Prepared remarks
Good afternoon. Welcome to the Red Robin Gourmet Burgers Incorporated Second Quarter 2026 Earnings Call. This conference call is being recorded. During management's presentation and in response to your questions, they will be making forward-looking statements about the company's business, outlook, and expectations. These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the company's SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its second quarter 2026 earnings release on its website at ir.redrobin.com. On today's call are David A. Pace, President and Chief Executive Officer, and Mark E. Graff, Chief Financial Officer. Now I would like to turn the call over to David A. Pace.
Good afternoon, everyone. Thank you for your interest in Red Robin. I am pleased to report that our momentum continued in the second quarter with significant progress across the business as we execute against our priorities under the First Choice plan. We have taken deliberate steps over the past year to strengthen the guest experience, improve hospitality and execution, and invest in traffic-driving platforms that we believe can increase frequency over time. We are seeing those actions translate into increased guest engagement, elevated satisfaction scores, and improved restaurant-level profitability. We also took major steps this quarter toward strengthening our balance sheet. We announced three refranchising agreements that will collectively generate approximately $96 million in gross proceeds upon closing. Our partners are seasoned multi-concept operators who bring meaningful operating capabilities and resources and who share our hospitality-first mindset and core values.
The proceeds received from these transactions, which we expect to receive during the third quarter, will provide us with greater financial flexibility to refinance our existing debt and support our long-term strategic priorities. This represents a step forward for our company, and I appreciate the significant efforts expended by everyone on our team to drive this to a successful outcome. Taken together, the results in the quarter give us greater confidence and reinforce that the plan is working. Comparable restaurant revenue grew 1.3% in the quarter, with traffic effectively flat, down 20 basis points. This traffic result outperformed the industry by 40 basis points as measured by Black Box and, for the second quarter in a row, represented our best traffic performance since the first quarter of 2023. In addition, we increased our share of visits by 80 basis points in trade areas where competitors are located.
Our team has been working toward this inflection point for some time, and it is encouraging to see it build and show up in the results. Value remains a key driver of this traffic performance, and the Big Yummm offer is delivering as expected. The platform continues to resonate with guests, especially against an economic backdrop where consumers are more discerning about where they spend. Big Yummm gives guests a clear, accessible entry point while preserving the full Red Robin experience that guests have come to expect. Combined with our targeted First Choice marketing efforts, we are improving both reach and brand awareness, helping us engage guests more effectively to drive frequency. At the same time, we have remained disciplined on pricing. Our goal is to build traffic and frequency while protecting the value guests associate with Red Robin. Q2 was the fourth consecutive quarter in which our average check increase was below the industry.
Turning to profitability, the top-line momentum combined with disciplined cost management enabled us to drive four-wall efficiency, including a 20 basis point increase in restaurant-level operating margin to 14.7%. This represented the highest second-quarter margin in four years. Adjusted EBITDA was in line with our high expectations and sets us up well to deliver against full-year financial commitments. With that as a backdrop, let me walk you through where we stand on each of our First Choice priorities and how we are thinking about our strategic focus for the balance of the year. First, let's start with Hold Serve. Our Hold Serve pillar is about sustaining the operational progress we have made and then building on it. That is exactly what our team continued to do in the second quarter. Our labor-efficiency initiatives delivered 50 basis points of year-over-year savings. A key enabler has been the accountability and ownership embedded in our managing partner model, which rewards our partners directly for the improvements they drive in their own restaurants.
We are continuing to achieve these efficiencies while still providing the high satisfaction scores that remain at the strong levels we have established over the past year. This continues to demonstrate that operational discipline and genuine hospitality reinforce one another. Our operators keep finding smarter ways to run efficient shifts while providing great hospitality, and that discipline has been showing up quarter after quarter. Moving to our Drive Traffic pillar, our value-innovation platforms continue to gain traction with guests, and Big Yummm remains central to that story. The platform is mixing at healthy levels and strengthening our relevance with value-seeking guests. We continue to see improving traffic and trials since it launched last year. Importantly, every Big Yummm meal still includes our signature bottomless sides and beverages, contributing to the compelling value our guests are asking for.
Our objective is to generate traffic through attractive platforms rather than depend on broad-based discounting. We continue to use a deliberate barbell approach to the menu, pairing accessible value with more premium and indulgent options so guests can choose Red Robin across different occasions and spending levels. We believe this approach is building a more sustainable foundation for long-term traffic generation. To that end, we introduced our Towering Double Cheeseburger sliders limited-time offering during the quarter, giving guests a more indulgent option. We also recently broadened our bone-in chicken wing lineup with new 8-, 12-, and 16-count options. That expansion was paired with the nationwide launch of Garage Beer, making Red Robin the first national restaurant chain to offer the Kelsey Brothers-owned brand across its system for the social occasions our guests already come to Red Robin for.
While it is still early, the reception so far has been encouraging. On the marketing front, our data-driven First Choice strategy continues to see the benefit of a more precise, locally relevant approach to how we reach guests in each trade area. This improves the efficiency of our spend and helps build awareness and frequency over time. We expect to keep iterating and building on that discipline as the year progresses. Turning to our Find Money pillar, I am pleased to update you on the progress we have made on our balance sheet objectives. As I mentioned at the beginning, since our last call, we have announced three refranchising agreements: Hotburgers with 69 restaurants across eight states in the Southeast, Mid-Atlantic, and Midwest; Evergreen Dining with 30 restaurants in Washington and western Idaho; and 17 restaurants in Oregon and Washington. Altogether, we expect to receive roughly $96 million in proceeds following the close of these transactions, which we will use to pay down debt and further strengthen our balance sheet.
We are excited about the new franchise partners we have gained through this process and are confident they will be strong stewards of the Red Robin brand in their respective markets. In parallel with the signing of these transactions, we further advanced our efforts to refinance our existing debt, which comes current later this year. We continue to work with an experienced group of advisers to facilitate this process and have made considerable progress. While I do not have any additional details to provide at this point in time, I can tell you that we see this as an important step in giving the company more financial flexibility over the long term, and we will keep you updated as the process progresses. Turning to our Fix Restaurants pillar, we continue our 2026 light-touch refresh program. The goal is straightforward: improve the guest-facing elements that matter most to the dining experience while maintaining a disciplined approach to capital.
We recently refreshed seven restaurants in the St. Louis market. The updated elements modernized the ambiance and aesthetics and are designed to complement the improvements we have made in food, hospitality, and service execution. In addition to our facility refreshes, we are in the middle of rolling out replacement devices for our server handhelds, and we will shortly introduce an upgraded version of our Ziosk tabletop devices. We believe these investments will improve order accuracy, server efficiency, and overall speed of service, helping us return the gift of time that has historically been an important part of the Red Robin experience. Lastly, I will address the Win Together pillar. I continue to be proud of the sense of ownership and pride I am seeing across our restaurants and our support center. Our team members are rising to the occasion, putting guests first in everything we do, and actively bringing forward ideas that improve both restaurant operations and the guest experience.
We continue to see strong adoption of the enterprise version of ChatGPT that we rolled out last fall across the organization. Adoption has been particularly strong in the field, where our managing partners are putting these tools to work to optimize labor scheduling, manage food costs, and improve how we deliver guest service. We view this as one more tool that can help our operators make faster, better-informed decisions, all of which is showing up in the operational efficiencies behind our results. On the people side, our commitment to building a supportive work environment continues to pay off. Hourly and restaurant management turnover remain at historically low levels, and employee engagement scores are tracking above industry benchmarks. That stability matters because experienced, engaged team members are better positioned to deliver a consistent guest experience. In addition, greater stability means lower recruitment and training costs, further contributing to our improving restaurant-level operating profits.
As we move through 2026, we remain focused on building an environment where great people can grow meaningful careers while helping us strengthen execution and differentiate Red Robin in the marketplace. To the entire Red Robin team, thank you for your continued commitment to our guests and to each other. Your focus, discipline, and guest-first mindset are the foundation of the progress we are making. With that, I will turn the call over to Mark to review our second-quarter financial results.
Thanks, David, and good afternoon, everyone. I would like to start by providing a recap of our financial performance for the fiscal second quarter of 2026. Total revenues in Q2 were $278 million, a decrease of $6.1 million from the prior year. This change in revenue was primarily due to the impact of restaurant closures, offset by an increase in comparable sales. Comparable sales, excluding the impact of deferred loyalty revenue, were up 1.3% in the quarter. Q2 comparable sales included a 1.5% increase in average check, offset by flat traffic. This was our best traffic performance since Q1 of 2023. The 1.5% increase in average check consisted of a 3.3% increase in price, offset by a 1.8% decrease in mix and discounts, driven largely by the impact of our Big Yummm value offerings. This is consistent with our strategy of maintaining compelling value while pricing prudently. As it relates to other aspects of our Q2 financial performance, restaurant-level operating margin was 14.7%, an increase of 20 basis points compared to the second quarter of the prior year.
Benefits from average check, cost savings, and labor efficiencies were partially offset by inflation. As it relates to our commodity basket, as of the end of the second quarter, we were approximately 60% locked on our 2026 commodity needs. General and administrative costs were $17.6 million as compared to $17.4 million in the prior-year quarter. The $0.2 million increase is primarily due to stock-based compensation, partially offset by reduced people costs from our corporate efficiency initiatives. Selling expense was $10.4 million compared to $6.4 million in the second quarter of the prior year. The increase reflects our decision to invest behind the Big Yummm value platform and our personalization efforts to improve local market awareness and reach. Adjusted EBITDA was $18.9 million, down $3.5 million versus the second quarter of the prior year. This was primarily driven by the $4 million year-over-year increase in marketing spend.
We view that spend as an intentional investment behind the traffic-driving initiatives David discussed. As it relates to our balance sheet and capital structure, we ended the second quarter with $23 million of cash and equivalents and $10 million of restricted cash. Total liquidity was $48 million, consisting of cash and equivalents plus $25 million of available borrowing capacity under our revolving credit facility. Turning to our outlook, we are maintaining our 2026 guidance. First, we expect comparable restaurant revenues to be between 0.5% and 1.5%, excluding the impact of deferred loyalty revenue. Second, we expect restaurant-level operating margin of approximately 13%. Third, we expect adjusted EBITDA of between $70 million and $73 million. Finally, we expect capital expenditures to be between $25 million and $30 million. Please note that our outlook does not include any impact from the tactical refranchising initiatives David discussed earlier.
In summary, our second-quarter performance reflects continued improvement in the core operating fundamentals of the business. As we look ahead to the remainder of 2026, our priorities remain disciplined execution against the First Choice plan, prudent investment in traffic-driving initiatives, and continued progress in strengthening the company's financial foundation. David, I will now turn the call back to you.
Thanks, Mark. Second-quarter results reinforce our belief that the First Choice plan is working. It is working because our team is executing on it with focus and discipline. Our labor efficiencies have continued and guest satisfaction has remained strong alongside them. That combination continues to prove that hospitality and operational discipline reinforce each other rather than compete with each other. Big Yummm keeps performing as designed, and we supplemented it this quarter with real menu innovation. Combined with the continued sharpening of our First Choice marketing, we believe we now have multiple layers of comp-driving initiatives rather than relying on a single platform to carry the load. As we look forward, we also feel good about our new product development pipeline and the ideas we have for 2027. As we referenced, we have made real progress on our balance sheet initiatives with our three new refranchising agreements in process; we are engaged in completing a refinancing and reducing our level of outstanding debt.
Our restaurant refresh program and our technology implementations are showing up in the guest experience, and our team continues to execute across the system every single day. Putting it all together, we believe Red Robin has built real momentum. While we still have work ahead of us, we like the direction we are headed, and we believe the plan we have in place will make Red Robin a place that guests choose first, team members are proud to be a part of, and shareholders can count on. With that, we are happy to take your questions. Operator, please open the lines.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Todd Brooks with StoneX. Please proceed with your question.
Congratulations on a really solid quarter. It was great to see. Well done. If I could dig in on a few questions, then I can jump back in queue. I have a number of them. Mark, can you give us any sense of how same-store sales progressed across the quarter? And do you want to frame up any qualitative or quantitative commentary about how Q3 has started from a same-store sales standpoint?
Yes, sure. As we think about the quarter, we continued to see progression specifically on traffic as we got through the quarter. We ended our last period with actually positive traffic in the period, so we felt like that had really good momentum. As a reminder, we were coming up on the anniversary of our Big Yummm platform that we launched last year, so we feel the marketing and personalization were very much working behind that. We like the momentum we are seeing. As it relates to the quarter, obviously we are mindful given intra-quarter volatility, but I think it's fair to say at a high level we like the momentum we are seeing, and you can see that reflected in the guidance.
Okay. Great. Was there any meaningful lift in the business from the World Cup in the quarter?
No. We did not see much change in the business from the World Cup.
I was reading the release and wanted to confirm: with the upside results in the quarter, the only reason you are not raising guidance at this point is the outstanding refranchising transactions, correct? It is not commentary about the forward outlook for the second half; you're waiting for the transactions to close and that is keeping guidance unchanged?
Yeah, I think that's a fair characterization. We are trying to be cautious about what we put out given where we are with the refranchising. We are close to having all that resolved, and so we want to keep the focus on getting that resolved. As Mark said, in the second half of the year we will start to lap our Big Yummm initiative that we introduced last year in the middle of the year. We feel good about the direction, but we do not want to get out over our skis.
I was conservative in my modeling on the selling cost side, and it seems like you had good results from the investment in Q2. Is there any way to frame how we should be thinking about selling costs in the second half of the year?
Selling costs will be relatively consistent as we think about the second half of the year. For context, in Q2 of 2025 we were basically without a chief marketing officer for most of that quarter, so we dialed back spend as a result. When Russ and I came in, we sorted out where we wanted to put our intention and focus, and while we were doing that we held planned spending to keep dry powder for what we wanted to do. That explains some of the year-over-year variance.
Final question for me: you have had success with three partners and $96 million in gross proceeds once deals close. Given the digestion period where you and the team will need to focus on transitions, do you expect a pause before further refranchising activity? When should we look for further activity beyond these first three deals?
Yes, I think you nailed it. Our focus is on making sure we do these right. Our teams are engaged now getting to the finish line on closing the transactions and setting up the transitions so we can have as seamless a handoff as possible. There has been a lot of expressed interest from outside, but we have said let's get through this, hand these over the right way, and then revisit. So there will be a pause to ensure we execute properly.
Thank you both.
Thank you.
Thank you.
Our next question is from Jeremy Hamblin with Craig-Hallum Capital. Please proceed with your question.
Thanks. I'll add my congratulations on the results and the positive traffic—best in a few years, which is great. When you guided back in May, you expected Q2 to be somewhat close to Q1. Obviously, you were almost 200 basis points better, which suggests you finished the quarter on a strong note and perhaps have more momentum at the start of Q3. Could you provide a little more color on that? Also, as we look at comparisons, Q3 is a tougher comp versus Q2 before it eases again in Q4. In your guidance for the year, should we be assuming that Q4 will outperform Q3?
I think that's right on a couple of fronts. We feel we are building momentum as we moved through the quarter, which gave us good confidence particularly in the back half of the quarter. As we get into Q3, you have tougher laps, but the expectation is that Q4 will be stronger relative to Q3.
To dimensionalize, we think traffic can keep the momentum a little stronger than it was in the first half. From a pricing perspective, we are pretty consistent—no change. The mix component is the main factor and that is really a function of Big Yummm in the first half, which is a headwind that starts to unwind in the back half. So you get a benefit on check in the back half. The combination of those pieces will show a little bit of same-store momentum in the back half.
We also think we have good offers on the marketing side, such as our Dinner Double feature. Big Yummm has had a great effect on the business, but it has skewed toward lunch. Our lunch business has accelerated more aggressively than dinner. We see an opportunity to close that traffic gap with a targeted offer at dine-in dinner. The slider LTO was unique and generated a lot of commentary. We have other things planned as we exit the year and head into 2027. We feel good about the pipeline.
Quick follow-up: what do you expect menu pricing to be in the back half of the year? You mentioned new LTOs that seem net positive—anything more you can share on that?
From a pricing standpoint, we are just above 3%—about 3.2% to 3.3%—and that has been pretty flat all year. It is about where it has been.
On promotional activity, the Dinner Double feature is designed to laser-target our dine-in dinner business. Big Yummm has been skewed more toward lunch, and the Dinner Double addresses dinner dine-in specifically. Some things have worked better than others during the year, but the brand is now able to innovate and introduce ideas that capture guest attention. The slider was well received, and we have additional concepts planned as we exit the year and move into 2027.
A couple quick hitters: commodity expectations in the back half of the year, particularly beef? And post-refranchising, you've likely met with bankers about refinancing. Can you give a sense for what you think future interest rates might look like or a range? You are paying quite a bit today; would you expect something in the 7% to 8% range given post-transaction leverage?
Directionally, you're right: we expect to do better than our current cost of debt and we are working toward that. We want to get the refranchising closed and we are in discussions with bankers and evaluating options. I don't want to get too far ahead on specific interest-rate projections, but the direction you are thinking is consistent with where we are focused.
On commodities, we ran almost a 5% headwind in the front half; the back half should be more deflationary, closer to a blended 3% for the year. The biggest drivers are beef and poultry coming down over time. Beef is still inflationary versus year-ago, but not as inflationary as in the front half.
Appreciate the color.
Thanks, Jeremy.
We have reached the end of the question-and-answer session. I would like to turn the floor back over to David A. Pace for closing comments.
Yes, just quickly, thanks everybody for joining the call. We appreciate the interest. Hopefully you got a sense of our enthusiasm and optimism as we move through the year and head toward the back half. We feel really good that the First Choice plan is working, and we look forward to continuing with that and speaking with you again at the end of Q3. Thank you, and that concludes our call.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.