Sharon Zackfia

Sharon Zackfia asked about Carnival's marketing strategy, specifically the marketing spend as a percentage of sales in 2025 and the outlook for 2026. She also inquired about how Carnival is adapting its consumer targeting strategies, particularly in the digital landscape, given changes in consumer behavior and the effectiveness of channels like SEO.

Answer

President and CEO Josh Weinstein acknowledged that marketing is one of the fastest-changing areas due to technology and AI. He stated that Carnival is leveraging third-party tools to keep pace with evolving consumer search behaviors, emphasizing the need for nimbleness and thoughtful reallocation of marketing dollars. He noted that marketing spend as a percentage of revenue is not spiking dramatically, remaining around 3.5%, and the focus is on optimizing both top-of-funnel consideration and closing bookings.

Sharon Zackfia from William Blair & Company, L.L.C asked about early guest feedback and potential improvements for Celebration Key, and sought clarification on whether the loyalty program's impact on yields next year is entirely second-half weighted.

Answer

CEO Josh Weinstein noted positive early feedback for Celebration Key, with ongoing efforts to fine-tune operations, including scheduling adjustments for multiple ships, adding more shade and umbrellas, and improving a rocky beach stretch. CFO David Bernstein confirmed that the loyalty program's impact on yields is indeed second-half weighted, following its implementation in June 2026.

Sharon Zackfia asked about early learnings and guest feedback from Celebration Key, specifically what aspects Carnival might amplify or improve. She also inquired if the anticipated loyalty program's negative impact on yields next year is entirely weighted towards the second half of the year.

Answer

CEO Josh Weinstein shared that early learnings from Celebration Key include optimizing ship scheduling for multiple vessels, adding more shade lounges and umbrellas, and addressing a rocky stretch of beach over time. He also mentioned ongoing tweaks to food and beverage offerings, emphasizing the team's strong execution from opening. CFO David Bernstein confirmed that the loyalty program's impact on yields is indeed weighted to the second half of 2026, following its implementation in June.

Sharon Zackfia from William Blair asked about early learnings and guest feedback from Celebration Key, specifically what aspects Carnival is looking to amplify or improve. She also sought clarification on whether the projected "loyalty hit" to yields next year from the Carnival Rewards program is entirely weighted to the second half of the year.

Answer

CEO Josh Weinstein detailed early learnings from Celebration Key, including optimizing ship scheduling for multiple vessels, adding more shade lounges and umbrellas, addressing a rocky beach stretch, and refining F&B offerings. He emphasized continuous improvement based on guest feedback. CFO David Bernstein confirmed that the loyalty program's impact on yields is indeed weighted to the second half of 2026, following its implementation in June.

Sharon Zackfia asked if the new spend-based loyalty program is expected to boost onboard spending and how the company plans to use real-time data to facilitate this. She also requested an update on the percentage of onboard revenue that is pre-booked before a cruise.

Answer

CEO Josh Weinstein affirmed the goal is to increase engagement and that earning points through spending is a positive incentive, but deferred detailed discussion until the program launches. He explained the primary driver for the change was operational, as the high number of guests in top loyalty tiers made it difficult to deliver benefits effectively. He also stated that the pre-booked onboard revenue percentage is slightly higher but more or less the same as the previously mentioned 35%, with the focus being on total onboard spend growth rather than a specific pre-booking target.

Sharon Zackfia asked if the new loyalty program, which rewards total spend, is expected to boost onboard spending and requested an update on the percentage of onboard revenue that is pre-booked before a cruise.

Answer

CEO Josh Weinstein explained that a key goal of the new program is to increase guest engagement, and rewarding total spend is a positive element. He noted the program also helps manage the operational challenge of having a very high number of guests in top loyalty tiers. Regarding pre-cruise sales, he stated the percentage is 'more or less the same' as the roughly 35% figure from a year ago, emphasizing the focus is on providing guest choice rather than hitting a specific pre-booking target.

Sharon Zackfia asked about the expected magnitude of the GPU reset in the February quarter and identified customer cohorts where CarMax might be less competitive, inquiring about the strategy to win them back. She also asked if CarMax would proactively lower finance rates to gain conversion, similar to a competitor.

Answer

Enrique Mayor-Mora (EVP and CFO) stated that margin reductions, supported by marketing, would be meaningful to narrow the market gap, with details to follow in the Q4 call. Jon Daniels (EVP, CarMax Auto Finance) noted a loss of volume in the higher FICO segments (650-750) and emphasized a broader offering beyond just competitive APRs. Enrique Mayor-Mora added that SG&A, COGS, CAF, and EPP levers would enhance competitiveness.

Sharon Zackfia inquired about the expected magnitude of the GPU reset in the upcoming quarter and identified specific customer cohorts where CarMax might be less competitive, asking for the strategy to regain these customers. She also asked if CarMax would proactively lower finance rates to boost conversion, similar to a competitor.

Answer

Enrique Mayor-Mora, EVP and CFO, stated that margin reductions, supported by marketing, would be meaningful to narrow the market gap, with impacts to be discussed in the Q4 call. Jon Daniels, EVP of CarMax Auto Finance, noted a loss of volume in the higher FICO segments (650-750) and emphasized a holistic approach including pricing and overall offering. Enrique added that SG&A and COGS reductions, along with CAF and EPP growth, provide levers for increased competitiveness.

Sharon Zackfia asked about CarMax's strategy for reinvesting the $150 million in SG&A savings, specifically if the bulk would be directed towards consumer pricing or selection to drive top-line growth and address past market share volatility. She also questioned the price elasticity of demand and its potential to stimulate profitable sales.

Answer

President and CEO Bill Nash confirmed that some SG&A savings would be reinvested directly into sales-driving initiatives, with additional flexibility from other business profits to support pricing. He acknowledged price elasticity but explained that the decision to adjust prices depends on various factors, including variable expenses, operational capacity, and ancillary profit attachment, which change with market conditions.

Sharon Zackfia asked if CarMax plans to reinvest the bulk of its $150 million SG&A savings into consumer pricing and selection to drive top-line sales and regain market share, and whether there is sufficient price elasticity of demand to stimulate profitable sales.

Answer

Bill Nash, President and CEO, confirmed that some SG&A savings would be reinvested directly into sales-driving initiatives, and additional profit from other business segments would also provide flexibility for pricing. He acknowledged price elasticity, explaining that the decision to adjust prices depends on various factors including variable expenses, operational capacity, ancillary profit attachment, and competitor actions, which change with market conditions.

Sharon Zackfia explored the strategy behind reinvesting the $150 million in SG&A savings, asking if the bulk would be directed towards consumer pricing or selection to drive top-line sales and regain consistent market share. She also questioned the price elasticity of demand and its potential to stimulate profitable sales through more aggressive pricing.

Answer

President and CEO Bill Nash confirmed that some SG&A savings would be reinvested into sales-driving initiatives, including pricing. He highlighted the importance of generating additional profit from other business areas to provide flexibility for pricing investments. Nash acknowledged price elasticity but emphasized that the optimal strategy depends on various factors like variable expenses, operational capacity, and ancillary profit attachment, which are constantly evaluated.

Sharon Zackfia of William Blair & Company, L.L.C. asked about the progress made in expanding to full-spectrum lending and whether to expect CAF penetration to increase year-over-year in the second quarter.

Answer

EVP of Auto Finance Jon Daniels stated that while growth was muted in Q1 by external factors, the company has made progress and expects material growth in penetration in the quarters to come, though the 50% target won't be hit this year. President & CEO Bill Nash added that penetration speed is governed by both funding availability and credit model testing.

Sharon Zackfia asked about the drivers behind the market share performance disparity between the first and second halves of the fiscal year and what lessons CarMax learned from recent affordability challenges.

Answer

CEO William Nash explained that a significant price correction late in the prior year masked underlying improvements in the first half. The second-half acceleration was driven by better execution, efficiency gains, expanded inventory sourcing, and a more stable pricing environment. He noted that lessons learned include sharpening their focus on 6-to-10-year-old vehicles, expanding sourcing channels like Max offer, and gaining financing flexibility through a new non-prime ABS structure to capture more sales.

Sharon Zackfia inquired whether the recent sales improvement was driven more by conversion than traffic and how much to attribute to lower industry prices versus internal initiatives.

Answer

CEO William Nash stated that the performance was primarily driven by improved conversion, as web traffic was relatively flat. He described the success as a combination of external factors, like vehicle price stabilization, and significant internal execution improvements, such as the new customer shopping hub that reduces friction.

Sharon Zackfia asked about the profitability outlook for CarMax Auto Finance (CAF), questioning if the current period represents a trough in year-over-year income decline and when CAF income might resume growth, considering both higher losses and lower funding costs.

Answer

SVP Jon Daniels explained that while Net Interest Margin (NIM) has been stable around 6%, the loan loss provision was impacted by an 'outsized' $52 million adjustment on the existing portfolio this quarter due to observed performance changes. EVP & CFO Enrique Mayor-Mora added that this adjustment was roughly $30 million larger than what might have been typical in recent quarters, suggesting it may not be a recurring event at that magnitude.

Sharon Zackfia asked if entertainment comparable sales also improved sequentially throughout the October quarter. She also sought clarification on November trends and what level of comparable sales growth is needed to achieve unit-level margin expansion.

Answer

CFO Darin Harper confirmed sequential improvement in the entertainment line during the quarter and stated that November trends were performing similarly to October (down approximately 1%). He indicated that unit-level margins can expand with 'flattish' or positive comparable store sales growth, highlighting ongoing margin enhancement initiatives.

Sharon Zackfia asked if entertainment comparable store sales also improved sequentially throughout the October quarter, similar to food, and sought clarification on November trends. She also asked what level of comparable store sales growth is needed to achieve unit-level margin expansion.

Answer

CFO Darin Harper confirmed that entertainment comps also saw sequential improvement during the quarter. He clarified that November trends were performing similarly to October, indicating a total comp decline of approximately 1%. He stated that Dave & Buster's can manage and expand margins with flattish comparable store sales growth, highlighting ongoing margin enhancement initiatives.

Sharon Zackfia asked if the sales improvement seen in March and April included a rebound from the lower-income consumer, a group that had previously shown disproportionate weakness.

Answer

CFO Darin Harper responded that while credit card data has a delay, making it too early to confirm a trend, the company believes its strategic shifts will attract this demographic. He specifically cited the return to TV advertising and the promotion of value offerings like the Eat & Play Combo as key initiatives designed to drive visitation from the lower-end guest.

Sharon Zackfia of William Blair inquired about the current brand relevancy with core customers based on company research and asked about the utilization rates of the new social bays and arenas in remodeled stores.

Answer

CFO Darin Harper responded that consumer research shows customers love the brands and that relevancy is driven by entertainment innovation, which is the focus of their strategy. Regarding the new social bays and arenas, he noted that utilization varies by store due to different layouts and placements. He stated that the company is still 'scratching the surface' on guest usage and is focused on improving engagement through training, staffing, and pricing to drive more traffic.

Sharon Zackfia asked about the current brand relevancy with core customers based on company research and inquired about the utilization rates of the new social bays and arenas in remodeled stores.

Answer

CFO Darin Harper responded that consumer research shows customers love the brands and that relevancy is driven by entertainment innovation, which is the focus of their strategy. Regarding utilization, he explained it varies by store due to layout differences but believes they are 'just scratching the surface' on guest usage and awareness, with teams focused on driving more engagement through training, pricing, and staffing.

Sharon Zackfia asked about observations regarding younger guests (25-35 year olds) and the impact of consumer challenges, as well as learnings on how to leverage the loyalty program in the current volatile consumer climate.

Answer

CEO Brett Schulman noted that the younger cohort (25-35 year olds) is showing less frequency than last year due to macroeconomic pressures like student loan repayment and inflation. He highlighted CAVA's strong value proposition, with sub-$13 bowls and price increases less than half the industry average. The loyalty program has grown 36%, with new tiered status levels and status matching, proving effective in driving engagement and trial, as seen with chicken shawarma users showing higher frequency.

Sharon Zackfia asked about specific trends observed with younger guests and how CAVA is leveraging its loyalty program in the current volatile consumer climate.

Answer

Matt Milanovich, Head of Investor Relations, clarified that younger cohorts (25-35) are showing less frequency due to broader macro pressures, not specific CAVA challenges. Brett Schulman, CEO, emphasized CAVA's strong value proposition, including sub-$13 bowls and underpricing CPI. He highlighted the loyalty program's 36% member growth, new tiered status, and its effectiveness in driving trial and frequency, citing Chicken Shawarma as an example.

Sharon Zackfia from William Blair & Company, L.L.C. asked about the new Assistant General Manager (AGM) role, its rollout plan, and whether it is primarily an HR pipeline initiative or an operational one.

Answer

CEO Brett Schulman explained the AGM role is both a pipeline and operational initiative. He stated that with new stores generating very high volumes, the role provides necessary leadership support, especially on nights and weekends, while also building a deeper bench of future General Managers to support growth.

Sharon Zackfia of William Blair & Company inquired about the upcoming tiered loyalty program, asking for details on its structure and the key drivers behind the recent surge in member engagement.

Answer

CEO Brett Schulman explained that the loyalty program's success, marked by a 340 basis point increase in revenue contribution, stems from a new earn-and-bank model that lowered the reward threshold for mid-frequency guests. He noted the program is adding over 50,000 members weekly, approaching 8 million total. The next phase involves a tiered structure to offer enhanced benefits to the most frequent and passionate guests.

Sharon Zackfia from William Blair inquired about the accelerated growth in G&A expenses for 2025 and the long-term outlook for G&A leverage.

Answer

CFO Tricia Tolivar clarified that when excluding stock-based compensation, G&A is expected to grow at a slower rate than revenue, ensuring leverage over time. She emphasized that the company is strategically investing ahead of its growth curve to build a foundation for long-term success.

Sharon Zackfia asked about the health of Carvana's subprime loan portfolio, the potential need for incremental reserves, and the timing behind the formalization of new third-party loan sale agreements.

Answer

Mark Jenkins, Chief Financial Officer, explained that Carvana's 2024 and 2025 loan originations are performing extremely well, both absolutely and relative to industry comparables, following tightened credit in late 2023. He cited stability in other GPU and external validation from Ally's upsized agreement and two new purchase agreements as evidence. The formalization of these agreements represents a maturation of existing relationships, making previous one-off sales more programmatic.

Sharon Zackfia inquired about the health of Carvana's subprime loan portfolio, potential needs for incremental reserves, and the timing behind formalizing new third-party loan agreements.

Answer

Mark Jenkins, Chief Financial Officer, stated that Carvana's 2024 and 2025 loan originations are performing extremely well, both absolutely and relative to industry comparables, attributing this to tightened credit in late 2023. He cited stability in other GPU and validation from Ally's upsized agreement and two new purchase agreements as evidence. The formalization of agreements represents a maturation and continuation of existing relationships, making previous one-off sales more programmatic.

Sharon Zackfia from William Blair & Company, L.L.C. asked for details on Carvana's marketing strategy, including current brand awareness levels, the focus of new campaigns (brand vs. direct), and for specific metrics on aided brand awareness compared to peers.

Answer

CEO Ernie Garcia explained that the goal of increased marketing is to build a foundation for long-term growth, leveraging the large gap between GPU and operating expenses. He confirmed they are testing both brand and direct channels to improve awareness, understanding, and trust, but politely declined to provide specific internal metrics.

Sharon Zackfia from William Blair & Company, L.L.C. asked for metrics on Carvana's national brand awareness and whether the company's marketing efforts are focused more on brand building or conveying a specific message.

Answer

CEO Ernie Garcia explained the goal of marketing is to lay the foundation for long-term growth by investing in awareness, understanding, and trust. He confirmed they are testing a mix of direct and brand marketing channels, including a new brand campaign, but purposely declined to provide specific brand awareness metrics.

Sharon Zackfia sought clarification that reinvesting gains applies to future improvements without near-term GPU reduction, asked how these reinvestments are prioritized, and requested a definition for "reasonable margin ranges."

Answer

CEO Ernie Garcia confirmed there is no plan for an "imminent reduction in margin," clarifying that the strategy is to share *future* fundamental gains with customers. He explained that reinvestments can be in value (price, rates) or experience (simplicity, speed), with a focus on what best drives the business. He declined to provide a specific definition for "reasonable margin ranges," emphasizing the need for long-term flexibility while prioritizing growth.

Sharon Zackfia from William Blair & Company asked about the primary drivers of future gross profit per unit (GPU) versus leveraging the operational component of SG&A, and questioned if the impact of faster delivery times on customer conversion could be quantified.

Answer

CEO Ernie Garcia stated that while fundamental gains are still possible across all GPU components, he expects the majority of future gains will be passed on to customers to drive growth. He highlighted that the path to the high end of their long-term EBITDA margin target is clear through SG&A leverage. Garcia confirmed that reduced delivery times materially improve conversion but declined to provide a specific quantification, noting it remains a key focus for improvement.

Sharon Zackfia inquired about the capital expenditure for ADESA integrations compared to initial estimates and the current percentage of sales fulfilled via same-day delivery.

Answer

CEO Ernie Garcia explained that the current ADESA integrations are a 'lighter CapEx version' to quickly unlock benefits, with plans to circle back for more investment later. He noted same-day delivery is available to 35% of the US population but is still a small fraction of sales, with a phased rollout planned. CFO Mark Jenkins reiterated the minimal CapEx due to using existing ADESA land and buildings.

Sharon Zackfia asked for details on the meaningfulness and actual results of the High-Efficiency Equipment Package (HEAP) throughput in pilot locations, which management referred to as potentially yielding a "step function" change. She also inquired about the company's pricing strategy for the end of the year.

Answer

CEO Scott Boatwright noted that HEAP is still in early innings, currently in 175 restaurants with another 100 planned for the current quarter, and will be in all new openings. He expressed optimism, citing early signs of labor efficiency gains, better culinary, improved food and guest experience scores, and better labor distribution during peak hours, leading to improved throughput. CFO Adam Rymer indicated that the 2% price currently running is expected to fall off in December, though testing in a small number of restaurants might occur, keeping the strategy fluid.

Sharon Zackfia asked about the impact and actual results of the High-Efficiency Equipment Package (HEAP) on throughput in pilot locations, specifically if it's yielding a 'step function' improvement. She also inquired if Chipotle expects to exit the year with no price increases.

Answer

Scott Boatwright (CEO) stated that HEAP is in early stages (175 restaurants), but they are observing labor efficiency gains, improved culinary, better food and guest experience scores, and enhanced throughput due to better labor distribution during peak hours. He couldn't provide specific metrics yet but indicated positive trends. Adam Rymer (CFO) mentioned that the 2% price increase currently in effect is expected to fall off in December, though testing in a small number of restaurants might occur.

Sharon Zackfia inquired about business trends by income cohort, geography, and channel, specifically asking about potential weakness in delivery and plans to amplify the rewards program.

Answer

CEO Scott Boatwright and CFO Adam Rymer confirmed the slowdown is broad-based, with no notable divergence by income or geography. Scott Boatwright acknowledged some softness in white-label delivery as customers shift to pickup, and detailed ongoing efforts to improve the digital experience through AI-driven personalization and customer journey optimization.

Sharon Zackfia of William Blair & Company asked about the full-year restaurant-level margin outlook, the 'tale of two halves' dynamic, and the potential to accelerate harvesting efficiencies to offset portion investments.

Answer

CFO Adam Rymer confirmed the 'first half, second half' story for margins, with pressure early and relief later as the portion investment is offset. He stated the ultimate goal is to drive incremental margins through transaction growth. He detailed that of the 60 basis point portion investment, about 10bps is being recovered, with the rest to be offset by produce slicer efficiencies and supply chain initiatives, which will fully materialize in the second half of the year.

Sharon Zackfia asked about plans for further international licensee partnerships following the success with Alshaya and whether the company is committed to owning its European locations. She also inquired if the Hyphen automated makeline is helping with labor deployment.

Answer

Interim CEO Scott Boatwright confirmed the Alshaya partnership is performing exceptionally well and that Chipotle will strategically look for other global partners, while continuing to own its restaurants in North America and Europe. Regarding Hyphen, he explained that its primary benefit is unlocking digital demand and improving order accuracy for bowls and salads, which frees up employees to focus on other tasks, thereby improving overall capacity and the guest experience.

Sharon Zackfia asked if the softness in consumer trends began in October or earlier in Q3, and whether the expectation for sales improvement in 2026 was due to specific initiatives or easier comparisons.

Answer

Matt Clark, EVP and CFO, indicated that while September had some choppiness, the significant shift in softness occurred in October, correlating with industry data and past government shutdowns. He attributed the anticipated 2026 sales improvement to both new menu initiatives enhancing value, lower effective price points, and easier comparisons in the latter half of the year, alongside a more constructive consumer outlook.

Sharon Zackfia asked if the observed softness in consumer demand began in October, potentially linked to the government shutdown, or if there was a waning trend in the latter part of the third quarter. She also inquired if the expectation for sales improvement in 2026 was due to specific initiatives or easier comparisons.

Answer

Matt Clark, EVP and Chief Financial Officer, indicated some choppiness in September, partly due to lapping prior rewards programs, but noted the bigger shift in October, correlating with past government shutdown impacts. He explained that the anticipated sales improvement in 2026 is a combination of factors, including three significant menu changes enhancing value, materially lower effective price points, and easier comparisons as the company laps the consumer noise that began in early April, alongside expectations for a more constructive consumer outlook.

Sharon Zackfia requested more detailed metrics on The Cheesecake Factory's rewards program, such as member frequency and spend lift. She also asked about the differences in customer interaction between the rewards programs at Cheesecake Factory and Flower Child.

Answer

David Gordon, President, kept details high-level but confirmed that rewards members show higher frequency, check average, and NPS scores. He noted a shift to targeted, data-driven offers has increased redemption rates to 4% or higher, up from 1% with broad-based offers. He explained that Flower Child's program is a traditional, app-based points system for spend and visitation, fundamentally different from Cheesecake Factory's non-points-based program.

Sharon Zackfia of William Blair & Company asked for quantification of how potential tariffs would impact the P&L and how the company plans to absorb them. She also inquired about the potential for the loyalty program and marketing to become significant growth drivers in 2025.

Answer

EVP and CFO Matt Clark stated that tariffs would primarily impact other operating expenses and that the company is well-positioned to absorb the impact through existing efficiencies, cost reductions, vendor negotiations, and potential minor pricing adjustments. President David Gordon added that the Cheesecake Rewards program is exceeding acquisition expectations and that a new, more personalized offer strategy is driving higher engagement, positioning it as a promising lever for 2025.

Sharon Zackfia questioned the path for Cheesecake Factory and North Italia unit-level margins to improve toward the high-teens and asked for clarification on how the reservation system operates without harming table productivity.

Answer

EVP and CFO Matt Clark affirmed that North Italia's margin target is 16-18%, in line with Cheesecake Factory, and that its margins will improve with pricing catch-up and operational initiatives. He noted Cheesecake's margin is on an upward trajectory. President David Gordon explained that a limited number of reservations are offered per hour and tables are not held, which protects restaurant throughput and sales.

Sharon Zackfia observed that e-commerce growth outpaced retail stores, potentially for the first time since 2023, and asked if this reflects a change in consumer shopping behavior or was influenced by clearance activities.

Answer

CFO Meghan Frank attributed the e-commerce outperformance to a slight decline in traffic for both channels, coupled with an uptick in e-commerce conversion. She also noted that higher markdowns in the quarter, which are typically cleared through e-commerce channels, contributed to this dynamic.

Sharon Zackfia asked about the company's preparedness for potential U.S. tariff impacts following the election and how Lululemon's sourcing exposure compares to that of its peers.

Answer

CFO Meghan Frank stated that the company is monitoring the situation and has very limited direct exposure, with approximately 3% of goods sourced from China and less than 0.5% from Mexico. She believes this positions them favorably relative to some competitors. While a broad-based tariff on all imports would have a more significant impact, she noted the company would seek opportunities across its P&L to manage through it.

Sharon Zackfia of William Blair & Company, L.L.C. asked if same-store sales were improving in the third quarter and questioned the primary operational issues, such as accuracy, portioning, or speed, and whether incremental labor was needed to address them.

Answer

Co-Founder, CEO & Director Jonathan Neman confirmed that Sweetgreen has seen a modest improvement in Q3 same-store sales, driven by the seasonal menu and loyalty program. He stated the main operational focus is on people and culture, highlighting that head coach stability is at an all-time high. He also introduced 'Project One Best Way,' an initiative led by the new COO to improve throughput and elevate food standards, which includes a 25% increase in chicken and tofu portions to enhance value.

Sharon Zackfia from William Blair inquired about the underperformance in key legacy markets like New York and Boston, asking if it was due to a decline in perceived value or specific operational issues.

Answer

CEO Jonathan Neman attributed the weakness in core markets to several factors. He noted that the removal of the seasonal menu, which historically drove frequency, has impacted habituated users. He also pointed to the transition to a new, broader loyalty program as a key opportunity to re-engage customers. Finally, he acknowledged operational opportunities, particularly in improving portioning, accuracy, and speed on the digital make-lines in dense urban environments.

Sharon Zackfia of William Blair asked for clarification on the 1% underlying comp trend, questioning if the decline from 4% was due to traffic loss or price rolloff, and requested a bridge to the full-year guidance.

Answer

CFO Mitch Reback confirmed that the company rolled off one point of price. To bridge from the current trend to the full-year guidance, he detailed a sequence of growth drivers: the launch of Ripple Fries in March, a new loyalty program in April, a major chef collaboration in May, and the reintroduction of popular summer and fall seasonal menus. These initiatives are expected to lift transaction volumes and comps sequentially through the year.

Sharon Zackfia inquired about the expected average cost and downtime for Infinite Kitchen retrofits based on early learnings, and asked about the margin impact on COGS from the first full quarter of selling steak.

Answer

CFO Mitch Reback stated that retrofit downtime is store-dependent but the current standard is around 6-7 weeks. He noted that steak has higher COGS and exerted slight upward pressure on the COGS line, but the impact was not overly significant.

Sharon Zackfia of William Blair & Company, L.L.C. asked for an update on speed and throughput initiatives, requesting any available metrics and insights into the most effective levers for improvement.

Answer

CEO Christine Barone described their current efforts as "basic blocking and tackling" with a long runway for improvement. She attributed recent transaction growth to a combination of factors, particularly better labor deployment to match demand during promotions. She also highlighted the recent rollout of "speed dashboards" that provide teams with real-time performance data to motivate improvement.

Sharon Zackfia asked how the company is managing its development pipeline to account for potential construction delays and material costs. She also followed up on the expected growth trajectory for mobile ordering.

Answer

CEO Christine Barone explained that they de-risk the development schedule by maintaining a pipeline that is larger than their annual opening target, which provides flexibility for shops to roll into the following year if needed. Regarding mobile ordering, she reiterated that the internal focus is on ensuring steady, manageable growth to maintain high service levels and operational stability, rather than pushing for rapid acceleration.

Sharon Zackfia asked for a comparison of member engagement and visitation at clubs with increased strength training versus a baseline cohort. She also questioned if the trend was significant enough to warrant adding even more strength equipment.

Answer

CEO Colleen Keating confirmed that overall utilization and visits per club are rising, suggesting the new format is resonating. She said they are evaluating adding more of specific high-demand equipment and have also increased floor space for functional training. CFO Jay Stasz noted the new system-wide NPS survey helps gather this feedback.

Sharon Zackfia asked about the impact of macroeconomic volatility on the business and whether there have been any notable changes in the competitive landscape, particularly from less well-positioned peers.

Answer

CEO Colleen Keating stated that reiterating guidance reflects their confidence in consumer resilience, noting the business performed well during the Great Financial Crisis. She highlighted that fitness is a lifestyle for Gen Z and millennials, who prioritize experiences over products. CFO Jay Stasz added that the brand's value proposition positions it well to potentially benefit from members trading down from higher-priced gyms.

Sharon Zackfia inquired about the drivers behind the increased mix of Black Card members, the potential for continued trade-up, the status of the Black Card pricing test, and the consumer response to the new, more inclusive marketing message.

Answer

CFO Jay Stasz confirmed the Black Card pricing test is ongoing through at least Q1 and that the company is seeing a nice lift in Black Card penetration to 64%, attributing it to the strong value proposition given the small price gap with the Classic Card. CEO Colleen Keating added that while it's too early to comment on the new marketing campaign's performance, social sentiment has been very favorable regarding the shift to more strength equipment.

Sharon Zackfia asked for quantification of the SG&A investments planned for Q4 and their specific purpose, and whether these investments included efforts to directly stimulate new franchise development.

Answer

CFO Tom Fitzgerald explained that while he could not provide specific quarterly guidance, the increased SG&A spend is for strategic investments to support the new CEO's initiatives. This includes marketing to evolve the brand's positioning ahead of Q1 and certain IT investments to prepare for 2025. He clarified that the spend is not for direct franchise development incentives, as member growth is the primary driver for that.

Sharon Zackfia of William Blair & Company, L.L.C. inquired about the drivers of the negative product mix despite increased kiosk usage and questioned the strategic path to achieving mid-teens revenue growth by 2026.

Answer

CEO Michael Osanloo expressed confidence in reaching mid-teens revenue growth in 2026 by building momentum in newer markets like Texas through sustained marketing and loyalty programs. CFO Michelle Hook clarified that the negative mix was due to consumer trade-downs (e.g., smaller-sized items), which offset the lift in items per transaction driven by kiosks.

Sharon Zackfia asked about the performance of Q4 2024 restaurant openings, questioning whether the slow start was due to economic pressures or a brand portability issue in new markets like Houston, and how the updated revenue guidance accounts for new unit performance.

Answer

CEO Michael Osanloo attributed the slower start to lower brand awareness in new markets rather than a portability issue, noting that guest satisfaction metrics remain high. He outlined plans to increase field marketing to build awareness. CFO Michelle Hook clarified that the revised revenue guidance primarily reflects the performance of the 'class of 2024' restaurants and is not a downward revision of expectations for future openings.

Sharon Zackfia asked for quantification of the year-to-date weather impact and inquired about the potential throughput gains from improving drive-thru speed.

Answer

CFO Michelle Hook stated that while the weather impact was not quantified, the company remains confident in its full-year 0% to 2% comp guidance, with momentum expected in the latter half of the year. CEO Michael Osanloo added that every 30-second improvement in drive-thru speed equates to approximately one point of comp, with a full rollout of speed initiatives expected to impact the back half of the year.

Sharon Zackfia of William Blair inquired about the progress on a potential loyalty program and requested an update on drive-thru speed of service initiatives.

Answer

President and CEO Michael Osanloo stated that the company is making good progress on a loyalty program and expects to make an announcement in early 2025. Regarding operations, he noted that while the 'low-hanging fruit' for improving drive-thru speed has been captured, more work is needed on complex issues to drive further momentum.

Sharon Zackfia from William Blair & Company asked about alcohol mix trends, the potential of the beer club, the geographic focus for new unit development, and the company's comparable sales outlook for the second half of the year.

Answer

CEO & President Lyle Tick acknowledged a long-term decline in alcohol incidence but highlighted the success of new items like hard root beer and a focus on 'total beverage,' including non-alcoholic options. He stated the beer club is being evaluated for expansion. For new units, the strategy is to build out from existing core markets. For the back half, he reiterated the full-year comp sales expectation of approximately 2%, which accounts for a slow start to July and the timing of new initiatives.

Sharon Zackfia of William Blair asked for data on the customer profile acquired via the Pizookie Meal Deal and inquired about the site selection strategy for future new restaurants.

Answer

President Lyle Tick responded that while there's slightly more traffic growth from lower-income cohorts during the week, the overall customer income mix has not fundamentally changed, with traffic growing across all cohorts. Regarding site selection, Interim CEO Brad Richmond and Lyle Tick explained the near-term focus is on infill in existing markets to leverage brand awareness, infrastructure, and operational supervision, which helps drive consideration in non-California markets.

Sharon Zackfia of William Blair questioned the current brand positioning of pizza and beer and whether the 'cautious consumer' comment for Q1 was based on observed behavior.

Answer

President Lyle Tick affirmed that pizza and craft beverages remain core equities, though pizza has a stronger association in California. He highlighted a major initiative to 'renovate' the pizza platform to improve guest satisfaction. Regarding the consumer, Tick stated that on balance, the consumer remains resilient, especially in higher-income households, and that recent sales softness was primarily attributed to weather, not a major shift in consumer behavior.

Sharon Zackfia asked if BJ's plans to reclaim its heritage in beer and pizza. She also inquired about a portfolio review and the potential for any significant restaurant closures.

Answer

President Lyle Tick responded that the company's strategy work will involve reviewing the brand's authentic origins, including its brewhouse DNA, to inform future direction, but he did not commit to a specific focus on beer and pizza without further data. Interim CEO Brad Richmond added that any menu changes must be guided by consumer research. Regarding the portfolio, Richmond stated that virtually no restaurants are cash-flow negative and there is no compelling urgency for widespread closures, though they will continue to evaluate underperforming locations.

Sharon Zackfia asked about the company's marketing plans and whether they intend to bifurcate messaging, using brand awareness campaigns in some markets and more direct calls-to-action in others like New York.

Answer

CEO Rob Lynch confirmed this is their strategy, detailing a recent test across 15 markets. Some markets promoted the Dubai Shake with a culinary brand message, while others promoted a 'Dollar Drink' offer to drive app downloads. He noted they are gathering data from these tests to refine their targeted messaging for future campaigns.

Sharon Zackfia from William Blair questioned the ideal frequency for new product innovation and LTOs, and how the company balances the need for newness with maintaining operational efficiency and throughput.

Answer

CEO Robert Lynch stressed that the focus is on innovation that simplifies, not complicates, operations. He explained that the company is building a process to ensure new items are operationally sound before launch, using the limited Dubai Chocolate Shake as an example of an item that required operational simplification before a wider rollout could be considered. The goal is to support innovation with equipment, processes, and supply chain management.

Sharon Zackfia of William Blair questioned Shake Shack's exposure to potential tariffs on Canadian or Mexican imports, given the uncertainty in the commodity environment.

Answer

CEO Rob Lynch stated that the vast majority of ingredients for company-operated Shacks are sourced domestically, so direct exposure is not significant. However, he explained that indirect impacts are possible, as shifts in the broader market (e.g., other restaurants substituting away from high-cost items) can affect domestic pricing. He emphasized that their supply chain strategy focuses on creating multiple sources of supply to mitigate such risks.

Sharon Zackfia of William Blair asked if strategic product innovation aims to fill specific menu gaps and if the recent wait time improvements were consistent across all channels.

Answer

CEO Rob Lynch clarified that the goal is not to fill gaps in the core menu but to create more harmony between the core offerings and LTOs to drive mix. Regarding wait times, he confirmed they are seeing overall improvement across channels, which is necessary to enhance the guest experience for dine-in, drive-thru, and third-party delivery.

Sharon Zackfia from William Blair & Company, L.L.C. asked about the pace of menu innovation, given the success of the relaunched tenders, and whether it might accelerate in 2026 with the Smart Kitchen fully rolled out. She also inquired if specific products or flavors were planned to target the lunch and late-night daypart opportunities.

Answer

President and CEO Michael Skipworth responded that the company is just 'scratching the surface' with existing platforms like tenders and the chicken sandwich, which have massive addressable markets, suggesting significant runway without needing a wave of new items. He and SVP & CFO Alex Kaleida added that for dayparts like lunch, the focus may be more on packaging and combos for existing products rather than entirely new menu items, as tenders and sandwiches already index well in those periods.

Sharon Zackfia followed up on the membership program, asking how it is trending as a percentage of DTC sales in the U.S., if sign-ups occur in stores, and how the program is faring in Europe.

Answer

President of Americas David Kahan confirmed that membership is growing in both the Americas and Europe. He stated the company will soon be 'fully omni-capable' for in-store sign-ups but emphasized that the key benefit comes from personalized engagement with these 'brand fans,' which drives higher spending and return on investment.

Sharon Zackfia inquired about pre-booking trends, asking if consumer willingness to pre-book has changed and if cruise lines are increasingly using onboard spend credits. She also questioned if cruise lines were pulling back on investments in their pre-booking technology platforms.

Answer

Executive Leonard Fluxman responded that pre-booking remains strong and consistent at 23% of revenues, with a recent rollout on Virgin Voyages expected to help. He confirmed that cruise lines are not pulling back on their focus on pre-booking technology. Furthermore, he noted that cruise lines have not yet started using onboard credits more aggressively, as booking trends remain robust across the industry.

Sharon Zackfia of William Blair & Company inquired about the primary drivers of the 30% same-spa revenue growth in Medi-Spa, questioning if it stemmed from higher ticket prices or increased traffic. She also asked if the services gross margin had reached a new normalized run rate.

Answer

CEO Leonard Fluxman attributed the Medi-Spa growth to a strategic focus on the modality, including adding more doctors and nurses to meet demand and optimizing facility utilization. Regarding margins, Fluxman clarified that there were no fundamental pressures and that the variance from Q3 was due to revenue levels impacting fixed cost absorption.

Sharon Zackfia asked about potential tariff risks from the upcoming election, the possibility of sustaining revenue growth above the long-term algorithm, and the future strategy for managing debt on the balance sheet.

Answer

CFO Stephen Lazarus stated that the company does not anticipate a significant impact from tariffs, as most products are handled in bonded warehouses for international distribution. He also affirmed the company is comfortable with its high single-digit long-term revenue growth algorithm for now. Regarding capital allocation, he explained the focus will shift from aggressive debt paydown to a more balanced approach that includes share repurchases and dividends.

Sharon Zackfia asked about the specific drivers of accelerating spa productivity, including any technology or AI enhancements, and also questioned the factors behind strong product margins and their potential ceiling.

Answer

Executive Chairman Leonard Fluxman attributed productivity gains to higher guest traffic and menu simplification, clarifying that AI initiatives are in early development and not yet impacting results. CFO Stephen Lazarus added that improved product margin is driven by productivity and reduced discounting, not Medi-Spa attachment, and is supported by a favorable long-term supply agreement.

Sharon Zackfia of William Blair & Company asked which service channel (walk-in, drive-thru, or mobile) is furthest from the 4-minute service goal and if production for these channels can be better aligned.

Answer

CEO Brian Niccol identified mobile ordering as the biggest challenge due to its 'first in, first out' nature with no sequencing, which creates congestion at the handoff counter. He contrasted this with the more controlled, governed flow of the drive-thru. The key focus is to fix the mobile ordering process to eliminate this choke point, which will improve the experience for both mobile and in-cafe customers, allowing for better service and connection.

Sharon Zackfia asked about the sustainability of the recent positive shift in menu mix and inquired about the current status and incrementality of the delivery business.

Answer

Hajime Uba, via interpreter Benjamin Porten, expressed confidence that the period of significant negative mix is over, crediting successful marketing and lapping previous side-menu price hikes. Regarding delivery, Benjamin Porten described it as incremental but noted that its potential is currently limited because high in-store traffic often forces them to cap delivery throughput to prioritize in-restaurant guests.

Sharon Zackfia asked for management's postmortem on the sales slowdown from April to August, questioning the role of promotional tie-ins versus macro factors like the FAST Act. She also inquired how savings from future tech initiatives would be allocated between reinvestment and profit, and requested the specific traffic metric for the quarter.

Answer

CEO Hajime Uba, via interpreter Benjamin Porten, stated that the company's thinking aligns with the industry view that the slowdown was a national macro factor, though IP collaborations also played a role. Regarding tech savings, Mr. Uba explained the initial goal is to return labor levels to what was seen in fiscal '23. CFO Jeff Uttz provided the Q4 traffic figure, which was negative 2.4%.

Inquired about the new house opening schedule for the rest of the current year and for 2025, and asked about the expected impact on in-house revenues in the second half of the year as they lap the Hollywood strike.

Answer

The company plans to open Soho Mews House in London this year, with Manchester and Barcelona slated for next year. Future openings include Madrid, Milan, and Tokyo. Regarding the Hollywood strike, while the impact isn't fully gone, they have seen improved member spend across houses and expect that trend to continue.

Sharon Zackfia of William Blair & Company asked for an update on the new house opening schedule for the remainder of the current year and for 2025. She also inquired about the expected impact on in-house revenues in the back half of the year as the company laps the Hollywood strike.

Answer

CEO Andrew Carnie confirmed plans to open the Soho Mews House in London this year, with Manchester and Barcelona slated for next year, followed by Madrid, Milan, and Tokyo. Regarding the Hollywood strike, he stated that while the industry is still in transition, member spend improved across all houses in the quarter and he is confident this will continue.

Sharon Zackfia asked about the recent improvement in member satisfaction scores, questioning if it was a global trend or concentrated in specific regions. She also inquired about the reason for the continued decline in the Soho Friends membership base.

Answer

CEO Andrew Carnie explained that while satisfaction is measured globally, the most significant improvement was seen in North America, which he attributed to recent leadership changes and targeted improvement initiatives. CFO Thomas Allen clarified that the decline in Soho Friends members is intentional, resulting from a strategic de-emphasis to focus resources on the core Soho House membership.

Sharon Zackfia asked about the improvement in member satisfaction scores, questioning if it was a global trend or concentrated in specific regions. She also asked for the reason behind the continued decline in the Soho Friends membership base.

Answer

CEO Andrew Carnie responded that while satisfaction is measured globally, the most marked improvement was seen in North America, which he attributed to recent leadership changes and targeted improvement initiatives. CFO Thomas Allen explained that the decline in Soho Friends members is intentional, reflecting a strategic de-emphasis to focus resources on the core Soho House membership.