Gregory Francfort

Gregory Francfort asked for an update on Darden's labor turnover, either for Olive Garden or the total system, and whether the current environment differs from the last few years, with an outlook for the future.

Answer

CFO Raj Vennam reported that turnover is very low, continuing to improve year-over-year with a double-digit decrease, reaching record lows for most brands. He also noted that hourly wage inflation is around 3%, which is lower than pre-COVID levels (mid-3%), indicating a solid labor environment for Darden.

Gregory Francfort asked for an update on Darden's labor turnover rates for Olive Garden or the total system, and whether the current environment differs from previous years, with an outlook on future trends.

Answer

CFO Raj Vennam reported that turnover is very low, continuing to improve year-over-year, with most brands experiencing record lows. He noted that hourly wage inflation is around 3%, which is lower than pre-COVID levels, indicating a solid labor environment for Darden.

Gregory Francfort of Guggenheim Partners asked how LongHorn Steakhouse is positioned to compete in the steak category, particularly against a top-line-focused competitor, and whether it needs to reinvest in price or portions to maintain its performance.

Answer

President & CEO Rick Cardenas asserted that LongHorn's strong performance stems from its consistent strategy focused on quality, simplicity, and culture. He highlighted that significant investments in food quality, such as larger steaks, were already made during COVID, and the brand will continue to invest in the overall experience. He believes LongHorn is well-positioned and has a distinct consumer proposition from its main competitor.

Gregory Francfort asked if the introduction of smaller-footprint restaurant formats for Cheddar's and Yard House could enable those brands to return to their historical pace of opening 5 to 10 new units per year.

Answer

President and CEO Ricardo Cardenas expressed confidence that these brands can return to their former growth trajectory. He pointed to the fiscal 2026 new unit guidance of 60-65 restaurants, which is at the high end of their long-term framework, as evidence that growth will be driven by more than just Olive Garden and LongHorn, implying a ramp-up for other brands.

Gregory Francfort asked about the relevance of AI and advanced data processing at Darden, whether it's creating a step-function change, and what competitive moats it provides.

Answer

Executive Rajesh Vennam responded that Darden has been leveraging advanced data for years and views it as a gradual, continuous improvement rather than a sudden step change. He noted the company has a strong data foundation and a team exploring GenAI, which reinforces their existing competitive advantage in analytics.

Gregory Francfort asked about the timing of when Darden's current pricing will roll off and how the company balances its strategy of advertising national price points with its use of varied pricing across different regions.

Answer

CFO Raj Vennam indicated that no significant new pricing actions are anticipated for Olive Garden until the new calendar year. President and CEO Rick Cardenas added that Darden employs a sophisticated, multi-tiered pricing structure across different geographies. To accommodate this, national advertising often uses 'starting at' language. He emphasized that a dedicated data analytics team guides these surgical pricing decisions to optimize value and profitability by market.

Gregory Francfort questioned the strategy of pursuing smaller remodels in the near term if stores require larger ones, and whether raising equity capital was being considered for reimage programs or to support struggling franchisees. He also asked about recent changes in value scores, inquiring if the softness was due to consumers balking at higher prices and the current direction of these scores.

Answer

CEO Lance Tucker stated that an equity raise is not expected. He clarified that a full-on reimage program is expected by year-end, but mini-reimages offer an affordable, quick solution for modest immediate impact while franchisees plan for larger expenditures. He confirmed that value scores have increased slightly, acknowledging the general consumer perception of high prices, and expects continued improvement with the barbell strategy. Mr. Tucker also noted that the company will ensure programs are attainable for all franchisees.

Gregory Francfort asked about the strategy of pursuing smaller remodels in the near term instead of larger ones, questioning if equity capital would be considered for reimage programs or struggling franchisees, and inquired about recent changes in Jack in the Box's value scores.

Answer

CEO Lance Tucker dismissed the idea of an equity raise, stating that while a full reimage program is expected by year-end, alternative, more affordable mini-reimages will be available for franchisees needing more time. He confirmed that value scores have increased recently, attributing this to marketing pivots and a focus on a barbell promotional strategy that offers both price-pointed and premium value, addressing consumer perception of high prices.

Gregory Francfort asked for perspective on the current restaurant industry environment to start 2025. He also inquired whether Jack in the Box was outperforming the industry and, if so, what factors would be contributing to that relative strength.

Answer

Lance Tucker, Interim Principal Executive Officer, acknowledged the broad industry pressure, noting that recent consumer confidence reports show caution. While he refrained from directly claiming outperformance, Tucker attributed Jack's ability to compete effectively to its strong fundamentals, including having the right menu and the right strategic levers to pull in the current environment.

Gregory Francfort requested a breakdown of the upcoming year's capital expenditure guidance, seeking details on allocations for new stores, maintenance, and technology investment projects.

Answer

CFO Brian Scott provided a detailed breakdown of the CapEx plan. He allocated approximately $40-$45 million for technology, including digital and the POS rollout, and $30-$40 million for new company-owned restaurant openings, particularly in new markets like Chicago and Florida. The remainder is designated for store maintenance and reimages.

Gregory Francfort asked about the company's confidence in beef inflation being transitory versus structural and how this view influences their pricing strategy.

Answer

Michael Bailen, VP of Investor Relations, stated that industry experts and the company's purchasing department believe the current beef inflation is cyclical and transitory, part of a cattle cycle. He noted that pricing decisions also consider structural inflationary pressures like wage increases, but the company does not preemptively guess on the structural nature of commodity inflation.

Gregory Francfort asked about management's confidence that current beef inflation is transitory versus structural, and how this evaluation influences their pricing decisions.

Answer

Michael Bailen, VP of Investor Relations, stated that industry experts, including their purchasing department, believe the current situation is a transitory cattle cycle. He noted that cattle cycles can be prolonged and often settle at a higher baseline, but the company does not pre-emptively guess on structural versus transitory, instead using pricing to offset structural inflationary pressures like wages.

Gregory Francfort of Guggenheim Partners questioned the viability of the long-term 17% to 18% restaurant margin target, noting that AUVs have grown faster than development costs and that current inflation is pressuring margins below that range. He asked if a lower range might be more appropriate.

Answer

CEO Gerald Morgan affirmed that the company still believes the 17-18% margin target is achievable, though he acknowledged that external factors like the beef cycle must cooperate. He stated that while they are fighting inflation this year, the company is not changing its long-term target at this time and will continue to focus on balancing top-line growth with fiscal responsibility.

Gregory Francfort posed a long-term question about store operating hours, asking about the productivity of opening earlier and whether there is an opportunity to extend hours later into the evening.

Answer

CEO Gerald Morgan expressed satisfaction with the current operating hours, noting that closing at 10:00 PM on weekdays makes sense. He suggested that if a change were to be considered based on demand, it would more likely involve opening incrementally earlier rather than staying open later.

Gregory Francfort of Guggenheim Partners asked for more color on wage inflation trends, noting it was running at the high end of guidance for 2025 and seeking insight into what store-level operators are seeing.

Answer

Executive Michael Bailen acknowledged the 5% wage inflation seen in Q4 but stated the company feels good about its 4% to 5% guidance for 2025. He explained that state-mandated increases often occur at the end or beginning of the year. He believes underlying wage inflation has peaked and noted that rising health insurance premiums are also a significant factor in the overall labor cost pressure.

Gregory Francfort from Guggenheim Securities asked about the genesis of the recent franchise acquisition and whether the company is actively looking to acquire more franchised locations.

Answer

CEO Gerald Morgan explained that the deal was the culmination of a multi-year conversation with a long-term franchise partner, fulfilling an original intention from decades ago. He described it as a beneficial transaction for both parties and confirmed that they will continue to have discussions with other franchisees, promising to update investors if any further deals come to fruition.

Gregory Francfort from Guggenheim Partners asked for more details on the plan to reaccelerate net restaurant growth for Tim Hortons in Canada, including the scale of the opportunity and the expected pace of development.

Answer

CEO Josh Kobza confirmed that Tim Hortons is on track to return to positive net restaurant growth in Canada in 2025. He explained the strategy is to grow the brand's footprint in line with Canada's population growth, targeting new communities. This is supported by an in-house development team and strong franchisee returns, which make new builds an attractive investment.

Gregory Francfort requested more details on the announced G&A cost savings, asking which departments would be most affected and what the strategic reorganization entails.

Answer

CFO Sami Siddiqui explained that the review was prompted by the integration of Carrols and other acquisitions, alongside the current operating environment. He stated the savings, totaling around $20 million year-over-year, came from headcount, renegotiating technology and services contracts, and a fresh look at stock-based compensation. Siddiqui positioned the new G&A baseline of $600-$620 million as a healthy level that allows for continued investment while driving long-term operating leverage, noting it's a 50% increase from 2019 levels.

Gregory Francfort asked for a deeper analysis of Popeyes' performance, noting that comps slowed in both domestic and international regions this quarter and questioning what caused the softness and how management plans to restore positive momentum.

Answer

CEO Josh Kobza explained that Popeyes had a 'gap in terms of the value offerings' during the quarter. He stated this was addressed in September and October with new promotions, which led to a 'meaningful uptick' in sales. He also noted that despite softer sales, progress on cost management led to a healthy increase in franchisee profitability, which supports unit growth and returns.

Gregory Francfort of Guggenheim asked about the dynamic in the U.S. market where protein costs are re-inflating while the industry focuses on value, and how RBI expects this to play out through 2024.

Answer

CFO Sami Siddiqui acknowledged headwinds in beef costs but noted they are being offset by favorable movements in chicken costs for Popeyes. He stated that, on balance, there was nothing significant to report on a forward-looking basis for food costs and that the company's positive outlook for franchisee profitability remains intact.

Gregory Francfort of Guggenheim Partners asked how Dutch Bros approaches new markets where it is not the first small-format coffee competitor and whether the store ramp-up differs in those situations.

Answer

CEO Christine Barone responded that while every market has coffee competitors, they are finding that customers increasingly know the Dutch Bros brand before they arrive. She stated that the order of entry into a market doesn't seem to matter, as the excitement and long lines at new openings continue to build, even in markets far from their home base. She highlighted a top-performing new shop in Georgia as evidence of the brand's powerful draw.

Gregory Francfort asked about the long-term food mix opportunity, comparing it to competitors' 10-20% mix, and inquired about the margin profile of the food business versus the beverage business.

Answer

CEO Christine Barone explained that the strategic goal for food is to drive incremental beverage sales with minimal operational complexity, suggesting a limited SKU count might differentiate their mix from peers. On margins, she noted that while food margins are lower than beverage, the program is accretive due to fixed cost leverage and the associated high-margin, incremental beverage purchases.

Gregory Francfort asked for an update on the AUV ramp for new stores in their second and third years and how the most mature markets were performing from a comp perspective.

Answer

CFO Josh Guenser noted that newer store vintages are maturing with strong performance, aided by paid media, market planning, and mobile order adoption. He stated that there is strength across the board but deferred a more detailed geographic and vintage breakdown to the company's upcoming Investor Day.

Gregory Francfort of Guggenheim Partners asked for the breakdown of price and mix in the quarter's ticket growth and requested more detail on the strategic changes driving improved new store productivity.

Answer

CFO Josh Guenser reported that the 1.9% ticket growth consisted of approximately 4% price, offset by a 2% negative impact from mix and discounts. CEO Christine Barone explained that new store productivity is improving due to a more data-driven real estate strategy, including enhanced modeling and a new market planning process, with the current results reflecting initial pipeline changes made 12-18 months prior.

Gregory Francfort of Guggenheim Partners asked about the impact of industry-wide development on Texas performance compared to other Sunbelt markets and inquired about the outlook for food and labor inflation.

Answer

CEO Michael Osanloo acknowledged that heavy industry-wide development in Texas is a factor in the slower start but remains confident it will mature like Arizona. CFO Michelle Hook projected that Q3 would see the most commodity pressure, driven by beef, but noted the company is over 70% locked-in on its 2025 commodity basket. She expects labor inflation to remain stable within the 3-4% annual guide.

Gregory Francfort asked for an update on the new store maturity curve in Texas and inquired if new units in Colorado and Georgia would use the smaller 'Restaurant of the Future' format.

Answer

CEO Michael Osanloo explained that newer Texas restaurants are showing a more mature ramp-up curve, which he attributes to achieving market density. He confirmed all 2025 builds will be the smaller 'Restaurant of the Future' format, with 2026 builds being a blend of the 1.0 and 2.0 versions. He emphasized the strategy of achieving scale quickly in new markets to support efficient marketing.

Gregory Francfort of Guggenheim Partners asked about the potential long-term endpoint for restaurant box size reduction and requested details on the sources of the G&A guidance reduction.

Answer

CEO Michael Osanloo declined to speculate on a final box size, emphasizing the goal is to optimize cash-on-cash returns through a 'calculus' of investment, revenue, and experience. CFO Michelle Hook explained the G&A reduction came primarily from lower variable bonus and stock-based compensation, along with hiring discipline, but noted this could pressure G&A next year if performance improves.

Gregory Francfort of Guggenheim Partners posed a nuanced question about customer perception, asking at what point a lower-frequency Wingstop customer notices the operational improvements from the Smart Kitchen and subsequently changes their visitation patterns.

Answer

President and CEO Michael Skipworth acknowledged that while anecdotal feedback is immediate, data from the Dallas-Fort Worth market suggests a 'sweet spot' for sales impact occurs around the four-month mark post-implementation. He noted that higher-frequency guests likely realize the benefits sooner and that the comp improvements versus control stores have been gradual, reinforcing confidence in the long-term path to $3 million AUVs.

Asked for an update on the strategy and success rate of converting new customers to repeat customers within 90 days.

Answer

The new guest retention rate reached a record high in 2024, driven by the launch of the MyWingstop platform. The company is in the early stages of a multi-year opportunity to further improve this metric by using its enriched customer database for hyper-personalization.

Gregory Francfort noted that G&A has grown in line with revenue over the last two years and asked about the potential for future operating leverage. He also questioned how sensitive the G&A line is to different same-store sales outcomes.

Answer

Executive Alex Kaleida attributed G&A growth to strategic investments in scaling capabilities like technology and international, plus performance-based compensation. He stressed that G&A as a percentage of system sales is already showing leverage versus prior years and that the current guidance implies an industry-leading adjusted EBITDA growth rate of approximately 42%.

Gregory Francfort of Guggenheim Partners followed up on previous management caution regarding the international consumer, asking why the expected weakness didn't materialize in Q2 and what the outlook is for the second half of the year.

Answer

CFO Sandeep Reddy clarified that the Q2 international same-store sales of 2.4% represented an expected sequential deceleration from Q1's 3.7%. He stated that the company remains cautious about potential macro and geopolitical headwinds in the back half of the year, but acknowledged there could be upside to the 1-2% guidance if these pressures do not materialize.

Gregory Francfort asked about the behavior of customers acquired through third-party aggregator platforms, specifically regarding their order frequency and average check size compared to customers from Domino's native channels.

Answer

Chief Executive Officer Russell Weiner noted that the primary difference is a smaller group size for aggregator orders, often for one or two people, compared to larger occasions ordered via dominos.com. He also mentioned that while these customers have higher incomes, they remain promotionally sensitive.

Gregory Francfort from Guggenheim Securities asked how Domino's is able to maintain its 8% operating profit growth outlook while lowering its global retail sales growth forecast to 6%. He inquired about where the company is finding cost efficiencies, such as in the supply chain or G&A.

Answer

CFO Sandeep Reddy explained that the profit impact from the international sales softness is being managed through several levers. He highlighted significant procurement productivity in the supply chain achieved year-to-date. While key investments in technology and capacity remain priorities, the company is adjusting the phasing of some spending. These levers give management confidence in hitting the 8% operating profit growth target in both 2024 and 2025.

Gregory Francfort of Guggenheim Securities inquired about the company's long-term target for restaurant-level operating profit margins and asked for more detail on third-party aggregator performance, including any shifts in consumer behavior on those platforms.

Answer

CFO Mel Hope reiterated that the company's long-term target for restaurant-level operating profit margin remains between 18% and 20%. CEO Chris Tomasso explained that the strong third-party performance was driven by a strategic partnership with DoorDash, and noted they have not seen significant changes in consumer ordering behavior or engaged in heavy discounting on the channel.

Gregory Francfort asked if there had been any change in daypart trends, specifically regarding weekday traffic, and inquired about the company's strategy for using customer data and analytics, including whether a formal loyalty program is required.

Answer

CEO Chris Tomasso stated that the daypart mix has remained consistent, with weekends stronger than weekdays; the recent improvement is from higher overall volume. He also explained that a loyalty program is not essential, as the company effectively leverages various data collection methods to target customers, competitors' customers, and lapsed users with specific messaging.

Gregory Francfort of Guggenheim Securities asked about First Watch's customer frequency and the target audience for its new marketing initiatives. He also inquired about the drivers of labor efficiency and the outlook for cost inflation.

Answer

CEO Chris Tomasso confirmed customer frequency is similar to casual dining and that marketing aims to increase visits across all customer cohorts through targeted messaging. CFO Mel Hope credited the operators' use of new management tools and their focused execution for the significant labor efficiencies. He reiterated the full-year guidance for labor inflation.

Gregory Francfort asked how the mix of value delivered through the mobile app has evolved since the launch of the broader McValue platform available to all customers.

Answer

CEO Christopher Kempczinski explained that a broad, non-digital value platform like McValue is imperative because the app does not yet reach the majority of consumers. He noted that while digital offers have likely decreased slightly, it's difficult to determine if this is a deliberate strategy or a result of consumers opting for the new, more visible McValue deals.

Gregory Francfort asked about the sourcing of new high-efficiency kitchen equipment, the potential impact of tariffs on it, and the expected margin benefit from the full equipment package rollout.

Answer

CEO Scott Boatwright stated that while the equipment is U.S.-manufactured, its components are subject to tariffs, with the impact still being assessed. He explained it is too early to quantify margin benefits, as the company is still deciding how much of the efficiency savings will be reinvested into the customer and team experience versus taken to the bottom line.

Gregory Francfort asked about the strategic priorities for incoming KFC Division CEO Scott Masvinski, questioning whether improvements would focus on new products, asset upgrades, or a fundamental rethink of the restaurant format.

Answer

CEO David Gibbs expressed high confidence in Scott Masvinski, citing his deep experience with KFC globally and success at Taco Bell. Gibbs outlined that key priorities for KFC will include modernizing the consumer experience, accelerating digital adoption, and significantly expanding the test of the new 'by KFC' boneless chicken concept, which has shown 'very encouraging' initial results.

Gregory Francfort inquired about Yum! Brands' operating profit growth, asking about the company's confidence in returning to its 8% growth algorithm in 2025 after an expected shortfall in 2024 and the factors bridging the two years.

Answer

CFO Chris Turner explained that 2024 results will likely fall below the long-term algorithm primarily due to sales challenges in China and the Middle East, which were impacted by geopolitical conflict. He noted that without these specific headwinds, performance would have met or exceeded the target. Turner expressed confidence in the long-term trajectory, citing the strength of the company's dual growth engines—Taco Bell and KFC International—and ongoing investments in digital and AI capabilities. He stated that while 2025 plans are still being finalized, no major unusual factors are currently anticipated.

Gregory Francfort of Guggenheim Securities requested an update on the company's outlook for commodity and labor cost inflation in the near to medium term.

Answer

CFO Gunther Plosch updated the outlook, stating that commodity inflation is now expected to be around 1% for the full year, slightly higher than previous forecasts due to beef prices. He confirmed that labor rate inflation remains stable within the previously guided 3% to 5% range.

Gregory Francfort of Guggenheim Securities asked about the U.S. market dynamics, noting that protein costs are rising while the industry is focusing on value, and questioned how RBI expects this to play out.

Answer

CFO Sami Siddiqui acknowledged the headwinds in the beef market but noted they are partially offset by favorable chicken costs for Popeyes. He stated that, on balance, the commodity outlook does not change the company's positive view on franchisee profitability for the year.

Gregory Francfort of Guggenheim asked about the U.S. market dynamics, noting that protein costs appear to be rising while the industry is increasing its focus on value, and questioned how RBI expects this to play out.

Answer

CFO Sami Siddiqui acknowledged potential headwinds in beef costs but noted they are offset by favorable movements in chicken costs for Popeyes. He stated that there was nothing significant to call out regarding food costs on a forward-looking basis and that the company's positive outlook for franchisee profitability remains unchanged.