Gregory Francfort • Guggenheim Securities

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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%.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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CFO Sami Siddiqui acknowledged potential headwinds in beef costs but noted this was offset by some abatement in chicken costs for Popeyes. He concluded that the overall commodity outlook does not change the company's positive forecast for franchisee profitability for the year.

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