Jacob Aiken-Phillips

Jacob Aiken-Phillips questioned whether the incremental share of Olive Garden's delivery sales would hold as penetration grows or if cannibalization would increase, and what operational efforts are in place to preserve incrementality. He also asked about any meaningful shifts in where full-service or casual dining fits into the broader food spend mix.

Answer

CEO Rick Cardenas hypothesized that incrementality would hold or improve as delivery customers are higher frequency, younger, and more affluent. He noted that casual dining and Darden are growing faster than other segments, taking market share from casual and limited service.

Jacob Aiken-Phillips inquired about Olive Garden's delivery incrementality, specifically if the half of 4% incremental share would hold as delivery grows or if cannibalization would increase, and what operational efforts are in place to preserve incrementality. He also asked about any meaningful shifts in where full-service or casual dining fits into the broader food spend mix.

Answer

CEO Rick Cardenas hypothesized that incrementality would likely stay or improve as delivery grows, attributing this to delivery customers being higher frequency, younger, and more affluent. He noted that Darden and the casual dining industry are growing faster than other segments, indicating they are taking market share from both casual and limited-service categories.

Jacob Aiken-Phillips asked about Darden's unit growth acceleration over the medium to long term, considering new prototypes and Canadian expansion. He also inquired about construction costs for new, smaller prototypes and any impacts from higher costs or imported materials.

Answer

Rick Cardenas, President, CEO & Director, clarified that Canadian expansion is franchised and doesn't count towards owned unit growth, but the five-year plan targets 3-4% sales growth from new units, with unit growth percentage expected to ramp up. He added that new, smaller prototypes for Yard House and Cheddar's are more efficient, generating good sales at lower costs, and construction costs are often under budget with minimal tariff impacts.

Jacob Aiken-Phillips asked about Darden's unit growth acceleration over the medium to long term, including new prototypes and Canadian expansion. He also inquired about higher construction costs and tariff impacts on new prototypes.

Answer

CEO Rick Cardenas clarified that Canadian expansion is franchised and doesn't count in Darden's owned unit growth, but the five-year plan aligns with the long-term framework of 3-4% sales growth from new units, expecting unit growth percentage to ramp up. He noted that new, smaller prototypes for brands like Yard House and Cheddar's Scratch Kitchen are more efficient, generating good sales at lower costs, and construction costs are often under budget with minimal tariff impacts.

Jacob Aiken-Phillips asked about Darden's unit growth acceleration over the medium to long term, considering new prototypes and the Canada expansion. He also inquired about new, smaller prototypes, construction costs, and any impacts from tariffs.

Answer

Rick Cardenas, President and CEO, clarified that the Canada expansion involves franchised locations and does not count towards Darden's owned unit growth. He stated that the five-year plan aims for 3-4% sales growth from new units, with unit growth percentage expected to ramp up year-over-year. He also mentioned that brands like Yard House and Cheddar's have introduced smaller, more efficient prototypes with lower construction costs, often coming in under budget, and tariff impacts on construction costs are not dramatic.

Jacob Aiken-Phillips of Melius Research inquired about how Kroger is structuring its relationships with new third-party partners to ensure appropriate first-party data access for retail media, especially as more customer missions originate on partner platforms. He also asked if the economics for first-party versus third-party retail media are comparable.

Answer

CFO David Kennerley highlighted the strong double-digit growth of the retail media business in Q3, with acceleration expected in Q4. He emphasized that the new partnerships are structured to ensure Kroger participates in media opportunities originating on partner platforms, with agreements designed to be "very favorable to our economics," though specific details were not disclosed.

Jacob Aiken-Phillips asked about Kroger's pharmacy business, specifically how script share gains (potentially from Rite Aid closures) translate into improvements in other parts of the business, and the strategy to increase awareness among current customers who may not realize Kroger offers pharmacy services. He also inquired about concrete examples of AI driving measurable improvement and the strategy for rolling out different AI tools or use cases.

Answer

Ronald Sargent, Interim CEO & Chairman, acknowledged low pharmacy awareness as a big opportunity, planning better in-store positioning and integration with a broader Health & Beauty Care (HPC) strategy. David Kennerley, EVP & CFO, added that tying pharmacy into the overall Kroger ecosystem through loyalty is a significant opportunity. For AI, Mr. Kennerley highlighted its evolution from Kroger's data assets and data science capabilities. He cited an AI tool for shrink, which improves inventory levels and sell-through, now being adapted to identify sales opportunities. The strategy involves deepening customer engagement and enhancing operational excellence. Mr. Sargent added AI's utility in scheduling, planogramming, and customer personalization.

Jacob Aiken-Phillips from Melius Research LLC asked about the relationship between SG&A leverage and wage investments going forward. He also inquired about the potential impact of tariffs on the business.

Answer

Interim CFO Todd Foley explained that the company's model allows them to balance wage investments with other profitability initiatives to leverage SG&A in the current environment. Chairman and CEO Rodney McMullen addressed tariffs, stating that the effect on Kroger is likely less than on other companies due to modest international sourcing, and they can manage any impact as competitors would face the same pressures.

Jacob Aiken-Phillips questioned whether the company observes any differences in consumer behavior across income or age cohorts and how its menu and pricing strategy appeal to various segments.

Answer

Jerry Morgan, CEO, reported no significant differences in consumer behavior by cohort, attributing strong traffic and sales growth to the menu's inherent value, including early dine options and varied sirloin cuts. Michael Bailen, VP of Investor Relations, confirmed consistent mix trends and strong results across all regions, days, and day parts, indicating broad appeal of the value and experience offered.

Jacob Aiken-Phillips inquired about observed differences in consumer behavior by income or age cohort, noting a reported bifurcation among consumers, and how Texas Roadhouse's menu and pricing architecture appeal to both sides of this trend.

Answer

Jerry Morgan, CEO, reported no significant differences in consumer behavior by cohort, attributing this to the menu's inherent value proposition, including early dine options, country dinners, and a range of sirloin cuts. Michael Bailen, VP of Investor Relations, added that mix trends remain consistent, indicating guests appreciate the value, with strong results across regions, days, and dayparts for both dine-in and to-go business.

Jacob Aiken Phillips sought further clarification on the 'honeymoon' dynamic, specifically its duration, the year-over-year performance of initially impacted stores, and the outlook for this dynamic.

Answer

Tricia Tolivar, CFO, confirmed that initial stores impacted by the honeymoon dynamic are performing better year-over-year. She noted that 2024 restaurants open for more than 18 months are returning to positive same-restaurant sales, and a similar pattern is expected for the 2025 cohort in 2026. She emphasized that this is not a structural challenge and is not concentrated geographically.

Jacob Aiken Phillips followed up on the 'honeymoon' dynamic, asking if the initial stores affected are now performing better year-over-year and for a clearer understanding of how long this dynamic typically lasts.

Answer

CFO Tricia Tolivar confirmed that initial stores impacted by the 'honeymoon' dynamic are indeed performing better year-over-year. She added that restaurants open beyond 18 months are returning to positive same-restaurant sales, indicating it's not a structural challenge or geographically concentrated. She anticipates the 2025 cohort will likely exhibit a similar pattern in 2026.

Jacob Aiken-Phillips of Melius Research inquired about Casey's store growth strategy in the outer years beyond the current three-year target, considering the competitive landscape with larger public and private players aggressively expanding. He also asked how Casey's measures success when benchmarking against QSRs on valuation and innovation, and what KPIs investors should track.

Answer

CEO Darren Rebelez outlined the fundamental growth algorithm aiming for 8-10% EBITDA growth, with half from base business growth and half from 4-5% unit growth (split between new store builds and small M&A). He emphasized the unlimited runway for unit development within Casey's current and adjacent geographies. For QSR benchmarking, he suggested looking at same-store sales performance, particularly in prepared foods and dispensed beverages, noting Casey's strong comparative results.

Jacob Aiken-Phillips inquired about Casey's store growth strategy in outer years beyond the current three-year target, considering increasing competition. He also asked how Casey's measures success against QSRs and what KPIs investors should track.

Answer

Darren Rebelez, President, CEO & Board Chair, explained that Casey's aims for 8-10% EBITDA growth, with half from base business and half from 4-5% annual unit growth (split between new store builds and small M&A). He sees an 'unlimited runway' for unit development within current and adjacent geographies. For QSR benchmarking, Mr. Rebelez suggested comparing same-store sales performance, particularly in prepared foods and dispensed beverages, citing Q1's 5.6% growth (over 10% two-year stack) as favorable against QSR peers.

Jacob Aiken-Phillips asked about Casey's strategic positioning for a volatile policy environment and the specific plans to improve prepared food margins at the newly acquired Fikes stores.

Answer

CEO Darren Rebelez stated that new capabilities in procurement, data analytics, and culinary have made the company more resilient than it was 4-5 years ago. Regarding Fikes, he explained the margin difference is due to their protein-heavy mix versus Casey's high-margin pizza. The plan is to introduce Casey's pizza, optimize the combined menu, and eventually migrate Fikes to Casey's more favorable supplier contracts.

Jacob Aiken-Phillips asked about the competitive landscape in prepared foods, particularly against pizza and other QSRs, and whether Casey's might need to increase promotions. He also inquired about the timeline for rebranding Fikes stores and integrating their fuel assets.

Answer

CEO Darren Rebelez stated that Casey's value proposition remains strong against QSRs, especially in sandwiches, without needing more aggressive promotions. He noted that in half their stores, they face no major pizza competition and are already priced competitively in the other half. Rebelez explained the Fikes store remodels will take a few years, while the fuel procurement integration will happen more quickly, with the full integration process lasting 3-4 years.

Jacob Aiken-Phillips from Melius Research asked for more detail on the decision to raise the sales target for the Pronto delivery service, particularly how concerns about cannibalization were addressed. He also inquired about progress toward the company's market share goals.

Answer

CEO Dave Flitman explained that the initial cautious rollout of Pronto penetration was to ensure a premium margin profile and avoid cannibalizing the core broadline business. Having confirmed both, the company is now confidently expanding the program. CFO Dirk Locascio clarified that the reported double-digit case growth uplift is on a net basis. Regarding market share, Flitman emphasized it's a 'steady march' of consistent gains, evidenced by 17 and 19 consecutive quarters of share gains in independent restaurants and healthcare, respectively.

Jacob Aiken-Phillips inquired about US Foods' ability to moderate CapEx in a downturn, its current capacity for growth, and the impact of automation. He also asked about the M&A environment for acquisitions, given the decision to retain the CHEF'STORE business.

Answer

CFO Dirk Locascio stated that the company is actively investing in expansions and a new semi-automated facility, ensuring it is not capacity constrained. Regarding M&A, he noted that the environment for tuck-in acquisitions has not changed and that the team continues to actively manage its pipeline of opportunities.

Jacob Aiken-Phillips of Melius Research asked about the forward outlook for Return on Invested Capital (ROIC) over the next three years. He also inquired about the company's perspective on labor inflation and availability, particularly in light of recent industry union activity.

Answer

CFO Dirk Locascio stated that the expectation is for ROIC to continue to increase, driven by responsible capital deployment and earnings growth, which is a component of long-term compensation. Regarding labor, he noted that the company is fully staffed and that overall labor inflation has moderated to a level that can be managed within the company's 3-5% productivity improvement targets.

Jacob Aiken-Phillips of Melius Research LLC asked for more detail on the personalization and segmentation within the Dutch Rewards program, inquiring what inning of development it is in and how it connects to top-of-funnel paid advertising.

Answer

CEO Christine Barone stated they are still in the "early innings" of segmentation and are exploring new app functionalities to make rewards more fun and social. She differentiated the two marketing channels: paid advertising is for top-of-funnel brand awareness to drive a first visit, while the Dutch Rewards program is for building a direct relationship and driving frequency once a customer has engaged with the brand.

Jacob Aiken-Phillips from Melius Research asked about the drivers behind the significant improvement in product supply and wholesale (PS&W) results from Q1 to Q2. He also inquired about the company's capital allocation strategy, specifically how they balance leverage tolerance with growth investments and shareholder returns amid softer fuel volumes.

Answer

EVP & COO Mindy West explained that the PS&W improvement was due to a market that, while still well-supplied, was less so than in Q1, along with different pricing dynamics. On capital allocation, President, CEO & Director Andrew Clyde emphasized their disciplined 50/50 strategy for growth and shareholder returns, stating they don't borrow for a single purpose. EVP & CFO Gallagher Jeff added that the company is very comfortable with its current leverage, which provides flexibility to execute its long-term strategy.

Jacob Aiken-Phillips from Melius Research asked about the drivers behind the significant improvement in Product Supply & Wholesale (PS&W) results from Q1 to Q2. He also questioned the capital allocation strategy, asking how the company balances leverage tolerance with growth and share repurchases, particularly in light of softer fuel volumes.

Answer

EVP & COO, Mindy West, explained that while Q2 was still a well-supplied market, it was less so than Q1, and the direction of pricing movement had a different impact on non-controllable factors. On capital allocation, President, CEO & Director, Andrew Clyde, stressed that leverage is not for any single purpose but supports a disciplined 50/50 strategy between growth and shareholder returns. EVP & CFO, Gallagher Jeff, added that the company is comfortable with its leverage, which is currently at 2.0x, well below their 2.5x tolerance.

Jacob Aiken-Phillips inquired about how the merchandise ramp-up in new, larger stores impacts breakeven calculations and asked for details on new real estate processes and construction costs.

Answer

CEO Andrew Clyde explained that new stores move toward breakeven as merchandise margin ramps up to cover the full operating costs over time. He and COO Mindy West provided examples of new processes to accelerate development, such as adjusting risk tolerance on permits and implementing fuel dispenser stress tests. CFO Galagher Jeff noted the development pipeline is now robust at around 250 sites.

Jacob Aiken-Phillips of Melius Research LLC asked about the long-term strategy for digital as a comp driver and the timeline for international markets to achieve self-sustaining growth.

Answer

CEO Scott Boatwright emphasized that digital remains a key focus, with ongoing work to create a frictionless user experience and drive new member enrollment. On international, he described the effort as being in the 'early, early innings,' but highlighted strong progress in Europe and with franchise partners. He affirmed that international will be a significant long-term growth lever for the brand.

Jacob Aiken-Phillips of Malius Research Group asked about the strategy for rebuilding the new store pipeline for growth beyond 2025 and how the pipeline for recruiting new independent operators (IOs) has been affected.

Answer

Chairman Eric Lindberg confirmed that the pipeline for both real estate and IOs remains healthy, with access to more opportunities than needed. He stated the reduction in openings was a strategic choice, not due to a lack of options. The focus is on execution and improving the ROI of the model. He noted that IO recruitment is strong, allowing the company to be selective in choosing the most capable operators.

Jacob Aiken-Phillips asked for context on the Q4 and 2025 comp outlook, given the company will be lapping both system issues and competitive pressures. He also inquired about new store productivity, as unit growth plans remain unchanged.

Answer

Interim CFO Lindsay Gray explained the Q4 comp guide is cautious due to a slight slowdown on a two-year basis and difficult comparisons, and reiterated the long-term 1-3% comp target for 2025. Interim President and CEO Eric Lindberg confirmed there is no issue with the 50+ store opening plan for next year, as the real estate pipeline is well-established with signed leases.

Jacob Aiken-Phillips questioned the financial contribution from the Cheney Brothers acquisition, noting the initial guidance seemed conservative. He also asked about the strategy for integrating Cheney's underpenetrated private label brands with PFG's portfolio.

Answer

CFO Patrick Hatcher defended the guidance as a confident 'beat and raise.' CEO George Holm added that Cheney is performing exceptionally well but is also investing heavily in hiring salespeople, which impacts near-term expense ratios. Regarding private labels, Holm explained that they will be cautious not to disrupt Cheney's go-to-market strategy and are currently evaluating which of Cheney's brands to retain.

Jacob Aiken-Phillips questioned if the Q4 comp and bottom-line guidance was conservative and asked about the primary drivers for comp growth over the next 2-3 years.

Answer

CFO Curtis Valentine defended the Q4 guidance, stating the midpoint represents an acceleration on a one-year basis and is in line with Q3 performance. CEO Jack Sinclair expressed confidence in long-term growth, citing resilient customers, strategic initiatives, and the powerful tailwind of the health trend. Curtis added that while they aspire to beat guidance, factors like the election and holidays warrant a prudent outlook.

Jacob Aiken-Phillips asked for more color on consumer behavior changes, including any regional variations, and requested the key puts and takes that would drive results to the high or low end of the Q4 guidance range.

Answer

CEO Vivek Sankaran noted that the consumer remains cautious and is shopping more stores, but he has not seen significant behavioral shifts or regional variations in their business. President and CFO Sharon McCollam explained that Q4 variability depends on major events like the Super Bowl and Valentine's Day, where timing and consumer engagement can significantly influence outcomes.