Q2 2024 Noodles & Co Earnings Call
Speaker Change: Good afternoon and welcome to today's Noodles & Company second quarter 2024 earnings conference call.
Operator: Earnings conference call. All participants are now in a listen-only mode. After the presenter's remarks, there will be a question-and-answer session. As a reminder, this call is being recorded.
Speaker Change: All participants are now in a listen-only mode. After the presenters' remarks, there will be a question-and-answer session.
Operator: I would now like to introduce Noodles & Co.
Speaker Change: As a reminder, this call is being recorded. I would now like to introduce Noodles & Company's Chief Financial Officer, Mike Hynes.
Michael Hynes: Chief Financial Officer Mike Hynes. Thank you and good afternoon, everyone. Welcome to our second quarter 2024 earnings call. Here with me this afternoon is Drew Madsen. Our Chief Executive Officer.
Mike Hynes: Thank you and good afternoon everyone. Welcome to our second quarter 2024 earnings call. Here with me this afternoon is Drew Madsen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters.
Michael Hynes: I'd like to start by going over a few regulatory matters. During the call, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections, and actual events or results could differ from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's quarterly report on Form 10-Q and subsequent filings with the SEC.
Mike Hynes: During the call, we may make forward-looking statements regarding future events or the future financial performance of the company.
Mike Hynes: Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Mike Hynes: Such statements are only projections, and actual events or results could differ from those projections due to a number of risks.
Mike Hynes: and Uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's quarterly report on Form 10-Q and subsequent filings with the SEC.
Michael Hynes: During the call, we will discuss non-GAT measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAT measures is available in our second quarter 2024 earnings release. To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliation of forward-looking non-GAAP measures. Conitative reconciling information for these measures is unavailable without unreasonable efforts.
Mike Hynes: During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
Unnamed Speaker: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable gap measures is available in our second quarter 2024 earnings release.
Mike Hynes: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Mike Hynes: A reconciliation of these measures to the most directly comparable GAAP measures is available in our second quarter 2024 earnings release.
Mike Hynes: To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of board-looking non-GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts.
Drew Madsen: With that, I'd like to turn the call over to Drew Matson, our Chief Executive Officer. Thanks, Mike, and good afternoon, everyone. I am pleased that we were able to deliver positive system-wide, same-store sales growth of 2% during the quarter and match the fast-casual industry benchmark on both same-store sales and traffic, despite the challenging consumer environment. We also improved our restaurant contribution margin by 70 basis points compared to 2023, aided by strong cost management. More importantly, we continue to make meaningful progress on our five key priorities to achieve sustained, profitable growth and drive long-term shareholder value.
Mike Hynes: With that, I'd like to turn the call over to Drew Madsen, our Chief Executive Officer.
Dave Boennighausen: I am pleased that we were able to deliver positive system-wide same-store sales growth of 2% during the quarter and match the fast-casual industry benchmark on both same-store sales and traffic despite the challenging consumer environment. Our primary focus is on proving the dimensions of the guest experience that correlate most directly with traffic growth.
Drew Madsen: Thanks, Mike, and good afternoon, everyone.
Drew Madsen: I am pleased that we were able to deliver positive system-wide same-store sales growth of 2% during the quarter and match the fast-casual industry benchmark on both same-store sales and traffic, despite the challenging consumer environment.
Drew Madsen: We also improved our restaurant contribution margin by 70 basis points compared to 2023, aided by strong cost management.
Drew Madsen: More importantly, we continue to make meaningful progress on our five key priorities to achieve sustained profitable growth and drive long-term shareholder value.
Drew Madsen: Although the current operating environment may cause some variability in our near-term results, we are focused on what we can most directly impact and continuing to position noodles to capture the significant growth opportunity we believe it has long-term.
Drew Madsen: Although the current operating environment may cause some variability in our near-term results, we are focused on what we can most directly impact and continuing to position Noodles to capture the significant growth opportunity we believe it has long-term.
Drew Madsen: Now, let's talk about progress on our five strategic priorities. Creating a foundation of operations excellence is our top priority. Our primary focus is on proving the dimensions of the guest experience that correlate most directly with traffic growth. Overall satisfaction, taste of food, and accuracy. This is especially applicable at dinner, where we have experienced more traffic loss in recent years. Our strategy to achieve this includes bi-weekly training sessions across the system to review proper execution of a new food execution standard, a new service standard, and a new accuracy standard during each training session. A few examples of training standards we focused on during the second quarter include cooking proteins at sauté, caramelizing udon noodles in a sweet soy sauce, table checkbacks, and checking drinks before bagging a delivery order.
Drew Madsen: Now, let's talk about progress on our five strategic priorities.
Drew Madsen: Creating a foundation of operations excellence is our top priority. Our primary focus is on proving the dimensions of the guest experience that correlate most directly with traffic growth, overall satisfaction, taste of food, and accuracy.
Drew Madsen: This is especially applicable at dinner, where we have experienced more traffic loss in recent years.
Drew Madsen: Our strategy to achieve this includes bi-weekly training sessions across the system to review proper execution of a new food execution standard, a new service standard, and a new accuracy standard during each training session.
Drew Madsen: A few examples of training standards we focused on during the second quarter include cooking proteins at sauté, caramelizing udon noodles in a sweet soy sauce, table check backs, and checking drinks before bagging a delivery order.
Drew Madsen: In addition, we are doing a better job of adhering to our shift staffing standards that require General Managers and Assistant General Managers to be in our restaurants during our busiest dinner day part shifts. These efforts are definitely paying off with guest satisfaction improvement, accelerating each month of the quarter on all three of our priority measures, and they improve the most at dinner. In the near term, it's difficult to correlate guest satisfaction improvement with traffic growth, but we are clearly establishing the culture and team member behaviors required for a more consistent and a more satisfying guest experience.
Drew Madsen: In addition, we are doing a better job of adhering to our shift staffing standards that require general managers and assistant general managers to be in our restaurants during our busiest dinner day part shifts.
Drew Madsen: These efforts are definitely paying off, with guest satisfaction improvement accelerating each month of the quarter on all three of our priority measures. And they improve the most at dinner.
Drew Madsen: In the near term, it's difficult to correlate guest satisfaction improvement with traffic growth, but we are clearly establishing the culture and team member behaviors required for a more consistent and a more satisfying guest experience.
Drew Madsen: And I am confident this will drive stronger guest loyalty and improve traffic over the long term.
Drew Madsen: And I am confident this will drive stronger guest loyalty and improve traffic over the long term.
Drew Madsen: Our second priority is to stimulate more guest desire for noodles through a comprehensive menu transformation guided by our contemporary comfort kitchen culinary north star. As our work progresses, we will continue to use compelling limited-time offers to bridge the gap until our core menu testing plan has been successfully completed. Phase one of this process involved concept testing to identify the most compelling ideas for both new and improved dishes. During phase two, we placed the new and improved dishes created by the Culinary Edge in the central location taste test with noodles customers to ensure they exceeded the guest satisfaction average on our current menu.
Drew Madsen: Our second priority is to stimulate more guest desire for noodles through a comprehensive menu transformation guided by our contemporary comfort kitchen, Culinary North Star.
Dave Boennighausen: As our work progresses, we will continue to use compelling limited-time offers to bridge the gap until our core menu testing plan has been successfully completed. The third dish, Chipotle Chicken Cavatappi, will be added to address the need we identified for a Latin-inspired flavor profile on our menu. This dish is also selling well and has solid guest satisfaction. Assuming continued success, these dishes will be introduced after the holiday season during the first quarter of 2025. Our hypothesis is that three of our last four LTOs, including Chicken Parmesan, Chicken Prosciutto Tortelloni, and Baked Alfredo with Chicken, have worked very well.
Drew Madsen: As our work progresses, we will continue to use compelling limited-time offers to bridge the gap until our core menu testing plan has been successfully completed.
Drew Madsen: Phase one of this process involved concept testing to identify the most compelling ideas for both new and improved dishes.
Drew Madsen: During Phase 2, we placed the new and improved dishes created by the Culinary Edge in a central location taste test with Noodles customers to ensure they exceeded the guest satisfaction average on our current menu.
Drew Madsen: These phases are largely complete. We are now starting phase three, where we place the new and improved dishes in test locations to assess real world guest satisfaction, operational feasibility, and any related financial implications, including menu mixed shifts. Our goal is to impact roughly two thirds of our menu through new or improved offerings over the next year, given the magnitude of change involved for both guests and operations. We are taking a very thoughtful and strategic approach to testing, and we plan to stagger the national introduction of the complete updated menu over several months. At the end of June, we placed two new dishes and one improved dish in our test locations.
Drew Madsen: These phases are largely complete.
Drew Madsen: We are now starting Phase 3, where we place the new and improved dishes in test locations to assess real-world guest satisfaction, operational feasibility, and any related financial implications, including menu mix shifts.
Drew Madsen: Our goal is to impact roughly two-thirds of our menu through new or improved offerings over the next year.
Drew Madsen: Given the magnitude of change involved for both guests and operations, we are taking a very thoughtful and strategic approach to testing, and we plan to stagger the national introduction of the complete updated menu over several months.
Drew Madsen: At the end of June, we placed two new dishes and one improved dish in our test locations.
Drew Madsen: Crispy chicken bacon Alfredo is a more contemporary version of our current Alfredo Montamore, which it will replace. So far, it sells nearly 50% more and has higher guest satisfaction than Alfredo Montamore. Lee. Lemon Garlic Shrimp Scampy will be added to address the need we identified for additional light and fresh menu options. This dish is selling well and has guest satisfaction scores well above our menu average. The third dish, Chipotle Chicken Tava Toppy, will be added to address the need we identified for a Latin-inspired flavor profile on our menu. This dish is also selling well and has solid guest satisfaction.
Drew Madsen: Crispy Chicken Bacon Alfredo is a more contemporary version of our current Alfredo Montemori, which it will replace.
Drew Madsen: So far, it sells nearly 50% more and has higher guest satisfaction than Alfredo Montemore.
Drew Madsen: Lemon garlic shrimp scampi will be added to address the need we identified for additional light and fresh menu options.
Drew Madsen: This dish is selling well and has guest satisfaction scores well above our menu average. The third dish, Chipotle Chicken Cavatappi, will be added to address the need we identified for a Latin-inspired flavor profile on our menu.
Drew Madsen: Our plan is to introduce all three nationally in October. We also deleted zucchini with roasted garlic cream sauce, Lean Greenie Rosa, and Lean Greenie Fresca. Last week, we introduced five more new or improved dishes into the same test locations and deleted one more existing dish. Assuming continued success, these dishes would be introduced after the holiday season during the first quarter of 2025. The timing of additional new and improved dish introductions is dependent on how our guests and operators adapt to the changes already described. But, as I said, our goal is to have two thirds of our menu either new or improved by next year at this time.
Drew Madsen: This dish is also selling well and has solid guest satisfaction. Our plan is to introduce all three nationally in October .
Drew Madsen: We also deleted zucchini with roasted garlic cream sauce, linguine rossa, and linguine fresca.
Drew Madsen: Last week, we introduced five more new or improved dishes into the same test locations and deleted one more existing dish.
Drew Madsen: Assuming continued success, these dishes would be introduced after the holiday season during the first quarter of 2025.
Drew Madsen: The timing of additional new and improved dish introductions is dependent on how our guests and operators adapt to the changes already described. But as I said, our goal is to have two-thirds of our menu either new or improved by next year at this time.
Drew Madsen: As I mentioned earlier, our plan is to regularly include limited time offers as a bridge to bring excitement to our guests and help drive traffic until our menu transformation is complete. Our most recent LTO baked Alfredo with grilled chicken did not perform as well as steak stroganoff, despite having stronger concept test scores and similar media support. Our hypothesis is that three of our last four LTOs, including Chicken Parmesan, Chicken Prosciutto Tortelloni, and Baked Alfredo with Chicken, have all fallen into the classic Italian comfort category and felt too similar to each other to generate special visit interest.
Drew Madsen: As I mentioned earlier, our plan is to regularly include limited time offers as a bridge to bring excitement to our guests and help drive traffic until our menu transformation is complete.
Drew Madsen: Our most recent LTO, Baked Alfredo with Grilled Chicken, did not perform as well as Steak Stroganoff, despite having stronger concept test scores and similar media support.
Speaker Change: Our hypothesis is that three of our last four LTOs, including Chicken Parmesan, Chicken Prosciutto Tortelloni, and Baked Alfredo with Chicken,
Drew Madsen: have all fallen into the classic Italian comfort category and felt too similar to each other to generate special visit interest.
Drew Madsen: With that in mind, we plan to feature an item from our existing menu, Spicy Korean Steak Noodles starting mid-August. This dish has low awareness but high guest satisfaction and strong appeal among younger consumers. Our belief is that it will be more newsworthy and do a better job of driving special visit interest for noodles. So, with spicy Korean steak noodles featured starting in August, plus crispy chicken bacon Alfredo, lemon garlic shrimp scampi, and Chipotle chicken Kawattabi introduced nationally in October, we will have plenty of exciting menu news to effectively bridge to the full new menu introduction in 2025.
Drew Madsen: With that in mind, we plan to feature an item from our existing menu, Spicy Korean Steak Noodles, starting mid-August.
Drew Madsen: This dish has low awareness but high guest satisfaction and strong appeal among younger consumers. Our belief is that it will be more newsworthy and do a better job of driving special visit interest for noodles.
Drew Madsen: So, with Spicy Cream Steak Noodles featured starting in August ,
Speaker Change: plus Crispy Chicken Bacon Alfredo, Lemon Garlic Shrimp Scampi, and Chipotle Chicken Cavatappi introduced nationally in October , we will have plenty of exciting menu news to effectively bridge
Drew Madsen: Our third priority is to drive profitable traffic growth by further leveraging our strong digital ecosystem. As a reminder, noodles has 55% of total sales from digital channels and 26% of sales from loyalty members, with loyalty members spending twice as much for a year. As of 2023, we invested in a customer data platform that aggregates all information about our known customers in one area. This has enabled us to engage these customers using smart, relevant, personalized offers with fewer discounts to drive profitable traffic growth. In particular, we focus on reactivating lapsed loyalty members because our active members have frequency more than 50% higher, and they have two and a half more visits per year than our loyalty program average.
Speaker Change: to the full new menu introduction in 2025. Our third priority is to drive profitable traffic growth by further leveraging our strong digital ecosystem.
Speaker Change: As a reminder, Noodles has 55% of total sales from digital channels and 26% of sales from loyalty members, with loyalty members spending twice as much per year as non-loyalty members.
Drew Madsen: During 2023, we invested in a customer data platform that aggregates all information about our known customers in one area.
Drew Madsen: This has enabled us to engage these customers using smart, relevant, personalized offers with fewer discounts to drive profitable traffic growth.
Drew Madsen: In particular, we focus on reactivating lapsed loyalty members because our active members have frequency more than 50% higher and have 2.5 more visits per year than our loyalty program average.
Drew Madsen: So far, the strategy has worked very well. Through Q2, active loyalty member traffic is up 5%, and loyalty discount spending is down 32%. Third party delivery has also been a strong channel for us this year. Selective investment in sponsored listings, exclusive dishes, and profitable promotions generated double-digit traffic growth in the second quarter. We will continue to prioritize marketing investments behind these proven loyalty program and third party delivery opportunities going forward. We will also continue our test and learn efforts with broader reach media to identify the most effective ways to attract more new customers to our digital assets and ultimately into our loyalty program.
Drew Madsen: So far, this strategy has worked very well. Through Q2, active loyalty member traffic is up 5% and loyalty discount spending is down 32%.
Dave Boennighausen: Third-party delivery has also been a strong channel for us this year. We continue to believe catering has the potential to be at least 4% to 5% of sales in the future. The biggest friction point right now is the need to manually rekey orders from EasyCater, which is a third-party catering platform. We are also currently evaluating options to outsource delivery of catering orders placed through our website and a technology-driven solution to transfer catering orders between restaurants when needed.
Drew Madsen: Third-party delivery has also been a strong channel for us this year. Selective investment in sponsored listings, exclusive dishes, and profitable promotions generated double-digit traffic growth in the second quarter.
Drew Madsen: We will continue to prioritize marketing investments behind these proven loyalty programs and third-party delivery opportunities going forward.
Drew Madsen: We will also continue our test and learn efforts with broader reach media to identify the most effective ways to attract more new customers to our digital assets and ultimately into our loyalty program.
Drew Madsen: We are currently trialling connected TV, streaming audio, podcasts, and direct mail.
Drew Madsen: We're currently trialing connected TV, streaming audio, podcasts, and direct mail. Our fourth priority is to maintain double-digit growth in our catering business while we improve the fundamentals required to drive more aggressive growth in the future.
Drew Madsen: Our fourth priority is to maintain double-digit growth in our catering business while we improve the fundamentals required to drive more aggressive growth in the future. Catering has grown from 1% of sales in 2022 and 1.2% in 2023 to 1.7% year-to-date in 2024. And during the second quarter, system-wide sales were up 42% versus last year. We continue to believe catering has the potential to be at least 4% to 5% of sales in the future. And we believe that catering growth would be incremental and contribute to higher overall margins. Going forward, we will continue to grow profitable sales by unlocking new catering occasions like Teacher Appreciation Day, last quarter, and adding new menu categories like box lunches and other individual grab-and-go items. We will also add new sales-building tactics like fractional catering managers in high-potential markets to create strong relationships with local sports teams, schools, and healthcare organizations.
Drew Madsen: Catering has grown from 1% of sales in 2022 and 1.2% in 2023 to 1.7% year-to-date in 2024. And during the second quarter, system-wide sales were up 42% versus last year.
Drew Madsen: We continue to believe catering has the potential to be at least 4% to 5% of sales in the future. And we believe that catering growth would be incremental and contribute to higher overall margins.
Drew Madsen: going forward we will continue to grow profitable sales by unlocking new cater occasions like keacher appreciation day last quarter and adding new menu categories like box lunches and other individual grabonand go items
Drew Madsen: We will also add new sales building tactics like fractional catering managers in high potential markets to create strong relationships with local sports teams, schools, and health care organizations.
Drew Madsen: Paid LinkedIn advertising that targets the catering occasion decision maker is another tactic we will implement to support continued profitable sales growth. Additionally, we will strengthen our catering operating model by reducing operator friction and increasing throughput in our restaurants. The biggest friction point right now is the need to manually re-key orders from Easy Cater, which is a third party catering platform, into our point of sale. By the end of September, we will have an integrated ordering solution implemented that will take this friction point away. We are also currently evaluating options to outsource delivery of catering orders placed through our website and a technology-driven solution to transfer catering orders between restaurants when needed.
Drew Madsen: Paid LinkedIn advertising that targets the catering occasion decision-maker is another tactic we will implement to support continued profitable sales growth.
Drew Madsen: Additionally, we will strengthen our catering operating model by reducing operator friction and increasing throughput in our restaurants.
Speaker Change: The biggest friction point right now is the need to manually rekey orders from EasyCater, which is a third-party catering platform.
Drew Madsen: into our point of sale. By the end of September , we will have an integrated ordering solution implemented that will take this friction point away.
Drew Madsen: We are also currently evaluating options to outsource delivery of catering orders placed through our website, and a technology-driven solution to transfer catering orders between restaurants when needed.
Drew Madsen: Our final priority is to strengthen our financial foundation with proactive cash management and an increased emphasis on operational efficiency across the business. We have reduced our capital spending from $52 million in 2023 to a projection of $28 to $32 million this year. This is largely driven by the reduction in new unit openings and the completion of our digital menu boards roll out last year. As we mentioned last quarter, during January, we implemented a major cost reduction effort that we projected would save approximately $4 million this year. This included targeted head count reduction in areas we have deprioritized in the short term, like new unit openings, employee benefit adjustments that save money while still keeping us competitive in the marketplace, and supply chain savings to improve vendor management and product optimization.
Drew Madsen: Our final priority is to strengthen our financial foundation with proactive cash management and an increased emphasis on operational efficiency across the business.
Dave Boennighausen: We have reduced our capital spending from $52 million in 2023 to a projection of $28 to $32 million this year. This is largely driven by a reduction in new unit openings and the completion of our digital menu boards rollout last year. As we mentioned last quarter, during January, we implemented a major cost reduction effort that we projected would save approximately $4 million this year. And we now expect to deliver savings of over $5 million in 2024.
Drew Madsen: We have reduced our capital spending from $52 million in 2023 to a projection of $28 to $32 million this year.
Drew Madsen: This is largely driven by the reduction in new unit openings.
Drew Madsen: and the completion of our digital menu boards rollout last year. As we mentioned last quarter, during January we implemented a major cost reduction effort that we projected would save approximately $4 million this year.
Drew Madsen: This included targeted headcount reduction in areas we have deprioritized in the short term, like new unit openings.
Drew Madsen: Employee benefit adjustments that save money while still keeping us competitive in the marketplace.
Drew Madsen: and Supply Chain Savings Through Improved Vendor Management and Product Optimization.
Drew Madsen: Our smart cost savings team has continued to look for additional savings opportunities in both restaurant operating expenses and GNA, and we now expect to deliver savings of over $5 million in 2024.
Drew Madsen: Our Smart Cost Savings team has continued to look for additional savings opportunities in both restaurant operating expenses and G&A.
Drew Madsen: And we now expect to deliver savings of over $5 million in 2024.
Drew Madsen: Finally, we performed a detailed portfolio review during the second quarter to identify underperforming restaurants with substantial negative cash flows. Through this review, we identified approximately 20 restaurants that we will evaluate closing before the end of their lease terms. Mike will discuss in more detail where we are in the process, but we believe closing underperforming restaurants will allow us to focus more on our restaurants with the most growth potential and provide an increase in company earnings and cash flow post closure. As you can see, we have made substantial progress on our strategic priorities, and we believe we are positioning noodles to capture the full growth opportunity we see ahead.
Dave Boennighausen: Finally, we performed a detailed portfolio review during the second quarter to identify underperforming restaurants with substantial negative cash flows. Through this review, we identified approximately 20 restaurants that we will evaluate closing before the end of their lease terms. As you can see, we've made substantial progress on our strategic priorities, and we believe we are positioning noodles to capture the full growth opportunity we see ahead.
Drew Madsen: Finally, we performed a detailed portfolio review during the second quarter to identify underperforming restaurants with substantial negative cash flows.
Drew Madsen: Through this review, we identified approximately 20 restaurants that we will evaluate closing before the end of their lease terms.
mickeelwill: Mike will discuss in more detail where we are in the process, but we believe closing underperforming restaurants will allow us to focus more on our restaurants with the most growth potential and provide an increase in company earnings and cash flow post-closure.
Drew Madsen: as you can see we've made substantial progress on our strategic priorities and we believe we are positioning noodles to capture the full growth opportunity we see ahead
Michael Hynes: Now, I will turn it over to Mike to review our financial results in more detail. Thank you, Drew. In the second quarter, our total revenue increased 1.8% compared to last year to $127.4 million. System-wide comp restaurant sales during the second quarter increased 2.0%, including an increase of 1.3% at company-owned restaurants and an increase of 4.7% at franchise restaurants. Company comp traffic during the second quarter declined 1.1%. Writing contributed 0.9%, and makes contributed 1.5%. Company average unit volumes in the second quarter were 1.32 million dollars. We experienced two holiday shifts: Easter and Fourth of July, that benefited the second quarter in 2024.
Drew Madsen: Now I'll turn it over to Mike to review our financial results in more detail.
Michael Hynes: Thank you, Drew. In the second quarter, our total revenue increased 1.8 percent compared to last year to $127.4 million. System-wide restaurant sales during the second quarter increased 2.0 percent, including an increase of 1.3 percent at company-owned restaurants and an increase of 4.7% at franchise restaurants. Company comp traffic during the second quarter declined 1.1%. Company average unit volumes in the second quarter were $1.32 million. Caused in the second quarter was 24.7 percent of sales, a 40 basis point improvement from last year, driven by pricing and overall food and beverage deflation of 0.2 percent.
Mike Hynes: Thank you, Drew. In the second quarter, our total revenue increased 1.8% compared to last year to $127.4 million.
Mike Hynes: System-wide comp restaurant sales during the second quarter increased 2.0%, including an increase of 1.3% at company-owned restaurants and an increase of 4.7% at franchise restaurants. Company comp traffic during the second quarter declined 1.1%.
Speaker Change: I think contributed 0.9% and Mix contributed 1.5%.
Drew Madsen: Company average unit volumes in the second quarter were 1.32 million dollars.
Drew Madsen: We experienced two holiday shifts, Easter and Fourth of July , that benefited the second quarter in 2024.
Michael Hynes: Combined, we estimate that the holiday shifts positively impacted our second quarter comp sales by approximately 120 pay.
Drew Madsen: Combined, we estimate that the holiday shifts positively impacted our second-quarter comp sales by approximately 120 basis points, meaning we still had positive comp restaurant sales after excluding the impact of the holiday shifts.
Michael Hynes: Justice Points. Meaning we still had the positive Comprehestron sales after excluding the impact of the holiday shifts. Our July Comprehestron sales were down 3.2% or down 0.7% after adjusting for the impact of the 4th of July holiday shift. The increase in our restaurant contribution margin was due to a combination of favorable commodity costs and strong cost controls. Cost in the second quarter was 24.7% of sales, a 40 basis point improvement from last year, driven by pricing and overall food and beverage deflation of 0.2%. Labor costs for the second quarter were 31.2% of sales, which was down 120 basis points to prior year, primarily driven by labor productivity.
Drew Madsen: Our July comp restaurant sales were down 3.2% or down 0.7% after adjusting for the impact of the 4th of July holiday shift.
Drew Madsen: Turning to profitability in the second quarter, restaurant level contribution margin was 15.5%, up from 14.8% in the second quarter of 2023.
Drew Madsen: The increase in our restaurant contribution margin was due to a combination of favorable commodity costs and strong cost controls.
Drew Madsen: Caused in the second quarter was 24.7% of sales, a 40 basis point improvement from last year, driven by pricing and overall food and beverage deflation of 0.2%.
Drew Madsen: Labor costs for the second quarter were 31.2% of sales, which was down 120 basis points to prior year, primarily driven by labor productivity.
Michael Hynes: As a reminder, we will laugh last year's labor productivity improvements in the third quarter. So the year of a year benefits from labor productivity is expected to moderate in the back half the 2024. Wage inflation continued to moderate in the second quarter, with early rate growth of 2% versus prior year. Occupancy costs were flat versus prior year at 9.3%, and other restaurant operating costs increased by 70 basis points in the second quarter to 19.2%. The increase in other restaurant operating costs was driven by third party delivery fees due to an increase in revenue missed from that channel.
Drew Madsen: As a reminder, we will lap last year's labor productivity improvements in the third quarter, so the year-over-year benefit from labor productivity is expected to moderate in the back half of 2024.
Michael Hynes: Wage inflation continued to moderate in the second quarter, with an early rate growth of 2% versus prior year. The increase in other restaurant operating costs was driven by third-party delivery fees due to an increase in revenue missed from that channel, and an increase in planned marketing spend, which I will discuss shortly. In the second quarter, we opened five new company-owned restaurants and refranchised six restaurants in the Portland, Oregon area to a new franchise, depreciation and amortization expense, We currently expect to close a total of 10 to 15 restaurants in fiscal year 2024, which includes a few of the underperforming restaurants previously discussed, schedule to open later in the third quarter, so we are forecasting a decrease in our capital expenditure run rate in the fourth quarter that will carry forward into 2025 and better position us to be free cash flow positive on a sustainable basis.
Drew Madsen: Wage inflation continued to moderate in the second quarter, with an early rate growth of 2% versus prior year.
Drew Madsen: Occupancy costs were flat versus prior year at 9.3% and other restaurant operating costs increased by 70 basis points in the second quarter to 19.2%.
Drew Madsen: The increase in other restaurant operating costs was driven by third-party delivery fees due to an increase in revenue missed from that channel.
Michael Hynes: GNA for the second quarter was 13.6 million dollars compared to 12.5 million in 2023, primarily due to an increase in severance and executive transition costs and an increase in planned marketing spend. Net loss for the second quarter was 13.6 million dollars, or a loss of 30 cents per diluted share, compared to a net loss of 1.3 million, in a loss of 3 cents per diluted share last year. The loss in the second quarter of 2024 included a 10.9 million dollar non-cash and payment charge primarily related to the portfolio review of under performing restaurants, which I will discuss shortly.
Drew Madsen: G&A for the second quarter was $13.6 million compared to $12.5 million in 2023, primarily due to an increase in severance and executive transition costs, and an increase in planned marketing spent.
Drew Madsen: Net loss for the second quarter was $13.6 million, or a loss of $0.30 per diluted share, compared to a net loss of $1.3 million and a loss of $0.03 per diluted share last year.
Drew Madsen: The loss in the second quarter of 2024 included a $10.9 million non-cash impairment charge, primarily related to the portfolio review of underperforming restaurants, which I will discuss shortly.
Michael Hynes: Adjusted EBITDA for the second quarter was 9.2 million dollars compared to 8.5 million in the second quarter of 2023. In the second quarter, we opened five new company-owned restaurants and refranchised six restaurants in the Portland, Oregon area to a new franchise group. One franchise restaurant was closed in the second quarter of 2024. In July, we opened one new company-owned restaurant, bringing our year-to-date total company openings to 8.1. New franchise restaurant also opened in July. As Drew mentioned, we recently performed a comprehensive portfolio review that identified a group of about 20 restaurants with combined annual restaurant contribution losses of approximately $2 million that we will explore closing on or before their lease expiration date.
Drew Madsen: Adjusted EBITDA for the second quarter was $9.2 million compared to $8.5 million in the second quarter of 2023.
Drew Madsen: In the second quarter, we opened five new company-owned restaurants and re-franchised six restaurants in the Portland, Oregon area to a new franchise group.
Drew Madsen: One franchise restaurant was closed in the second quarter of 2024.
Drew Madsen: In July , we opened one new company-owned restaurant, bringing our year-to-date total company openings to eight.
Drew Madsen: One new franchise restaurant also opened in July .
rew: As Drew mentioned, we recently performed a comprehensive portfolio review.
rew: that identified a group of about 20 restaurants with combined annual restaurant contribution losses.
rew: of approximately $2 million that we will explore closing on or before their lease expiration dates.
Michael Hynes: With the existence of a national broker, we've begun discussions with the landlords for these restaurants. The timing of potential closures is uncertain and will be determined on a case-by-case basis.
Speaker Change: With the assistance of a national broker, we have begun discussions with the landlords for these restaurants. The timing of potential closures is uncertain and will be determined on a case-by-case basis.
Michael Hynes: Turning to full year 2024 guidance, although we're pleased with our second quarter results, we have revised certain expectations for the full year to reflect our recent trends, given the more challenging consumer environment. For the full year 2024, we are providing guidance of $495 to $505 million for revenue, inclusive of negative 2% to flat-comp restaurant sales. We anticipate full-year restaurant contribution margin between 13.5% and 14.5%. GNA expenses of $50 to $53 million, inclusive of stock-based compensation expense of approximately $4.5 million. Depreciation and amortization expense of $30 to $32 million and interest expense of $8 to $9 million.
rew: Turning to full year 2024 guidance, although we're pleased with our second quarter results, we have revised certain expectations for the full year to reflect our recent trends given the more challenging consumer environment.
rew: For the full year 2024, we are providing guidance of $495 to $505 million for revenue, inclusive of negative 2% to flat comp restaurant sales.
rew: We anticipate full-year restaurant contribution margin between 13.5% and 14.5%.
rew: G&A expenses of $50 to $53 million, inclusive of stock-based compensation expense of approximately $4.5 million.
rew: Depreciation and Amortization Expense
rew: of $30-$32 million, and interest expense of $8-$9 million.
Michael Hynes: For the full year, we expect to open a total of 10 new company-owned restaurants and three new franchise restaurants, and we continue to expect total 2024 capital expenditures between $28 and $32 million. We currently expect to close a total of 10 to 15 restaurants in fiscal year 2024, which includes a few of the underperforming restaurants previously discussed. Turning to the balance sheet, at quarter end, we had cash and cash equivalence of $1.8 million, a total debt balance of $86.5 million, and over $30 million of incremental liquidity available for future borrowings under our credit facility. Our final two company-owned restaurant openings for 2024 are scheduled to open later in the third quarter.
rew: For the full year, we expect to open a total of 10 new company-owned restaurants and three new franchise restaurants.
rew: And we continue to expect total 2024 capital expenditures between $28 and $32 million.
rew: We currently expect to close a total of 10 to 15 restaurants in fiscal year 2024, which includes a few of the underperforming restaurants previously discussed.
rew: Turning to the balance sheet, at quarter end, we had cash and cash equivalents of $1.8 million, a total debt balance of $86.5 million, and over $30 million of incremental liquidity available for future borrowings under our credit facility.
rew: Our final two company-owned restaurant openings for 2024.
Michael Hynes: So we are forecasting a decrease in our capital expenditure run rate in the fourth quarter that will carry forward into 2025 and better position us to be free cash flow positive on a sustainable basis.
rew: are scheduled to open later in the third quarter.
rew: So we are forecasting a decrease in our capital expenditure run rate in the fourth quarter that will carry forward into 2025 and better position us to be free cash flow positive on a sustainable basis.
Drew Madsen: With that, I'll turn the call back over to Drew for final remarks. Thanks, Mike. I am pleased with our second quarter results and excited about our continued progress on our 5P priorities. Our foundation of operations excellence is improving, and our menu transformation is on track with encouraging early test market results.
rew: With that, I'll turn the call back over to Drew for final remarks.
Drew Madsen: Thanks, Mike. I am pleased with our second quarter results and excited about our continued progress on our five key priorities. Our foundation of operations excellence is improving and our menu transformation is on track with encouraging early test market results.
Dave Boennighausen: Our foundation of operations excellence is improving, and our menu transformation is on track with encouraging early test market results. I look forward to sharing more progress with you soon. Operator, please open the lines for Q&A.
Drew Madsen: I look forward to sharing more progress with you soon.
Drew Madsen: Thank you for your time today.
Operator: Operator, please open the lines for Q&A. Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: I look forward to sharing more progress with you soon.
Speaker Change: Thank you for your time today. Operator, please open the lines for Q&A.
Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Jake Bartlett: Our first question comes from the line of Jake Bartlett of Truest Security. Your line is now open. Great. Thank you so much. Thanks for taking a question.
Speaker Change: Our first question comes from the line of Jake Bartlett of Truist Securities. Your line is now open.
Andrew Barish: Great, thank you so much, and thanks for taking the question. You know, my first concern is guidance and on Sainsbury's sales and your expectations. You know, it looks like the midpoint of the annual guidance implies a back half, but it only shows maybe a very slight improvement from where you're kind of running on a, you know, kind of a normalized basis in July. So I just want to kind of confirm your thinking in terms of the back half.
Michael Hynes: My first is on the guidance and on St. George's sales and your expectations. It looks like the midpoint of the annual guidance implies a back half. It only shows a very slight improvement from where you are running on a normal life basis in July. I just want to confirm what you are thinking in terms of the back half guidance. Doesn't seem to bake in much of an impact from the new menu items that are coming down the pike. You may be just to give a perspective on how you came to that guidance, what you have baked in, and maybe also what your view of the underlying demand environment is going to be that's baked in.
Jake Bartlett: Great, thank you so much, and thanks for taking the question. Um, you know, my first is on the the guidance and on same-sure sales and your expectations. Um, you know, it looks like the midpoint of the annual guidance implies a back half. It only shows a maybe a very slight improvement from where you're kind of running on a
Speaker Change: I just want to confirm your thinking in terms of the BACAP guidance.
Speaker Change: It doesn't seem to bake in much of an impact from the new menu items that are coming down the pike. Maybe just to give a perspective on how you came to that guidance, what you have baked in, and maybe also what your view of the underlying...
Andrew Barish: Guidance doesn't seem to bake in much of an impact from the new menu items that are coming down the pike. You know, maybe just to give a perspective on how you came to that guidance, what you have baked in, and maybe also, you know, what your view of the underlying demand environment is going to be that's baked in.
Michael Hynes: to the guidance. Thanks, Jake.
Speaker Change: Demand environment is going to be that's baked into the guidance.
Michael Hynes: I'll start and just give you some guidelines on what informed our guidance. So, your debate through Q2, we're down about 2%. We know we're starting with a down 3 in July due to the holiday shift. Adjusted for the holiday shift, we're better at down 7, part down 0.7; excuse me.
Speaker Change: Thanks, Jake. I'll start and just give you some guidelines on what informed our guidance.
Speaker Change: So year-to-date through Q2, we're down about 2%. We know we're starting with a down 3 in July due to the holiday shift. Adjusted for the holiday shift, we're better at down 7, or down 0.7, excuse me.
Dave Boennighausen: And so to get to positive, we would have to exceed a plus two in the back half of the year. And we are planning on incremental improvement where we are today. But we wanted to be measured, considering the environment and what we've recently experienced in our month to month to month progress.
Drew Madsen: And so to get to positive, we would have to exceed a plus 2 in the back half of the year. And we are planning on incremental improvement from where we are today, but we wanted to be measured considering the environment and what we've recently experienced in our month-to-month progress.
Speaker Change: And so, to get to positive, we would have to exceed a plus two in the back half.
Jake Bartlett: We are planning on incremental improvement from where we are today, but we wanted to be measured, considering the environment and what we've recently experienced in our month-to-month progress.
Drew Madsen: Yeah, I mean, I emphasize we're very excited about the progress we're making on all of our priority and operations excellence across the board and every quartile, especially at dinner, on our menu transformation. Really encouraging early test market results. We're getting good progress on our loyalty program for sure, and catering. That's going to be a little bit longer-term play, but up 40% of the second quarter. So, really excited about the progress in all our priorities, but we recognize that the consumer environment is difficult, and we're basically tracking with the fast casual industry benchmark now, and that's what we anticipate going forward.
Speaker Change: Yeah, I mean, I'd emphasize we're very excited about the progress we're making on all of our priorities, operations excellence.
Speaker Change: across the board in every quartile, especially at dinner on our menu transformation, really encouraging early test market results.
Speaker Change: We're getting good progress on our loyalty program, for sure.
Speaker Change: and catering. That's going to be a little bit longer term play, but up 40% in the second quarter. So really excited about the progress in all our priorities, but we recognize that the consumer environment.
Speaker Change: is difficult and we're basically tracking with the fast casual industry benchmark now and that's what we anticipate going forward.
Jake Bartlett: Great. And you know, one of the kind of the, I guess the headwinds that you've faced, or you're about a year to quarter now, maybe a year and a half ago, when you're kind of value that out of a little out of lack for your consumer and you show the price of elasticity wasn't there.
Speaker Change: Great. One of the headwinds that you faced about a year and a quarter now, maybe a year and a half ago, when your value got a little out of whack for your consumer and you showed that price elasticity wasn't there.
Drew Madsen: So the question is, has your value perceptions started to improve? It seems like a big headwind, something that you need to really, you know, improve. Are you seeing progress there? I know customer satisfaction has been improving, but how about this: the value perceptions of the consumer? Yeah, they are gradually improving, and we expect with our new menu improvements, they're going to accelerate even further. That's what we're seeing in the test market. We've chosen not to aggressively discount the way we did last year to try and artificially get value improvements for really focused on things that will fundamentally sustainably improve our experience and improve the value perception, basically driven by what our guests are feeling in the restaurant with the experience we're getting. And I'm really going to see more of that with our many transformation.
Speaker Change: So the question is, have value perceptions started to improve? It seems like a big headwind, something that you need to really improve. Are you seeing progress there? I know customer satisfaction's been improving, but how about just the value perceptions of the consumer?
Speaker Change: Yeah, they are gradually improving, and we expect with our new menu improvements they're going to accelerate even further, and that's what we're seeing in the test market.
Speaker Change: We've chosen not to aggressively discount the way we did last year to try and
Speaker Change: artificially get value improvements. We're really focused on things that will fundamentally, sustainably improve our experience and improve the value perception, basically driven by what our guests are feeling in the restaurant with the experience we're getting.
Speaker Change: We're really going to see more of that with our menu transformation.
Jake Bartlett: Great, and then my last question is on the hiring of Scott Davis as the Chief Concept Officer, and obviously Scott has a great track record at Panera for one. So my question is how is hiring? How does that change your approach to demanding innovation? I think before we were, you're focused on more outsourcing to that kind of menu development function. In terms of the pace of the changes that you have coming down the pike, I know he's only been in the job for over a month now. So does that delay or have any impact on what the plan was as we last had heard it?
Speaker Change: Great. And then my last question is, you know, on the hiring of Scott Davis as the chief concept officer, and obviously Scott has a great track record, you know, at Panera for one. And so my question is how, you know, his hiring, you know, how does that change your approach to
Speaker Change: to menu innovation. I think, you know, before we were, you know, it was, it was, you're focused on kind of more outsourcing to that kind of menu development function. You know, in terms of the pace of the changes that you have coming down the pike, I know he's
Speaker Change: They've only been in the job for a little over a month now, so does that delay or have any impact on kind of what the plan was as we last had heard it? I think in the last call you mentioned touching about 40% of the menu by the first quarter. Now you've talked about two-thirds by the second quarter, it sounds like, or by the beginning of the third. Just any impact you expect Scott to make as well as just impact to the plan as we understood it before his hire?
Drew Madsen: I think in the last call you mentioned, you're touching about 40% of the menu by the first quarter. Now you've talked about two-thirds by the second quarter. It sounds like you're by the beginning of the third. Just any impact you expect Scott to make as well as just impact to the plan as we understood it before.
Drew Madsen: Higher. Yeah, we're super excited about bringing Scott on board. He is one of the really outstanding concept culinary innovation leaders in our industry, and we're delighted to have one of the teams. His presence is adding, I would say, a very strong voice on the leadership team as it relates to culinary excellence and not sacrificing our culinary standards in any way, shape, or form. His presence isn't going to impact the timing, but I think it will impact materially the impact, the impact of success. We have in our many transformation efforts, just the things he's pointing out already. If the work PCE is done and how to bring it to life inside a restaurant or consistently, it's going to make a difference.
Dave Boennighausen: Yeah, we're super excited about bringing Scott on board. He is one of the really outstanding concept culinary innovation leaders in our industry, and we're delighted to have him on the team. His presence is adding, I would say, a very strong voice on the leadership team as it relates to culinary excellence and not sacrificing our culinary standards in any way, shape, or form. His presence isn't going to impact the timing, but I think it will materially impact the level of success we have in our menu transformation efforts.
Scott: Yeah, we're super excited about bringing Scott on board. He is one of the
Scott: really outstanding concept culinary innovation leaders in our industry, and we're delighted to have them on the team.
Scott: His presence is adding, I would say, a very strong voice on the leadership team as it relates to
Scott: culinary excellence and noton sacrificing our culinary standards
Scott: in any way, shape, or form.
Speaker Change: His presence isn't going to impact the timing, but I think it will impact materially the impact, the impact of success.
Dave Boennighausen: Just the things he's pointing out already in the work TCE has done and how to bring it to life inside a restaurant more consistently are going to make a difference. So, great insight, higher standards, really strong partnership with operations. So, that can impact the timing. I just think it's going to impact the overall success of what we started with TCE.
Speaker Change: We have in our many transformation efforts, just the things he's pointing out already in the work PCE has done and how to bring it to life inside a restaurant more consistently is going to make a difference. So great insight, higher standards.
Drew Madsen: So great insight, higher standards, really strong partnership with operations. So I can impact the time, and I just think it's going to impact the overall success of what we start at the PCE. Great, I appreciate it.
Speaker Change: really strong partnership with operations so I can impact the timing. I just think it's going to impact the overall success of what we started with TCE.
Operator: Thank you. One moment for our next question.
Operator: Thank you. Please take a moment for our next question.
Speaker Change: Great. I appreciate it.
Speaker Change: Thank you. One moment for our next question.
Todd Brooks: Our next question comes from the line of Todd Brooks of the Benchmark Company. Your line is now open. Thanks for taking my questions. I have a few if I may. One drew.
Speaker Change: Our next question comes from the line of Todd Brooks of The Benchmark Company. Your line is now open.
Andrew Barish: Hey, thanks for taking my questions. I have a few, if I may. One, Drew, I think what we were talking about...
Drew Madsen: I think when we were talking about LTO cadence and using some of those new menu items as an LTO bridge around the introductions in the fourth quarter, you teased a kind of a brand partnership that was the promotional focus on the third quarter. And it sounds like now maybe it was adding incremental LTO in August. Is there any detail around that brand partners that event still happening or are we kind of locked in on using the food and and promoting those items as our traffic driver for Q3. Well, they're both still happening. We're excited about spicy cream steak noodles for sure starting pretty soon, and then the three new dishes from the culinary edge.
Todd Brooks: Hey, thanks for taking my questions. I have a few, if I may. One, Drew, I think what we were talking about...
Dave Boennighausen: The promotional focus for the third quarter, and it sounds like now maybe we've added an incremental LTO in August. Is there any detail around that brand partner? Is that event still happening, or are we kind of locked in on using the food and promoting those items as our traffic driver for Q3?
Drew Madsen: The partnership we were referring to isn't strictly a culinary partnership. It's with Care Bears partnership targeting families, and that is still going to happen. So all three will be in the market starting towards mid to end the third quarter.
Todd Brooks: Okay, perfect. Thanks.
Michael Hynes: Secondly, Mike, I know you talked about the when you just update the guidance you talked about the lower range for revenues, but in the original guidance range, were these 10 to 15 closures by the end of the year contemplated or is that accounting for a decent share of the of the guide down in revenues for the four year. That is a change taught from our previous guidance. So the portfolio review was initiated in the second quarter. So we weren't aware of that with the original guidance, and that does contribute to a portion of the revenue decline.
Speaker Change: Just updated the guidance you talked about the lower range for revenues in the original guidance range with these 10 to 15 closures by the end of the year contemplated or is that accounting for.
Speaker Change: A decent share of.
Speaker Change: Got down in revenues for the full year.
Speaker Change: That is a change from our previous guidance said the portfolio review, but in.
Speaker Change: <unk> in the second quarter.
Speaker Change: So we werent aware that with the original guidance and that does contribute to a portion of that.
Speaker Change: The revenue decline.
Michael Hynes: We're anticipating that the closures associated with the few that we have related to the portfolio review in 2024. They'll be they'll be late Q three and into Q four. So not a huge impact to the 2024 whole year revenue number. But when we went through guidance in March, we were anticipating our normal historical closure, which is one to two percent. So we're clearly stepping up from that now. Okay, good thanks.
Speaker Change: Anticipating the closures associated the few that we.
Speaker Change: We have related to the portfolio review in 2020 sure there'll be there'll be late Q3 and into Q4, so not a huge impact to the 2020 for full year revenue number.
Speaker Change: But when we went through guidance.
Speaker Change: In March we were anticipating our normal historical closure rate, which is 1% to 2%.
Speaker Change: Clearly stepping up from that now.
Speaker Change: Okay. Thanks, and then the final question I have if you look at.
Todd Brooks: And then the final question I have. If you look at just the environment we're operating in, there's a lot of kind of specific price promotions at that kind of hard price targets. And I know you're not trying to necessarily discount for the sake of just driving profitless traffic, but as you look at the menu and maybe you go to the combo or Bondo, are you looking at any specific price point promotions that you either want to have in the quiver, you feel like you need to kind of pull that lever to be that much more competitive in the second half.
Andrew Barish: Just the environment we're operating in, there's a lot of kind of specific price promotions at that kind of hard price targets, and I know you're not necessarily trying to necessarily discount for the sake of driving profitless traffic. But as you look at the menu and maybe the ability to combo or bundle, are you looking at any specific price point promotions that
Speaker Change: Just the environment, we're operating and Theres a lot of kind of specifics.
Speaker Change: Price per.
Speaker Change: <unk> kind of hard price targets and.
Speaker Change: I know youre, not trying to necessarily discount for the sake of.
Speaker Change: Just driving profit was traffic, but as you as you look at the menu and maybe your ability to combo. Our bond are you looking at a specific price point promotions that.
Pat: You either want to have in the quiver you feel like you need to kind of pull that lever to be that much more competitive in the second half I know you are equal to your peer average now on kind of traffic and same store sales growth, but just thoughts on overt value, where the customer seems to be gravitating to Pat. Thanks.
Drew Madsen: I know you're equal to your peer average now on kind of traffic and same-store sales growth, but just thoughts on overt value where the customer seems to be gravitating to that. Thanks.
Drew Madsen: Yes. Well, you know, we've seen some modest signs of check management related to add-ons, but it's modest. And our overall check growth in the quarter was on expectations to an half percent. And as we look at our share of traffic by income group, it's largely unchanged over the last 18 months. So we haven't seen a significant pullback from our lower income customers, but as you say, it is a challenging consumer environment for sure.
Dave Boennighausen: Yes, well, you know, we've seen some modest signs of check management related to related add-ons, but it's modest, and our overall check growth in the quarter was on expectations at two and a half percent, customers. But, as you say, it is a challenging consumer environment for sure. So to your question, we have chosen to lean into investments that we believe have the highest chance.
Speaker Change: Yes.
Speaker Change: We've seen some modest signs of check management related to related to add ons, but it's modest.
Speaker Change: And our overall check growth in the quarter was an expectation to 5%.
Speaker Change: And as we look at our share of traffic by income group, it's largely unchanged over the last 18 months. So we haven't seen a significant pullback from our lower income.
Speaker Change: Customers, but as you say it is a challenging consumer environment for sure. So.
Drew Madsen: So, to your question, we have chosen to lean into investments that we believe at the highest chance of driving profitable incremental traffic. And that's around what we're seeing in our loyalty program. Number one, leveraging our customer data platform and being more selective with where we choose to offer any sort of incentives. And in our third-party delivery marketplace where we have a good deal of success as well, we're avoiding broad-based discounting. Our view is that it's just really hard to get it up incremental traffic, offset the margin loss that comes with this sort of tactic. And in addition to leaning into loyalty programs, which is, we think, a competitive strength in our third-party marketplace success, we think the best way for us to drive sustained profitable traffic is just to continue to improve our guest experience through operations excellence and menu innovation.
Speaker Change: To your question, we have chosen to lean into investments that we believe that the highest chance of driving.
Speaker Change: Profitable incremental traffic and thats around what we're seeing in our loyalty program number one leveraging our customer data platform and being more selective with where we choose.
Speaker Change: Choose to offer any sort of incentives.
Speaker Change: And in our third party delivery marketplace, where we had a good deal of success as well.
Speaker Change: We're avoiding broad based discounting.
Speaker Change: Our view is that it's just really hard to get enough incremental traffic to offset the margin loss that comes with this sort of tactics.
Speaker Change: In addition to leading into loyalty program, which is we think a competitive strength.
Speaker Change: And our third party marketplace success, we think the best way for us to drive sustained profitable traffic.
Speaker Change: Just to continue to improve our guest experience through operational excellence and menu innovation.
Todd Brooks: And also increase brand awareness and attract new users through the broader reach needed vehicles that were testing this quarter. That's helpful.
Speaker Change: It also increased brand awareness and attract new users through the broader reach media vehicles that we're there we're testing this quarter.
Andrew Barish: That's helpful. Thanks, Drew. I appreciate it.
Todd Brooks: Thanks for your opportunity.
Speaker Change: That's helpful. Thanks, Tim appreciate it.
Operator: Thank you.
Tim: Thank you.
Operator: This does conclude the question and answer session. Thank you for your participation in today's conference.
Operator: This does conclude the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: This does conclude the question and answer session.
Speaker Change: You for your participation in today's conference. This does conclude the program you may now disconnect.
Operator: This does conclude the program.
Operator: You may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.