Jake Bartlett

Jake Bartlett asked about CAVA's restaurant-level margin outlook, specifically which pressures in 2026 are temporary (e.g., salmon launch) and what actions CAVA plans to take to return to the 25% long-term target.

Answer

CFO Tricia Tolivar clarified that 25% is not a target but a past achievement, emphasizing CAVA's focus on reinvestments for long-term brand building. She noted salmon would be a 100 basis point margin headwind but penny profit neutral, and mentioned ongoing labor investments (AGM program, fair wages) as factors impacting margins.

Jake Bartlett asked about CAVA's restaurant-level margin outlook, the pressures experienced in 2025, whether expected 2026 pressures (like salmon introduction) are temporary, and what actions CAVA plans to take to achieve its 25% long-term target.

Answer

CFO Tricia Tolivar clarified that 25% is not a target but a past achievement, emphasizing CAVA's focus on strategic reinvestments in team members and guests to build the brand long-term. She noted that the salmon launch would be a 100 basis point margin headwind but penny profit neutral, and mentioned modest labor investments for the AGM program and competitive wages.

Jake Bartlett asked two questions about mix: first, regarding COGS, he noted higher-than-expected COGS due to a shift towards steak and asked about the expectation for this dynamic in 2026. Second, he asked about the negative mix within same-store sales, its drivers, and whether it would continue into 2026.

Answer

Michael Bailen (VP of Investor Relations) clarified that the mix impact on food cost was lower in Q4 (30-35 basis points) than Q3 (over 50 basis points) and expects it to be around 10-15 basis points of pressure in 2026, suggesting the trade-up to steak has largely been lapped. For product mix, he noted the Q4 increase was partly due to growing to-go business (lower average check) but sees some abatement in early Q1, with positive mix in dining room entrees, appetizers, and soft beverages.

Jake Bartlett asked two questions about mix: first, regarding COGS being higher than expected due to a shift towards steak and what to expect in 2026; second, about the increase in check mix in Q4, what's driving the negative mix within same-store sales, and if it will continue.

Answer

Michael Bailen, VP of Investor Relations, clarified that COGS mix pressure was lower in Q4 than Q3 (30-35 bps vs. 50+ bps) and that the steak trade-up seems to have been lapped, expecting 10-15 bps pressure in 2026. For check mix, he noted it stepped up in Q4, largely due to the growth of the lower-average-check to-go business, though alcohol mix is less negative, and dining room mix remains positive in several categories.

Jake Bartlett questioned the rationale behind the Texas Roadhouse unit growth being on the lower end, approximately 20 openings, for 2026, despite an overall acceleration in development across all brands.

Answer

Jerry Morgan, CEO, clarified that the 'approximately' figure for Texas Roadhouse openings provides flexibility. He expressed strong confidence in the development pipeline for all three brands (Texas Roadhouse, Bubba's 33, and Jaggers) for both 2026 and 2027, and indicated that he believes the actual number of Texas Roadhouse openings will likely be 'north of that number'.

Jake Bartlett asked about the pace of development, noting the increase for 2026 driven by Bubba's 33. He specifically questioned why Texas Roadhouse unit growth is projected at approximately 20 openings, which is on the lower end of its historical range and the least since post-COVID, asking about any headwinds or if bandwidth is concept-specific.

Answer

Jerry Morgan, CEO, clarified that 'approximately 20' for Texas Roadhouse allows for flexibility, and he feels confident about the pipeline for all three brands (Texas Roadhouse, Bubba's 33, and Jaggers) for 2026 and 2027. He indicated that he believes the actual number of Texas Roadhouse openings will be 'north of that number.'

Jake Bartlett from Truist Securities asked about the drivers behind the strong growth in off-premise sales, questioning if it was due to operational improvements or simply spillover from full dining rooms. He also followed up on whether the company's capacity for new unit openings is increasing beyond the consistent ~30 per year.

Answer

CEO Gerald Morgan attributed the off-premise success to a combination of factors: operational execution, the convenience of the mobile app, and physical pickup windows. On development, he confirmed he is encouraged by the pipeline and that total openings could be on the high side of 30 in the next couple of years as Bubba's and Jaggers accelerate, but he wants to see execution before formally raising the target.

Jake Bartlett asked about the dynamics of the cost of goods sold (COGS) line, noting deleverage despite menu pricing being higher than commodity inflation, and inquired about the expected inflation cadence for the year.

Answer

Executive Michael Bailen explained that the pressure on the COGS line was due to a negative mix shift, as guests are trading up from chicken and seafood to higher-cost steak entrees. He projected this pressure would continue but lessen through the year. He also confirmed that inflation is expected to be highest in Q2 and Q3 before moderating in Q4.

Jake Bartlett of Truist Securities questioned if the 2025 guidance for 30 company-owned store openings was conservative, given the 26 Roadhouse openings in 2024 and the potential for accelerating development at Bubba's 33.

Answer

CEO Gerald Morgan defended the guidance, stating that opening around 30 quality restaurants annually is the right cadence for the company. He emphasized the importance of making a great first impression and not overextending resources, preferring to be 'very good at opening 25, 30 restaurants' rather than pushing for a higher number. He noted the plan includes about 7 Bubba's openings in 2025.

Jake Bartlett of Truist Securities questioned the surprisingly moderate beef inflation outlook for 2025, given that favorable supply this year might imply tighter supply next year. He asked for specific beef inflation expectations for 2024 and 2025 and the confidence level in the outlook for non-beef commodities.

Answer

CFO David Monroe acknowledged that lower-than-expected beef inflation was a surprise, attributing it to a combination of supply and demand dynamics, including rancher costs and interest rates. Executive Michael Bailen confirmed beef is the main inflation driver for both 2024 and 2025, with other commodities expected to be flat to slightly inflationary. He noted that while they have visibility, no other single item is large enough to significantly alter the outlook.

Jake Bartlett inquired about regional performance, specifically whether markets like California are disproportionately weighing down the system and how Jack in the Box compares to peers within large markets like California.

Answer

CEO Lance Tucker acknowledged that California has been a difficult market for most brands, creating a headwind not only for sales but also for profitability due to labor pressures. He noted that with over 40% of Jack in the Box restaurants in California, the company faces a greater consolidated headwind compared to some competitors.

Jake Bartlett asked about Jack in the Box's performance relative to peers, specifically if the underperformance was less pronounced in its core California market due to general market pressures there. He also followed up on the company's moves to increase affordability, asking about franchisee willingness to implement changes like combo pricing tweaks and increased cup sizes, and if there are further opportunities to meaningfully increase affordability in 2026.

Answer

CEO Lance Tucker stated that Jack in the Box was lagging peers more at the start of Q4 but closed the gap by the end of the quarter after making adjustments. He believes their performance in California is likely no worse, and possibly better, than national-to-national comparisons given their market concentration. Regarding affordability, Mr. Tucker confirmed that franchisees were largely willing and on board with changes like cup size increases and price-pointed combos, with little pushback. For 2026, he expects continued evaluation of pricing strategy, potentially introducing more eye-catching price points balanced by smart price increases in other areas.

Jake Bartlett asked about Jack in the Box's performance relative to peers, particularly in the California market, and inquired about franchisee willingness to adopt affordability initiatives and future opportunities to enhance core menu affordability in 2026.

Answer

CEO Lance Tucker stated that Jack in the Box was lagging peers at the start of Q4 but closed the gap by quarter-end due to strategic adjustments. He believes performance in California is likely no worse, and possibly better, than national comparisons given market concentration. He confirmed franchisees were largely agreeable to affordability moves like cup size increases and price-pointed combos without significant pushback. For 2026, the company will continue evaluating pricing, potentially reducing prices in some areas while smartly increasing them in others, to maintain eye-catching value points.

Jake Bartlett of Truist Securities sought to frame the opportunity for operational improvements under the 'Jack's Way' initiative by asking about current metrics versus historical levels. He also asked if the pullback from Hispanic consumers was tied to specific events and if that trend was improving.

Answer

EVP Ryan Ostrom explained that 'Jack's Way' focuses on improving basics like order accuracy and friendliness rather than hitting specific historical metrics. CEO Lance Tucker clarified that the softer trend with Hispanic consumers has been consistent since the start of the year and is attributable to the brand's large footprint in the Southwest, not a specific acute event.

Jake Bartlett of Truist Securities followed up on new unit development, asking about CEO Lance Tucker's commitment to the growth strategy and requesting an update on the number of outstanding restaurant development commitments.

Answer

CEO Lance Tucker affirmed his excitement for continued growth, positioning the 'JACK on Track' plan as a way to ensure the franchise base can grow from a position of strength. He highlighted ongoing development in markets like Chicago, Louisville, and Florida. Executive Chris Brandon later clarified that the company has 440 restaurant commitments since mid-2021.

Jake Bartlett asked for more specific insights from the Creed UnCo customer segmentation study, particularly regarding the target customer, how it differs from previous assumptions, and how these learnings are informing the go-forward strategy.

Answer

Interim CEO and CFO Ken Cook explained that the needs-based segmentation study helped understand 'why' customers choose Wendy's (quality, price, convenience, snacking). Key validations included customers seeking an 'everyday quality upgrade' (informing hamburger and chicken innovation, bun upgrades) and the importance of sides/Frosties for snacking (influencing the $4 Biggie Deals price point and Girl Scout Thin Mint Frosty success). He also noted that many visits are unplanned, driving increased social media activity, and confirmed a strategic shift away from focusing on 'adventurous eaters' and extreme innovation, which proved less impactful in 2025.

Jake Bartlett inquired about specific learnings from the Creed UnCo segmentation study, asking how the understanding of Wendy's target customer has evolved and how these insights are informing the new menu and marketing approach, including upcoming product launches.

Answer

Ken Cook, Interim CEO and CFO, explained that the needs-based segmentation study validated existing knowledge and provided new insights, focusing on the 'why' customers choose Wendy's. Key learnings included the importance of everyday quality upgrades (especially hamburgers and fresh beef), the appeal of sides and snacking occasions (informing Biggie Deals' $4 price point and Girl Scout Thin Mint Frosty), and the need to maintain top-of-mind awareness for unplanned visits. He also noted a decision to de-emphasize 'adventurous eaters' and extreme innovation. Suzie Thuerk, Chief Accounting Officer and Global Head of FP&A, added that the 2026 outlook reflects G&A investments to support these initiatives.

Jake Bartlett of Truist Securities asked for clarification on why the cluttered marketing calendar was a problem and questioned the focus on the crowded chicken category, including any changes to the chicken patty and testing results for the new tenders.

Answer

Interim CEO & CFO Ken Cook explained the marketing calendar was problematic because it sent confusing messages to consumers and created execution complexity for restaurant staff. Regarding chicken, he stated that while the category is competitive, Wendy's new tenders performed better than its largest competitor in testing. He added that the launch includes six new sauces and provides a new platform for future innovation, leveraging a fast-growing protein segment.

Jake Bartlett of Truist Securities inquired about the magnitude of the opportunity from operational improvements, asking how it ranks as a potential sales driver for 2025 and beyond.

Answer

CEO Kirk Tanner described operational excellence as the critical foundation that underpins all other strategic initiatives, including marketing, innovation, and digital growth. He emphasized that delivering a consistently great customer experience is essential to realizing the full potential of their growth strategies and is a central focus of the 'Wendy's Promise.'

Jake Bartlett asked about the macro outlook for 2026, specifically the assumption of a similar environment to 2025, and whether there's potential upside from tailwinds like tax refunds. He also inquired about the specific margin drivers for 2026, asking for quantification of expected benefits from vendor management, inventory management, and indirect costs, similar to the details provided for 2025.

Answer

CEO Dave Flitman noted the company's strong execution in a soft macro environment and stated that any macro tailwinds would represent upside to their plans. CFO Dirk Locascio confirmed that the midpoint of their guidance assumes a status quo macro environment. Regarding margin drivers, Locascio stated that while they expect meaningful growth from initiatives like vendor management, inventory management, and indirect costs, they would not quantify specific components for 2026, emphasizing continuous improvement and confidence in EBITDA margin expansion.

Jake Bartlett asked about the macro outlook for 2026, specifically if there's potential upside from factors like tax refunds beyond the company's 'similar macro environment' assumption, and the company's confidence in its guidance. He also requested quantification of 2026 margin drivers, such as vendor management, inventory management, and indirect costs, similar to the details provided for 2025.

Answer

Dave Flitman (CEO, US Foods) noted strong execution in a soft macro, with any tailwinds being potential upside. Dirk Locascio (CFO, US Foods) clarified that the midpoint of the guidance assumes a status quo macro environment. Regarding margin drivers, Dirk Locascio stated they expect meaningful growth from these initiatives but will not quantify specific components, emphasizing continuous improvement and transparency on value creation.

Jake Bartlett of Truist Securities asked for an update on employee turnover and productivity levels. He also sought clarification on independent case growth, asking if the company's 100 basis point improvement simply matched the industry's rebound or represented accelerating market share gains.

Answer

CEO Dave Flitman reported that employee turnover for drivers and selectors remains at 'very good' levels, consistent with the prior quarter's update of being back to pre-COVID levels, and that staffing is not an issue. On case growth, Flitman clarified that US Foods grew faster than the market rebounded, which is why the company gained market share in every month of the second quarter. The 3% growth in June and July was specific to US Foods' performance.

Jake Bartlett asked for elaboration on US Foods' performance during the Great Recession, seeking details on market share shifts, gross profit per case, and pricing dynamics to better understand how the company might perform in a future downturn.

Answer

CFO Dirk Locascio noted that precise market share data from that period is unavailable but emphasized the industry's resilience, with volumes down only mid-single digits and a rational competitive environment. He stressed that US Foods is in a much stronger position today due to its differentiated go-to-market strategy and a robust portfolio of self-help initiatives, which provides high confidence in their ability to execute through any economic cycle.

Jake Bartlett from Truist questioned if the 2025 product cost and mix guidance of 2% was conservative given recent trends. He also asked for quantification of key margin drivers for 2025, such as procurement and corporate cost savings.

Answer

CFO Dirk Locascio acknowledged the 2% inflation guidance might be slightly conservative but noted that higher inflation primarily impacts sales dollars more than earnings. He outlined several margin drivers, including a balanced contribution from the $260 million cost of goods savings plan, carry-forward benefits from the $120 million in 2024 cost savings, and an incremental $15-20 million in indirect spend savings for 2025.

Jake Bartlett sought to clarify the recent cadence of independent case growth trends and asked about the company's visibility on achieving the higher end of its 3-5% operating cost productivity target.

Answer

CFO Dirk Locascio clarified that recent organic independent case growth accelerated by 100 basis points compared to Q2, reaching the mid-3% range. He stated the 3-5% productivity goal is supported by a broad range of initiatives across supply chain, admin, and indirect spend, designed to offset inflation and drive margin expansion.

Jake Bartlett sought clarification on the drivers behind the increased FY26 EPS guidance, specifically whether it was due to lower Adjusted D&A or other factors, and asked if Local case growth should be expected to be faster in Q3 than Q4 given easier comparisons.

Answer

CFO Kenny Cheung clarified that the EPS increase was not driven by D&A but by the flow-through of Q1 and Q2 beats, fueled by self-help initiatives like Local case growth momentum, robust National business pipeline, gross profit levers (mix, strategic sourcing, Specialty, International), and a healthy supply chain. CEO Kevin Hourican explained that the Q4 two-year stack would be stronger than Q3's due to easier Q3 compares. He noted that while January started strong, Q3's overall performance would depend on unpredictable factors like weather and broader consumer confidence, beyond Sysco's internal 100 basis points organic improvement.

Jake Bartlett questioned the drivers behind the increased FY26 EPS guidance, asking if it was sales or EBITDA-driven, and sought clarification on why Q3 local case growth isn't expected to be faster than Q4 despite easier year-over-year comparisons in Q3.

Answer

Kenny Cheung, CFO, clarified that the EPS increase is not driven by D&A but by the flow-through of prior beats and confidence in self-help levers for the back half, including local case growth momentum, national business strength, gross profit levers (mix, strategic sourcing, specialty, international), and supply chain leverage. Kevin Hourican, Chair of the Board and CEO, explained that the Q4 two-year stack will be stronger than Q3's due to easier Q3 compares. He noted that Q3 last year faced unique headwinds (California wildfires, tariff disruptions) which are not expected to repeat, and January is off to a strong start, but weather remains unpredictable.

Jake Bartlett questioned the composition of Sysco's sales growth guidance, specifically regarding food cost inflation, and sought clarification on the expected 2% inflation for the full year versus the 3.4% reported in Q1.

Answer

Kevin Hourican, Chair and CEO, explained that the full-year inflation guidance is approximately 2%, noting that Q1's higher rate was largely due to international factors. He stated that U.S. domestic inflation has since moderated to around 2% due to deflation in categories like poultry, dairy, and produce. He emphasized Sysco's ability to profitably grow and expand gross profit regardless of inflation or deflation. Kenny Cheung, CFO, specified Q1 US Broadline inflation at 2.6% and International at 4.5% (due to tariffs and wage inflation), but highlighted overall gross profit growth and margin expansion, expecting center-of-plate inflation to moderate later in the year.

Jake Bartlett questioned Sysco's sales growth guidance, specifically regarding food cost inflation, noting the full-year expectation of approximately 2% versus the 3.4% reported in Q1. He sought clarification on the definitional trends and how the 2% guidance aligns with current inflation rates.

Answer

Kevin Hourican, Chair and CEO of Sysco, explained that while Q1's total inflation was higher, primarily due to international, the domestic U.S. inflation rate has since moderated to approximately 2% due to deflation in categories like poultry, dairy, and produce, despite continued inflation in beef. He emphasized Sysco's proven ability to expand gross profit margins in both inflationary and deflationary environments. Kenny Cheung, CFO, specified that Q1 US Broadline inflation was 2.6% and international was 4.5% (influenced by Canadian tariffs and UK wage inflation), but highlighted a 4% increase in total gross profit and a 13 basis point expansion in gross margin, with expectations for center-of-plate inflation to moderate later in the year.

Jake Bartlett from Truist Securities inquired about the momentum in Sysco's local case growth, asking if the improvements seen in June and July indicate market share gains and reflect increased sales force productivity.

Answer

CEO Kevin Hourican confirmed the positive momentum, attributing it to stabilized sales colleague retention, which he expects to convert a 2025 headwind into a 2026 tailwind. He highlighted that the gap between new and lost customers doubled in Q4. CFO Kenny Cheung added that select geographies are already meeting growth expectations and improved service levels are a positive leading indicator.

Jake Bartlett of Truist Securities asked for clarity on the timing of the sales force's positive inflection point in fiscal 2026 and questioned the strategy behind the larger-than-usual dividend increase and future share buyback plans.

Answer

CEO Kevin Hourican confirmed the positive inflection will occur in fiscal 2026, with more specific timing to be provided with future guidance. Regarding capital allocation, he highlighted Sysco's 56-year history of dividend increases and its strong balance sheet. CFO Kenny Cheung added that the 6% dividend hike reflects confidence in future EPS growth and the company's ability to both invest in the business and reward shareholders, even while maintaining its $1.25 billion share repurchase plan for the year.

Jake Bartlett from Truist Securities questioned the reiterated 2% product cost inflation guidance, asking if it might be conservative given recent spikes in food PPI, and requested a breakdown of inflation by business segment for the quarter.

Answer

CEO Kevin Hourican explained that while inflation is elevated in dairy and proteins, it is being offset by deflation in commodities, leading to the blended 2% forecast. CFO Kenny Cheung provided the segment breakdown: total company inflation was 2.1%, with U.S. operations at 2.7% and the European business at 2.9%. They confirmed they are operating in a normalized inflationary environment.

Jake Bartlett asked about Darden's marketing expenses as a percentage of sales, noting a decline in Q2 and flat in Q1, and sought clarification on full-year expectations. He also inquired about the baseline macro environment and consumer trends informing the back-half sales guidance.

Answer

CFO Raj Vennam mentioned $20 million in marketing savings allowed for increased activity despite flat dollar spend, with full-year marketing expected to be closer to a 10 basis point increase. CEO Rick Cardenas described the consumer as resilient but cautious, with increased visits from middle to higher-income groups and strong growth from guests 55 and over, while seeing a pullback in those earning less than $50,000.

Jake Bartlett asked about Darden's marketing as a percentage of sales, noting it was down in Q2 and flat in Q1, and sought clarification on expectations for the full year. He also inquired about the baseline macro environment for back-half sales guidance, specifically regarding consumer segments and any observed weakness bleeding into middle-income groups.

Answer

CFO Raj Vennam stated that $20 million in marketing savings helped increase activity despite flat dollar spend, and for the full year, marketing is expected to be closer to a 10 basis point increase year-over-year. CEO Rick Cardenas described consumers as resilient but cautious, with casual brands seeing increased visits from middle to higher-income groups, particularly 55 and over, but a pullback in those earning less than $50,000. He emphasized Darden's focus on delivering value and experience in casual dining, a category where consumers treat themselves.

Jake Bartlett asked about Olive Garden's delivery mix in the first quarter, the exit rate after the free delivery promotion, and whether similar promotions are expected in fiscal 2026. He also inquired about the expected performance of the Never Ending Pasta Bowl promotion this year compared to last, and its current resonance with consumers.

Answer

Rick Cardenas, President and CEO, stated that Olive Garden's delivery mix was about 5% in Q1, exiting at 4% (still 40% above pre-promotion levels), and confirmed Darden will utilize Uber marketing funds for future promotions. He noted that the Never Ending Pasta Bowl is off to a good start, with increased preference and refill rates compared to last year, and its performance is factored into Darden's guidance.

Jake Bartlett asked about Olive Garden's delivery mix in Q1, the exit rate after the free delivery promotion, and whether similar promotions are expected in FY26. He also inquired about the expected performance of the 'Never Ending Pasta Bowl' promotion this year compared to last, and its current resonance with consumers.

Answer

CEO Rick Cardenas stated that Olive Garden's delivery mix was about 5% in Q1, exiting at 4% after the 'million free deliveries' campaign, which was still 40% above pre-promotion levels. He mentioned Darden would utilize Uber marketing funds for future promotions, though not necessarily another 'million free deliveries.' He added that the 'Never Ending Pasta Bowl' is off to a good start, with increased preference and refill rates, and its performance is within guidance.

Jake Bartlett asked about the delivery mix for Olive Garden in the first quarter, the exit rate after the 'million free deliveries' promotion, and whether similar promotions are expected in fiscal year 2026. He also inquired about the expected performance and current resonance of the 'Never Ending Pasta Bowl' promotion compared to last year.

Answer

Rick Cardenas, President, CEO & Director, stated that Olive Garden's delivery mix was about 5% in Q1, exiting at 4% (still 40% above pre-promotion levels). He confirmed Darden will utilize Uber marketing funds for future promotions, though not necessarily another 'million free deliveries.' He added that 'Never Ending Pasta Bowl' is off to a good start, with increased preference and refill rates, and its performance is within guidance.

Jake Bartlett from Truist Securities questioned why the fiscal 2026 same-store sales guidance wasn't higher, given strong momentum, the contribution from delivery, and easier comparisons, asking about underlying macro concerns. He also requested guidance for G&A expenses in fiscal 2026.

Answer

CFO Raj Vennam explained that the guidance reflects Darden's long-term strategy of continuous reinvestment for sustainable growth, similar to its disciplined pricing approach during high inflation, rather than maximizing near-term results. For fiscal 2026, he projected G&A to be around $500 million, or $490 million on a 52-week basis, noting it can be influenced by mark-to-market adjustments.

Jake Bartlett asked about labor efficiencies, whether the company was lapping significant prior-year gains, and for an update on the selling expense outlook for fiscal 2025.

Answer

Executive Rajesh Vennam attributed ongoing labor efficiencies to significant improvements in employee turnover and a benefit from the Thanksgiving calendar shift. Regarding selling expenses, he confirmed that despite a Q2 increase from more promotional weeks, the full-year outlook remains for a modest 10-20 basis point increase as a percentage of sales.

Jake Bartlett asked if the recent menu additions at Olive Garden and other brands signal a reversal of the company's long-standing menu simplification strategy. He also sought confirmation on the pricing and commodity inflation outlook for the remainder of fiscal 2025.

Answer

President and CEO Rick Cardenas affirmed the company's commitment to menu simplicity, explaining that recent additions either fill a specific menu gap without adding new SKUs or are direct replacements for existing items to improve quality and efficiency. CFO Raj Vennam confirmed that pricing is expected to remain in the 2.5% to 3% range. He noted that while the overall commodity outlook has improved, a potential headwind from chicken contracts in the second half of the year keeps their full-year inflation forecast at approximately 2%.

Jake Bartlett sought to disaggregate the impact of macro pressures versus the aftermath of rebranding on sales, particularly the Q2 deceleration, and inquired about positive actions to change the trajectory, including the menu innovation pipeline.

Answer

Senior Vice President and CFO Craig Pommells attributed the Q2 deceleration to a gradual traffic drop-off in Q1 and the short-term nature of some Q1 promotions, noting an industry-wide slowdown. President and CEO Julie Masino highlighted the organization's focus on food and guest experience, brand rebuilding, and specific promotions like the toy offer, military discount, and 'Meals for Two' program. She also detailed upcoming menu bring-backs such as Eggs in a Basket and Hamburger Steak, along with new innovations like the Breakfast Burger, emphasizing a commitment to craveable, Cracker Barrel-authentic dishes.

Jake Bartlett asked for a disaggregation of macro pressures versus the aftermath of rebranding on sales, particularly regarding the deceleration in Q2 traffic. He also questioned what positive actions are being taken to rebuild sales, given reduced advertising, and expressed interest in the confidence and pipeline of menu innovation for the next 6-9 months.

Answer

Senior Vice President and CFO Craig Pommells explained that Q2 traffic has been consistently negative 10%-11%, noting that Q1's slightly better results were due to a gradual traffic drop-off and unsustainable short-term promotions. He acknowledged the industry's overall decline since summer. President and CEO Julie Masino emphasized the organization's focus on food and guest experience, aiming to rebuild trust one guest at a time. She highlighted the toy promotion, ongoing military discount (integrated with the loyalty program), and the 'Meals for Two' program as value-driven traffic initiatives. Masino also detailed menu efforts, including bringing back fan favorites like Eggs in a Basket and Hamburger Steak, and introducing new items like the Breakfast Burger, with more 'very Cracker Barrel' innovation planned for spring. Pommells added that significant gains in service metrics are encouraging for the midterm and long term.

Jake Bartlett asked for details on Cracker Barrel's fiscal 2026 margin guidance, specifically regarding cost savings from back-of-house initiatives, G&A opportunities, and any unusual Q1 expenses. He also questioned the company's approach to the balance sheet and returning cash to shareholders, considering the EBITDA and CapEx guidance.

Answer

SVP and CFO Craig Pommells explained that Q1 adjusted EBITDA would be significantly impacted by softer traffic and $16 million in additional costs for marketing, advertising, and the General Manager's conference. He stated that the full-year EBITDA guidance is largely driven by traffic performance, with a 30-45% flow-through rate. President and CEO Julie Felss Masino clarified that the previously mentioned $55-60 million in cost savings is achievable over multiple years, not solely from back-of-house, and the company has a strong history of delivering cost efficiencies. Craig Pommells reiterated the board's balanced approach to capital allocation, focusing on core business investments, a conservative balance sheet, and opportunistic cash returns to shareholders.

Jake Bartlett inquired about the fiscal 2026 margin guidance, focusing on the expected impact of cost savings from back-of-house initiatives, potential G&A opportunities, and any unusual expenses in Q1. He also asked about the company's balance sheet strategy, the new $100 million share repurchase program, and the feasibility of returning cash to shareholders given the EBITDA and CapEx guidance.

Answer

Craig Pommells (SVP & CFO) explained that Q1 adjusted EBITDA would be significantly impacted by softer traffic and approximately $16 million in additional costs for marketing, advertising, and the General Manager's Conference. He stated that the negative 4% to negative 7% traffic range is the biggest driver for full-year EBITDA, with a 30-45% flow-through rate. Julie Felss Masino (President & CEO) clarified that the $50-60 million in cost saves are multi-year and not solely from back-of-house, but the company remains committed to achieving them. Craig Pommells added that the board maintains a balanced capital allocation approach, focusing on core business investment, a conservative balance sheet, and opportunistic cash returns to shareholders.

Jake Bartlett inquired about the drivers behind Cracker Barrel's 2026 margin guidance, specifically the expected cost savings from back-of-house initiatives, potential opportunities to reduce G&A, and any unusual expenses impacting Q1. He also asked about the company's balance sheet strategy, the feasibility of share repurchases given the EBITDA and CapEx guidance, and the overall approach to returning cash to shareholders.

Answer

Craig Pommells, SVP and CFO, explained that Q1 adjusted EBITDA will be significantly impacted by softer traffic and approximately $16 million in additional costs for marketing, advertising, the General Manager's Conference, and manager training. He stated that traffic performance is the biggest lever for full-year EBITDA, with a 30-45% flow-through rate. Julie Masino, President and CEO, clarified that the $55 million-$60 million in cost savings is a multi-year target from various initiatives, not solely back-of-house, and remains achievable. Craig added that the board maintains a balanced approach to capital allocation, focusing on core business investments, a conservative balance sheet, and returning cash to shareholders, with decisions being opportunistic. He did not provide specific G&A reduction targets.

Jake Bartlett from Truist Securities questioned the drivers behind the raised EBITDA guidance while sales guidance remained flat, especially given a new $5 million tariff headwind. He also sought details on tariff mitigation efforts and the potential run-rate impact.

Answer

SVP and CFO Craig Pommels attributed the improved outlook to stronger-than-expected labor leverage from initiatives like the back-of-house optimization and some favorability in egg prices. President & CEO Julie Felss Masino added that the company is mitigating tariffs by accelerating SKU rationalization, negotiating with vendors, and exploring alternate sourcing, with more details on the FY26 impact to come in September.

Jake Bartlett sought clarification on several atypical items, including whether the $6 million gift card breakage benefit impacted same-store sales, if approximately $9 million in costs were excluded from adjusted results, and the difference between 'refreshes' and 'remodels' in the store update program.

Answer

CFO Craig Pommells clarified that the $6 million gift card breakage benefit is held at the corporate level and does not affect same-store sales, noting it will largely reverse in Q2. He confirmed that the ~$9.3 million in atypical costs were included in adjusted results, creating a net $3.3 million drag on Q1 adjusted EBITDA. Regarding store updates, he explained that the 25-30 'refreshes' are incremental to the 25-30 'remodels' (high, medium, low tiers), and FY25 is a test-and-learn year to determine the most effective investment mix.

Jake Bartlett asked for clarification on the implied same-store sales guidance for fiscal 2025 and whether recent positive industry trends were benefiting Cracker Barrel. He also sought to understand the composition of the planned 5% price increase, questioning how much is from tier adjustments versus like-for-like price hikes, to assess the potential impact on traffic.

Answer

CFO Craig Pommels confirmed the guidance implies about 1% sales growth on a 52-week basis and that current trends are already factored into the outlook. CEO Julie Masino explained that extensive testing of their pricing strategy shows low elasticity and strong flow-through, supported by the fact that Cracker Barrel is priced 8-12% below competitors. CFO Pommels added that the company's low average check of mid-$14 and the loyalty program provide additional value levers to support the pricing strategy.

Jake Bartlett inquired about the strategic game pricing changes, specifically the shift to a single tier and a lower average price per ticket, asking about its impact on near-term results (positive F&B, negative overall comps) and the rationale behind the change.

Answer

CFO Darin Harper explained that game pricing changes were made to improve value perception, increase guest dwell time, and extend power card usage. The strategy involved optimizing entry points, ending game-level pricing, and managing margins through strategic win pricing, which is now showing growth in average card loads.

Jake Bartlett questioned the strategic game pricing changes, specifically the shift to one tier and lower average price per ticket, and its impact on near-term results (positive F&B comps but negative overall comps). He also asked for the rationale behind this value-oriented shift.

Answer

Darin Harper (CFO) explained that game pricing changes (optimizing rate cards, ending game-level pricing) aimed to increase dwell time and provide better value after consumer research. He noted that margins are managed through strategic win pricing, and they are seeing growth in average card loads, with simplicity of rollout and messaging being a key focus.

Jake Bartlett asked about the strategic game pricing changes, specifically the shift to a single tier and lower average price per ticket, and its impact on near-term results (positive F&B, negative overall comps). He also sought insight into the thought process behind this value-oriented change.

Answer

Darin Harper, CFO, explained that the game pricing changes aimed to address a less advantageous value proposition from prior increases without midway investment. The new strategy focuses on optimizing entry points, increasing dwell time, and managing margins through strategic win pricing, leading to growth in average card loads and improved guest value.

Jake Bartlett from Truist Securities sought further clarification on the unit growth outlook, contrasting it with recent rates, and asked what new initiatives would drive performance in the upcoming months.

Answer

CFO Darin Harper definitively clarified that the company's strategy remains opening 10-14 new units per year and that the CEO's prior comment was not a change in strategy. He added that near-term drivers include the full game rollout, the new Summer Pass program, a leaderboard sweepstakes, and a new field incentive model.

Jake Bartlett noted that prior management sought to build competitive moats due to struggling pre-COVID same-store sales and asked if simply returning to the old playbook is sufficient, or if the company still needs to focus on long-term competitive differentiation.

Answer

Interim CEO Kevin Sheehan agreed with the premise, stating that while the direction of building new attractions was right, the execution was flawed because the chosen attractions did not appeal to Dave & Buster's core demographic. He clarified the focus is now on finding the right opportunities that drive their existing consumer base back into stores, rather than pursuing differentiation with the wrong products.

Jake Bartlett of Truist Securities inquired about the recent CEO departure, asking for assurance on the continuity of the strategic plan and what attributes would be sought in a new CEO. He also asked for clarification on what aspects of the current execution need course correction and sought more detail on the sales assumptions underlying the new EBITDA guidance for the fiscal year.

Answer

Interim CEO Kevin Sheehan affirmed that the Board and management team remain fully committed to the existing strategic plan, emphasizing his focus on executing its initiatives. For a successor, he outlined the need for a leader with strong strategic vision, operational execution, and financial acumen. CFO Darin Harper explained the EBITDA guidance assumes Q4 sales performance will be similar to Q3 with modest improvements, describing the forecast as a conservative level-setting to help investors navigate calendar shifts and other comparability issues.

Jake Bartlett asked about the recent CEO departure, questioning the continuity of the strategic plan and what course corrections are needed. He also requested more detail on the sales trends underlying the new EBITDA guidance for the fiscal year.

Answer

Interim CEO Kevin Sheehan affirmed the Board's and management's commitment to the existing strategic plan, emphasizing that his focus will be on executing its initiatives. He noted the search for a permanent CEO will target a leader who shares this vision. CFO Darin Harper added that the EBITDA guidance assumes Q4 sales performance will be similar to Q3 with modest improvements, describing the outlook as conservative to account for various comparability challenges.

Jake Bartlett asked about management's confidence in accelerating same-store sales given macro headwinds, whether the double-digit sales lift from remodels is still holding, and the sustainability of margin expansion amid negative comps.

Answer

CEO Christopher Morris expressed long-term bullishness on the company's initiatives, acknowledging that while macro headwinds were felt in Q2, the growing number of remodels coming online provides optimism. CFO Darin Harper confirmed that the initial fully programmed remodels continue to see double-digit sales increases and that the first one, Friendswood, is comping positively in its second year. Morris added that the team is proud of its cost management, which has led to real, sustainable margin improvements that are not going away, positioning them to navigate a challenging top-line environment.

Jake Bartlett from Truist Securities asked about the expected cadence of EBITDA margin expansion, noting that fiscal 2026 guidance implies a slowdown from 2025 before a reacceleration to meet three-year targets. He also sought clarification on recent trends, given comments about a July 'uptick' while forecasting 6% case growth similar to Q4.

Answer

CFO Patrick Hatcher explained that the fiscal 2026 margin cadence reflects investments in the salesforce and onboarding costs for significant new accounts, which may also cause a mix shift. CEO George Holm clarified that while July and August trends were indeed better than Q4, the company is being cautious with its forecast due to market volatility. He also noted the new convenience accounts have a different product mix, which impacts the overall margin percentage but not the absolute profit growth trajectory.

Jake Bartlett of Truist Securities questioned whether the strong April results were influenced by holiday shifts and asked about the implied Q4 margin expectations, productivity measures, and factors behind the minimal expected margin expansion.

Answer

CEO George Holm suggested that the impact of the Easter shift likely 'washed out' and that the company remains cautious due to calendar volatility. COO Scott McPherson explained that the Q4 margin outlook is affected by a tough comparison from a sizable gain in the Convenience segment in the prior year. He emphasized that overall margins are benefiting from favorable mix, profitable new chain business, and procurement synergies from recent acquisitions.

Jake Bartlett questioned why the full-year EBITDA guidance was only raised by the amount of the Q2 beat, while sales guidance was increased more significantly. He also asked if the higher sales outlook was driven by inflation or case growth, and requested details on the acquisitions' Q3 seasonality.

Answer

CFO Patrick Hatcher explained the larger sales guidance increase reflects high confidence in underlying business momentum and the sales pipeline. The more modest EBITDA raise reflects prudence due to macro factors. He confirmed the top-line strength is driven by case growth, not inflation. Management noted Q3 is the acquisitions' strongest quarter but did not provide a specific contribution percentage.

Jake Bartlett of Truist Securities asked about the macro trends impacting consumers, the sales cadence during Q2 in response to promotions, the strategy for the second half of the year, and details on the new loyalty program.

Answer

CEO Kelli Valade described the consumer environment as 'choppy' but noted recent signs of moderation. She confirmed the back half strategy includes new food and value innovation, alongside the imminent launch of a new loyalty program. This program will shift from a generic coupon system to a 'best-in-class' one-to-one marketing platform, expected to drive 50-100 basis points in traffic over time.

Jake Bartlett questioned the basis for management's expectation that negative consumer sentiment will moderate. He also asked about franchisee appetite for deep discount promotions like the BOGO offer, given its marginal profitability.

Answer

CFO Robert Verostek described the outlook as cautious, noting that while the environment is choppy, the company has back-half sales drivers like a new loyalty program and remodels. Both CEO Kelli Valade and CFO Robert Verostek confirmed that franchisees are pleased with the BOGO offer because its ability to drive traffic and transactions is a key priority.

Jake Bartlett from Truist Securities inquired about the 2025 marketing strategy, the balance between value and innovation, the impact of Banda Burrito and the new loyalty program, and sought clarity on recent Keke's franchise agreement terminations and sales volatility.

Answer

CEO Kelli Valade outlined a balanced marketing approach, leveraging the $2 $4 $6 $8 value platform alongside a robust innovation pipeline. She noted the new loyalty program, launching in H2 2025, is a key driver. EVP and CFO Robert Verostek explained the Keke's franchise terminations were due to franchisee-specific financial issues, not brand weakness, viewing it as a strategic opportunity to build corporate presence in Orlando. Valade attributed Keke's recent sales volatility to macro headwinds but expressed confidence in the brand's growth levers like its alcohol program and off-premise business.

Jake Bartlett inquired about the specific same-store sales trend from June into July, the rationale for the wide H2 guidance range, whether the July sales improvement represented expanded market share outperformance, the expected sales lift from the Banda Burrito virtual brand, and the reasoning behind the G&A expense guidance.

Answer

CFO Robert Verostek stated that July sales improved materially to 'pretty much flat' from -1.5% in June, and this represented an expansion of their outperformance versus the industry index. He attributed the wide H2 guidance range to macroeconomic volatility despite confidence in internal initiatives. CEO Kelli Valade added that the Banda Burrito brand is expected to deliver incremental sales volumes similar to their other successful virtual brands. Regarding G&A, Robert Verostek explained the spending level reflects a deliberate investment to grow the Keke's brand while remaining diligent on costs for the core Denny's business.

Jake Bartlett from Truist Securities inquired about the severity of the macroeconomic headwinds, the reasons for the check size drag at franchise locations despite strong traffic, and the source of confidence for accelerating unit growth in 2026.

Answer

CEO Liz Williams explained that consumer headwinds are visible across all income groups, with increased sensitivity to value, especially towards the end of the month. She attributed the franchise check drag to lapping significant price increases from the prior year and some franchisees using deeper discounts. Williams expressed high confidence in future unit growth, citing improved unit-level profitability, lower build-out costs from using second-generation sites, and effective franchisee incentives.

Jake Bartlett asked about regional differences in consumer behavior, particularly regarding the Hispanic consumer, the menu price outlook for the full year, the key drivers of the restaurant-level margin guidance, and for more quantitative details on the momentum in the development pipeline.

Answer

CEO Elizabeth Williams stated the consumer pullback is similar across all markets and income bands, though the Hispanic consumer is under particular pressure. She also expressed strong confidence in the development pipeline, noting that signed leases for 2026 indicate an acceleration beyond the 10 openings planned for 2025. Executive Ira Fils projected a full-year menu price increase of around 3% and mentioned that an internal supply chain optimization initiative, 'Project Fire,' is expected to generate efficiency savings and support COGS.

Jake Bartlett asked about regional consumer behavior, particularly regarding the Hispanic demographic, the full-year menu pricing outlook, the key drivers for the restaurant-level margin guidance beyond simple inflation math, and for more quantitative details on the development pipeline's momentum.

Answer

CEO Elizabeth Williams stated the consumer pullback is broad across all markets and income levels, with the Hispanic consumer facing particular pressure. CFO Ira Fils projected a full-year menu price increase of around 3%, stepping down to 2% in the back half of the year. Both executives detailed that margin guidance is supported by a supply chain optimization initiative called 'Project Fire' and labor productivity gains from new operational routines. Regarding development, Williams expressed high confidence in accelerating openings beyond the 10 planned for 2025, citing a strong pipeline of LOIs and signed leases for 2026.

Asked about regional consumer trends, particularly regarding the Hispanic demographic, full-year menu pricing expectations, factors influencing COGS beyond inflation, and the specifics of the development pipeline momentum.

Answer

Executives noted a broad consumer pullback across all regions and income levels, with the Hispanic consumer under particular pressure. Full-year menu pricing is expected to be around 3%. Restaurant margins are expected to benefit from an internal supply chain optimization project and labor productivity initiatives. The development pipeline for 2026 is building strongly, giving confidence in accelerated unit growth beyond 2025.

Asked about the macro environment, particularly in California, the impact of competitor promotions, the historical performance of the $5 bowl offer, the drivers of the Q3 margin beat, and whether the raised 2024 margin guidance implies a higher target for 2025.

Answer

Executives stated that California is seeing the largest transaction declines, though consumer pressure is widespread. The slowdown is attributed more to their own lack of low-end value offers than competitor actions. The $5 bowl has historically been a responsive promotion. The Q3 margin beat was driven by favorable commodities, lower discounting, product mix, and labor management. The 2025 margin target of approaching 18% remains unchanged.

Jake Bartlett inquired about the macro environment, particularly in California, the impact of competitor value promotions, the historical performance of the $5 Pollo Bowl offer, and the drivers of the Q3 margin outperformance.

Answer

CEO Elizabeth Williams noted that California is experiencing the most significant transaction declines, though consumer pressure is broad. She stated the main competitive pressure comes from low price-point value offers, which El Pollo Loco is now addressing with its own promotions. CFO Ira Fils explained the Q3 margin beat was driven by favorable commodity costs, lower discounting, positive product mix, and strong labor management. He also reaffirmed the company's goal of approaching 18% margins in 2025.

Jake Bartlett inquired about the macro environment's impact, particularly in California, the effect of competitor promotions, the historical performance of the $5 bowl offer, and the drivers of the Q3 margin beat.

Answer

CEO Elizabeth Williams confirmed that California is experiencing the most significant transaction declines but noted that consumer pressure is widespread. She attributed competitive pressures to low-end value offers rather than innovation. CFO Ira Fils explained the Q3 margin outperformance was due to favorable commodity costs, lower discounting, positive product mix, and strong labor management. Fils also reaffirmed the company's goal of approaching 18% margins in 2025.

Jake Bartlett asked about the sales contribution from the Dubai Shake, questioning if the July lift suggested underlying trends were soft. He also inquired about the duration of the promotion and plans to maintain momentum.

Answer

CEO Rob Lynch stated the Dubai Shake performed well, but its sales rate saw a 'very significant lift' only after media was activated, suggesting the pre-media run rate was more modest. He confirmed the shake would run through August and that a full pipeline of new innovation is ready to launch immediately after, emphasizing the company is not a 'one-trick pony.'

Jake Bartlett of Truist Securities asked about the cadence and strategy for LTOs, questioning if the current barbecue menu is different from past versions and how spot innovations fit into the long-term plan.

Answer

CEO Robert Lynch expressed a strong preference for new-to-the-world innovation over repeats. He explained that while the current BBQ platform is a returning favorite, the company is actively building a strategic, stage-gated innovation pipeline for the future. The cadence will remain roughly quarterly, supplemented by beverage and side innovations, all while ensuring new items do not disrupt restaurant operations.

Jake Bartlett of Truist Securities inquired about the cadence of Limited Time Offers (LTOs) for 2025 and the long-term vision for their frequency, noting the absence of a new LTO in early 2025.

Answer

CEO Rob Lynch stated that the right cadence for the brand is likely 3 to 4 major LTO windows per year. He acknowledged that the current Black Truffle LTO has been in the market for over four months, which is likely too long to continue stimulating new trial, even though it has been highly successful. He said the future goal is to strike a better balance between giving guests time to enjoy a popular LTO and refreshing the menu quickly enough to drive new demand.

Jake Bartlett of Truist Securities questioned the magnitude of the long-term margin opportunity, asking what inning the company is in with its initiatives and its overall vision for margins.

Answer

CEO Rob Lynch emphasized that the focus is on sustainable, long-term productivity rather than short-term cuts that could compromise the guest experience. He stressed that driving a performance culture and process improvements are constant priorities. He also noted that supply chain optimizations are focused on efficiency and productivity, not on degrading the brand's signature food quality.

The analyst inquired about traffic trends since the menu launch, plans to sustain momentum, a breakdown of onetime versus ongoing costs in Q1 that pressured margins, and the trajectory for achieving positive free cash flow.

Answer

Sales and transaction growth have remained strong since the launch, up over 5% through April. Future news will not be as significant as the menu transformation to ensure operational focus. Q1 results were in line with expectations, accounting for onetime investments. Onetime costs included about $500k in marketing and $1M in other rollout costs, with a 60 basis point impact on COGS. COGS is expected to be closer to 26% for the rest of the year. The company was slightly free cash flow positive in Q1 and expects to be free cash flow positive in Q3 and Q4.

Jake Bartlett from Truist Securities asked about the sustainability of the new menu's momentum, inquiring how traffic has trended since the launch and what future plans exist to maintain it. He also requested a breakdown of one-time versus ongoing costs from the launch to clarify the Q1 margin pressure, and sought specifics on the company's free cash flow trajectory.

Answer

CEO Andrew Madsen stated that sales and transaction growth have remained strong, up over 5% since the March launch through April, and that while there will be more news later in the year, it won't be on the same scale as the recent transformation. Executive Michael Hynes provided specifics on one-time costs, noting a ~$500k year-over-year increase in marketing and ~$1 million in other rollout costs, which included a 60 basis point impact to COGS. Hynes also clarified the free cash flow outlook, stating the company was slightly positive in Q1 and expects to be free cash flow positive again in Q3 and Q4 after a Q2 dip due to working capital timing.

Jake Bartlett from Truist Securities sought clarification on the underlying strength of Q1 2025 same-store sales trends, questioning the impact of weather, and requested a detailed breakdown of the margin effects from the comprehensive menu transformation, including food, marketing, and training costs.

Answer

Executive Michael Hynes affirmed the +3% Q1 sales trend is sustainable and representative, independent of weather noise. CEO Andrew Madsen clarified that the significant marketing increase is temporary for the launch phase and funded by prior-year testing budgets. Madsen also confirmed the 100 basis point food cost increase is a permanent investment in quality, which, as Hynes noted, is expected to be offset by sales leverage to achieve the full-year margin guidance of 12.5% to 14.0%.

Jake Bartlett of Truist Securities questioned the Q3 sales trajectory, which diverged from the broader industry's recovery. He sought details on the sudden drop in third-party delivery sales, the rationale behind the wide Q4 guidance, and clarification on the company's goal to achieve positive free cash flow in 2025.

Answer

CEO Andrew Madsen attributed the Q3 sales weakness primarily to a sudden decline in a key third-party delivery partner's traffic, which he explained was caused by an algorithm change penalizing their menu markup, not a shift in consumer behavior. He noted that new menu items and promotions have materially improved Q4 trends. Executive Michael Hynes added that the wide Q4 guidance reflects recent market variability. Madsen confirmed the company aims for full-year positive free cash flow in 2025, driven by a significant reduction in capital expenditures to under $15 million.

Jake Bartlett inquired about the 2025 revenue growth composition between volume and price, the potential for tariffs on Canada and Mexico to be a tailwind, and the company's outlook on freight costs.

Answer

CEO Alan Yu projected double-digit volume growth of 10-20% for 2025 and confirmed that pricing will be positive due to announced increases, reversing a multi-year negative trend. He explained that potential tariffs on Canada and Mexico would benefit Karat, as competitors importing from those regions would face price hikes while Karat has already diversified its supply chain away from China to under 10% by June. He also noted that ocean freight costs have dropped and are expected to remain stable, providing a cost benefit.

Jake Bartlett inquired about the scale of the new supermarket opportunity, both in the near and long term, and asked what makes Karat well-suited for this new business line. He also sought to understand the potential impact of the new eco-friendly products launching in Q4 and questioned the long-term sustainability of the company's high gross margins, which are guided to be 39-40% in Q4.

Answer

Executive Alan Yu detailed that the initial supermarket opportunity is an annualized $5-6 million from one account, with potential to grow to $15 million. He explained Karat is shifting focus to higher-volume bakery and deli products like paper containers and bags. On eco-friendly products, he highlighted the move to corrugated boxes and rPET cups with over 25% recycled content to meet market demand. Regarding margins, he affirmed their sustainability, citing the growing contribution from higher-margin online sales and stabilizing ocean freight costs. He also projected overall volume growth could reach 20% in Q4.

Jake Bartlett from Truist Securities asked for examples of successful innovation in 2024 and plans for 2025, and also sought clarity on whether the new Applebee's value menu is a marketing push, a menu reorganization, or based on new offerings.

Answer

CEO John Peyton identified the new dual-brand restaurant concept as a key innovation, citing its initial revenue performance of nearly 3x that of a standalone IHOP. For the new value platform, he confirmed it is a combination of all three: reorganizing the menu around the popular '2 for $25' deal, introducing new items, and supporting it with a major marketing push.

Jake Bartlett asked about the sales trajectory at Applebee's and if guidance implies a Q4 acceleration. He also questioned the role of innovation versus value at Applebee's and asked about the sustainability of the recent G&A savings.

Answer

CFO Vance Chang confirmed that while Q3 was pressured, recent trends show improvement, which is factored into the reaffirmed guidance. Applebee's President Tony Moralejo emphasized that innovation remains critical and is integrated into their new value platform, with 14 new products in the pipeline. Chang explained G&A savings are a mix of variable incentive comp and sustainable efficiencies.