Red Robin Gourmet Burgers, Inc.

Good afternoon. Welcome to the Red Robin Gourmet Burgers, Inc. Second Quarter 2026 Earnings Call. This conference call is being recorded. During management's presentation and in response to your questions, they will be making forward-looking statements about the company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the company's SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its second quarter 2026 earnings release on its website at ir.redrobin.com. On today's call... are Dave Pace, President and Chief Executive Officer, and Mark Graff, Chief Financial Officer. Now, I would like to turn the call over to Dave Pace.

Good afternoon, everyone, and thank you for your interest in Red Robin. I'm pleased to report that our momentum continued in the second quarter with significant progress across the business as we execute against our priorities under the First Choice Plan. We've taken deliberate steps over the past year to strengthen the guest experience, improve hospitality and execution, and invest behind traffic driving platforms that we believe can increase frequency over time. We're seeing those actions translate into increased guest engagement, elevated satisfaction scores, and improved restaurant-level profitability. We also took major steps this quarter towards strengthening our balance sheet. We announced three re-franchising agreements that will collectively generate approximately $96 million in gross proceeds upon closing. Our partners are seasoned, multi-concept operators who bring meaningful operating capabilities and resources and who share our hospitality-first mindset and core values. The proceeds received from these transactions, which we expect to receive during the third quarter, will provide us with greater financial flexibility to refinance our existing debt and support our long-term strategic priorities. This represents a step forward for our company, and I appreciate the significant efforts expended by everyone on our team to drive this to a successful outcome. Taken together, the results in the quarter give us greater confidence and reinforces that the first choice plan is working. We've made substantial and consistent progress across the business over the last year and the underlying fundamentals continue to move in the right direction. We remain laser focused on executing against our strategy and positioning the business for sustainable results. Let me now walk through the quarter in more detail and update you on each of our first choice priorities. Same store sales grew 1.3% in the quarter. with traffic effectively flat at down 20 basis points. This traffic result outperformed the industry by 40 basis points as measured by Black Box and for the second quarter in a row represented our best traffic performance since Q1 of 2023. In addition, we increased our share of visits by 80 basis points in trade areas where competitors are located. Our team has been working toward this inflection point for some time, and it's encouraging to see it build and show up in the results. Value remains a key driver of this traffic performance, and the Big Yum offer is delivering as expected. The platform continues to resonate with guests, especially against an economic backdrop where consumers are more discerning about where they spend. Big Yum gives guests a clear, accessible entry point while preserving the full Red Robin experience that guests have come to expect. Combined with our targeted first choice marketing efforts, we're improving both reach and brand awareness, helping us to engage guests more effectively to drive frequency. At the same time, we've remained disciplined on pricing. Our goal is to build traffic and frequency while protecting the value guests associate with Red Robins. Q2 was the fourth consecutive quarter in which our average check increase was below the industry. Turning to profitability, the top line momentum combined with disciplined cost management enabled us to drive four wall efficiency, including a 20 basis point increase in restaurant level operating margin to 14.7%. This represented the highest second quarter margin in four years. Adjusted EBITDA was in line with our high expectations and sets us up well to deliver against full-year financial commitments. With that as a backdrop, let me walk you through where we stand on each of our first-choice priorities and how we're thinking about our strategic focus for the balance of the year. First, let's start with hold-serve. Our hold-serve pillar is about sustaining the operational progress we've made and then building on it. And that's exactly what our team continued to do in the second quarter. Our labor efficiency initiatives delivered approximately 50 basis points of year over year savings. A key enabler has been the accountability and ownership embedded in our managing partner model, which rewards our partners directly for the improvements they drive in their own restaurants. We're continuing to achieve these efficiencies while still providing high satisfaction scores that remain at the strong levels we've established over the past year. This continues to demonstrate that operational discipline and genuine hospitality reinforce one another. Our operators keep finding smarter ways to run efficient shifts while providing great hospitality, and that discipline has been showing up quarter after quarter. Moving to our drive traffic pillar, our value and innovation platforms continue to gain traction with guests, and Big Yum remains central to that story. The platform is mixing at healthy levels and strengthening our relevance with value-seeking guests. We continue to see improving traffic and trials since it launched last year. Importantly, every Big Yum meal still includes our signature bottomless sides and beverages, contributing to the compelling value our guests are asking for. Our objective is to generate traffic through attractive platforms rather than depend on broad-based discounting. We continue to use a deliberate barbell approach to the menu, pairing accessible value with more premium and indulgent options so guests can choose Red Robin across different occasions and spending levels. We believe this approach is building a more sustainable foundation for long-term traffic generation. To that end, we introduced our towering double cheeseburger sliders LTO during the quarter, giving guests a more indulgent option.

We also recently broadened our bone-in chicken wing lineup with new 8-, 12-, and 16-count options.