LEASES

12 Months Ended

Dec. 31, 2025

LEASES

LEASES

6. LEASES

Nature of leases

The Company’s operations utilize property, facilities, equipment and vehicles leased from others. Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842.

As of December 31, 2025, the Company had no leases that it had entered into, but had not yet commenced.

Building and facility leases

The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company currently has one facility and 24 equipment leases that are classified as finance leases.

Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross sales or net revenues in excess of a defined amount. Additionally, a number of the Company’s leases have payments, which increase at pre-determined dates based on the change in the consumer price index. For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as common area maintenance, property tax and insurance costs. While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them variable consideration and excluding them from the calculations of the ROU asset and lease liability.

The initial terms of land and restaurant building leases are generally 20 years, exclusive of options to renew. These leases typically have four 5-year renewal options, which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably certain to be exercised, unless there have been significant leasehold improvements that have a useful life that extend past the original lease term. Furthermore, there are no residual value guarantees and no restrictions imposed by the lease.

During the year ended December 31, 2025 and December 25, 2024, the Company reassessed the lease terms on 19 and 28 restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew or extend a lease or exercise a lease option. As a result of the reassessment, an additional $11.3 million and $20.5 million, respectively, of ROU asset and lease liabilities were recognized for the year ended December 31, 2025 and December 25, 2024, and will be amortized over the new lease term. For the year ended December 31, 2025, the Company had five lease commencements resulting in $6.2 million. For the year ended December 25, 2024, the Company had no lease commencements.

There were no reassessments that impacted the original lease classification during the year ended December 31, 2025 or December 25, 2024. Additionally, as the Company adopted all practical expedients available under Topic 842, no reallocation between lease and non-lease components was necessary.

The Company also subleases facilities to certain franchisees and other non-related parties which are also considered operating leases. Sublease income also includes contingent rental income based on net revenues. The vast majority of these leases have rights to extend terms via fixed rental increases. However, none of these leases have early termination rights, the right to purchase the premises or any residual value guarantees. The Company does not have any related party leases.

During fiscal 2025 and fiscal 2024, the Company did not record any non-cash impairment charges. During fiscal 2023, the Company determined that the carrying value of ROU assets at one restaurant was not recoverable. As a result, the Company recorded a less than $0.1 million non-cash impairment charge for the year ended December 27, 2023 related to one restaurant in California.

Equipment

Leases of equipment primarily consist of restaurant equipment, copiers and vehicles. These leases are fixed payments with no variable component. Additionally, no optional renewal periods have been included in the calculation of the ROU asset, there are no residual value guarantees and no restrictions imposed.

Significant Assumptions and Judgments

In applying the requirements of Topic 842, the Company made significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the lease.

In determining if any of the Company’s contracts contain a lease, the Company made assumptions and judgments related to its ability to direct the use of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months.

The Company also made significant assumptions and judgments in determining an appropriate discount rate for property leases. These included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments. The Company utilizes a third-party valuation firm in determining the discount rate, based on the above assumptions. For all other leases, the Company uses the discount rate implicit in the lease, or the Company’s incremental borrowing rate.

As the Company has adopted the practical expedient not to separate lease and non-lease components, no significant assumptions or judgments were necessary in allocating consideration between these components, for all classes of underlying assets.

The following table presents the Company’s total lease cost, net, disaggregated by underlying asset (in thousands):

	December 31, 2025						December 25, 2024						December 27, 2023
	Property		Equipment				Property		Equipment				Property		Equipment
	Leases		Leases		Total		Leases		Leases		Total		Leases		Leases		Total
Finance lease cost:
Amortization of right-of-use assets	$	84	$	118	$	202	$	76	$	100	$	176	$	73	$	2	$	75
Interest on lease liabilities		41		14		55		36		18		54		40		5		45
Operating lease cost:
Fixed rent cost		29,544		412		29,956		28,287		332		28,619		27,597		387		27,984
Short-term lease cost		—		52		52		—		1		1		—		8		8
Variable lease cost		534		1,449		1,983		553		1,344		1,897		546		1,279		1,825
Sublease income		(7,244)		—		(7,244)		(7,053)		—		(7,053)		(5,570)		—		(5,570)
Total lease cost, net	$	22,959	$	2,045	$	25,004	$	21,899	$	1,795	$	23,694	$	22,686	$	1,681	$	24,367

The following table presents the Company’s total lease cost on the consolidated statements of income (in thousands):

	December 31, 2025		December 25, 2024		December 27, 2023
Lease cost – Occupancy and other operating expenses	$	24,042	$	23,046	$	23,736
Lease cost – General & administrative		704		366		492

Lease cost – Depreciation and amortization		192		176		75
Lease cost – Interest expense		55		54		45
Lease cost – Closed-store reserve		11		52		19
Total lease cost, net	$	25,004	$	23,694	$	24,367

The Company had the following cash and non-cash activities associated with its leases (dollar amounts in thousands):

	December 31, 2025								December 25, 2024								December 27, 2023
	Property			Equipment					Property			Equipment					Property			Equipment
	Leases			Leases			Total		Leases			Leases			Total		Leases			Leases			Total
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	28,982		$	371		$	29,353	$	28,376		$	310		$	28,686	$	27,835		$	321		$	28,156
Financing cash flows used for finance leases	$	95		$	128		$	223	$	93		$	114		$	207	$	93		$	65		$	158
Non-cash investing and financing activities:
Operating lease ROU assets obtained in exchange for lease liabilities:
Operating lease ROU assets	$	17,464		$	3		$	17,467	$	20,504		$	1,294		$	21,798	$	21,448		$	54		$	21,502
Finance lease ROU assets obtained in exchange for lease liabilities:
Finance lease ROU assets	$	—		$	—		$	—	$	—		$	148		$	148	$	—		$	135		$	135
Derecognition of ROU assets due to terminations, impairment or modifications	$	—		$	—		$	—	$	—		$	—		$	—	$	(40)		$	(4)		$	(44)
Other Information
Weighted-average remaining years in lease term—finance leases		14.86			2.69					15.88			3.24					16.87			3.15
Weighted-average remaining years in lease term—operating leases		9.62			2.79					10.13			3.78					10.42			3.33
Weighted-average discount rate—finance leases		2.57	%		6.27	%				2.57	%		6.49	%				2.57	%		5.68	%
Weighted-average discount rate—operating leases		5.36	%		6.42	%				5.31	%		6.73	%				5.00	%		4.52	%

Information regarding the Company’s minimum future lease obligations at December 31, 2025 is as follows (in thousands):

	Finance Leases		Operating Leases
	Minimum		Minimum		Minimum
	Lease		Lease		Sublease
For the Years Ending	Payments		Payments		Income
December 30, 2026	$	169	$	28,905	$	5,680
December 29, 2027		159		28,199		5,704
December 27, 2028		115		24,763		5,410
December 26, 2029		99		21,972		4,834
December 25, 2030		93		19,079		4,485
Thereafter		957		102,570		29,750
Total	$	1,592	$	225,488	$	55,863
Less: imputed interest (2.57% - 6.42%)		(14)		(37,060)
Present value of lease obligations		1,578		188,428
Less: current maturities		(142)		(17,616)
Noncurrent portion	$	1,436	$	170,812

Short-Term Leases

The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of Topic 842. The Company has recognized these lease payments in its consolidated statements of income on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

Lessor

The Company is a lessor for certain property, facilities and equipment owned by the Company and leased to others, principally franchisees, under non-cancelable leases with initial terms ranging from 3 to 20 years. These lease agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross sales or net revenues. All leases are considered operating leases.

For the leases in which the Company is the lessor, there are options to extend the lease. However, there are no terms and conditions to terminate the lease, no right to purchase premises and no residual value guarantees. Additionally, there are no related party leases.

For the years ended December 31, 2025, December 25, 2024, and December 27, 2023, the Company received $0.4 million, $0.4 million and $0.3 million, respectively, of lease income from company-owned locations.