Q2 2025 Denny's Corp Earnings Call

These markets means we may have felt the impact more acutely.

Kelli Valade: These markets mean we may have felt the impact more acutely. Despite this, we continue to remain laser-focused on driving profitable traffic, helping us continue to outperform BBI Family in California specifically and for the sixth consecutive quarter. We expect that the volatility in consumer sentiment will moderate over time. In the meantime, we are continuing to stay nimble, innovating our value messaging and merchandising, and meeting the guests where they are. In March, we introduced the Buy One Get One Slam for a dollar deal, featuring our original Grand Slam and our All American Slam. This was a compelling and competitive offer, and it performed well over the 12-week period, driving traffic from new and lapsed users. In fact, over 15% of the new and lapsed users who visited us during the BOGO promotion have since returned to enjoy our latest promotions, and some have even visited multiple times.

For the sixth consecutive quarter.

We expect that the volatility in consumer sentiment will moderate over time; in the meantime, we are continuing to stay nimble, innovating our value messaging and merchandising, and meeting the guests where they are.

In March we introduced the buy 1. Get 1 slam for a dollar deal, featuring our original Grand Slam and our All-American slam. This was a compelling and competitive offer and it performed well over the 12 week. Period, driving traffic from new and lapsed users.

In fact, over 15% of the new and lapsed users who visited US during the BOGO promotion. Have since returned to enjoy our latest promotions and some have even visited multiple times.

As we headed into the busy summer months, we opted to refresh our value offer again with something that highlighted our brand equity and slams.

Kelli Valade: As we headed into the busy summer months, we opted to refresh our value offer again with something that highlighted our brand equity in slams. In June, we introduced four slams under $10, featuring the Red, White, and Berry Everyday Value Slam, which is particularly relevant in the summer months around the 4th of July, as well as the Chocolate Manna Everyday Value Slam and the fan favorites Super Slam and Everyday Value Slam. The Super Slam incidents peaked at a record high of nearly 10%, demonstrating the significant appeal of this offer. The four slams promotion is continuing to drive similar new and lapsed user trial as the BOGO promotion did. We are continuing to iterate and evaluate ways to meet our guests' desire for value through a variety of offers that meet their different needs.

In June, we introduced Force slams under $10, featuring the red white and Berry everyday value slam, which is particularly relevant in the summer months around the 4th of July, as well as the chocolate Nana everyday value slam and the fan favorites Super Slam and everyday value slam.

The Super Slam incidents peek at a record, high of nearly 10% demonstrating, the significant appeal of this offer, and the force slams promotion is continuing to drive similar new and lapse user trial as the BOGO promotion did.

Kelli Valade: We also remain confident in our off-premise strategies, which we believe uniquely position DENNY'S as a leader in the family dining category. Our volatility is concentrated in dine-in transactions, but our off-premise business remains strong. In fact, our off-premise sales contributed a 1.5% improvement in same restaurant sales during Q2. We attribute our strength in this channel to our continued smart investments in digital, which increased traffic to our website, improved conversion rates, and more effective promotions on third-party platforms. We will go deeper with digital as we launch a new Points-based loyalty program during the back half of this year. This new program is a best-in-class one-to-one marketing program that leverages our already strong database of loyal guests to create greater, more compelling reasons for them to engage and spend more.

We are continuing to iterate and evaluate ways to meet our guests, desire for Value. Through a variety of offers that meet their different needs. We also remain confident in our off- premise strategies, which we believe uniquely positioned Denny's as a leader in the family. Dining category. Our volatility is concentrated in dining and transactions but are off-premise business. Remain strong. In fact, our off- premise sales, contributed a 1.5% Improvement. In same restaurant sales during Q2, we attribute our strength in this channel to our continued smart investments in digital, which increase traffic to our website improve conversion rates and more effective promotions on, third-party platforms. And we'll go deeper with digital as we launch a new Point. Space loyalty program during the back half of this year. This new program is a best-in-class 1 to 1 marketing program that leverages our already strong database of loyal guests to create greater more compelling reasons for them to engage and spend more.

It will allow us to collect valuable first-party data that enables us to personalize offers based on real guest behavior, drive frequency and margin with the right promotions, and deliver the right message to the right guests at the right time.

Kelli Valade: It will allow us to collect valuable first-party data that enables us to personalize offers based on real guest behavior, drive frequency and margin with right promotions, and deliver the right message to the right guests at the right time. These digital guests are more valuable because they tend to visit more often. On average, these guests visit 2 times more often than other guests. Plus, we're making it easy for everyone to join from anywhere they can access DENNY'S.com, which includes but isn't limited to just the Denny's app. By launching this new Points-based loyalty program, we incentivize engagements every visit, collecting data needed to fuel a personalized CRM program to build frequency and delivering between 50 to 100 basis points in traffic over time.

These digital guests are more valuable because they tend to visit more often on average. These guests visit 2 times more often than other guests plus we're making it easy for everyone to join from anywhere. They can access Denny's cam which includes but isn't limited to just the Denny's app.

By launching this new points, based loyalty program, we incentivize engagements every visit collecting data needed to fuel a personalized CRM program to build frequency, and delivering between 50 to 100 basis points in traffic over time.

I also want to take a moment and provide an update on our previously communicated strategy to close underperforming restaurants and return to pre-pandemic growth of flat to slightly positive in future years.

Kelli Valade: I also want to take a moment and provide an update on our previously communicated strategy to close underperforming restaurants and return to pre-pandemic growth of flat to slightly positive in future years. The surgical and methodical approach, which began in 2023 and will be completed by the end of this year, is specifically designed to optimize and enhance the overall health of the franchise system, with the goal of returning to net flat to positive growth by 2026. Rationalizing the portfolio was the right thing to do, and we're seeing the result that we wanted and expected from this process. It has already resulted in a franchise AUV increase of approximately 5% or nearly $100,000 in AUVs. In addition, our rehabilitation plan is also working as expected.

The surgical and methodical approach, which began in 2023 and will be completed by the end of this year, is specifically designed to optimize and enhance the overall health of the franchise system, with the goal of returning to net flat to positive growth by 2026.

Rationalizing, the portfolio was the right thing to do, and we're seeing the results that we wanted and expected from this process.

It has already resulted in a franchise auv increase of approximately 5% or nearly $100,000 in AVS.

Kelli Valade: We're moving underperforming restaurants to new operators and taking a targeted approach to rehabilitating other restaurants through enhanced training and dedicated support from our field teams. This collaborative effort has resulted in the remaining quintile five restaurants now outperforming franchise same restaurant sales by approximately 120 basis points during Q2, further proving the strategy to rationalize the portfolio in this way, though difficult, was absolutely the right thing to do. One more important action we're taking to improve not only the lower quintile restaurants, but the entire portfolio is protecting margins and leaving no stone unturned. Our margin improvement efforts to date have already identified significant savings through reduced food and non-food costs and waste savings. These savings are a result of supplier negotiations, product spec changes, recipe changes, menu enhancements, and operational procedure modifications.

In addition, our rehabilitation plan is also working as expected. We're moving underperforming restaurants to new operators and taking a targeted approach to rehabilitating other restaurants through enhanced training and dedicated support from our field teams. This collaborative effort has resulted in the remaining quintile 5 restaurants now outperforming franchise same restaurant sales by approximately 120 basis points during Q2. Proving that the strategy to rationalize the portfolio in this way, though difficult, was absolutely the right thing to do.

1. A more important action we're taking to improve, not only the lower quintile restaurants but the entire portfolio, is protecting margins and leaving no stone unturned. Our margin improvement efforts to date have already identified significant savings, including reduced food and non-food costs and waste savings. These savings are a result of supplier negotiations, product spec changes, recipe changes, menu enhancements, and operational procedure modifications.

Kelli Valade: As we look forward, upcoming areas of opportunities for savings include pack size optimizations, product packaging, and to-go packaging. In total, we believe this initiative can deliver up to 200 bps of savings over the next 12 to 18 months to mitigate continued rising costs and boost both our company P&Ls and franchise P&Ls. It's important to note none of the savings I've referenced are at the expense of the guests, and all of them have come with complete alignment and working closely with our franchisees. Overall, we remain focused on living our values and executing our strategic initiatives. We are leaning into our strengths as a brand, winning in key occasions like value and off-premise, and engaging the next generation of brand fans to drive meaningful results for our business. I'd like to thank Chris Bode and the entire team at DENNY'S, along with our dedicated DENNY'S franchisees.

As we look forward upcoming areas of opportunities for savings include taxes, optimizations product, packaging and to go back in to Total. We believe this initiative can deliver up to 200 basis points of savings over the next 12 to 18 months to mitigate continued, Rising costs and boost both our company p&ls and franchise p&ls.

It's important to note, none of the savings. I've referenced are at the expense of the guests and all of them have come with complete alignment and working closely with our franchises.

Brand fans to drive meaningful results for our business. I'd like to thank Chris Bodie and the entire team at Denny's along with our dedicated Denny's franchisees. Their resilience and focus are inspiring.

Kelli Valade: Their resilience and focus are inspiring. Now turning to Keke's Breakfast Cafe, which was recently named to the Nation's Restaurant News 2025 100 under 100 list of emerging restaurant chains with staggering results. The brand continues to delight guests, and as we've taken it beyond Florida, we're seeing incredibly strong guest sentiment, including a 4.85 Google rating. Keke's delivered strong Q2 same restaurant sales of positive 4% compared to the prior year quarter, and they continued their trend of significantly outperforming the BBI Family Dining Index in Florida by over 220 bps. The brand continues to delight our guests, and as we've taken it beyond Florida, we're seeing incredibly strong guest sentiment, including a 4.85 Google rating. When you take care of guests this way, they thank you by coming back more often.

Now, turning to Kiki's Breakfast Cafe, which was recently named to Nation's Restaurant News' 2025 100 Under 100 list of emerging restaurant chains with staggering results. The brand continues to delight guests, and as we've taken it beyond Florida, we're seeing incredibly strong guest sentiment, including a 4.85 Google rating.

Kelli Valade: Because of this and our other compelling initiatives, Keke's was able to deliver strong Q2 same restaurant sales of positive 4% compared to the prior year quarter, and they continued their trend of significantly outperforming the BBI Family Dining Index in Florida by over 220 bps. Keke's Breakfast Cafe has continued to benefit from all the foundational work that was done to capture the essence of this emerging brand, maintaining industry-leading guest satisfaction scores while focusing on operational excellence and speed of execution. This, combined with initiatives such as introducing alcohol offerings and growing off-premise sales, helped to deliver the 4% comp in Q2. Importantly, though, the growth came from both dine-in and off-premise transactions, making it even more impressive. Additionally, Keke's Breakfast Cafe launched its first-ever system-wide promotion in fiscal June, featuring $5 kids' meals with every adult entree.

Kiki's delivered strong second quarter, same restaurant sales of positive 4% compared to the prior year quarter and they continued their trend of significantly outperforming the BBI Family Dining index in Florida by over 220 basis points. The brand continues to Delight our guests and as we've taken it Beyond Florida, we're seeing incredibly strong guest sediment, including a 4.85 Google rating. And when you take care of guests this way they Thank You by coming back more often because of this and our other compelling initiatives Kiki's was able to deliver strong second quarter, same restaurant sales of positive 4% compared to the prior year quarter and they continued their trend of significantly outperforming the BBI Family Dining index in Florida by over 220 basis points. Kiki says, continue to benefit from all the foundational work. That was done to capture the essence of this emerging brand maintaining industry-leading, guest satisfaction scores, while focusing on operational excellence and speed of execution. This combined with initiative such as introducing alcohol offerings and growing off- premise sales helped to deliver the 4% comp and Q2

Importantly though, the growth came from both dying in and off-premise transactions, making it even more impressive.

Speaker 2: This timely promotion is set to capture families traveling here in the busy summer months and promote their vision without its impact.

Additionally, Kiki launched his first-ever systemwide promotion in fiscal June, featuring 5 kids' meals with every adult entrée. The timely promotions are traveling and have been recently added.

As well.

To Orlando while expanding International in Dallas.

Kayla Money: in Orlando, while expanding into Nashville and Dallas.

Kelli Valade: would like to take a few minutes to share an update specifically on these new markets for Keke's Breakfast Cafe. The Nashville market, which marked the brand's initial expansion outside of Florida about a year and a half ago, now includes six company cafes, one of which opened in fiscal July. Sales momentum has improved with each successful opening, reflecting enhanced brand recognition within the market. The six cafes in the Nashville market currently generate roughly 15% higher average weekly volumes than the system-wide average, and we are confident that volumes will continue to grow as the market matures. Although we now have six cafes in Nashville, only two have operated for over a year. The rest average just over three months.

I'd like to take a few minutes to share an update specifically on these new markets for Kiki's. The National Market, which marked the brand's initial expansion outside of Florida about a year and a half ago, now includes 6 company cafes, 1 of which opened in fiscal July. Sales momentum is improving with each successful opening, reflecting enhanced brand recognition within the market. The 6 cafes in the Nashville Market currently generate roughly 15% higher average weekly volumes than the systemwide average, and we are confident that volumes will continue to grow as the market matures. Although we now have 6 cafes in Nashville, only 2 have operated for over a year; the rest average just over 3 months. Robert will speak to this in more detail when you hear from him, but note that margins are improving as planned and are on track to meet the upper teens targets that were set at Investor Day.

Kelli Valade: Robert Verostek will speak to this in more detail when you hear from him, but note that margins are improving as planned and are on track to meet the upper teens targets that were set at Investor Day. Dallas is similar, with six company cafes now open for less than six months on average. We are optimistic about this market as well, having expanded early into many new and developing suburbs, and we expect Dallas to achieve its targets as scheduled. The maturity of these two markets will be crucial for demonstrating success, providing a playbook for openings and growing in new markets, and attracting new franchisees beyond our current internal pipeline. I am confident we are on the right path.

Dallas is similar with 6 company. Cafes. Now open for less than 6 months on average. We are optimistic about this Market as well. Having expanded early into many new and developing suburbs. And we expect Dallas to achieve its targets as scheduled

The maturity of these two markets will be crucial for demonstrating success. Providing a playbook for openings and growing new markets, and attracting new franchises beyond our current internal pipeline, is essential. I am confident we are on the right path. I want to thank our Kiki's, team, and franchises for their ongoing commitment and enthusiasm as we aim to become one of the largest competitors in the fastest-growing daytime eatery segment.

Kelli Valade: I want to thank our Keke's Breakfast Cafe team and franchisees for their ongoing commitment and enthusiasm as we aim to become one of the largest competitors in the fastest growing daytime eatery segment. In closing, we continue to focus on executing our strategic initiatives and winning with our guests while being nimble, facing challenges head-on, and meeting our guests where they are. We are a value leader, and we know how to leverage that strength to drive profitable traffic and support our guests and our franchisees' needs. We are hopeful that the macro environment will continue to stabilize and improve, and we are confident in our sales levers and smart initiatives. These include a continued focus on value and off-premise and new digital enhancements, such as our new loyalty CRM platform set to launch in the back half of this year.

in closing, we continue to focus on executing our strategic initiatives and winning with our guests, while being Nimble facing challenges, head on, and meeting our guests, where they are

We are value leader and we know how to leverage that strength to drive profitable traffic and support our guests and our franchises needs. We are hopeful that the macro environment will continue to stabilize and improve and we are confident in our sales levers and smart initiatives. These include a continued focus on value and off premise and new digital enhancements such as our new loyalty CRM platforms set to launch in the back half of this year.

Amazing Brands, executing our strategies, every day, and taking great care of our guests.

Kelli Valade: Going forward, we have a lot to look forward to, and I am incredibly proud of our teams, our franchise partners, and all those leading these amazing brands, executing our strategies every day and taking great care of our guests. I will now turn the call over to Robert Verostek, Denny's Corporation Chief Financial Officer, to discuss our Q2 financial results.

Robert Verostek: Thank you, Kelli. I also want to echo how proud I am of the team's unwavering dedication to executing our strategies. They have maintained a sharp focus on controllable factors as we steer through this choppy landscape. Starting with our second quarter financial results, as Kelli mentioned, Denny's reported Q1 domestic system-wide same restaurant sales of negative 1.3%. This reflected a sequential improvement of approximately 170 basis points from the first quarter, but was also weighed down by the impacts of our concentration in certain markets. From an income perspective, all income cohorts improved during the quarter, but the biggest improvement came from those guests in the $50,000 to $70,000 range. This is particularly encouraging as this is our core Denny's guests. Denny's company restaurants delivered flat same restaurant sales for the second quarter, even though they were exposed to some of these same pressures as the franchise system.

I will now turn the call over to Robert Barasa, Denise Chief Financial Officer, to discuss our Q2 financial results. Thank you, Kelly. I also want to echo how proud I am of the team's unwavering dedication to executing our strategies. They have maintained a sharp focus on controllable factors as we steer through this choppy landscape.

Now, starting with our second quarter financial results.

As Kelly mentioned, Denny's reported Q1 domestic systemwide same restaurant sales of negative 1.3%.

This reflected a sequential Improvement of approximately 170 basis points from the first quarter, but was also weighed down by the impacts of our concentration in certain markets.

From an income perspective, all income cohorts improved during the quarter. However, the biggest improvement came from those guests in the $50,000 to $70,000 range.

This is particularly encouraging, as this is our core Denny's guest.

Denny's company restaurants delivered flat. Same restaurant sales for the second quarter even though they were exposed to some of these same pressures as the franchise system.

Robert Verostek: This speaks to the investments we have made at our company restaurants by being early adopters of server tablets, allowing for quicker table turns, accelerating remodels, which deliver significant cash-on-cash returns, as well as having higher guest satisfaction scores. Additionally, beginning late last year, we started testing another virtual brand at our company restaurants in partnership with Franklin Junction, selling Nathan's famous hot dogs. This rolled out throughout Q1 and is currently in over 70% of our company restaurants. Virtual brands have always been highly incremental for us, with minimal SKUs being added, driving traffic during day parts where we have capacity and our operators are loving how easy hot dogs are to execute. In the second quarter alone, this new revenue channel improved company same restaurant sales by approximately 50 basis points, and we are starting to explore what a broader franchise rollout could look like.

This speaks to the investments we have made at our company restaurants by being early adopters of server tablets, allowing for quicker table turns and accelerating remodels. These initiatives deliver significant cash-on-cash returns and result in higher guest satisfaction scores.

Additionally, beginning late last year, we started testing another virtual brand at our company restaurant in partnership with Franklin Junction, selling Nathan's Famous Hot Dogs. This rolled out throughout Q1 and is currently in over 70% of our company restaurants.

Virtual brands have always been highly incremental for us with minimal skews being added driving traffic during day Parts where we have capacity and are operators, are loving how easy hot dogs are to execute. Also,

In the second quarter alone, this new Revenue Channel improved company. Same restaurant sales by approximately 50 basis points and we are starting to explore what a broader franchise rollout. Could look like.

Robert Verostek: Denny's system guest check average increased approximately 3% compared to the prior year quarter, which was primarily from carryover pricing from 2024. Off-premises sales have remained strong during the quarter, representing 21% of total sales. This unique strength for us benefited system-wide same restaurant sales by approximately 150 basis points and was evenly split between our investments in digital, which improved online sales, strategic promotions with third-party platforms, and the continued benefit of rolling out Banda Burrito last year. Value was clearly a big component of our quarter as well, with incidents just over 20%. There is no doubt that we needed to lean into value, but we also did it in a smart way, which resulted in us driving enough traffic during the quarter to offset the discount provided to our guests.

Denny's system, guest check, average increased approximately 3% compared to the prior year quarter, which was primarily from carryover pricing from 2024 off premises sales have remained strong. During the quarter representing 21% of total sales. This unique strength for us benefitted, systemwide same restaurant sales by approximately 150 basis points and was evenly split between our investments in digital which improved online sales strategic promotions with third-party platforms.

Platforms. And the continued benefit of rolling out, Bond of burrito last year.

Value was clearly a big component of our quarter as well, with incidents just over 20%.

There is no doubt that we needed to lean into value. But we also did it in a smart way, which resulted in us driving enough traffic during the quarter to offset the discount provided to Our Guest.

Denny's open 3 restaurants during the quarter and closed 10 franchise restaurants with average unit volumes of approximately a million dollars.

Robert Verostek: Denny's opened three restaurants during the quarter and closed 10 franchise restaurants with average unit volumes of approximately $1 million. As Kelli Valade mentioned, being proactive in closing these lower volume restaurants, along with a focused rehabilitation program, has already improved our franchise AUVs by nearly 5% since we started this journey almost two years ago. Also, during the quarter, Denny's completed 14 remodels, including five at company restaurants. This brings our company fleet to nearly 55% remodeled, and our franchise system is ramping up with over 10% of the system remodeled. We expect to complete another 5 to 10 company remodels this year and upwards of another 50 franchise remodels. Lastly, we have always had a practice of opportunistic buying in markets where we already have oversight, which is why we strategically acquired one restaurant in Texas during the quarter.

As Kelly mentioned, being proactive and closing, these lower volume restaurants, along with a focused rehabilitation program, has already improved our franchise auvs by nearly 5%. Since we started this journey almost 2 years ago,

Also, during the quarter, Denny's completed 14 remodels, including 5 at company restaurants. This brings our company fleet to nearly 55% remodeled, and our franchise system is ramping up with over 10% of the system remodeled.

We expect to complete another 5 to 10 company remodels this year and upwards of another 50 franchise remodels.

And lastly, we have always had a practice of opportunistic buying in markets where we already have oversight, which is why we strategically acquired 1 restaurant in Texas during the quarter.

We have been very pleased with this acquisition, as this restaurant is rivaling for our top sales unit in Texas over the last several weeks.

Now, moving to Kiki's.

Robert Verostek: We have been very pleased with this acquisition as this restaurant is rivaling for our top sales unit in Texas over the last several weeks. Moving to Keke's Breakfast Cafe. Keke's Breakfast Cafe delivered system-wide same restaurant sales of positive 4% for the quarter and outperformed the BBI Family Dining Index in Florida for the fourth consecutive quarter. Company same restaurant sales experienced sequential improvement of nearly 300 basis points, primarily due to strong performance in the newly acquired Keke's Breakfast Cafe Cafes from the first quarter. Keke's Breakfast Cafe average check increased approximately 6% during the second quarter, driven by pricing, favorable menu trades, higher beverage incidents, and off-premises growth. They opened eight new cafes during the quarter, four of which were company-owned. The openings also included two previously closed franchise cafes that reopened under new ownership and with our new image.

Kiki's delivered. Systemwide same restaurant sales of positive 4% for the quarter and outperformed the BBI Family. Dining index in Florida for the fourth consecutive quarter.

Companies with similar restaurant sales experience reported a sequential improvement of nearly 300 basis points, primarily due to strong performance in the newly acquired Kiki's Cafés from the first quarter.

Reopened under new ownership. And with our new image,

Thus far in the third quarter, we have reopened 1 additional franchise Cafe under the new image and also opened our sixth company Cafe in the Nashville Market.

Robert Verostek: Thus far, in the third quarter, we have reopened one additional franchise cafe under the new image and also opened our sixth company cafe in the Nashville market. As Kelli Valade mentioned, we also re-franchised three company cafes in Northern Florida during the quarter and have one more transaction expected to be completed in the near term. Moving on to our second quarter financial details. Total operating revenue was $117.7 million compared to $115.9 million for the prior year quarter. This increase was primarily driven by 12 additional Keke's Breakfast Cafe company cafes and partially offset by our previously communicated strategy to intentionally close lower volume Denny's Corporation franchise restaurants to improve the overall health of the brand. Adjusted franchise operating margin was $30.0 million, or 50.7% of franchise and license revenue, compared to $30.8 million, or 50.0% for the prior year quarter.

As Kelly mentioned, we also reran three company cafes in Northern Florida during the quarter and have won more transactions expected to be completed in the near term.

Now, moving on to our second quarter Financial details, total operating Revenue was 117.7 Million compared to 115.9% of the prior year quarter. This increase was primarily driven by 12 additional Kiki's company cafes and partially offset by our previously. Communicated strategy to intentionally closed lower volume Denny's franchise restaurants to improve the overall health of the brand.

Adjusted franchise. Operating margin was 30.0 million or 50.7% of franchise and licensed Revenue compared to 30.8 million or 50.0% for the prior year quarter. This margin change was primarily due to fewer Denny's, equivalent units and softer. Denny's. Same restaurant sales.

Robert Verostek: This margin change was primarily due to fewer Denny's Corporation equivalent units and softer Denny's Corporation same restaurant sales. Adjusted company restaurant operating margin was $6.7 million, or 11.5% of company restaurant sales, compared to $13.7 million, or 12.9% for the prior year quarter. This margin change was largely attributable to increased product costs of 80 basis points, with commodity prices holding steady at 5% during the quarter. However, as egg prices declined over the period, we anticipate this pressure will ease for the remainder of the year. The current year quarter also included approximately 115 basis points related to legal and medical reserve adjustments, as well as approximately 100 basis points related to inherent inefficiencies in new cafe openings and oversight.

Adjusted Company restaurant, operating margin with 6.7 million or 11.5% of Company restaurant sales compared to 13.7 million or 12.9% for the prior year quarter.

This margin change was largely attributable to increased product costs of 80 basis points, with commodity prices, holding steady at 5% during the quarter.

However, as egg prices declined over the period, we anticipate this pressure will ease for the remainder of the year.

The current year quarter also included approximately 115 basis points related to legal and medical reserve adjustments, as well as approximately 100 basis points related to inherent inefficiencies in new unit openings and oversight.

Robert Verostek: As a reminder, with our smaller company base having eight cafes within the quarter that were opened less than four months on average can have short-term impacts that will abate over time. As Kelli Valade mentioned, we are very pleased with the progress we are making in Keke's Breakfast Cafe new cafe sales and margins, and these new opening inefficiencies are just a temporary headwind as they mature into the higher teens margin targets we have previously communicated. Absent the temporary new cafe ramp-up costs, legal and medical reserves, and adjusting for normalized commodities, our adjusted company margins would have been approximately 14%. Now moving on to G&A. General and administrative expenses were $21.4 million compared to $20.5 million in the prior year quarter. This change was primarily due to additional incentive compensation, along with additional share-based compensation and deferred compensation valuation adjustments, neither of which affect adjusted EBITDA.

As a reminder, with our smaller company base, having 8 cafés within the quarter that were open less than 4 months on average can have short-term impacts that will abate over time. And as Kelli mentioned, we are very pleased with the progress we are making in Kiki's, new café sales and margins. These new openings and inefficiencies are just a temporary headwind. As they mature into the higher team margin targets we have previously communicated.

Absent, the temporary new Cafe, ramp up, cost, legal and medical reserves and adjusting for normalized. Commodities are adjusted company. Margins would have been approximately 14%

now, moving on to GNA General and administrative expenses were 21.4 million compared to 20.5 million in the prior year quarter.

This change was primarily due to additional incentive compensation, along with additional share-based compensation and deferred compensation, valuation adjustments, neither of which affect adjusted EBITDA.

These impacts were partially offset by corporate administrative expenses savings of approximately $0.6 million, or a reduction of approximately 3.5% compared to the prior year quarter.

Robert Verostek: These impacts were partially offset by corporate administrative expenses savings of approximately $0.6 million, or a reduction of approximately 3.5% compared to the prior year quarter. This discipline focused on costs that are within our control has us well on our way to hitting our stated goal of reducing G&A between 3.5% and 4.5% in 2025, and a longer-term goal of 5% to 6%. These results collectively contributed to adjusted EBITDA of $18.8 million. The effective income tax rate was 34.3% compared to 25.1% for the prior year quarter. This change in rate was primarily due to discrete items relating to share-based compensation in the current year quarter. Adjusted net income per share was $0.09 in the current year quarter, and we were compliant with our debt covenants as of the end of the quarter.

This discipline focused on costs that are within our control has us well on our way to hitting our stated goal of reducing GNA between 3 and a half and 4 and a half percent in 2025 and a longer term goal of 5 to 6%. These results, collectively contributed to adjusted ebitda of 18.8 million. The effective income tax rate was 34.3% compared to 25.1% for the prior year quarter.

This change in rate was primarily due to discrete items relating to share-based compensation in the current year's quarter.

Adjusted net income per share was 9 cents in the current year quarter and we were compliant with our debt covenants, as of the end of the quarter.

We had approximately $279 million of total debt outstanding, including approximately $269 million borrowed under our credit facility.

Robert Verostek: We had approximately $279 million of total debt outstanding, including approximately $269 million borrowed under our credit facility. Let me now discuss our business outlook for 2025. I will go through the details, but at a high level, we are reiterating everything we guided on our previous call. Sales results have been choppy. However, we still see a path to the low end of our same restaurant sales guidance range, given our continued momentum from digital enhancements, strong off-premises sales, additional remodels, and a new loyalty program that will provide positive benefits. With the 20 openings through the second quarter and two additional Keke's Breakfast Cafe openings thus far in the third quarter, we are confident in our current range of 25 to 40 openings.

Let me now discuss our business outlook for 2025.

I will go through the details, but at a high level, we are reiterating everything. We got it on our previous call.

Sales results have been choppy. However, we still see a path to the low end of our same-restaurant sales guidance range, given our continued momentum from digital enhancements, strong off-premises sales, additional remodels, and the new loyalty program that will provide positive benefits from 2006 through the second quarter, along with 2 additional Kiki's openings thus far in the third quarter. We are confident in our current range of 25 to 40 openings.

Robert Verostek: With regard to closures, as we previously shared, we expect between 70 and 90 closures, which includes our strategy to close underperforming restaurants, as well as some attrition related to normal lease expirations, and we still believe this range is appropriate. Our expectations for commodities between 3% and 5% and labor inflation between 2.5% and 3.5% remain intact. Additionally, our G&A guidance of between $80 million and $85 million is still appropriate, and as a reminder, includes approximately $1 million related to the 53rd week. We remain on track to reach the low end of our adjusted EBITDA guidance of $80 to $85 million. Our refinancing process is currently underway, and we anticipate its completion prior to our third quarter earnings call. We intend to resume share repurchases in the fourth quarter and ultimately achieve our previously stated guidance range of $15 to $25 million.

Shared we expect between 70 and 90 closures, which includes our strategy to close underperforming restaurants as well as some attrition related to normal lease expirations. And we still believe this range is appropriate. Our expectations for Commodities between 3 and 5% and labor inflation between 2 and a half and 3 and a half percent remain intact.

Additionally, our GNA guidance of between $80 million and $85 million is still appropriate, and as a reminder, includes approximately $1 million related to the 53rd week. We remain on track to reach the low end of our adjusted EBITDA guidance of $80 million to $85 million. Our refinancing process is currently underway, and we anticipate its completion prior to our Q3 earnings call.

We intend to resume share repurchases in the fourth quarter and ultimately achieve our previously stated guidance range of $15 million to $25 million.

Robert Verostek: We have historically been a highly cash-generative business and returned a significant amount of cash to shareholders through our successful share repurchase program, and we believe this strategy remains critical to maximizing shareholder value. In closing, I would like to thank our teams and franchisees for their continued dedication and support to both Denny's and Keke's Breakfast Cafe. We remain focused on delivering a best-in-class guest experience and advancing our strategic initiatives to ensure sustainable growth on both top line and bottom line. I will now turn the call over to the operator to begin the Q&A portion of our call.

We have historically been a highly cash generative business and returned to significant amount of cash to shareholders through our successful share repurchase program and we believe this strategy remains critical to maximizing shareholder value.

In closing, I would like to thank our teams and franchises for their continued dedication and support to both Denny's and Kiki's.

We remain focused on delivering a best-in-class guest experience and advancing our strategic initiatives to ensure sustainable growth on both Topline. And bottom line, I will now turn the call over to the operator, to begin the Q&A portion of our call.

Speaker 5: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Tamas with Oppenheimer. Your line is open. Please go ahead.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand. Now, if you have dialed into today's call, please press Star 9 to raise your hand and Star 6 to unmute.

Please stand by while we compile the Q&A roster.

Your first question comes from the line of Michael tammis with Oppenheimer. Your line is open. Please go ahead.

Mike Tamas: Hi, thanks. Good afternoon. Robert, you mentioned that the sales have been choppy, but you still see a path to the lower end of your same-store sales guidance for the year. I was wondering, can you comment maybe on what July same-store sales might look like and then what you're seeing that's giving you the confidence to still hit that same-store sales guidance? Your comparisons do toughen quite a bit, I think, particularly on the fourth quarter. Thanks.

Um, hi thanks. Good afternoon. Um, you know, Robert you mentioned that the sales have been choppy. Um, but you still see a path to the lower end of your same store, sales, guidance for the year. So I was wondering, you know, can you comment maybe on what July same store, sales might look like and then what you're seeing, that's giving you the confidence to still hit that same store sales guidance because your comparisons do tough in quite a bit. I think um, particularly on the fourth quarter, thanks.

Robert Verostek: Yeah. Hey, Michael. Good to hear from you. So we are in a pretty volatile period here in July due to some of the macroeconomic changes that have been more recent. It probably would be a disservice to quote what it was. It's been up and down. We're actually in a pretty good spot as we sit. So when you look at it, I think we're down 2.2% year to date. So we'll need about a half a point improvement compared to that on the back half of the year. When you look at what we have slated for the back half of the year, we'll continue to evolve the value messaging. We're actually pretty bullish with what we have seen and how that continues to evolve. Remodels, we are picking up some momentum in remodels. We'll do additional company remodels; the franchise side will pick up.

Yeah, hey Michael. Good to hear from you. So we we are uh, in a pretty volatile period here in July, uh, due to the some some of the macroeconomic changes that have that have uh, been more recent, uh, it probably would be a disservice to, to, to quote, what it was. It's it's been up and down, we're actually in a in a pretty good spot as we sit. So when you, when you look at it, I think we're down to 2 year to date. Um so we'll need about a half a point Improvement compared to that on the back half of the year. And when you look at what we have in it, slated for the back half of the year, we got the, we'll, we'll continue to evolve the value messaging. Uh, we're actually pretty bullish with with what we have seen and, and how that continues to evolve remodels. Uh, we are picking up some momentum in remodels. We'll do additional company remodels. The franchise side will pick up, uh, the, um, then when you look at the CRM and loyal,

Robert Verostek: Then when you look at the CRM.

Mike Tamas: 50 to 70,000 income cohort, I believe, was the number. Based on the data that you have, do you have any thoughts on maybe why that income cohort saw that biggest improvement? Where do you think the shift in spending came from? Was it from other restaurants, or were they eating at home and now they sort of came back? Any insight there would be great.

50 to 70,000 income cohort, I believe was the number. So based on the data that you have do you have any thoughts and maybe why that income cohort? Um, saw that biggest Improvement and and where do you think the shift in spending came from? Was it from other restaurants or were they eating at home? And now they sort of came back, you know, any any insight that would be great.

Kelli Valade: Hey, Michael. This is Kelli. Yeah, great question. I think when we think about that $50,000 to $75,000 household income, we definitely think speaking to them, meeting them where they are, and the launch of our BOGO, that Buy One Get One for a dollar with those two really amazing Slams that are equity, was the reason for that pickup. Then we really saw return visits of new. We had a lot of new first-time or lapsed users that came back in, light users, if you will, that came in for that promotion. We saw that immediately. We tracked that against other promotions, seeing something similar throughout the summer with the Four Slams promotion.

Time or last users that came back in light users. If you will that came in for that promotion we saw that immediately we tracked that against other promotions seeing something similar throughout the Summer with the force, slams promotion and so we feel good about that. Um, in terms of them just kind of coming coming back to us and then uh continuing to come back as they see us lean into just a great value proposition at a time when they need it. Most

Kelli Valade: We feel good about that in terms of them just kind of coming back to us and then continuing to come back as they see us lean into just a great value proposition at a time when they need it most.

Thank you, thanks.

Your next question comes from the line of Todd Brooks with Benchmark Company. Your line is open; please go ahead.

Mike Tamas: Thank you.

Hey, thanks for taking my questions. Can you hear me okay?

Kelli Valade: Thanks, Michael.

Speaker 5: Your next question comes from the line of Todd Brooks with Benchmark Company. Your line is open. Please go ahead.

Yes, Todd. Okay perfect. Uh, first on the value mix Robert, I think you said it was running about. Uh 20%. I was wondering if you could parse it.

Jake Bartlett: Hey, thanks for taking my questions. Can you hear me okay?

Kelli Valade: Yes, Todd.

Jake Bartlett: OK, perfect. First, on the value mix, Robert Verostek, I think you said it was running about 20%. I was wondering if you could parse it. How much is kind of everyday value that sits there in 2, 4, 6, 8 versus how much is tied to the LTOs? We just hear more operators talking about customers seeking out everyday value that they know will be there versus more episodic value. Thoughts on going forward, do we need to continue to roll these Slam type of promotions to make them fall into that relatively everyday type of bucket?

Kelli Valade: Yeah, it's a really great question, Todd. This is Kelli. The crux of the issue, as you just said it, is you're spot on. It really, to me, everyday value, 2, 4, 6, 8 would fall into that everyday value category. What you've seen us doing is what I would call, you said episodic, I'd call it LTO value, right? Limited time only meeting them. Again, where we know they need that, we knew when we pivoted to that and we did the BOGO, we could see the volatility. We could see the enhanced competitive pressures that were happening. For us, turning that LTO value on was really important. It drove significant traffic for us in the quarter that we're referencing. So we saw the traffic build. It definitely was margin positive.

How much was kind of every day value? That's just there in 2468 versus how much it's tied to the ltos. We just hear more operators, talking about customers seeking out. Um, every day value that they know will be there versus, uh, more, episodic value and thoughts on going forward. Do we need to continue to roll these? Slam type of promotions to make them fall into that relatively every day type of bucket. Yeah, it's a really great question. Todd this Kelly. Um, and it's it the the Crux of the issue is you just said it. It's you're is you're spot on it really to me every day value 2468 would fall into that every day value category, what you've seen is doing is what I would call.

Kelli Valade: It actually was a 5% traffic change, the delta from the beginning to pre and post after doing that. So we knew we were onto something with that. We carried that through the summer, just knowing that there would continue to be volatility. Your question about 2, 4, 6, 8. As of right now, leaning into that Four Slams is what we're doing. We're looking at everyday value going into the fall and testing new ideas and new propositions so that the guests can find everyday value all the time. It's engineered for the right profitability. What we saw with 2, 4, 6, 8 was they were, as Kelli Valade, our Chief Brand Officer, likes to say, they were hacking our value.

You said, episodic, I'd called lto about you write limited time, only meeting them again, where we know they need that, you know, we knew when we pivoted to that and we did the BOGO. Um, we could see the volatility. We could see the enhanced competitive pressures that were happening and frustrating, that lto value on was really important and it drove significant traffic for us in this in the quarter that we're referencing. So we saw the traffic build, it definitely was margin positive. It actually was a 5% traffic change the Delta, um, from the beginning to pre pre and post after doing that. So we knew we were on to something with that and we've carried that through the summer, just knowing that there would continue to be volatility your question about 2468. So as of right now, uh, the Leaning into that 4 uh is what we're doing and we're looking at everyday value going into the fall and testing new ideas and new propositions so that the guests can find everyday value all the time. It's engineered for the right profitability. What we saw with 246

Kelli Valade: They were taking 2, 4, 6, 8, and it was primarily the everyday value slam and the super slam, hence us coming in with the LTO approach around our slams this summer and then just weaving that in using the Red, White, and Berry slam as well. So we're just trying to iterate and really just being nimble and flexible, but doing what the guest needs us to do right now at the same time, either re-architecting, re-engineering 2, 4, 6, 8, or they'll be looking for that next everyday value proposition that you can always find on the menu that the guest can count on us for. I think you'll always see some LTO stuff going on, whether it's obviously premium offerings or maybe some episodic other offers.

68 was, they were, uh, as, uh, Ellie Dodie. Our chief brand officer, I like to say they were hacking our value. They were taking 2468 and it was primarily the everyday value slam and the Super Slam hence, best coming in with the lto approach, around our slams, this summer. And then just weaving that in, um, using the red white and Berry slam as well. So, we're just trying to iterate, uh, and, and really just being Nimble and flexible but doing what the guests needs us to do right now. At the same time, either re-architecting re-engineering,

Kelli Valade: But the goal is everyday value that the guest can find, premium offerings, and new innovation from food offerings that you'll see from us in the back half of the year.

Jake Bartlett: Perfect. Thanks, Kelli. If I can just squeeze in two quick follow-ups. One on the refranchise of the three Keke's Breakfast Cafe in Northern Florida, I think, is probably the first refranchise activity under Seed and Feed. Any commentary that you can share around proceeds and what the process was, how much interest there were in these properties, and trying to give us some hope in kind of momentum building behind Seed and Feed? The other one I have is just a quick one. I am just a little confused. I want to be clear. Robert, you said predominantly pricing driving the average check up 3%.

Bearing 2468 or there will be this the, you know, looking for that next everyday value proposition that you can always find on the menu that the guest can count on is for and then, yeah, I think you'll always see some lto stuff going on. Um, whether it's obviously premium offerings or, you know, maybe some episodic other offers, but the goal is, every day value that the guests can find premium offerings and new innovation from, uh, from food offerings that you'll see from us in the back half of the Year. Perfect, thanks, Kelly, if I can just squeeze in 2 quick follow-ups, 1 on the reference of the 3, uh, Tiki is in Northern Florida. I think it's probably the first reference activity under seed and feed.

Um, any commentary that you can share around uh, proceeds and and, and want the process was how much uh interest there were in these uh these properties and trying to give us some hope and kind of momentum, building behind seed and feed. And then the other 1 I had is just a quick 1.

I'm just a little confused. I want to be clear. So Robert you said predominantly pricing driving the average check up. 3%. Yep. Um but then I I heard when you guys were talking about the value,

Kelli Valade: Yep.

Jake Bartlett: I heard when you guys were talking about the value that it drove enough traffic to offset the mix drag. I just want to understand where mixed versus price came out in the quarter to kind of be able to put a little color around those two comments. Thanks.

That it drove enough, traffic to offset the mixed drag. So I just wanted to understand where mix versus price came out. Um, in the quarter to kind of be able to put a little color around those 2 comments. Thanks.

Robert Verostek: Yeah, I appreciate that, Todd. Let me try to unpack that a little bit for us. With regard to the refranchisings, those were, while we did refranchise those restaurants in the quarter, they were not actually technically part of the Seed and Feed. Those were restaurants, cafes that we owned as part of the original acquisition. So we actually, those were all in Florida. The pricing of those, they were ones that were just not optimal for us to keep in the Florida market. It was all part of the purchase price accounting in there. So those weren't actually new builds as part of the Seed and Feed. We were just really looking to optimize our oversight efficiency in the Orlando market is why we kind of tweaked those three reframes.

Robert Verostek: From a perspective of going forward, I can tell you that the Seed and Feed is really starting to mature into how we envisioned it. Nashville is coming together nicely with regard to maturing into a market now with six company cafes. The volumes in that market have grown to be quite substantial with regard to that. So they're maturing into that time when we could begin the idea of actually selling that market. Dallas is earlier on into that process, right? We just got those opened up with regard to that. So they're earlier on in the maturation curve. It will be a second before that will mature into being ready. With regard to the proceeds, I do not have that at my fingertips, Todd. But again, they were not ones that we built.

The ones that were just not optimal for us to keep in, in the Florida, uh, in the Florida market. So they it was all part of the, uh, purchase price of counting in there. So those weren't actually new bills, as part of the seat and feed. We were just really looking to to optimize our oversight efficiency, uh, in the Orlando market is why we kind of, uh, we kind of tweaked tweaked, those 3, uh, reference, uh, from a prospective of going forward. I can tell you that we are, uh, this evening feed is really starting to mature into to how we envisioned it. Uh, Nashville is coming together nicely with regard to maturing into a market. Uh, we now with 6 company cafes, uh, the volumes in that market are have grown into being quite, uh, quite substantial, um, with regard to that. So I, they're maturing into that time when we could begin, uh, the idea of actually

selling that market Dallas's earlier on into into that process, right? We're just, uh, we just got those opened up, uh, with regard to that. So there are earlier on in the maturation curve. Um, and so, it'll be, uh, be a second before that that'll mature into to being ready. So the uh, with regard to the proceeds, I don't have that at my fingertips pod, uh, but again, it weren't, they were not ones that we built, so it with regard to recouping the actual

Robert Verostek: With regard to recouping the actual build costs, it is a different dynamic with these first three. With regard to the second question regarding the pricing, it is predominantly pricing. We took a 3%. There is 3% pricing within the current quarter. The majority of that is rollover pricing. The question, the clarity, I think, that you are seeking with regard to that is we did have some, as Kelli Valade mentioned, the traffic did offset the GCA decline. There is, as you recall, I do not want to get too far into it. It is a complicated issue, but you know about it. The way we are accounting for the 2, 4, 6, 8 flights with regard to the $2 price points that are now add-ons. They used to be placed, so it now is in check and not in guest count.

Build costs that that it's a different Dynamic with with these first 3, uh, with regard to the second question regarding the pricing, so it is predominantly pricing. We took, uh, 3%, uh, there's 3% pricing within the current quarter. Uh, the majority of that is rollover pricing. Uh, when you the, the question the clarity, I think that you're seeking with regard to that is we did have, uh, some, uh, as Kelly mentioned, we the traffic did offset uh, the, the GCA decline there is a, ah, as you were calling, I don't want to get too far into it. It could be it's a complicated issue. But, you know, about it, the way we are accounting for the 2468 plates, uh, with regard to the, the 2 dollar price points that are now add-ons, they used to be placed. So now is in check and not guest count, net net. When you look at the lto and you look at that Dynamic, it gets to a flat mix. Uh G GCA impact. So you get you're getting back to what happened in the quarter is really 3% pricing.

Robert Verostek: Net-net, when you look at the LTO, when you look at that dynamic, it gets to a flat mix GCA impact. So you are getting back to what happened in the quarter is really 3% pricing, predominantly rollover pricing.

Predominantly roll over pricing.

Okay, great thanks Robert. Thanks Todd.

Your next question comes from the line of Jake Bartlett with truist Securities. Your line is open. Please go ahead.

Jake Bartlett: OK, great. Thanks, Robert.

Robert Verostek: Thanks, Todd.

Hey, Jake.

Speaker 5: Your next question comes from the line of Jake Bartlett with Truist Securities. Your line is open. Please go ahead.

Robert Verostek: Hey, Jake. You know.

Jake Bartlett: My question first, actually, Kelli, if you could just talk about some of the macro trends your consumer. I mean, obviously, we are hearing about volatility in July. But I think, Kelli, your comment was also some stabilization in the demand from your consumer. So maybe just some comments, what you see as the trajectory just on an underlying macro basis. Then I have some questions on what you can do about it.

Um, you know, my question first, actually, Kelly. If you could just talk about, um, some of the macro Trends, your, your, uh, your consumer. Um, I mean, obviously, we're hearing about volatility in July, but I think Kelly, your comment was also some stabilization in in the, in the demand from from your consumer. So maybe just some comments, what you see is the trajectory, um, just on an underlying macro basis that I had some questions on what you what you can do about it.

So yeah. Well it's

Kelli Valade: Sure, Jake. The jobs report that just came out recently, that does not help. There is so much. When I think about the bucket, it is everything from inflation. It is interest rates. It is the jobs reports that have come out. It is our most pressured consumer, that is that $50,000 to $75,000 household income. It is just, the farther we get away from any kind of big announcements or changes or things that are out there from a narrative, the better we see our promotions, our work really coming into play and really making a difference for the guests. So it just is choppy still, right? It just continues to be choppy. We believe and have, there is no crystal ball here, but hope to see that moderate. As it continues to moderate, we are encouraged as of late. I will say that.

You know, the jobs report that just came out recently that that doesn't it just there's so much when I think about the buckets. You know. It's everything from, you know, just uh, inflation. It's interest rates. It's the jobs reports that have come out. It's our, you know, most pressured consumer. That is that, you know, 50 to 75,000 household income. Um, and it, it's just, uh, you know, the the farther we get away from any kind of big announcements or changes or things that are out there, um, from a narrative, the the better we see our our, uh, promotions our work, uh, really coming into play and really making a difference for the guests. So, um, it just is choppy, so, right? It's just continues to be choppy. Uh, I we believe and have, you know, there there's no crystal ball here, but hope to see that moderate and as it continues to moderate, we're encouraged as of late, I will say that, um, we are encouraged by what we

Kelli Valade: We are encouraged by what we are seeing as of late and the response to, like I said, all the things that we are doing with some of these offers, some of the promotions that we are doing. So encouraged by it, which gives us some, watching other things, Black Box metrics, looking at some of the things that we see and learn from other data points gives us some confidence things will continue to moderate, which will only help us because the initiatives are the right initiatives. The macro environment moderating will really be what we need.

We're seeing as of late and the response to, like I said, all the things that we are doing with some of these, uh, offers some of the promotions that we're doing. So, uh, encouraged by it which gives us some, you know, watching other things. You know, blackbox, uh, metrics looking at some of the things that we see um, and learn from other data points, gives us some confidence. Things will continue to moderate, which will only help us because the initiatives are the right initiatives, uh, the the, the macro environment moderating will really be what we need.

Jake Bartlett: Got it. As we think about Q2, just the cadence throughout the quarter, I think April was flat. You had shared that last time. Obviously, it decelerated since. I guess the question is, are you seeing a good response in May, in June, when you bring back the more heavy LTO activity with the Slams under $10? Can we think about the cadence of same-store sales as really very much tied to that cadence of your LTOs, meaning it would have decelerated in May and then snapped back in June?

Since it was it, I guess the question is: are you seeing a good response when you know in May and in June, when you bring back?

The more heavy, heavy, lto activity. Um, with the slams under under 10 is that do we think about the Cadence of of central sales has really very much tied to that Cadence of your lcos? Like, meaning, it would have to celebrate it in in May, and then and then snap back in June.

Kelli Valade: Yeah, I think it is probably fair. That is probably a good way to describe it and best that we would want to, kind of given the volatility that happened in the quarter and not getting into specifics by month. But yeah, I think that is fair. That is fair, Jake. Yeah.

Jake Bartlett: OK. Then for the back half of the year, does it look similar in terms of the cadence of whether it is value-oriented or more premium-oriented LTOs as we think about how much you are going to be trying to drive a recovery here?

Kelli Valade: Yeah, I think what you will continue to see us do is look for great, again, back to everyday value, maybe some pulsing of LTO value in there. Certainly, our CRM and loyalty program launches soon. We have talked about that. We are real bullish about that in the way that we will engage with those most loyal guests. We have a really strong amount in our database already. We will start to really target them with unique and special offers. So I think, you know, think new food innovation and think, yes, new value innovation, whether it comes in the form of pulsing some LTO value over time or just getting a really strong everyday value proposition in place over the next couple of months.

Yeah, I I think it's, it's probably Fair, that's probably a good way to describe it. And, and best that we would want to kind of give in, you know, the volatility that happened in the quarter and not getting into specifics by month, but, yeah, I think that's fair, that's fair Jake. Yeah, okay. And then, and then, for the back half of the year, um, you know, does it look similar in terms of the, the Cadence, um, of of whether it's value oriented, or more premium oriented ltos? As we as we think about how much, you know, you're going to be, you're trying to drive a recovery here. Yeah. You I think what you'll continue to see us do is look for great at again, back to Everyday value, maybe some pulsing of lto value in there. Certainly our CRM and loyalty program, launches soon. We've talked about that. We're real bullish about that in in the way that we will engage with those most loyal guests. And we have a really strong amount in our database already and we'll start to really Target them with unique and special offers. So I think, you know, think new food Innovation and think yes new value innovation, whether it comes in the form of pulsing, some lto value over time.

We're just getting a really strong everyday value proposition in place over the next couple of months.

Jake Bartlett: OK. Last question is just on the rewards program. I want to make sure I understand what is changing with it and what gives you confidence it is going to be more effective. Also, any timing back half of the year, whether it is sooner rather than later, would certainly make a difference.

Okay. And then last question is just on that that um the the rewards program and just I want to make sure I understand what has what is changing with it. Um and what what gives you, you know, confidence it's going to be more effective. Um, also any timing um back after the year whether it's uh sooner rather than later would certainly make a difference. Yeah. So it's

Kelli Valade: Yeah, it's absolutely sooner. I answered the latter part. In fact, it is absolutely on schedule. The timing is going to be this quarter, late this quarter. We are excited about that. This has been in the works and is really aligned with the investments we made about a year ago with a brand new digital team and a new tech stack to support this. Think about it going from basically a digital coupon program where we have a database that has over 5, it's 5 and 1/2 million people in the database. We do have significant sales that come from those guests that do engage with us in the database, but they are all getting similar offers and similar coupons. What we are moving to is truly a one-to-one marketing program.

Kelli Valade: Honestly, it would be best-in-class from the team that has worked on this and the expertise we have in this area now. We are truly moving to that one-to-one where we will have journeys or lanes where you might get one offer based on your patterns and your purchase history, and I might get a different one. We know that those kind of programs are absolutely what is needed in the one-to-one marketing that takes place today. We are building that best-in-class framework, and it is set to launch. In fact, there is training going on in all the restaurants right now to make sure that we really have the right engagement in the restaurants when this happens so we can continue to get those sign-ups. Those loyal guests come to us almost twice as much as an average guest. We are building in frequency. You are building in upside.

Really sooner. So after the latter part, um, in fact, it is absolutely on schedule. Uh, the timing is going to be this this quarter late this quarter. So um, we're excited about that. This is a a this has been in the works and with our and it's really aligned with the Investments. We made about a year ago, with a digital brand, new digital team, and a new tech stack to support this. So, think about it, going from basically a digital coupon program where we've got a database that has over 5. It's a 5 and a half million people in the database. We do have significant sales that comes from those, uh, guests that do engage with this, in the database. But they're all getting similar offers and similar coupons. And what we're moving to is truly a 1 to 1 and and honestly it would be best in class from the team that's worked on this and the expertise we have in this area now so we're truly moving to that 1 to 1 where I have Journeys or Lanes where you might get 1 1 off or based on your uh patterns and your purchase uh history and I might get a different 1. So we know that those kind of programs are absolutely.

Absolutely what's needed in the 1 to 1 marketing. Uh, you know, that takes place today. Uh, we're building that best-in-class framework and it is set to launch. In fact, there's training going on in all the restaurants right now, uh, to make sure that we really have the right engagement in the restaurants when this happens. So we can continue to get those sign-ups those loyalty those loyal guests come to us almost twice as much as an average guest and so we're building in frequency, you're building in upside, they tend to spend more and we've got that 50 to 100 basis points over time. Expected from this uh, and it'll build right, it'll build over time. But full year, um, we have really good, um, strong expectations of this program.

Kelli Valade: They tend to spend more. We have that 50 to 100 bps over time expected from this. It will build, right? It will build over time. But full year, we have really good, strong expectations of this program.

Great. I really appreciate it.

Thank you.

As a reminder, if you would like to ask a question, please raise your hand. If you have dialed into today's call, please press *9.

Jake Bartlett: Great. I really appreciate it.

Kelli Valade: Yeah, thank you, Jake.

Robert Verostek: Thanks, Jake.

Speaker 5: As a reminder, if you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star 9. Your next question comes from the line of John Tower with Citigroup. Your line is open. Please go ahead.

Your next question comes from the line of John Tower with Citigroup. Your line is open, please go ahead.

Mike Tamas: Hey, guys. Thanks for taking the question. Maybe going back to the Buy One Get One for a dollar in the quarter, I am just curious. You know, it sounds like it was a fairly successful promotion during the period. I think it was 21% of value incidents, or maybe that was the total quarter. I think you had said something about 70% of BOGO transactions were from new and lapsed users. I guess the question is, why did you move off of it? Was it growing ineffective? What is the chance that we see it coming back to the drawing board sometime in this Q3 or Q4, given how effective it was?

Hey guys, thanks for taking the question. Um, maybe going back to the buy 1, get 1 for a dollar in the in the quarter. I'm just curious, you know, it sounds like it was a fairly successful promotion During the period. Uh, I think it was 21% of value incidents or maybe that was the total quarter. Um and I think you'd said something about 70% of BOGO transactions were from new and last users. So I I guess the question is why did you move off of it?

Kelli Valade: Yeah, it is a great question, John. What I would say is we continue to look at what most were ordering, even in that BOGO environment, was the original Grand Slam and the All American Slam. But again, we were still seeing in 2, 4, 6, 8 significant incidents and significant preference goes to the everyday value slam and the super slam. Given the seasonality, Red, White, and Berry is something that is a fan favorite, and it is something our guests have come to expect from us on 4th of July. So weaving in a couple new flavored slams that still are equity and just really refreshing it. It had been on for quite some time. So just refreshing it for the summer was the idea there.

Kelli Valade: Then just looking at, again, a significant price point to be able to talk about $4.10, this is what you get with those equities. It has helped us, it definitely was margin positive, but we also, we wanted to really make sure in talking with our franchisee that we could refresh things throughout when it made sense. So could it come back? It is a great question. I think when we look at margins and what we have got ahead of us for the full year, some of that gives us confidence in what we did in terms of reiterating our guidance. We just are trying to kind of balance all of that. It could come back, but it was about trying to make sure we could deliver on our expectations.

Our guests have come to expect from us on 4th of July. So weaving in a couple new flavored slams that still are Equity, um, and just really refreshing. It had been an it had been on for quite some time. So, just refreshing it for the summer. Was the idea there. Um, and then just looking at, you know, again, a significant price point to be able to talk about 4 ten dollars. This is what you get, um, with those equities and it's helped us, you know, it, it definitely was mod margin positive but we also, you know, we wanted to really make sure in talking with our franchises that we could refresh things throughout, um, when it made sense. So could it come back to great question? And I think when we look at, you know, margins and what we've got ahead of us for the full year, some of that gives us, you know, confidence in in what we did in terms of reiterating our guidance. So we just are trying to kind of balance all of that could come back. Um but it it was about trying to make sure uh, we could deliver on our expectations.

Mike Tamas: OK. Appreciate that. Then go ahead, Robert.

Robert Verostek: Yeah, hey, John. With regard to those margins, when you look at the back half of the year, in my script, we talked about kind of a bridge back to that kind of that mid-teens, that 14% margin. You look at this, you look at what Kelli Valade just described. You looked at the abatement in the egg pressure that we did see into a good part of Q2. So we will get the margins back. G&A savings do accelerate into the back half of the year. We did get the Dallas Support Center closed, is just an example. So those savings will accelerate. The better sales that we are describing, it really was an extension of Mike Tamas' first question about how do you wrap into the low end of the guidance. It does imply some improvement there. That will help.

Okay, appreciate that. And then go ahead Robert. Yeah and yeah, hey John. And with regard to those margins when you look at the back half of the year, uh, in in my script, we we talked about uh the kind of a a bridge back to that kind of that mid teens that 14% margin. Uh, it so you you look at this, you look at the the what Kelly just described you looked at the the abatement in the, the egg pressure that we did see in 2, a good part of Q2. Uh, so you we'll get the margins back. Uh with the GNA does excel at the GNA savings do accelerate.

Robert Verostek: Then you got the 53rd week, so in the back half of the year. So you are looking, we are pretty confident in reiterating that guidance towards the low end, clearly. But the margins component will be a critical piece of that.

Uh, into the back half of the year we we did get the Dallas support center closed, is just an example. So those savings will will accelerate the better sales that we are describing. Uh, it really was an extension of Michael's first question about. Well, how do you how do you wrap into the low end of the guide to does it does imply some improvement there that that'll uh, that'll help? And then you got the 53rd week, so in the back half of the year. So you're looking, uh, we're, we're pretty, uh, pretty confident, uh, in reiterating that guy's towards the low end clearly. But, but uh, the margins component will be a critical piece of that.

Mike Tamas: OK. Thank you. Maybe going to the quarter itself, I know, Kelli, you had called out some key states and markets where there was some outsized drag on the system, L.A., San Francisco, Houston, Phoenix. I think you said it was 30% of your store base, or same-store sales base, that is. Can you just talk to how it manifested itself? Did it kind of suddenly come on, or is it broad-based throughout the quarter? Did you have one month in particular where it stood out? It just seems like, you know, to your point earlier, Q1 was a good guy or contributed to the system. Then Q2, it was a pretty big hit. Just trying to suss out what exactly transpired and why those markets in particular really had a downdraft sequentially.

Okay, thank you. Um, maybe going to the, the quarter itself, I, I know Kelly. You'd called out some key States in markets, where there was some, um, outsized drag on the system. La San Francisco, Houston Phoenix. Like you said, it's 30% of your store base or same store sales base that is, can you just talk to how it manifested itself? Did it kind of suddenly come on or is it broad-based throughout the quarter? Did you have 1 month in particular, where it stood out? It just seems like, you know, to your point earlier first quarter was a good guy or contributed to the system and then second quarter it was a pretty big hit. So you know, just trying to suss out what exactly transpired and why those markets in particular really had a downdraft year, you know sequentially. Yeah I think um it's a great question and I think you know, there were some things that we saw specifically in June.

Kelli Valade: Yeah, I think it's a great question. I think, you know, there were some things that we saw specifically in June. They were tied to headlines, and we've watched it kind of, again, moderate as of late. In those states in particular, there's just even more kind of macro pressures affecting those states and a lot just of other kind of choppiness. As I mentioned earlier, we're encouraged as of late. Yeah, I would say it punctuated sometime in mid-June, and then it bounced around quite a bit. As of late, we've been encouraged.

Um, and they, you know, they were they, they're, they're tied to headlines. And we've watched it kind of, again, moderate as of late, um, but in those States in particular there's just, there's just even more kind of macro pressures affecting those uh, States. And a lot, just of other kind of choppiness. As I mentioned earlier, we're encouraged as of late. But yeah, I would say punctuated. Um, sometime in mid June and then it bounced around quite a bit. And as of late, it's we've been encouraged

Got it. Okay, cool. Um,

That's it for me for now. Thank you. Thank you John. Thank you, John.

Mike Tamas: Got it. Okay, cool. That's it for me for now. Thank you.

There are no further questions at this time. I will now turn the call back to Kayla money for closing remarks.

Kelli Valade: Thank you, John.

Robert Verostek: Thank you, John.

Speaker 5: There are no further questions at this time. I will now turn the call back to Kayla Money for closing remarks.

I would like to thank everyone for joining us on today's call. We look forward to our next conference call in early November. As we discuss our third quarter results, thank you, and have a great evening.

Kayla Money: would like to thank everyone for joining us on today's call. We look forward to our next conference call in early November as we discuss our third quarter results. Thank you and have a great evening.