David Tarantino

David Tarantino inquired about North America's traffic performance, specifically the benefit from sales transfer due to store closures and the underlying business improvement. He also asked about the continued ramp-up and traffic benefits from the Green Apron Service model in the earliest pilot stores.

Answer

Brian Niccol, Chairman and CEO, highlighted that North America's comp growth was transaction-driven, with both non-Rewards and Rewards customers increasing transactions. He clarified that approximately 0.5 percentage points of comp growth came from sales transfer. Niccol also noted that the 650 pilot stores continue to outperform the fleet by about 200 basis points in comp, primarily driven by transactions, indicating the service model's sustained positive impact.

David Tarantino asked about North America traffic performance, specifically clarifying the benefit from sales transfers due to store closures and the underlying business improvement. He also inquired about the continued traffic benefits from the earliest Green Apron service model stores.

Answer

Brian Niccol, Chairman and CEO, explained that North America's comp growth was broadly driven by transactions from both non-Rewards and Rewards customers, with about 0.5 percentage point from sales transfers. He highlighted strong morning daypart growth and noted that the 650 pilot stores with the Green Apron service model continue to outperform the fleet by approximately 200 basis points in comp, primarily driven by transactions.

David Tarantino asked about the progress of the Green Apron Service model, specifically its journey after a few months, comparing the performance of the broader rollout to earlier pilot stores, and its expected long-term impact on the business.

Answer

Brian Niccol, Chairman and CEO, Starbucks, stated that the Green Apron Service, rolled out in mid-August, continues to build week-to-week. He noted that the initial 650 pilot stores continue to outperform the rest of the company, indicating a positive duration effect as teams adapt and customers experience the consistent service.

David Tarantino asked for an update on the Green Apron Service model's journey, specifically the consumer response after a few months, comparing the performance of recently upgraded stores to earlier pilot locations, and discussing the potential long-term impact on the business.

Answer

Brian Niccol, Chairman and CEO, noted that the Green Apron Service, launched in mid-August, is showing continuous week-to-week improvement as teams adapt and customers experience consistency. He highlighted that the initial 650 pilot stores continue to outperform the rest of the company, expressing optimism for continued growth as staffing stabilizes and customer experience builds.

David Tarantino of Robert W. Baird & Co. asked for details on the cost offsets for the announced $500 million labor investment and the expected impact on overall margins.

Answer

CFO Cathy Smith explained that the Green Apron service investment is a foundational operating model. To offset the cost, she stated the company is pursuing efficiencies across the entire P&L, including cost of goods sold, operating expenses, and G&A. While not quantifying the exact offset, she noted significant opportunities for both short and long-term savings are being pursued to improve flow-through as top-line growth returns.

David Tarantino from Robert W. Baird & Co. asked for details on the cost offsets for the $500 million labor investment and the expected overall impact on margins.

Answer

EVP & CFO Cathy Smith explained that the investment in the 'Green Apron Service' model is foundational. She stated that the company is actively working on cost efficiencies across the entire P&L, including COGS, operating expenses, and G&A, to offset the investment. While not quantifying the exact offset, she emphasized that they see significant long-term opportunities to build a more durable and efficient cost structure that will improve flow-through as top-line growth returns.

David Tarantino asked for more detail on the evaluation of the store portfolio, questioning what specific aspects are under review and whether this implies a near-term slowdown in new unit growth.

Answer

Brian Niccol, Chairman and Chief Executive Officer, explained that new build and renovation costs have become too high. As a result, Starbucks is temporarily slowing its development pace to engineer a new, more cost-effective store design. He reaffirmed the long-term goal of doubling the U.S. store count but emphasized the need to do so with improved unit economics.

David Tarantino of Robert W. Baird & Co. asked for details on the sequential comparable sales improvement during the quarter, questioning if it was structural and which components of the 'Back to Starbucks' plan were the primary drivers.

Answer

CEO Brian Niccol attributed the improvement to a shift from discounting to broad-based marketing, which resonated with non-Rewards customers and boosted morning daypart traffic. He noted that partners are embracing the new strategy, enhancing the in-store experience, and creating positive momentum, describing them as 'baby steps' in the right direction.

David Tarantino asked for more details on the planned store redesigns, including the key elements, intended benefits, and whether a significant, multi-year remodel cycle is anticipated once the new design is finalized.

Answer

CEO Brian Niccol outlined that the redesign aims to reduce renovation costs while enhancing the 'coffee house' feel with more comfortable seating. A critical goal is to physically separate the in-store counter from the mobile order pickup area. Operationally, the redesign supports the sub-4-minute service goal. A broader remodel schedule is still under consideration.

David Tarantino asked for details on Atkore's strategic review, including the range of potential outcomes, the magnitude of the three outlined divestments, and the criteria for considering a full company sale or merger. He also sought clarification on the magnitude of cost savings from current initiatives and whether more significant actions are expected.

Answer

President and CEO Bill Waltz explained that the strategic review is exploring a full range of outcomes, from a complete company sale to continuing as is, driven by inbound interest and the board's commitment to shareholder value. COO and President of Electrical John Pregenzer stated that the three plant closures are expected to generate $10 million-$12 million in annualized cost reductions. CFO John Deitzer added that these actions, combined with growth initiatives in solar and mega projects, are anticipated to drive improved financial performance in fiscal 2027, without necessarily requiring additional major actions.

David Tarantino from KeyBanc Capital Markets asked for a breakdown of the $50 million headwind forecasted for fiscal 2026, the outlook for steel pricing sustainability, and an update on capital allocation, particularly share buybacks.

Answer

President and CEO Bill Waltz explained that the majority of the unmitigated $50 million headwind for FY26 is a mathematical year-over-year impact from lower 2025 pricing, primarily in PVC. He expects steel conduit pricing to be up year-over-year. CFO John Deitzer added that the net $50 million figure already includes assumptions for normal productivity and volume growth. Regarding capital allocation, Waltz reaffirmed the full-year $150 million share buyback target and stated that the framework for next year has not yet been set.

David Tarantino from KeyBank asked for an update on recent import levels for PVC and steel, the potential pricing upside from tariffs, a comparison of current steel pricing to pre-pandemic levels, and the rationale for the updated volume assumptions.

Answer

President and CEO William Waltz noted that while PVC imports were up significantly, steel conduit imports were down year-over-year. He explained that the 25% tariff on steel conduit is a net positive for Atkore. CFO John Deitzer added that steel commodity volatility makes pre-pandemic price comparisons difficult, but they are seeing sequential improvement. Waltz stated the volume outlook balances cautiously optimistic customer feedback against negative macro indicators like the Dodge Momentum Index.

David Tarantino of KeyBanc Capital Markets sought to clarify if the revised PVC outlook was driven solely by imports or also by new domestic capacity. He also asked for a breakdown of the volume growth forecast between end markets and internal initiatives, particularly solar and water.

Answer

CEO William Waltz responded that the PVC pricing pressure is from a combination of both increased imports and domestic competitors expanding their market presence. CFO John Deitzer detailed the volume outlook, identifying metal framing, cable management, and construction services as key growth drivers fueled by data center and large manufacturing projects. He stated the next largest contributor would be the plastic pipe category, driven by new water-related products expected to ramp up in the second half of the year, which should help the company achieve its low to mid-single-digit full-year volume growth target.

David Tarantino followed up on restaurant profit dollars, asking about the company's willingness to accept a decline in profit dollars per store week in 2026 and its pricing strategy to protect manager pay.

Answer

Jerry Morgan, CEO, reiterated the company's conservative approach to pricing, with decisions made twice a year after consulting operators, aiming to protect the top line and consumer value. Michael Bailen, VP of Investor Relations, added that managing partners take a long-term view, noting that restaurant margin dollars per store week are still approximately 35% higher than in 2019, despite recent fluctuations.

David Tarantino followed up on restaurant profit dollars per location/operating week, a proxy for store manager pay, noting a potential decline for two consecutive years. He asked about the company's appetite for allowing this decline in 2026 given inflation, and if there's a plan to price to protect this metric.

Answer

Jerry Morgan, CEO, stated that the company maintains a conservative pricing approach, with the next decision in April, informed by local competitive dynamics and operator feedback. Michael Bailen, VP of Investor Relations, added that partners take a long-term view, noting that restaurant margin dollars per store week are still approximately 35% higher than in 2019, despite recent fluctuations.

David Tarantino from Robert W. Baird & Co. asked for the expected commodity inflation outlook for Q3 and Q4 2025. He also inquired if the planned step-up in Bubba's 33 openings for next year would allow the company to exceed its historical target of approximately 30 total openings per year.

Answer

Michael Bailen, Senior Director & Head of IR, projected commodity inflation could be as high as 7% in Q3 before moderating to the 4-5% range in Q4. CEO Gerald Morgan added that with the acceleration of Bubba's 33, total company openings could be on the high side of the approximate 30-unit target next year.

David Tarantino asked about the slight decline in restaurant profit dollars per week in Q1, a rare event for the company, and questioned the outlook and management philosophy for this metric, especially concerning future pricing actions.

Answer

Executive Michael Bailen acknowledged the softness, attributing it to a choppy start to the year and difficult comparisons to a strong 2024. CEO Gerald Morgan added that future pricing decisions will adhere to their established, methodical philosophy, considering the business climate, consumers, and operators before making changes.

David Tarantino of Robert W. Baird & Co. inquired about the quarter-to-date sales trends in Q1 2025, asking for quantification of weather impacts and management's confidence in returning to positive traffic growth.

Answer

CEO Gerald Morgan expressed high confidence, citing strong Valentine's Day week sales ($183,000 average) as evidence of underlying demand. CFO David Monroe provided specifics, noting Q1 sales were negatively impacted by at least 1.5% due to calendar shifts and storm-related closures, but that the core business across all three brands remains strong.

David Tarantino of Robert W. Baird & Co. asked about the company's unit growth philosophy. He noted that the 2025 guidance of 30 openings represents a growth rate below the historical 5% target and questioned if the focus has shifted from a percentage to an absolute number of openings.

Answer

CEO Jerry Morgan clarified that the company has never targeted a specific growth percentage, but rather focuses on executing the right number of high-quality openings to maintain operational excellence. He expressed comfort with the '30-ish' range to avoid overstretching resources. CFO David Monroe added that the 13 planned franchise acquisitions bring the total expected unit increase to 43.

David Tarantino inquired about the U.S. value strategy, specifically the level of corporate co-investment and support provided to franchisees for the Extra Value Meals (EVMs) program. He also asked about the financial thresholds franchisees need to see to continue the program without corporate support.

Answer

CFO Ian Borden detailed the corporate support, including $40 million in incremental marketing for the September EVM relaunch, and a 50% co-investment on the effective menu price reduction from September through the end of 2025, totaling about $15 million in September and an estimated $75 million in Q4. He noted that Q1 2026 support would be significantly less, addressing net negative cash flow impact, and all corporate support would cease at the end of Q1 2026. Chairman and CEO Chris Kempczinski stated that the vast majority of franchisees recognized the need to address EVMs, and the support was designed to bridge them through the initial drag, expecting the system to continue the program due to its long-term benefits.

David Tarantino inquired about the US value strategy, focusing on the level of co-investment McDonald's is providing to franchisees. He also asked about the thresholds for franchisees to continue the Extra Value Meal (EVM) program without corporate support, specifically whether success is measured by traffic growth covering price investment or by improved value scores.

Answer

CFO Ian Borden detailed the support, explaining that McValue and digital loyalty cover 40% of sales, while EVMs target the core menu (30% of total portfolio). McDonald's provided $40 million in incremental corporate marketing for the September EVM relaunch, with November's activity funded by the advertising co-op. A co-investment of 50% of the effective menu price reduction (from an 11% average discount to a minimum 15% for 8 core EVM meals) amounted to $15 million in September and is expected to be $75 million in Q4. Q1 2026 support will be 50% of the net negative cash flow impact, significantly less than Q4, with all corporate support ceasing at the end of Q1 2026. CEO Chris Kempczinski added that value perception is primarily driven by the menu board. He noted that 98-99% of franchisees recognized the need to address EVMs, and the support was designed to bridge them through the initial drag. He expects the system to continue the EVM program post-Q1 2026, as it will be a better decision than reverting, and expressed satisfaction with the early progress.

David Tarantino asked for an analysis of the key drivers behind the IOM segment's strong performance, questioning whether the success is structural and sustainable or primarily due to temporary promotional successes.

Answer

EVP & CFO Ian Borden attributed the strength to a solid foundation of value and affordability, including EDAP platforms and entry-level meal bundles, which has improved value scores across all large IOM markets. This was paired with strong menu and marketing execution, such as the global Minecraft campaign and the successful Chicken Big Mac in Germany. Chairman & CEO Chris Kempczinski added that success requires executing on all three pillars—value, menu, and marketing—and praised international franchisees for their pricing discipline despite significant cost inflation.

David Tarantino asked about the effectiveness of the U.S. McValue platform and whether sharper, entry-level price points, similar to the historic Dollar Menu, are needed today.

Answer

CEO Christopher Kempczinski explained that the McValue platform is designed for long-term flexibility. He confirmed the $5 meal deal is performing well and will continue through 2025. However, he noted the 'buy 1, add on for $1' offer is not driving sufficient incrementality and that the U.S. team will evaluate if it's the best investment of margin dollars.

David Tarantino sought clarification on the U.S. recovery timeline, asking what a 'full recovery' from the E. coli incident by the beginning of Q2 implies for comp momentum and what provides confidence in that outlook.

Answer

CEO Christopher Kempczinski clarified that the impact is now localized to the Rocky Mountain region, where trends are improving. He defined a 'full recovery' as returning the business to delivering both positive guest counts and positive check growth. CFO Ian Borden added that customer trust levels have returned to pre-incident levels nationally and that the U.S. business ended December with slightly positive comparable guest counts.

David Tarantino asked if McDonald's advertising strategy would need to shift from value and product initiatives towards brand-reassurance messaging to restore consumer confidence.

Answer

CEO Christopher Kempczinski framed the approach as an 'and,' not an 'or.' He asserted that McDonald's has ample resources to simultaneously reassure the public on safety while also continuing to drive its value and marketing initiatives. He confirmed that the U.S. team and franchisees are actively discussing the appropriate marketing plans moving forward.

David Tarantino asked about the change in operations leadership during Q3, the reasons behind it, and for elaboration on the company's focus on 'doubling down' on guest experience and operations, specifically if it addresses particular issues or is an opportunistic statement.

Answer

CEO Brett Schulman explained that the leadership transition was proactive, aimed at bringing in necessary capabilities for the company's next growth phase. He clarified that 'doubling down' on operations is foundational for long-term traffic and competitive advantage, especially in the current discerning consumer environment, emphasizing operational integrity for new restaurant openings.

David Tarantino asked about the recent change in operations leadership during Q3 and whether the company's focus on doubling down on guest experience and operations addresses specific issues or is an opportunistic statement.

Answer

Brett Schulman, CEO, explained that the leadership transition was proactive, aimed at bringing in capabilities for the next chapter of growth. He stated that doubling down on operational opportunities and exceptional guest experiences is foundational for driving long-term traffic and competitive advantage, especially in the current intense discount environment where consumers are discerning.

David Tarantino of Robert W. Baird & Co. asked if CAVA's current sales trend is on track to meet its full-year guidance and whether any internal brand or operational metrics had changed, contributing to the Q2 slowdown.

Answer

CFO Tricia Tolivar confirmed the current trend aligns with full-year guidance. CEO Brett Schulman added that no internal metrics have weakened; in fact, brand health scores and NPS have improved, and they have not observed any negative shifts in consumer behavior like trade-down.

David Tarantino of Baird sought clarification on the 3-year stacked comp guidance, asking if it reflects a recent slowdown or conservatism. He also asked about the performance of restaurants in new markets like Indiana and Miami.

Answer

CFO Tricia Tolivar clarified that the guidance reflects current business trends, as the quarter ended April 20. She reported that new restaurants in markets like Indianapolis and South Florida are performing exceptionally well, meeting or exceeding the high performance of the 2023 and 2024 cohorts, which demonstrates the brand's expansive white space opportunity.

David Tarantino of Baird asked for clarification on the updated new unit economic targets, questioning if they were based on the strong performance of the 2024 restaurant class.

Answer

CFO Tricia Tolivar confirmed that the exceptional performance of recent new restaurant classes, including the 2024 cohort, directly informed the decision to raise the targets for year 1 and year 2 average unit volumes and restaurant-level profit margins. She also confirmed the 2025 guidance assumes these new targets.

David Tarantino asked about the long-term outlook for restaurant-level margins, noting the guidance for 2025 margins to be similar to 2024 due to ongoing investments.

Answer

CFO Tricia Tolivar described the current ~25% restaurant-level margin as outstanding. She explained that while the model has inherent leverage with AUV growth, the company's strategy is to reinvest potential gains back into team members and guests to drive long-term value and avoid 'overheating the engine.' She affirmed the model's power but stressed a mindful approach to leveraging it.

David Tarantino inquired about Wingstop's implied Q4 2025 comp outlook, questioning if it reflects current quarter-to-date trends or a conservative stance. He also sought clarity on the expected trajectory for 2026 same-store sales, identifying key drivers like the Smart Kitchen rollout and loyalty program, and the anticipated timing for a return to positive growth.

Answer

President and CEO Michael Skipworth acknowledged near-term choppiness, expecting Q4 trends to stabilize similar to the exit of Q3, driven by the consumer environment. SVP and CFO Alex Kaleida expressed confidence in positive comps for 2026, citing early positive signs from the Wingstop Smart Kitchen in the Southwest region, the planned Q2 2026 loyalty program launch, and the new advertising campaign designed to broaden the top of the funnel.

David Tarantino asked about Wingstop's Q4 2025 domestic same-store sales outlook, questioning if the implied low number reflects current trends or a conservative approach given market uncertainty, and sought clarification on the path and key drivers for returning to positive comps in 2026, including the timing of this inflection.

Answer

President and CEO Michael Skipworth acknowledged near-term choppiness, noting Q4 trends stabilized but are expected to continue similar to Q3. He highlighted encouraging internal data, such as growth in the dinner daypart and the 75K+ household income cohort. SVP and CFO Alex Kaleida expressed confidence in positive 2026 comps, attributing it to early Smart Kitchen benefits in the Southwest region, the planned Q2 2026 loyalty program launch, and a new advertising campaign designed to broaden the customer funnel.

David Tarantino of Robert W. Baird & Co. asked for clarification on the Q3 same-store sales guidance, questioning if the full quarter is expected to be positive and whether the outlook relies on easier comparisons or an underlying business acceleration. He also inquired about the quantifiable sales lift from the new Wingstop Smart Kitchen, which was not previously factored into guidance.

Answer

President and CEO Michael Skipworth explained that the outlook for a return to growth in late Q3 is based on current trends running against easing prior-year comparisons, not an assumed acceleration, acknowledging some consumer softness early in the quarter. Regarding the Smart Kitchen, Skipworth noted that while it's too early to formally quantify a lift for guidance, markets like Dallas-Fort Worth are seeing meaningful sales outperformance after about four months of implementation, validating its game-changing potential.

David Tarantino inquired about the sales impact of the new 'Wingstop Smart Kitchen,' asking if the benefits are immediate, how they manifest, and if the sales lift could be quantified. He followed up by asking if this initiative was factored into the second-half sales outlook.

Answer

Executive Alex Kaleida stated that while there is a slight lag, restaurants with the Smart Kitchen are showing a positive sales divergence versus control groups, citing a 5% conversion lift in a Dallas delivery test. CEO Michael Skipworth clarified that the 2025 guidance does not include any benefit from the Smart Kitchen rollout, attributing the expected back-half acceleration to easing comps and existing strategies. He noted the rollout is ahead of schedule, targeting completion by year-end.

Inquired about the sales impact of the new 'Smart Kitchen' technology, asking if the benefits are immediate and quantifiable, and whether this initiative is factored into the second-half sales outlook.

Answer

The company is seeing a positive sales divergence in restaurants with the Smart Kitchen versus control groups, including a 5% conversion lift in a Dallas delivery test. However, these potential benefits are not factored into the current 2025 guidance. The expected back-half acceleration is attributed to easing year-over-year comparisons and the execution of existing strategies, making the Smart Kitchen a potential source of upside.

David Tarantino asked for insights on the sales impact from the new 'Wingstop Smart Kitchen,' questioning if the benefits are immediate or lagged and if the sales lift could be quantified. He followed up by asking if this initiative was factored into the second-half 2025 outlook.

Answer

CFO Alex Kaleida explained that while there is a slight lag, restaurants with the Smart Kitchen are showing a positive sales divergence versus control groups. He cited a Dallas-Fort Worth test that saw a 5% increase in delivery conversion. CEO Michael Skipworth clarified that the 2025 guidance does not include any benefit from the Smart Kitchen rollout, positioning it as a potential upside and a long-term catalyst for growth.

David Tarantino followed up on the Q4 comp outlook, asking if the implied guidance represents a material change in the business's trajectory. He also sought clarification on the new 750-unit international opportunity, asking which specific markets it includes.

Answer

CEO Michael Skipworth suggested that looking at the business on a three-year same-store sales stack would show no material change in the underlying trend, emphasizing continued healthy transaction growth. He clarified that the 750-unit opportunity includes newly signed agreements for France, several Gulf Coast countries, and Australia.

David Tarantino asked about the envisioned growth profile for Yum! Brands if the Pizza Hut business were sold, specifically whether it would lead to a faster ongoing growth profile. He also inquired about the company's interest in other long-term portfolio moves, such as adding new growth assets.

Answer

CEO Chris Turner affirmed Yum! Brands' laser focus on growth, driven by KFC and Taco Bell, which constitute nearly 90% of divisional operating profit. He expects these brands to sustain or accelerate growth through strong unit development, AUV focus, and international expansion, underpinned by Byte technology. Regarding portfolio moves, he stated that while the company constantly evaluates its portfolio, the immediate focus is on completing the Pizza Hut strategic review, with no other changes planned at this time.

David Tarantino asked for clarification on the company's confidence in achieving its 8% core operating profit growth guidance for the year and the key factors influencing the second half.

Answer

CFO Chris Turner expressed confidence in meeting the 8% growth target. He stated that the second half does not require a significant sales acceleration and will be supported by stronger company store profit growth at Taco Bell and KFC UK, lapping approximately $30 million in prior-year bad debt, and back-half weighted refranchising gains. Turner noted that Q3 G&A is expected to increase by double digits, making Q4 profit growth stronger.

David Tarantino inquired about Yum! Brands' confidence in achieving its full-year 8% operating income growth guidance, particularly its back-weighted nature and the expected second-half acceleration.

Answer

CFO Christopher Turner expressed confidence in the full-year plan, noting the strong 8% start in Q1. He explained that while Q1 company store margins are seasonally low, they are on plan for the full year, including 24-25% for Taco Bell U.S. He mentioned that Pizza Hut had an $8 million negative impact from strategic moves in Q1 but has favorable profit laps in the second half, expecting roughly flat profit for the full year. Turner emphasized the plan is not dependent on sequential same-store sales acceleration.

David Tarantino asked for the long-term outlook on G&A expenses as a percentage of system sales, especially now that the company is 'bending the curve' on technology investment impacts.

Answer

CFO Chris Turner explained that while 2025 G&A will increase by a low single-digit percentage (plus a ~$35M headwind from resetting incentive compensation), the long-term expectation is for G&A as a percentage of system sales to decline. He stated that the company will continue to gain leverage on its G&A as the top line grows, while still making strategic investments in capabilities like AI and supply chain to support long-term health.

David Tarantino sought clarification on whether the Q3 comp trend carryover into Q4 applied to the entire global business or just Taco Bell, and also requested commentary on the outlook for the KFC segment in Q4.

Answer

CEO David Gibbs clarified that his comment about sales momentum continuing from Q3 into Q4 was specific to the Taco Bell brand. For KFC, he noted that forecasting is more difficult due to its exposure to the Middle East conflict. While the year-over-year sales comparison for KFC will become easier in Q4, he stated it is still uncertain how sales will behave once the company begins to lap the most significant impacts of the conflict.

David Tarantino asked about the confidence in margins normalizing in Q4, considering ongoing investments, and how the Q4 implied run rate aligns with longer-term margin targets. He also sought clarification on the shape of longer-term growth for the 'above $2 billion' sales target by fiscal 2028 and the new sales capacity target. Additionally, he inquired about the range of outcomes embedded in the second-half ramp and the underlying trends in HVAC technology.

Answer

Neil Brinker, President and CEO, expressed confidence in margin improvement due to learning from previous launches, increased efficiency, and expertise in design for manufacturability. Mick Lucareli, EVP and CFO, added that mature data center regions operate above segment margins, and new lines will leverage fixed costs while lean initiatives improve processes. Mr. Brinker reiterated that the 'above $2 billion' target is driven by strong order profiles, new product launches, and regional expansion, with visibility extending three to five years for major customers. Mr. Lucareli stated that the guidance reflects a balanced view of increased demand and manufacturing targets, with HVAC technologies expected to grow over 40-45% (mid to high single-digit organically) for the full year, driven by acquisitions and the upcoming heating season.

David Tarantino asked for more color on near-term data center demand trends, particularly in North America versus Europe, and the expected revenue contribution from recent acquisitions. He also inquired about capital allocation priorities following the new investments and M&A activity.

Answer

EVP & CFO Michael Lucareli cited new program wins and customers accelerating orders as key growth drivers. President & CEO Neil Brinker highlighted the successful introduction of chiller technology in North America. Lucareli estimated the recent acquisitions would add about $100M in partial-year revenue and announced a temporary pause on M&A to focus on integration and the data center expansion. Capital will be heavily prioritized for data center growth.

David Tarantino asked about the breakdown of price versus volume in Q3, the expected carryover pricing into 2026, and whether this supports another year of above-average price realization. He also sought more color on the 2026 end market commentary, which suggests low single-digit growth, and the company's outgrowth levers, particularly in drinking water and other key product lines.

Answer

David Polley, CFO, stated that price realization in Q3 was about five points. He deferred 2026 price guidance but noted that pricing actions have been deliberate to remain price-cost positive. He indicated more price in the first half of next year than the second, based on current actions. Mr. Polley explained that the Dodge data suggests 2025 and 2026 will be low-growth market environments. Todd Adams, Chairman and CEO, highlighted outgrowth levers such as outperformance in drinking water, water safety and control products, new products, and adjacent markets.

David Tarantino asked for the price versus volume breakdown in the quarter, the expected carryover pricing into 2026, and whether this supports another year of above-average price realization. He also sought more color on the 2026 end market commentary, which points to low single-digit market growth, and the outgrowth levers for key product lines.

Answer

CFO David Polley stated price realization was about five points in the quarter. He noted that 2026 pricing guidance would be provided later but indicated more price in the first half of next year than the second, aligning pricing actions with cost increases, particularly tariffs. CEO Todd Adams confirmed that the Dodge data suggests 2025 and 2026 will be low-growth market environments. He identified outgrowth levers as continued outperformance in drinking water, other sales initiatives like water safety and control, new products, and adjacent markets, which collectively contribute to growth beyond market and price.

David Tarantino questioned the sustainability of the labor productivity benefits, particularly from lower turnover, and the potential for further savings into next year, even amidst a soft industry environment, given the unusual margin improvement with slightly negative traffic.

Answer

Matt Clark, EVP and Chief Financial Officer, attributed the benefits to improved retention, which ripples through in productivity and a more stable wage environment, balancing internal efforts with external market conditions. He stated that while the goal is to hold the line, the company has improved year-over-year each quarter, with a tailwind into next year due to continued retention improvements and investments in cross-training. He expressed confidence in managing margins in a softer environment, highlighting the P&L's resilience due to stable labor and lower commodities.

David Tarantino questioned the sustainability of labor productivity benefits, particularly with slightly negative traffic, and asked about the remaining room for productivity savings into next year.

Answer

Matt Clark, EVP and CFO, credited improved retention and a stable wage environment for productivity gains, noting a tailwind continuing into next year from ongoing retention improvements and cross-training investments. He expressed confidence in managing margins effectively even in a softer environment due to stable labor and lower commodity costs.

David Tarantino of Robert W. Baird & Co. questioned if the company's cautious macroeconomic outlook was based on observed business softness or future projections, and sought to clarify if the updated revenue guidance implies a lower same-store sales assumption of flat to 1%.

Answer

EVP and CFO Matt Clark acknowledged that while Q1 results were stable, the environment feels less robust than a few months prior, making a prudent outlook necessary. He confirmed that the math behind the revised revenue guidance aligns with a lower comparable sales assumption, reflecting updated forecasts for GDP and disposable income.

David Tarantino asked for clarification on the increase in the 2025 revenue guidance and questioned why the outlook doesn't assume more significant margin expansion after a strong 2024.

Answer

EVP and CFO Matt Clark explained the higher revenue forecast is due to increased unit growth and more front-loaded openings, resulting in more operating weeks. He noted that the margin outlook is tempered by higher preopening expenses and the impact of a greater number of less-mature restaurants, though he reiterated confidence in 30-40 basis points of margin expansion at the mature restaurant level.

David Tarantino asked for Darden's views on the overall health of the consumer spending environment, specifically if anything has changed dramatically in recent months. He also requested clarification on whether the expected narrowing of the inflation versus pricing gap in the second half of the year would be driven by higher pricing or lower inflation.

Answer

Rick Cardenas, President and CEO, stated that nothing has changed dramatically from the start of the year, and Darden is ahead of expectations, noting strong August retail sales. Raj Vennam, CFO, clarified that the narrowing gap is primarily due to Darden taking a bit more price as the year progresses, aiming for mid-to-high 2% pricing for the full year, and a disciplined approach to not price for temporary costs.

David Tarantino asked for Darden's views on the overall health of the consumer spending environment and if anything has changed recently compared to the start of the fiscal year. He also sought clarification on whether the expected narrowing of the inflation versus pricing gap in the second half of the year is due to higher pricing or lower inflation.

Answer

CEO Rick Cardenas stated that nothing has dramatically changed from the start of the year, and Darden is ahead of expectations, noting strong August retail sales. CFO Raj Vennam clarified that the narrowing gap is primarily due to Darden taking a bit more price as the year progresses, aiming for mid-to-high 2% pricing for the full year, while also anticipating some near-term commodity pressures to ease.

David Tarantino asked for Darden's perspective on the overall health of the consumer spending environment and if there have been any recent changes. He also requested clarification on whether the expected narrowing of the inflation versus pricing gap in the second half of the year is due to higher pricing or lower inflation.

Answer

Rick Cardenas, President, CEO & Director, stated that the consumer environment hasn't changed dramatically from the start of the year, with Darden performing ahead of expectations and strong August retail sales. Raj Vennam, SVP & CFO, clarified that the narrowing gap is primarily due to Darden taking a bit more price as the year progresses, aiming for mid-to-high 2% full-year pricing, while avoiding pricing for temporary costs.

David Tarantino asked about Darden's potential exposure to import tariffs and what plans the company has in place to mitigate this risk.

Answer

CFO Raj Vennam explained that Darden's exposure is limited, as approximately 80% of its cost basket is sourced domestically. For the 20% that is imported, the company is not the importer of record for most products and has flexibility to switch some items to domestic sources. He confirmed the supply chain team is actively working on mitigation strategies, including inventory management, alternative sourcing, and vendor negotiations.

David Tarantino asked for an explanation for the significant increase in the capital expenditure guidance and whether the new level represents a sustainable run rate.

Answer

Executive Rajesh Vennam attributed the CapEx increase to the Chuy's acquisition and accelerated spending to build the new unit pipeline for next year. He clarified that the future run rate depends on the pace of new unit growth, with the base for maintenance and IT CapEx remaining around $300 million annually.

David Tarantino questioned the strategic decision to structure the Uber partnership as a first-party relationship (Uber Direct) rather than listing Olive Garden on the third-party Uber Eats marketplace, where most delivery orders are typically sourced.

Answer

President and CEO Rick Cardenas explained that avoiding the marketplace was crucial to protect margins, given Olive Garden's existing $1 billion to-go business which operates without delivery fees. He stated that being on a marketplace would be a significant margin disruptor unless it was massively incremental. Cardenas positioned the Uber Direct partnership as Darden's strategic entry into delivery, allowing them to maintain control over data and the guest experience, while leaving the door open to re-evaluate a marketplace presence in the future.

David Tarantino from KeyBanc Capital Markets requested details on the underlying demand trends in the infrastructure segment following its sales decline. He also asked for an update on the non-residential project pipeline and how conversion outgrowth is tracking.

Answer

President & CEO D. Scott Barbour and VP Michael Higgins explained the infrastructure sales drop was due to tough comparisons against large airport projects from the prior year. Higgins noted that while overall project identification is flat, they are seeing more activity at the local level. For non-residential, Higgins stated that forward-looking indicators align with a tepid environment but highlighted strong sales and share gains in key southern states like Florida, Texas, and Tennessee.

David Tarantino asked for details on weather impacts during Q3 and Q4, and also inquired about the drivers of the decline in the infrastructure market and any potential risks to stimulus funding.

Answer

Executive Michael Higgins noted that adverse weather impacts all outdoor-installed products and that the Q4 guidance accounts for various weather scenarios. CEO D. Barbour clarified that the infrastructure decline was due to a difficult comparison against lumpy airport projects from the prior year, not a weakening of core IIJA-funded road and highway work, which remains consistent.

David Tarantino asked about the long-term sustainability of the company's current elevated margins relative to historical levels. He also inquired about the change in the CapEx outlook and whether share buybacks would resume at previous levels following the Orenco acquisition.

Answer

CEO Scott Barbour affirmed that while performance ebbs and flows, he does not expect margins to revert to the levels guided at the 2022 Investor Day, and the company will present an updated long-term plan at the next Investor Day. He noted the current $250 million CapEx level is a reasonable baseline going forward and confirmed that share buybacks remain an option in the company's capital allocation mix, depending on market conditions and internal needs.

David Tarantino of Robert W. Baird & Co. sought clarification on the Q3 same-shop sales guidance of 3.5-4%, given the strong momentum, and asked why the company isn't leaning more heavily into marketing if it's proving so effective.

Answer

CFO Josh Guenser clarified that while underlying traffic trends from Q2 continued into July, the Q2 results were exceptionally strong due to outperforming promotions. The Q3 guidance assumes a more normalized, yet still positive, impact from marketing. CEO Christine Barone added that they are maintaining a thoughtful balance with marketing to keep the customer experience fun and avoid becoming too predictable, which they feel is the right cadence for the business.

David Tarantino asked for clarification on the Q2 outlook, questioning the momentum into the quarter relative to the 3-4% same-shop sales growth plan and how to interpret traffic trends given the leap day in Q1.

Answer

CFO Josh Guenser confirmed that Q2 momentum is in line with expectations and that the company is rolling off approximately 150 basis points of price. He clarified that the ongoing traffic trend is normalized to adjust for the Q1 leap day. CEO Christine Barone added that the company feels very positive about the underlying traffic trends early in Q2.

David Tarantino inquired about the primary drivers behind the significant acceleration in Q4 company-operated same-shop sales and asked if that strong momentum continued into Q1 2025.

Answer

CEO Christine Barone attributed the Q4 strength to a combination of factors, including brand resonance, the Dutch Rewards program, effective paid advertising in new markets, and the successful ramp-up of mobile ordering, particularly in the morning. CFO Josh Guenser added that strong traffic allowed for reduced discounting, which benefited the average ticket. Christine Barone confirmed that the positive momentum continued into January.

David Tarantino of Baird inquired about the confidence behind accelerating unit growth in 2025, the expected real estate mix, and the potential timeline for reaching free cash flow breakeven.

Answer

CEO Christine Barone expressed confidence in accelerating growth due to significant investments in the real estate team, data analytics, and construction processes. CFO Josh Guenser added that while progress is being made toward more capital-efficient leases, a specific timeline for achieving free cash flow breakeven will be provided at the early 2025 Investor Day, though he highlighted the positive $20 million cash addition in Q3.

David Tarantino of Robert W. Baird & Co. asked if learnings from Texas have led to rethinking the new market entry strategy, particularly regarding the pace of openings within a market.

Answer

CEO Michael Osanloo acknowledged that a key lesson from Texas was the need for sustained marketing after a big opening, noting they had pulled back too much after the initial success of The Colony. He conceded that the pace of openings is a fair question and described finding the right balance between building density and supporting it with marketing as a 'nuanced balancing act' the company is actively evaluating.

David Tarantino asked if the sales softness in Q4 openings was related to the new 'Restaurant of the Future' prototype or the streamlined menu in Houston, and requested initial performance metrics for the Portillo's Perks loyalty program.

Answer

CEO Michael Osanloo asserted that neither the prototype nor the menu was the cause, instead pointing to site-specific issues like road construction and less aggressive pre-opening marketing compared to Dallas. Regarding the loyalty program, he expressed high confidence in meeting enrollment goals but stated it was too early to share detailed metrics, as the current phase is focused on testing and learning.

David Tarantino inquired about the initial sales and margin performance of the 'Restaurant of the Future' prototype and the impact of menu streamlining in new markets.

Answer

CEO Michael Osanloo reported that the 'Restaurant of the Future' prototype is performing well in terms of revenue and traffic, comparable to traditional stores, and has emboldened the company to pursue a more aggressive 2.0 version. He also noted that the streamlined menu test in Houston, which removed 15-20% of SKUs, has been successful in reducing complexity and aiding throughput without significant negative feedback, but it remains a new-market strategy for now.

David Tarantino from Baird asked for a reconciliation of the Q4 comparable sales outlook with the positive impact from the full kiosk rollout, and questioned the rationale for advertising in Dallas so early in its lifecycle.

Answer

CFO Michelle Hook explained the Q4 guidance is cautious due to macroeconomic pressures, competitor discounting, and tough year-over-year comparisons, which offset some kiosk benefits. CEO Michael Osanloo characterized the Dallas advertising as an opportunistic, brand-building move to drive trial and awareness as the market scales to 8-10 restaurants.

David Tarantino of KeyBanc Capital Markets, on for Jeff Hammond, requested more color on underlying trends in the home standby generator category, including dealer feedback on demand and the state of channel inventories.

Answer

Chairman, President & CEO Aaron Jagdfeld stated that home standby is holding a new, higher baseline of demand despite light outage activity in the first half of the year. He noted that installations were up year-over-year and the dealer network continues to grow. While home consultations were down against a strong prior-year comparable, the Southeast region remains robust. He also highlighted strong market share gains in portable generators, with inventories being replenished for the storm season, which impacted Q2 working capital.

David Tarantino from Robert W. Baird & Co. asked whether Chipotle is reaching a scale where mid-single-digit comps are becoming structurally more difficult to achieve, or if the current slowdown is purely macro-driven.

Answer

CEO Scott Boatwright attributed the current performance largely to the macroeconomic environment, noting that low-income consumers are currently prioritizing value as a price point. He expressed strong confidence that as consumer sentiment improves, the business will return to its mid-single-digit growth trajectory, and that the leadership team has a clear path to achieve this.

David Tarantino asked how management diagnosed the sales slowdown as being macro-driven rather than Chipotle-specific, and whether the full-year guidance aligns with a seasonally adjusted run-rate of recent trends.

Answer

CEO Scott Boatwright asserted the brand has never been stronger, citing record performance in brand perception KPIs and strong operational metrics, leading him to conclude the slowdown is external. CFO Adam Rymer confirmed that the current trend line supports the Q2 outlook and a slightly positive full-year comp, with planned initiatives expected to lift results to the low single-digit guidance.

David Tarantino from Robert W. Baird & Co. asked for elaboration on the comparable sales guidance for 2025, specifically the expected trajectory throughout the year, and followed up on whether the upcoming Honey Chicken LTO is factored into that guidance.

Answer

CFO Adam Rymer detailed that Q1 comps are expected to be flattish due to tough comparisons from prior successful campaigns and a later Easter, with Q2 being a low point before reaccelerating in the second half. CEO Scott Boatwright clarified that the upcoming LTO, expected around mid-to-late March, is not included in the current guidance, expressing confidence in the full-year marketing calendar.

David Tarantino asked for clarification on new unit performance, which appeared lower by his calculation, and questioned the path to achieving high-20s restaurant-level margins given current levels.

Answer

CFO Adam Rymer confirmed there was nothing unusual in new unit performance, with productivity remaining in the low 80% range. Interim CEO Scott Boatwright added that year-two ROI is holding steady. On margins, Scott Boatwright expressed confidence in reaching the high-20s, stating the long-term algorithm of 30% margins at $4 million AUVs still holds, supported by future efficiencies. Adam Rymer noted that Q3 margin was impacted by temporary factors like portion investments and avocado cost comparisons.

David Tarantino from Robert W. Baird & Co asked about the outlook for international unit development, noting that the current pace is below the long-term target, and questioned if there is a clear path to re-accelerating growth.

Answer

CFO Sandeep Reddy explained that development is on track in key markets like India and China. The primary drag is from Domino's Pizza Enterprises (DPE), particularly due to store closures in Japan. He stated that they are working with DPE to gain clarity on future opening plans, which are contingent on improving unit economics and same-store sales performance in their markets.

David Tarantino requested more details on the performance of the new Stuffed Crust Pizza, asking for color on its sales mix or lift to comps, given it launched late in the first quarter.

Answer

Chief Executive Officer Russell Weiner clarified that the product launched with only three weeks left in Q1, limiting its impact. However, he expressed that performance is meeting expectations, with high customer satisfaction scores, a significant mix of orders including the product, and strong operational execution by stores.

David Tarantino from Baird asked about the U.S. unit growth missing its 2024 target and sought to understand the company's confidence in achieving the 2025 goal, requesting color on the franchisee pipeline and enthusiasm.

Answer

CEO Russell Weiner attributed the 2024 miss partly to hurricane activity and highlighted that Domino's unit growth still significantly outpaced public competitors. CFO Sandeep Reddy expressed high confidence in the 2025 pipeline, citing best-in-class store economics and strong franchisee demand.

David Tarantino from Robert W. Baird & Co. questioned the second consecutive downgrade to Domino's global unit growth guidance, asking for the key drivers and the company's confidence in ramping back to targets in 2025. He also sought to clarify if the lower 2025 retail sales outlook was due to unit growth shortfalls or weaker comp expectations.

Answer

CFO Sandeep Reddy attributed the unit growth guidance change primarily to better visibility from its partner DPE, leading to a tighter and lower range. For 2025, Reddy confirmed the lower retail sales outlook is driven by both the carryover impact of 2024's slower unit growth and an expected 1-2% international same-store sales growth due to macro pressures. CEO Russell Weiner added context on the international business's strong history and future potential, emphasizing a focus on renowned value, aggregator share, and carryout to drive a turnaround.

David Tarantino, on for Jeff Hammond, asked about recent sales trends at the start of the pool season, feedback from dealers on consumer behavior following tariff news, and the specific cost levers being used to offset tariffs beyond pricing and reshoring.

Answer

President and CEO Kevin Holleran noted that after a slow start to the year, March was a 'really strong sales out month,' and April trends are reflected in the confirmed guidance. He added that the new OmniX platform is expected to be a tailwind. CFO Eifion Jones detailed other cost levers, including variabilizing production inputs to avoid fixed costs, SKU rationalization programs, value engineering, and investing in automation as production is transferred to U.S. facilities.

David Tarantino of KeyBanc Capital Markets inquired about the dynamics of the self-storage project pipeline, asking for a breakdown between New Construction and R3, and whether to expect incremental weakness in New Construction. He also asked about the key factors influencing the 2025 margin outlook, specifically regarding pricing expectations and the impact of steel tariffs.

Answer

CFO Anselm Wong confirmed that New Construction is slowing while R3 is picking up, which is factored into the 2025 guidance. CEO Ramey Jackson added that the company's focus on well-capitalized customers is advantageous in the current climate. Regarding margins, Anselm Wong projected high single-digit price declines for the storage business and explained that due to a six-month lag in steel purchasing, a large portion of the year's costs are already set. Both executives noted that while steel producers may raise prices, ultimate costs will depend on market demand, but they do not foresee prices decreasing.

David Tarantino inquired about the drivers behind the 2025 seasonality outlook, particularly the expectation for a stronger second half, the key factors in the flat year-over-year margin guidance, and whether the new go-to-market strategy alters the previous systems-oriented approach.

Answer

CEO Sean Bagan stated that end-market performance is more impactful than typical seasonality. The back-half weighted outlook is supported by current order trends, OEM forecasts, and improving macro indicators. Corporate Controller Jeremy Evans added that distributor inventory levels saw their first decline in several quarters. Regarding margins, Bagan identified volume as the primary driver for the guidance range. He also confirmed the systems-oriented approach remains unchanged and is central to becoming a preferred supplier by designing integrated solutions for customers.

David Tarantino of Baird asked for context on the speed of service opportunity, inquiring about current wait times, future goals, and how much progress has been made.

Answer

CEO Rob Lynch highlighted that taking approximately one minute off average wait times in a year was a significant achievement, but emphasized they are 'not even close' to industry standards. He stated they still have 'another minute to go' before getting into the ballpark of where he wants to be. He explained that improving speed drives throughput at peak hours and also increases lifetime value by reducing a key barrier to frequency. Short-term process and equipment changes, plus long-term kitchen designs, are aimed at this goal.

David Tarantino of Baird requested a more concrete example to better understand the company's 'strategic product innovation' strategy.

Answer

CEO Rob Lynch pointed to the Black Truffle Burger and Korean Chicken Sandwich as examples of differentiated, high-quality innovation. He explained the strategy involves opening the aperture for the culinary team to explore new proteins, flavors, and side items beyond fries, with no guardrails, to unlock innovation across the entire menu platform.

David Tarantino, on for Jeff Hammond of KeyBanc, asked for a breakdown of the drivers behind the 2025 company-level margin guidance, particularly with volumes expected to be down. He also requested more detail on the expected progression of weakness in the European market throughout the year.

Answer

CFO Shashank Patel explained that margin expansion will be driven by price increases and broad productivity savings, which are expected to more than offset inflation and slight volume deleverage. Regarding Europe, both he and CEO Robert Pagano noted the first half will be the most challenged due to heat pump destocking, with the full-year decline being front-loaded in Q1, leading to easier comps in the second half.