts or changes in focus resulting from the leadership transition to Dave Pace, and also asked what restaurant operators are currently requesting most in terms of support and investment.

Answer

President & CEO David Pace and Former CEO G.J. Hart emphasized a smooth transition and philosophical alignment, stating the core strategy is not changing dramatically. Pace outlined his key priorities: maintaining operational execution, driving traffic growth, strengthening the balance sheet, and reinvesting in restaurants. Both executives noted that operators are asking for continued investment in facilities, technology (specifically server handhelds), and effective marketing to drive traffic.

Alexander Slagle inquired about Red Robin's current level of promotional discounting compared to pre-COVID levels and what management considers an appropriate level for the brand. He also asked for the annual EBITDA impact of the 70 underperforming restaurants.

Answer

Executive Todd Wilson explained that prior to the North Star plan (in 2021-2022), discounts were around 4% of sales. He noted the recent increase is a strategic choice to drive trial now that the guest experience has been significantly upgraded. Wilson also quantified that the 70 underperforming units represent a trailing 12-month restaurant-level loss of over $6 million, creating a 215 basis point drag on total company restaurant-level operating profit.

Alex Slagle of Jefferies inquired about the drivers behind the accelerating growth in net new independent accounts and the adoption of the new Gen AI-powered order guide by the sales team. He also asked for an example of how savings from the vendor management initiative are being reinvested.

Answer

CEO Dave Flitman highlighted that net new account generation reached its highest level since 2023, boosting confidence in future growth, and noted the Gen AI tool is gaining strong traction with the sales force. CFO Dirk Locascio explained that reinvesting cost savings is a standard practice, with a portion passed back to customers primarily through promotions and incentives to help accelerate growth.

Alexander Slagle asked about the impressive gross profit per case momentum, specifically the progress on cost of goods vendor negotiations and how potential tariffs might affect them. He also questioned the Q1 increase in OpEx per case and the outlook for its normalization.

Answer

CFO Dirk Locascio expressed confidence in achieving the $260 million COGS savings target, noting that suppliers remain eager to partner with a growing distributor and negotiations have not slowed. He attributed the temporary increase in OpEx per case to weather-related inefficiencies in Q1, such as lost shipping days, and reiterated that gross profit per case growth continues to significantly outpace OpEx growth.

Alexander Slagle of Jefferies asked about the key drivers that could support further private label expansion in 2025. He also requested an update on the integration progress and synergy realization from recent acquisitions like IWC.

Answer

CEO David Flitman attributed the strong private label momentum to normalized supply chains, seller confidence, and innovative product launches through the 'Scoop' program, which he expects to continue. CFO Dirk Locascio added that recent acquisitions are progressing well with their integration into US Foods' systems and are largely performing as expected.

Alexander Slagle from Jefferies asked about key learnings from top-performing carryout markets that could be applied across the system to drive growth.

Answer

President & CEO Todd Penegor highlighted a two-pronged approach. First, a national message creates a halo effect for carryout. Second, success is driven locally through co-ops with compelling offers, friendly in-store service, and active community engagement to connect with customers around key local events. He noted that seeing franchisees "hustling" in their communities drives significant growth.

Alex Slagle from Jefferies requested more details on the Aussie Three-Course value offer, specifically asking about customer behavior regarding check size, add-ons, frequency, and plans to evolve the promotion.

Answer

CEO Mike Spanos explained that the offer successfully drove traffic, value satisfaction, and frequency from loyal guests. He noted that about two-thirds of customers trade up to higher-priced tiers and 20% add on desserts. He acknowledged a resulting mix headwind, which is factored into guidance, and affirmed they will continue to iterate on the offer.

Alexander Slagle asked for an expansion on the softer holiday and special occasion dining trends and questioned why this consumer behavior was occurring. He also requested a more granular comparison of same-store sales and traffic performance versus key peers for Outback and Carrabba's.

Answer

CEO Mike Spanos clarified that holiday results were decent but simply fell short of internal expectations. He identified households earning under $100,000 as the most pressured consumer segment, noting a downtick in alcohol sales. Regarding market share, Spanos attributed the underperformance to the cumulative effect of needing to fix the entire value proposition—food, value, and consistency—stating the company is in the early stages of a multi-year turnaround.

Alexander Slagle of Jefferies Financial Group Inc. asked for the timeline of key operational changes under the 'simplify the agenda' priority and inquired if Q1 2025 brand performance trends would mirror those from Q4 2024.

Answer

CEO Mike Spanos detailed that leadership changes and the Brazil refranchising are complete. He noted that menu reductions of 10-15% for most brands will be done by May, with Outback's larger reduction taking more time. The Ziosk rollout will finish by the end of April. Spanos also confirmed that the sales trends by brand seen in Q4 2024 are expected to continue into Q1 2025.

Alexander Slagle inquired about what new CEO Mike Spanos found most surprising or noteworthy from his initial conversations with restaurant operators, and whether the company anticipates making investments in food quality, marketing, or labor that could impact margins in 2025.

Answer

CEO Mike Spanos shared that operators have been consistent in their feedback, requesting simplification, a return to the core guest experience, and improvements to center-of-the-plate items. Regarding future investments, Spanos outlined a framework prioritizing operational execution first, followed by redeploying resources and reducing non-revenue-driving costs. He stated that any new investments would be sharply targeted with clear returns to ensure revenue outgrows costs sustainably, but deferred specific 2025 margin guidance until the February call.

Alex Slagle of Jefferies inquired about BJ's Restaurants' value proposition, the evolution of the Pizookie Meal Deal, and the progress of training improvements aimed at enhancing the guest experience.

Answer

CEO & President Lyle Tick explained that the strategy is to build sustainable platforms like the Pizookie Meal Deal, which is seeing success with new upgrade options, rather than relying on short-term LTOs. He noted that the upcoming pizza relaunch also reinforces the brand's value equation. Regarding service, Tick highlighted that improved NPS scores and a significant reduction in comped meals are direct results of operational progress and a redesigned manager training program set to launch in October.

Alexander Slagle of Jefferies inquired about the drivers behind the strong margin performance, particularly from simplification initiatives, and asked about the dynamics of the check and mix components.

Answer

CFO Tom Houdek explained that roughly half of the 100 bps margin improvement came from sales leverage, with the remainder from sustainable labor efficiencies. He noted these improvements are factored into the updated guidance. President and Chief Concept Officer Lyle Tick added that simplification is an ongoing process, highlighting POS enhancements that improve accuracy and efficiency. Regarding the check, Houdek cited the Pizookie Meal Deal and lapping a strong menu launch as drivers of negative mix, but expects the check component to be closer to flat moving forward.

Alexander Slagle of BTIG asked for clarification on the 2025 restaurant-level margin implications from the profit guidance and inquired about the company's pricing strategy relative to inflation.

Answer

CFO Thomas Houdek stated that the guidance implies margin expansion, driven by initiatives in food cost, labor, and O&O, not just pricing. He noted that traffic is the main comp driver, and the company has intentionally underpriced inflation to boost value scores. Interim CEO Carl Richmond added that the focus is on growing absolute profit dollars, leveraging the high-volume potential of their large restaurant boxes.

Alexander Slagle asked for clarity on the capital allocation strategy for the upcoming year, particularly the balance between new restaurant openings and remodels, given the commentary on inconsistent new unit returns.

Answer

Interim CEO Brad Richmond explained that while new units are vital for long-term growth, the immediate priority is improving same-restaurant sales. He stated that the pace of new openings in 2025 would likely not change dramatically as the company refines its site selection and market strategy, with a potential acceleration in 2026 or 2027. CFO Tom Houdek highlighted two recent, very successful new openings and confirmed that capital will also be allocated to share repurchases. Richmond emphasized that these openings provide key learnings for their future growth strategy.

Alex Slagle from Jefferies asked how summer travel trends are impacting demand, particularly regarding tourism in major cities, and sought clarity on the magnitude of the headwind from the Hardee's planned business attrition on case and pound growth for the third quarter.

Answer

CFO James Leddy noted that July demand was stronger than in recent years, suggesting a rebalancing from the "overtourism" in Europe. CEO Christopher Pappas added that the market is returning to "normality." Regarding Hardee's, Leddy confirmed the attrition of high-volume, low-margin programs will continue to impact reported numbers until they are lapped in H2 2026, and the company will continue to provide adjusted figures. Pappas likened the Texas integration to the successful Sid Wainer model, stating they are in the "second inning" of a long-term plan.

Alexander Slagle of Jefferies inquired about the potential impact of tariffs on imported goods and whether recent stock market volatility was affecting demand in the upscale dining sector.

Answer

Christopher Pappas, Founder, Chairman and CEO, stated that the company is prepared for potential tariffs, noting that they represent a small percentage of the overall business and costs can be passed on or mitigated through a diversified supply chain. He added that they have not observed any significant impact on demand, as their high-end clientele appears more insulated from economic shifts and it remains difficult to get reservations at good restaurants.

Alexander Slagle asked about the margin opportunities for 2025, questioning whether gross margin or OpEx presented a greater opportunity for favorability. He also inquired about the food cost inflation outlook and whether the Hardie's cross-sell impact would continue to the same degree.

Answer

CEO Christopher Pappas and CFO James Leddy responded. Pappas explained that the goal is to incrementally improve operating leverage and EBITDA margin by 20-25 basis points annually, driven by projects impacting both gross profit and OpEx. He also noted that the Hardie's cross-sell growth will continue, and any outsized impact on reported inflation will be called out. Leddy added that the company's evolution into a 'total solution' provider will cause mix fluctuations, emphasizing the focus on the spread between operating costs and gross profit dollars.

Alexander Slagle asked for an update on the Hardie's acquisition, specifically its dilutive impact on EBITDA margins and progress on cross-selling, and also inquired about customer churn levels amid industry price shopping.

Answer

CFO Jim Leddy stated that the Hardie's integration is expected to contribute to future margin improvement and currently dilutes overall EBITDA margin by 20-25 basis points, which they aim to recover. CEO Chris Pappas attributed strong performance to market share gains from long-term investments, which allows them to thrive in challenging environments. He noted that gross margins are up, demonstrating that customers value their reliability and service, which drives cross-selling and mitigates churn.

Alexander Slagle of Jefferies LLC followed up on the supply chain topic, asking about the sustainability of current margin levels, particularly considering historical Q3 seasonality.

Answer

CFO Sandeep Reddy confirmed that the full-year outlook for slightly improved supply chain margins remains unchanged. While acknowledging some seasonal cost pressures in Q3, he stated that the year-over-year trends should remain consistent with the full-year guidance and that the performance in the first half is indicative of their expectations for the back half.

Alexander Slagle asked if the DoorDash partnership's focus on suburban and rural markets implies new development opportunities or changes to delivery efficiency if drivers must travel further.

Answer

Chief Executive Officer Russell Weiner stated they will not extend delivery radiuses, as maintaining hot, consistent delivery is critical. He explained that DoorDash complements Uber's urban strength by being stronger in suburban and rural areas, giving Domino's a more uniform presence across all markets.

Alexander Slagle from Jefferies asked if the negative transaction trend in the first-party delivery channel alters the company's strategic focus. He questioned if it makes more sense to double down on the growing carryout business if first-party delivery continues to weaken.

Answer

CEO Russell Weiner clarified that the 'Hungry for MORE' strategy is to compete in the full delivery segment, which includes both first-party and third-party aggregator channels. While the company will always lean into carryout, which is a larger market than delivery, the goal is to be a comprehensive pizza company that competes for every occasion, including all forms of delivery and carryout, both in the U.S. and internationally.

Alexander Slagle from Jefferies LLC asked about the consumer response to ethnic store conversions, the recent performance of newly acquired stores, and any new learnings or incremental opportunities identified from these acquisitions.

Answer

President and CEO Tony Sarsam stated that the Hispanic stores have performed very well, leading the portfolio in top and bottom-line performance, with a recent conversion showing double-digit sales growth. EVP & CFO Jason Monaco added that the strategy is to 'crawl, walk, run,' expanding from their strong base in Omaha to new geographies. Regarding recent acquisitions like Fresh Encounter, Monaco noted they are delivering largely according to plan and integration is proceeding well.

Alexander Slagle from Jefferies LLC asked about the consumer response to ethnic store conversions, the performance of recently acquired stores, and any new learnings or incremental opportunities identified from these acquisitions.

Answer

President and CEO Tony Sarsam stated that the Hispanic stores have led the portfolio in both sales and profit, with the newest conversion showing double-digit sales growth. EVP & CFO Jason Monaco added that the recent acquisitions are delivering largely according to plan and that the company is taking a 'crawl, walk, run' approach to expanding its successful ethnic store model into new geographies.

Alexander Slagle from Jefferies LLC asked about the consumer response to the ethnic store conversions and sought insights on the performance of recently acquired stores, including any new learnings or incremental opportunities.

Answer

President and CEO Tony Sarsam stated that the Hispanic stores have been top performers and the latest conversion is already seeing double-digit sales growth. EVP & CFO Jason Monaco added that the strategy is to expand from their strong base in Omaha, noting that remodels typically yield double-digit revenue growth. Monaco also confirmed that the recent Fresh Encounter and Markham acquisitions are performing largely in line with expectations.

Alexander Slagle from Jefferies LLC asked about the consumer response to the ethnic store conversions, the performance of recently acquired stores, and any new learnings or incremental opportunities identified from these acquisitions.

Answer

President and CEO Tony Sarsam reported that the Hispanic stores have led the company's portfolio in both top-line and bottom-line performance, with a recent conversion showing double-digit sales growth. EVP & CFO Jason Monaco added that recent acquisitions like Fresh Encounter are delivering largely according to plan as they are integrated into the SpartanNash family.

Alexander Slagle from Jefferies asked about the timing and rationale behind the two recent acquisitions and the outlook for the Amazon Fresh business, particularly its potential inclusion in the 2025 forecast.

Answer

President and CEO Tony Sarsam responded that the timing for the acquisitions was opportune for the sellers, with whom SpartanNash has long-standing relationships. He emphasized that M&A is a key growth lever in a slow-growth industry. Regarding Amazon, Sarsam noted the business is stabilizing after previous declines but clarified that the company is not forecasting significant growth from that channel in its future plans.

Alexander Slagle inquired about the new Customer Value Proposition (CVP) pilot program, including its rollout timing, initial results, and the potential to extend its concepts to the wholesale segment. He also asked for more details on the growth of own-brand penetration, particularly the performance of the premium Finest Reserve line.

Answer

President and CEO Tony Sarsam explained that the CVP pilot is in its very early stages, having launched in one store less than a month ago, with a second store launching shortly. He noted that early returns are positive and the learnings will be rolled out more broadly in 2025 and are considered "absolutely applicable" to wholesale customers. Regarding own brands, Mr. Sarsam stated that their success, including the strong performance of the new Finest Reserve line, is tied to meeting consumer demand for both value and indulgence, which is driving penetration growth.

Alexander Slagle of Jefferies asked for specifics on what Wendy's did differently to drive such high engagement with the SpongeBob collaboration, particularly regarding digital or social media tactics.

Answer

CEO Kirk Tanner attributed the success to a combination of factors working in concert: a great menu foundation, a strong collaboration partner, and effective execution across all channels. He specifically noted that their 'social game' was very impactful and that the growing digital business provided an elevated platform for the promotion.