Jersey Mike's Q3 2026 Earnings Call Transcript

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Provided by Quartr
October 28, 2026

Key Takeaways

  • Positive Sentiment: Same-store sales grew 3% in the third quarter, accelerating from 2.3% in Q2 and driven primarily by transaction growth, which management said outperformed the broader fast-casual industry.
  • Positive Sentiment: Digital sales mix rose approximately 100 basis points to 43%, while loyalty registrations increased 21% year to date. Management expects expanded digital marketing, first-party data and personalized engagement to support longer-term traffic and frequency gains.
  • Positive Sentiment: Jersey Mike’s opened 80 stores in Q3 and 210 year to date, reaching 3,456 locations and approximately 9% net unit growth. Management highlighted strong new-store economics, a five-year domestic development pipeline and expanding international opportunities, including an imminent U.K. launch.
  • Positive Sentiment: Revenue increased 10% and adjusted EBITDA rose 20% year over year, aided by the transition away from the area director model. The company also authorized up to $100 million in share repurchases and declared a $0.35 special dividend.
  • Negative Sentiment: Management’s full-year outlook calls for at least 2.5% same-store sales growth, at least 8% net unit growth and at least 20% adjusted EBITDA growth, but it cited continued consumer-confidence softness and expects approximately $25 million of Q4 net interest expense with net leverage at 3.9 times.
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Earnings Conference Call
Jersey Mike's Q3 2026
00:00 / 00:00

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Jersey Mike's third quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode, and there will be an opportunity to ask questions following the presentation. Please note that this conference is being recorded today, October 28, 2026. Now I would like to turn the conference over to Corey Horsch, SVP, Finance and Investor Relations.

Corey Horsch
SVP of Finance and Investor Relations at Jersey Mike’s Subs

Thank you, operator, and good morning. By now everyone should have had access to our third quarter 2026 earnings release, which can be found at www.jerseymikes.com in the investor relations section. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance.

Corey Horsch
SVP of Finance and Investor Relations at Jersey Mike’s Subs

Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are contained in our earnings release. Now I would like to turn it over to our CEO, Charlie Morrison.

Charlie Morrison
CEO at Jersey Mike’s Subs

Thank you, Corey. Good morning everyone, and welcome to our third quarter conference call. I will be providing an update on our progress against our growth strategy. Then Michele will review our quarterly financial results and our outlook for 2026. Our third quarter same-store sales demonstrate continued progress against our long-term objective of achieving $2 million average unit volumes. Driven primarily by transaction growth, same-store sales grew 3%, accelerating from 2.3% in the second quarter. We continue to outperform the fast-casual segment this year, reflecting the strength of our brand and the value we deliver through the quality, portion, size, and service our customers count on. Our focus remains on building long-term sustainable traffic growth by giving a broader set of consumers compelling reasons to choose Jersey Mike's and to visit more often.

Charlie Morrison
CEO at Jersey Mike’s Subs

We believe that approach positions us well in an environment where consumers are increasingly deliberate about where they spend. We remain confident in our full-year outlook and committed to our long-term growth strategy of achieving $2 million average unit volumes while growing four-wall cash-on-cash returns for our franchise partners and expanding our footprint domestically and around the world. There are four key drivers to our AUV strategy, each centered around growing transactions.

Charlie Morrison
CEO at Jersey Mike’s Subs

The first is broadening our customer base and driving more frequency amongst a broader set of consumers. Second, increasing sales for our digital and delivery channels. Next, leveraging menu innovation, and finally, never losing focus on continuing to make great subs each and every time. While the brand enjoys more than 90% awareness, we see a significant opportunity to convert that awareness into more new customers and driving more frequent visits.

Charlie Morrison
CEO at Jersey Mike’s Subs

We are seeing encouraging results from increasing our digital marketing spend from less than 1% of our media mix to approximately 20% this year. Year to date, purchase consideration has improved significantly among younger consumers in the 18-34-year-old range, as well as women and Hispanic consumers. Loyalty registrations are also up 21% year to date, far outpacing our rate of growth. While we have already shifted the spend to what we believe is an appropriate level, we are in the very early stages of optimizing our mix within channels and speaking to and acquiring a broader mix of consumers. We believe this provides a substantial opportunity to support traffic growth for years to come. Expanding our customer base works hand in hand with growing digital and delivery mix, channels that are particularly relevant to the younger consumers that we are targeting.

Charlie Morrison
CEO at Jersey Mike’s Subs

During the quarter, digital sales mix increased approximately 100 basis points to 43%, progressing towards our long-term target of 60%-70%. Separately, catering sales have increased 17% year to date, reflecting our focus on driving this high-margin channel and leveraging the morning day part to prepare large orders. We also see meaningful opportunity in first-party delivery for those sales that come direct through our channels. As we continue to capture data about our customers and build our first-party marketing capabilities, we expect to use more targeted engagement to drive adoption and repeat orders through our digital channel. Menu innovation gives existing customers another reason to visit and we believe has strong appeal to new customers to the brand. Our summer Chicken Salad limited time offer was highly successful in attracting new guests and helped drive our strong performance.

Charlie Morrison
CEO at Jersey Mike’s Subs

We recently relaunched Mike's Hot Italian, and it is generating similar sales mix as we experienced in the first quarter of this year. In October, we also introduced a new bundle featuring any mini sub and chips for a $7.99 price point. This Mini Bundle provides an accessible price point while delivering attractive food costs for our franchise owners. Two weeks into the promotion, we are pleased with the performance, and customers appreciate the value that it provides. Our pipeline of new products and attractive offers allow us to provide customers additional value while preserving our premium positioning, while not impacting our unit economics. Looking ahead, we anticipate two to three LTOs in 2027. Underpinning all of these efforts is our commitment to making great subs every time.

Charlie Morrison
CEO at Jersey Mike’s Subs

Customers come to Jersey Mike's for a true Jersey-style deli experience, where we slice our meats and cheese fresh in front of them and consistently deliver the personalized service they have come to know. Delivering that experience at every visit gives customers a reason to return and remains a core tenet to our strategy for continued transaction growth. Turning to development, in the third quarter, we opened 80 new stores, bringing year-to-date openings to 210, and ending the quarter with 3,456 stores across the system, representing approximately 9% net unit growth year-over-year. Importantly, we continue to expand while sustaining strong unit economics.

Charlie Morrison
CEO at Jersey Mike’s Subs

Moreover, our 2026 openings are generating higher AUVs than our 2025 openings through the same point last year, and our new store openings continue to deliver strong cash-on-cash returns for our franchise owners. These strong economics continue to drive significant demand for new development.

Charlie Morrison
CEO at Jersey Mike’s Subs

As a reminder, we have line of sight to roughly five years of domestic development ahead. Turning to international development, we ended the quarter with 41 stores in Canada, including 20 new openings year to date. We also expect to open our first location in the U.K. over the next few weeks and are excited to bring Jersey Mike's across the pond. International expansion will become an increasingly important contributor to our growth story over time. We have identified a number of priority markets and expect to announce additional markets and international partners in the coming months. Our new market expansion will be highly disciplined, with a focus on selecting the right partner, establishing strong unit economics, and building brand awareness to support sustainable growth in each market.

Charlie Morrison
CEO at Jersey Mike’s Subs

Overall, we have high confidence that our runway for unit growth, both here in the U.S. and across the world, remains for many years to come. Overall, we believe the opportunity in front of us is substantial and truly unique in our space. Jersey Mike's has a proven model with compelling unit economics, substantial white space for global expansion, and meaningful opportunities to grow AUVs across the system. We are confident in our ability to execute our growth strategies and create significant long-term value for our franchise owners, team members, and our shareholders. Lastly, I'd like to thank our team members and franchise owners for their exceptional dedication to Jersey Mike's. Their commitment has been instrumental in building the success we enjoy today, and their continued focus and passion are what makes us so optimistic about the brand's future. With that, I'll turn it over to Michele.

Michele Allen
CFO at Jersey Mike’s Subs

Thanks, Charlie, and good morning, everyone. In the third quarter, we generated $1.2 billion of system-wide sales, an increase of 11% year-over-year, primarily reflecting 9% net unit growth and 3% same-store sales growth, which, as Charlie mentioned, was an acceleration from 2.3% in the second quarter, and importantly, led primarily by transaction growth. We're very pleased to be delivering positive transaction growth while traffic across the industry remains challenged. That growth reflects the success of our digital marketing initiatives, and we're still in the early innings. Total revenues grew 10% to $209 million, and adjusted EBITDA grew 20% to $125 million, both reflecting a 12% increase in royalties and other revenue. Adjusted EBITDA further benefited from our transition from the area director model to an internally staffed support model, which contributed $9 million year-over-year.

Michele Allen
CFO at Jersey Mike’s Subs

In the third quarter, advertising revenues exceeded advertising expenses by $11 million, compared to $8 million in the prior year third quarter. Moving down the income statement, adjusted net income was $74 million, and adjusted earnings per share were $0.23. These are new metrics being introduced this quarter and have not been presented for the prior year periods because our pre-IPO capital structure makes the comparison not meaningful. Adjusted net income reflects the same adjustments used in adjusted EBITDA, as well as the non-cash amortization of acquired intangibles.

Michele Allen
CFO at Jersey Mike’s Subs

We are also applying a non-GAAP tax rate of 25% to derive adjusted net income, which we believe is representative of a normalized long-term tax rate for our business. That rate does not currently reflect the portion of realized tax savings we retain under the tax receivable agreement, which could provide a modest benefit and will continue to be refined over time.

Michele Allen
CFO at Jersey Mike’s Subs

Adjusted EPS further assumes the exchange of all outstanding common units for Class A common stock. We generated $170 million in free cash flow through the third quarter, which included $88 million in large special items, including area director buyouts. Further, at only $7 million year to date, CapEx as a percent of adjusted EBITDA is running at roughly 2%. Turning to the balance sheet, at the end of the quarter, we had approximately $1.5 billion of net debt, including $325 million of cash, and our net leverage ratio was 3.9x. As announced today, our board of directors authorized a share repurchase plan of up to $100 million and a special cash dividend of $0.35 per Class A share to shareholders of record as of November 5th.

Michele Allen
CFO at Jersey Mike’s Subs

This represents approximately $200 million of capital return less than four months following our IPO, or approximately half a turn of our full year adjusted EBITDA expectations, while maintaining an efficient leverage profile and ample liquidity to run the business. We chose to use both tools deliberately. The repurchase authorization reflects our view that our shares represent a compelling value at current levels, and the special dividend allows us to return capital to all shareholders while maintaining a healthy public float in our Class A common stock. Moving to outlook, we expect same store sales growth of at least 2.5% for the full year. We continue to expect net unit growth of at least 8% and adjusted EBITDA growth of at least 20%. Our fully exchanged diluted share count is expected to be approximately 318 million.

Michele Allen
CFO at Jersey Mike’s Subs

We also expect that advertising expenses will exceed revenues by $5 million for the full year. As we look to 2027 and beyond, our expectation remains that expenses will approximately equal advertising revenues on a full year basis, with some variability quarter to quarter due to the timing of media. Lastly, our outlook for Q4 net interest expense is approximately $25 million. As a reminder, we expect adjusted EBITDA growth to outpace revenue growth over the long term, with G&A shrinking as a percentage of system-wide sales. This year, however, there are a number of moving parts as we complete the transition to a corporate-led organization. Most notably, we are benefiting from the shift away from the area director model. At the same time, we have added expenses to support our new public company infrastructure.

Michele Allen
CFO at Jersey Mike’s Subs

On balance, the net impact is a one-time step down in our G&A cost base, which is pushing our EBITDA growth rate meaningfully above our long-term growth algorithm of double-digit growth. Our third quarter performance demonstrates the strength of our brand and the continued progress against our long-term growth strategy of achieving $2 million AUVs, growing four-wall returns for our franchise partners, and expanding our footprint domestically and around the world. We remain confident in our long-term algorithm.

Michele Allen
CFO at Jersey Mike’s Subs

Low single digit same store sales growth and high single digit net unit growth combine to drive double-digit EBITDA growth. Our asset-light model converts a substantial portion of that adjusted EBITDA into free cash flow, which gives us significant flexibility to return capital to shareholders over time. We believe the compounding effect of that earnings growth and the deployment of that cash will drive significant long-term value for our shareholders.

Michele Allen
CFO at Jersey Mike’s Subs

We look forward to updating you on our progress and outlook for 2027 when we report fourth quarter results. With that, operator, we can open the lines for questions.

Operator

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 pull for questions. Our first question comes from David Palmer with Evercore ISI. Please go ahead.

David Palmer
David Palmer
Analyst at Evercore ISI

Thanks. Good morning. I had a question, and thanks for your earlier comments on the digital front. I wanted to see if you could give us some more texture about what you're expecting there from the lift, in digital. That's the kind of thing that you can do A/B testing on and really give yourself a sense of what the lift can be, particularly as you get certain functionality rolled out. On that front, we'd love to understand maybe the milestones on when those capabilities rise. So anything on that front would be very helpful since that's so important to our view in 2027. Thanks so much.

Charlie Morrison
CEO at Jersey Mike’s Subs

Thanks. Good morning. Appreciate the question. As we noted previously, before 2026, the company really had no investment in digital marketing efforts of any kind. In fact, it was less than 1% of our total ad spend, which exceeds $200 million annually. This year, we deployed about 20%, just about 20% of our advertising fund towards digital marketing efforts in paid social search, connected TV, and the like. As we noted, early indications are quite strong. We are seeing heightened levels of engagement amongst a younger audience and a broader, more diverse audience as well. All of those are good indicators that we believe over the long term, this digital marketing effort is going to continue to drive strong transaction growth for the company well into the future.

Charlie Morrison
CEO at Jersey Mike’s Subs

As we have noted before, we are in the very early innings of this effort, and believe we have a long way to go as we start to acquire more first-party data about our customers and continue to expand that database in a one-to-one marketing effort that we think will drive growth for a long time to come.

David Palmer
David Palmer
Analyst at Evercore ISI

Is there a time that you think you will be fully operational on what you would call the hyper-personalized marketing capabilities? Is there a quarter where you see that being available? I will pass it on.

Charlie Morrison
CEO at Jersey Mike’s Subs

Well, I think it is continuing to evolve as we go. As we have mentioned before, we have a very strong loyalty program, but it is relatively small in size compared to other brands in our space. We have about 14 million total users in the database, of which about 7 million-8 million of those are active users. That is very undersized compared to a lot of other brands, yet we are seeing a lot of strong growth in that loyalty program. In fact, we have seen sign-ups this year be up as much as 20% year-over-year, which is good news and an indication that we are bringing those new customers into the database. When they do, then over time, we expect their frequency to be stronger. In fact, our active database of customers uses us about once a month.

Charlie Morrison
CEO at Jersey Mike’s Subs

People who are not part of our active database or use Jersey Mike's tend to be less than that, as little as two times a year. As we convert more and more people into that database over time, we expect to see strong performance gains from it. But it is going to take us some time. We are building the infrastructure, we are compiling the data, we are getting smarter about it every day. But I think it will be a reasonably long journey over the course of maybe the next few quarters before we start to see even the meaningful impact associated with that.

David Palmer
David Palmer
Analyst at Evercore ISI

Thank you.

Operator

Our next question comes from Chris O'Cull with Baird. Please go ahead.

Chris O'Cull
Chris O'Cull
Analyst at Baird

Wow. Thanks. Good morning, guys. Charlie, the updated guidance implies, I think, at least 3% comps in the fourth quarter. Are you tracking at that level today? Is there some cushion in the outlook? What gives you confidence in that target?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. Good morning, Chris. Thanks for the question. Despite what all of the industry saw as some temporary softness late in the third quarter, we feel very good about our performance in the fourth quarter and beyond, and we think that particular event was fairly short-lived. Our performance has been very consistent with what we're providing as our fourth quarter guidance overall. We feel very good about our recent performance and continue to gain on traffic. I think it's important to note that our gains are primarily driven by traffic, both during the third quarter and year to date, and anticipate that continuing in the fourth quarter.

Chris O'Cull
Chris O'Cull
Analyst at Baird

Okay. How will national media support in the fourth quarter compare with the third quarter? Should we expect maybe social media spending to stay relatively steady each quarter?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. The digital spend is fairly consistent throughout the year, and that involves social spend as well as some other connected forms of media. Definitely, the fourth quarter, we see an uptick in our media spend where we're involved and engaged in the NFL football, baseball playoffs recently, and other areas where we spend our TV media dollars. This is a heightened level of media compared to where we were in the third quarter.

Operator

Our next question comes from Brian Harbour with Morgan Stanley. Please go ahead.

Brian Harbour
Brian Harbour
Analyst at Morgan Stanley

Yeah, thanks. Good morning, guys. With Mike's Hot Italian, did it perform largely as you expected? I guess the timing was a little bit different this time, but how did it differ with respect to marketing and messaging? I guess the broader question is just, how do you make sure that these LTOs build on each other over time?

Charlie Morrison
CEO at Jersey Mike’s Subs

Thanks, Brian. It did actually, and it is performing consistent with what we experienced earlier in the year. As a reminder, we launched this to the market in a short window late in December of last year through essentially February, and we saw really strong performance from that. Notably, about 50% of the customers that bought that product were new to the business, so net new customers, which we are thrilled with. Mix levels and performance have been very consistent with that throughout the launch period since. We always anticipated that would be our fourth quarter hero product, coming off the heels of a very successful Chicken Salad promotion over the summer months.

Charlie Morrison
CEO at Jersey Mike’s Subs

I think LTOs, probably two to three a year at the most, will be our ongoing cadence, and we are developing a pipeline of relevant products that we are testing and gaining understanding on so that when we hit the market, we have confidence in their ability to perform at these levels.

Brian Harbour
Brian Harbour
Analyst at Morgan Stanley

Okay, thanks. How is the delivery channel doing today? I guess, is that growing faster than the overall business or is it consistent? How do you think about that as an ongoing sales driver into next year, for example?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. Actually, delivery is one of our fastest-growing channels. We made some modifications to our approach to both third party and as well first party delivery as the drivers of our business going forward by managing the markup on our products and providing a royalty-free markup to our franchise owners. We did that last year, which somewhat affects our ad spend, but actually has turned out to be a great decision because it's really driving strong performance in delivery. I'll also call attention to catering, which is effectively a delivery option for the brand. Catering sales up 17% during the quarter, which is a good indication as we continue to pull the levers that we have for this business. Really strong performance there as we develop both those platforms for the future.

Operator

Our next question comes from Andy Barish with Jefferies. Please go ahead.

Andy Barish
Andy Barish
Analyst at Jefferies

Hey, guys. Just wanted to understand a little bit more on the Mini Bundle rationale and the pricing decision. I don't remember that being in the marketing plan, so just how did that come about? Then I have a quick follow-up as well.

Charlie Morrison
CEO at Jersey Mike’s Subs

Morning, Andy. We're always going to have, I guess, a few tricks up our sleeve as we feel like we need them. Early this year, we tested a bundled offer with our number two sub, plus chips and a drink for a value price point. The Mini was something we also had in consideration, should we want to leverage that in a value orientation for consumers. Given what we've seen in consumer confidence that's affected the whole industry, we felt like it was a good time to put that bundle out there, only in the digital space, by the way. So it complemented some of our other offerings, notably Mike's Hot Italian. But the good news on that price point with the Mini plus chips at $7.99, it was actually margin-friendly to our franchise owners, and we think a very effective promotion that's done its job.

Andy Barish
Andy Barish
Analyst at Jefferies

Makes sense. Michele, just on the fourth quarter guide, implies on same-store sales a deceleration in both the two- and three-year trends. Is this just kind of the environment out there that is sort of tricky and choppy or anything else we should be aware of?

Michele Allen
CFO at Jersey Mike’s Subs

Yeah. I think we delivered that 3% transaction-led comp for the quarter, which is a really great result in the environment and meaningfully above the industry. When we think about the fourth quarter comp, what we are really reflecting is the continued progression of our marketing strategy, as well as some continued softness in the overall consumer confidence.

Operator

Our next question comes from Leah Jordan with Goldman Sachs. Please go ahead.

Leah Jordan
Leah Jordan
Analyst at Goldman Sachs

Thank you. Good morning. You talked about a strong line of sight on your new store development for the next five years. So curious what you would need to see to consider potentially accelerating the pace of that growth. Also, how do you think about any impact from the recent rise in interest rates on the ability for franchisees to execute on the timeline you have laid out so far? Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Well, thank you for the question, and good morning. First of all, we feel very confident in our ability to continue to accelerate our store development, both here in the U.S. as well as overseas. I think both were demonstrated during the quarter with 80 openings during the quarter. Very strong performance. We expect that to continue to grow. Our guidance is to be at that 8% or more for unit development, which we feel is very much in line. We noted that we had developed a pipeline of over 1,600 stores. What I can tell you is there's strong sentiment amongst our franchise owners to continue to accelerate their development.

Charlie Morrison
CEO at Jersey Mike’s Subs

Our real estate pipeline is quite strong, in fact, quite a bit above where it was a year ago, which gives us confidence going into 2027 and beyond that we'll continue to see strong development for years to come. As it relates to the interest rates, we don't think that has any effect whatsoever on our franchise owners' ability to provide capital to grow. They are generally well-capitalized, and our unit development costs are very low. In fact, amongst some of the lowest in the industry at just over $500,000 to develop a store. Much of that development can be generated out of cash flow generated from their operation as much as it relies on financing to be done.

Leah Jordan
Leah Jordan
Analyst at Goldman Sachs

That's very helpful. Thank you. Just one follow-up. I think one of the reasons you highlighted for the new Mini Bundle promo was about managing food costs for your operators. See if you could catch us up on their commodity basket, how you're thinking about overall inflation for them as we head into next year. I think some proteins have come in, but wheat remains very inflationary, so puts and takes there to their basket, and then just the mitigation tools that you have to support them.

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. What I can say is that franchisee margins across the system are generally improved year-over-year. We're happy to see that, and that is driven partly by food cost as well as leverage on our transaction growth that we're seeing in the stores. Our basket has remained quite stable, if not improving, in terms of overall cost margin for the business, which is really encouraging, especially given the fact that we've only taken a small amount of price throughout the year. I think we're in a great position right now, despite what some of the macro commodity challenges have been for others.

Operator

Our next question comes from Andrew Charles with TD Cowen. Please go ahead.

Andrew Charles
Andrew Charles
Analyst at TD Cowen

Great. Thanks. Two from me. First on the catering, what do you attribute to the strength you guys have seen in catering growth? Given the softer consumer environment that you spoke about, is this an area that you can put the foot on the gas with marketing and start to increase awareness of as well to help overpower the consumer environment?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. Look, I think, Andrew, good morning. It's a great lever for us. When we talked about historically it's been about 3% of our sales. We think it can be as high as 10% over time. We've eclipsed 4% at this point, so we're feeling very good about the momentum there. There were a few key unlocks that we recognized in our approach to the market that we've developed against. We're seeing good performance there. Really, the key here is the focus. Encouraging our franchise owners to be outside their stores, engaging in the community, but also leveraging some digital platforms, be it DoorDash, ezCater, and others that we're partnered with, and making sure that we're doing everything we can to capture every opportunity. Our product is designed for catering, and to be only at 3% a year ago is a little disappointing.

Charlie Morrison
CEO at Jersey Mike’s Subs

A full-court press on that right now should yield growth for the future.

Michele Allen
CFO at Jersey Mike’s Subs

Disappointing, but a great opportunity.

Andrew Charles
Andrew Charles
Analyst at TD Cowen

That's great. Michele, just one follow-up. Just what's the implied level of price within fourth quarter guidance for same-store sales?

Michele Allen
CFO at Jersey Mike’s Subs

Yeah, we're not breaking out price versus traffic, but I would say consistent with what we've experienced year to date.

Operator

Our next question comes from Danilo Gargiulo with Bernstein. Please go ahead.

Danilo Gargiulo
Danilo Gargiulo
Analyst at Bernstein

Thank you. Charlie, I wanted to ask you about how Walmart entering into the restaurant delivery business could be changing the aggregator landscape in your views, any opportunities also from a catering standpoint, and specifically, under what circumstances you would be considering partnering with Walmart to expand your delivery reach.

Charlie Morrison
CEO at Jersey Mike’s Subs

Good morning. Yeah, we learned about that. It's interesting, I'll put it that way. I'm not sure that it means anything meaningful for Jersey Mike's to participate in it. I think we still need to understand what are the economics associated with a partnership like that, and whether it's beneficial to Jersey Mike's. Although, I will say this, I don't think we need that business channel to help accelerate our growth. I think we've demonstrated by way of our more sophisticated digital marketing efforts, our work to attract a broader user base, bring them in are working. So, we're going to be very thoughtful before we would make a commitment to such a partnership.

Danilo Gargiulo
Danilo Gargiulo
Analyst at Bernstein

Great. Thank you. Then on the social media spending, in the past, you were talking about how an increase in social media spending and exposure to younger consumers will be translating to sales lift almost rapidly. I'm wondering how you're determining what is the right media mix today, and under what circumstances do you see opportunity to accelerate the transition to more social media spending going forward? Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Well, I think as we've talked about, we had not been spending at all in the social space over the years, and so part of the journey that we are on is learning more and more about the relative engagement of that younger audience, a more diverse audience coming into the brand. And we have been measuring their consideration and seeing meaningful lift, in consideration amongst certain customer segments. There's a kind of a complicated way of going about this, but it really comes down to, are the messages connecting? And if they're not, how do we modify the message to get them to engage more? And when they engage, how often will they transact with us? And then what are they buying? How can we reengage with them and bring them back for more frequent occasions?

Charlie Morrison
CEO at Jersey Mike’s Subs

This is part of the learning journey that will take quarters or years over time to perfect. But right now, a lot of the leading indicators, as I mentioned, have been really good, notably, a sizable increase in consideration amongst women, as well as a multicultural audience as well.

Operator

Our next question comes from Dennis Geiger with UBS. Please go ahead.

Dennis Geiger
Dennis Geiger
Analyst at UBS

Great. Thanks, guys. I wanted to ask a little bit more about what you are seeing with your customer as far as any changes in purchase or visit behavior, recognizing you put up strong results in the quarter. But do you think you are seeing any greater impact from the difficult consumer backdrop that you referenced?

Charlie Morrison
CEO at Jersey Mike’s Subs

Good morning. Other than what I mentioned was a temporary shift that I think everybody saw in the latter part of the third quarter, which now is behind us, we feel very good. I think we are right on a pace from what we have expected. We are seeing customers at all levels enjoying the Jersey Mike's brand, and frequency rates have been very consistent amongst not only just our core customers, but in actively building new customer base and taking those new customers and making them now light, medium, and heavy users of our brand. The journey has been pretty much as we would have expected. Despite the macro backdrop, I think Jersey Mike's has demonstrated we are well outperforming everybody else in the space. I think we feel very good about where we sit today.

Dennis Geiger
Dennis Geiger
Analyst at UBS

Helpful, Charlie. Then just one, you've got a bunch of sales drivers that clearly collectively are contributing to the sales and transaction growth strength and consistency. Can you give us a rough sense, looking ahead, maybe medium to long term, sort of how you loosely rank some of those drivers across the marketing and the menu innovation, loyalty, maybe throughput, et cetera? Any way to loosely force rank those?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah, I think at the end of the day, it's all about frequency, and it's frequency amongst various cohorts of our customers. I'll reinforce that while we have a really robust loyalty platform, the size of that platform is relatively small compared to peers in the industry. So our primary objective is to use these LTOs, these new products, to engage a new set of consumers, to bring them in through these digital channels, convert them into high-frequency users of the business. In fact, again, our most loyal customers use us about once a month. Everybody else, maybe twice a year. So there is a great multiplier effect, we believe, over time by bringing people into the brand, engaging them in a more one-to-one fashion, and growing that over time. So it's all part of a collective strategy where each piece and part really play together.

Charlie Morrison
CEO at Jersey Mike’s Subs

The only area outside of that would be maybe in catering, which again, we're enjoying some really strong growth in catering and would like to see that platform continue to build over time because a lot of that catering business is done before we even open our doors each morning. So that becomes a valuable use of our space and a great opportunity to grow in the future.

Operator

Our next question comes from John Ivankoe with JPMorgan Chase & Co. Please go ahead.

John Ivankoe
John Ivankoe
Analyst at JPMorgan Chase & Co

Hi, thank you very much. The question is on new unit volumes. Certainly, Charlie, I heard your comments, fiscal 2026 class said to be above the fiscal 2025 class. I just wanted to get your sense as we look forward next 12 months, 24 months, how do you expect new unit volumes to trend relative to average unit volumes? Should we expect a normal kind of retail/restaurant waterfall that we kind of start low and build up over time? Or might we be at least thinking about some smaller fill-in type of units that might achieve very high returns but new unit volumes actually less than average unit volumes. Just wanted to get an update or a refresher of the relationship between new unit volumes and average unit volumes. Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

You bet. Good morning, John. Appreciate the question. What I will say is this, yes, this year, if you compare the 2026 class against 2025 in the same timeframe, we have seen our new stores coming out of the gate stronger than a year ago, which we are very excited by. That has been a trend for the brand over a number of years, that each successive vintage of stores continues to get stronger and stronger. In this case, they are opening at or above the average for the brand. There is not an open low kind of growth mechanism here. We tend to see the stores open fairly strong, stabilize, and then grow over time. So, I think that will be more of the mix of new stores over the long haul to expect to see that.

Charlie Morrison
CEO at Jersey Mike’s Subs

To your question on fill in, no, we do not see that there is much in the way of fill in that would imply any cannibalization. As we mentioned, we mapped out the entire country. We identified over 1,600 distinct trade areas just for now that we can go develop, which represents a lot of white space and de-risks any challenge of cannibalization in the future. So, all in all, feel very good about our pipeline of growth and the opportunity to accelerate that over time.

John Ivankoe
John Ivankoe
Analyst at JPMorgan Chase & Co

Thank you.

Operator

Our next question comes from Margaret-May Binshtok with Wolfe Research. Please go ahead.

Margaret-May Binshtok
Margaret-May Binshtok
Analyst at Wolfe Research

Good morning. Thank you for taking my question. I just wanted to ask a little bit on the competitive environment. Are you seeing your direct peers leaning into value or discounting more? How does that, I guess, position you guys in terms of your view on value and discounting going forward? Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Good morning. We look at the competitive landscape as all eating occasions and limited service restaurants. We don't really focus our attention on only sandwich players. That said, I think we see across the entire landscape a lot of value orientation in the form of bundling, price offers, deep discounts, and the such. I love the fact that our strategy maintains a value-oriented price point where needed. So our Mike's Hot Italian product, for example, is featured at $8.95. It represents a very positive margin impact for our franchisees as the food cost on that product is quite low. Being in that value orientation at a competitive price, coupled with our marketing strategies that are both yielding transaction growth for the business, is a great place to be.

Charlie Morrison
CEO at Jersey Mike’s Subs

We're not feeling that pressure per se, but we know that if we need to lean in on value, our Mini Bundle is a great example of that. Again, very food cost friendly, very customer friendly at a $7.99 price point. So we can play in that game where we need to, but we respect and want to maintain that premium positioning for our product based on the quality and care that we put into every Jersey Mike's sub.

Margaret-May Binshtok
Margaret-May Binshtok
Analyst at Wolfe Research

Thank you. Just to follow up, I just wanted to ask, I think last quarter you mentioned that you guys were testing late night. Is that something that is still on the table? Any update there would be helpful. Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah, it is in our mix of opportunities, I will put it that way. We are not actively working that just yet. We think the opportunity exists because we do close our doors typically around 9:00 P.M. across the country today, and we know there is a late-night consumer. I think what we want to do first is broaden the consumer base, invite them into Jersey Mike's, make them active users, and then bring them along for those late-night occasions down the road. It will not be every store if we do it. It will be selective based on the market dynamics in each and every market across the country.

Operator

Our next question comes from Gregory Francfort with Guggenheim Partners. Please go ahead.

Gregory Francfort
Analyst at Guggenheim Partners

Hey, thanks for the question. Charlie, my first one is maybe going back to the digital effort that you are doing to go after these new customers. What does your research suggest about the Hispanic, the female, the younger customer? Are they eating subs at your competitors? Are they eating maybe sandwiches, but not subs? Do you have to train them to eat subs as a category? I am just wondering what your research suggests about that opportunity.

Charlie Morrison
CEO at Jersey Mike’s Subs

That's a great question, thank you. They do eat sandwiches quite regularly. I think everybody pretty much on the planet does, and so we're happy about that part. However, what we do find in our research is that they may not know us for the variety we offer in our menu and the variety of flavors and options that we present to our consumers. You're seeing us take an active role in introducing really flavorful and relevant products. A good example was our Chicken Salad promotion over the summer. Strong appeal to women, really performed quite well for the brand. It's a fan favorite and certainly draws a broader consumer set in. Mike's Hot Italian has strong appeal amongst a much broader and younger consumer base who's looking for strong flavor forward.

Charlie Morrison
CEO at Jersey Mike’s Subs

Although we offer a great authentic deli-style sub, our Philly cheesesteaks lineup, our hot subs, and all of these new products represent the variety that that broader consumer base is looking for. It's our job to market those more aggressively to consumers to invite them in for that next occasion.

Gregory Francfort
Analyst at Guggenheim Partners

Got it. Okay. Maybe one for Michele. You've gotten really good expense leverage in 2026, and I think you mentioned that's driven the outsized EBITDA growth this year. How much of that maybe rolls forward into next year and maybe the out year, versus maybe how much was a rebasing for 2026?

Michele Allen
CFO at Jersey Mike’s Subs

Yes, there definitely is a rebasing for 2026. When you think about our area director transition, we are seeing a favorable impact to EBITDA growth. This quarter, it was about $9 million, and it will have an impact on our full-year growth rate. That's why we're looking at 20% in the third quarter and even a much higher than algo growth rate for the full year. We will begin lapping that throughout 2027. I would say a little less in the first quarter and the second quarter, and then there will be no impact on a year-over-year come likely third quarter.

Operator

Our next question comes from Lauren Silberman with DB. Please go ahead.

Lauren Silberman
Analyst at DB

Thank you. I want to start following up with Dennis's question. The slowdown that you saw later in the quarter, did that show up more in traffic or check? As trends have improved in Q4, do you think that's more Jersey Mike's specific, or did you see the industry also improve the September slowdown?

Charlie Morrison
CEO at Jersey Mike’s Subs

Excuse me. Good morning. I cannot comment on what the industry is seeing in the broader sector other than I think that that particular event was a bit short-lived. Again, you had some negative consumer sentiment around some macro issues that affected everyone. For us, check really wasn't the issue, and check's been a small part of our comp over the entire year. I would just give you that. As it relates to the broader macro restaurant landscape, I cannot comment on where I think everybody else shook out on that.

Lauren Silberman
Analyst at DB

Okay. Understood. I think you guys are in the process of changing your food distributor to predominantly, I believe, Performance Food Group. Can you just talk a little bit about the decision behind that and benefits that you see moving distributors, whether that be to franchisees or yourself? Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Yes. That is something we looked at and evaluated as we came to the organization. A lot of this centers on the fact that it was an opportunity for us to consolidate and create some efficiencies, quite frankly, in our distribution network over time. We have been under some longstanding agreements that needed to be rebuilt. We did a proper exercise to look at the marketplace and establish what we felt was the right model for this business on a long-term basis. We are in the just early stages of that migration. It will take some time to make that happen. We do anticipate that on the backside of that, we are going to have a fantastic set of partners supporting our business for the long term.

Operator

Our next question comes from Sara Senatore with Bank of America. Please go ahead.

Sara Senatore
Sara Senatore
Analyst at Bank of America

Oh, thank you. Maybe just two questions; they are both kind of follow-ups. One is, on the LTO calendar, you brought Mike's Hot back. I guess, as you think about the pipeline, is that how you will think about it, of the two to three, one is new and one is kind of return from the pantry? Does your pipeline look pretty full, or does some of that have to wait until you make the wholesale shift to a new distributor as you think about partnering on some of maybe the upstream kind of production that could happen that maybe benefits some of the in-store labor?

Sara Senatore
Sara Senatore
Analyst at Bank of America

I am just trying to understand kind of the idea of bringing something back when you are still fairly new to having LTOs on a regular basis. Then just a quick question for Michele. You mentioned financial flexibility in the context of a special dividend. I think as you said, your buybacks are kind of constrained by the need for the float. So, what else is there? I don't think the system needs any kind of infusion of cash from you, but just wanted to understand that comment. Thank you.

Charlie Morrison
CEO at Jersey Mike’s Subs

Let me start first on the new product pipeline. First and foremost, the distribution change has zero to do with any sort of product innovation. That is simply just a transfer of product from one provider to another. There is no impact whatsoever there. I mentioned earlier, but the new product pipeline is one that we have been working on over time. What we love about this brand is we have a lot of flexibility within our menu, to be able to utilize existing SKUs to present them in a differentiated way, and quite frankly, play on some consumer favorites that they have developed themselves over years, while they have enjoyed Jersey Mike's. The Mike's Hot Italian is a good example of that. Chicken Salad was a product that also we pulled back out of the pantry, so to speak, this year.

Charlie Morrison
CEO at Jersey Mike’s Subs

Quite frankly, I think that is a very thoughtful strategy to bring a product back from time to time. Other brands have demonstrated that over many years, and I think for Jersey Mike's, that plays quite well for us. I think there is a mix of new. There might be some times where we just feature something that is right on the menu as well. We love our Philly cheesesteaks. We will put them up against anybody's, and consumers need to know that and experience that as well. A good example of where we have a lot of flexibility to promote our products. Then Michele.

Michele Allen
CFO at Jersey Mike’s Subs

Hi, Sara. Yes, I think you can expect that we are going to generate predictable cash flow and then consistently return our excess cash to shareholders. What we mean by maintaining financial flexibility is really that the mix of share repurchases, special dividends, regular rate dividends, that is likely going to change depending upon market conditions and then relative valuations.

Sara Senatore
Sara Senatore
Analyst at Bank of America

Thank you.

Operator

Our next question comes from Logan Reich with RBC Capital Markets. Please go ahead.

Logan Reich
Logan Reich
Analyst at RBC Capital Markets

Hey, good morning. Thanks for taking the question. I just had one on the EBITDA in Q3. It came a bit ahead of the guidance of at least 13% in the quarter. Just curious what the driver of that upside was versus your guidance and any expectation for that driver to continue to flow through the model, in Q4 and into 2027.

Michele Allen
CFO at Jersey Mike’s Subs

Yeah, it really was just our advertising fund performing a little bit better than we had initially expected. That's through, I think, $5 million or $6 million ahead.

Operator

Our next question comes from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Hi, thanks for taking the question. You mentioned that you expect to have some new international commitments coming up in the coming months. Can you talk about how you are prioritizing what international markets to go into after the U.K.?

Charlie Morrison
CEO at Jersey Mike’s Subs

I couldn't hear you very well, Sharon. Can you repeat the question?

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Yeah. Can you hear me better now?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. Sorry about that. Yeah. Thank you.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Okay. Yeah, sorry about that. You talked about announcing some new international market commitments likely in coming months. Can you talk about how you're prioritizing what international markets to focus on after the U.K.?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah, absolutely. Sorry about that. We are working actively in multiple markets around the world, seeking partners that we believe are going to be best in class for Jersey Mike's to grow the business over time. We had mentioned previously in a study and report we did that we identified 14 priority markets that, quite frankly, are in all across the world. So it includes markets in Europe, the Middle East, Asia, and the like. I will say, the Middle East is a little challenging right now. But if you look across the rest of the world, there's a lot of active interest in Jersey Mike's. And we do anticipate that over the course of the next 6-12 months, we'll be bringing new markets on board. Our primary focus is the right partner with the right market, and bringing those along.

Charlie Morrison
CEO at Jersey Mike’s Subs

We're not rushing this in any way. We want to do it right. But, over time, you will see us continue to build new markets in the international space.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

And second question. Can you still hear me okay?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Okay. Sorry about that. I know you've been working on broadening your brand reach, and I think the macro environment has been more challenging than maybe you would have expected. Is there any particular group, whether it's younger, Hispanic, or woman, where this macro environment's making it a bit tougher for you or any of those groups where you're maybe overachieving versus the others?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah. I think the answer to that is really no. If you reflect on our historical customer base and the mix of consumers that make up our customer base, it has predominantly been generally a little bit older, skewed male, higher income, less diverse. So there really wasn't a market there for us to go after that we were at risk of. As we've been inviting this broader demographic in, we're actually seeing good results, both in terms of consideration, in terms of purchase behavior, and engagement with our loyalty platform, as an example. So we feel very good about it. Could it be going faster if there wasn't the macro backdrop? Possibly. But we're pleased with the fact that we are acquiring guests across all of those different cohorts.

Operator

Our next question comes from Zach Fadem with Wells Fargo. Please go ahead.

Zach Fadem
Zach Fadem
Analyst at Wells Fargo

Hi, good morning. Could you compare the performance of Mike's Hot Italian versus Chicken Salad in terms of customer response, order mix, maybe new customer incrementality? As you think about the LTO calendar next year, any update in philosophy in terms of going high versus low with respect to the $9 price point?

Charlie Morrison
CEO at Jersey Mike’s Subs

Good morning. Mike's Hot Italian and the Chicken Salad sandwich have been quite similar in terms of their overall performance. Whether it might be a different demographic that each one serves, each has generated a strong level of incrementality or finding new customers to enjoy that product. Mix levels have been relatively similar as well. We enjoyed also, in both cases, a long-tenured promotion in the LTO, which I am very happy about. As I think about the future, we really haven't factored in what price looks like on some of these. I think price is also relative to the food cost impact to our franchisees. We always want to present the best, most compelling value to our consumers without negatively impacting the P&L.

Charlie Morrison
CEO at Jersey Mike’s Subs

We've been able to do that at an $8.95 price point for both Chicken Salad and Mike's Hot Italian, which demonstrates the flexibility we have in the brand. Over time, hard to tell where we'll end up on that.

Zach Fadem
Zach Fadem
Analyst at Wells Fargo

Got it. On the customer diversification strategy, how would you characterize the team's success with respect to shifting the mix towards lower income or value customers? To what extent maybe we should anticipate any additional actions with respect to value or promo on your part?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah, I don't know that we need value to be able to acquire a differentiated group of customers, meaning deep value discounts, if you will. What we've presented is a strong value to a very premium product. That's how we want to do this over time, and it's been very successful. As we mentioned, we're driving comps primarily by transactions, not by price, as others have seen in the marketplace. I would submit that over time, we're going to continue to be relevant to those customers in our marketing efforts. Historically, we haven't even spoken to them. We've only been on national TV. We haven't been engaged in the digital space.

Charlie Morrison
CEO at Jersey Mike’s Subs

You are seeing us use influencers, clever means of advertising beyond what the norm has been over a period of time to try and engage consumers and bring them along in the story of the brand, then invite them to try the brand or use our products by way of some of these new products. I think over time, you are going to see that continue to play out. It takes time, but again, very encouraged by the increasing level of consideration amongst these cohorts that are relatively new to the brand, as well as their actual purchase behavior over time as well.

Michele Allen
CFO at Jersey Mike’s Subs

I would just add to that, with Q3 outperforming the overall industry, again, primarily transaction-led, we are winning today without having to lean in heavily on that value orientation.

Operator

Our next question comes from Jacob Aiken-Phillips with Melius Research. Please go ahead.

Jacob Aiken-Phillips
Jacob Aiken-Phillips
Analyst at Melius Research

Hey, good morning. Just first on catering, how broadly distributed is the catering growth across the system? What separates the franchisees who have built a meaningful catering business from the under-penetrated ones, and what are you doing to kind of help that second group catch up?

Charlie Morrison
CEO at Jersey Mike’s Subs

Yeah, I think what we've found is franchise owners that are actively involved in their communities, reaching out to schools, churches, businesses, and the like, and engaging the catering business tend to have overall stronger results for their business, as well as a much higher catering mix. A lot of it is about getting out in the marketplace. What we can do to help them is improve the platform overall, provide access to catering opportunities that they may not go out and find outside of their stores through some of the channels we mentioned, like ezCater, DoorDash, and the like. Those become valuable for us over time.

Charlie Morrison
CEO at Jersey Mike’s Subs

Really the focus there is just the awareness of catering, the importance of what it means to the business, and taking our fair share, quite frankly, of the market for catering out there that we haven't had in the past.

Operator

We've now reached the end of our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

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