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DATE
Wednesday, August 13, 2025 at 4:30 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Dave Pace
Chief Financial Officer — Todd Wilson
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RISKS
Comparable restaurant revenue declined 3.2% in Q2 2025, with a 5.5% decrease in guest traffic.
Management indicated that increased ground beef and poultry costs represent a $2 million to $3 million commodity headwind in the back half of 2025.
The company revised total revenue guidance downward to approximately $1.2 billion from the prior range of $1.21 billion to $1.23 billion for FY2025, due to an expected comparable restaurant sales decline of 3%-4% for the remainder of 2025.
"Big Yum" promotion is expected to cause a near-term, approximately 1% drag on restaurant-level profit margin in the second half of 2025, divided roughly equally between labor and other P&L items.
TAKEAWAYS
Total Revenues-- $283.7 million in Q2 2025, reflecting a decrease compared to $300.2 million in Q2 2024.
Comparable Restaurant Revenue-- Decreased by 3.2%, composed of a 4.4% net menu price increase and a 5.5% drop in guest traffic for Q2 2025.
Restaurant-Level Operating Profit Margin-- 14.5%, an improvement of 270 basis points for Q2 2025, driven entirely by a 300 basis point labor efficiency gain.
Adjusted EBITDA-- Adjusted EBITDA was $22.4 million in Q2 2025, an increase of $8.8 million versus Q2 2024 due to cost efficiencies, higher menu pricing, and reduced marketing spend.
G&A Expense-- with a full-year forecast for G&A expense lowered to about $80 million versus $87 million previously for FY2025, including $8 million in non-cash stock-based compensation in the revised outlook.
Selling Expenses-- $6.4 million in selling expenses in Q2 2025, down from $12 million in Q2 2024, but expected to total about $32 million for 2025 due to increased marketing investment in the second half.
Cash & Liquidity-- $24.4 million in cash and cash equivalents, $9.2 million in restricted cash, and $37.5 million available on the revolving credit line at the end of Q2 2025.
Debt Reduction-- $20 million repayment during Q1 and Q2 2025, with $169 million in principal remaining; net debt to adjusted EBITDA is approximately two times on a trailing twelve-month basis.
New Value Offering-- "Big Yum" deal launched July 21 at $9.99, with about 9% guest participation in the Big Yum deal during the first three weeks of the promotion and an associated 2%-3% drag on per-person average (PPA) observed in early Q3 2025 following its launch.
Traffic Trends-- Exiting Q2 2025, traffic was declining by approximately 4% at the start of Q3, but management indicated initial improvement in guest traffic following the "Big Yum" launch.
Franchise Performance-- About 20 previously unprofitable company-operated restaurants turned profitable on a trailing twelve-month basis as of Q2 2025; franchisees remain engaged and are matching some operational improvements.
Restaurant Portfolio-- Forecast for 386 company-owned locations at 2025 year end, reflecting expedited closure of certain underperforming sites.
Capital Expenditures-- Anticipated at the higher end of the $30 million 2025 capital expenditures guidance, focused on deferred maintenance and facility refresh initiatives across 20 pilot restaurants.
2025 Guidance-- Projected total revenue of about $1.2 billion for FY2025, restaurant-level operating profit margin of 12%-13%, and adjusted EBITDA of $60 million to $65 million for FY2025, with expectations for comparable restaurant sales to decline 3%-4% for the remainder of the year.
Marketing & Technology Investments-- Pending rollout of advanced, data-driven guest targeting and additional technology upgrades aimed at supporting efficiency and guest experience.
Refranchising Initiative-- Early-stage discussions with prospective franchisees underway; more details to be provided at the November call.
Menu Pricing Outlook-- No further price increases planned for 2025; expected menu price carry-over of 4.5%-5% in Q3 2025, stepping down to 2%-2.5% in Q4, with menu optimization studies in progress.
SUMMARY
Management deployed the First Choice plan in early Q2, emphasizing operational efficiency, targeted value offerings, and strategic investments to counter declining traffic and drive long-term improvement. Executive leadership has completed approximately $20 million in debt repayment through Q2 2025 and achieved approximately two times net debt to adjusted EBITDA on a trailing twelve-month basis, which supports ongoing refinancing negotiations. The company is broadening marketing outlays in the second half to promote initiatives like "Big Yum" and anticipates near-term pressure on margins, partly mitigated by previously realized cost savings and lower selling costs in the first half.
The company is piloting facility upgrades in approximately 20 restaurants ahead of its First Choice marketing launch later this year, before a wider rollout, with capital spending allocated accordingly.
Guidance for comparable restaurant sales remains negative 3%-4% for the remainder of 2025, factored into the updated full-year revenue outlook.
"CFO Wilson said, 'we didn't expect to take any further price in 2025,' and outlined a roadmap for gradual step-down in menu pricing benefit through 2026."
Refranchising discussions are at an initial phase, with management planning to outline concrete steps or impact details during the November earnings call.
"CEO Pace said, 'Our refranchising initiative will provide additional capital to accelerate these investments while strengthening our balance sheet for the long term.'"
INDUSTRY GLOSSARY
PPA (Per-Person Average): Average check per guest, measuring revenue generated per diner.
Deferred Maintenance: Accumulated repairs or upgrades postponed due to budget constraints, now targeted for strategic investment.
Refranchising: The process of selling company-owned restaurants to franchisees to enhance capital efficiency and shift business risk.
Twelve-Month Trailing (TTM): Financial metric calculated over the previous twelve consecutive months, used here for profitability and leverage ratios.
Full Conference Call Transcript
Dave Pace: Good afternoon, everyone, and thank you for your interest in Red Robin. Since stepping in as CEO in early Q2, challenges facing our business have come further into focus. At the core, it's imperative that we return the business to sustained growth in traffic, and same-store sales. As we assess the opportunities, we unveiled our First Choice plan last month, and our team has been busy executing against this bold plan to position Red Robin for long-term success. While our top-line performance during the second quarter is not yet reflective of what we believe Red Robin is capable of, we strongly believe the strategy we put in place will turn the ship around.
We're moving quickly to put all aspects of our plan in motion. Today, I'll walk you through where our focus has been in the first thirty days of the implementation of our First Choice plan, along with addressing some of the highlights from our second quarter. To quickly recap, our First Choice plan consists of the following.
Operator: First,
Dave Pace: hold serve. Protect and build on the foundations established under the North Star plan. Second, drive traffic. Creatively engage with guests, inspire visitation.
Operator: Third,
Dave Pace: find money. Manage profits, expenses, and assets to reduce debt and allow for critical reinvestment. Fourth, fix restaurants. Invest in the physical estate to improve the overall dining experience. And fifth, win together. Create a high-performance environment that attracts and retains the best talent in the industry. Through this plan, our goal is threefold. To make Red Robin the first choice for guests searching for a differentiated restaurant experience, team members looking for a great place to work, and investors seeking reliable returns on their investments. With a clear plan in place, we've been hard at work executing the First Choice plan and are seeing positive early results creating even greater conviction in our long-term plan to capture these opportunities.
First, let's talk about hold serve. As we spoke to on our last call, we were very pleased with both the level of labor our operators achieved in the first quarter and how fast they achieved it. Given that we expected it to accelerate more gradually through 2025. As we formulated the First Choice plan, we made hold serve the first pillar in the plan to focus our operators on maintaining this level of execution going forward. The great news is that in Q2, our operators continue to do what they do best. Run great restaurants, and deliver great food and service.
The increased efficiency they achieved in the second quarter drove a 270 basis point improvement year over year, restaurant level operating profit margin entirely driven by 300 basis points of labor improvements. At the same time, our operations team has been able to maintain our guest satisfaction scores at or above previous levels. Turning to our drive traffic initiative. As we think about our path back to positive traffic growth, we know that we need to build sustainable traffic that we are not overly reliant on LPOs or aggressive discounting for long-term success, while still being responsive to the marketplace and the need states of our guests.
We know that it will not be any single initiative that drives our success. Instead, we're building traffic driving layers. We believe getting these layers to work in unison will be the key to our success in the long term. The first step in building these layers was to address our weak competitive positioning in price point value offers. As we surveyed the competitive landscape, it was abundantly clear that price-pointed value offerings under $10 are essential to help break through the noise, to drive trial and consideration. In today's environment. To address this, on July 21, we launched the Red Robin Big Yum Burger deal.
Which includes a Red's Double Tavern Burger, a bottomless side, and a bottomless beverage, starting at $9.99. In addition, the Big Yum deal has been thoughtfully structured to offer trade-up opportunities like extra burger patties, bacon, avocado, or upgraded sides and beverages, designed to help mitigate check pressure while still delivering strong value to guests. Now it's still early days, but we're encouraged that the Big Yum has been successful in improving traffic relative to our Q2 exit rate. Which started the third quarter at an approximate 4% decline to date. At the same time, we're capturing significant insights that will feed into the next phase of our marketing approach.
Our second traffic driving layer will be a state-of-the-art data-driven approach that we expect will begin to roll out late in Q3. micro-targeting capabilities, As we've mentioned before, this approach incorporates that we expect will allow us to engage guests more personally, precisely, and efficiently than traditional broad-based messaging other performance marketing capabilities. This unique and innovative approach leverages a proprietary mix of tools, analysis, and competitive strategy to understand guest decision-making behaviors, enabling us to deliver deeply personalized tactics to place Red Robin as the first choice in our guest consideration set. Effectively competing with larger, more resourced brands in our space, will not be successful by just mirroring their strategies.
Our approach will leverage these proprietary analytics that will help level the playing field at the restaurant level in a highly efficient manner. While we intend to take a modest step up in our marketing spend in the second half of the year, we're maintaining our adjusted EBITDA guidance of $60 million to $65 million as we balance traffic growth investments, with disciplined profitability management. I want to be clear. We don't expect traffic trends to turn overnight. But we're building the foundation for sustainable, profitable growth through this combination of immediate value offerings and long-term analytical capabilities that we expect will position Red Robin to compete more effectively for guest consideration and frequency.
Next, let me update you on our find money initiative. As Todd will speak to in a moment, our operating results in terms of EBITDA generation exceeded our expectations in the first half of the year, giving us incremental capital to address our most pressing challenges.
Operator: In addition,
Dave Pace: the corporate efficiency initiatives that we spoke to on our last call have been completed and we continue to expect to see a $3 to $4 million benefit in G and A in 2025, with the full $10 million run rate expected to be achieved in 2026. While we're maintaining our current EBITDA guidance for the year, some of the upside from the first half of the year will be invested in key projects that we anticipate will be the drivers of our future top-line growth success. Including investments in marketing, and critical deferred maintenance that I'll discuss in a moment. Turning to refranchising.
Since we launched our outreach efforts with Brookwood Associates last month, we've been pleased with the initial reception, and conversations we're having with both existing and potential new franchisees. The level of interest we have seen only underscores my confidence in the relevance of our iconic brand and showcases the expectation that Red Robin will succeed in the long term. This will be a thoughtful and planful process we intend to provide further details on our November earnings call as discussions progress. Next, I want to touch on our fixed restaurants effort. Investments and upgrades we've made over the past two years in food and elevated the guest experience.
The next leg of this journey is to fix our restaurants to better align the atmosphere with modern-day standards and achieve parity or better with the broader casual dining industry. To achieve this, we plan to invest in critical deferred maintenance, including flooring updates, internal finishings, furniture repairs, and external improvements like paint, lighting, and landscaping. That directly impact guest perceptions and their experience. The pathway to address the entire system will take time, but we're taking a strategic approach to piloting refreshes across approximately 20 restaurants in four markets ahead of our First Choice marketing launch later this year.
This will allow us to understand the impact of these packages and fine-tune where to invest additional capital ahead of a more fulsome company-wide rollout. While we're in the very early stages of this initiative, I'm pleased with the image that our refreshed restaurants will present and believe it will set a more inviting foundation to complement our traffic growth objectives and actions. As I alluded to earlier, we're able to fund and accelerate these initial investments due to the EBITDA upside we saw in the first half of the year. Going forward, we will judiciously meter out further investments as funds become available through the remainder of the year.
Lastly, I want to talk about the win together plank of our strategy. As I've visited restaurants over the last three months, I heard team members tell me that they knew what we needed to do, but they needed help to do it. They wanted a value offering to be able to compete in the marketplace. We wanted to be able to fix their restaurants to address long-standing maintenance and repair issues. They wanted technology and tools within the restaurant to help them execute more efficiently to deliver the improved operating performance that they're being asked to deliver.
As we drive our guest-centric culture, we looked at each of these problems through the lens of our guest perceptions, and we've committed to giving our operators the tools and environment that they need to be successful. During the last two quarters, we completed new technology implementations with more to come. By taking this approach and listening closely, to the input from our restaurant teams, our operators see that we're in this together and we're working by their sides to support them and give them the tools that they need to win and deliver the results that we are asking for.
With that in mind, I want to extend a heartfelt thank you to the more than 20,000 team members we have across the country. Your dedication to outstanding hospitality every day is what drives our success, and we'll be key to driving our future results. We're very pleased with the profitability performance of the business in the second quarter. And I look forward to winning together as we continue to work to drive the comeback. Of this iconic brand.
In closing, while we're in the early stages of this transformation, we expect the combination of our improved operational efficiency strategic marketing initiatives, updated physical estate, and upcoming refranchising transactions, will position us well to deliver on our commitment to make Red Robin the first choice for guests, team members, and investors. With that, Todd will now review our second quarter results. Thank you, Dave, and good afternoon, everyone. In the second quarter, total revenues were $283.7 million versus $300.2 million in 2024. Comparable restaurant revenue decreased 3.2% including a 4.4% increase in net menu price, offset by a 5.5% decline in guest traffic.
Guest traffic trends decelerated through the quarter, which we attribute to further increases in competitive promotional activity and our intentionally reduced selling expenses as we developed our new marketing strategy. Restaurant level operating profit as a percentage of restaurant revenue was 14.5% an increase of 270 basis points compared to 2024. This was primarily driven by the continued success of our operations team delivering significant gains in labor efficiency. General and administrative costs were $17.4 million as compared to $16.6 million in 2024. Selling expenses were $6.4 million a decrease as compared to $12 million in 2024. As I've mentioned earlier, we intentionally slowed some of our marketing activity during the quarter as we developed our new marketing strategy.
While we believe this reduction contributed to our traffic decline, as we move through the quarter, it was a necessary transition phase that now positions us to fully fund the First Choice plan through the remainder of the year. Adjusted EBITDA was $22.4 million in 2025, an increase of $8.8 million versus 2024. Adjusted EBITDA increased due to cost efficiency gains particularly in labor, the benefit of menu price increases, and reduced selling expenses. We ended the quarter with $24.4 million of cash and cash equivalents, $9.2 million of restricted cash, and $37.5 million available borrowing capacity under our revolving line of credit.
Of our financial priorities in 2025 is to position the company to refinance the term loan that matures in 2027. Through the first two quarters, we repaid approximately $20 million of debt resulting in an outstanding principal balance under the credit agreement at quarter end of $169 million. The debt reduction coupled with our significant gains in adjusted EBITDA results in a net debt to adjusted EBITDA ratio of approximately two times leverage on a trailing twelve-month basis. We believe this positions us well as we now begin to engage in substantive refinancing discussions with potential lending partners. Turning to our outlook. We will now provide the following guidance for 2025.
First, total revenue of approximately $1.2 billion as compared to our prior guidance of $1.21 billion to $1.23 billion. This incorporates expectations that comparable restaurant sales will decline 3% to 4% the remainder of the year, and we will end 2025 with 386 company-owned restaurants in operation. Second, restaurant level operating profit of 12% to 13% in line with our prior guidance third, adjusted EBITDA of $60 million to $65 million also in line with our prior guidance. Finally, we now expect capital expenditures on the higher end of our prior guidance of approximately $30 million as we implement the First Choice plan and launch investments to fix restaurants.
As we shared in July and as Dave alluded to earlier, we expect to use EBITDA over delivery to invest back into our business to drive traffic gains and address deferred maintenance in our restaurants. The strong profitability results from both first and second quarter support our ability to accelerate our investments under the First Choice Plan. The added investments now included in our guidance are as follows.
Operator: First,
Todd Wilson: we launched our Big Yum promotion on July 21, delivering on our commitment to deliver value for the money to every guest. Initial guest reception has been strong, with approximately 9% of guests choosing the Big Yum deal. Importantly, we have seen traffic trends improve across the system with the launch of Big Yum as compared to trends exiting the second quarter. Our guidance incorporates current traffic trends and a negligible change in PPA versus last year. As guests capitalize on the great value of this offer. With these baseline guidance assumptions, we expect this to be a near-term investment in the remainder of 2025. That will deliver benefits in traffic, sales, and profitability in 2026 and beyond.
I would note that any further traction in traffic in 2025 will reduce this near-term investment. Second, to accelerate the traffic curve, we are investing further in our marketing efforts and now expect selling expenses to total approximately $32 million in 2025. We expect this additional investment to support messaging related to Big Yum, and our First Choice marketing initiative later this year. Third, we expect to address deferred maintenance in approximately 20 pilot restaurants ahead of the First Choice marketing launch. This investment is designed to ensure our guests enjoy a great atmosphere that matches the upgrades we made previously to our food and hospitality.
This is primarily a capital investment, but likely will result in a limited increase to repair and maintenance expenses on the p and l. Fourth, we now expect G and A expense to total approximately $80 million in 2025. Reduced from our prior expectation of approximately $87 million. The $7 million reduction includes approximately $3 million of cost favorability experienced in the first half of the year. And an additional $4 million expected in 2025. I would note these totals include noncash stock-based compensation expense, of approximately $10 million in our original expectation and $8 million in the current outlook.
Finally, we expect much of the G and A favorability in 2025 will be absorbed by higher commodity costs, particularly in ground beef, and poultry. Overall, we are very pleased with our progress capturing cost efficiencies while delivering a great guest experience. We have made significant gains increasing restaurant level profitability, reducing debt, and growing EBITDA. We are encouraged with the initial launch of Big Yum, and we look forward to the great value at Red Robin delivering growing guest counts. In closing, I'd like to offer a tremendous thank you to our operators, our restaurant teams, and the team at the restaurant support center.
This great progress in the business is a result of your hard work and I'm excited for what's next. Dave, I will now turn the call back to you.
Dave Pace: Thank you, Todd. As we look ahead, I want to reiterate our confidence in the path we've charted with the First Choice plan. While we're still in the first inning of this transformation, the progress we've made in just the first thirty days gives me tremendous optimism about what lies ahead. More specifically, our operators have proven their ability to manage the middle of the p and l which we expect will drive significant leverage when our traffic trends inflect. We are laying down the foundation of our traffic driving initiatives, from a strategic value offering to a data-driven marketing strategy targeted to deliver sustainable, and profitable growth going forward.
Our refranchising initiative will provide additional capital to accelerate these investments while strengthening our balance sheet for the long term. In addressing our deferred maintenance, will provide a more inviting environment to drive long-term sustainable traffic growth. I want to be clear about our commitment. We'll continue to execute with discipline investing strategically in higher ROI initiatives. To drive sustainable traffic growth while maintaining our profitability targets. The turnaround of iconic brands takes time, with the right strategy, the right team, and the right focus on execution, I'm confident we will deliver on our promise to restore Red Robin to its rightful place in the industry. We're now happy to take your questions. So operator, please open up the lines.
Thank you.
Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, you would like to withdraw your question, at this time, we will pause momentarily to assemble our roster. And the first question comes from Todd Brooks with The Benchmark Company. Please go ahead.
Todd Brooks: Hey, thanks for taking my questions and congrats on the strong results in the quarter. Thanks, Todd. Thanks, Todd. Wanted to explore the kind of journey to labor efficiency that your teams have been delivering against so strongly in the first half here? Where are we in that process? If you're setting kind of an optimal level that they're striving towards and maintaining the customer experience, which you obviously are to date. How much more meat is left on that bone? And as we look to the guidance for full-year restaurant level operating margin being maintained, at 12% to 13%, can you decompose how much of that is the incremental value mix expectations with the Yum?
And how much of that pressure comes from the higher commodity outlook? Sounds like you for the second half?
Dave Pace: Yes. Thanks, Todd. It's Dave. I'll address the first half, and I'll let Todd talk about the construct of the balance of the year. I think, look, our operators have become much more disciplined in managing through a labor matrix. That involves being confident and more accurate in their forecasting and then scheduling against their forecasting, which they've done effectively. I would tell you that number has continued to come down consistently. It hasn't been choppy. It's kind of been steadily although less accelerated than it was in the early part of the year. In declining. And so, you know, I think they're continuing to improve their ability to manage to that matrix.
We haven't kind of articulated a specific target that we're trying to get to because we don't want to compromise the guest experience. If we see compromises in the guest experience, then we'll consider backing off a little bit. But Jesse and the team have done a terrific job and we look for that to continue as long as they can.
Todd Wilson: Hey, Todd. I'll add in. As it relates to Big Yum and the restaurant level margin guidance, being maintained for the year. You heard it in the prepared remarks both from Dave in terms of reinvesting over delivery, as well as in some of my comments. I'd say at a headline, what's embedded in our guidance for Big Yum, we think it's about a 1% drag on restaurant level profitability in the balance of the year. That's obviously a trade-off that we're making to incent guests to come in and obviously then in turn come back. In future quarters and future years.
But in the near term, near-term investment that I talked about, think it's about a 1% drag in the balance of the year. Call it roughly half of that is in labor. The other half is spread throughout the p and l. But that's the way we see it developing.
Todd Brooks: That's great. And just to follow-up on that, Todd, and then I'll hop back in queue. If think about that drag, what sort of mix does it assume that Big Yum reaches? And can we just for blocking and tackling purposes, I know you gave us pieces of it, but kind of disaggregate price versus mix versus traffic components of Q2 and maybe the second half outlook? Thanks.
Dave Pace: Yeah. So you know, as far as the first part of your question. So
Todd Wilson: what we see right now is that about 9% of guests are choosing the Big Yum deal. Which is from our lens is a great thing. It means people see the promotion, they see the value in it, and they're choosing that option.
Dave Pace: What that
Todd Wilson: translates to is a two to 3% drag on PPA. And so that's part of what informed my comments. I think importantly, what I'd point out, Todd, is that 9% mix that two to 3% drag on PPA, and the other component I'd call out as kind of a baseline assumption for our guidance. We said in the prepared remarks that traffic was down four so far to start the quarter. You know, we certainly believe there's a path forward there that's a baseline that we work up from as we get more messaging out on Big Yum. We're certainly optimistic that we can build up from there.
But it's really that experience that we've seen through the first, call it, three weeks of the Big Yum. That's really the basis for our guidance.
Dave Pace: Todd, if there was a second part there, forgive me. Yep. Go ahead. No. No. We can we can catch on a follow-up. No worries.
Todd Brooks: Thanks. Okay. Thanks.
Operator: And your next question comes from Alex Slagle with Jefferies. Please go ahead.
Alex Slagle: Hey, guys. Thanks. Congrats.
Operator: Just wanted to think about some more actions you have
Alex Slagle: sort of underway to further step up the guest experience, overall satisfaction levels, like, maybe some of the incremental actions you could take near term to really sort of start moving the needle. I know some of the things like remodels or further down the line. There are some technology improvements you mentioned, just wanted to kinda get a sense for what you're looking at in the back half to just further really make it a rewarding experience.
Dave Pace: Yeah. I mean hey, Alex. It's Dave.
Alex Slagle: You know, I think
Dave Pace: the best way I can answer that is it's gonna be a holistic approach, which hopefully came through in the messaging is it's a little bit of everything. So we've gotta move the ball ahead on the facility. So we're gonna be investing in the facilities, and you're gonna see that at varying levels. We're looking at varying levels across the system. Some need more than others. Some we wanna address more than others. We wanna kinda see what we can do from potential standpoint. We're getting after that. The technology piece, you know, we've just finished a couple of implementations.
We've got further implementations coming in terms of progress and decisions we have to make on handhelds and on kind of next-generation tabletops and so forth. You know, those kinds of things are coming down the road next. Traffic driving initiatives gonna put money against that. So it's I don't think we can point to anyone thing, but it's tactics across the board. Don't know whether that helps or answers your question. But Yeah. No. That's
Alex Slagle: a hard one to answer anyway. Yeah. On the marketing, I know it's early just us just getting on board, but just kinda thinking about next steps to know, for the First Choice marketing plan. I know you're gathering some data, getting ready to be able to leverage that. Maybe you could frame up the what the cadence of the incremental spend would look like. Does some of that show up in the 3Q? Or is it really kind of four q and into '26?
Dave Pace: I'll let Todd answer that one. I think go ahead, Todd. Yeah. Hey, Alex. I point to you here of if you think about the
Todd Wilson: first half of the year, which really, as you know, you know, we have that elongated Q1. Right? So we're really seven periods into a 13-period year. In the first half of the year, we spent almost $16 million in selling expense.
Alex Slagle: In
Todd Wilson: the back half of the year. We frankly expect about the same and pretty equally split between Q3 and Q4. The piece that I think is interesting to call out there, though, is you know, I called it out in the prepared remarks of on a year-over-year basis, Q2 was down almost $6 million. And so that's part of what we felt like we saw in the traffic headwind in Q2. When we get to Q3 and Q4, that roughly $8 million of selling spend in each of those quarters is a 2 to 2 and a half million dollar increase year over year. So
Dave Pace: know, again, we drew
Todd Wilson: what I hoped proves to be a conservative line of traffic embedded in our guidance, but it's the launch of Big Yum. It's the incremental dollars working for us. All of those different pieces that we see as the opportunity to further accelerate the trends that we're seeing in traffic.
Alex Slagle: Got it. Thanks.
Operator: And I think you mentioned the company-owned unit target for ending the year a little bit lower than it was. You find some closures you're bringing forward a little bit?
Dave Pace: Yeah. I'll talk at the headline. I'll let Todd jump
Dave Pace: in as well. I mean, look. We've looked at this a couple of ways. First of all, I think from what numbers we've shown in the past, we've been able to because of the operating performance, we've been able to remove about 20 restaurants from that list. So we've actually improved performance to the point where even what was originally considered and communicated is a lower number. Beyond that, we've got a watch list of restaurants that we're still working on that we hope we can move even more off of that list. And we're seeing improved performance. We just haven't seen enough yet to kick off of our focus list.
And then there's a number of restaurants that we'll have and will close. Some of them may be a little sooner than otherwise thought because our real estate team has been able to work really effectively with our land population to exit some underperforming restaurants sooner at pennies on the dollar for what we would have spent before. So that's why that number's moved around a little bit, but I'll let Todd comment on it too. Yeah. I'd just reiterate those points, Alex. So, you know, the you're
Todd Wilson: picking that up. Right? That number did change. It's exactly to Dave's point because our team some really good work. To find a quicker solution on some of those more challenged restaurants. I'd also reiterate, Dave's point. We talked about, restaurants that were not profitable in 2024. Previously. And we've seen about 20 of those turn profitable on a TTM basis. With the results, or the strength of the results that we've had in the first part of the year. So it's nice to see that progress across the system. You know, improve those some of those restaurants profitable.
Know, we'll resolve some of these restaurants more quickly, and then, obviously, we're working with our operators to help give them the tools, as Dave said in the prepared remarks, to drive sales, drive traffic, drive profitability, going forward.
Alex Slagle: Great. Thanks, guys.
Operator: And your next question comes from Jeremy Hamblin with Craig Hallum Capital. Please go ahead.
Jeremy Hamblin: Thanks, and I'll add my congrats on the impressive operational execution. I wanted to start with a follow-up on the last point and really dig into the franchisee health. I mean, what's interesting is your franchisees, they haven't closed any locations. So as you've seen significant improvement in the company-operated portion of the business. Are your franchisees also getting, you know, commensurate improvement in their level margins? I mean, you know, first half of the year, you know, your restaurant level margins are up, you know, like, 300 basis points. Are they getting kind of commensurate profitability? And I think that they operate with better overall restaurant level margins than you do. Is that
Dave Pace: still true? Yeah. Hey. Hey, Jeremy. It's Dave. So look, I think you hit it right there at the end, is generally speaking, franchisees are good operators. We've had our franchisee population is so long term in the brand. They've been dialing this in for a long time. They've, generally speaking, been good. And I'll be honest, they've been better operators than we have. I think our team is closing the gap to their performance levels. So I think you know, the short answer is we're getting better. They're still better than us, and we're getting closer.
Jeremy Hamblin: Got it. And then just to the guidance on same-store sales of you know, down 3% to 4%, the remainder of the year. You're lapping tougher compares in Q4 than Q3. Should we be thinking about this as kind of like a minus three type comp in Q3 and then and a minus five in Q4, know, any color you can share on that?
Dave Pace: Jeremy, hey, Todd here.
Todd Wilson: Yeah. I think directionally, you know, we said that down three to four because you start to
Dave Pace: slice the onion a little bit thin at some point there.
Todd Wilson: But I would say directionally, we're looking at the same thing. And I think based on what we know today, we would we have Q3 a little bit better in But the you know, again, I think we're splicing that thin. Internal modeling than Q4. And especially given what we're working towards. To drive the change in traffic or to further inflect traffic with Big Yum, with First Choice, with some of this incremental spend. You know, we're certainly optimistic that we can bend that to be different. But at a headline, we're looking at the same thing. with the tougher compare in Q4, we think there could be a little bit of shape there.
But it's more on the edges than anything pronounced as we think about it.
Jeremy Hamblin: Got it. And then just you mentioned maybe a little bit of commodity pressure here in the second half. Just and you might have quantified that, but you know, you've seen pretty strong results on that. I mean, are we thinking back half of the year cost sales is more like flattish? Or any more color you might be able to share there, Tash?
Dave Pace: Yeah. Yeah. That's
Todd Wilson: build on one of the earlier questions. Yeah. As we think about restaurant level profitability, you know, commodities, did call out, is one of the headwinds that we see I imagine you and others have seen this, through your other research, but, know, ground beef, has certainly spiked We've seen chicken costs, poultry costs increase as well. Think that's a, call it, a $2 to $3 million headwind in the back half of the year. Versus what we expected previously. You know, the piece that as we think about restaurant level profitability though is, yes, there's a commodity headwind. But there is also a p and l impact that we expect from the value offering of Big Yum.
And so where we've been kinda low 23% on cost of goods, we do see that likely creeping up into the twenty fours. You know, just based on the value play. That we have out there. Now, again, obviously, hopefully, we see traffic increase as a result. But just as you're thinking about modeling, kind of how we're thinking about the cost side of things. Great. That's helpful. Last one for me, Todd.
Jeremy Hamblin: You mentioned the, you know, the debt, and you guys are doing a great job of reducing that. Wanted to ask a two-parter on that. First is do you have a target level that you are striving to get to in terms of absolute kind of net debt levels or total debt levels? And then part two is, do you have a time frame when you're looking at getting the refinancing done? With that, kind of twenty seven Q1 maturity.
Dave Pace: Yeah. Let me take the first part of that, Jeremy. I'll Todd Bill about it. I think look, we've been asked that question, we've asked ourselves that question a lot is what's the right level of debt to get to. And I think this is all what the way I answer is it all toggles together in a depends a little bit on the refinancing discussions. If, you know, a potential lender says to us, look. If you can get debt down to x level, I can give you favorable interest terms of this level. However, if your debt is higher at this level, I can only get you interest improvement to this level.
We're gonna be factoring all of those things in to say what's the optimal place to be where we can get The reason that we do this is to obviously get our debt level down, but also to improve financing terms, and we'll look at that with very specificity or great specificity as we try and figure out what's the optimal level from an interest rate standpoint to reduce our payment.
Operator: Schedules.
Dave Pace: So, you know, I think that's as we look at the number, I don't have a specific number in mind. It's gonna depend on those discussions as well. In terms of timing, I think, you know, our objective is to get this to a place where we can, you know, do something in '26 ideally.
Jeremy Hamblin: Got it. Thanks so much. For taking the questions. Appreciate it.
Todd Wilson: Thanks, Jeremy. Thanks, Jeremy.
Operator: And your next question comes from Mark Smith with Lake Street Capital. Please go ahead.
Todd Wilson: Hi, guys. I want to go back to the
Mark Smith: franchisee results. I'm just curious kind of your thoughts around, you know, sales levels at your franchise locations and they're kind of your franchise these buy-in into, you know, current promotions and some of the changes that you guys are making?
Dave Pace: I mean, you know, the short answer hey, Mark. I just hi before we get started. Hey. The short answer is they bought in, and they're participating. I think that's the best indicator of kind of support for this. You know, I think as with franchisees, in any organization, you have varying levels of interest. I want to make sure obviously, that we don't just trade people down, that we're getting the incremental traffic, and we're getting the incremental sales on top of that. So, you know, they're watching it like we are.
Sensitive to what the performance is, understand the challenge that we have spoken to all of our franchisees about this, and know, they've said to me, look, get it. We understand what you're doing. We understand why you're trying to do it. You know? A little concern on trade down, but we're with you. So, I mean, that's the best way I can answer it.
Mark Smith: Okay. Then just looking at pricing, you know, kinda menu price, can you can you just remind us kind of when we have, you know, some prior years or quarters roll off in price and then your ability kind of outside of promotions to selectively you know, take price, especially as we look at some commodities that are coming up?
Dave Pace: Hey, Mark. Todd here. I'll start and Dave will
Todd Wilson: add in as well. I think just on the pure numbers side, you know, we've commented in the past that, you know, we didn't expect to take any further price in 2025, and that remains to be remains the case. The pricing that we expect keep in mind, I want to be clear on this. This is pure pricing. You know, I talked about PPA impacts from the Big Yum deal earlier. But pure price, we expect Q3 to be four and a half to 5% on price. And then Q4, we think that'll dip down to two to two and a half percent. And, obviously, that's just based on what we've taken in the past.
So we are starting to roll that price off. That'll take a further step down as we get into 2026. Again, keep in mind that it's just the menu price piece. Again, the trade that we expect from Big Yum is probably a two to 3% drag against that. But that's kind of the pure place of where we are in terms of pricing overall currently.
Dave Pace: Yeah. Let me build on that a little bit. I think Russ and our marketing team are in the early stages of doing the menu optimization study and pricing study, looking at the construct of our menu, looking at what are some of the opportunities we think we have in terms of restructuring the menu to free up either pricing opportunities or better margin performance within individual items. So I think we're looking at all of that as opposed to a blunt instrument pricing approach. But a much more surgical approach to the menu to figure out how to deliver against guest experiences at the same time increasing margin.
Jeremy Hamblin: Excellent.
Mark Smith: Very helpful. Thank you, guys.
Jeremy Hamblin: You're welcome. Thanks, Mark.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Dave Pace for any closing remarks.
Dave Pace: Okay. Just really quickly, thanks, everybody. Appreciate jumping on. Hopefully, we answered your questions. You got a better picture of where we're heading as a business right now. And we'll update you again in November on our next call. Appreciate it. We'll talk to you then. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.