Rahul Krotthapalli

Rahul Krotthapalli asked for an update on the progress of Sweetgreen's 'Project One Best Way' operational excellence initiative, seeking specific metrics on store performance for early rollout cohorts, such as margin improvements. He also questioned the top priority areas for complexity reduction in stores for 2026 and the expected impact of these changes.

Answer

Co-founder and CEO Jonathan Neman reported that the number of 'great' performing restaurants, based on internal audits, doubled in two quarters, showing better comps and customer return rates. He emphasized ongoing efforts in throughput, hospitality, and food quality, citing examples like increased salmon velocity and upgraded rice/quinoa. He also discussed complexity reduction through leveraging value-added partners and streamlining prep processes, like de-stemmed kale and exploring upstreaming dressings.

Rahul Krotthapalli inquired about the progress of the Project One Best Way rollout, seeking specific performance metrics for early cohort stores, and asked about Sweetgreen's top priority areas for complexity reduction in stores for 2026.

Answer

CEO Jonathan Neman reported that restaurants achieving the 'great bar' in internal audits doubled in two quarters, correlating with better comps and customer return rates. He cited a nearly 20% increase in salmon velocity after quality enhancements. For complexity reduction, Jonathan Neman mentioned streamlining tools and processes, leveraging value-added partners, and specific initiatives like de-stemmed kale, with ongoing evaluation of steak cooking, protein marination, and upstreaming dressings to reduce prep hours.

Rahul Krotthapalli of JPMorgan Chase & Co. asked about the marketing strategy outside of the loyalty program to broaden brand appeal and inquired about the trend of the 250 basis point loyalty headwind throughout Q2 and into Q3.

Answer

Co-Founder, CEO & Director Jonathan Neman stated that the best marketing is excellent in-store execution and menu newness, noting the success of the seasonal menu. CFO Mitch Reback explained the loyalty headwind will dissipate, as the deferred revenue component will turn neutral in late Q3 and become accretive, while frequency from former high-value members is recovering. He expects loyalty to be a tailwind by year-end.

Rahul Krotthapalli from JPMorgan Chase & Co. asked how Sweetgreen is thinking about leveraging AI to optimize advertising and marketing spend, particularly for customer acquisition and retention, given the company's leadership in other areas of business transformation.

Answer

CEO Jonathan Neman confirmed that leveraging AI in marketing is a "huge opportunity." He mentioned the company is already using AI in workforce management and customer service and is actively exploring and testing its use in loyalty and customer acquisition. While still in the early days, he expressed hope that AI can help lower the cost per acquisition and improve retention, with several pilots currently underway.

Rahul Krotthapalli from JPMorgan Chase & Co. asked about Sweetgreen's brand positioning on value and sought learnings from the Ripple Fries test, including attach rates and any integration with the loyalty app test.

Answer

CEO Jonathan Neman stated that while the company's value proposition is strong, it will be enhanced by the new loyalty program and the reintroduction of mid-tier priced seasonal menu items. Regarding Ripple Fries, he noted it had the highest attach rate of any side tested and was fully incremental. A key learning was the need to strengthen culinary processes for hot items, which has improved overall operational quality. He did not comment on a loyalty app integration during the test.

Rahul Krotthapalli asked about Sweetgreen's strategy to broaden brand appeal beyond salads to grow its total addressable market, and inquired about in-store productivity improvements from prep simplification and the reinvestment of resulting labor savings.

Answer

CEO Jonathan Neman explained that menu innovation, including protein plates, steak, and tests of items like RippleFries and handhelds, is key to broadening appeal. He stated that simplifying back-of-house prep, such as with de-stemmed kale, creates capacity for this innovation, allowing the company to improve food quality and capture productivity gains.

Rahul Kothapalli asked for a reminder on Planet Fitness's comp and member join waterfall for clubs, especially those opened in the last two years and entering the comp base, and inquired about potential tailwinds if competitors are forced to adopt Click to Cancel.

Answer

CFO Jay Stasz detailed comp trends for new clubs: 40%+ in year one, low to mid-teens in year two, mid-single digits in year three, and low to mid-single digits thereafter. He stated that Click to Cancel is strategically beneficial for member experience, de-risks the business, and has led to increased digital conversions. CEO Colleen Keating emphasized doing the right thing for members, anticipating more municipalities focusing on subscription management, and highlighted the mid-30% rejoin rate as a favorable outcome of empowering members to manage their memberships.

Rahul Krotthapalli asked for a reminder on the comp waterfall and member join waterfall for clubs, specifically how classes of clubs opened in the last two years and those entering the comp base are tracking after the White Card pricing. He also inquired about potential tailwinds if the rest of the industry and competition are forced to adopt Click to Cancel.

Answer

CFO Jay Stasz reiterated that new clubs typically comp in the 40%+ range in their first year, low to mid-teens in year two, mid-single digits in year three, and low to mid-single digits thereafter. Regarding Click to Cancel, Mr. Stasz stated that it is strategically the right approach for member experience, de-risks the business, and has shown a lift in digital conversions, providing a strategic advantage. CEO Colleen Keating added that more municipalities are focusing on subscription management, and Planet Fitness proactively addressed this. She emphasized the mid-30s rejoin rate (34.8% in Q4) as a favorable impact, indicating members feel good about their relationship and return.

Rahul Krotthapalli asked for Planet Fitness's perspective on the HVLP competitive landscape, particularly from local and regional operators. He also inquired about the unit economics and the status of refranchising the corporate-owned clubs in Spain.

Answer

CEO Colleen Keating responded that the company's biggest competitor is the 'fear of walking in the front door,' positioning Planet Fitness's welcoming environment as a key differentiator. Regarding Spain, she stated the clubs are ramping on par with domestic locations and that they are in the very early stages of refranchising discussions to recycle capital.

Rahul Krotthapalli asked for perspective on the private equity landscape regarding franchise ownership and how the mix of ownership might evolve. He also inquired about the company's strategy for managing advertising costs, especially with the potential of AI models to increase efficiency.

Answer

CEO Colleen Keating described the current franchise base as a 'nice complement' of individual and private equity owners, stating that PE owners have been well-capitalized and great development partners. On advertising, she noted the ad fund grows with revenue and that the company sees an opportunity to leverage its scale for more efficient ad procurement. She mentioned new CMO Brian Povinelli is actively engaged in optimizing both the efficiency and effectiveness of the marketing spend.

Rahul Krotthapalli asked about the performance of the new brand refresh campaign relative to expectations and targeted demographics, and how the company is thinking about the impact of 'click to cancel' on churn levels.

Answer

CEO Colleen Keating stated it was too early to discuss the Q1 campaign's performance but noted new CMO Brian Povinelli is fully engaged. Regarding 'click to cancel,' which is active in 11 states and all corporate clubs, she explained they see a short-term (8-12 week) elevation in churn before it moderates back to normal. She emphasized the brand's value proposition and high rejoin rate (around 37-38%) as mitigating factors.

Rahul Krotthapalli asked how Planet Fitness is capitalizing on recent retail store closures for real estate opportunities and about the rollout of the FTC's 'click-to-cancel' feature, including the percentage of clubs with it and its observed impact on churn.

Answer

CEO Colleen Keating confirmed they view retail closures as a significant opportunity and that their real estate team is actively pursuing these sites, noting Planet Fitness's resilience makes it an attractive tenant. Regarding 'click-to-cancel,' she stated it's available in all corporate clubs and across 35% of the system. The impact has been a small initial churn spike that normalizes, with Tennessee being the only state where churn has remained elevated.

Rahul Krotthapalli asked for an update on build cost inflation and cash-on-cash returns for both Texas Roadhouse and Bubba's 33. He also inquired about the company's strategy regarding the increasing company versus franchise mix, asking if there's a conscious goal to reach a certain level.

Answer

Michael Bailen (VP of Investor Relations) stated that Texas Roadhouse's average all-in investment cost is expected to increase to $8.9 million in 2026 (from $8.3-$8.4 million in 2025) due to higher rents and California openings. Bubba's 33 investment costs are expected to decrease by over $500,000 to $8.4-$8.5 million due to building work and conversions. He noted they target a mid-teen IRR for new restaurants, which they are achieving or exceeding. The transcript did not contain an answer regarding the company versus franchise mix strategy.

Rahul Krotthapalli of JPMorgan Chase & Co. asked for details on restaurant 'bump outs,' including capacity added and future availability, and inquired about the remodel schedule for the chain's older assets.

Answer

Executive Michael Bailen explained that bump outs typically add 20 to 40 seats and that over half the system has already been expanded. CFO David Monroe added that new stores are now built with the capacity for future bump outs. Regarding remodels, David Monroe stated there is no top-down program; instead, they work with operators to keep stores fresh, safe, and enjoyable, ensuring capital is invested as needed based on individual store conditions.

Rahul Krotthapalli from JPMorgan Chase & Co. asked about the risk of grocery stores discounting beef, which could shift demand to at-home consumption. He also inquired about potential impacts from the presidential election and a shorter holiday season.

Answer

CFO David Monroe acknowledged that a lack of retail discounting on steak has benefited them, and a shift in that trend would be a risk. Regarding macro events, management noted that past election cycles had little impact on trends, and a similarly short holiday calendar in 2019 did not cause any significant issues.

Rahul Krotthapalli asked about the company's strategy regarding fees and menu pricing with its DoorDash exclusivity, and for an update on the current delivery mix. He also inquired about the possibility of extending the DoorDash partnership across all other brands.

Answer

President David Gordon stated the company's intent is to avoid taking extra price for delivery, maintaining only a 2-3% difference from in-restaurant menus, leveraging its long-standing DoorDash relationship. He reported Q4 off-premise sales at 22% (10% delivery, the rest split between online and phone pickup). He clarified that all concepts owned by the company are already covered under the existing DoorDash agreement.

Rahul Krotthapalli asked about the company's strategy regarding DoorDash partnership, fees, and menu pricing, current delivery mix, and the possibility of extending the partnership to all other brands.

Answer

President David Gordon highlighted the long-standing DoorDash partnership, which allows the company to maintain competitive pricing with only a 2%-3% differential from in-restaurant menus. He reported Q4 off-premise sales at 22% of total sales, with 10% from delivery. He clarified that all concepts owned by the company are already covered under the existing DoorDash agreement.

Rahul Krotthapalli asked for an explanation of the dynamics around the company's convertible notes, including the potential for dilution upon conversion and the extent of any hedging.

Answer

Matthew Clark, Executive VP & CFO, explained that the strike prices are around $70-$71. For the larger $575 million note, he noted that even at a stock price of $80, the resulting dilution would be a manageable 1.5%, which he termed a 'high-class problem' that would be favorable for all investors. He implied that the decision to extinguish the notes would be based on economic factors.

Rahul Krotthapalli inquired about the potential AUV and margin profile for a mature Flower Child restaurant, noting the company's model seemed conservative, and also asked for its off-premise sales mix.

Answer

EVP and CFO Matt Clark acknowledged the AUV modeling is conservative, noting some units exceed $6 million, and that mature margins are strong at 17% and accelerating. He highlighted the brand's unique competitive moat. He also stated that Flower Child's sales mix is approximately 50% on-premise and 50% off-premise, which is a unique hybrid model.

Rahul Krotthapalli asked about the specific lift in independent case volumes and wallet share increase observed in existing and new customers in markets with Pronto Next Day penetration, given Pronto is now in 46 markets with about half on Pronto Next Day. He also inquired about the opportunities and challenges of deploying AI tools in sales force training and onboarding, and whether these tools could enable the sales force to handle a significantly higher number of clients in the future.

Answer

Dirk Locascio (CFO, US Foods) noted a meaningful, typically double-digit uplift in customers using Pronto Next Day, with no cannibalization of broadline business, expecting it to be a long-term growth driver. Dave Flitman (CEO, US Foods) confirmed that AI tools free up seller time, leading to increased productivity and the ability to see more customers, and sees AI opportunities in product training and accelerating sales force productivity.

Rahul Krotthapalli asked about the impact of Pronto, now in 46 markets with half on Pronto Next Day, specifically inquiring about the lift in independent case volumes and wallet share increase observed in existing and new customers in these markets. He also asked about the opportunities and challenges of onboarding new sales force members and training existing ones with AI tools, and whether these tools could significantly increase the number of clients a salesperson can handle.

Answer

CFO Dirk Locascio noted a meaningful, typically double-digit, uplift in independent case volumes and wallet share from both legacy Pronto and Pronto Next Day, without cannibalizing Broadline business, positioning Pronto as a long-term growth driver. CEO Dave Flitman confirmed that AI tools are already increasing sales force productivity by freeing up time, allowing them to handle more customers. He sees limitless AI opportunities for product training and accelerating sales force effectiveness.

Rahul Krotthapalli of JPMorgan Chase & Co. asked about the potential for productivity gains from the Descartes routing software once fully deployed, questioning if the current 2% improvement is a sustainable estimate. He also inquired about the preliminary economics and learnings from the new Aurora semi-automated facility.

Answer

CFO Dirk Locascio explained that the 2% productivity gain from Descartes is 'the start,' with more benefits expected in future years as the system is fully integrated. Regarding the Aurora facility, Locascio stated it is too early to share specific economics as it is in the initial ramp-up phase, but it is expected to improve customer experience, associate safety, and productivity, with learnings to be applied to future projects like the one in Austin.

Rahul Krotthapalli asked for more details on the new generative AI tools for the sales force, their impact on new account generation, whether they were developed internally, and where the technology might be applied next.

Answer

CEO Dave Flitman and CFO Dirk Locascio explained that the new tool, launched late last year, aims to boost sales force productivity by automating manual tasks like creating customer proposals. While it's early to quantify the impact, they are excited about its potential. They clarified that this specific tool was developed internally in close collaboration with business operators, and it represents an early stage of their broader strategy to leverage AI.

Rahul Krotthapalli of JPMorgan Chase & Co. asked if Wendy's would reconsider its U.S. franchise development plans beyond 2026 given the operational improvements needed, and at what point customer satisfaction scores would translate to same-store sales growth.

Answer

Interim CEO & CFO Ken Cook and Chief Accounting Officer Suzie Thuerk affirmed their commitment to improving franchisee economics through new granular, restaurant-level data analytics to identify profit opportunities. Cook stated that improving restaurant economics is the key driver for future development. Regarding customer satisfaction, Cook described it as a 'flywheel' with a cumulative effect, noting that satisfaction scores are already up 140 basis points YoY for employee-assisted orders and even more for digital, which they believe will gradually build customer frequency.

Rahul Krotthapalli questioned the plan to develop 300 new U.S. units given the current challenging trends. He asked if this was still the right level of development and whether the company might revisit its plans or manage its U.S. store portfolio more aggressively.

Answer

Kirk Tanner, President and CEO, stated that there are no changes to development plans beyond 2025. He contextualized the growth by noting that approximately 70% of new restaurants are planned for outside the U.S., where the international business is 'firing on all cylinders.' For the U.S., he expressed confidence that the 'model of excellence' and new hospitality initiatives will drive significant improvements to both sales and profitability.

Rahul Krotthapalli of JPMorgan Chase & Co. asked about U.S. franchisee profitability, cash-on-cash returns for new stores versus pre-COVID, and whether the current franchisee count is optimal.

Answer

CEO Kirk Tanner stated that 2024 franchisee profitability data is still being collected but noted good improvement in 2023 and expects further improvement in 2024, using the 80 basis point expansion in global company restaurant margin as a proxy. He highlighted that new restaurants are opening with average unit volumes (AUVs) double those of the restaurants that were closed. He also mentioned the build-to-suit program is expanding the pool of franchisees who can develop new units.

Rahul Krotthapalli asked about the profitability of Delivered Fresh Daily (DFD) doors, managing last-mile delivery costs, the potential for longer shelf-life products, driving productivity from Hot Light Theater shops, and the expected timeline for completing international refranchising deals.

Answer

President & CEO Joshua Charlesworth explained that DFD profitability is achieved in high-traffic doors with high visibility, and the shift to third-party logistics provides predictable costs. He also noted that the new COO is focused on optimizing production hub efficiency. CFO Raphael Duvivier added that the company is targeting one to two international refranchising deals to be completed within the current year, with proceeds used to pay down debt.

Rahul Krotthapalli asked about the outlook for capital expenditures following recent strategic changes and inquired about the decision to pause the McDonald's rollout, seeking to understand if it was driven by demand issues or capital allocation priorities.

Answer

CFO Jeremiah Ashukian stated that the top capital priority is strengthening the balance sheet and paying down debt, with the McDonald's rollout rephasing allowing for reduced spend. CEO Joshua Charlesworth added that the McDonald's partnership pause is a joint decision to ensure the model is profitable for both parties before further expansion.

Rahul Krotthapalli asked for more color on the decline in DFD weekly sales per door, which was attributed to customer mix, and inquired if the company quantified the cybersecurity incident's impact on 2025 EBITDA guidance.

Answer

CFO Jeremiah Ashukian explained the average sales per door (APD) decline was driven by a shift in customer mix, as high-APD partners like Walmart now constitute a smaller percentage of the total DFD footprint. He did not quantify the 2025 EBITDA impact from the cyber incident but noted lingering operational inefficiencies in Q1. CEO Josh Charlesworth confirmed that business operations are now fully restored.

Rahul Krotthapalli from JPMorgan Chase & Co. sought details on the McDonald's partnership, asking about customer attach rate data and the extent of digital marketing support through the McDonald's app. He also requested quantification of the financial impact from the vehicle accident claims mentioned.

Answer

CEO Joshua Charlesworth noted that while Krispy Kreme doesn't receive specific consumer attach rate data from McDonald's yet, sales tracking and positive feedback confirm the partnership is meeting projections. He praised McDonald's comprehensive digital and social media marketing support. CFO Jeremiah Ashukian quantified the vehicle accident headwind, stating it was an incremental expense of almost $3 million in Q3, which has been factored into the updated guidance.

Rahul Krotthapalli asked about future CapEx levels, considering Chili's remodels and Maggiano's growth, and whether M&A could re-enter the picture given the company's delevered balance sheet.

Answer

CFO Mika Ware indicated CapEx could ramp up for reimages, with specifics to come next quarter. She reiterated the capital allocation priorities are investing in the business, paying down debt, and then returning cash to shareholders, likely via share repurchases. She stated M&A is not on the radar, as the current focus is on the turnaround and growth opportunities within the Maggiano's brand.

Rahul Krotthapalli from JPMorgan Chase & Co. asked about the exposure to tourism in NY and CA and the company's plans to leverage social media and influencers to drive traffic.

Answer

CFO Katherine Fogertey confirmed that tourism pressures in key markets like NYC and LA impacted Q1 and that these pressures are factored into the full-year guidance. CEO Robert Lynch added that earned social media is a core marketing pillar, citing the viral success of the Dubai chocolate shake launch, which was heavily promoted through influencers and generated massive social engagement.

Rahul Krotthapalli of JPMorgan Chase & Co. asked about the new Atlanta support center, inquiring about its long-term capabilities and the company's strategy for attracting expensive tech talent.

Answer

CEO Rob Lynch clarified that the company is moving away from a 'headquarters' concept to 'Shack support centers' in New York, Hong Kong, and now Atlanta. Atlanta is not a relocation but an expansion to access a new talent pool more efficiently. He highlighted that the new Chief Information and Technology Officer will be based there, and the location provides access to a hotbed of restaurant, operations, and tech talent from over 60 nearby universities, aiding in recruitment for their tech build-out.

Rahul Krotthapalli of JPMorgan asked how the real estate strategy has evolved for new stores in existing delivery trade areas, referencing past concerns about sales transfer.

Answer

CEO Rob Lynch responded that the company continues to get smarter about opening new Shacks in penetrated markets to minimize cannibalization. He framed market density as a net positive, stating that as they scale and penetrate markets further, they gain supply chain, operating, and marketing efficiencies that benefit the restaurant margin line.

Rahul Krotthapalli asked about the potential industry impact of deregulation and management's thoughts on adding a fast-casual brand to the portfolio.

Answer

Executive Ricardo Cardenas stated that while reduced regulation would be beneficial, he would not speculate on policy. He reiterated that Darden is a full-service restaurant company and does not plan to enter the fast-casual space, noting that its scale and expertise are in full-service. He also argued that consumers age into casual dining, regardless of their preferences when younger.

Rahul Krotthapalli asked how CAVA's new market entry strategy is evolving with its growing brand awareness and what specific preopening or marketing tactics are driving the success of new stores.

Answer

CFO Tricia Tolivar explained that the core strategy remains a balanced pipeline, but strong new store performance allows them to lean more heavily into greenfield markets. She revealed that they have not used significant incremental marketing for 2024 openings and even pulled back in Chicago due to overwhelming success. The key drivers remain their cost-effective community day events and social media engagement.

Rahul Krotthapalli of JPMorgan Chase & Co. questioned the marketing drivers behind the mobile order mix and asked about lessons learned from other companies to avoid operational issues during the rollout.

Answer

CEO Christine Barone explained that the 7% mobile order mix is currently driven by organic adoption through the Dutch Rewards app, in-store signage, and word-of-mouth. She emphasized their careful, service-focused rollout, which included reinvesting labor savings into service, leveraging existing kitchen display systems for seamless integration, and pacing the launch based on direct feedback from shop crews to resolve issues proactively.