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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 230 added, 145 removed, 245 unchanged (60% of the section changed)

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Papa John’s International, Inc.

(referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark “Papa John’s.” Papa John’s began operations in 1984.

As of March 31, 2024, there were 5,914 Papa John’s restaurants in operation, consisting of 653 Company-owned and 5,261 franchised restaurants operating in 49 countries and territories.

As of June 30, 2024, there were 5,883 Papa John’s restaurants in operation, consisting of 570 Company-owned and 5,313 franchised restaurants operating in 49 countries and territories.

Our revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, and sales of franchise and development rights.

Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our Domestic Quality Control Centers (“QC Centers”), operation of our International QC Center in the United Kingdom (“UK”), contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, printing and promotional items and information systems equipment, and software and related services.

We believe that in addition to supporting both Company and franchised profitability and growth, these activities contribute to product quality and consistency throughout the Papa John’s system.

Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our Domestic Quality Control Centers (“QC Centers”), operation of our International QC Center in the United Kingdom (“UK”), contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, information systems equipment, and software and related services.

We believe that in addition to supporting both Company and franchised profitability and growth, these activities contribute to product quality and consistency throughout the Papa Johns system.

In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America.

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The Company has focused on executing strategic priorities and building a foundation for long-term success, while navigating a challenging macroeconomic environment.

Our progress and significant transactions during the first quarter of 2024 are described below.

Our progress and significant transactions during the second quarter of 2024 are described below.

Focusing on future growth, our “Back to BETTER 2.0” initiative is comprised of long-term strategic initiatives focused on driving systemwide sales through enhancing North America national marketing investment and effectiveness and accelerating North America development.

In addition, we are evolving our Domestic Commissary business to provide cost savings for our franchisees and incremental profit for our business model.

During the first quarter of 2024, the Company made significant progress against our priorities of Back to Better 2.0 and International Transformation.

During the first half of 2024, the Company made significant progress against our priorities of Back to Better 2.0 and International Transformation.

Back to Better 2.0

• Product innovation and marketing strategy:

We advanced our menu and digital innovations to drive new customers and ticket sales.

At the end of the quarter, we launched our new Crispy Cuppy ‘Roni platform, which is available across a trio of menu items and price points.

We also launched an all-new brand platform “Better Get You Some” that is part of our deepened commitment to, and investment in, our new marketing strategy.

In the second quarter, the approved contribution rate increase to PJMF became effective, while local marketing spend remains optional.

This strategy shift is intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver.

In earlier 2024, we also launched an all-new brand platform “Better Get You Some” that is part of our deepened commitment to, and investment in, our new marketing strategy.

These investments are focused on improving audience segmentation, building consumer loyalty and driving cultural relevance.

Additionally during the quarter, we brought back the Cheesy Burger Pizza platform, which is available across a trio of menu items and price points.

• Domestic commissary growth strategy:

Our previously-announced change in the Domestic Commissary profit model was implemented during the quarter, with the fixed operating margin that Domestic QC Centers charge increasing to 5% paired with increased rebate opportunities for franchisees.

As of the end of the first quarter, we project that more than 40% of franchisees are on track to earn a rebate for 2024.

Our previously-announced change in the Domestic Commissary profit model was implemented during the first quarter, with the fixed operating margin that Domestic QC Centers charge increasing to 5% paired with increased rebate opportunities for franchisees.

The operating income of the North America Commissary business has also increased, reflecting benefits for both franchisees as well as the Commissary.

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In December 2023, the Company announced international transformation initiatives (“International Transformation Plan”) designed to evolve our business structure to deliver an enhanced value proposition to our International customers and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets, including the UK, for long-term profitable growth and brand strength.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $25 million to $35 million (inclusive of the $11.7 million spent through the first quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $25 million to $35 million (inclusive of the $17.9 million incurred through the second quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025.

Restructuring” of “Notes to Condensed Consolidated Financial Statements” for additional details.

Key elements and progress of our International Transformation Plan are set forth as follows:

• International strategy - UK Optimization:

The UK franchise business is trending positively, with improved comparable sales.

However, our UK Company-owned stores have continued to incur operating losses, and we are moving forward with our previously-announced planned closures of 43 underperforming Company-owned stores in the second quarter, which we expect will reduce future operating losses incurred by the Company.

The impending closures of these stores resulted in first-quarter 2024 charges of $9.5 million, primarily comprised of non-cash lease and fixed asset impairment charges.

We are continuing to evaluate our restaurant portfolio in the UK, which may result in additional strategic restaurant closures or divestitures.

◦ International strategy - Regional hubs:

During the first quarter, we established hubs in our key regions - APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America.

These hubs will enable us to deliver a frictionless, locally-valued offering with a recognizable and consistent customer experience.

These regional hubs are led by General Managers, who bring a significant amount of restaurant and international franchise experience, and their teams who are partnering with franchisees to create a holistic strategy to boost performance in their markets.

These teams are aligning global best practices in operations, marketing and technology with local preferences and needs to accomplish our long-term objective of increasing market share in key markets around the world.

During the second quarter of 2024, the Company has made significant progress in executing the International Transformation Plan, with specific actions around UK Optimization as follows:

• During the second quarter, we completed several transactions to optimize the UK Company-owned restaurant portfolio.

On May 15, 2024, we completed the planned closure of 43 underperforming UK Company-owned restaurants.

In June, we successfully refranchised 40 formerly Company-owned restaurants to existing franchisees.

On July 1, 2024, we refranchised an additional 20 formerly Company-owned restaurants to primarily existing franchisees.

Beginning with the third quarter of 2024, we will continue to operate only 13 Company-owned restaurants in the UK.

We have also continued evaluating and right-sizing the UK franchise base, resulting in the closure of 19 franchised locations during the first six months of 2024.

Based on these actions, and the continued operating success of our franchisees, we anticipate the UK market to be profit accretive in the second half of 2024.

• We are finalizing the evaluation of our restaurant portfolio in the UK, which may result in limited strategic restaurant closures with the Company’s efforts turning towards growth opportunities within this market as we complete optimization of the portfolio.

Global Restaurant Sales and Unit Information

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Franchise restaurant sales are not included in the Company’s revenues.

Three Months Ended

Amounts below exclude the impact of foreign currency March 31,

2024 March 26,

Three Months Ended Six Months Ended

Amounts below exclude the impact of foreign currency June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Comparable sales growth (decline):

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Total global system-wide restaurant sales growth (decline) (0.7)% 2.0% (0.8)% 2.0%

Restaurant Progression Three Months Ended

2024 March 26,

Restaurant Progression Three Months Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

North America Company-owned:

Beginning of period 536 520 531 522

Opened 1 — 6 —

Closed — — — (2)

Acquired — 1 — 1

End of period 537 521 537 521

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Beginning of period 2,911 2,864 2,902 2,854

Opened 9 13 25 29

Closed (10) (8) (17) (14)

Sold — (1) — (1)

End of period 2,910 2,868 2,910 2,868

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Beginning of period 117 — 117 —

Closed (43) — (43) —

Acquired — 91 — 91

Refranchised (41) — (41) —

End of period 33 91 33 91

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Beginning of period 2,350 2,341 2,356 2,322

Opened 56 55 79 98

Closed (44) (13) (73) (37)

Sold — (91) — (91)

Refranchised 41 — 41 —

End of period 2,403 2,292 2,403 2,292

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The following table sets forth the various components of Revenues from the Condensed Consolidated Statements of Operations.

Three Months Ended Increase

(Dollars in thousands) March 31,

2024 March 26,

Three Months Ended Six Months Ended Increase

(Dollars in thousands) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Domestic Company-owned restaurant sales $ 173,207 $ 175,780 $ 349,431 $ 355,646 (1.5) % (1.7) %

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Total revenues $ 507,894 $ 514,530 $ 1,021,810 $ 1,041,579 (1.3) % (1.9) %

The comparability of results between 2024 and 2023 is impacted by the acquisition of 118 formerly franchised restaurants in the UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”).

The UK franchisee acquisitions impact the composition of International revenues and the results of the International segment.

See “Note 12.

Acquisitions” of the “Notes to Condensed Consolidated Financial Statements” for additional information on this transaction.

Total revenues decreased $13.1 million or 2.5% to $513.9 million for the three months ended March 31, 2024, as compared to prior year comparable period.

Changes in total revenues are impacted by the transaction noted above.

Domestic Company-owned restaurant sales decreased $3.6 million, or 2.0% for the three months ended March 31, 2024, as compared to the prior year comparable period.

The decrease was primarily due to a decline in comparable sales of 3.0%, partially offset by increased equivalent units of 3.1% for the three months ended March 31, 2024.

North America franchise royalties and fees decreased $0.4 million, or 1.0% for the three months ended March 31, 2024 as compared to the prior year comparable period primarily due to comparable sales decline of 1.5%.

Equivalent units increased 2.1% for the three months ended March 31, 2024.

North America franchise restaurant sales decreased 1.6% to $759.3 million for the three months ended March 31, 2024 compared to the prior year comparable period.

The comparability of results between 2024 and 2023 is impacted by transactions that have changed the composition of restaurants in the UK during the periods presented.

In the second and third quarters of 2023, the Company acquired 118 formerly franchised restaurants in the UK (the “UK franchisee acquisitions”).

In the second quarter of 2024, the Company completed the previously-announced closure of 43 Company-owned restaurants in the UK and also refranchised 40 Company-owned restaurants in the UK.

These transactions impact the composition of International revenues and the results of the International segment during the periods presented.

On July 1, 2024, the Company refranchised an additional 20 Company-owned restaurants in the UK.

After prior disposals of two mobile units, the Company is operating 13 UK Company-owned restaurants beginning in the third quarter of 2024.

Restructuring” of the “Notes to Condensed Consolidated Financial Statements” for additional information on these transactions.

Total revenues decreased $6.6 million or 1.3% to $507.9 million for the three months ended June 30, 2024 and decreased $19.8 million or 1.9% to $1.02 billion for the six months ended June 30, 2024, as compared to each prior year comparable period.

Changes in total revenues are impacted by the transactions noted above and as detailed in the discussion below.

Domestic Company-owned restaurant sales decreased $2.6 million, or 1.5%, for the three months ended June 30, 2024 and decreased $6.2 million, or 1.7% for the six months ended June 30, 2024, as compared to each prior year comparable period.

The decrease was primarily due to declines in comparable sales of 4.2% and 3.6% for the three and six months ended June 30, 2024, respectively.

The comparable sales declines were partially offset by increased equivalent units of 4.1% and 2.3% for the same respective periods.

North America franchise royalties and fees decreased $0.3 million, or 0.9%, for the three months ended June 30, 2024 and decreased $0.7 million, or 1.0% for the six months ended June 30, 2024, each as compared to each prior year comparable period.

The decreases are primarily due to comparable sales declines of 3.4% and 2.4%, respectively.

These declines were partially offset by lower royalty waivers in 2024 as compared to 2023 and growth in units.

Equivalent units increased 3.7% and 3.3% for the three and six months ended June 30, 2024, respectively.

North America franchise restaurant sales decreased 2.0% to $732.5 million for the three months ended June 30, 2024 compared to the prior year comparable period.

North America franchise restaurant sales decreased 1.8% to $1.5 billion for the six months ended June 30, 2024 as compared to the prior year comparable period.

North America franchise restaurant sales are not included in Company revenues;

however, our North America franchise royalties are derived from these sales.

North America commissary revenues decreased $9.3 million, or 4.4% for the three months ended March 31, 2024, compared to the prior year quarter primarily due to declines in pricing of commodities and lower volumes.

International revenues increased $9.2 million, or 29.4% for the three months ended March 31, 2024, compared with the prior year comparable period.

The impact of the UK franchisee acquisitions was a net increase of approximately $9.7 million of revenues in the first quarter of 2024, representing sales attributable to the acquired UK franchisee restaurants less prior year franchise royalty and food distribution revenue generated from the UK formerly franchised restaurants.

Excluding the impact of the UK franchisee acquisitions, International revenues would have decreased $0.5 million, or 1.6%, for the three months ended March 31, 2024.

International revenues were impacted by a comparable sales decline of 2.6% for the three months ended March 31, 2024 as a result of sales declines in the Middle East region.

International franchise restaurant sales decreased $18.4 million to $275.0 million for the three months ended March 31, 2024.

Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales decreased $3.7 million or 1.3% for the three months ended March 31, 2024.

North America commissary revenues decreased $8.8 million or 4.2% for the three months ended June 30, 2024 and decreased $18.1 million, or 4.3% for the six months ended June 30, 2024, each as compared with the prior year comparable period.

The declines were due to a combination of lower commodity prices , particularly cheese, and lower volumes.

International revenues increased $5.1 million, or 14.7%, for the three months ended June 30, 2024 and increased $14.3 million, or 21.7% for the six months ended June 30, 2024, each as compared with the prior year comparable period.

As mentioned above, the UK franchisee acquisitions in 2023 and the UK restaurant closures and refranchising transactions in the second quarter of 2024 impact the comparability of International revenues earned in each period.

The net increase in revenue related to the UK franchisee acquisitions was approximately $5.2 million and $14.9 million for the three and six months ended June 30, 2024, respectively, representing sales and royalties attributable to this group of restaurants compared to prior year.

Excluding the impact of the UK franchisee acquisitions, International revenues would have decreased $0.1 million and $0.6 million for the three and six months ended June 30, 2024, respectively.

International franchise restaurant sales decreased $10.4 million to $287.1 million and decreased $28.8 million to $562.2 million for the three and six months ended June 30, 2024, respectively.

This decrease includes the impact of the UK franchisee acquisitions moving out of franchise restaurant sales and into Company-owned sales.

Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales increased $12.2 million or 4.3% and $16.4 million or 2.9% for the three and six months ended June 30, 2024, respectively.

International franchise restaurant sales are not included in Company revenues;

however, our international royalty revenue is derived from these sales.

Other revenues, which primarily includes our national marketing funds and online and mobile ordering business, decreased $9.1 million, or 13.5%, for the three months ended March 31, 2024 compared to the prior year comparable period.

decrease reflects $5.1 million related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

The decrease was also driven by $2.7 million of lower marketing fees.

The impact of the UK franchisee acquisitions decreased Other revenues by $1.4 million for the three months ended March 31, 2024.

Other revenues, which primarily includes our national marketing funds and online and mobile ordering business, were flat and decreased $9.2 million, or 7.1%, for the three and six months ended June 30, 2024 compared to the prior year comparable periods.

Our results for the three and six months ended June 25, 2023 included revenues of $4.8 million and $9.9 million, respectively, related to Preferred Marketing, our formerly wholly-owned print and promotions company which was sold in the fourth quarter of 2023.

This was offset during the second quarter of 2024 primarily by a $4.2 million increase in marketing fees due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

Costs and Expenses

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(Dollars in thousands) Three Months Ended

March 31, 2024 % of Related

Revenues March 23, 2023 % of Related

June 30, 2024 % of Related

Revenues June 25, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

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Operating income $ 28,226 5.6 % $ 34,912 6.8 % (1.2) %

Total costs and expenses were $480.2 million or 93.4% of total revenues for the three months ended March 31, 2024, as compared to $489.3 million, or 92.8% of total revenues for the prior year comparable period.

(Dollars in thousands) Six Months Ended

June 30, 2024 % of Related

Revenues June 25, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

Costs and expenses:

Operating costs (excluding depreciation and amortization shown separately below):

Domestic Company-owned restaurant expenses $ 276,786 79.2 % $ 291,489 82.0 % (2.8) %

North America commissary expenses 367,498 91.5 % 386,883 92.2 % (0.7) %

International expenses 55,423 68.9 % 37,746 57.1 % 11.8 %

Other expenses 108,718 90.3 % 120,074 92.7 % (2.4) %

General and administrative expenses 116,173 11.4 % 102,268 9.8 % 1.6 %

Depreciation and amortization 35,268 3.5 % 30,411 2.9 % 0.6 %

Total costs and expenses 959,866 93.9 % 968,871 93.0 % 0.9 %

Operating income $ 61,944 6.1 % $ 72,708 7.0 % (0.9) %

Total costs and expenses were $479.7 million or 94.4% of total revenues for the three months ended June 30, 2024 as compared to $479.6 million or 93.2% of total revenues for the prior year comparable period.

For the six months ended June 30, 2024, total costs and expenses were $959.9 million or 93.9% of total revenues, as compared to $968.9 million, or 93.0% of total revenues for the prior year comparable period.

The changes in total costs and expenses, as percentages of revenues, were primarily due to the following:

Domestic Company-owned restaurant expenses were $138.8 million or 78.7% of related revenues for the three months ended March 31, 2024, compared to expenses of $147.8 million or 82.2% of related revenues for the prior year comparable period.

The decrease of 3.5% was primarily due to a decrease in certain commodity expenses, lower utility costs and lower advertising spend.

North America commissary expenses were $185.2 million, or 91.1% of related revenues for the three months ended March 31, 2024, compared to expenses of $196.4 million or 92.4% of related revenues for the prior year period.

The expense, as a percentage of related revenues, decreased 1.3% for the three months ended March 31, 2024 primarily due to declining commodity prices for cheese and lower volumes, partially offset by higher delivery costs in the first quarter of 2024.

International expenses were $28.3 million, or 69.6% of related revenues for the three months ended March 31, 2024, compared to expenses of $17.3 million, or 55.0% of related revenues for the prior year comparable period.

Domestic Company-owned restaurant expenses were $138.0 million or 79.7% of related revenues for the three months ended June 30, 2024 as compared to expenses of $143.7 million or 81.8% of related revenues for the prior year period.

For the six months ended June 30, 2024 Domestic Company-owned restaurant expenses were $276.8 million or 79.2% of related revenues as compared to expenses of $291.5 million or 82.0% of related revenues for the prior year comparable period.

The quarter and year-to-date decreases of 2.1% and 2.8%, respectively, were primarily due to lower insurance expenses related to improved auto liability claims experience, lower utility costs, and lower advertising spend that we expect to incur later in 2024.

North America commissary expenses were $182.3 million, or 92.0% of related revenues for the three months ended June 30, 2024 as compared to $190.5 million, or 92.0% of related revenues for the prior year comparable period.

six months ended June 30, 2024 North America commissary expenses were $367.5 million, or 91.5% of related revenues as compared to $386.9 million, or 92.2% of related revenues for the prior year comparable period.

The expense, as a percentage of related revenues, was flat and decreased 0.7% for the three and six months ended June 30, 2024 primarily due to declining commodity prices for cheese and lower volumes.

International expenses were $27.1 million, or 68.2% of related revenues for the three months ended June 30, 2024 as compared to $20.4 million, or 59.0% of related revenues for the prior year comparable period.

For the six months ended June 30, 2024, International expenses were $55.4 million, or 68.9% of related revenues as compared to expenses of $37.7 million, or 57.1% of related revenues for the prior year comparable period.

International expenses increased in 2024 as a result of the UK franchisee acquisitions, which added operating costs related to Company-owned restaurants, partially offset by declining commodity prices at our International commissary.

Other expenses were $51.8 million, or 89.3% of related revenues for the three months ended March 31, 2024, compared to expenses of $61.1 million, or 91.0% of related revenues for the prior year comparable period.

The decrease reflects $4.8 million related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

The decrease also includes $2.5 million in lower advertising costs.

Other expenses were $57.0 million, or 91.3% of related revenues for the three months ended June 30, 2024, as compared to $59.0 million, or 94.5% for the prior year comparable period.

For the six months ended June 30, 2024, Other expenses were $108.7 million, or 90.3% of related revenues as compared to expenses of $120.1 million, or 92.7% of related revenues for the prior year comparable period.

The decrease reflects $4.7 million and $9.5 million of expenses incurred for the three and six months ended June 25, 2023 related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

This decrease was partially offset during the second quarter of 2024 by a $3.8 million increase in advertising expenses due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

General and Administrative Expenses

General and Administrative (“G&A”) expenses were $58.5 million or 11.4% of revenues for the three months ended March 31, 2024 compared to $51.9 million or 9.9% of revenues for the prior year comparable period.

The increase of $6.6 million in the first quarter of 2024 results primarily from $9.5 million incurred related to the International Transformation

Plan (see “Note 9.

Restructuring”).

This increase was partially offset by lower equity compensation costs related to leadership changes.

General and Administrative (“G&A”) expenses were $57.7 million, or 11.4% of revenues for the three months ended June 30, 2024 as compared to $50.3 million, or 9.8% of revenues for the prior year comparable period.

For the six months ended June 30, 2024, G&A expenses were $116.2 million or 11.4% of revenues compared to $102.3 million or 9.8% of revenues for the prior year comparable period.

G&A expenses increased $7.4 million and $13.9 million, respectively, for the three and six months ended June 30, 2024 primarily due to $6.1 million and $15.7 million incurred related to the International Transformation Plan (see “Note 9.

Restructuring”) as well as $4.0 million related to a non-cash impairment charge to write down the carrying value of property and equipment and intangible assets for certain Domestic restaurants.

This increase was partially offset by lower equity compensation costs related to leadership changes and lower costs in 2024 as the bi-annual franchise operating conference took place in 2023.

Depreciation and Amortization

Depreciation and amortization expense was $17.7 million, or 3.4% of revenues for the three months ended March 31, 2024, compared to $14.7 million, or 2.8% of revenues, for the prior year comparable period.

The increase was primarily due to higher depreciation expense related to the UK franchisee acquisitions and our investments in technology platforms.

Depreciation and amortization expense was $17.6 million, or 3.5% of revenues for the three months ended June 30, 2024, as compared to $15.7 million, or 3.0% of revenues for the prior year comparable period.

For the six months ended June 30, 2024, depreciation and amortization expense was $35.3 million, or 3.5% of revenues as compared to $30.4 million, or 2.9% of revenues for the prior year comparable period.

The increases of $1.9 million and $4.9 million, respectively, for the three and six months ended June 30, 2024, was primarily due to higher depreciation expense related to our investments in technology platforms and the UK franchisee acquisitions.

Operating Income by Segment

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We believe this non-GAAP measure is important for comparability purposes.

Three Months Ended March 31, 2024 Three Months Ended March 26, 2023

Three Months Ended June 30, 2024 Three Months Ended June 25, 2023

(In thousands) Reported Adjustments (a)

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Total $ 28,226 $ 10,129 $ 38,355 $ 34,912 $ 1,969 $ 36,881 $ (6,686) $ 1,474

Six Months Ended June 30, 2024 Six Months Ended June 25, 2023

(In thousands) Reported Adjustments (a)

Adjusted Reported Adjustments (a)

Adjusted Reported Increase (Decrease) Adjusted

Domestic Company-owned restaurants $ 15,136 $ 4,000 $ 19,136 $ 13,291 $ — $ 13,291 $ 1,845 $ 5,845

North America franchising 66,120 — 66,120 65,511 — 65,511 609 609

North America commissaries 23,738 — 23,738 21,127 — 21,127 2,611 2,611

International (8,654) 15,652 6,998 10,995 1,308 12,303 (19,649) (5,305)

All others 5,368 — 5,368 4,500 — 4,500 868 868

Unallocated corporate expenses (39,240) — (39,240) (43,067) 2,017 (41,050) 3,827 1,810

Elimination of intersegment (profits) losses (524) — (524) 351 — 351 (875) (875)

Total $ 61,944 $ 19,652 $ 81,596 $ 72,708 $ 3,325 $ 76,033 $ (10,764) $ 5,563

___________________________________

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GAAP measure.

Operating income was $33.7 million for the three months ended March 31, 2024 compared to $37.8 million for the prior year comparable period, a decrease of $4.1 million.

Adjusted operating income was $43.2 million for the three months ended March 31, 2024 compared to $39.2 million for the prior year comparable period, an increase of $4.1 million.

Operating income was $28.2 million and $61.9 million for the three and six months ended June 30, 2024, respectively, as compared to $34.9 million and $72.7 million for the prior year comparable periods, a decrease of $6.7 million and $10.8 million, respectively.

Adjusted operating income was $38.4 million and $81.6 million for the three and six months ended June 30, 2024, respectively, as compared to $36.9 million and $76.0 million for the prior year comparable periods, an increase of $1.5 million and $5.6 million, respectively.

The fluctuations in adjusted operating income in 2024 compared to 2023 were primarily due to the following:

• Domestic Company-owned restaurants increased $3.7 million for the three months ended March 31, 2024.

The increase was primarily due to lower commodity prices, lower advertising and utility costs, partially offset by lower revenues from a 3.0% decline in comparable sales.

• North America franchising increased $0.3 million for the three months ended March 31, 2024 primarily due to a 2.1% increase in equivalent units, partially offset by a decrease in comparable sales of 1.5%.

• North America commissaries increased $1.6 million for the three months ended March 31, 2024, primarily due to the increase in the commissary fixed operating margin, which was effective in 2024, partially offset by anticipated franchisee rebates.

• International decreased $3.7 million for the three months ended March 31, 2024 primarily driven by operating losses, including increased depreciation expense attributable to the UK franchisee acquisitions as well as comparable sales declines of 2.6%.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, was in line with the prior year comparable period.

• Unallocated corporate expenses decreased $2.4 million for the three months ended March 31, 2024.

The decrease was primarily due to the reversal of stock compensation expense for unvested equity units from leadership

This decrease was partially offset by higher professional fees and depreciation expense related to our investments in technology support initiatives.

• Domestic Company-owned restaurants increased $2.1 million and $5.8 million for the three and six months ended June 30, 2024.

The increase was primarily due to lower advertising, utility and insurance costs, combined with lower commodity prices, which were partially offset by lower revenues from 4.2% and 3.6% declines in comparable sales for the respective periods.

• North America franchising increased $0.3 million and $0.6 million for the three and six months ended June 30, 2024.

The increase is primarily due to a 3.7% and 3.3% increase in equivalent units, partially offset by a decrease in comparable sales of 3.4% and 2.4% for the respective periods.

• North America commissaries increased $1.0 million and $2.6 million for the three and six months ended June 30, 2024, primarily due to the increase in the commissary fixed operating margin, which became effective in 2024, partially offset by anticipated franchisee rebates.

• International decreased $1.6 million and $5.3 million for the three and six months ended June 30, 2024 primarily driven by operating losses including increased depreciation expense attributable to the UK franchisee acquisitions as well as comparable sales declines of 0.1% and 1.4% for the respective periods.

As mentioned above, during the second quarter of 2024, 43 of the UK Company-owned restaurants were closed and an additional 40 were refranchised.

20 additional UK Company-owned restaurants were refranchised effective July 1, 2024.

Beginning in the third quarter of 2024, we will operate 13 Company-owned stores in the UK.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $0.8 million and $0.9 million during the three and six months ended June 30, 2024 primarily due to prior year losses incurred by Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

• Unallocated corporate expenses increased $0.6 million for three months ended June 30, 2024 and decreased $1.8 million for the six months ended June 30, 2024.

The decrease during the year-to-date period was primarily due to the reversal of stock compensation expense for unvested equity units from leadership transitions, which was partially offset by higher depreciation expense related to our investments in technology support initiatives.

Items Below Operating Income

The following table sets forth the various items below Operating income from the Condensed Consolidated Statements of Operations:

Three Months Ended Increase (Decrease)

(In thousands, except per share amounts) March 31,

2024 March 26,

Three Months Ended Six Months Ended Increase (Decrease)

(In thousands, except per share amounts) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Operating income $ 28,226 $ 34,912 $ 61,944 $ 72,708 $ (6,686) $ (10,764)

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Net Interest Expense

Net interest expense increased $2.0 million, or 22.6% for the three months ended March 31, 2024 due primarily to higher average outstanding debt as well as an increase in borrowing rates.

Total debt outstanding was $769.3 million and $764.0 million as of March 31, 2024 and December 31, 2023, respectively.

Net interest expense decreased $0.4 million and increased $1.7 million, or 3.4% and 8.2% for the three and six months ended June 30, 2024.

The increase for the six months ended June 30, 2024 was due to higher average outstanding debt as well as an increase in borrowing rates.

Income Tax Expense (Benefit)

Our effective income tax rate was 34.2% for the three months ended March 31, 2024 compared to an income tax rate of 21.6% for the prior year comparable period.

The higher effective tax rate for the three months ended March 31, 2024 was driven by impairment charges related to the International Restructuring that created unrecognized tax losses and prevented the Company from generating foreign tax credits as well as a tax shortfall generated by stock option exercises and vesting of restricted shares in 2024 along with a lower pre-tax income.

Three Months Ended

(Dollars in thousands) March 31, 2024 March 26, 2023

Our effective income tax rate was 27.7% and 31.3% for the three and six months ended June 30, 2024 as compared to an income tax rate of 24.4% and 22.9% for the prior year comparable periods.

The higher effective tax rate for the three and six months ended June 30, 2024 was driven by impairment charges related to the International Restructuring that created unrecognized tax losses and prevented the Company from generating foreign tax credits as well as a tax shortfall generated by stock option exercises and vesting of restricted shares in 2024 along with a lower pre-tax income.

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2024 June 25, 2023 June 30, 2024 June 25, 2023

Income before income taxes $ 17,330 $ 23,637 $ 39,985 $ 52,412

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Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $0.3 million for the three months ended March 31, 2024 compared with $0.2 million for the prior year comparable period.

Net income attributable to noncontrolling interests was $0.3 million and $0.6 million for the three and six months ended June 30, 2024 as compared with $0.1 million and $0.3 million for the prior year comparable periods.

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.44 for the three months ended March 31, 2024 as compared to $0.65 for the prior year comparable period, representing a decrease of $0.21.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.67 for the three months ended March 31, 2024 as compared to adjusted diluted earnings per common share of $0.68 for the prior year comparable period representing decreases of $0.01.

Diluted earnings per common share was $0.37 and $0.82 for the three and six months ended June 30, 2024 as compared to $0.54 and $1.20 for the prior year comparable periods, representing decreases of $0.17 and $0.38, respectively.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.61 and $1.28 for the three and six months ended June 30, 2024 as compared to adjusted diluted earnings per common share of $0.59 and $1.28 for the prior year comparable periods, representing an increase of $0.02 for the quarter and flat for the six month period.

See “Non-GAAP Measures” for additional information.

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The table below reconciles our GAAP financial results to our non-GAAP financial measures.

Three Months Ended

(In thousands, except per share amounts) March 31,

2024 March 26,

Three Months Ended Six Months Ended

(In thousands, except per share amounts) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Operating income $ 28,226 $ 34,912 $ 61,944 $ 72,708

International restructuring costs (a)

Other costs (b)

6,129 — 15,652 —

UK repositioning and acquisition-related costs (b)

— 1,308 — 1,308

Other costs (c)

4,000 661 4,000 2,017

Adjusted operating income $ 38,355 $ 36,881 $ 81,596 $ 76,033

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International restructuring costs (a)

Other costs (b)

Tax effect of adjustments (c)

6,129 — 15,652 —

UK repositioning and acquisition-related costs (b)

— 1,308 — 1,308

Other costs (c)

4,000 661 4,000 2,017

Tax effect of adjustments (d)

(2,289) (449) (4,441) (758)

Adjusted net income attributable to common shareholders $ 20,083 $ 19,288 $ 42,090 $ 42,711

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International restructuring costs (a)

Other costs (b)

Tax effect of adjustments (c)

0.19 — 0.48 —

UK repositioning and acquisition-related costs (b)

— 0.04 — 0.04

Other costs (c)

0.12 0.02 0.12 0.06

Tax effect of adjustments (d)

(0.07) (0.01) (0.14) (0.02)

Adjusted diluted earnings per common share $ 0.61 $ 0.59 $ 1.28 $ 1.28

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Restructuring”

(b) Represents severance and related costs associated with the transition of certain executives, recorded in General and administrative expenses.

(c) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.6% and 22.8% for the three-month periods ended March 31, 2024 and March 26, 2023, respectively.

(b) Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

(c) For the three and six months ended June 30, 2024, represents a non-cash impairment charge related to fixed and intangible assets related to certain Domestic restaurants.

Refer to Note 2.

Significant Accounting Policies of the “Notes to Condensed Consolidated Financial Statements” for further details.

For the three and six months ended June 25, 2023, represents severance and related costs associated with the transition of certain executives, recorded in General and administrative expenses.

(d) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.6% and 22.8% for the three and six months ended June 30, 2024 and June 25, 2023, respectively.

In addition, we present free cash flow in this report, which is a non-GAAP measure.

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Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under the PJI Revolving Facility.

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our senior secured revolving credit facility (the “PJI Revolving Facility”).

Our principal uses of cash are operating expenses, capital expenditures, and returning value to our shareholders in the form of cash dividends and share repurchases.

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The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated by operations, will be sufficient to satisfy its cash requirements, cash dividends, interest payments and share repurchases over the next twelve months and beyond.

The table below summarizes our cash flows for the three months ended March 31, 2024 and March 26, 2023 (in thousands):

Three Months Ended

2024 March 26,

The table below summarizes our cash flows for the six months ended June 30, 2024 and June 25, 2023 (in thousands):

Six Months Ended

2024 June 25,

Total cash provided by (used in):

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Operating Activities

Total cash provided by operating activities was $12.0 million for the three months ended March 31, 2024 compared to $40.8 million for the corresponding period of 2023.

The decrease of $28.8 million primarily reflects unfavorable working capital changes in the first quarter of 2024, principally related to the timing of payments and higher accrual balances at December 31, 2023 related to the 53rd week of our 2023 fiscal year.

These factors resulted in several large disbursements during the first quarter of 2024, driving outflows in working capital.

In addition, in the first quarter of 2024 compared to the first quarter of 2023, depreciation expenses were higher due to the UK franchisee acquisitions and impairment charges were incurred due to UK restructuring initiatives, partially offset by stock compensation expense reversal for unvested equity units as a result of leadership transitions.

Total cash provided by operating activities was $42.0 million for the six months ended June 30, 2024 compared to $93.7 million for the corresponding period of 2023.

The decrease of $51.8 million primarily reflects unfavorable working capital changes in the first half of 2024, principally related to the timing of payments and higher accrual balances at December 31, 2023 related to the 53rd week of our 2023 fiscal year.

These factors resulted in several large disbursements during the first half of 2024, driving outflows in working capital.

In addition, in the first half of 2024 compared to the first half of 2023, depreciation expenses were higher due to the UK franchisee acquisitions and impairment charges which were incurred due to UK restructuring initiatives, partially offset by stock compensation expense reversal for unvested equity units as a result of leadership transitions.

Investing Activities

Total cash used in investing activities was $10.2 million for the three months ended March 31, 2024 compared to $18.3 million for the same period in 2023, or a decrease of $8.1 million.

The decrease in cash used in investing activities was primarily due to lower capital expenditures in the first quarter of 2024 as compared to 2023.

We also received a $2.3 million investment distribution in the first quarter of 2024 related to our deferred compensation plan.

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives.

Total cash used in investing activities was $23.8 million for the six months ended June 30, 2024 compared to $35.7 million for the same period in 2023, or a decrease of $11.9 million.

The decrease in cash used in investing activities was primarily due to lower capital expenditures and fewer notes issued to franchisees in the first six months of 2024 as compared to 2023.

We also received a $2.3 million investment distribution in the first six months of 2024 related to our deferred compensation plan.

Our capital expenditures consisted primarily of capital investments for existing stores and new store locations as well as investments in technology platforms.

We estimate that our capital expenditures during 2024 will be approximately $75 million to $85 million.

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Financing Activities

Total cash used in financing activities was $14.6 million for the three months ended March 31, 2024 compared to $23.2 million for the same period of 2023.

In the first quarter of 2024, the principal financing outflows were related to dividend payments of $15.1 million, $3.2 million in tax payments on equity award issuances and $2.4 million in payments

related to financing leases.

Total cash used in financing activities was $34.4 million for the six months ended June 30, 2024 compared to $61.6 million for the same period of 2023.

In the first six months of 2024, the principal financing outflows were related to dividend

payments of $30.2 million, $3.3 million in tax payments on equity award issuances and $4.8 million in payments related to financing leases.

These outflows were offset by net borrowings of $0.6 million from the PJI Revolving Facility and $2.4 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”).

There were no share repurchases in the first quarter of 2024.

In the first quarter of 2023, cash used for financing activities primarily reflects the impact of share repurchases of $209.6 million, which were financed through $208.2 million in net borrowing from the PJI Revolving Facility.

Other financing outflows in the first quarter of 2023 included $14.6 million in dividend payments, $6.0 million in tax payments on equity award issuances and $1.7 million in payments related to financing leases.

Our outstanding debt as of March 31, 2024 was $769.3 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”) and $369.3 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $232.5 million as of March 31, 2024.

There were no share repurchases in the first six months of 2024.

In the first six months of 2023, cash used for financing activities primarily reflects the impact of share repurchases of $210.3 million, which were financed through $186.5 million in net borrowing from the PJI Revolving Facility.

Other financing outflows in the first six months of 2023 included $28.5 million in dividend payments, $6.1 million in tax payments on equity award issuances and $3.7 million in payments related to financing leases.

Our outstanding debt as of June 30, 2024 was $767.0 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”) and $367.0 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $235.3 million as of June 30, 2024.

Our Credit Agreement, dated September 14, 2021 and amended May 30, 2023 (as amended, the “Credit Agreement”), contains affirmative and negative covenants that, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

The Company is also subject to certain financial covenants, as shown in the following table, that could restrict or impose constraints on the liquidity of our business:

Permitted Ratio Actual Ratio as of March 31, 2024

Permitted Ratio Actual Ratio as of June 30, 2024

Leverage ratio Not to exceed 5.25 to 1.0 3.1 to 1.0

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Our interest coverage ratio is defined as the sum of Consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters.

We were in compliance with all financial covenants as of March 31, 2024.

We were in compliance with all financial covenants as of June 30, 2024.

In addition, the Indenture governing the Notes contains customary covenants that, among other things and subject to certain exceptions, limit our ability and the ability of certain of our subsidiaries to:

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Bank National Association, as lender.

Debt outstanding under the PJMF Revolving Facility was approximately $1.8 million as of March 31, 2024.

Debt outstanding under the PJMF Revolving Facility was approximately $2.4 million as of June 30, 2024.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Company’s Credit Agreement.

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On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock.

The following table summarizes our repurchase activity under this program for the three months ended March 31, 2024 and March 26, 2023:

(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased (a)

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

The following table summarizes our repurchase activity under this program for the three and six months ended June 30, 2024 and June 25, 2023:

(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

Three Months Ended

March 31, 2024 — $ — $ — $ 90,160

March 26, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

(a) The shares repurchased during the three months ended March 26, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP at a price of $82.52 per share for aggregate consideration of $179.6 million.

June 30, 2024 — $ — $ — $ 90,160

June 25, 2023 — $ — $ — $ 90,160

(In thousands, except average price per share) Total Number of Shares Purchased (a)

Average Price Paid per Share Aggregate Cost of Shares Purchased (b)

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

Six Months Ended

June 30, 2024 — $ — $ — $ 90,160

June 25, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

(a) The shares repurchased during the six months ended June 25, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP at a price of $82.52 per share for aggregate consideration of $179.6 million.

(b) Aggregate cost of shares purchased for the six months ended June 25, 2023 excluded $2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

Of these costs, $2.1 million were classified as non-cash financing activities during the six months ended June 25, 2023.

The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this share repurchase program.

There can be no assurance that we will repurchase shares of our common stock either through a Rule 10b5-1 trading plan or otherwise.

The Company paid aggregate dividends to common stockholders of $15.1 million ($0.46 per share) and $14.6 million ($0.42 per share) for the three months ended March 31, 2024 and March 26, 2023, respectively.

On May 2, 2024, our Board of Directors declared a first quarter dividend of $0.46 per common share (approximately $15.2 million in the aggregate), which will be paid on May 31, 2024 to stockholders of record as of the close of business on May 20, 2024.

The Company paid aggregate cash dividends to common stockholders of $30.2 million ($0.92 per share) and $28.5 million ($0.84 per share) for the six months ended June 30, 2024 and June 25, 2023, respectively.

On July 31, 2024, our Board of Directors declared a third quarter dividend of $0.46 per common share (approximately $15.2 million in the aggregate), which will be paid on August 30, 2024 to stockholders of record as of the close of business on August 19, 2024.

The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

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Free cash flow should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures.

The Company’s free cash flow was as follows for the three month periods of 2024 and 2023 (in thousands):

Three Months Ended

2024 March 26,

The Company’s free cash flow was as follows for the six month periods of 2024 and 2023 (in thousands):

Six Months Ended

2024 June 25,

Net cash provided by operating activities $ 41,957 $ 93,735

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Refer to “Contractual Obligations” presented within “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information regarding our cash requirements.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information regarding our cash requirements.

Forward-Looking Statements

Certain matters discussed in this Annual Report on Form 10-K and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws.

Certain matters discussed in this Quarterly Report on Form 10-Q and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws.

Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “outlook”, “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws.

Such forward-looking statements include or may relate to projections or guidance concerning

business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisitions, restaurant closures, labor shortages, labor cost increases, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, changes to our national marketing fund, changes to our commissary model, dividends, effective tax rates, regulatory changes and impacts, investments and repositioning of the UK market, International restructuring plans, timing and costs, International consumer demand, adoption of new accounting standards, and other financial and operational measures.

Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisitions, restaurant closures, labor shortages, labor cost increases, changes in management, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, changes to our national marketing fund, changes to our commissary model, dividends, effective tax rates, regulatory changes and impacts, investments in and repositioning of the UK market, International restructuring plans, timing and costs, International consumer demand, adoption of new accounting standards, and other financial and operational measures.

Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control.

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• the ability of the Company to manage challenging macroeconomic conditions in the United States and internationally, including the United Kingdom;

• the ability of the Company to manage staffing and labor shortages at Company and/or franchised restaurants and our Quality Control Centers;

• the ability of the Company to retain key management and manage staffing and labor shortages at Company and/or franchised restaurants and our Quality Control Centers;

• increases in labor costs, food costs or sustained higher other operating costs, including as a result of supply chain disruption, inflation or climate change;

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• increased risks associated with our International operations, including economic and political conditions, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new restaurant growth;

• the impact of current or future claims and litigation and our ability to comply with current, proposed or future legislation that could impact our business including compliance with the European Union General Data Protection Regulation;

• the impact of current or future claims and litigation and our ability to comply with current, proposed or future legislation that could impact our business;

• risks related to our indebtedness and borrowing costs, including prolonged higher interest rates, and the current state of the credit markets;

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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