Brian Harbour

Brian Harbor asked about the confidence in beef prices declining by Q4 and the factors supporting this expectation. He also questioned if Olive Garden's first-party delivery reaching 4% of sales was as expected, what could further increase it, and if sequential increases in delivery mix were still observed.

Answer

CFO Raj Vennam explained that beef prices peaked in Q2 due to supply constraints, but retail demand destruction and recent price improvements, along with 45% coverage for the back half at updated levels, support confidence in easing prices. Beef production has also increased. CEO Rick Cardenas expressed satisfaction with 4% delivery sales without Q2 marketing, noting that further marketing could increase it, and it's tracking closely with the overall to-go business, showing good incrementality.

Brian Harbor asked about the confidence in beef prices declining by the fourth fiscal quarter and the performance of first-party delivery (Uber Direct) at 4% of sales, questioning if this met expectations and if sequential increases in delivery mix were still occurring.

Answer

CFO Raj Vennam explained that beef prices peaked in Q2 due to supply constraints, but retail demand destruction and recent production increases suggest easing prices, with coverage aligning with expectations. CEO Rick Cardenas expressed satisfaction with 4% delivery sales without Q2 marketing, noting it tracks closely with overall to-go business and could increase with further marketing.

Brian James Harbour asked about Darden's food cost contracting strategy, particularly for beef, and the visibility on future commodity outcomes. He also inquired about Olive Garden's new portion sizes, their impact on guest demographics, potential as a traffic driver, and any check dilution.

Answer

CFO Raj Vennam explained that Darden's beef coverage is currently less than typical (25% for the next six months) due to recent spikes in tender and ribeye prices, which are not believed to be sustainable. CEO Rick Cardenas noted that Olive Garden's lighter portion sizes are still early in testing but are expected to be a long-term traffic driver, potentially causing slight check dilution if guests trade down. Initial response shows increased affordability scores and satisfaction.

Brian James Harbour asked about Darden's contracting strategy for the balance of the year, particularly regarding beef costs, and the visibility on food cost outcomes. He also inquired about the new portion sizes at Olive Garden, their impact on guest demographics, traffic, and potential check dilution.

Answer

Raj Vennam, SVP & CFO, explained that Darden has limited beef coverage (25% for the next six months) due to significant, unsustainable spikes in beef costs and tariffs on shrimp. Rick Cardenas, President, CEO & Director, noted that Olive Garden's lighter portions are an early-stage traffic driver, potentially causing slight check dilution, but have increased affordability scores and guest satisfaction with portion size.

Brian Harbour asked about Darden's commodity contracting strategy for the balance of the year, particularly regarding beef and seafood tariffs, and the visibility on food cost outcomes. He also inquired about the new portion sizes at Olive Garden, their impact on guest demographics, potential as a traffic driver, and any check dilutive effects.

Answer

Raj Vennam, CFO, explained that Darden's beef coverage is less than typical (25% for next six months) due to a significant, unsustainable spike in beef costs (tenders, rib eyes) and noted some demand destruction in retail. He also mentioned seafood tariffs as a driver of higher inflation. Rick Cardenas, President and CEO, stated that the Olive Garden portion sizes are still early but are believed to be a long-term traffic driver, potentially causing slight check dilution if guests trade down, and are showing early signs of increased frequency.

Brian Harbour of Morgan Stanley asked about the expected pricing strategy for the upcoming year and the long term, and what form the company's reinvestments would take given the increased focus on top-line growth.

Answer

CFO Raj Vennam projected pricing in the mid-2% range for fiscal 2026, maintaining the philosophy of pricing below inflation. President & CEO Rick Cardenas elaborated that reinvestments could take various forms, such as enhancing affordability at Olive Garden, which might lower mix, or investing in labor to improve service, funded by sales growth.

Brian Harbour sought to clarify whether Olive Garden's recent sales momentum was primarily driven by the new delivery service or by menu news. He also asked for more detail on Q4 inflation drivers and the outlook for labor inflation.

Answer

President and CEO Ricardo Cardenas attributed the momentum more to menu news, like the 'Fan Favorites' LTO, as the delivery rollout occurred late in the quarter. CFO Raj Vennam detailed that Q4 commodity inflation is being driven by chicken and seafood. He noted that labor inflation has stabilized in the mid-3% range, a level consistent with the pre-COVID environment.

Brian Harbour asked about the materiality of the Uber Direct pilot in test stores, the timeline for promotion, and requested Olive Garden's specific pricing for the quarter.

Answer

Executive Ricardo Cardenas reported the unpromoted pilot is about 1.5% of sales in test stores and is not yet considered incremental. A marketing push will follow the full system rollout, which is expected by the end of Q3. Executive Rajesh Vennam stated Olive Garden's pricing was 2.8-2.9% and that back-half pricing should remain in the mid-to-high 2s range.

Brian Harbour asked if Darden plans to pilot the Uber delivery service at other brands in fiscal 2025. He also sought more detail on the operational opportunity to improve service speed and pace of meals, questioning what specific changes might occur and if it's focused on particular dayparts.

Answer

President and CEO Rick Cardenas clarified that the immediate focus for the Uber partnership is on Olive Garden. While Darden has the ability to pilot at other brands within the fiscal year, they first want to ensure a seamless experience. On service speed, Cardenas described it as a long-term strategic initiative to meet a changing guest need for faster experiences, not just a throughput tactic. He emphasized this is about capturing quicker meal occasions across all dayparts without making guests feel rushed, a process that will evolve over time.

Brian Harbour posed a broader question about what customers currently want from Jack in the Box and what factors could significantly move the needle over the next year. He also asked if a quality perception gap has emerged due to inconsistencies and what specific improvements are needed.

Answer

CEO Lance Tucker identified customer desires as solid value, innovation, and variety, including 24-hour breakfast and unique side items. He also highlighted the need for a better experience, which operational improvements (restructuring field teams, increased training, more field presence) can quickly address. Mr. Tucker confirmed that the quality perception is not as high as it should be, attributing it to self-inflicted issues and the need for better execution in operations (consistent, friendly, accurate service, clean restaurants, good drive-throughs), innovation, and building appearance.

Brian Harbour inquired about what customers currently desire from Jack in the Box in a selective market, and whether a quality perception gap has emerged due to inconsistencies, outlining necessary improvements.

Answer

CEO Lance Tucker explained that customers seek satisfying meals at good value, coupled with innovation and variety, such as 24-hour breakfast and unique side items. He also highlighted the need for a better overall experience, which the company is addressing through operational improvements, increased field support, and enhanced training. Lance Tucker confirmed a quality perception gap exists, attributing it to self-inflicted issues and the need for consistent, friendly service, accuracy, clean environments, and relevant innovation to improve customer perception.

Brian Harbour of Morgan Stanley asked for details on the planned store closures, including their geographic concentration and whether they are focused on a small or broad set of franchisees. He also questioned if the company's strategy for entering new markets has changed.

Answer

CEO Lance Tucker stated that the closures will be spread across the system and among a broad base of franchisees, driven primarily by unit economics, with more details to come in August. He reaffirmed the commitment to new market growth but noted it will become more franchisee-led rather than corporate-led, while still honoring existing commitments.

Brian Harbour sought clarification on the 2025 guidance, asking if it assumes any Del Taco refranchising beyond the 13 units mentioned and what is driving the share repurchase assumption.

Answer

CFO Brian Scott confirmed the guidance does not include any refranchising beyond the 13 units currently in process. Regarding capital allocation, he explained that the top priority is investing in strategic initiatives via CapEx, followed by dividends. The share repurchase guidance of ~$20 million represents the comfortable level of free cash flow remaining after these priorities.

Brian Harbor asked if the favorable trends seen in labor, other operating expenses, and G&A lines are expected to continue into Q4 and 2026, considering any impact from the extra week in the prior year.

Answer

Michael Bailen, VP of Investor Relations, confirmed that if top-line trends persist, he expects leverage on labor, other operating expenses, and G&A in Q4 and potentially into 2026. He attributed this to operators effectively managing staffing and favorable labor hour growth relative to traffic.

Brian Harbor inquired about the expectation for labor, other operating expenses, and G&A lines to remain favorable in Q4 2025 and potentially into 2026.

Answer

Michael Bailen, VP of Investor Relations, indicated that if top-line trends continue, he expects leverage on labor, other operating expenses, and G&A in Q4 and potentially 2026. He highlighted strong operator performance in staffing, leading to favorable labor hour growth relative to traffic, and anticipated low single-digit dollar per store week growth for other operating expenses.

Brian Harbour of Morgan Stanley asked about the key margin drivers for 2025, specifically inquiring about potential favorability in other operating expenses and the expected relationship between labor hour growth and traffic.

Answer

Executive Michael Bailen suggested an opportunity for leverage on the other operating expense line, contingent on traffic trends. Regarding labor, he indicated that early signs point to hour growth being slightly below 50% of traffic growth, though this can vary. With 4% to 5% labor inflation expected, he noted potential pressure on the labor line, particularly in the first half of 2025.

Brian Harbour of Morgan Stanley inquired about the company's technology initiatives, asking if the digital kitchen and new guest management systems are beginning to contribute to labor productivity or improve table turns.

Answer

CEO Gerald Morgan stated that while it is still early, the initial indicators are positive. He emphasized that the primary goal of the tech initiatives is to improve the experience for employees and managers. He believes other benefits, such as productivity gains, will follow as more restaurants are converted, but it is too soon to quantify these impacts.

Brian Harbor asked if McDonald's is gaining market share across different income cohorts. He also inquired whether the value push has been more effective at the higher end of the income spectrum, and if digital initiatives and other product innovations have proven effective across various income groups.

Answer

CEO Chris Kempczinski confirmed that McDonald's is gaining share with upper-income consumers, whose industry traffic is up almost double digits. He attributed this to a combination of digital programs, marketing, and brand strength. He emphasized that value is important for all income levels, not just low-income consumers. He stated that continuing with Extra Value Meals (EVMs) and maintaining a competitive McValue platform benefits all consumers, including upper-income individuals who also seek good value, even if they have more discretionary income.

Brian Harbour asked if McDonald's is gaining market share across different income cohorts and if the value push, digital initiatives, and product innovations have been effective across these various consumer segments.

Answer

Chairman and CEO Chris Kempczinski confirmed that McDonald's is gaining share with upper-income consumers, attributing it to digital programs, marketing, and brand strength. He emphasized that value is important to all income levels, not just low-income, and that continuing EVMs and a competitive McValue platform benefits both low-income and upper-income consumers who seek good value.

Brian Harbour inquired about how to measure the success of McDonald's various technology initiatives and whether the company is already realizing tangible benefits like cost savings or sales growth from them.

Answer

Chairman & CEO Chris Kempczinski detailed progress across three platforms. The Consumer platform is driving significant frequency increases via the loyalty program. The Restaurant platform is in 'early days' but showing speed of service improvements from 'Ready on Arrival.' The Company platform, with new finance and HR systems, is expected to deliver G&A cost savings over time. EVP & CFO Ian Borden clarified that 2025 and 2026 are significant 'investment years,' with more substantial efficiency benefits expected to materialize after this period.

Brian Harbour questioned the dynamic of raising menu prices while promoting a value platform, asking if it could lead to negative mix shift and how innovation might address this.

Answer

CEO Christopher Kempczinski emphasized the strategy of pairing value programs with full-margin marketing and menu innovation. President, IOM Ian Borden added that U.S. menu pricing was just under mid-single-digits in Q1, mostly from 2024 carryover, and is expected to moderate. He acknowledged a temporary negative mix impact until the company laps the $5 meal deal launch in Q3, but the ultimate goal is guest-count-led growth.

Brian Harbour requested a breakdown of the planned 2025 unit growth between the U.S. and IOM segments and asked for commentary on the performance of recently opened restaurants.

Answer

CFO Ian Borden detailed plans for approximately 2,200 gross openings globally in 2025, with about a quarter in the U.S. and IOM markets combined. Of that portion, roughly 70% will be in the IOM segment. He confirmed that new unit performance is meeting expectations, achieving first-year returns in the low-to-mid teens, and that the company is on track to reach its 50,000 restaurant target by the end of 2027.

Brian Harbour inquired about sales momentum in the IOM and IDL segments heading into Q4 and asked if SG&A would remain favorable, along with other key factors for the final quarter.

Answer

CFO Ian Borden acknowledged the challenging IOM environment but noted 'early signs of progress' in gaining traffic share. For G&A, he expects to meet guidance through spending discipline and lower incentive costs. CEO Christopher Kempczinski added that while share is growing in major international markets, he is 'not satisfied with the pace' and is pushing for acceleration.

Brian Harbour inquired about the change to store margin guidance, asking if it reflects the sales environment or different inflation trends, and what factors are pressuring pre-opening expenses.

Answer

CFO Tricia Tolivar explained that the restaurant-level margin guidance reflects the Q3 experience, particularly higher repair and maintenance expenses within other operating expenses, which CAVA is working to optimize. She noted no significant changes in input or labor costs. Pre-opening costs are higher due to more restaurants under construction and increased per-unit costs from investing in a better opening experience, such as training general managers in high-volume markets.

Brian Harbour asked if the change to store margin guidance reflects only the sales environment or if other factors like inflation are at play, and what is pressuring pre-opening expenses.

Answer

Tricia Tolivar, CFO, explained that the restaurant-level margin guidance reflects the Q3 experience, particularly higher repair and maintenance expenses, rather than significant changes in input or labor costs. Pre-opening expenses are pressured by a higher number of units under construction and increased per-unit costs due to investments in a better opening experience, such as training general managers in high-volume markets.

Brian Harbour from Morgan Stanley asked for an explanation of CAVA's Q2 same-store sales results, questioning whether macro pressures or the 'honeymoon dynamic' of new stores was the primary driver.

Answer

CFO Tricia Tolivar explained that while the company is not immune to macro pressures, the main drivers of the quarterly result were the lapping of last year's successful steak launch and a 'honeymoon effect' from the exceptionally strong 2024 new store class entering the comparable base. She noted that sales trends reaccelerated exiting the quarter.

Brian Harbour from Morgan Stanley inquired about the key factors influencing the 2025 restaurant-level margin guidance, specifically concerning food costs, labor investments, and other operational expenses.

Answer

CFO Tricia Tolivar detailed that the margin outlook includes the impact of steak costs in the first half of the year, low single-digit food inflation otherwise, and ongoing competitive wage investments. She also noted expectations for continued sales leverage on occupancy costs.

Brian Harbour inquired about CAVA's new labor scheduling model, asking for details on its early results and its potential to drive AUVs in lower-volume stores.

Answer

CFO Tricia Tolivar explained that the new model redeploys existing hours to peak periods and clarifies team member roles. She noted that a pilot in lower-volume restaurants showed that adding a small amount of labor led to a modest increase in sales and improved guest scores. Tolivar emphasized the primary goal is to enhance speed of service, which benefits both customers and the company.

Brian Harbour inquired about the current status of Green Apron Service staffing investments, potential incremental investments for further enhancements, and the expected balance between product cost savings and commodity inflation for fiscal year 2026.

Answer

Brian Niccol, Chairman and CEO, Starbucks, stated that initial Green Apron Service investments are in place, and future labor increases will be earned through growth, with no foreseen additional investments for the standard. Cathy Smith, EVP and CFO, Starbucks, added that Green Apron investments will annualize into early fiscal 2026, with assistant store manager roles rolling out. She noted that coffee prices are expected to remain a headwind through the first half of fiscal 2026, with potential relief later in the year.

Brian Harbour inquired if the initial Green Apron Service investments, particularly added staffing, are fully in place, and what 'leveling up' the service means for incremental investment. He also asked about the balance between product cost inflation (like coffee) and targeted savings for fiscal year 2026.

Answer

Brian Niccol, Chairman and CEO, stated that the initial Green Apron Service investment has been made, and future labor will be earned through growth, with no foreseen additional investments for the standard. He noted elevated coffee prices and efforts to find offsets. Cathy Smith, EVP and CFO, added that Green Apron investments will annualize into early 2026, assistant store manager roles are rolling out, and coffee prices are expected to be a headwind through the first half of 2026.

Brian Harbour from Morgan Stanley asked about the rollout speed of the 'Green Apron Service' model and whether the plan to add assistant store managers is included in the $500 million investment.

Answer

Chairman & CEO Brian Niccol stated the rollout will begin in mid-August. He noted that while it takes time for staff and customers to adjust, pilot results show positive transaction movement. He confirmed that adding assistant managers is a key element of the new roster model, designed to build a strong internal promotion pipeline for future growth.

Brian Harbour of Morgan Stanley asked about the expected speed of the Green Apron Service rollout across the system and whether the addition of assistant store managers is included in the $500 million investment.

Answer

CEO Brian Niccol stated the Green Apron Service model will begin its system-wide rollout in mid-August. He noted that while it takes time for partners to adapt and for customers to notice the improved service, pilot results show a positive impact on transactions. He confirmed that adding assistant managers is part of the new roster model, supporting the company's goal of promoting from within and building a future leadership pipeline.

Brian Harbour inquired about the transaction impact of recent menu simplification and how the company plans to sequence future innovations, such as the teased 'aperitivo menu'.

Answer

Brian Niccol, Chairman and Chief Executive Officer, stated that menu simplification is creating space for more compelling platform innovations. He noted positive progress, with the percentage of stores having positive transaction comps nearly doubling from Q1 to Q2. He added that a 'stage gate process' is being used to build back a previously 'thin' innovation pipeline to ensure new items are impactful and executable.

Brian Harbour of Morgan Stanley asked about the recent management and support organization changes, seeking to understand what needs to change and the expected impact on G&A expenses in the second half of the fiscal year.

Answer

CEO Brian Niccol explained the changes are designed to increase accountability in key business lines, such as creating Chief Store Officer and Chief Development Officer roles. CFO Rachel Ruggeri added that while restructuring will cause a G&A spike in Q2, some savings should appear by Q4. However, she cautioned that full-year G&A will still be higher year-over-year due to lapping lower performance-based compensation.

Brian Harbour asked about other lumpy expense lines besides labor and the nature of additional labor investment at Chili's. He also inquired about the primary drivers of tariff impact and quantification of pricing taken in October and planned for January.

Answer

Mika Ware, EVP and CFO of Brinker International, clarified that lumpiness is more in the 'restaurant expense bucket' due to incremental costs and inflation related to more guests and team members (e.g., workers' comp, employee health). She confirmed tariffs primarily impact beef (ground beef and some shrimp). They took about 40 basis points of price in October, with January pricing still fluid but potentially up to 1% to offset back-half tariffs.

Brian Harbour asked about other lumpy expense lines or additional labor investment at Chili's, and the impact of tariffs (primarily beef) on costs, including quantification of pricing taken in October and planned for January.

Answer

CFO Mika Ware clarified that while labor was built into the run rate, the restaurant expense bucket (including workers' comp, employee health, and inflation) would reflect incremental costs, with Q1 being a good model for run rates. She confirmed tariffs primarily impact beef (ground beef, some shrimp). Chili's took 40 basis points of price in October, with potentially up to 1% more planned for January, though the latter is still fluid.

Brian Harbour of Morgan Stanley inquired about the geographical opportunities for new Chili's unit growth and asked about the expected cadence of cost inflation and investments throughout fiscal 2026.

Answer

CFO Mika Ware indicated that while Texas, Florida, and California remain key, new analytics could open opportunities in other markets like the Northeast and Pacific Northwest. Regarding costs, she stated that most investments are spread evenly, though commodity inflation might be slightly heavier in Q1 and Q3.

Brian Harbour of Morgan Stanley asked about the primary drivers of the positive sales mix, questioning the role of Triple Dipper versus alcohol or other items. He also followed up on capital usage, asking about the potential for new unit growth, relocations, or full remodels.

Answer

CFO Mika Ware confirmed the bulk of the positive mix was driven by the Triple Dipper, with sales for the platform having doubled year-over-year. Incremental appetizer sales, like the new mozzarella sticks, also contributed, while alcohol sales remained stable. Regarding capital, she stated that the company is focused on investing in the base business, including a new prototype design that will inform a future reimage program to enhance the "atmosphere" pillar of their strategy.

Brian Harbour asked if The Chefs' Warehouse has seen accelerating market share gains recently and how these trends vary across different customer types, including non-restaurant customers and various restaurant segments.

Answer

Jim Leddy, CFO, and Chris Pappas, Founder, Chairman, and CEO, explained that share gains are driven by capacity expansion in high-growth markets and category additions. Chris Pappas emphasized their differentiated, boutique model, which is diverse and resilient, catering to upper casual to high-end customers.

Brian Harbour sought clarification on whether North Italia's sales trends were impacted by 'honeymoon effects' or sales transfer, and whether the anticipated one-point step down in Q4 growth referred to overall top-line revenue or same-store sales.

Answer

Matt Clark, EVP and CFO, clarified that the discussion was primarily about sales transfer, which can be influenced by higher opening rates of newer restaurants. He confirmed the one-point step down referred to total revenue, predicated on an anticipated 1% lower traffic run rate in Q4 compared to Q3 due to recent economic factors.

Brian Harbour sought clarification on whether North Italia's sales trends were more impacted by 'honeymoon effects' from new restaurants or 'sales transfer' from existing ones. He also asked if the 'one point step down in growth' referred to overall top-line revenue or roughly same-store sales.

Answer

Matt Clark, EVP and Chief Financial Officer, clarified that the impact on North Italia was primarily sales transfer, which can be driven by new restaurants having substantially higher opening rates in a market. He confirmed that the 'one point step down in growth' referred to total revenue, predicated on an anticipated 1% lower traffic run rate in the fourth quarter compared to the third quarter.

Brian Harbour of Morgan Stanley asked if 4% remains the pricing expectation for the year and whether the other concepts (North Italia, Flower Child) have different P&L margin structures compared to The Cheesecake Factory.

Answer

EVP and CFO Matt Clark confirmed that 4% pricing is a good estimate for modeling purposes for the balance of the year. He explained that while the other concepts have slightly different P&L structures, with a bit more in other OpEx and minor differences in COGS and labor, using The Cheesecake Factory's structure as a baseline provides a very close approximation for the overall business.

Brian Harbour asked about the outlook for food and labor cost favorability in 2025 and requested details on the Q4 impairment charge related to the Other FRC segment.

Answer

EVP and CFO Matt Clark projected continued, though smaller, favorability in both COGS and labor for 2025 (20-30 bps each), potentially offset by pressure in other operating expenses. He explained that the impairment charge was primarily related to the closure of a Culinary Dropout restaurant in an underperforming development in Atlanta.

Brian Harbour from Morgan Stanley asked for PFG's perspective on the performance of quick-service restaurants (QSR) versus full-service among independents. He also requested an update on the integration progress of the Jose Santiago and Cheney Brothers acquisitions and their organic growth.

Answer

CEO George Holm observed that while PFG is performing well with some higher-priced QSRs, the sit-down dining segment appears to be making a comeback as consumers seek experiences. On acquisitions, Holm explained that PFG's integration approach is gradual, typically taking about three years to fully materialize. He expressed high confidence in both acquired companies, noting Cheney is returning to its typical growth trajectory after facing increased market competition post-acquisition.

Brian Harbour from Morgan Stanley requested clarification on how increased competition is manifesting in the market and asked for an update on the performance and outlook for the Specialty (formerly Vistar) segment.

Answer

CEO George Holm explained that while the industry remains rational, increased competition for growth has made upfront payments to customers more commonplace. For the Specialty segment, COO Scott McPherson acknowledged a pressured Q3, as expected, but expressed optimism for Q4 and beyond. He cited a strong content slate for theaters, growth in e-commerce, and a recovery in office coffee and vending as key positive drivers.

Brian Harbour requested guidance on the expected run rate for interest expense and depreciation following the recent acquisitions. He also asked if the Q2 gap between organic and inorganic independent case growth was a good proxy for future quarters.

Answer

CFO Patrick Hatcher confirmed that the Q2 figures for interest expense and D&A are a good baseline for future quarters. CEO George Holm clarified that the growth gap might widen slightly in Q3 due to the seasonality of the acquired businesses but will narrow in Q4 and beyond as PFG begins to lap the acquisition dates.

Brian Harbour asked for an updated food inflation outlook for the year and for more detail on the drivers of Vistar's margin pressure and its expected sales improvement in the second half.

Answer

CFO Patrick Hatcher reiterated an outlook of low-single-digit food inflation for Foodservice and Vistar, with mid-single digits for Convenience. He attributed Vistar's margin pressure to channel mix and consumer trends, with improvement expected in the second half from a recovery in the theater channel and growth in new channels. CEO George Holm added that weakness in the low-margin theater business is a key factor impacting Vistar's overall mix and profitability.

Brian Harbour from Morgan Stanley asked what operational aspects are lacking if manager stability is good, and whether the two-thirds of stores operating below standard include a high concentration of new locations.

Answer

Co-Founder, CEO & Director Jonathan Neman explained that despite good stability, there was a lack of clear standards around throughput and food quality, which new leadership is now addressing. He confirmed that many of the underperforming stores are newer and still ramping up. As part of the focus on core execution, he also announced the discontinuation of RippleFries to reduce operational complexity and improve customer satisfaction on core menu items.

Brian Harbour of Morgan Stanley asked about the recent COO transition, inquiring if operational priorities would change or if the focus would be a continuation of existing strategies.

Answer

CEO Jonathan Neman stated that new COO Jason Cochran will focus on tightening standards for food quality and consistency, improving accuracy and portioning on digital make-lines, and unlocking the "people flywheel" to increase the rate of internal promotions for leadership roles from the current 50%. He emphasized that Cochran's experience at Chipotle and Pizza Hut would help instill discipline and elevate execution across the system.

Brian Harbour of Morgan Stanley questioned why the pace of Infinite Kitchen retrofits isn't faster and if it might accelerate in future years, while also confirming the 2025 margin guidance includes the IK impact.

Answer

CFO Mitch Reback confirmed the 2025 margin guidance includes the impact from IKs. He acknowledged a desire to accelerate retrofits, particularly in high-volume stores, and expects the pace to increase in 2026 and 2027. The current constraints are the deployment capacity of the specialized IK team and the strategic decision to schedule retrofits during slower periods to minimize business disruption at these key locations.

Brian Harbour asked about the primary drivers of the year-over-year labor favorability and the potential for future gains. He also requested the food and labor inflation rates for Q3 and the forward-looking view.

Answer

CFO Mitch Reback attributed labor optimization to changes in scheduling and head coach deployment, adding that new AI scheduling tools offer considerable room for future optimization. He stated that both food and labor inflation ran at approximately 2% in the quarter and are viewed as 'pretty tame' going forward.

Brian Harbour of Morgan Stanley inquired about the current level of year-over-year pricing in the U.S. and whether RBI is considering significant changes to its price architecture, as seen elsewhere in the QSR industry.

Answer

CEO Josh Kobza indicated that most of RBI's U.S. brands are currently running 'low single digits' on pricing. He stated that the company is not contemplating any large-scale changes to its pricing architecture, preferring to keep the 'on deal' portion of the business stable while managing baseline menu prices reasonably.

Brian Harbour of Morgan Stanley inquired about the international unit growth outlook, asking if certain markets like the Middle East might remain slow and whether the turnaround in China is a 2025 story at best.

Answer

CEO Josh Kobza identified the Middle East and China as the two main areas of focus for international development. He noted that pipelines in some Middle East markets might see a slight slowdown and reiterated that while China is a significant long-term opportunity, it will take time to get on the right track, with more updates to follow.

Brian Harbour of Morgan Stanley asked about the continued strength in new store productivity, inquiring about market-specific performance and whether this trend is expected to continue into the second half of the year.

Answer

CEO Christine Barone confirmed that new shop productivity remains elevated and is strong across various markets, not just established ones. She cited a new shop in Georgia as being the system's top performer in the previous week, underscoring the brand's strength and demand as it expands nationally.

Brian Harbour inquired about the strong new store productivity seen in the quarter, asking if this trend is expected to continue. He also asked if Q1 food and beverage costs were more favorable than anticipated and why the full-year guidance implies more pressure in coming quarters.

Answer

CEO Christine Barone stated that Q1 saw some of the best new shop openings in the company's history, indicating strong brand reception, though she noted Q1 had particular strength. CFO Josh Guenser explained that Q1 COGS were in line with expectations and that the forecasted pressure for the rest of the year from coffee prices was always anticipated. He added that they can now absorb estimated tariff impacts within the existing guidance.

Brian Harbour of Morgan Stanley asked for a description of the new in-line restaurant format, specifically its size and how the guest experience will compare to a traditional Portillo's.

Answer

CEO Michael Osanloo described the first in-line model in The Villages, Florida, as a 'gorgeous, experiential' end-cap, not a generic box, maintaining the brand's signature look and open-kitchen feel. CFO Michelle Hook added that the primary driver for these formats is their potential for superior unit economics and high cash-on-cash returns due to lower initial investment costs.

Brian Harbour inquired about the back-half weighted timing of new restaurant openings for 2025 and the strategic rationale for testing a breakfast menu in the Chicago market.

Answer

CFO Michelle Hook explained that a permitting delay pushed one opening from Q1 to Q2, contributing to the back-loaded schedule, but affirmed that the cadence for 2026 is expected to be smoother. CEO Michael Osanloo stated the breakfast test is a response to strong consumer demand and an opportunity to leverage assets during the morning. The test is focused on operational execution and ensuring no negative impact on the core lunch business.

Brian Harbour asked for the directional assumptions for pricing, mix, and traffic within the full-year sales guidance and requested details on the advertising strategy in Texas.

Answer

CFO Michelle Hook explained the guidance implies positive pricing, slightly positive mix, and negative traffic for the full year, with traffic expected to improve in the second half. CEO Michael Osanloo detailed the Texas ad campaign, which uses billboards and TV ads with crowd-sourced content to build brand awareness, a key driver of sales in new markets.

Brian Harbour from Morgan Stanley asked why the Q3 advertising campaign was less effective than prior ones and sought a preliminary view on cost inflation for the upcoming year.

Answer

CEO Michael Osanloo explained that while the ad campaign was objectively strong and had a positive impact, its effect was muted by the 'noise' of heavy competitor discounting and political advertising. CFO Michelle Hook indicated that for 2025, she doesn't expect significant inflation overall but noted potential pressure from beef prices, with labor remaining moderate.

Brian Harbour asked for more detail on the company's value strategy, specifically regarding comments on value perception at KFC and the value menu at Pizza Hut, and if this is a broad global opportunity.

Answer

CEO David Gibbs confirmed that value is a critical focus in the current global consumer environment. He cited Taco Bell's Cravings Value Menu as a model for success. He noted that new KFC CEO Scott Muzvinsky, who came from Taco Bell, is implementing a similar value-focused strategy at KFC globally. Gibbs stated that the business is already seeing strengthening results in the second half of the year as a direct result of this renewed emphasis on value.

Brian Harbour followed up on the 'Bite' technology platform, asking if its consolidation suggests an accelerated rollout, whether its impact is included in guidance, and for specific examples of it driving sales beyond Taco Bell U.S.

Answer

CFO Chris Turner confirmed that the integrated 'Bite' platform is expected to accelerate technology deployments over the long term and that its benefits are factored into the company's growth outlook. As an example beyond Taco Bell, he highlighted KFC International, where digital ordering driven by kiosks has boosted check sizes and productivity. He also pointed to the KFC loyalty program, now in 14 markets, which drove a 40% increase in loyalty sales in France.

Brian Harbour from Morgan Stanley asked if stores with the Smart Kitchen deployed are seeing a pickup in delivery mix or benefits in specific dayparts, and whether this was related to the rising digital mix. He also questioned if the accelerated pace of new store openings has led to any changes in the typical level of sales transfer or cannibalization.

Answer

SVP & CFO Alex Kaleida confirmed that Smart Kitchen restaurants are outperforming in the delivery channel by a mid-single-digit growth rate and are also seeing an uptick in lunch and late-night performance, even without advertising. President and CEO Michael Skipworth stated there has been no material change in sales transfer from new units, attributing this to a well-defined, data-driven development strategy that supports the company's increased targets for both store count and average unit volumes.

Brian Harbour drew a parallel to the 2022 consumer pullback, asking how Wingstop's customer base has evolved since then and whether the current situation is different. He also inquired about current trends in the delivery channel and plans for its growth.

Answer

CEO Michael Skipworth confirmed the current consumer behavior in specific pockets feels similar to 2022. However, he noted the customer base has since diversified by attracting higher-income, heavy QSR users, which is why the pullback isn't broad-based. He stated that delivery growth remains consistent and represents a significant opportunity, evidenced by a test where the Smart Kitchen's faster delivery times drove a much higher conversion rate, proving the potential of improved speed.

Compared the current consumer pullback to a similar situation in 2022, asking how the customer base has evolved since then, and also inquired about current trends in the delivery channel.

Answer

The current environment feels similar to 2022 with a near-term pullback in specific consumer pockets. However, the customer base has since diversified to include higher-income QSR guests, making the current softness less broad-based. Delivery channel growth remains consistent, and there is significant opportunity to convert more users on third-party platforms, with the Smart Kitchen's faster service times showing early promise in boosting conversion.

Brian Harbour asked for a comparison between the current consumer pullback and the one in 2022, noting the evolution of Wingstop's customer base since then. He also requested an update on delivery channel performance and the strategy for its growth.

Answer

CEO Michael Skipworth confirmed the current environment feels similar to 2022's temporary pullback in specific consumer pockets. He noted that Wingstop's customer base has since diversified to include higher-income QSR users, making the current softness less broad-based. The primary difference today is the significantly tougher sales comparisons. He added that the delivery channel continues to show consistent growth, with the Smart Kitchen's ability to lower delivery times expected to further boost conversion and capture untapped demand.

Asked for details on the new kitchen operating system's functionality and deployment timeline, and which specific sales strategy is expected to be the most impactful in 2025.

Answer

The new AI-enabled kitchen system is a fundamental operational change using gamification and visual cues to improve speed, consistency, and quality, with a rollout expected soon. The company's success comes from the synergistic effect of all its strategies (brand awareness, innovation, digital, etc.) working together, rather than relying on a single driver.

Brian Harbour inquired about the food cost trends at company-owned stores and whether recent wing price movements might prompt menu price increases. He also asked for the reason behind the increase in the G&A guidance.

Answer

Executive Alex Kaleida explained that the supply chain strategy was highly effective, preventing food costs from being 500-600 basis points higher amid a spike in spot market wing prices. He also noted brand partners see food costs ~300 bps lower than company stores. He confirmed the G&A guidance increase was driven purely by performance-based stock compensation, while still showing leverage year-over-year.

Brian Harbour of Morgan Stanley requested clarification on the same-store sales assumptions for the rest of the year and asked about the specific drivers of the food cost efficiencies seen in Q2.

Answer

CFO Adam Rymer explained that the Q2 food cost beat was driven by both in-restaurant and supply chain initiatives. In-restaurant efforts focused on the 'flow of food' to reduce waste, while supply chain efforts included supplier diversification. These initiatives have yielded a net 30-40 basis point gain, more than offsetting a prior portioning investment. He also noted the new produce slicer drove about 20 basis points of labor execution efficiency.

Brian Harbour asked what drove the new focus on hospitality and marketing, and requested details on which specific items and equipment are affected by tariffs.

Answer

CEO Scott Boatwright explained the hospitality focus was a result of internal studies identifying opportunities in cleanliness and friendliness. CFO Adam Rymer specified that tariffs impact cost of sales for items like Australian beef, Asian packaging, and South American avocados, while also affecting components for new restaurant equipment like shelving.

Brian Harbour of Morgan Stanley asked to contextualize the performance of the Brisket LTO and whether its performance was consistent throughout its run. He also asked about obstacles to a faster rollout of the new suite of kitchen equipment to existing stores.

Answer

CFO Adam Rymer said Brisket performed very well, driving transactions and switching from all proteins, with sustained performance throughout the period. CEO Scott Boatwright added that the new equipment suite (slicer, plancha, rice cooker, fryer) will go into all new builds later this year. For existing stores, they are testing a 'high-efficiency equipment package' and will evaluate returns before deciding on a broader retrofit strategy.

Brian Harbour inquired about the inflation outlook for food and wages into next year. He also asked about the deployment speed of new equipment and whether the primary goal is improving employee experience, driving margins, or sharing savings with customers.

Answer

CFO Adam Rymer stated that based on initial views, the company expects low single-digit inflation for both food and wages to continue into next year. Interim CEO Scott Boatwright explained that new equipment like the dual-sided plancha and produce slicer will be deployed to improve the team member experience and drive efficiency, which in turn enhances the guest experience. He noted that some of these initiatives will also have margin improvement benefits.

Brian Harbour from Morgan Stanley asked if franchisees are experiencing similar margin pressures as the corporate stores and inquired about the outlook for food inflation in the second half of the year.

Answer

CFO Sandeep Reddy clarified that the small sample of corporate stores is not a proxy for franchisee profitability, which remains in a good place. He attributed the corporate store margin pressure to a one-time insurance charge. He also reiterated the full-year food inflation outlook of low single-digit growth, with pressure weighted towards the first half and expected moderation in the second half.

Brian Harbour asked if future international store closures would be normal course and whether the guided sequential deceleration in same-store sales reflects observed macro pressures or simply caution.

Answer

Chief Financial Officer Sandeep Reddy confirmed future closures are expected to be normal course and are factored into the full-year guidance. He explained the guidance reflects caution for both general macro volatility impacting demand and specific geopolitical volatility, such as tariff discussions, which warrants assuming some deceleration from Q1's strong result.

Brian Harbour from Morgan Stanley asked if the market share gains in 2024 were balanced across carryout and delivery. He also inquired about the outlook for the underlying 1P delivery business, which has been a softer spot.

Answer

CEO Russell Weiner confirmed that market share gains occurred in both carryout and delivery and that the softness in 1P delivery is due to consumers switching to eating at home. CFO Sandeep Reddy added that for 2025, the company expects balanced growth between delivery and carryout.

Brian Harbour from Morgan Stanley asked if U.S. franchise store EBITDA for the year is on track with expectations. He also questioned if the positive year-over-year margin growth seen in corporate-owned stores is directionally consistent with what franchisees are experiencing.

Answer

CFO Sandeep Reddy cautioned that the small sample size of corporate stores makes them not a direct proxy for franchisee profitability. However, he affirmed that the company is pleased with the progress in corporate store profits. He stated that franchisee profitability, which was already best-in-class, is expected to continue to grow in 2024 and beyond. CEO Russell Weiner added that the company actively works with franchisees on profitability, citing an upcoming 'Economic Summit' as an example of their partnership.

Brian Harbour inquired about the price and mix components of same-store sales in Q1 and the outlook for Q2, particularly the expected mix impact from value initiatives. He also asked if the company is actively making labor investments or staffing model changes and if those costs are factored into current guidance.

Answer

CEO Mike Spanos stated that mix was flat in Q1 but is expected to decline 1% to 2% in Q2 due to the Aussie 3 Course promotion and other value infusions needed to attract guests. He also confirmed they are testing new service models, including staffing levels and server ratios, but clarified that any potential labor investments resulting from these tests are not included in the current financial guidance.

Brian Harbour of Morgan Stanley asked about the biggest opportunity or gap in the guest experience and sought details on the scope and timing of the planned restaurant reimaging and capital investment strategy.

Answer

CEO Mike Spanos identified 'consistency of execution' as the primary gap in the guest experience, aiming to improve quality, value, and service to drive repeat visits. Regarding remodels, Spanos stated the plan is to 'touch' approximately 50% of stores, with a predominant focus on Outback, over the next two to three years.

Brian Harbour requested clarification on the key drivers behind the significant reduction in the Q4 and full-year EPS guidance, and also asked for the new CEO's perspective on Outback's current menu and whether more changes are needed.

Answer

CEO Mike Spanos stated the company was not happy with its results and that the revised Q4 forecast reflects the continuation of year-to-date trends, as previous guidance had been too optimistic about an industry recovery. CFO Michael Healy added that the primary driver is lower traffic expectations. Regarding the menu, Spanos reiterated his focus on simplification, getting back to the core of steak and seafood, and executing fewer items more consistently to improve the guest experience, a sentiment echoed by operators.

Brian Harbour observed that recent industry data suggests a clear share-shifting dynamic among top QSR chains and asked what Wendy's believes will be the most critical factor in regaining market share this year.

Answer

Kirk Tanner, President and CEO, agreed that the focus is on winning in the marketplace. He expressed confidence that the '100 days of summer' program is the right plan to do so. He outlined the recipe for success as a combination of incremental innovation on core brands, generating excitement through cultural collaborations, and, critically, delivering a great customer experience with improved hospitality. He stressed that the company has deployed resources specifically to enhance this in-restaurant experience.

Brian Harbour of Morgan Stanley asked for details on the voice AI implementation in drive-thrus, specifically regarding quantifiable labor hour savings and observed accuracy rates.

Answer

CEO Kirk Tanner stated that while the technology is still in development, the company is encouraged by the results. The primary goal is improving drive-thru efficiency, which directly impacts labor. He noted continuous improvements in accuracy and efficiency, giving them confidence in future labor savings and justifying a 'slow to go fast' deployment strategy.

Brian Harbour asked for an explanation of the 2025 top-line guidance being below consensus and questioned the outlook for CapEx and free cash flow, including the potential use of refranchising proceeds.

Answer

CEO Josh Charlesworth attributed the conservative revenue guidance to a choppy start to the year and pressure on value-conscious consumers, necessitating a marketing pivot to the Original Glazed doughnut. CFO Jeremiah Ashukian stated a focus on improving EBITDA-to-free-cash-flow conversion and being more discerning with CapEx in 2025, noting that any refranchising proceeds would be incremental. Josh Charlesworth added that improved capacity utilization will reduce the need for new hub builds.

Brian Harbour of Morgan Stanley inquired about the initial performance of the McDonald's partnership, specifically regarding revenue per door and early observations. He also questioned the strategy for the underperforming U.K. market and the company's long-term plans for owning its international markets versus shifting to a more capital-light franchise model.

Answer

CEO Joshua Charlesworth confirmed the McDonald's rollout is meeting original assumptions with a positive consumer response and no negative impact on existing stores. Regarding the international segment, he stated that while the U.K. is underperforming and has a new management team focused on core issues like menu and value perception, the company remains pleased with its overall international portfolio. He clarified that the management changes are about focusing capital on the U.S. and adopting a franchisor mindset internationally, not necessarily divesting owned markets.

Brian Harbour of Morgan Stanley asked for commentary on regional same-Shack sales trends and the expected components (price, traffic, mix) of the 2025 sales outlook.

Answer

CFO Katie Fogertey noted that underlying trends are consistent when adjusted for weather, with strength in markets like Florida where brand awareness is still growing. She highlighted a low single-digit traffic pressure in Q1 from lapping last year's successful Korean BBQ LTO without a new product launch. CEO Rob Lynch added this underscores the need for a more strategic culinary calendar, which is a key focus for 2025 to avoid such gaps in the future.

Brian Harbour of Morgan Stanley asked about the drivers behind the recently improved wait times and the timeline for future enhancements from kitchen process changes.

Answer

CEO Rob Lynch attributed recent gains to a focus on operational fundamentals, including better labor utilization, leadership development, and creating a culture of performance and accountability. He noted that they are in the early stages, with longer-term initiatives like kitchen flow and equipment optimization expected to drive continued momentum and further improvements.

Brian Harbour of Morgan Stanley asked about the growth drivers in the healthcare and hospitality segments, specifically the mix of new business versus penetration, and the sustainability of that growth. He also requested the CapEx outlook for 2025.

Answer

CFO Dirk Locascio explained that growth in healthcare and hospitality comes from a combination of new business wins and increased penetration, and the company expects to continue growing at a healthy rate in these differentiated segments. He guided to a 2025 CapEx of $375 million to $425 million, an increase from 2024 to support fleet, IT, and capacity investments, which is in line with their long-range plan.

Brian Harbour asked about the current penetration rate of private label products, particularly with independent restaurants, and inquired about the overall health and recent performance trends of the independent customer segment.

Answer

CEO David Flitman reported that private label penetration with independent restaurants is approximately 52%, with no near-term ceiling anticipated due to strong product innovation. He also noted that after recent hurricane impacts, organic independent case growth has seen a significant 100 basis point acceleration, indicating positive momentum.

Brian Harbour of Morgan Stanley asked about the company's confidence in growing its private label (Sysco Brand) penetration, inquiring about the specific actions and timeline required to drive it higher.

Answer

CEO Kevin Hourican detailed a segmented approach: for small chains, where penetration dipped due to improved national brand fill rates, Sysco is using 'trade management deals' and product cuttings. For large non-commercial clients, the focus is on back-of-kitchen conversions. CFO Kenny Cheung added that strategic sourcing initiatives will benefit both Sysco and national brands, providing a broader tailwind to margins in the second half of the year.

Brian Harbour of Morgan Stanley inquired about international unit growth, asking if certain markets like the Middle East might remain slow and whether the turnaround in China is likely a 2025 story at best.

Answer

CEO Josh Kobza confirmed that the Middle East and China are the two main areas of focus for international growth challenges. He noted that development pipelines in some Middle East markets may be slower and that while China is a significant long-term opportunity, it will take time to get on the right track, with more updates to come.

Brian Harbour of Morgan Stanley inquired about international unit growth, asking which markets might see slower development and whether any turnaround in China is a 2025 story at best.

Answer

CEO Josh Kobza identified the Middle East and China as the primary areas of focus for slower development. He noted that while pipelines in some Middle East markets may slow, the China opportunity is significant but will require time to fix. He committed to providing further updates on China in the coming quarters.