Jersey Mike's Subs Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosure About Market Risk In the normal course of business, we are exposed to market risks, including commodity and food price risks and interest rate risk. We currently do not enter into derivative or other financial instruments for trading or speculative purposes. Commodity and Food Price Risks Our franchise owners purchase a variety of food products and supplies that are subject to fluctuations in commodity prices, which may be affected by market conditions, supply chain disruptions, weather events, geopolitical developments, and other factors beyond our control. Increases in the cost or reduced availability of key ingredients may lead to higher operating costs for our franchise owners. Because the substantial majority of our revenue is derived from royalties and other fees based on franchise owner sales, a sustained increase in food or commodity costs could adversely impact our business, financial condition or results of operations. We seek to mitigate these risks through supply and purchasing agreements, supplier diversification, and by supporting franchise owners in implementing menu pricing and operational efficiency initiatives; however, there can be no assurance that these efforts will fully offset the effects of commodity price volatility or supply constraints. Our direct exposure to rising commodity costs is minimal given the small number of company-owned stores. Our royalty revenue is derived from our franchise owner’s gross sales. To the extent increases in commodity costs are passed through to customers, our royalty revenue may increase accordingly. However, such pricing actions or other operational adjustments may adversely affect customer demand and our operating results. Interest Rate Risk Substantially all our indebtedness under our Securitization Facilities is fixed rate, limiting our short-term interest rate risk. However, our VFN, which was undrawn as of June 28, 2026, is subject to floating interest rates. Assuming our VFN was to be fully drawn, a 100-basis point increase to the applicable variable rate of interest would have increased the amount of interest expense by $1 million for the annual period. Foreign Currency Risk As of June 28, 2026, less than 1% of our total revenues was from non-U.S. dollar denominated sources; however, we would anticipate this mix will change over time as we execute an international expansion plan.