Andrew Barish

Andrew Barish asked for more details on Dutch Bros' approach to new store openings, specifically how the company is doing things differently regarding training and pipeline work.

Answer

Christine Barone, CEO and President, explained that the focus remains on ensuring new shops open with the right teams and support, leveraging the large network of existing shops and baristas for training. She also noted that tighter real estate modeling helps in anticipating AUVs for new markets, allowing for tailored support to ensure successful openings.

Andy Barish of Jefferies inquired about the strategy for the planned 2026 Consumer Packaged Goods (CPG) launch, specifically its geographic rollout and its role in supporting brand awareness.

Answer

CEO Christine Barone explained that the CPG products will be rolled out in markets where Dutch Bros already has a physical store presence to introduce the brand through shops first. She noted the launch would be phased throughout 2026, aligned with retailer reset schedules, and mentioned that the company is receiving positive feedback and excitement from potential retail partners.

Andrew Barish sought clarification on the labor cost outlook, asking if investments in shop leadership would be offset by sales leverage. He also inquired about coffee costs and whether the company finished locking in prices near the previously modeled $4 level.

Answer

CFO Josh Guenser confirmed that the strategic investments in shop leadership compensation made in early Q2 are expected to offset what would otherwise be sales leverage in the labor line. On coffee, he stated they locked in prices at rates slightly below the $4 level, which allowed them to absorb the estimated impact of tariffs within their existing guidance.

Andrew Barish asked about the lower number of company-operated openings in Q4 and the shift in 2025 opening cadence towards the back half of the year. He also inquired if company-owned comps would continue to outpace the system.

Answer

CEO Christine Barone explained the shift in opening timing is a direct result of refined market planning efforts aimed at boosting new shop productivity and lowering CapEx. She guided for approximately 30 openings in each of Q1 and Q2, with an acceleration in the second half. CFO Josh Guenser stated he expects the positive spread between company and franchise comps to continue in 2025, driven by faster company growth in newer markets.

Andrew Barish of Jefferies sought clarification on whether sales transfer was included in the price/mix calculation and asked about the differences in marketing messages between new and mature markets.

Answer

CFO Josh Guenser clarified that sales transfer impacts the transaction metric, not mix, and amounted to a 260 basis point headwind to transactions in Q3. CEO Christine Barone explained that marketing in new markets focuses on brand introduction, while in mature markets it serves as a reminder and continues to build awareness, with the ultimate goal of driving customers into the Dutch Rewards program for direct communication.

Andrew Barish inquired about McDonald's U.S. beverage strategy, noting the absence of CosMc's in the discussion, and sought more details on the rollout plans for the rest of the year.

Answer

Executive Vice President and President of International Operated Markets Jill McDonald confirmed an exciting U.S. beverage launch later in the year under the McCafé brand, applying learnings from the CosMc's test. She reported that the test exceeded expectations, driving incremental occasions (especially snack, dinner, evening) and higher average checks. All tested recipes, including indulgent coffees, refreshers, energy, and crafted sodas, performed well, with crafted sodas, refreshers, and energy being particularly strong. McDonald's plans to offer great-tasting products at competitive prices with speed and convenience, with more specifics and international news to follow.

Andrew Barish (Jefferies) inquired about McDonald's U.S. beverage efforts, noting the absence of CosMc's mention and asking for color on its rollout, and the strategy behind launching new offerings under the McCafé brand.

Answer

Executive Vice President and President of International Operated Markets Jill McDonald confirmed that new U.S. beverage offerings will launch under the McCafé brand, applying learnings from the CosMc's test. She highlighted that the Q4 2025 beverage test exceeded expectations, driving incremental snack, dinner, and evening occasions, as well as higher average checks, particularly for crafted sodas, refreshers, and energy drinks. Chairman and CEO Chris Kempczinski added that the company is excited about the beverage launch.

Andy Barish inquired about the inflationary environment's impact on margins and how it might influence the industry's promotional environment in 2026, which has been relentless for the past 18 months.

Answer

Chairman and CEO Chris Kempczinski explained that the industry faces a challenge of pushing through pricing to offset continued inflation while consumers, especially low-income, resist additional pricing. He expects continued compelling value offers as players balance capturing pricing and driving traffic. CFO Ian Borden added that consumers are looking for predictability, making consistent value platforms like McValue and EVMs crucial to avoid frustrating customers with inconsistent offers, especially in a prolonged challenging environment.

Andy Barish inquired about the implications of the continued inflationary environment for the industry's promotional landscape in 2026, noting the relentless promotional activity over the past 18 months.

Answer

CEO Chris Kempczinski described the situation as 'threading a needle,' balancing the need to implement pricing to offset inflation with consumer resistance, particularly from low-income segments. He stated that the goal is to find the right combination of pricing and a strong value message, as losing traffic is not a winning formula. He acknowledged an uptick in digital offers but noted their limitations due to app penetration. He expects different players to adopt varied approaches, but compelling value offers will remain necessary alongside efforts to capture pricing due to inflation. CFO Ian Borden added that consumers are seeking predictability. While tactical price wars will persist, platforms like McValue and Extra Value Meals (EVMs) offer predictable outcomes, which is crucial in a challenging environment to prevent consumer frustration. McDonald's aims for consistency and predictability in its value offerings.

Andy Barish requested an update on the Cheddar's Scratch Kitchen brand, including any pressures from other bar and grill concepts and key factors for future unit growth. He also asked for the components of Olive Garden's same-store sales.

Answer

CEO Rick Cardenas confirmed Cheddar's grew same-restaurant sales, maintaining value and significantly improving operational turnover to below industry average. He noted Cheddar's has high growth potential, with the current year focused on pipeline finalization for more growth in a year or so. CFO Raj Vennam reiterated Olive Garden's traffic growth of 2.8% (including catering) and pricing of 2.6%, with an implied check of 1.9%.

Andrew Barish inquired about the expected lifecycle of the extended Never Ending Pasta Bowl promotion, particularly how it will perform as it laps last year's launch. He also asked if the sales comparisons for October and November become more difficult.

Answer

President and CEO Rick Cardenas acknowledged that the promotion's impact might wane towards the end of its 12-week run compared to last year's shorter promotion, but it remains a net positive. They are introducing a new sauce and media to maintain excitement. CFO Raj Vennam added that sales comparisons actually get slightly easier in October and November, as Darden's brands outside of Olive Garden experienced some softness during that period last year.

Andy Barish asked for clarification on the quarter-to-date traffic trends, noting it appeared to be running at half the rate of Q3, and sought an explanation for any deceleration beyond comparisons. He also asked if the 2015 high for COGS (36%) serves as an analog for the potential peak in cattle cycle prices in 2026.

Answer

Michael Bailen, VP of Investor Relations, clarified that quarter-to-date comparable sales were 5.4%, but adjusting for a 60 basis point negative impact from Halloween timing, the rate would be over 6%. Traffic, adjusted for Halloween, was over 3.5%, with pricing contributing 2.5-2.6% after negative mix. On COGS, he confirmed 2015 (35.9%) was the end of a cycle, with a 200 basis point improvement the following year, and expects the COGS percentage to increase in 2026, maintaining patience for the cycle to turn.

Andy Barish sought clarification on the quarter-to-date traffic trends, adjusted for the Halloween timing impact, and asked if 2015's Cost of Goods Sold (COGS) could serve as an analog for the anticipated peak in cattle cycle prices in 2026.

Answer

Michael Bailen, VP of Investor Relations, clarified that the 5.4% comparable sales for the first five weeks of Q4 would be over 6% when adjusted for a 60 basis point negative impact from Halloween's timing, implying traffic over 3.5%. He confirmed that 2015's COGS of 35.9% marked the end of a cycle, and while 2026's percentage is expected to increase, the COGS line historically improves quickly once the cycle turns.

Andrew Barish asked if any unique items impacted the Q1 labor line and requested an update on the G&A dollar growth outlook for 2025.

Answer

Executive Michael Bailen confirmed there were no unique items in the labor line; the deleverage was a mathematical result of slower average weekly sales growth relative to the 4.5% labor inflation. He reaffirmed the full-year G&A outlook for low-to-mid-single-digit dollar growth.

Andrew Barish of Jefferies asked about the new guest management system (AGM 2.0) and its potential to reduce wait times, and also inquired about the financial impact of Easter's timing.

Answer

CEO Gerald Morgan explained that AGM 2.0 is a customized software designed to manage long waits and improve table efficiency, and that operators are eager for it. Executive Michael Bailen detailed the Easter shift, explaining that Q1 2025 comps will see an estimated 30 basis point benefit because Easter fell in the comparable 2024 period but not in 2025's. The second quarter will see a corresponding 30 basis point headwind.

Andrew Barish asked about the choppiness in same-store sales, specifically if the 'honeymoon' effect has changed materially and if any geographic trends are notable, assuming most choppiness is macro-related.

Answer

Tricia Tolivar, CFO, confirmed the honeymoon impact is similar to last quarter with no material change and no specific geographic callouts. She attributed the choppiness primarily to the macro environment and lapping strong prior-year same-restaurant sales, noting a 350 basis point acceleration in the two-year same-restaurant sales stack to 20%.

Andrew Barish asked about the choppiness in same-store sales, specifically if the 'honeymoon' dynamic has changed materially and if the current choppiness is primarily macro-related, also inquiring about any geographical callouts.

Answer

CFO Tricia Tolivar explained that the 'honeymoon' impact is similar to the previous quarter with no material change, and there are no specific geographical trends to highlight. She attributed the choppiness primarily to the broader macroeconomic environment and the challenge of lapping strong prior-year same-restaurant sales, noting a 350 basis point acceleration in the two-year same-restaurant sales stack to 20%.

Andy Barish of Jefferies inquired about the product mix component of the Q2 comp and asked if the upcoming Chicken Shawarma menu item would be priced at a premium.

Answer

CFO Tricia Tolivar stated that product mix was stable with no significant changes in premium attachments. She confirmed that Chicken Shawarma will have a premium price, though not as high as steak, and reiterated that the company was not highly promotional during the quarter and does not plan to discount the brand.

Andrew Barish from Jefferies asked about the marketing calendar, questioning if the 'Spice World' campaign is the primary event for 2025 or if a new protein launch is planned, and also inquired about beef inflation.

Answer

CEO Brett Schulman confirmed that a major 'tentpole' marketing event, likely a new protein, is planned for the fall. CFO Tricia Tolivar addressed costs, stating the commodity basket was relatively flat, with the 100 basis point pressure on food costs being almost entirely due to steak, for which prices are contracted through year-end.

Andy Barish drew a comparison between the current situation and 2022, when Wingstop experienced negative comps alongside increased ad spending and new initiatives. He asked if the company views the current period similarly, suggesting it might take longer for the new drivers (Smart Kitchen, loyalty, marketing) to fully converge.

Answer

President and CEO Michael Skipworth agreed with the analogy to 2022 but highlighted a key difference: while 2022 success focused on the core customer, the current strategy is aimed at broadening the top of the funnel, attracting new guests, and diversifying the business.

Andy Barish drew a comparison between the current situation and Wingstop's negative comp period in 2022, when the ad budget increased, and the chicken sandwich and Uber were rolled out. He asked if the company views the current drivers (Smart Kitchen, loyalty, marketing) similarly, suggesting they might take longer to layer on, and if the focus is on broadening the top of the funnel.

Answer

President and CEO Michael Skipworth agreed with the analogy to 2022, noting that a key difference now is the focus on broadening the top of the funnel and attracting new guests who may look different from the core consumer, aiming to diversify the business.

Andy Barish from Jefferies asked for perspective on the exceptional unit growth in 2025, questioning if this is a new sustainable run rate or if some normalization should be expected in the future. He also inquired about the drivers of labor leverage in company-owned stores, asking if it was purely due to technology-driven efficiency gains.

Answer

President and CEO Michael Skipworth stated that while the development pipeline is at a record level, the company is not providing 2026 guidance but remains focused on its long-term algorithm. He noted the 2025 pace reflects the fruition of prior investments in systems and people. SVP & CFO Alex Kaleida explained that the labor leverage is a combination of Smart Kitchen efficiencies, the rollout of frozen fries which reduced prep, and the impact of refranchising the New York market.

Andrew Barish inquired about the recent 50 basis point increase in the ad fund, asking about its strategic focus, the returns from the NBA partnership, and if there's a shift towards individual occasions. He also sought clarification on the timing of the return to positive same-store sales growth in Q3.

Answer

CEO Michael Skipworth clarified the ad fund increase was to cover operating expenses for the MyWingstop platform, not for new media spend. He highlighted the success of the NBA partnership, which made Wingstop the most recognized brand during games, and noted the strategy is expanding to WWE and UFC. Executive Alex Kaleida addressed the guidance, stating that while not guiding by quarter, the full-year outlook implies a 3-year stacked comp in the high 30% range for the second half of the year.

Asked for details on the increased ad fund contribution, its focus, and returns, and sought clarification on the phrasing of the third-quarter same-store sales growth outlook.

Answer

The ad fund increase was to cover operating expenses for the MyWingstop digital platform. The overall ad fund continues to grow with system sales, and advertising is performing well, particularly the NBA partnership. They are expanding into partnerships with WWE and UFC. Regarding Q3, they declined to give specific quarterly guidance but noted the full-year outlook implies a 3-year stacked comp in the high 30% range for the second half of the year.

Andrew Barish asked for an update on the increased ad fund, the focus of the marketing spend, and the returns generated from partnerships like the NBA. He also sought clarification on the guidance for a 'return to same-store sales growth through the 3Q.'

Answer

CEO Michael Skipworth clarified the ad fund increase was to cover MyWingstop platform costs and highlighted the high ROI of their NBA partnership, where they became the most recognized brand despite fewer ad spots. He noted plans to extend this strategy to WWE and UFC. CFO Alex Kaleida addressed the guidance question by stating that while not guiding by quarter, the full-year outlook implies a 3-year stacked comp in the high 30% range for the second half of the year.

Andrew Barish asked for more quantification of the advertising fund's growth and whether the new NBA sponsorship diverts funds from other marketing efforts. He also had a follow-up on food costs, asking about lag effects and the Q4 outlook.

Answer

CEO Michael Skipworth explained that while they are on "a heck of a lot more spots," they no longer use TRPs as a primary metric due to the media mix. He clarified the NBA deal enhances, not diverts, the media strategy. Executive Alex Kaleida noted that Q3 was likely the peak for food costs this year and expects them to step down in Q4, while flagging some minor acquisition-related expenses for company stores.

Andy Barish asked for an update on the licensed business, specifically the work being done to streamline it and whether there's an opportunity for it to support company-owned stores, following recent meetings with licensed partners.

Answer

Brian Niccol, Chairman and CEO, confirmed a significant opportunity for continued growth in the licensed business and a new approach to working with partners, which necessitated restructuring support. He emphasized focusing on building the right new units and ensuring they operate to the Green Apron Service standard, believing there's tremendous growth potential.

Andy Barish asked about the ongoing work and strategy for the licensed business, including opportunities for streamlining and potential growth, following recent meetings with licensee partners.

Answer

Brian Niccol, Chairman and CEO, Starbucks, indicated a significant opportunity for continued growth in the licensed business and a new approach to working with partners, necessitating restructuring in support. He highlighted the focus on building the right new units and ensuring they operate to the Green Apron Service standard, with both licensors and licensees seeing tremendous growth potential.

Andy Barish inquired about the specific consumer behaviors contributing to the current cautious environment, asking if it was regional, related to check management, or primarily a drop-off in traffic trends.

Answer

Matt Clark, EVP and Chief Financial Officer, explained that the caution was mostly due to a drop-off in traffic, noting stable day parts and good attachment rates for new bites and bowls. He attributed the more cautionary tone for the fourth quarter to a potential impact from the government shutdown.

Andy Barish inquired about the specific consumer behaviors contributing to the current cautious environment, asking if it was regional, related to check management, or a drop-off in traffic trends.

Answer

Matt Clark, EVP and CFO, clarified that the caution primarily stems from a drop-off in traffic trends, noting stable day parts and strong attachment rates for new menu items. He also suggested a potential impact from the government shutdown.

Andy Barish asked for a high-level perspective on the current strength in experiential casual dining and inquired about the development pipeline for 2026, specifically if unit growth would accelerate.

Answer

David Gordon, President, attributed the success of experiential dining to consumers seeking value and an energetic experience, not just a transaction. He emphasized that their concepts' high-touch hospitality and scratch-made food help them take market share. He also confirmed they anticipate opening more than 25 units in 2026, continuing to hit their percentage unit growth targets.

Andrew Barish of Jefferies requested the same-store sales components (pricing, traffic, mix) for The Cheesecake Factory and the impact of the Easter holiday shift. He also asked if beverage alcohol sales were still a headwind for North Italia.

Answer

EVP and CFO Matt Clark provided the components for The Cheesecake Factory: 4% pricing, -1.2% traffic, and negative mix, attributing the traffic impact to weather. He confirmed the Easter shift was a headwind in Q1 but a benefit in Q2. For North Italia, he noted that the LA fires and weather were significant factors and that alcohol sales were a minor component of the stable underlying trend.

Andrew Barish asked for details on the latest menu rollout and inquired about the key drivers behind Flower Child's strong double-digit comparable sales growth.

Answer

President David Gordon described the new menu as extensive, featuring over 20 new items across various cuisines and price points. EVP and CFO Matt Clark attributed Flower Child's 11% comp growth to a combination of factors, including the introduction of catering, traffic gains from brand awareness, operational improvements like KDS, and the relaunch of its rewards program.

Andrew Barish inquired about signs of stabilization and holiday bookings in the external bakery business, and also asked for a qualitative update on the 2025 development pipeline regarding challenges like permitting.

Answer

EVP and CFO Matt Clark reported that the bakery business is entering new channels, including a significant agreement with a large grocery chain, and sees international green shoots, expecting a return to growth in 2025. President David Gordon expressed high confidence in the 2025 development pipeline, noting that permitting has become easier and the equipment supply chain is stable.

Andy Barish inquired about the factors contributing to the margin miss in Q2 2025 despite comparable store sales being relatively close, asking if reinvestment is needed and for an outlook on Q4 margins. He also asked for an update on the 'eat and play combo' (EPC) performance and its mix.

Answer

CFO Darin Harper attributed the margin impact to new unit costs, lapping prior year credits, one-off legal costs, and reinvestment in game room and marketing, expecting moderation in the second half. He noted 8-10% opt-in rates for the EPC, 30% food upgrades, and increased attach rates from kiosk offerings and power card upgrades.

Andy Barish inquired about the factors contributing to Q2 2025 margin miss despite comparable store sales being close to expectations, asking if reinvestment is needed and what this means for Q4 margins. He also asked for an update on the 'eat and play' combo's mix and effectiveness.

Answer

Darin Harper, CFO, attributed the Q2 margin miss to new unit costs, lapping prior year credits/one-off items, and reinvestment in game room maintenance and marketing, expecting moderation in the second half. He noted 8-10% opt-in rates for the 'eat and play' combo, 30% food upgrades, and successful kiosk offerings driving attach rates.

Andy Barish asked about the reasons for margin compression despite comparable sales being close, potential reinvestment needs, and the outlook for Q4 margins. He also sought details on the mix and historical performance of the 'eat and play combo' (EPC) and its effectiveness.

Answer

Darin Harper (CFO) attributed the margin miss to new unit costs, lapping prior year credits/one-off items, and reinvestment in game room floors and marketing, expecting moderation in Q2. He noted EPC opt-in rates of 8-10%, 30% food upgrades, and kiosk availability driving attach rates, including power card upgrades.

Andy Barish from Jefferies inquired about the predictability of the same-store sales trajectory for the remainder of the year and asked for a breakdown of the front-loaded Q1 capital expenditures.

Answer

Interim CEO Kevin Sheehan stated that the company is in the "early innings" of its turnaround and, while not providing a specific forecast, outlined a long-term goal of ~3% same-store sales growth. CFO Darin Harper confirmed CapEx was front-loaded as planned, breaking down the $115 million gross spend into $53 million for new stores, $20 million for remodels, $30 million for games, and $12.5 million for maintenance, while reiterating the full-year guidance.

Andrew Barish asked for details on the business improvements seen in March and April, the impact of calendar shifts like a late Easter, and clarification on whether the FY25 net CapEx guidance of $220 million includes proceeds from sale-leaseback transactions.

Answer

Interim CEO Kevin Sheehan and CFO Darin Harper explained that March and April trends are "markedly better" in both traffic and food and beverage ticket. They noted that despite a net unfavorable impact from spring break timing, the business is building momentum. Darin Harper confirmed that the $220 million net CapEx forecast for FY25 does assume proceeds from typical tenant improvements and anticipated sale-leaseback transactions.

Andrew Barish from Jefferies asked for clarification on the expected impact of the fiscal calendar shift in Q4. He also questioned the sales lift from the 'fully programmed' remodels, noting the absence of a specific double-digit figure, and inquired about the company's plans for the number of remodels in fiscal 2025.

Answer

CFO Darin Harper clarified that the favorable calendar shift impact in Q4 would be around $5 million, significantly less than the negative impact from lapping the 53rd week. He stated that while the initial 'proof-of-concept' remodels are still seeing double-digit growth, the broader set of fully programmed remodels are seeing mid-to-high single-digit growth due to learnings in marketing and execution. Regarding fiscal 2025, he confirmed the company is still working with the Board on the exact cadence but remains committed to the program.

Andrew Barish inquired about the magnitude of the fiscal calendar shift benefit expected in Q4 guidance. He also asked for an update on the sales lift from fully programmed remodels and whether the company still plans for 60 remodels in fiscal 2025.

Answer

CFO Darin Harper clarified that the Q4 calendar shift benefit would be around $5 million, significantly less than the negative Q3 impact and not enough to offset the prior year's 53rd week. He stated that initial remodels still show double-digit growth, while the broader set sees mid-to-high single-digit growth, attributing the difference to learnings in marketing and execution. Regarding 2025, he said the company could do 60 remodels but may take a more 'judicious' approach, with more color to come later.

Andrew Barish asked if the success of the highest price tier indicates a stronger high-end demographic, whether upcoming remodels will be fully programmed, about the returns on the 50% off food promotion, and for commentary on Q3 trends.

Answer

CEO Christopher Morris clarified that pricing tiers are more reflective of cost-of-living adjustments than consumer demographics. He confirmed the vast majority of future remodels will be fully programmed. Regarding promotions, he described the 'half-off food' offer as a break-even, loyalty-fenced tool that drove sign-ups and will remain in their arsenal. For Q3, he noted that the first period's sales performance was better than the previous two periods of Q2 but emphasized it was only one period.

Andy Barish of Jefferies requested an update on drive-thru operations and speed, and asked for a breakdown of the factors contributing to the updated, lower revenue guidance for the year.

Answer

CEO Michael Osanloo noted steady improvement in drive-thru speed, aided by a promising AI technology test that could be deployed more broadly by 2026. CFO Michelle Hook explained the revenue guidance reduction is primarily driven by non-comp restaurant factors, including the slower sales ramp of the 2024 store class and development delays pushing 2025 openings later in the year.

Andrew Barish requested an update on drive-thru operational improvements and asked about the company's pricing strategy in relation to inflation and potential tariffs.

Answer

CEO Michael Osanloo highlighted that drive-thru operations are improving, with better speed of service and significant gains in problem resolution, which boosts guest satisfaction. He also noted that while the company believes tariff impacts are manageable, the pricing strategy remains modest: to offset specific inflationary pressures rather than pricing ahead of them, given the volatile environment.

Andrew Barish sought clarification on whether the comp guidance includes the kiosk lift, asked about softness in the drive-thru channel, and inquired about commodity inflation, specifically for beef.

Answer

CFO Michelle Hook confirmed the 0% to 2% comp guidance includes the kiosk contribution. She acknowledged that the drive-thru channel is the most pressured but emphasized that off-premise order accuracy is a key focus for improving guest satisfaction. She also stated that about 50% of beef flats are locked for the year, with commodity inflation expected to be relatively even.

Andy Barish from Jefferies asked if KDS implementation was a key driver for improved third-party delivery execution and when the company would lap the changes made to the channel. He also questioned if it was reasonable to expect flat to positive dine-in traffic in the second half of the year.

Answer

CEO Chris Tomasso stated that KDS helps with overall kitchen efficiency but the delivery improvement was a 'whole cocktail' of factors, including reduced surcharges and better team communication. CFO Mel Hope clarified that the third-party delivery changes were made in Q1 of the current year, not last year. Regarding dine-in traffic, management expressed optimism about the trend but did not provide a specific breakdown by channel for future guidance.

Andrew Barish of Jefferies inquired about the performance of the Florida market relative to the rest of the system and asked for clarification on the increase in repair & maintenance and utilities costs.

Answer

CEO Chris Tomasso stated that the Florida market has been outperforming the rest of the country, confirming the company's 'bullish' outlook on the state has been validated. CFO Mel Hope acknowledged that repair and maintenance costs have seen some growth but were not surprising to the company.

Andy Barish asked about the expected decline in restaurant-level margins for 2025, its primary drivers, and where increased marketing costs would appear on the P&L. He also inquired about the potential for further labor productivity improvements.

Answer

CFO Mel Hope clarified that marketing costs are in G&A and the company is focused on growing absolute margin dollars, even if the margin percentage is pressured by transitory inflation. On labor, he noted that while managers constantly seek efficiencies, the significant gains of last year are not expected to be repeated. CEO Chris Tomasso added that there is significant leverage opportunity with a return to positive traffic.

Andrew Barish from Jefferies asked if the slight negative mix in the quarter was due to promotional activity and whether mix would normalize in Q4. He also inquired about potential Q4 restaurant-level margin pressure from the high volume of new unit openings.

Answer

CFO Mel Hope clarified that while targeted promotions impacted the per-person average, overall sales mix was flat, a point echoed by CEO Chris Tomasso. Tomasso expects mix to normalize in Q4. Hope acknowledged the back-weighted Q4 opening schedule could pressure margins but confirmed this was already factored into the full-year guidance.

Andrew Barish sought reasons for the March sales decline beyond the macro backdrop, asked for more detail on the operational gaps identified by the new SMG feedback system, and requested an update on the system-wide kiosk rollout and its observed benefits.

Answer

CEO Elizabeth Williams attributed the March softness to significant rainfall in Southern California impacting lunch traffic and some operational execution weaknesses that hindered repeat business for the Mango Habanero LTO. She explained that the SMG feedback highlighted opportunities in order accuracy and hospitality, which are being addressed through a 'back-to-basics' program. Executive Ira Fils added that kiosks are in most company stores and the next step is to leverage them as a merchandising tool to drive check.

Andrew Barish probed for specific reasons behind the sales decline in March beyond the macro environment, asked for more detail on the operational gaps identified by the new SMG feedback system, and requested an update on the system-wide kiosk rollout and its observed benefits.

Answer

CEO Elizabeth Williams attributed the March softness to three factors: the Mango Habanero LTO running its course, suboptimal operational execution on repeat visits, and significant, unusual rainfall in Southern California impacting lunch traffic. She described the operational gaps as 'back-to-basics' issues like order accuracy and hospitality, which are being addressed with new standards and audits. CFO Ira Fils reported that kiosks are now in most company restaurants, with the current focus shifting to leveraging them as merchandising tools to drive check size and guest engagement.

Questioned the specific drivers of the sales drop-off in March, sought more detail on the operational gaps identified through customer feedback, and asked for an update on the kiosk rollout and its benefits.

Answer

The March sales softness was attributed to significant rainfall in Southern California and weaker-than-expected repeat business for the Mango Habanero LTO. Operational gaps in accuracy and hospitality are being addressed with a 'back-to-basics' program to improve consistency, rather than requiring new investment. Kiosks are now in most company restaurants, with the future focus on leveraging them as a merchandising tool to drive check.

Asked about chicken contracting for 2025 and its influence on menu pricing, the outlook for promotional mix in Q4, and the overall health of the unit fleet, including any potential for store closures or refranchising.

Answer

The company plans very moderate price increases for next year, supported by favorable commodity opportunities, and is finalizing its chicken contracts. The promotional mix will moderate in Q4 after a strong Q3 driven by new items and upselling. The executive team views the store fleet and franchise system as healthy, with a tight distribution of sales volumes and no significant plans for closures.

Andrew Barish asked about the status of chicken contracting for 2025 and its influence on menu pricing, the expected promotion and discounting mix for Q4, and management's assessment of the overall health of the store fleet.

Answer

CFO Ira Fils indicated that the company expects to take very moderate price increases next year, supported by a favorable outlook on commodity costs as the chicken RFP process nears completion. He noted that positive mix from innovation in Q3 would moderate in Q4 due to new value promotions. CEO Elizabeth Williams described the store fleet as healthy, with a tight distribution of sales volumes and a financially sound franchisee base that is enthusiastic about future growth.

Andrew Barish asked about chicken contracting for 2025 and its influence on menu pricing, the promotional and discounting mix for Q4, and the overall health and strategy for the restaurant fleet, including potential closures or refranchising.

Answer

CFO Ira Fils stated that the company is considering moderate price increases for next year, supported by favorable commodity opportunities, and is finalizing its chicken contracts. He noted that Q3's positive mix was driven by menu innovations like Crunchy Tacos and combo upsells. CEO Elizabeth Williams described the restaurant fleet as healthy with a tight distribution of volumes and a strong, engaged franchisee base, indicating no plans for significant closures.

Andrew Barish of Jefferies inquired about the primary drivers of recent guest satisfaction score improvements and the expected cadence of same-store sales growth to achieve the full-year guidance.

Answer

CEO Andrew Madsen attributed satisfaction gains to improved taste of food, accuracy, and overall value, which directly correlate with traffic. Executive Michael Hynes outlined the sales growth path, noting that while Q1 is tracking above 3%, the bulk of the acceleration to mid-single-digits is anticipated in Q3 and Q4, following a challenging Q2 comparison.

Andrew Barish of Jefferies sought to level-set expectations for the new labor scheduling system, asking if the 80 basis point benefit seen in Q4 is expected to continue until it is lapped.

Answer

CFO Katie Fogertey confirmed they are planning for about the same level of benefit throughout the year until they begin to lap the rollout in the fourth quarter. However, she cautioned that sales deleverage from weather, wildfires, and lapping a strong LTO in Q1 creates some pressure, but the operational strategies are helping to deliver strong year-over-year margin improvement despite these headwinds.

Andrew Barish of Jefferies asked about the development strategy in mature, infill markets and whether brand awareness efforts can offset potential sales transfer.

Answer

CEO Rob Lynch expressed excitement about infill opportunities in penetrated markets like New York and California. He explained that format innovation, including drive-thrus, allows the company to enter these areas in a different way that still drives great restaurant margins. He sees market penetration as a positive that creates operational and marketing efficiencies.