Brian Vaccaro

Brian Vaccaro asked about Brinker's balance sheet, specifically the $20 million remaining on the revolver and the $350 million notes at 8.25%, and the potential for a refinancing opportunity through calendar 2026.

Answer

Mika Ware, CFO of Brinker International, stated that a refinancing is not currently planned but the company is closely monitoring opportunities to potentially take out the bonds early if it aligns with the revolver and offers cost savings, while considering upfront fees. She emphasized that this is an ongoing evaluation rather than a firm plan.

Brian Vaccaro asked for details on the quality and flavor profile changes for the chicken sandwich revamp, its current mix, and potential opportunity. He also inquired about the timing for other menu upgrades, such as steaks and salads, potentially in fiscal 2027, and the refinancing opportunity for the $350 million notes.

Answer

CEO Kevin Hochman described the new chicken sandwich as featuring a brioche bun, semi-cured pickle, mayonnaise, and a large hand-breaded chicken breast, with upcoming flavor updates, a new flavor, and a good-better-best tiering. CFO Mika Ware noted the current mix is very low but anticipates significant growth with merchandising and TV advertising. Mika Ware also stated that refinancing the $350 million notes is not currently planned but is being closely monitored for potential early action if it proves financially beneficial.

Brian Vaccaro sought context on the change in Maggiano's expectations versus original guidance, particularly for Q2, and clarification on Q2 margin expectations. He also asked for a ballpark figure for repair and maintenance cost reduction and the sales mix for 3 for Me and Triple Dipper.

Answer

CFO Mika Ware stated that Maggiano's impact would be more pronounced in Q2, potentially affecting Q2 EPS by 6-8%, and confirmed Q2 margins are expected to be down year-on-year. She estimated Chili's R&M was down $3-4 million in Q1, expecting $10-15 million favorable year-over-year for Chili's R&M, partially offset by Maggiano's investments. She reported 3 for Me mix was steady at 18%, with the $10.99 tier at ~40% and the $12.99 tier making up the balance of 50-55% with $10.99. Triple Dipper remained about 15% of total sales.

Brian Vaccaro sought context on how much Maggiano's expectations changed versus original guidance, particularly for Q2, and inquired about the ballpark figure for year-over-year repair and maintenance (R&M) cost reductions. He also asked for the 3 for Me sales mix (overall and by tiers) and Triple Dipper sales mix.

Answer

Mika Ware, EVP and CFO of Brinker International, stated that Maggiano's impact would be more pronounced in Q2, potentially impacting Q2 EPS by 6%-8%, and confirmed Q2 margins are expected to be down year-over-year. She estimated Chili's R&M was down $3M-$4M in Q1, projecting $10M-$15M favorable year-over-year for Chili's. She reported 3 for Me mix was steady at 18%, with the $10.99 tier at about 40% (down from 50-55%) due to a new $12.99 tier, and Triple Dipper remaining at 15% of total sales.

Brian Vaccaro from Raymond James asked for the Triple Dipper's sales mix, initiatives for the platform, the rollout timeline for new server handhelds, and the G&A assumption for fiscal 2026.

Answer

CFO Mika Ware confirmed the Triple Dipper remains strong at about 15% of total sales. CEO Kevin Hochman outlined plans to put the Triple Dipper on TV and leverage social media trends to drive further excitement. He also noted the server handheld update is a software upgrade, not hardware, expected to go live by Q3 to improve speed and accuracy. Ware guided fiscal 2026 G&A to be about 4% of total revenues.

Brian Vaccaro sought clarification on Chili's expected year-over-year pricing and mix in Q4, and also asked for the specific sales mix of the 3 For Me platform and the Triple Dipper appetizer.

Answer

CFO Mika Ware confirmed Q4 pricing would moderate to the 2-3% range and that mix would roll off by about one point. She stated the 3 For Me mix was stable at 18-19%, with the $10.99 tier comprising 56% of that. For the Triple Dipper, menu mix increased from 11% to 12%, and it represented 15% of dollar sales.

Brian Vaccaro of Raymond James requested an update on guest experience metrics like "Guest with a Problem" (GWOK) and asked for quantification of the labor investment made to catch up with the traffic surge. He also sought clarification on the advertising spend for the quarter.

Answer

CEO Kevin Hochman reported that GWOK improved to 2.9% in Q2, down from 3.5% a year ago and over 5% when he started, despite the massive traffic increase. CFO Mika Ware explained that while labor leverage was high in Q2, she expects it to be about half that level in the back half of the year as they invest to support the volume. She also confirmed that advertising dollar spend was flat year-over-year in Q2, with incremental spending shifted to the second half of the fiscal year.

Brian Vaccaro sought more specific details on October's quarter-to-date comps, inquired about the drivers of menu mix, particularly from alcohol sales, and asked for clarification on Q1 advertising and R&M expenses.

Answer

CFO Mika Ware confirmed double-digit sales and positive traffic in October but declined to be more specific. She noted that alcohol mix is flattish but more profitable, and the new lunch combos are a positive mix driver, shifting the full-year mix outlook from flat/negative to flat/positive. She also confirmed advertising dollars were flat year-over-year in Q1 and that R&M spend was up as expected, with savings to be realized in the back half of the year.

Brian Vaccaro asked about Olive Garden's Never Ending Pasta Bowl, specifically if the sales mix was up year-on-year, and if there were changes in the mix between entry-level price points and higher tiers. He also inquired if the sales mix for lighter portions had increased over time. Additionally, he asked for an update on G&A for fiscal 2026 guidance, given it came in lower than expected in Q2.

Answer

CEO Rick Cardenas confirmed a slight increase in Never Ending Pasta Bowl mix and a record refill rate, with slightly fewer buy-ups to protein. He stated that the lighter portions menu mix remains around 1.5%, with frequency growth expected to take time to meaningfully impact the mix. CFO Raj Vennam reiterated that full-year G&A is still expected to be close to $500 million, with Q4 likely $15-$20 million higher than Q3 due to the 53rd week and seasonal factors, indicating no change to the total G&A guidance.

Brian Vaccaro inquired about the sales mix of Olive Garden's Never Ending Pasta Bowl (NEP) year-over-year, including changes in preference for entry-level versus higher tiers, and whether the sales mix for lighter portions has increased since it was last reported as mid-single digits. He also asked for an update on G&A expenses for fiscal 2026.

Answer

CEO Rick Cardenas noted a slight increase in NEP mix and a record refill rate, with fewer buy-ups to protein. He stated the lighter portions mix remains around 1.5%, with frequency growth taking time to impact it meaningfully. CFO Raj Vennam expects full-year G&A to be close to $500 million, with Q4 higher due to the 53rd week and seasonal factors, but no change to the total guidance.

Brian Vaccaro requested a breakdown of Olive Garden's same restaurant sales between traffic and check, and whether check is expected to continue exceeding pricing in future quarters. He also asked about the 4.5-5% increase in labor per operating week, if it reflects reinvestments in guest experience, and for specific examples of such reinvestments.

Answer

Raj Vennam, CFO, reported Olive Garden's same restaurant sales at 5.9%, with traffic at 2.8% (3.6% including catering), and pricing at 1.9%. He confirmed that check is expected to exceed pricing due to delivery and service fees. Regarding labor, he clarified that total labor inflation was 3.1%, and despite the dollar increase, Darden achieved productivity improvements year-over-year, with investments in areas like speed contributing to throughput rather than necessarily labor deleverage.

Brian Vaccaro of Raymond James Financial asked for a breakdown of the traffic and check dynamics for LongHorn Steakhouse's quarterly performance.

Answer

CFO Raj Vennam provided the breakdown for LongHorn's 6.7% same-restaurant sales growth, stating it was composed of 3.3% pricing and 3.4% traffic, with the overall check being flat to pricing.

Brian Vaccaro asked about the potential for a widening performance gap between 'winners and losers' in the casual dining sector and sought additional context for the Q4 same-store sales guidance, considering comparisons and calendar shifts.

Answer

CFO Raj Vennam agreed that a bifurcation exists, with well-executing brands winning and chains taking share from independents, partly due to more moderate pricing. President and CEO Ricardo Cardenas added that the Q4 guidance is supported by a favorable comparison; last year featured a standard value message, whereas this year's 'Buy One, Take One' is a stronger traffic-driving promotion, complemented by the new delivery initiative.

Brian Vaccaro asked for a breakdown of Olive Garden's off-premise business between small takeout orders and larger catering. He also sought clarification on whether the increased mix for Never Ending Pasta Bowl was in overall preference or in guests trading up to add proteins.

Answer

President and CEO Rick Cardenas clarified that Olive Garden's off-premise business is approximately 80% small orders and 20% catering. For Never Ending Pasta Bowl, he explained that while overall preference is up slightly, the more significant change is the increase in guests trading up to add a protein, with 60-65% of NEPB customers now doing so, which is an increase versus last year.

Brian Vaccaro inquired about the two-year comparable store sales stack, noting a sequential deceleration, and sought clarification on whether November comparable sales were indeed similar to October's approximately 1% decline. He also asked about the performance of walk-in versus corporate events business in Q3 and the outlook for holiday bookings in Q4.

Answer

CFO Darin Harper confirmed the two-year stack deceleration was primarily due to a softer start to the quarter and reiterated that November comparable sales were similar to October's, down around 1%. He reported that special events business grew mid-single digits year-over-year in Q3, driven by in-store sales managers, and anticipated continued year-over-year growth for Q4 holiday bookings.

Brian Vaccaro noted a deceleration in the two-year comparable store sales stack versus the second quarter and asked for elaboration on the underlying trend, confirming November comps. He also inquired about the performance of walk-in versus corporate events business in Q3 and the outlook for holiday bookings in Q4.

Answer

CFO Darin Harper acknowledged the two-year stack deceleration, attributing it to a softer start to the quarter, but emphasized positive sequential trends. He confirmed November comps were similar to October, down around 1% overall. For special events, Q3 saw mid-single-digit year-over-year growth, and Q4 pacing indicates continued year-over-year growth, supported by the rollout of in-store sales managers.

Brian Vaccaro asked for quantification of the check versus traffic growth contributing to the -3% comparable store sales in Q2 2025, and how the average check is expected to trend in the second half of the year given recent changes.

Answer

CFO Darin Harper indicated that more check growth is coming from the food and beverage side, particularly from the 'eat and play combo' attach rates. He expressed optimism for tailwinds on the check side in the second half due to the new menu rollout (reintroducing fan favorites, driving entrees without price increases) and game pricing changes.

Brian Vaccaro asked for a quantification of the check versus traffic growth reflected in the Q2 2025 comparable store sales decline of 3%. He also inquired about any meaningful changes in average check and the outlook for average check trends in the second half of the year given recent changes.

Answer

Darin Harper, CFO, indicated that more check growth is coming from the food and beverage side, particularly through the 'eat and play' combo attach rates. He expressed optimism for average check tailwinds in the second half due to the system-wide rollout of a new menu (reintroducing fan favorites, driving entrees without price increases) and the recent game pricing adjustments.

Brian Vaccaro asked for quantification of the check versus traffic growth reflected in the Q2 down 3% comparable store sales, and how average check could trend in the second half given recent changes.

Answer

Darin Harper (CFO) noted that F&B attach on the 'eat and play combo' is driving more check growth. He expects tailwinds in the second half from the new menu rollout in October (reintroducing fan favorites, driving check through entrees/options, not price) and game pricing work.

Brian Vaccaro of Raymond James Financial asked for details on the 'other OpEx' line from Q1 and inquired about the performance of the walk-in versus events business and any differences between the D&B and Main Event brands.

Answer

CFO Darin Harper explained that higher other OpEx was driven by a $4.7 million increase in marketing and some incremental R&M spend. He noted that the special events business outpaced walk-in traffic and that while both brands performed similarly, there are 'greener shoots' appearing in the D&B business due to targeted initiatives.

Brian Vaccaro requested a breakdown of the FY25 capital expenditure plan, asking for the gross CapEx figure before sale-leasebacks and a split between new units, remodels, and maintenance/other spending.

Answer

CFO Darin Harper stated that the company elected not to provide a specific breakdown at this time but offered a framework for modeling. He advised using the June 2023 Investor Day assumptions for new store CapEx (for 10-12 locations), increasing maintenance and game refresh estimates for inflation, and treating remodels and other growth initiatives as the remainder.

Brian Vaccaro of Raymond James inquired about the potential impact of the company's shift away from linear TV advertising in recent years, asking how significant a role management believes this played in the recent negative comparable sales performance.

Answer

CFO Darin Harper stated he could not speculate on the exact impact but acknowledged the company may have 'overcorrected' by shifting almost entirely to digital from a previously heavy linear TV mix. He explained that recent testing indicates a need to rebalance the media mix to better drive top-of-funnel awareness. He concluded that the true test will be observing performance as the company implements this rebalanced strategy moving forward.

Brian Vaccaro asked about the company's review of its advertising strategy, specifically questioning how significant a role the shift away from linear TV in recent years has played in the negative comparable sales performance.

Answer

CFO Darin Harper stated he could not speculate on the specific impact of shifting from linear TV to a heavily digital media mix. He acknowledged the company may have 'overcorrected' and that recent tests of reintroducing some linear TV to drive top-of-funnel awareness are showing 'really positive signs.' He suggested the true test will be observing performance as they rebalance the media mix moving forward.

Brian Vaccaro asked for quantification of a gain in the 'other operating cost' line, the financial impact of two extra operating days in Q2, and the level of pricing reflected in the quarter's comps.

Answer

CFO Darin Harper identified a $4 million gain from a lease termination in New York, which is excluded from adjusted EBITDA. He quantified the impact of the two extra operating days (a Monday and Tuesday) as approximately $4 million in incremental sales with a 50% flow-through, resulting in a $2 million EBITDA benefit. CEO Christopher Morris declined to disclose the specific amount of pricing in comps but stated there are no plans for meaningful price adjustments in the second half of the year.

Brian Vaccaro asked about the impact of high grocery store beef prices on Texas Roadhouse's comparable sales and customer behavior, and the strategy for Bubba's 33 unit growth, including new versus existing markets.

Answer

Michael Bailen, VP of Investor Relations, believes consumers are recognizing the value of Texas Roadhouse's steak offerings compared to grocery prices, contributing to more steak orders and loyal guests. Jerry Morgan, CEO, stated that Bubba's 33 growth is primarily focused on existing markets, while Jaggers follows a 'heartland strategy' concentrating on Ohio, Indiana, Kentucky, Tennessee, and Georgia.

Brian Vaccaro asked if the 'sticker shock' effect from high beef prices at grocery stores is contributing incremental top-line growth to Texas Roadhouse's comps and if there's any observed demand destruction in the grocery sector. He also inquired about the unit growth for Bubba's 33 (10 units) and Jaggers (5 units) in 2026, specifically asking about new markets for Bubba's and the acceleration of its growth.

Answer

Michael Bailen, VP of Investor Relations, confirmed awareness of high grocery beef prices, noting that more guests are ordering steaks at Texas Roadhouse, recognizing the value, which is positively impacting sales. Jerry Morgan, CEO, stated that Bubba's growth is primarily in existing markets, while Jaggers is focusing on a 'heartland strategy' in Ohio, Indiana, Kentucky, Tennessee, and Georgia, staying close to the Louisville base and expanding regionally.

Brian Vaccaro from Raymond James Financial inquired about the acquisition of the remaining five franchise units in California and the company's perspective on the growth opportunity in that state. He also asked for a reasonable expectation for G&A spending for the year.

Answer

CEO Gerald Morgan expressed excitement about owning all California stores, noting the company is actively discussing how to accelerate its presence there. Interim CFO Keith Humpich stated that G&A should see leverage for the rest of the year, especially in Q4, and highlighted an annual rent savings of about $2.5 million from purchasing the support center.

Brian Vaccaro asked for clarification on the impact of the Easter holiday shift on March and April comps and requested an expanded outlook on beef supply and demand dynamics.

Answer

An executive clarified that the Easter shift had a 20 basis point positive impact on Q1 comps and a 50 basis point negative impact on the first five weeks of Q2. Regarding beef, the outlook remains for tightening supply and robust demand, with these factors and potential supplier production cuts incorporated into the updated 4% commodity inflation guidance.

Brian Vaccaro of Raymond James asked for the G&A expense outlook for 2025 and inquired if the company had given new consideration to first-party delivery, given the strength of its off-premise business.

Answer

Executive Michael Bailen projected mid-single-digit dollar growth for G&A in 2025, which should allow for leverage, particularly in the second half of the year. CEO Gerald Morgan stated that on delivery, the company is 'continuing to learn' but is maintaining its current limited approach, with availability at Jaggers, most Bubba's locations, and only one Texas Roadhouse.

Brian Vaccaro of Raymond James asked for an update on hourly employee turnover and retention trends. He also inquired about the expected cadence of commodity inflation in 2025, comparing the first half to the second half.

Answer

Executive Michael Bailen stated that while they don't disclose the specific metric, employee turnover continues to trend favorably and is at historical lows. On commodities, he expects slightly more inflation in the second half of 2025, primarily due to lapping easier comparisons from 2024, but does not foresee a dramatic difference between the two halves.

Brian Vaccaro requested a breakdown of comparable sales for The Cheesecake Factory and North Italia by traffic, price, and mix, and also asked about the commodity inflation in Q3 and the outlook for Q4, including other store margin dynamics.

Answer

Matt Clark, EVP and CFO, provided Cheesecake Factory's comp breakdown (4% price, -2.5% traffic) and Etienne Marcus, VP of Finance and Investor Relations, gave North Italia's (4% price, -6% traffic, -1% mix). Matt Clark added that Q3 commodity inflation was flat, expected to be ~2% in Q4 (driven by beef), and detailed labor dynamics, including a 50 basis point impact from group medical timing in Q4, with underlying operational labor improvements.

Brian Vaccaro asked for a detailed breakdown of comparable sales for both The Cheesecake Factory and North Italia, including traffic, price, and mix components. He also inquired about the margin outlook for the fourth quarter, specifically commodity inflation in Q3 and Q4, and other store margin dynamics beyond sales deleverage.

Answer

Matt Clark, EVP and Chief Financial Officer, and Etienne Marcus, VP of Finance and Investor Relations, provided the comparable sales breakdown: For Cheesecake Factory, pricing was 4%, traffic -2.5%, with mix as the difference. For North Italia, pricing was 4%, mix -1%, and traffic -6%. Matt Clark further elaborated on margins, stating Q3 commodity inflation was flattish, expected to be 2% in Q4 (driven by beef). He noted a 50 basis point negative impact on labor from group medical timing in Q4, but anticipated 10-20 basis points operational labor favorability, and a 20 basis point negative impact on other OpEx from facility costs.

Brian Vaccaro asked about The Cheesecake Factory's menu pricing strategy, the drivers behind North Italia's margin improvement, and requested quantification of the negative comp impact from a specific LA unit on North Italia.

Answer

Matthew Clark, Executive VP & CFO, explained that they are taking less effective pricing in the back half, with headline pricing dropping to around 3.5% and effective pricing closer to 2-2.5% due to the introduction of lower-priced menu items. He attributed North Italia's margin gains to operational execution, pricing flow-through, and favorable commodity costs. He also clarified that North Italia's comp would have been flat excluding the LA unit's impact.

Brian Vaccaro of Raymond James asked about Q1 commodity inflation and the outlook for the rest of the year. He also sought confirmation of a Cheesecake Factory closure in Seattle and inquired about what is differentiating Flower Child's strong performance.

Answer

EVP and CFO Matt Clark stated that Q1 commodity costs were near breakeven and are expected to remain in the low single-digit range for the year, even with potential tariffs. He confirmed the Seattle closure and noted no others are planned. President David Gordon attributed Flower Child's success to its food quality, strong operational execution driven by a stable team, and the brand's overall appeal to today's consumer.

Brian Vaccaro inquired about the drivers of the strong Q4 margin performance, the comparable sales components for The Cheesecake Factory and North Italia, the reasons behind strong new North Italia openings, and the drivers of North Italia's mature margin improvement.

Answer

EVP and CFO Matt Clark attributed margin strength to strong sales flow-through and record-high staff retention, which improved labor productivity. He provided comp details for The Cheesecake Factory (Price +4.2%, Traffic -0.4%, Mix -2.0%). President David Gordon noted strong North Italia openings were in existing markets with high brand awareness. Clark added that North Italia's margin improvement was driven by seasonality, strong volumes, and catching up on pricing.

Brian Vaccaro asked for a breakdown of the key factors influencing the 2025 net margin guidance, particularly regarding the expected performance of Cheesecake Factory and North Italia segment margins.

Answer

EVP and CFO Matt Clark projected a 25 to 35 basis point improvement in company-level four-wall margin for 2025. He attributed this to expected leverage on commodities, a tailwind on labor, relatively flat other operating expenses, and a 10 basis point improvement in G&A. He noted that while North Italia has more room for improvement, Cheesecake Factory's scale gives its margin changes a larger weighted impact.

Brian Vaccaro of Raymond James Financial asked if there were any notable differences in Q2 comp performance by daypart or day of the week, and also inquired about the impact of sales transfer as CAVA increases density in existing markets.

Answer

CFO Tricia Tolivar reported no significant shifts in daypart performance and noted that sales transfer is a natural part of their growth strategy. She explained that infill locations ultimately grow the total market, stating that 'one plus one ends up being three,' which reinforces their confidence in the long-term white space opportunity.

Brian Vaccaro from Raymond James sought confirmation on the Q1 same-store sales outlook within the three-year stack framework and requested an update on average unit volumes by geographic region.

Answer

CFO Tricia Tolivar confirmed that the Q1 three-year same-store sales stack is expected to be in the high 30s, reflecting continued business strength. While not providing specific regional figures, she stated that AUV growth has been strong across all regions, underscoring the brand's proven portability.

Brian Vaccaro circled back on comps, asking if there was outsized growth in any specific daypart like dinner versus lunch, and requested quantification of the AUVs for the strong new unit class of 2024.

Answer

CFO Tricia Tolivar stated that sales strength is broad-based across all restaurant vintages, geographies, and income cohorts. She mentioned that dinner is increasing modestly but that there is a good balance between dayparts with no single area driving outsized growth. She confirmed new unit AUVs are exceeding expectations but did not provide a specific number.

Brian Vaccaro from Raymond James Financial requested guardrails on third and fourth-quarter EBITDA, given the raised full-year guidance. He also asked for an elaboration on the expected impact of tariffs for the remainder of the year.

Answer

President & CEO Chris Tomasso guided that adjusted EBITDA for the second half of the year is expected to be split about evenly between Q3 and Q4. CFO Mel Hope clarified that the impact from tariffs has become less significant, now estimated to be an immaterial 10 basis points for the full year, a notable reduction from previous concerns.

Brian Vaccaro from Raymond James asked for more detail on the scope of the marketing spend across the system and for management's perspective on the overall breakfast category, including any signs of consumer pullback.

Answer

CEO Chris Tomasso and CFO Mel Hope clarified that while almost the entire system receives some marketing support, there are targeted 'heavy ups' in specific markets. Regarding the macro environment, Mel Hope stated the belief that First Watch's higher-income customer demographic provides some protection against the spending pullbacks seen elsewhere in the industry.

Brian Vaccaro asked for the common factors driving the strong performance of new restaurants and requested high-level guardrails for the 2025 guidance, specifically concerning store margins and G&A spending.

Answer

CFO Mel Hope noted that new units are typically larger, often successful second-generation conversions. CEO Chris Tomasso highlighted their proven ability to open successfully in diverse geographies due to disciplined site selection. Regarding guidance, Mel Hope stated that all cost factors are incorporated into the full-year adjusted EBITDA forecast of $124 million to $130 million, which serves as the primary financial guardrail.

Brian Vaccaro of Raymond James requested more detail on the magnitude of the traffic improvement during Q3 and an update on weekday versus weekend trends. He also explored the potential for targeted weekday value offerings to drive traffic.

Answer

CEO Chris Tomasso highlighted that in-restaurant traffic turned positive in September and direct off-premise stabilized, indicating the improvement from July's lows. He confirmed weekends continue to outperform weekdays. Regarding value offerings, Tomasso stated the company's strategy is to use data for targeted messaging rather than pursuing a discount-led approach.

Brian Vaccaro inquired about the drivers of improved labor productivity in Q2 and the outlook for store margins in Q3, as well as any new learnings from the kitchen innovation lab regarding equipment and throughput.

Answer

CEO Rob Lynch attributed labor gains to a new performance scorecard, improved staffing metrics, and a new labor model. CFO Katie Fogertey added that while they expect continued labor wins, a heavier new opening schedule in Q3/Q4 is a factor in the guidance. Regarding kitchen innovation, Rob Lynch highlighted the new Atlanta Battery location, which uses new equipment prototypes for fry, make, and cold stations that have significantly improved service times and throughput.

Brian Vaccaro of Raymond James asked about the key drivers behind the increased 2025 store margin guidance and the long-term levers providing confidence in multi-year margin expansion.

Answer

CEO Robert Lynch attributed the improved outlook to significant operational gains. In the near-term, a new labor model implemented in Q4 has materially improved productivity and agility. For the long-term, Lynch highlighted further process and equipment enhancements and major untapped opportunities in supply chain efficiency, including procurement and distribution, giving them confidence to raise guidance.

Brian Vaccaro of Raymond James inquired about labor margin improvements, asking to quantify the impact of bringing lower-performing stores up to standard through tighter operations and new KPI targets.

Answer

CFO Katie Fogertey stated that the new labor scheduling system's success is directly coupled with operational strength. CEO Rob Lynch added that the improvement is driven by great operational discipline, particularly better adherence to allocated labor hours, which was not a focus in the past. He confirmed that lower-performing Shacks now have much better adherence, directly boosting profitability and confidence in margin expansion.

Brian Vaccaro of Raymond James inquired about brand awareness improvements in key growth states and the traction seen from digital value promotions.

Answer

CEO Rob Lynch explained that brand awareness is growing organically through new Shack openings and is being boosted by targeted campaigns, such as the one launched in New York City. He noted this campaign has yielded strong awareness results, and the company is analyzing its sales impact to potentially scale the strategy nationally.

Brian Vaccaro requested details on the Applebee's 'Lookin' Good' remodel, including investment costs, franchisee incentives, and P&L impact. He also asked for Q1 average check growth and pricing expectations for 2025.

Answer

CFO Vance Chang estimated remodel costs at $200k-$300k and explained that the P&L impact of incentives depends on franchise agreement extensions. CEO John Peyton added that renovated stores show a positive ROI. For Q1, Chang noted Applebee's check increased slightly while IHOP's declined due to mix shift from its value menu, with overall pricing normalizing in the low-single-digit range.

Brian Vaccaro of Raymond James asked for details on IHOP's food cost outlook, specifically the assumptions for egg prices, any offsetting commodity favorability, and whether franchisees have implemented egg-related surcharges.

Answer

CFO Vance Chang explained that IHOP's low-to-mid single-digit commodity inflation forecast is primarily driven by egg prices. He confirmed that franchisees have not implemented surcharges, as the company's supply chain co-op, CSCS, is effectively managing supply and securing competitive pricing despite the challenging market.

Brian Vaccaro asked for the year-over-year pricing for each brand in Q3 and the outlook for the next few quarters. He also inquired about franchisee health, specifically store-level margins and the risk of future closures.

Answer

CFO Vance Chang stated Q3 pricing was 2.7% at Applebee's and 6.0% at IHOP, with both expected to moderate to low-single-digits. On franchisee health, he noted that based on Q2 data, EBITDA dollars are steady but margin percentages are pressured. He highlighted that cost pressures are easing and the company's supply chain co-op has delivered $42 million in annualized savings to support franchisee P&Ls.

Brian Vaccaro asked for insights into how the Outback customer base composition has changed in recent years, particularly regarding specific consumer cohorts. He also sought clarification on whether the annual guidance includes impacts from the Brazil equity stake and potential tariffs, and requested an update on the commodity outlook.

Answer

CEO Mike Spanos identified the under-$100k household as the biggest pain point and area of customer loss since 2019. CFO Michael Healy clarified that the full-year guidance includes the negative impact from the 33% Brazil ownership but excludes any potential impact from tariffs due to uncertainty. Healy also confirmed there are no changes to the commodity outlook, noting that beef prices are well-protected through their contracting strategy.

Brian Vaccaro of Raymond James asked for details on 2025 store margin expectations, changes made in the Outback lab restaurant, guest perception of the steak category, and a breakdown of the G&A guidance.

Answer

CEO Mike Spanos declined to share competitive details on the Outback lab but noted encouraging results in traffic and visit frequency. He affirmed the company feels good about its steak quality but is always working to improve. CFO Michael Healy confirmed the $225M G&A guidance includes a $12M bonus reload and $10M in IT investments, offset by $17M in savings from the organizational redesign.

Brian Vaccaro asked for the expected after-tax proceeds from the Brazil transaction, the returns on domestic new unit growth, and the pricing level in Q3 and its expected trend.

Answer

CFO Michael Healy declined to provide after-tax proceeds for the Brazil deal at this time. He stated that new domestic restaurants are hitting their expected returns, but the company will walk away from deals if rising build costs compromise those returns. He confirmed that Carrabba's is a potential growth engine, and the team is working to refine its investment return profile. For pricing, Healy reported it was approximately 4% in Q3 and expects it to be in a similar range, with a goal to take as little pricing as possible going forward.

Brian Vaccaro asked for the year-over-year bone-in wing inflation for Q3 and the outlook for Q4 COGS. He also inquired about any observed changes in customer order patterns or frequency in light of the intense value environment across the QSR industry.

Answer

Executive Alex Kaleida noted that spot market wing inflation was over 100% in the quarter, but the company's supply chain strategy successfully mitigated the impact, and he expects food costs to step down in Q4. CEO Michael Skipworth added that the business has seen growth across every customer cohort and maintains strong quality and value scores, which he attributes to a disciplined pricing strategy.