GEN Restaurant Group, Inc. Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon, everyone, and thank you for standing by.

Welcome to GEN Restaurant Group's second quarter 2026 earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the prepared remarks, the call will be open for questions. This conference is being recorded today, Monday, August 10th, 2026, and the earnings press release accompanying this call was issued after the market closed today. Joining us for today's call are GEN Restaurant Group's Chairman and Chief Executive Officer, David Kim, and Chief Financial Officer, Luke Hewko.

Before we begin, I'd like to remind everyone that some of the statements management makes on this call are forward-looking statements that reflect current expectations about future operating and financial results, including expectations relating to the company's CPG division, growth prospects, and statements regarding the non-binding letter of intent and the proposed transaction contemplated thereby, including whether definitive agreements will be executed or any transaction consummated. Although management believes these expectations and assumptions are reasonable, they remain subject to significant risks and uncertainties, and the actual results could differ materially from what is stated or implied today. For more information, please refer to the Forward-Looking Statement section in today's press release and the risk factors described in the company's annual report on Form 10-K for the year ended December 31st, 2025, and subsequent filings with the Securities and Exchange Commission.

The forward-looking statements made on this call speak only as of today, and the company undertakes no obligation to update them except as required by law. Please also note that today's call will include a discussion of adjusted EBITDA, restaurant-level adjusted EBITDA, and adjusted net income or loss, which are non-GAAP financial measures. Important information, including reconciliations to the most directly comparable GAAP measure, is detailed in today's press release. With that, it is my pleasure to turn the call over to GEN Restaurant Group's Chairman and Chief Executive Officer, David Kim. David, the floor is yours.

Thank you, Lucas, and good afternoon, everyone. Thank you for joining us today for our second quarter 2026 earnings conference call. I want to start today somewhere different than I normally would. Not with a number and not with our restaurants, but with where the food business in this country is going and why I believe GEN is standing in exactly the right place at exactly the right time. One of the things that I have learned in the past 15 years building this company is that you cannot manufacture demand. You can only find it and then get in front of it. What I want investors to understand is that Korean food in America is not a trend we are trying to create. It is current that is already running hard, and it is getting stronger every quarter. Let me put some outside numbers behind that.

Korea's government reported in January that K-food exports to the U.S. grew 13.2% in a single year. Korean sauce exports hit a record $411 million. Ramen crossed $1.5 billion, up nearly 22%. This is not a niche. This is a global food culture arriving in America's homes at scale, and the American consumer is reaching for it. Circana Consumer Intelligence platform has reported that retail sales of Asian packaged food in the United States grew nearly four times faster than overall packaged food sales in a market where total packaged food dollar growth has been running in the low single digit with flat units. In its category work on Korean food, Circana found kimchi cases up 80%, the strongest growth of any vegetable it tracked.

Supermarket News reports that 61% of Americans say they like or want to try Korean foods, and the pull-through is visible in American grocery data. Asian food unit sales in mainstream U.S. supermarkets are growing roughly 4% a year on unit growth in a market where overall packaged food units are flat. Part of what is unlocking shelf space is generational. As veteran purchasing managers retire, the younger managers being promoted grew up inside the Korean culture wave, the K-pop music, the Netflix movies, the K-dramas, the live shows, and of course, the foods. They know these products. That wave have reached Middle America, where Korean is the fastest-growing of the international food categories, tracking roughly 10% annual growth internationally, led by Gen Z and millennial shoppers. There are millions of Americans who have never experienced Korean barbecue in the grocery aisles.

The second tailwind is just as important, and it is about where this demand is being served. The American Frozen Food Institute and FMI released the fourth edition of their Power of Frozen in Retail report in February. U.S. frozen food is now an $87 billion business, and it has grown more than 45% since 2019. The single best-performing corner of that aisle? Frozen processed meat and poultry, which more than doubled to $8 billion. That is our aisle. That is our category. Within that report is the number that matters most to a company like ours. 71% of frozen shoppers say they are actively looking for items they have not bought before, and 30% say they plan to buy more frozen in the year ahead. A brand new to the freezer case usually has to fight for trial. Right now, the consumers is coming and looking for us.

The channel data tells the same story. Over the same period, retail club grew frozen food sales by nearly 14%, far outpacing the traditional grocery. Warehouse clubs and mass merchandisers like Walmart and Target now account for as much of the frozen dollars as conventional supermarkets do. We launched our retail business in grocery, and it gives us our foundation. Our newest push has been the club channel led by Costco. That was not an accident, and as you will hear in a moment, it is working. The third current is the one every restaurant operator in America is feeling, and I am not going to pretend otherwise. Circana reported that U.S. food service traffic declined 0.3% in 2025, and they project industry-wide traffic growth of less than 1% this year. Consumers have not stopped wanting restaurant food.

They are simply feeling the strain of the macro environment, and they cannot pay restaurant prices as often as they would like. Conagra sized this precisely in their Future of Frozen report earlier this year. Takeout-style frozen food is now a $14 billion category, and they contribute its growth directly to global flavors and to consumers recreating the restaurant experience at home. Here is the picture. Restaurant traffic is flat. The freezer aisle is booming. Korean flavors are among the fastest-moving thing in global food. Restaurant-quality food sold in grocery stores is a $14 billion category. Every one of those current runs straight through GEN, a real restaurant brand with a proven retail engine. I think GEN is one of the best-positioned companies to take advantage of this, which brings me to the point I want everyone to understand today.

Most CPG brands hope a consumer who has never heard of them picks up the package. We do not have that problem. We have served millions of customers at the GEN tables. Those guests already know what our bulgogi tastes like. When a shopper sees our packages in the freezer aisle and freezer doors, we are not introducing ourselves for the first time. We are being recognized. BDA Partners, in their study of Asian food's rise in North America, calls the winning formula Accessible Authenticity. This is a very good description of what GEN sells. Our in-store demonstration staffed by our own trained people continue to deliver sell-through well above typical demo programs. Let me talk about capital, because this is the part I think the market has not yet fully appreciated. Opening a GEN restaurant is a good business, and it built everything we have.

It is a capital-intensive business with very stiff competition. Every new location requires meaningful build-out, a construction timeline, a lease commitment, and a ramp-up period. Our CPG division does not work that way. We do not own a single manufacturing plant. We produce through co-packing partners who make our products through GEN's own recipes and quality standards, just as we do in the restaurant business. That means our growth comes down to speed, execution, and scale. We can add a SKU, add a region, or double a production run in weeks. We scale with purchase orders, not capital projects. The consequence of that are significant, and I want to say them plainly. We can grow this business quickly without major CapEx. Our incremental return on invested capital in CPG is meaningfully higher than what we can achieve opening restaurants in this environment. The margin profile is structurally better.

We continue to expect this division to deliver EBITDA margins in the high teens at scale after promotional investments. Simply put, we found a way to take our brand that we spent 15 years and a lot of capital building and monetize it in a channel that requires much less. The CPG division is already profitable. Our CPG business delivered its best quarter yet, with revenue up 341% sequentially from the first quarter, driven by frozen raw non-cooked marinated meats. June was our biggest month, with revenue surpassing $2 million and GEN products being placed in nearly 2,000 retail doors nationwide.