GENK

Call is being recorded on Thursday, May 14th, 2026. Now I would like to turn the conference over to Thomas Croal, the company's Chief Financial Officer. You may begin.

Thank you, operator, and good afternoon. By now, everyone should have access to our first quarter 2026 earnings release. If not, it can be found at www.genkoreanbbq.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements within the meaning of federal security laws, including, but not limited to, statements regarding growth plans and potential new store openings, as well as those types of statements identified in our annual report on Form 10-K for the year ended December 31st, 2025, and our subsequent reports filed with the SEC. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements represent our views only as of the date of this call and are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q for a more detailed discussions of the risks that could impact our future operating results and financial condition. Except as required by law, we undertake no obligation to update or revise these forward-looking statements in light of new information or future events. During today's call, we will discuss some non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and our SEC filings, which are available in the Investor Relations section of our website. Now, I'd like to turn it over to our Chairman and CEO, David Kim.

Thank you, Tom. Good afternoon, everyone. In the first quarter of 2026, the economic challenges continued to impact customer traffic for all restaurant businesses. Just as we began seeing improvement in January, the increase in fuel prices because of the war has reduced customer discretionary spending. This impact has been particularly pronounced for GEN as approximately 45% of our stores in the U.S. are in California, where gas prices have climbed to over $6 a gallon. This has led to a decrease in our same-store sales of approximately 8.8% for the quarter, although our same-store sales decline improved from 11.7% in the fourth quarter of 2025.

In our continued response to the changing economic environment, several directional changes were made at the end of 2025 and in the 1st quarter of 2026 through initiatives designed to improve the company's value proposition. First, during March of 2026, as part of an ongoing portfolio update, we entered into a partnership with Chubby Cattle International related to 5 of our restaurants. We will own 49%, and Chubby Cattle will own 51% of these restaurants, which will be operated under the Chubby Cattle brand. Importantly, these joint ventures are far different than closing a restaurant as the locations remain open and continue generating value. The 1st two conversions took place on May 1st, 2026, with 2 more scheduled for June 1st, 2026, and the final conversion on August 1, 2026.

This transaction created a $4.5 million write-down. We anticipate no further liability from the deal and expect these five restaurants to generate strong EBITDA going forward, of which we're entitled to 49%, enhancing our overall profitability. This will reduce our loss positions in these five restaurants starting in the second and third quarters of 2026. Second, we also have several operational initiatives currently in progress to improve the financial results of our restaurants. A. We're adjusting our menu to streamline options in response to stubborn increases in our food cost. B. We're enhancing our incentive program with restaurant managers to drive stronger store-level execution and performance.

C, we're testing new boba drinks as well as soju drinks, which have shown promising sales during the launch. D, following two quarters of research and preparation, we are exploring a new digital platform to enhance our customers' online experience. In parallel, we plan to roll out our Gen loyalty program in quarter 2 and have begun accepting cryptocurrency for payments. We're also preparing to launch our enhanced e-commerce website, which will offer an expanded selection of our GEN branded products. Finally, we have made the strategic decision to slow restaurant developments to 5 to 7 openings for the full year of 2026 and have proactively suspended construction on six additional stores. This disciplined capital allocation strengthens our balance sheet and reduces near-term expenses. We have also initiated an AI program to drive further efficiencies and reduce corporate overhead.

As a further update, our Costco gift card program continues to contribute to our brand presence with cumulative sales since inception reaching over $30 million. In October 2025, we announced the creation of a new division within the company to develop and sell CPG products to grocery stores. We started by testing our products at over 30 locations in Southern California in October 2025, and the customer response significantly exceeded our expectations. We're now confident in an estimated run rate of over 2,000 locations in supermarkets across the country. We plan to announce a financial forecast for the CPG division at the end of quarter 2.

Our retail product lineup under the exclusive GEN brand is anchored by our core meat offerings, complemented by a growing selection of additional products spanning from beef jerky and beef chips, frozen sides, snack chips, sauces and seasonings, ready-to-drink beverages, and sojus sold under our GENJU brand. Here are a breakdown of our 56 SKUs. Core frozen meats, 6 SKUs. Beef jerkies, 6 SKUs. Frozen meat and sides, 12 SKUs. Snack chips, 6 SKUs. Sauces and seasonings, 6 SKUs. Ready-to-drink beverages, 9 SKUs. Sojus, 11 SKUs. Part of the expansion of our ecosystem is our CPG placement, including Soju, with the number one beverage retailer on the West Coast, BevMo!. Our growing lineup of shelf-stable Korean snacks and beverages, as previously mentioned, represents a meaningful expansion of our non-meat product catalog.

These single-serve formats are well-suited for convenience-driven channels such as 7-Eleven and other convenience stores, opening a significant growth opportunity beyond our core meat offerings. Additionally, at the end of May, Albertsons is launching a regional test of our full shelf-stable product lineups across 150 stores. Based on the projected numbers, we anticipate additional regions to follow. With the strength of our restaurant labor force, GEN has deployed trained team members to local grocery stores to demo our products, which have been highly successful in driving sell-throughs. Unlike many grocery demos, which are run by outside companies with no product knowledge, our restaurant staff brings firsthand expertise that creates a dynamic sales presentation and significantly lifts product sales. Combined with our well-known GEN brand and great-tasting Korean-inspired food, this makes it easy for our staff to introduce our products to new customers.

Additionally, last week, we announced the launch of our Costco Roadshow demonstration series, a multi-region initiative bringing GEN signature ready-to-cook marinated meats to Costco members in Oregon, Washington, Alaska, and Texas. Powered by our restaurant staff, this launch marks the next chapter in GEN's growing retail presence and supports our broader phased retail expansion strategy. We anticipate this will lead to permanent shelf space. Separately, we recently announced a major milestone in GEN's retail expansion, our first direct Southern California and Hawaii regional Costco purchase order, securing freezer aisle placement for 1 SKU of our ready-to-cook marinated meat across approximately 40 Costco warehouse locations. Importantly, this order was issued without a preceding regional roadshow requirement, reflecting GEN's strong regional brand presence proven retail execution and demonstrated customer demand.

We also plan to conduct roadshow activations within the Southern California and Hawaii locations, not as a prerequisite for placement, but as a demand-driven initiative to support the rollouts. By the end of 2026, we're confident in an estimated run rate of over 2,000 supermarket locations across the U.S. We estimate that our CPG products could be carried in 7,000-8,000 locations by the end of 2027. With this expanded growth, we believe we can achieve a run rate of over $100 million in annual revenue in as soon as three years, as we have stated previously. After accounting for slotting fees and promotional marketing investments, the company projects EBITDA margins in the high teens.

GEN's strong brand recognition is a key driver behind our retail momentum and a testament to the connection we've built with customers through our restaurants, Costco gift cards, and social media. This momentum is further amplified by the Korean culture wave, including globally dominated acts like BTS and Blackpink, along with the expanding influence of Korean streaming, food, fashion, and lifestyle, all creating measurable tailwinds for the Korean BBQ as a retail category. Korean food remains under-penetrated, yet the most sought-after cuisine in the ethnic food category. As we grow this business, GEN will offer many Korean food SKUs under the GEN K-Food ecosystem. At GEN, we have always had a strong operating model. When combined with meaningful expansion across both core and new concepts, we're executing with focus and discipline to create shareholders value.

Now, I'd like to hand the call over to Tom for a detailed look at our first quarter of 2026 financial performance.

Thank you, David. Since David already reviewed sales, I will begin with operating expenses. Cost of goods sold as a percentage of company restaurant sales increased to 38% in the first quarter of 2026, compared to 33.6% in the first quarter of 2025, an increase of approximately 440 basis points. A large portion of this increase reflects inflationary cost increases in addition to more new restaurants in operation and a minor impact from our premium menu. As a result of the inflationary impact on our meat prices, we implemented a $1 price increase at the majority of our restaurants in the first quarter of 2026, which equates to about a 2.5% price increase overall.

Payroll and benefits as a % of company restaurant sales remained relatively flat in the first quarter of 2026, increasing from 31.7% in 2025 to 32.1% in the first quarter of this year. Occupancy expenses as a % of company restaurant sales increased by 184 basis points to 10.7% compared to the first quarter of last year. This is primarily due to higher rent at our 2025 and 2026 new locations, along with the impact of decreases in same-store sales from 2025 to 2026.

Compared to the fourth quarter of 2025, occupancy costs as a percentage of restaurant sales decreased 45 basis points from 11.2% to 10.7% in 2026. Other operating expenses as a percentage of company restaurant sales increased 169 basis points to 12% compared to the first quarter of 2025, primarily due to the decrease in same-store sales. Other operating expenses in the first quarter of 2026 decreased by 38 basis points compared to the fourth quarter of 2025. G&A excluding stock-based compensation during the first quarter was $6.2 million compared to $5.7 million in the year ago period. This increase is primarily due to marketing and professional fees.

In the first quarter, we had a net loss before income taxes of $7.5 million, which equated to $0.22 per diluted share of Class A common stock, compared to a net loss before income taxes of $2.1 million, which equated to $0.06 per diluted share of Class A common stock in the first quarter of 2025. If you look at adjusted net income, a non-GAAP measure. We had a net loss of $4.5 million or $0.14 per diluted share of Class A common stock in the first quarter of 2026, compared to adjusted net income of $1.4 million or $0.04 per share in the first quarter of last year.

As a result of the decrease in sales and the inflationary driven increase in costs, our restaurant level adjusted EBITDA for the first quarter of 2026 was $4 million or 7.4% of total revenue, compared to $9 million or 15.6% in the first quarter of 2025. Restaurant level adjusted EBITDA margin was flat compared to the fourth quarter of 2025. Total adjusted EBITDA for the first quarter of 2026 was -$3.2 million, as compared to $1.2 million in the first quarter of 2025. After removing pre-opening costs for both periods, adjusted EBITDA for the first quarter of 2026 was -$2.1 million, compared to $3.3 million for the first quarter of 2025.

Now, turning to our liquidity position. As of March 31st, we had approximately $4.4 million in cash and cash equivalents. We have $15.5 million available from our revolving credit facility. As we previously discussed, we anticipate using a portion of our revolving credit facility this year as we continue to open new restaurants in the future and grow our grocery store initiatives. In 2026, we have significantly slowed our new restaurant growth plans and focus our efforts on improving operations and margins at our existing restaurants and growth through our grocery store initiatives. Before concluding, I want to reiterate what we said on our last call. Our balance sheet reflects $164 million in lease liabilities as required under GAAP through the new ASC 842 lease accounting standard.

These are not financial obligations in the form of long-term debt, but rather the accounting recognition of our future lease commitments. Importantly, they are offset by $140 million in operating lease assets. To wrap up, we anticipate opening 5-7 stores by the end of 2026. We're targeting full year revenues of $215 million-$225 million and achieving restaurant level adjusted EBITDA margins of 15%-15.5% in the second half of 2026. By the end of 2026, we anticipate being at an annual run rate approaching $250 million in revenue. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today, and we are now happy to answer any questions that you may have.

Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star followed by 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star followed by 2. Once again, that will be star 1 to ask a question. One moment, please, for your first question. Your first question comes from the line of Todd Brooks with Benchmark. Please go ahead.

Hey, guys. good to talk to you. Thanks for taking my questions. Appreciate it.

Hi, Todd.

Hey, Tom. Tom, David, I know that celebration season's important for the brand. We just came through Mother's Day. We still have fuel prices going against us. Any commentary on kind of quarter to date trends that you're willing to share, and if we're seeing stabilization yet, or if it's just being overwhelmed by kind of the growing macro pressure on the consumer?

We have gained a lot of improvement on the food cost side. In terms of sales decrease, it's kind of the same as the first quarter. Consumers are definitely getting pressured because of things like the fuel costs and all that, especially in California. We make up a good percent of our stores there. We have not seen any improvements in sales part, but we definitely have seen we made a lot of good improvements on the food cost side.

Okay, great. Tom, just the thought, I know that you took the price increase during the quarter, which works out to about 250 basis points, but can you talk to what average check trends have been, quarter to date? I'm just trying to figure out how to flow, the price increase through for modeling.

Yeah.

if there's any mix pressure against it.

Right. In the first quarter, there was really no material change in our check. I think we've seen a pickup in the second quarter a little bit from the price increase.

Okay, great. Wook Jin Kim, more of a strategic question for you. As we think about balancing the two sides of the house here, so we have a restaurant business where we're trying to really slow the growth, retrench operations a little bit, fortify the profitability of that business to support the balance sheet to really be able to unlock the growth that you see in front of you for the CPG opportunity. What steps and what's the right restaurant operation look like for GEN K as far as number of units, geographic mix going forward to really stabilize to go after the growth opportunity that you see on the grocery CPG side? Thanks.

Todd, I need a little clarity. Is the question based on the growth of the restaurant side or growth on the CPG side? I'm sorry.

No. With the struggles, from a same-store sales standpoint on the restaurant side and kind of the EBITDA performance that we saw in the quarter, my sense is with things like the Chubby Cattle transaction, the suspending on the construction of the six units, that we're trying to really stabilize the restaurant business so it's not a big drag on EBITDA to kind of free up the balance sheet to support the growth in CPG.

The question was? I'm so sorry. It's my fault.

No, no. I must not be asking it well. What does the GEN Restaurant Group operation look like at a right size level in your mind? Then at that level it would free you up to grow CPG. I'm just trying to think of, okay, where do you see the GEN brand kind of shaking out versus the size of the operation right now?

The size of the restaurant operation will be the same or a little more. It's not as much as the fast growth we took the last 2 years. The size will be just a tad more than where we are today because some stores we're moving into the partnership with Chubby Cattle, and we still have a good 4 to 5 that we're finishing up building at this time. That will come on board this year. There will be some 2, I think, or 3 next year.

Next year. Right. Okay.

We can always assess it later at that time, you know, how these new stores come on board and how the same-store sales, if it gets better. That's how we see the restaurant side. On the CPG side, you know, we've been publishing for the last 2 weeks, all these new contracts that we're getting. We have a lot more. We just cannot disclose the lot more now is because it takes a long time from the time we make the presentation, they commit, they have to put into their computer system, we have to put it into their distribution system. They have to now put it out to the store level. There's a lag time that we're learning how that works.

Once we get all those established, then we will announce it. Okay? We don't wanna announce something that they said they'll carry, but, you know, it takes 9 months to get it into the stores. We have a lot more right now that we have gotten commitments that we're following through to get it into their stores. We just haven't announced it yet.

Okay, great. Thanks, David.

All right. Thank you. Once again, if you would like to ask a question, simply press star one on your telephone keypad. The next question comes from the line of John-Paul Wollam with ROTH Capital Partners. Please go ahead.

Great. Thanks, guys, for taking my questions. Appreciate the time. Maybe just to start, in terms of, you know, understanding kind of the comp environment and, you know, maybe just, Thomas Croal, for you, could you describe a little bit in terms of what your guys' expectation is that's baked into the revenue guide for the year? I guess what I'm really, you know, curious about there is sort of how you're thinking about the back half of the year developing. You know, last year we had sort of the immigration issue, and now this year we've got a bit more kind of pricing macro pressure.

You know, how are you thinking about the customer base and your confidence that, you know, customers will be returning at some point versus sort of structural changes to what the customer base and AUVs are going forward?

Well, I can answer that. The, these sudden events that we've encountered as a retailer, these are very like sudden non-expected events. It's like an unexpected car accident, I would say. When these, I mean, tariff was a very big event. We were not the only one that got caught in that sudden changes. Of course, we had the ICE issues, that's all died down. Especially in California, the gas prices, when the media says that average price is $4, it's $7 out in California.

That impacts a lot of people. until things start to stabilize we've gone through this kind of cycles before in several years back when, you know, prices were at the $7 and impacted us. I think everything will start to settle down. When we start settling down, the customer base of that K-shaped economy, 'cause we're dealing with the lower middle to lower end part of the customer base, they have to come back. I'm not a predictor of how the administration will, you know, have these very unexpected events that gets created.

Okay. Sounds good. You know, thinking about some of the operational initiatives you talked about, I know we talked about them last quarter as well. I'm not sure if you can kind of parse out when exactly some of those took effect. Anything you can share in terms of kinda quantifiable impacts in the quarter to date, in terms of restaurant-level margin from those initiatives?

Some of the initiatives that we are taking right now is the menu reduction, that's almost done. That's coming into place. We're testing some other types of products other than the soju and the boba. All those actually are coming into play. We just got some numbers in, but not enough. We're being very careful how we roll these out because if we roll this out too quickly, we don't have enough bench strength or the ability to actually execute it the right way. We're actually rolling out in a very small manageable way. Those manageable way of rolling out, we're seeing definite improvement in the margins of food cost.

Okay. Switching gears, you know, in terms of the retail business, but I think last time we spoke, the kinda estimated contribution for the year was around $10 million. Just, you know, seeing the sort of pace of distribution wins that you guys press released, I'm just curious if that number and the kinda expected contribution for the year has changed at all.

It will change for sure. We are probably going to establish a projection on the next quarter, but no later than the third quarter. We have definite numbers coming in, and we'll exceed that.

Okay. One last one, if I could. You know, again, just pointing to kind of the strength in some of these recent wins. I'm just wondering if there's anything sorta quantifiable you can share with us in terms of, you know, at existing stores, how are GEN meats performing on a, on a velocity basis, whether that's any kinda sales per week data or, you know, relative to the industry. I guess, what can you share, to kinda help us understand what's driving all these wins?

On the supermarket side or the or the restaurant side?

On the supermarket side.

We have a very strong brand, at least in the areas of where our restaurants are. How we know this, these are certain data points. Number one, the buyers at these supermarket chains are customers of ours, the purchasing people that work for these grocery stores. We start that data point. The second data point is when we see velocities, how much they're buying every week or every 2 weeks. Just going into grocery stores is not a good gauge. What good gauge is what's the velocity after they purchase the product? Are customers buying it? That is continuously growing.

Third, we have not announced all the other backlog negotiations that's completed and going through the process of onboarding, because we only want to disclose what we're onboarding to be very clear because maybe the buyer changes and they change their mind and, you know, they don't come through with the PO. We just want to make sure we go through that PO. That's one.

The real gauge is that when we have a team of people that we extract from our restaurants, those are the people that do a lot of upselling. They're top-tier staff of ours. They actually help us, and we run a separate P&L for the CPG division. It's still all owned under GEN Korean BBQ. They report to us every night after they're done with their demonstration on how many we sell. In a lot of this grocery industry, a lot of these companies hire outside firms. But the companies that sell into the grocery, the brands, and let's just, for example, I'll take a bacon company, right?

They'll hire companies to go and demonstrate their products, but the demonstration companies are out there representing the brand, but they don't send their own employees who sell the brand into the grocery stores. In our case, we don't use outside firms. We send our own staff who is very knowledgeable about our products. What we keep getting on the return every night of these tests, we've done over 100 tests so far, and the next three months we'll probably be doing about over 300 demos out there. Every demo that we get, the response from the customers, it's like a 60%, they already know our brand. They're familiar with our brand. Even the ones that are not familiar, once they taste our product, it is very different.

Our brand, I can't disparage other competitors' brands, our brand, taste-wise, we're very bold and we're very strong. We'll stand behind that. Even when we go demonstrate for the buyers at the grocery stores, when they taste our food, they say, "You guys are much better." We have strength in all different areas. Now, will this strength carry to other states that we don't have a GEN, a GEN brand out there? That is going to be tested on the fourth quarter. Areas like Illinois, areas like Boston, okay? There are some big chains that have signed up with us that we are going to help them with our products in their shelves by doing demos for them.

We have a lot of ground staff on the ground getting data, and these data show. By the way, when we do our demos at the store, at the grocery level, the grocers continuously run out of our GEN products. These days, we don't go and do demos unless they have several 100 of our products there. It's that successful. Not all brands that hire companies to go demonstrate their products don't even come close to where we heard, and I cannot, I will not verify this, but we just heard over the grapevine today that one of the CEOs of the company heard how successful we are with the demos, and we will be having a prolonged conversation with them.

Once that conversation takes place, they already have an interest. We already go into that market. If they do go forward with the whole chain, we will be announcing that. There's a lot of positive momentum, but yet getting it into the store process just taking a long time.

Yeah. That's very helpful detail. I appreciate it. Best of luck, guys.

Thank you.

Thank you.

Thank you. That concludes our question and answer session. I would like to turn it back to Mr. Kim for closing remarks.

Thank you very much for always believing in what our brand is. We are taking very good look at the new direction, and we're very excited about the growth. Thank you very much. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.

This call is being recorded on Tuesday, March 31st, 2026. Now I would like to turn the conference over to Tom Croal, the company's Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter 2025 earnings release. If not, it can be found at www.genkoreanbbq.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements within the meaning of federal securities laws, including, but not limited to, statements regarding growth plans and potential new store openings, as well as those types of statements identified in our annual report on Form 10-K for the year ended December 31st, 2025, and our subsequent reports filed with the SEC. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements represent our views only as of the date of this call and are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our SEC filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q for a more detailed discussion of the risks that could impact on our future operating results and financial condition. Except as required by law, we undertake no obligation to update or revise these forward-looking statements in light of new information or future events. During today's call, we will discuss some non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and our SEC filings, which are available in the Investor Relations section of our website. Now, I'd like to turn it over to our Chairman and CEO, David Kim.

Thank you, Tom, and good afternoon, everyone. The fourth quarter continued to be a very challenging environment for all restaurants in the business. Since the majority of our customer base is Hispanic in many of our markets, and they have been put under extreme pressure through the immigration enforcement, our customers have retreated and are very afraid to come out. This significantly reduces our customer traffic. Additionally, just as we felt we were turning the corner, the increase in the fuel prices because of the war has reduced customer discretionary spending. All of this has led to a decrease in our same-store sales. In spite of this, we completed our business plan for the year, including opening new stores, continuing to deliver an exceptional service and build our brand recognition.

We opened 15 restaurants in 2025, including six located in South Korea for a total of 57 restaurants in operation. In the first quarter of 2026, we opened two additional restaurants in Tucson, Arizona, and Denton, Texas. As a result of the changing economic environment, we have made several directional changes through initiatives designed to improve the company's value proposition. First, we're managing our portfolio of restaurants and have recently entered into a joint venture with Chubby Cattle International to partner on five of our non-performing restaurants. We'll own 49% and Chubby Cattle will own 51% of these restaurants, which will be operated under the Chubby Cattle brand.

This transaction creates a $4.5 million write-down but will create five profitable restaurants that will generate strong EBITDA in the future, for which we are entitled to 49% of the profits, which will enhance our overall profitability as a company. Second, we also have several operational initiatives to improve the financial results of our restaurants. We have adjusted our menu to streamline options in response to stubborn increase in our food cost. We have enhanced our incentive program with restaurant managers, focusing them on short-term financial results. We have tested new boba drinks as well as soju drinks, which have shown promising sales during the launch. After two quarters of research and preparation, we start to explore a new digital platform to enhance our customers' experience online. Additionally, we recently launched our GEN loyalty program and are accepting cryptocurrency for payments.

Lastly, we're launching our new enhanced e-commerce website, which will be selling much more of our GEN-branded products. Finally, as we slow down our restaurant development, we have initiated an AI program to create efficiencies and reduce corporate overhead. As a further update, our Costco gift card program continues to sell exceptionally well. During 2025, we sold approximately $29 million in gift cards to Costco, which is a 150% increase over last year as this program has greatly exceeded expectations due to our strong brand recognition. As CEO of GEN, I've contemplated for some time how we can expand the GEN Korean products and experience around the country without the heavy capital outlay to build restaurants everywhere. This is why we decided to enter into the consumer packaged goods called CPG business. We began by offering fresh, frozen, ready-to-cook Korean branded meats.

These products feature the exact same meats and recipes used in our restaurants, ensuring an authentic experience. The CPG business has done very well in recent years. Many smaller companies have entered this business and are doing very well as current customer profiles tends to seek smaller brand names. Companies like Kevin's, Marie Callender's, California Pizza Kitchen, P.F. Chang's, and Bachan's Japanese sauces have created large businesses with valuations reaching over $400 million-$800 million in a relatively short period of time. We previously announced the creation of a new division within the company to develop and sell CPG products to grocery stores. We started with four SKUs by testing our products at over 30 locations in Southern California in October 2025. The customer response was incredible, and the business blew up.

Early this month, we announced that we had expanded our CPG business to over 800 locations in various supermarkets. With the strength of our restaurant labor force, GEN has deployed trained team members to local grocery stores to demo our products. This has been very successful in the early stages of moving products to consumers. Most grocery store demos done by other companies are done by employees with no product knowledge. The expertise our restaurant staff has to present these demos creates a dynamic sales presentation that exponentially increase the sale of our products. Additionally, because of our well-known GEN brand and the great-tasting Korean food, it is easy for our staff to introduce our products. Our concept is simple. We bring our restaurant experience into your homes, just as in our restaurants, where guests cook their own meal using fresh frozen meats.

Our grocery products allow customers to create that same hands-on dining experience and exact same taste in their own kitchen. Unlike most restaurant brands in the frozen food aisle, GEN is able to deliver the exact same quality you would expect when dining in our restaurants. These are not typical TV dinners where food is different from the restaurant level. Our products represent thoughtfully crafted meals made with same high-quality ingredients we serve at our restaurants. Introducing our products to grocery store chains takes time to set up in their IT systems, organize shelf space, and complete the delivery and distribution chain. Once this initial setup is completed, the growth of this segment significantly speeds up, allowing us to achieve significant sales. By the end of 2026, we're projected to have our CPG products in 1,500-2,000 locations across the United States.

We estimate that our CPG products could be carried to 7,000-8,000 locations by the end of 2027. With this expanded growth, we believe we can achieve a run rate of over $100 million in annual revenue as soon as three years. After accounting for slotting fees and promotional market investments, the company projects an EBITDA margin in the high teens. GEN's strong brand recognition is a key driver behind our retail momentum and a testament to the connection we've built with our consumers through our restaurants, gift cards at Costco, and social media. Korean food is under-penetrated, but the most sought-out food in the ethnic food category. As we grow this business, GEN will offer many Korean food SKUs under the GEN K-food ecosystem.

Due to early retail reception from both buyers and consumers, GEN is accelerating its CPG expansion trajectory and expects CPG to be a meaningful growth driver with strong margins. As a result, GEN will be working with investment bankers in the CPG space to explore possible investments, logistics and supply line partners to help grow this business and increase shareholder value. With a solid operating model, meaningful expansion across both core and new concepts, we're executing with focus and discipline. Now I'd like to hand over the call to Tom for a detailed look at our fourth quarter and year of 2025 financial performance.

Thank you, David. During the fourth quarter, we generated total revenue of $49.7 million compared to $54.6 million for the fourth quarter of 2024, a decrease of $4.9 million. As we previously reported, due to the global tariffs early in the year and extreme pressure through immigration enforcement, we experienced a downturn in our restaurant customer traffic during the remainder of 2025, which resulted in same-store sales dropping by 11.6% for the fourth quarter, and some of our peers are experiencing the same downturn. For the year ended December 31st, 2025, revenues totaled $212.5 million compared to $208.4 million in 2024, an increase of $4 million or 2%.

Revenues increased by approximately $14 million from our new restaurant openings, offset by a same-store sales decrease of approximately $10 million. Consistent with our previous messaging, same-store sales are not the metric that defines our success. I can't stress that enough. Our AUV revenue is still over $5 million per restaurant in the casual dining space. This is a very elite level. Cost of goods sold as a percentage of company restaurant sales increased by 285 basis points to 36.9% in the fourth quarter of 2025 compared to the fourth quarter of 2024. The increase reflects inflationary cost increases, more new restaurant in operation, and a minor impact from our premium menu.

For the full year of 2025, cost of goods sold as a percentage of revenue increased from 33% in 2024 to 34.7% in 2025. As a result of the inflationary impact on our meat prices, we implemented a $1 price increase at the majority of our restaurants in the first quarter of 2026, which equates to about a 2.5% price increase overall. Payroll and benefits as a percentage of company restaurant sales increased by 97 basis points in the fourth quarter of 2025 to 31.8% compared to the fourth quarter of last year. For the full year, payroll and benefits as a percentage of company restaurant sales remained relatively flat from 2024 to 2025.

Occupancy expenses as a percentage of company restaurant sales increased by 253 basis points to 11.2% compared to the fourth quarter of last year. For the full year, occupancy cost as a percentage of restaurant sales increased from 8.4% in 2024 to 10% in 2025. This is primarily due to higher rent at some of our new locations, along with the decrease in same-store sales for 2024 to 2025. Other operating expenses as a percentage of company restaurant sales increased 261 basis points to 12.4% compared to the fourth quarter of 2024.

For the full year, other operating expenses as a percentage of restaurant sales increased from 10.3% in 2024 to 11.4% in 2025, primarily due to the decrease in same-store sales. G&A, excluding stock-based compensation during the fourth quarter was $6 million, compared to $5.7 million in the year ago period. For the full year, G&A, excluding stock-based compensation, was $23 million in 2025 compared to $18.4 million in 2024. This increase is primarily due to increased personnel required for new restaurant development and additional advertising, marketing, and legal expenditures. G&A expenses in the fourth quarter remained flat with G&A expenses in the third quarter of 2025.

Additionally, due to our decreased new restaurant openings in 2026, we expect there to be a reduction in G&A as we move forward. In the fourth quarter, we had a net loss before income taxes of $12.5 million, which equated to $0.36 per diluted share of Class A common stock, compared to a net loss before income taxes of $1.2 million, which equated to $0.04 per diluted share of Class A common stock in the fourth quarter of 2024. The fourth quarter of 2025 reflects higher costs associated with new restaurant development, in addition to a $5.5 million provision for asset impairment and $1.3 million in pre-opening costs for new restaurants.

For the full year of 2025, the company had a net loss before income taxes of $20.3 million, which equated to $0.59 per diluted share of Class A common stock. If you look at adjusted net income, a non-GAAP measure, we had a net loss of $5 million or $0.09 per diluted share of Class A common stock in the fourth quarter of 2025, compared to adjusted net income of $1.4 million or $0.04 per share in the fourth quarter of last year. For the full year, we had an adjusted net loss of $3 million or $0.09 per diluted share of Class A common stock, compared to adjusted net income of $11.6 million or $0.33 per share last year.

As a result of the decrease in sales and the inflationary driven increase in costs, our restaurant level adjusted EBITDA for the fourth quarter of 2025 was $3.9 million or 7.9% of total revenue, compared to $9.3 million or 17% in the fourth quarter of 2024. Restaurant level adjusted EBITDA was $29.4 million or 13.8% for the year of 2025, compared to $36.9 million or 17.7% in 2024. Total adjusted EBITDA for the fourth quarter of 2025 was negative $2.7 million as compared to $2.1 million in the fourth quarter of 2024.

After removing pre-opening costs from both periods, adjusted EBITDA for the fourth quarter of 2025 was -$2.1 million compared to $3.7 million for the fourth quarter of 2024. For the full year, total adjusted EBITDA for 2025 was $0.7 million compared to $13.3 million for 2024. After removing pre-opening costs from both periods, adjusted EBITDA for the year of 2025 was $6.3 million compared to $18.6 million in 2024. Turning to our liquidity position. As of December 31st, 2025, we had approximately $2.8 million in cash and cash equivalents. We have the majority of our $20 million revolving credit facility available.

We anticipate using a portion of our revolving credit facility as we continue to open limited new restaurants in the future and grow our grocery store initiatives. In 2026, we have significantly slowed our new restaurant growth plans and focus our efforts on improving operations and margins at our existing restaurants, as well as growth through our grocery store initiatives. Before concluding, I want to reiterate what we said on previous calls. Our balance sheet reflects $173 million in lease liabilities as required under GAAP through the new ASC 842 lease accounting standards. These are not financial obligations in the form of long-term debt, but rather the accounting recognition of our future lease commitments. Importantly, they are offset by $146 million in operating lease assets.

To wrap up, we're targeting full-year revenues of $215 million-$225 million in 2026 and achieving restaurant level adjusted EBITDA margins in the 15%-15.5% range. By the end of 2026, we anticipate being at an annual run rate approaching $250 million in revenue. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today. We are now happy to answer any questions that you may have. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your telephone keypad. Should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please, for your first question. Your first question comes from the line of George Kelly from Roth Capital Partners. Please go ahead.

Hey, everyone. Thanks for taking my questions. I wanted to start-

Hey, George.

Hi, Tom. Hi, David. I wanted to start just with Tom. You ended with your expectations for 2026, and I was hoping that we could drill into your revenue guide a little more. I think you said $215 million-$225 million. If you could give the retail contribution that's baked into that as well as on the core restaurant business, your comp expectations and net openings, you know, anything that you're comfortable giving, that's baked into that guide.

Yeah, George, we are on the retail side, we're, you know, we're working towards getting to a $20 million run rate by the end of this year. You know, we should be in the $10 million range in the retail for this year, which would then put the restaurants in the, you know, $205 million range. Looking at the low end.

Okay. $205 million. What kind of the net openings that you talked about slowing down your opening pace? What is that? What are your expectations with respect to openings and closures?

We haven't really contemplated on the closures. We did do a deal with the Chubby Group, which we're very optimistic and excited about. In terms of the new store openings, we opened two. We have five under construction, and they will be completed this year. Maybe we'll squeeze in one or two more towards the end of the year or the beginning of 2027.

Okay. Two, five under construction, one or two more, and then closures are not baked in outside of the Chubby Cattle partial divestiture. Okay. Understood.

Yes. As of this time, yes.

Okay. Last question from me back to the retail business. You said, I think high teens contribution margins, somewhere in that range. What should we think about the kind of getting to scale there? Do you anticipate making a lot of upfront investments in 2026 as you scale the business, maybe behind promotion or just G&A infrastructure? How should we think about near-term profitability in the retail business?

Sure. The infrastructure costs, we're leveraging the current infrastructure we have at the restaurant side, so we don't anticipate a lot at all in terms of infrastructure costs. We will be reducing the construction infrastructure in the GEN side considerably because we're going to cut down on that side of the business. In terms of the capital, it's purely inventory now. It's because there's a lag time between the order that's ordered, and some products come from South Korea, and some products are made in the U.S. It depends on how the orders come in.

Why we have such a large number from a run rate versus actual is when you start having an interest in the larger markets. Once the order is in, you have to go through their channels of how to get to be on their system, i.e., their SKUs, their accounting. There's a lot of insurance; there's a lot of setups. Once the setup is done, then the cash flow of money coming in and what's sold and their repeated business, it's very seamless, so it works very well. The margins that we've talked about all account for the various discounts, the various slotting fees, et cetera. When we said we'll be in the high teens, that accounts for all that.

After taking all that out, we're looking at the high teens.

Okay. Maybe if I could just squeeze in one more. The numbers you gave, your longer-term expectations around the retail business are big as far as store count and revenue, productivity, et cetera. The business is still early stage. The question is, what is it that you've seen so far that gives you confidence in that longer term expectation? Maybe it's the velocities you're doing, or the performance outside of Southern California looks good. Like, can you just give us a sense of what makes you confident?

Yes, several things. After signing up with larger brokerage firms, and I'm actually personally making these travels and talking to the senior buyers, the number of supermarkets around the country is significantly higher than I expected. This is not just the Walmarts of the world. These are small regional players in the hundreds per their own sections of their markets. As of today, I can tell you that all the meetings we've had, we've not had a single turndown of the buyers turning down our products. The continuation of interest, especially we are in the Korean barbecue business and Korean-related products, because of the tailwind that we're getting from the cultural changes and the customer pattern behavior on the ethnic food side.

There's continuation of data coming out saying it's the highest demanded but the lowest penetrated food in the United States. That helps a lot, and it's backed by the cultural changes of movies getting recognized, Netflix on the K-drama, the bands, the BTS, et cetera. That's all fueling this. It's a huge benefit of all the cultural younger generation knowing this food, Korean food, actually getting the buyers from these larger institutional supermarkets not just having interest in buying our products. The ones that we are already in that have placed products on the shelves, they don't keep products on the shelves if they don't have velocity. Our velocity is above their...

Every retailer has their own lines of what velocity that each ones have to hit, and we are actually above their velocities, especially for a new line like this. They're very, very excited. We're very excited too. It's unusual, they say from this industry to have a hit rate of 100%. I'm sure the more we see, we will start to have challenges of certain areas not buying our products. It's unusual where products are presented and they're bought at. Even if we introduce all the products, the least that we've had so far is one group buying two out of the four, and then we have other products growing too.

I'm a believer that just selling into the markets is not a business model, the continuation of consumers coming back to buy it is actually a better measurement. As of today, it's a small sample, but the amount of bookings that we have from supermarkets to ordering from us and what we have in the system, that's why we are able to comfortably project those numbers.

That is helpful. Thank you.

Was it too long? I can simplify it if you want.

No. No, that was good background. Nope.

No.

It was good. Thank you.

Yeah. Thank you, George.

Thank you once again. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kim for any closing remarks.

Thank you very much for your time and listening to our quarterly call. Thank you. Thank you very much.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good afternoon, ladies and gentlemen, and welcome to GEN Restaurant Group, Inc. 3Q 2025 Earnings Call. [Operator Instructions] And now I would like to turn the conference over to Mr. Tom Croal, the company's Chief Financial Officer.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2025 earnings release. If not, it can be found at www.genkoreanbbq.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements within the meaning of Federal Securities Laws, including, but not limited to, statements regarding growth plans and potential new store openings as well as those types of statements identified in our quarterly report on Form 10-Q for the period ended September 30, 2025, and our subsequent reports filed with the SEC. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements represent our views only as of the date of this call, and are also subject to numerous risks and uncertainties that could cause actual results to materially differ from what we currently expect. We refer you to our recent SEC filings including our annual report on Form 10-K and our quarterly reports on Form 10-Q for a more detailed discussion of the risks that could impact our future operating results and financial condition. Except as required by law, we undertake no obligation to update or revise these forward-looking statements in light of new information or future events. During today's call, we will discuss some non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and our SEC filings, which are available in the Investor Relations section of our website. Now I'd like to turn it over to our Chairman and CEO, David Kim.

Thank you, Tom, and good afternoon, everyone. The third quarter continued to be a very challenging environment for the restaurant business. In spite of this, we continue to implement our business plan, including opening new stores, continuing to deliver an exceptional service, and build our brand recognition. Although macro pressures continue to persist, we strongly believe our value-focused experimental dining model resonates with guests and positions us for durable long-term growth and profitability. We opened 15 restaurants in the first 9 months of 2025, 8 of which opened in the third quarter. This includes 6 new restaurants in South Korea for a total of 57 restaurants in operation. The Korean restaurants use an operational model consistent to our restaurants in the U.S. at a fraction of the construction and operational costs. These 2025 openings represent a balanced geographic mix, including new, existing and international markets and we are scheduled to open an additional 2 stores by the end of 2025. We have exceeded our initial estimate of 12 to 13 stores for a total of 17 stores in 2025. Recently, we announced the launch of ready-to-cook Korean branded meats for sale at Albertsons, Vons, and Pavilions grocery stores in California and Hawaii. These products feature the exact same meats and recipes used in our restaurants, bringing the true restaurant experience without compromising quality. Most other restaurant companies that sell food in the frozen section of grocery stores cannot repeat the same pace and quality of food like GEN can. These are not TV dinners, but are the same crafted meals and quality ingredients we serve in our restaurants, bringing our genuine quality restaurant food to your dining room table. With 4 product choices of ready-to-cook meats, we recently announced the partnerships to sell at over 600 grocery locations. We took this challenge because we anticipate annual revenues from grocery store could exceed $100 million over the next 4 to 5 years. This allows for expansion of our brand awareness as GEN is building a powerful ecosystem that extends beyond restaurants into a community of authentic Korean products, experiences and digital innovation. During the third quarter, we generated a 2.7% year-over-year increase in total revenue to $50.4 million for the third quarter of 2025 due to our new restaurant openings over the last year. As we reported last quarter, during the month of April, after global tariffs were announced, we have continued to see a downturn in our restaurant customer traffic, which resulted in same-store sales dropping by 9.9% for the third quarter, and some of our peers have experienced the same downturn. In spite of the inflationary driven increase in cost, our restaurant level adjusted EBITDA margin was 15% in the third quarter of 2025 and 15.6% year-to-date. Consistent with our previous messaging, same-store sales are not the metrics that defines our success. I can't stress that enough. Our AUV revenue is $5.2 million per restaurant in the casual dining space. This is a very elite level. Our AUV revenue levels drive our margins and strong cash flow. Our business model revolves around growing our footprint to capitalize on the short duration to recoup our initial investment in new restaurants. Since our IPO 2 years ago, we have added 24 new stores with total costs of approximately $2.5 million each, roughly increasing our store count by 73%. We believe this proves the value of our high free cash flow model. Although the restaurant industry is facing a softer environment, we remain confident in our strategy, our team, and our ability to drive long-term growth. Having said this, we still deeply focus on ways to drive growth at existing locations and have a number of initiatives to share as we continue expansion of the GEN brand of products and services. Last year, we announced the launch of GEN gift cards at 95 Costco locations, all within a 5-mile radius of all of our current restaurants across the U.S. The gift cards continue to sell exceptionally well. Recently, we began selling gift cards at 92 Sam's Club locations. Access and expanding this initiative is a testament to GEN's brand strength and position as a leader in Korean barbecue. We're also expanding our reach beyond our restaurants through several exciting initiatives. These include: bulk sales of Korean BBQ meats, e-commerce business growth, sales of Korean beef, turkey, sales of Korean sauces, developed in Korea and imported to the U.S., and sales of our proprietary Korean and other Korean related GEN products under development. All of these products will be sold at our restaurants and/or through our distribution channels. Ultimately, we anticipate that most of these items will also soon be available in grocery stores. Each of these initiatives are created to build off of GEN's powerful brand recognition and enhance our margins through new revenue streams. With a solid operating model, meaningful expansion across both core and new concepts and continued investment in our development pipeline, we're executing with focus and discipline. Now I'd like to hand the call over to Tom for a detailed look at our third quarter financial performance.

Thank you, David. David discussed revenue in his remarks, so I will start with expenses. Cost of goods sold as a percentage of company restaurant sales increased by 334 basis points to 34.8% in the third quarter of 2025 compared to the third quarter last year. Cost of goods sold as a percentage of restaurant sales increased by 95 basis points compared to the second quarter of 2025. The increase reflects inflationary cost increases, more new restaurants in operation and a minor impact from our premium menu. We have not taken any price increases since the end of 2024, and meat prices are at an all-time high. We have elected not to pass on these increases to our customers and will not raise our prices in the near term to show loyalty to our customers during these uncertain economic times. Payroll and benefits as a percentage of company restaurant sales decreased by 196 basis points in the third quarter of 2025 to 28.5% compared to the third quarter of last year. Payroll and benefits as a percentage of sales decreased by 155 basis points from the second quarter of 2025. This decrease is due to recently rolled out labor efficiencies. Occupancy expenses as a percentage of company restaurant sales increased by 238 basis points to 10.8% compared to the third quarter of last year due to 16 additional restaurant openings. This is primarily due to higher rent at our new locations, along with the start-up of several restaurants. Other operating expenses as a percentage of company restaurant sales increased 58 basis points to 12.2% compared to the third quarter of last year. G&A, excluding stock-based compensation during the third quarter was $5.7 million or 11.4% of revenue compared to $4.5 million or 9.1% of revenue in the year ago period. This increase is primarily due to increased personnel required for new restaurant development, and additional advertising, marketing and legal expenditures. G&A expenses in the third quarter remained flat compared to G&A expenses in the first and second quarters of 2025. In the third quarter, we had a net loss before income taxes of $3.9 million, which equated to $0.11 per diluted share of Class A common stock. Compared to net income before income taxes of $300,000, which equated to $0.01 per diluted share of Class A common stock in the third quarter of 2024. The third quarter of 2025 reflects higher costs associated with new restaurant development, including $2.3 million in preopening costs. If you look at adjusted net income, a non-GAAP measure, we had a net loss of $700,000 or $0.02 per diluted share of Class A common stock in the third quarter of 2025 compared to adjusted net income of $2.6 million or $0.07 per share in the third quarter of last year. As David said, since going public in June of 2023, we have grown GEN from 33 stores to 57, a 73% increase. If we stopped all new restaurant development, we estimate that our net income or loss could have been profitable for the third quarter. This figure strips out all preopening costs and includes a reduction in G&A. Restaurant level adjusted EBITDA for the third quarter of 2025 was $7.6 million or 15% of total revenue compared to $9 million or 18.2% in the third quarter of 2024. Total adjusted EBITDA for the third quarter of 2025 was $200,000 as compared to $3.4 million in the third quarter of 2024. After removing preopening costs from both periods, adjusted EBITDA for the third quarter of 2025 was $1.8 million compared to $4.5 million in the third quarter of 2024. Turning to our liquidity position. As of September 30, 2025, we had approximately $5 million in cash and cash equivalents. Additionally, we have full availability of our $20 million revolving credit facility. We anticipate using a portion of our revolving credit facility as we continue to open new restaurants in the future. If the current economic climate does not turn around in the near term, we will consider slowing our growth plans for 2026, and focus our efforts on improving operations and margins at our existing restaurants, and growth through our grocery store initiatives. Before concluding, I want to reiterate what we said on our last call. Our balance sheet reflects $165 million in lease liabilities as required under GAAP through the new ASC 842 lease accounting standard. These are not financial obligations in the form of long-term debt, but rather the accounting recognition of our future lease commitments. Importantly, they are offset by $140 million in operating lease assets. We've also received questions about our return on tangible asset metrics. It's important to note that using total assets as a proxy for invested capital is inflated because it includes the operating lease asset of $140 million. This interact assumption can artificially lower our return metrics. To wrap up, we anticipate opening 2 stores by the end of the year for a total of 17 new restaurants for all of 2025, which includes our 6 international units in South Korea. We're targeting full year revenue of $220 million to $225 million and achieving restaurant-level adjusted EBITDA margins in the 15% to 15.5% range. By the end of 2025, we anticipate being at an annual run rate of approximately $250 million of revenue when all our new restaurants are open. This does not include our new initiatives. This concludes our prepared remarks. We'd like to thank you again for joining us on our call today, and we are now happy to answer any questions that you may have. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from Jeremy Hamblin of Craig-Hallum.

I thought I might start by getting an understanding of the Korean units. And first, I wanted to clarify in terms of -- I think some of those locations are Kan Sushi and some are GEN Korean. I don't know if some of them are kind of joint locations and just want to understand what the economics look like, what do you anticipate the AUVs to be with those stores in year 1? And what's the cost to build those locations?

Okay. So we have right now 4 GENs and 2 Kans. The Kans are way outpacing the sales of GENs at this point. We anticipate the Kans to do around, I would say, $3 million to $4 million, maybe more in the $4 million. The GEN side still needs more time. So we're probably going to do about $2 million to $3 million to GENs. What was the second question, Jeremy? I apologize.

Just the cost, yes, the cost to build.

Yes, the cost of build is coming out to be about less than $1 million a store. That's about $800,000. So substantially lower than the U.S.

Got it. And then in terms of the softer trends on existing locations, can we assume that, that's kind of continued here in Q4? I mean, are you kind of expecting down 10 or something like that in Q4?

Correct. Yes. Right now, we're seeing softness. It started from the tariff days to the ICE crack down especially in areas where we have our customer are a lot Hispanic and they have been impacted for sure in the California region and we're starting to see some in the Texas or mostly California. And it's just an assumption that -- and of course, we're not just comparing to other sitdowns -- actually sit down restaurants that are doing well, but a lot of them are struggling with the comp sales we have not seen as of last week, a substantial improvement on the traffic.

Got it. And then I wanted to switch gears just to ask about the grocery store initiative, 600 locations. That's kind of an impressive ramp. What is the current run rate on kind of annualized revenue of that portion of the business? I mean getting to $100 million in 4 to 5 years, it would be quite impressive. But wanted to get an understanding of the velocity there. And then also in terms of the cost to run that business, right, I don't know if you're having to pay slotting fees or kind of what is the start-up cost of that initiative?

Okay. We did a test with 31 locations by the name of Pavilions. Our data show that they are much less traffic than the other brands they own. Why? We were able to get the first orders and get bin spaces and et cetera, is the response that they've gotten in the 31 test locations was anywhere from 60% or more of the consumers that were buying the products already new GEN or GEN customers. So it really helped solidify our strength of our brands. The buying department have mandates in grocery stores now that they want to take more directions of merchandising Asian foods and Hispanic foods, and we happen to fall in that category. And because of the strong brand presence and the strong custom or acceptance of our brand, the 31 store data came in high in terms of new products going into their shelves without any discounting. And how we were able to go into the 570 stores is the other brands that they own, which is a higher traffic brand like Albertsons and Safeway is where we think that the sales of those stores will be much higher than the Pavilions brand. The Velocity, we just got into the Pavilions for less than 1.5 month, and the 570 stores will go into the month of November. They normally don't slot products during these times because they're focused on the holiday season but for some reason they saw such a popularity of our brand, they made concessions and did a last minute -- last-minute adjustments, but most retailers don't do that. They're locked in until I think February, and that's when they do their schematics again. So we don't have the Velocity, but what they're telling us on the 31 locations is as a brand new brand, they're very happy with how we are selling down our products. The cost to manage this, it's substantially less than the cost of running the restaurant division. There is going to -- the margin erosions will happen once they start approaching us, which they have had discussions with us on shelf space and discounts and, et cetera. They did say that in the history of their corporation, it was the first time they allowed a brand to come in without committing to a slotting fee on Southern California. Northern California and Hawaii, we have negotiated a very small slotting fees, but that's just being worked out, but the products are all made and already in their warehouses. There is another 300 stores in the Midwest from Texas on with the same company. I think that is going to -- it's between 300 to 400, they'll probably put us in there but they're telling us certain areas in the Midwest margins are not that better than the West Coast. We are now -- we have appointments to discuss with the big boxes in about 2 weeks because we have had very high successes with our gift card program and they want to now see what kind of products that they can enhance with the gift card and cross work so that customers who buy our gift cards can be introduced to our other branded meat products, et cetera.

Awesome. Last one for me. I was very interested to hear a bit more about the idea of slowing or halting unit growth going forward, that seems certainly from a cash perspective, like a great idea. And I wanted to see if you and Tom had really kind of gone through what the cash flow might look like? I mean, you have about $9 million or $10 million in preopening costs this year and CapEx, I think, tracking in the range of close to $30 million. So I wanted to just get a sense of how much you've explored that, that might -- given kind of some ambitious growth here that you've had in the existing stores' performance, it seems that might be an interesting path here from a perspective of generating a lot more cash flow?

Yes. We definitely have ran that number. We have still 7 under construction, 2 or 3 will come on board this year, by the end of this year, and we cannot stop those. The other ones can pause. We have another 11 because these locations, you have to be at least a year ahead of signing leases. So we will see how the year-end sales progresses, and we'll watch it very carefully. If we can maintain the year's numbers, we will continue if we think that the slowdown of the consumers on the restaurant sector gets a little behind and continuously slow, yes, we will, for sure, consider pausing the opening of new restaurants. And we have looked at all the financial numbers and the projections in detail.

The next question comes from Todd Brooks of Benchmark.

A couple of follow-ups to Jeremy's questions, and I've got a few others. I just wanted to clarify -- you talked -- the industry has seen kind of a continuing deceleration here going into the fourth quarter. But I think, David, if I heard your comment right, quarter-to-date trends have stabilized with the down 10% that you saw in the third quarter? Or have your trends also slowed a little bit from that trend that you put up for the full third quarter?

Some weeks are better, some weeks are worse. So we're just into it now. I need a little more data. The true number actually for us starts in the second week of November because now we're going to the very high season for Thanksgiving and Christmas. Those are critical months for us. So I don't have that number for you right now.

Okay. Fair enough. Following up on the packaged food products, when you frame up a $100 million opportunity per year as you get 4 or 5 years into the effort, what assumptions do you put behind $100 million of revenues or SKUs expands to a multiple of that number of SKUs, 600 doors expands to what number of doors? What does it take from an operation and offering in a number of doors to generate $100 million in annual revenue?

There is a competitor that moves a Korean barbecue frozen products through the Trader Joe's network, and we have certain numbers that they have. And those Trader Joe's do more volume per store, but they have much less stores. And we looked at the initial 1 month of Pavilions. And we are going to be putting in more products. We are already talking to the supermarkets to bring in GEN branded products other than just the meat. It's all being worked on now. As they come on, we will announce it. So there will be more SKUs other than just the 4 SKUs. And as those grow, because we are getting information from our buyers of what they want because what they have now is costing them more money. It's less quality and they have their internal numbers of products that they currently sell, so when you start putting those numbers together with more SKUs we can kind of formulate that number. So as the years go -- at least the first cycle of year with new SKUs coming on board, and knowing some numbers with companies like -- what was the other, the big -- I'm sorry, I just blanked out -- Trader Joe's, we kind of are able to formulate a number that we can achieve.

That's exciting. Good to hear. A few more for me if we have the time. The labor efficiency was very impressive in the quarter, especially given how much the traffic trends fell off and where sales came in relative to probably what was an original expectation. How are you generating 200 basis points of efficiency year-over-year?

I think we can generate more. I don't want to use loose words by saying AI technology and things like that. But we are actually deploying those right now. But there's going to be a certain point where I cannot run a store with no humans, right? So we're constantly deploying more technologies so that we can be more efficient. But there will be a certain line because we are going to drop off in service if we go too thin. I think there's a little more basis points to play with, but this is probably the extent of it, sort of us bringing Optimus from Tesla, it could serve customers, okay?

Okay. Fair enough. And then the 6 stores in South Korea across the 2 brands, is that your near-term footprint for South Korea? Thoughts on further growth there? What it takes to know if that warrants more capital, especially looking at kind of the multiple uses for the capital that you do have from an availability standpoint?

We are going to study the Korean market, but we are very optimistic on the Kan side of the business. So therefore, if we do have a restructure of the capital, then it would be more on the Kan expansion, which South Korea is very -- faster and less expensive to build in that country. But as of now, we're just going to keep tweaking the operations to come up with a better EBITDA.

Okay. Great. And the final one for me, and I'll jump back in queue. David, on prior calls, you've spoken to the composite environment and some of these maybe ankle biters that have followed very successful GEN locations with their own kind of either mom-and-pop or maybe branded Korean offering. What are you seeing from activity from these competitors? How are they dealing with a slowing environment? And is their pace of opening new stores? Is there any evidence of that slowing yet, so you'll see maybe less competitive intensity as you look out to '26?

Yes, we hear information from our bankers. These are local community banks, minority, local community banks and yes, they say because their borrowers of the SBA program who are our competitors. Yes, they say their sales are substantially down but it still has not stopped the entrepreneurs wanting to have the same American dream of GEN 3 and barbecue, so we are continuously having to deal with competitors, for sure.

For your last question, you will hear from George Kelly of ROTH Capital.

Just 2 more for you. First on your South Korean units. Can you give a margin of 4-wall margin by brand.

I don't have that. We've probably been open 2, 2.5 months. We had some changeover in senior management in a very short period of time. So we have to go in since some one executive in, our margins are not good right now because we need to stabilize it. I don't have that data today. But on the next quarter call, I will have that data.

Okay. And then I just wanted to follow up on one of the earlier questions about your expectations for openings next year. So I just want to make sure I had it right. There are 7 under construction, 2 to 3 of those are expected to open this year. That leaves 4 to 5. Are those the for sure openings next year? And then you mentioned an 11 number. I didn't know kind of what's the -- is it just those 11 that you might pause? Or does it also include the 4 to 5 that are beyond this year?

No, there's 4 to 5 beyond this year. So the 6 is -- they're under construction. So I cannot stop that. But the next 11 are not under construction, maybe 1 or 2 might come on board. But the rest, we can put a pause if we wanted to.

Okay. And then the premium menu, I forget if it was in the Q or in the press release, it sounds like there was a margin, negative margin impact from that menu. Can you quantify that? Did I read that right? Like what have you seen from the premium menu? And also, what is the current penetration of that offering?

The current penetration of the offering is about 4% to 5% because of the -- how expensive the products that we serve on that, I think you rolled about 1% in food cost. Yes.

So you're saying the impacts from that 4% to 5% was a 1% impact on 4-wall, consolidated 4-wall margin?

On the food costs, less than 1%, but yes, approaching 1%, right?

And do you plan to retain -- I mean, do you plan to continue -- does the math work? Or I mean, are you comfortable?

No, we're not comfortable. We are working on another. We think that our menu presentation is -- needs an uplift and an update. We are working through it now. We have to be very careful when we roll it out because if we roll it out during this busy season, and we don't execute well, it might backfire. So once the new menu comes out and we reorganized the presentation of it with different products, we'll probably test it first before we roll it out throughout the country.

And the new menu might or might not exclude the premium menu, does that...

No, it will include the premium menu in a different way. We have competitors right now that are offering a much better quality Wagyu meats. And we are right now thinking if there are some thoughts and some discussions about it, if there's progress, we will test the higher meats. But we are definitely almost set to go forward with it.

Okay. And then last question for me is just on your 2025 cohort of U.S. openings. How do you characterize them? Are they opening -- just given the macro challenges like opening quite a bit smaller than prior cohorts or any kind of geographic items you've noticed certain places are outperforming or underperforming? Just any kind of background on maybe those openings.

The new markets -- brand-new markets that we have won, stores are not performing as we are expected -- we wanted to, but the markets that we're already in, we're doing well.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kim for closing remarks.

Thank you very much for your time today.

Thank you all. Appreciate it.

Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.