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Item 2. Management’s Discussion and Analysis

2026-08-07 compared with 2026-05-08 · 180 added, 104 removed, 329 unchanged (46% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our “Condensed Consolidated Financial Statements (Unaudited)” and accompanying “Notes to Condensed Consolidated Financial Statements (Unaudited)” included elsewhere in this Quarterly Report on Form 10-Q.

In addition to historical information, this discussion may contain forward-looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from management’s expectations.

See “Cautionary Statement Concerning Forward-Looking Statements” below.

We assume no obligation to update any such forward-looking statements.

Cautionary Statement Concerning Forward-Looking Statements

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These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning used in connection with any discussion of the timing or nature of future operating or financial performance or other events.

All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

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changes in food and supply costs, especially for chicken, labor, construction and utilities;

the impacts public health crises;

the impacts of public health crises;

potential negative publicity;

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We strive to offer quality chicken served fast and easy.

Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.

Our distinctive menu features our signature product—citrus-marinated fire-grilled chicken—and a variety of contemporary entrees that we create from our chicken.

We serve individual and family-sized chicken meals, including a variety of entrees like our Double Chicken Tostada, Guacamole Chicken Burrito, and Salsa Verde Chicken Quesadilla.

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Although we have been able to substantially offset these cost pressures through various actions, such as increasing menu prices, managing menu mix, and productivity improvements, we expect these cost pressures to continue in 2026.

Furthermore, recent California legislation may establish further requirements for responsible packaging and single-use plastic food service ware which could affect our operations and compliance costs in that state.

For additional information, see “Item 1A.

Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2025, including the risk factor titled “We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies and results of operations.”

Additionally, we are impacted by macroeconomic challenges, such as inflationary pressures and changes in trade policies, that have in the past affected, and may continue in the future, to affect our operations in certain areas such as food cost, labor costs, construction costs and other restaurant operating costs.

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However, we expect these inflationary and other cost pressures to continue in 2026 and we may not be able to offset cost increases in the future.

Global events, such as the recent outbreak of war in Iran, may also impact our business costs, including the costs of transportation and energy.

Global events, such as the ongoing war in Iran, may also impact our business costs, including the costs of transportation and energy.

There is ongoing uncertainty regarding increased tariff duties on goods imported into the United States, which has caused substantial market uncertainty and in certain cases, retaliatory measures by trading partners.

Such changes include the imposition of tariffs under the authority of the International Emergency Economic Powers Act, which the U.S.

Supreme Court found unlawful in February 2026, the creation of a refund process for such tariff duties, and the imposition of new tariffs under other statutory authorities.

Supreme Court found unlawful in February 2026, the creation of a refund process for such tariff duties, and, most recently, the imposition of new tariffs under Section 301 of the Trade Act of 1974 on imports from numerous trading partners, effective July 24, 2026.

Certain of the produce, packaging materials, and other items procured by our Company are sourced from outside the United States, including from Canada, Mexico and Asia.

Current and proposed tariff rates range widely, depending on the country of origin.

Certain goods from Canada and Mexico that are compliant with the United States-Mexico-Canada Agreement (USMCA) are, and may continue to be, exempt from new tariffs.

While we continue to evaluate the potential impacts of increased tariff rates, as well as our ability to mitigate any such related impacts, we anticipate that the imposition of tariffs on goods we import into the United States will adversely impact our revenue and cost of goods sold in the United States.

Current and proposed tariff rates range widely, depending on the country of origin and the availability of product-specific exemptions.

Although the United States-Mexico-Canada Agreement (“USMCA”) remains in force, the United States did not agree to renew the agreement in its current form following the July 2026 joint review, and certain goods from Canada and Mexico, including USMCA-compliant goods, may be subject to new tariffs unless an exemption applies.

While we continue to evaluate the potential impacts of increased tariff rates, as well as our ability to mitigate any related impacts, the imposition of tariffs on goods we import into the United States may increase our foods and paper costs and adversely impact our financial results.

Any new or increased import duties, tariffs, or taxes, or other changes in U.S.

trade or tax policy could result in further increases to our food and supplies costs that would adversely impact our financial results.

trade or tax policy could result in further increases to our food and paper costs and other restaurant operating costs that would adversely impact our financial results.

For additional information, see “Item 1A.

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Growth Strategies and Outlook

As of April 1, 2026, we had 505 locations in nine states.

In fiscal 2025, we opened one new company-operated restaurants in California, and our franchisees opened eight new restaurants, two in California, two in Arizona, and one in each of the following states:

As of July 1, 2026, we had 511 locations in ten states.

For the twenty-six weeks ended July 1, 2026, our franchisees opened six new restaurants, two in Colorado and one in each of the following states:

California, Arizona, Idaho, and Texas, and the Company opened one new restaurant in California and one new restaurant in Texas.

In fiscal 2025, we opened one new company-operated restaurant in California, and our franchisees opened eight new restaurants, two in California, two in Arizona, and one in each of the following states:

Colorado, Texas, New Mexico and Washington.

For the thirteen weeks ended April 1, 2026, our franchisees opened one new restaurant in California and the Company opened one new restaurant in Texas.

We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning by executing the following five key strategies:

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Revenue Overview

For the thirteen weeks ended April 1, 2026, our total revenue was $126.2 million.

For the thirteen weeks ended April 1, 2026, our company-operated restaurant revenue was $105.9 million, and our franchise revenue and franchise advertising fee revenue was $20.3 million.

For the thirteen and twenty-six weeks ended July 1, 2026, our total revenue was $129.6 million and $255.8 million, respectively.

For the thirteen weeks ended July 1, 2026, our company-operated restaurant revenue was $108.1 million, and our franchise revenue and franchise advertising fee revenue was $21.5 million.

For the twenty-six weeks ended July 1, 2026, our company-operated restaurant revenue was $214.1 million, and our franchise revenue and franchise advertising fee revenue was $41.7 million.

Comparable Restaurant Sales

For the thirteen weeks ended April 1, 2026, system-wide comparable restaurant sales increased by 5.8% from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen weeks ended April 1, 2026 increased by 5.4% .

For franchise-operated restaurants, comparable restaurant sales increased by 6.1% for the thirteen weeks ended April 1, 2026.

For the thirteen and twenty-six weeks ended July 1, 2026, system-wide comparable restaurant sales increased by 3.9% and 4.9%, respectively, from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen and twenty-six weeks ended July 1, 2026 increased by 3.0% and 4.2%, respectively.

For franchise-operated restaurants, comparable restaurant sales increased by 4.5% and 5.2% for the thirteen and twenty-six weeks ended July 1, 2026, respectively.

A restaurant enters our comparable restaurant base the first full week after its 15-month anniversary.

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Thirteen Weeks Ended

April 1, 2026

March 26, 2025

Twenty-Six Weeks Ended

June 25, 2025

Company-operated same store sales

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Restaurant Development

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirteen weeks ended April 1, 2026, were as follows:

Thirteen Weeks Ended

April 1, 2026

March 26, 2025

Our restaurant counts at the beginning and end of each of the twenty-six weeks ended July 1, 2026 and June 25, 2025 were as follows:

Twenty-Six Weeks Ended

June 25, 2025

Company-operated restaurant activity (1) :

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Restaurants at end of period

(1) Our restaurant count includes 505 domestic restaurants and excludes the eight licensed restaurants in the Philippines, as well as the two previously licensed restaurants in the Philippines that were closed during the thirteen weeks ended March 26, 2025.

(1) Our restaurant count includes 511 domestic restaurants and excludes the eight licensed restaurants in the Philippines, as well as the two previously licensed restaurants in the Philippines that were closed during the twenty-six weeks ended June 25, 2025.

Restaurant Remodeling

During the thirteen weeks ended April 1, 2026, we completed a total of 13 remodels of which 7 were company-operated restaurant remodels.

In fiscal 2026, we plan to continue our standard practices for remodels, which includes completing a total of 25 to 35 company-operated restaurants and 30 to 40 franchise-operated remodels.

During the twenty-six weeks ended July 1, 2026, we completed a total of 24 remodels of which 12 were company-operated restaurant remodels.

In fiscal 2026, we plan to continue our standard practices for remodels, which includes a goal of completing a total of 25 to 35 company-operated restaurant remodels and 30 to 40 franchise-operated restaurant remodels.

Remodeling is a use of cash and has implications for our net property and depreciation line items on our consolidated balance sheets and consolidated statements of income, among others.

The cost of our restaurant remodels varies depending on the scope of the work required, but on average the investment is approximately $0.4 million per restaurant.

Our Loco Rewards loyalty program offers rewards that incentivize customers to visit our restaurants more often each month.

Customers earn points for each dollar spent, and points can be redeemed for multiple redemption options.

When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated and recorded as deferred revenue on the balance sheet.

The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.

A portion of the transaction price is then allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.

As of April 1, 2026 and December 31, 2025, the revenue allocated to loyalty points that had not been redeemed was $1.2 million and $1.1 million, respectively, which is reflected in our accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

We had over 5.4 million loyalty program members as of April 1, 2026.

Our Loco Rewards loyalty program is designed to increase customer engagement and visit frequency by allowing members to earn points on qualifying purchases that can be redeemed for a variety of rewards.

We defer a portion of the revenue associated with qualifying purchases until the related rewards are redeemed or expire.

See Note 10, “ Revenue from Contracts with Customers ,” to the Condensed Consolidated Financial Statements above for additional information regarding our accounting for the program.

As of July 1, 2026 and December 31, 2025, the revenue allocated to loyalty points that had not been redeemed was $1.3 million and $1.1 million, respectively, which is reflected in our accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

We had over 5.6 million loyalty program members as of July 1, 2026.

Critical Accounting Policies and Use of Estimates

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company-operated restaurant revenue, franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and franchise advertising fee revenue.

See Note 11, “Revenue from Contracts with Customers” in the Notes to Condensed Consolidated Financial Statements above for further details regarding our revenue recognition policy.

See Note 10, “ Revenue from Contracts with Customers ” to the Condensed Consolidated Financial Statements above for further details regarding our revenue recognition policy.

Food and Paper Costs

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Comparison of Results of Operations

Our operating results for the thirteen weeks ended April 1, 2026 and March 26, 2025 are expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as percentages of company-operated restaurant revenue, and are compared in the tables below.

Our operating results for the thirteen and twenty-six weeks ended July 1, 2026 and June 25, 2025 are expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as percentages of company-operated restaurant revenue, and are compared in the tables below.

Thirteen Weeks Ended

April 1, 2026

March 26, 2025

June 25, 2025

Increase / (Decrease)

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All other percentages use total revenue.

Twenty-Six Weeks Ended

June 25, 2025

Increase / (Decrease)

Statements of Income Data

Company-operated restaurant revenue

For the quarter ended April 1, 2026, company-operated restaurant revenue increased $7.6 million, or 7.7%, from the comparable period in the prior year.

The increase in company-operated restaurant revenue was mainly due to an increase in company-operated comparable restaurant revenue of $5.4 million, or 5.4%, as well as $0.7 million of additional sales from the opening of two restaurants after the first quarter of 2025.

Franchise revenue

Franchise advertising fee revenue

Total revenue

Cost of operations (1)

Food and paper costs

Labor and related expenses

Occupancy and other operating expenses

Company restaurant expenses (1)

General and administrative expenses

Franchise expenses

Depreciation and amortization

Loss on disposal of assets

Impairment and closed-store reserves

Total expenses

Income from operations

Interest expense, net of interest income

Income before provision for income taxes

Provision for income taxes

(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.

All other percentages use total revenue.

Company-Operated Restaurant Revenue

For the quarter ended July 1, 2026, company-operated restaurant revenue increased $3.8 million, or 3.7% from the comparable period in the prior year.

The increase in company-operated restaurant revenue was mainly due to an increase in company-operated comparable restaurant revenue of $3.1 million, or 3.0%, as well as $1.0 million of additional sales from the opening of three restaurants after the second quarter of 2025.

This company-operated restaurant revenue increase was partially offset by $0.3 million of higher discounts and net revenue deferrals associated with our Loco Rewards loyalty program.

The company-operated comparable restaurant sales increase consisted of a 4.2% increase in average check size, partially offset by a 1.1% decrease in transactions.

For the year-to-date period ended July 1, 2026, company-operated restaurant revenue increased $11.4 million, or 5.6% from the comparable period in the prior year.

The increase in company-operated restaurant revenue was mainly due to an increase in company-operated comparable restaurant revenue of $8.5 million, or 4.2%, as well as $1.7 million of additional sales from the opening of three restaurants after the second quarter of 2025.

The company-operated comparable restaurant sales increase consisted of a 4.9% increase in average check size, partially offset by a 0.7% decrease in transactions.

Franchise Revenue

For the quarter ended April 1, 2026, franchise revenue decreased $1.2 million, or 8.8%, from the comparable period in the prior year.

This decrease was primarily due to the $1.9 million in franchisee IT pass-through revenue related to the franchise rollout of the new Point of Sale (“POS”) system completed in 2025, which was offset by a corresponding decrease in related franchise expenses.

The decrease was also partially offset by the increase in franchise revenue related to the 9 franchise-operated restaurant openings during or subsequent to the first quarter of 2025 and by a franchise comparable restaurant sales increase of 6.1%.

The franchise comparable restaurant increase consisted of a 4.9% increase in average check size, combined with a 1.1% increase in transactions.

For the quarter ended July 1, 2026, franchise revenue decreased $0.5 million, or 3.8% from the comparable period in the prior year.

This decrease was primarily due to a $1.1 million decrease in franchisee information technology (“IT”) pass-through revenue related to the franchise rollout of the new Point of Sale (“POS”) system completed in 2025, which was partially offset by a corresponding decrease in related franchise expenses.

The decrease was also partially offset by the increase in franchise revenue related to the 11 franchise-operated restaurant openings during or subsequent to the second quarter of 2025 and a franchise comparable restaurant sales increase of 4.5%.

The franchise comparable restaurant sales increase consisted of a 5.3% increase in average check size, partially offset by a 0.8% decrease in transactions.

For the year-to-date period ended July 1, 2026, franchise revenue decreased $1.7 million, or 6.3% from the comparable period in the prior year.

This decrease was primarily due to a $3.0 million decrease in franchisee IT pass-through revenue related to the franchise rollout of the new POS system completed in 2025, which was partially offset by a corresponding decrease in related franchise expenses.

The franchise comparable restaurant sales increase consisted of a 5.1% increase in average check size, combined with a 0.1% increase in transactions.

Franchise Advertising Fee Revenue

For the quarter ended April 1, 2026, franchise advertising fee revenue increased $0.6 million, or 8.0%, from the comparable period in the prior year.

For the quarter ended July 1, 2026, franchise advertising fee revenue increased $0.4 million, or 5.3% from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, the fluctuations for the quarter were due to the increases and decreases noted in franchise revenue above.

For the year-to-date period ended July 1, 2026, franchise advertising fee revenue increased $1.0 million, or 6.6% from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, the fluctuations for the year-to-date period were due to the increases and decreases noted in franchise revenue above.

Food and Paper Costs

For the quarter ended April 1, 2026, food and paper costs increased $1.7 million, or 6.7%, from the comparable period in the prior year.

The increase in food and paper costs was primarily due to higher sales, increased discounts and higher produce pricing.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 24.9%, down from 25.2% in the comparable period of the prior year.

The percentage decrease was primarily due to menu price increases partially offset by the increased discounts and cost increases highlighted above.

For the quarter ended July 1, 2026, food and paper costs increased $2.0 million, or 7.7%, from the comparable period in the prior year.

The increase in food and paper costs was primarily due to higher sales, higher commodity costs, increased discounts, and menu-mix shifts.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 25.4%, up from 24.5% in the comparable period of the prior year.

The percentage increase was primarily due to higher commodity costs, increased discounts, and menu-mix shifts highlighted above, partially offset by menu price increases and cost-management initiatives .

For the year-to-date period ended July 1, 2026, food and paper costs increased $3.6 million, or 7.2%, from the comparable period in the prior year.

The increase in food and paper costs was primarily due to higher sales, increased discounts, and higher commodity costs.

For the year-to-date period ended July 1, 2026, food and paper costs as a percentage of company-operated restaurant revenue were 25.2%, up from 24.8% in the comparable period of the prior year.

The percentage increase was primarily due to the increased discounts and commodity cost increases, partially offset by menu price increases and cost-management initiatives .

Labor and Related Expenses

For the quarter ended April 1, 2026, labor and related expenses decreased $0.3 million, or 1.1%, from the comparable period in the prior year.

The decrease in labor and related expenses for the quarter was primarily due to a $0.5 million reduction in group insurance and workers compensation claims, $0.5 million costs related to improved labor efficiencies as part of our cost-management initiatives partially offset by a $0.7 million increase in other labor-related expenses related to an increase in training, overtime and wage inflation and labor related expenses from the opening of two restaurants after the first quarter of 2025.

For the quarter ended April 1, 2026, labor and related expenses as a percentage of company-operated restaurant revenue were 30.1%, down from 32.7% in the comparable period in the prior year.

The percentage change was driven by leverage on the comparable store sales increase, higher menu prices, reduced group insurance and workers compensation claims and the improved labor efficiencies , partially offset by higher other labor-related costs.

For the quarter ended July 1, 2026, labor and related expenses increased $0.1 million, or 0.4%, from the comparable period in the prior year.

The increase in labor and related expenses was primarily due to a $0.7 million increase in labor associated with the opening of three new restaurants after the second quarter of 2025, combined with higher wage inflation, higher management incentive expense, and higher overtime expense.

These increases were partially offset by a $0.6 million reduction in group insurance and worker’s compensation expense.

For the quarter ended July 1, 2026, labor and related expenses as a percentage of company-operated restaurant revenue were 29.9%, down from 30.8% in the comparable period in the prior year.

The percentage change was driven by leverage on higher company-operated restaurant sales, reduced group insurance, and workers’ compensation claim expenses.

For the year-to-date period ended July 1, 2026, labor and related expenses decreased $0.2 million, or 0.3%, from the comparable period in the prior year.

The decrease in labor and related expenses was primarily due to a $1.2 million reduction in group insurance and workers’ compensation claim expenses and other benefit-related costs, partially offset by a $1.0 million increase in direct labor-related costs, including restaurant labor and management incentive compensation, an increase in overtime and wage inflation and labor associated with the opening of three restaurants after the second quarter of 2025.

For the year-to-date period ended July 1, 2026, labor and related expenses as a percentage of company-operated restaurant revenue were 30.0%, down from 31.7% in the comparable period in the prior year.

The percentage change was driven by leverage on higher company-operated restaurant sales, reduced group insurance and workers’ compensation claims and improved labor efficiencies, partially offset by higher other labor-related costs.

Occupancy and Other Operating Expenses

For the quarter ended April 1, 2026, occupancy and other operating expenses increased $1.7 million, or 6.5%, from the comparable period in the prior year.

The increase was primarily due to a $0.8 million increase in other operating expenses primarily from marketplace delivery fees, mobile order fees, and credit card fees, an increase of $0.5 million in utilities and repairs and maintenance costs, and an increase of $0.4 million in advertising and occupancy costs.

For the quarter ended April 1, 2026, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.8%, down from 26.1% in the comparable period in the prior year.

The decrease as a percentage of sales resulted from the leverage on the comparable store sales increase highlighted above.

For the quarter ended July 1, 2026, occupancy and other operating expenses increased $0.6 million, or 2.1%, from the comparable period in the prior year.

The increase was primarily due to a $0.4 million increase in other operating expenses, primarily from delivery fees, mobile order fees and credit card fees, and a $0.4 million increase in repairs and maintenance costs.

These increases were partially offset by a $0.2 million decrease in utility costs and other controllable expenses.

For the quarter ended July 1, 2026, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.3%, down from 25.6% in the comparable period in the prior year.

The decrease as a percentage of sales resulted primarily from leverage on higher company-operated restaurant sales.

For the year-to-date period ended July 1, 2026, occupancy and other operating expenses increased $2.2 million, or 4.3%, from the comparable period in the prior year.

The increase was primarily due to a $1.1 million increase in other operating expenses, primarily from delivery fees, mobile order fees and credit card fees, a $0.8 million increase in utilities and repairs and maintenance costs, and a $0.3 million increase in other operating expenses.

For the year-to-date period ended July 1, 2026, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.5%, down from 25.9% in the comparable period in the prior year.

The decrease as a percentage of sales resulted from leverage on higher company-operated restaurant sales.

General and Administrative Expenses

For the quarter ending April 1, 2026, general and administrative expenses increased $1.5 million, or 13.6%, from the comparable period in the prior year.

The increase for the quarter was primarily due to a $0.6 million received from a legal settlement in the prior year, a $0.7 million increase in legal fees and other general and administrative costs, $0.3 million increase to outside services and software maintenance, a $0.2 million increase to stock-based compensation expense, and a combined $0.2 million increase related to our corporate office relocation and the implementation of a new enterprise resource planning (“ERP”) system, partially offset by $0.6 million of lower shareholder activism.

For the quarter ended April 1, 2026, general and administrative expenses as a percentage of total revenue were 10.1%, up from 9.5% in the comparable period of the prior year .

The percentage increase is primarily due to the cost increases discussed above.

For the quarter ended July 1, 2026, general and administrative expenses decreased $6.5 million, or 47.9%, from the comparable period in the prior year.

The decrease for the quarter was primarily due to $6.3 million received from a legal settlement, net of legal expenses, in the current year, a $0.8 million decrease in legal and professional fee costs related to shareholder activism and related matters in the prior year, and a $0.7 million decrease related to restructuring and executive transition costs in the prior year.

The general and administrative expenses decrease was partially offset by a $0.3 million increase in legal fees, a $0.5 million increase in outside services and software maintenance, a $0.2 million increase in store pre-opening costs and a $0.3 million increase in other general and administrative expenses.

For the year-to-date period ended July 1, 2026, general and administrative expenses decreased $4.9 million, or 20.0%, from the comparable period in the prior year.

The decrease was primarily due to a $5.7 million favorable change related to legal settlements, reflecting $6.3 million received from a legal settlement, net of legal expenses, in the current-year period compared with $0.6 million received in the prior-year period, net of legal expenses, a $1.4 million decrease in legal and professional fee costs related to shareholder activism, and a $0.7 million decrease in restructuring and executive transition costs in the prior year.

The general and administrative expenses decrease was partially offset by a $0.8 million increase in outside services and software maintenance, a $0.6 million increase in other legal costs, a $0.3 million increase in store pre-opening costs, a combined $0.2 million increased related to our corporate office relocation and the implementation of a new enterprise resource planning system, and a $1.0 million increase in other general and administrative expenses.

Franchise Expenses

For the quarter ended April 1, 2026, franchise expenses decreased $1.3 million, or 10.1%, from the comparable period in the prior year .

The decrease was primarily due to the $1.9 million in franchise IT pass-through expense related to the franchise rollout of the new POS system completed in 2025.

For the quarter ended July 1, 2026, franchise expenses decreased $0.8 million, or 6.0%, from the comparable period in the prior year .

The decrease was primarily due to a $1.2 million decrease in franchise IT pass-through expense related to the franchise rollout of the new POS system completed in 2025, partially offset by a $0.4 million increase in advertising expenses.

For the year-to-date period ended July 1, 2026, franchise expenses decreased $2.0 million, or 8.0%, from the comparable period in the prior year .

The decrease was primarily due to a $3.2 million decrease in franchise IT pass-through expense related to the franchise rollout of the new POS system completed in 2025, partially offset by a $1.0 million increase in advertising expenses and a $0.2 million increase in other franchise expenses.

Depreciation and Amortization

For the quarter ended April 1, 2026, depreciation and amortization increased $0.4 million, or 11.0%, from the comparable period in the prior year .

The increase was primarily due to the completion of 17 company-operated restaurant remodels in 2025 and 7 company-operated restaurant remodels in the first quarter of 2026, along with the rollout of the new POS system to company-operated restaurants completed in 2025.

For the quarter ended July 1, 2026, depreciation and amortization increased $0.2 million, or 6.1%, from the comparable period in the prior year .

The increase was primarily due to the completion of 17 company-operated restaurant remodels in 2025 and 5 company-operated restaurant remodels in 2026, along with the rollout of the new POS system to company-operated restaurants completed in 2025.

For the year-to-date period ended July 1, 2026, depreciation and amortization increased $0.7 million, or 8.5%, from the comparable period in the prior year .

The increase was primarily due to the completion of 17 company-operated restaurant remodels in 2025 and 12 company-operated restaurant remodels in 2026, along with the rollout of the new POS system to company-operated restaurants completed in 2025.

Impairment and Closed-Store Reserves

During both the thirteen weeks ended April 1, 2026 and March 26, 2025, we did not record any non-cash impairment charges.

During both the thirteen and twenty-six weeks ended July 1, 2026, we recorded $0.2 million in non-cash impairment charges related to the carrying value of the ROU assets of one restaurant in Nevada.

During both the thirteen and twenty-six weeks ended June 25, 2025, we did not record any non-cash impairment charges.

Given the inherent uncertainty in projecting results for newer restaurants in newer markets, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

During both the thirteen weeks ended April 1, 2026 and March 26, 2025, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM expenses for our closed locations.

During both the thirteen and twenty-six weeks ended July 1, 2026 and June 25, 2025, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM expenses for our closed locations.

Interest Expense, Net

For the quarter ended April 1, 2026, interest expense, net, decreased $0.4 million from t he comparable period in the prior year .

The decrease in interest expense was primarily related to the lower interest rates in fiscal quarter of 2026 and lower outstanding balances on our 2022 Revolver (as defined below) versus t he comparable period in the prior year .

For the quarter ended July 1, 2026, interest expense, net, decreased $0.5 million from t he comparable period in the prior year .

The decrease in interest expense was primarily related to the lower interest rates during the second quarter of 2026 and lower outstanding balances on our 2022 Revolver (as defined below) versus t he comparable period in the prior year .

For the year-to-date period ended July 1, 2026, interest expense, net, decreased $0.9 million from t he comparable period in the prior year .

The decrease in interest expense was primarily related to the lower interest rates during 2026 and lower outstanding balances on our 2022 Revolver (as defined below) versus t he comparable period in the prior year .

Provision for Income Taxes

For the quarter ended April 1, 2026, we recorded an income tax provision of $3.3 million, reflecting an estimated effective tax rate of 29.0%.

For the quarter ended March 26, 2025, we recorded an income tax provision of $2.3 million, reflecting an estimated effective tax rate of approximately 29.7%.

The difference between the 21.0% statutory rate and our effective tax rate of 29.0% for the quarter ended April 1, 2026 is primarily a result of state tax rate based on apportioned income and the impact of non-tax deductible executive compensation expense, partially offset by the impact of higher stock compensation expense deductible for tax related to vesting of restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, and federal targeted job credits.

For the quarter ended July 1, 2026, we recorded an income tax provision of $5.2 million, reflecting an estimated effective tax rate of 28.8%.

For the quarter ended June 25, 2025, we recorded an income tax provision of $3.0 million, reflecting an estimated effective tax rate of approximately 29.6%.

For the year-to-date period ended July 1, 2026, we recorded an income tax provision of $8.5 million, reflecting an estimated effective tax rate of 28.8%.

For the year-to-date period ended June 25, 2025, we recorded an income tax provision of $5.3 million, reflecting an estimated effective tax rate of approximately 29.7%.

The difference between the 21.0% statutory rate and our effective tax rate of 28.8% for the year-to-date period ended July 1, 2026 is primarily a result of state tax rates based on apportioned income, the impact of non-tax deductible executive compensation, and tax deficiencies related to stock option exercises, for which the associated tax deductions were lower than the cumulative amount recorded as stock-based compensation expense, partially offset by the impact of higher stock compensation expense deductible for tax related to the vesting of restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, and federal targeted job credits.

Key Performance Indicators

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Thirteen Weeks Ended

April 1, 2026

March 26, 2025

Twenty-Six Weeks Ended

June 25, 2025

Company-operated restaurant revenue

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Comparable restaurant sales exclude restaurants closed during the applicable period.

At April 1, 2026 and March 26, 2025, there were 485 and 484 system-wide comparable restaurants in both periods, 171 and 170 company-operated restaurants, respectively, and 313 and 314 franchise-operated restaurants, respectively.

At July 1, 2026 and June 25, 2025, there were 489 and 485 system-wide comparable restaurants in both periods, respectively, 172 and 171 company-operated restaurants, respectively, and 317 and 314 franchise-operated restaurants, respectively.

Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Dollar amounts in thousands)

April 1, 2026

March 26, 2025

June 25, 2025

Restaurant contribution:

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

April 1, 2026

March 26, 2025

June 25, 2025

Non-GAAP adjustments:

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ERP software implementation costs (g)

Pre-opening costs (h)

Restructuring and executive transition costs (h)

Pre-opening costs (i)

Adjusted EBITDA

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We did not record any non-cash impairment charges during either the thirteen weeks ended April 1, 2026 or March 26, 2025.

(d) Includes $0.6 million received from legal settlement, net of legal expenses.

During the thirteen and twenty-six weeks ended July 1, 2026, we recorded $0.2 million in non-cash impairment charges related one restaurant in Nevada.

We did not record any non-cash impairment charges during either the thirteen or twenty-six weeks ended June 25, 2025.

(d) Includes $6.3 million received from a legal settlement, net of legal expenses, during the thirteen and twenty-six weeks ended July 1, 2026 and $0.6 million received from a legal settlement, net of legal expenses during the twenty-six weeks ended June 25, 2025.

(e) Consists of legal and professional costs related to shareholder activism and related matters.

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(g) Represents costs incurred in connection with the implementation of a new ERP system which are included in general and administrative expenses.

(h) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

(h) Consists of costs associated with the transition of certain executive officers, such as severance and stock-based compensations costs and costs associated with restructuring certain positions in the organization during the thirteen and twenty-six weeks ended June 25, 2025.

(i) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

These are generally incurred over the three to five months prior to opening.

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We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at least the next 12 months and beyond from the issuance of the condensed consolidated financial statements.

During the second fiscal quarter of 2026, we received $13.9 million for a legal settlement, net of legal expenses, of which $7.6 million relates to franchisees and was recorded to Other accrued expenses and current liabilities as of the period ended July 1, 2026 and is expected to be disbursed to franchisees in the third fiscal quarter of 2026.

However, depending on macroeconomic conditions, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2022 Credit Agreement (as defined in Note 5, “ Long-Term Debt ”), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

The following table presents summary cash flow information for the periods indicated (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

April 1, 2026

March 26, 2025

June 25, 2025

Net cash provided by (used in):

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Operating Activities

For the thirteen weeks ended April 1, 2026, net cash from operating activities increased by $8.3 million from the comparable period of the prior year.

This change was due to improvement in working capital compared to the same period in the prior year as well as an increase in net income and deferred income taxes.

For the twenty-six weeks ended July 1, 2026, net cash from operating activities increased by $25.9 million from the comparable period of the prior year.

This increase was primarily due to an $8.4 million increase in net income, a $6.2 million favorable change in non-cash and reconciling items and an $11.4 million favorable change in operating assets and liabilities.

The favorable change in non-cash and reconciling items was primarily driven by a $4.6 million favorable change in deferred income taxes, a $0.7 million increase in depreciation and amortization, and a $0.6 million increase in losses on the disposal of assets.

The favorable change in operating assets and liabilities was primarily driven by favorable changes of $10.3 million in other accrued expenses and current liabilities, $1.0 million in income taxes receivable and payable and $1.0 million in other assets, partially offset by unfavorable changes of $1.4 million in prepaid expenses and other current assets and $0.6 million in accounts payable.

Investing Activities

For the thirteen weeks ended April 1, 2026, net cash used in investing activities decreased by $6.9 million from the comparable period of the prior year.

This change was primarily due to a increase in purchase of property and equipment mostly related to restaurant remodeling and new restaurant development during the thirteen weeks ended April 1, 2026 when compared to the prior year.

For the twenty-six weeks ended July 1, 2026, net cash used in investing activities increased by $10.3 million from the comparable period of the prior year.

This change was primarily due to an increase in purchase of property and equipment mostly related to restaurant remodeling and new restaurant development during the twenty-six weeks ended July 1, 2026 when compared to the prior year.

Financing Activities

For the thirteen weeks ended April 1, 2026, net cash used in financing activities decreased by $5.6 million from the comparable period of the prior year.

The change was primarily due to paydowns of $7.0 million on the 2022 Revolver during the thirteen weeks ended April 1, 2026 compared to a net borrowings of $2.0 million on the 2022 Revolver during the thirteen weeks ended March 26, 2025 partially offset by an increase of $1.8 million of proceeds from the issuance of common stock upon exercise of stock options during the thirteen weeks ended April 1, 2026 as compared to the thirteen weeks ended March 26, 2025 as well as no repurchases of common stock during the thirteen weeks ended April 1, 2026 as compared repurchases of common stock of $1.8 million during the thirteen weeks ended March 26, 2025.

For the twenty-six weeks ended July 1, 2026, net cash used in financing activities increased by $15.0 million from the comparable period of the prior year.

This change was primarily due to a $21.0 million net paydown on the 2022 Revolver (as defined below) during the twenty-six weeks ended July 1, 2026, compared to a $2.0 million net paydown during the twenty-six weeks ended June 25, 2025.

The increase was partially offset by a $2.2 million increase in proceeds from the exercise of stock options and the absence of common stock repurchases during the current-year period, compared to $1.8 million of repurchases during the prior-year period.

Debt and Other Obligations

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Borrowings under the 2022 Revolver may be repaid and reborrowed.

The interest rate range under the 2022 Revolver was 5.01% to 7.00% and 5.65% to 7.75% for the thirteen weeks ended April 1, 2026 and March 26, 2025 , respectively .

The 2022 Credit Agreement contains certain financial covenants.

We were in compliance with the financial covenants as of April 1, 2026.

At April 1, 2026, we had $44.0 million in outstanding borrowings under the 2022 Revolver and one letter of credit in the amount of $10.3 million outstanding, and as a result, we had $95.7 million in borrowing availability.

The interest rate range under the 2022 Revolver was 4.97% to 5.02% and 4.97% to 7.00% for the thirteen and twenty-six weeks ended July 1, 2026, and 5.65% to 5.93% and 5.67% to 7.75% for the thirteen weeks and twenty six weeks ended June 25, 2025 , respectively .

The 2022 Credit Agreement contains certain customary financial covenants, which covenants are subject to certain exceptions.

We were in compliance with the financial covenants as of July 1, 2026.

At July 1, 2026, we had $30.0 million in outstanding borrowings under the 2022 Revolver and one letter of credit in the amount of $10.3 million outstanding, and as a result, we had $109.7 million in borrowing availability.

Subsequent to the quarter-end, we paid down $4.0 million on the 2022 Revolver, resulting in outstanding borrowings of $26.0 million as of July 29, 2026.

Subsequent to the quarter end, on August 4, 2026 we amended our $150.0 million credit facility, extending the term to August 4, 2031.

See Note 5, Long-Term Debt , to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements , of this Quarterly Report on Form 10-Q for additional information.

Material Cash Requirements

Our material cash requirements as of April 1, 2026 have not changed materially since those disclosed under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Material Cash Requirements , of our Annual Report on Form 10-K for the year ended December 31, 2025.

Our material cash requirements as of July 1, 2026 have not changed materially since those disclosed under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Material Cash Requirements , of our Annual Report on Form 10-K for the year ended December 31, 2025.

Our material cash requirements relate mostly to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) purchasing commitments for chicken, (iv) restaurant finance lease payments, and (v) capital expenditures.

Share Repurchases

On November 2, 2023, we announced that our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) under which we were authorized to repurchase up to $20,000,000 of shares of our common stock.

Under the Share Repurchase Program, we were permitted to repurchase our common stock from time to time, in amounts and at prices that we deemed appropriate, subject to market conditions and other considerations.

Pursuant to the Share Repurchase Program, we were authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

The Share Repurchase Program did not obligate us to acquire any particular number of shares.

During the 13 weeks ended March 26, 2025, the Company repurchased 159,750 shares pursuant to the Share Repurchase Program.

The Company did not repurchase any shares pursuant to the Share Repurchase Program during the 13 weeks ended April 1, 2026.

The Share Repurchase Program expired on March 31, 2025.

On May 28, 2026, we announced that our Board of Directors approved a share repurchase program (the “2026 Share Repurchase Program”) under which we are authorized to repurchase up to $40.0 million of shares of our common stock.

Under the 2026 Share Repurchase Program, we are permitted to repurchase our common stock from time to time, in amounts and at prices that we deem appropriate, based on various factors, including the market price of our common stock, general business, economic and market conditions, alternative investment opportunities and funding considerations.

Pursuant to the 2026 Share Repurchase Program, we are authorized to effect repurchases through open market purchases, block trades, privately negotiated transactions or other transactions conducted in accordance with Rule 10b-18 under the Exchange Act, including pursuant to Rule 10b5-1 trading plans.

The 2026 Share Repurchase Program does not obligate us to acquire any particular number of shares, has an open-ended term and may be expanded, modified, suspended or discontinued at any time.

For the thirteen and twenty-six weeks ended July 1, 2026, we did not repurchase any shares under the 2026 Share Repurchase Program.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis