GEN Restaurant Group, Inc. Q1 FY2026 earnings call

Macroeconomic Impact

• Continued economic challenges and the war-driven fuel price increase reduced customer discretionary spending, with a particularly large impact on GEN as ~45% of its US stores are located in California, where gas prices exceeded $6 per gallon
• Same-store sales decline improved 290 bps sequentially from Q4 2025, indicating moderate trend improvement despite ongoing pressure

Portfolio Restructuring

• In March 2026, GEN entered a joint venture partnership with Chubby Cattle International for 5 underperforming restaurants: GEN will hold a 49% stake, Chubby Cattle will hold 51% and operate the locations under its own brand
• The transaction resulted in a $4.5 million write-down, but GEN expects no further liability and will receive 49% of future EBITDA from the locations, improving overall profitability
• Conversions are phased between May 1 and August 1 2026, with all locations remaining open throughout the process

Core Restaurant Operational Initiatives

• Streamlining menu options to offset persistent food cost inflation
• Enhancing incentive programs for restaurant managers to improve store-level execution and performance
• Testing new boba and soju drinks, which have posted strong early launch sales
• Developing a new digital customer platform; planning to roll out the GEN loyalty program in Q2 2026, began accepting cryptocurrency payments, and is preparing to launch an enhanced e-commerce website for GEN-branded products
• Implemented a 2.5% overall price increase (a $1 average price increase at most locations) in Q1 2026 to offset meat inflation
• Deployed an AI program to improve corporate efficiency and reduce overhead

CPG Division Expansion

• Launched in October 2025 with a test of GEN products at 30+ Southern California supermarket locations, where customer response exceeded expectations
• Currently has 56 total SKUs across core frozen meats, beef products, frozen sides, snack chips, sauces/seasonings, ready-to-drink beverages, and soju
• Already secured placement at BevMo (the top West Coast beverage retailer), with a regional test of full shelf-stable product lines launching at 150 Albertsons locations in late May 2026, with additional regions planned pending test results
• Announced the Costco Roadshow demonstration series across Oregon, Washington, Alaska, and Texas, staffed by trained GEN restaurant employees to drive product sales. Secured a direct regional purchase order for permanent freezer placement at 40 Costco warehouses across Southern California and Hawaii, the first such order that did not require a prior roadshow
• Uses trained GEN restaurant staff (instead of third-party demo firms) for in-store product demonstrations, which leverages firsthand product knowledge to drive far higher sell-through than the industry standard
• Leverages the global Korean Wave cultural trend, which has created strong tailwinds for Korean food, a still under-penetrated high-demand ethnic cuisine category

Core Restaurant Segment:

• Same-store sales decreased 8.8% year-over-year (improved from an 11.7% decline in Q4 2025)
• Cost of goods sold as a percentage of restaurant sales increased to 38% (up 440 bps from Q1 2025), driven by food inflation, new restaurant operations, and a minor impact from premium menu offerings
• Payroll and benefits as a percentage of restaurant sales was relatively flat at 32.1% (up 0.4 bps from Q1 2025)
• Occupancy expenses as a percentage of restaurant sales increased 184 bps year-over-year to 10.7%, driven by higher rent for new 2025/2026 locations and same-store sales declines
• Other operating expenses as a percentage of restaurant sales increased 169 bps year-over-year to 12%, due to lower same-store sales
• Restaurant-level adjusted EBITDA was $4 million, equal to 7.4% of total revenue, compared to $9 million (15.6% of revenue) in Q1 2025
• Total adjusted EBITDA was negative $3.2 million, compared to positive $1.2 million in Q1 2025

CPG (Consumer Packaged Goods) Segment:

• No full Q1 2026 revenue breakdown reported; the initiative was still in early testing during the quarter. Cumulative Costco gift card program sales since inception reached over $30 million.

• New restaurant openings: Guidance lowered from prior plans to 5-7 net new openings for full-year 2026; construction on 6 additional planned stores has been proactively suspended to preserve capital • Full-year 2026 total revenue: Guided to a range of 215 to 225 million yen, with an expected annual revenue run rate approaching 250 million yen by the end of 2026 • Restaurant-level adjusted EBITDA margin: Guided to 15% to 15.5% in the second half of 2026 • CPG distribution expansion: Confirmed target of over 2,000 total supermarket locations by the end of 2026, and 7,000 to 8,000 locations by the end of 2027; maintains prior target of $100 million in annual CPG revenue within three years • CPG 2026 full-year financial guidance will be updated no later than the end of Q2 2026, with current expectations that 2026 CPG contribution will exceed the prior $10 million estimate

• Persistent macroeconomic pressure: Elevated fuel prices (especially in California, GEN's largest market) continue to suppress customer discretionary spending and same-store sales, with no sales stabilization observed as of early Q2 2026 • Inflationary cost pressure: Food and meat inflation has lifted cost of goods sold by over 400 basis points year-over-year, pressuring margins despite price increases and menu streamlining initiatives • New store execution risk: Rolling out new menu items and operational changes too quickly could outpace the company's existing bench strength and lead to poor execution • CPG onboarding lag: Most new distribution commitments require long lead times for internal retailer system integration, distribution setup, and in-store placement, creating delays between securing contracts and recognizing revenue • Unpredictable sudden macro and policy events: Unexpected policy changes, tariff shifts, and energy price volatility create unplanned headwinds that are difficult to forecast, particularly impacting GEN's lower-middle income customer base

Q: Can you share Q2-to-date sales trends, and have sales stabilized amid ongoing fuel price pressure?

A: Food cost has improved significantly, but sales trends remain consistent with Q1 2026. No sales stabilization has occurred yet, as fuel costs continue to pressure consumers, especially in California where GEN has a large store footprint.

Q: What is the target right-sized scale for the GEN restaurant business to free up capital and balance sheet capacity for CPG growth?

A: The overall restaurant footprint will remain roughly the same as current levels, with slight net growth: five existing underperforming locations are being converted to the Chubby Cattle JV, and 5-7 new stores will open in 2026, with 2-3 more planned for 2027. Future growth will be assessed after these openings based on same-store sales trends. CPG already has a large backlog of unannounced distribution commitments, which are still going through retailer onboarding processes before they can be disclosed.

Q: What same-store sales expectations are baked into full-year guidance, and how do you see demand trending in the second half of 2026?

A: Recent headwinds including high gas prices are unexpected, one-off events similar to prior unexpected shifts like tariffs and immigration policy changes. GEN's core customer base is in the lower-to-middle income segment, and demand will likely recover once macro conditions stabilize, as seen after past periods of high energy prices. Menu streamlining initiatives are largely complete, and are already delivering measurable food cost margin improvements as they roll out gradually.

Q: What is driving recent CPG distribution wins, and can you share velocity data for in-store products?

A: Velocity is continuously growing, and multiple factors drive success: many grocery buyers are existing GEN restaurant customers, in-store demos run by trained GEN staff (instead of third parties) deliver a 60% customer conversion rate, and product testing has consistently outperformed competing brands. Demo events regularly sell out of inventory, and large new chain commitments are in progress that will be announced once onboarding is complete.