Jersey Mike's profit fell 37%. Its income tax was zero.

Jersey Mike’s earned $37 million in the quarter ended 28 June 2026 and recorded no income tax expense against it. Not a low rate. The line reads as a dash.

This is the company’s first quarterly report since its shares began trading on 30 July, and the dash is the most informative number in it. Everything else in the filing describes a business. That one describes a structure — one that stopped existing three weeks after the quarter closed.

The line that is about to stop being a dash

Note 8 says it plainly: the company “is a limited liability company treated as a partnership for U.S. federal and most applicable state and local income tax purposes” and therefore “generally does not incur or record U.S. federal or state income taxes since all taxable income is passed through to its members.”

The financial statements in this 10-Q are not the listed company’s. They belong to Jersey Mike’s HoldCo, LLC. The registrant, Jersey Mike’s Subs Inc., appears on its own balance sheet with $1 of total assets and 10,000 shares issued for an aggregate consideration of one dollar.

That is why there is no earnings per share figure anywhere in the document. An LLC has members and units.

The reorganisation completed on 29 July 2026 put a holding corporation on top. Item 2 of the filing states the consequence in one sentence: “Following the Reorganization Transactions, Jersey Mike’s Subs Inc. is subject to taxation, including federal taxes as a corporation.”

So the $37 million is a pre-tax number reported by an entity that no longer sits at the top of the structure. Anyone annualising it is annualising something the next filing will not produce.

Revenue rose 10%. Three named costs took more than the profit fall.

28 Jun 2026   29 Jun 2025
Royalties and other revenue               138           124
Advertising revenue                        57            54
Company-owned store sales                  13            11
Total revenues                            208           189
General and administrative                 66            34
Advertising expenses                       54            41
Depreciation and amortisation              25            25
Company-owned store expenses               11             8
Gain on sale of company-owned stores       14             —
Operating income                           66            81
Interest expense                           31            24
Income tax expense                          —             —
Net income                                 37            59

General and administrative expense rose 94%, from $34 million to $66 million. The company does not leave that unexplained. It names three things inside the increase:

• $20 million of Area Director buyouts
• $7 million of IPO-related expenses
• $6 million of incremental corporate transition expenses

That is $33 million. Net income fell $22 million. The three named items are 1.5 times the size of the fall, and the filing says that absent them, general and administrative expenses “were consistent with the prior year.”

The Area Director line is worth pausing on, because it is the largest and it has an end date. Note 2 describes area directors as subcontractors entitled to a fee for developing and supporting franchise owners in an assigned territory; buyouts are payments to terminate those contracts. Jersey Mike’s recognised $20 million in the quarter and $52 million in the half, against zero in the prior-year quarter.

Then the note closes the subject: “As of June 28, 2026, the buyouts of all area directors have been completed.”

The company also says the transition to an internally staffed franchise support model cut $8 million of costs in the quarter under the old programme, and $14 million across the half.

The $14 million pushing the other way

Operating income of $66 million is not $66 million of operating.

Sitting above that line is a $14 million gain on the sale of company-owned stores. The store roll-forward shows what happened: eleven company-owned stores transferred out to franchise owners in the second quarter, ten franchised stores came in during the first. Investing activities show $18 million received for stores sold and $23 million paid for stores bought.

Q2 2026   Q2 2025    change
Operating income, as reported          66        81    -18.5%
less gain on sale of stores         (14)        —
Operating income, without it           52        81    -35.8%

The same $14 million appears once more in the half-year column and nowhere before it.

The advertising fund crossed over

Jersey Mike’s collects advertising fees from franchise owners as a percentage of their sales and spends them on brand marketing. Both sides run through the income statement: fees as advertising revenue, spending as advertising expense.

For most of the company’s recent history the collection side has been the larger of the two. In the first half of 2026 it stopped being.

Q2 2026  Q2 2025      H1 2026  H1 2025
Advertising revenue          57       54          108      101
Advertising expense          54       41          115       93
Net contribution             +3      +13           -7       +8
swing:     -10       swing:      -15

The −$10 million quarterly swing is not our discovery — the company prints it. Its release says Adjusted EBITDA growth of 7% included “a $10 million net adverse impact related to timing of the advertising fund absent which, Adjusted EBITDA increased 18%.” Our arithmetic from the two line items reproduces that figure exactly, which is the useful part: it means the half-year column can be read the same way, and there the fund is $7 million in deficit against a $8 million surplus a year earlier.

The company calls it timing, and the filing gives one structural reason pointing the other way: since the end of 2025 it “no longer collect[s] advertising revenue on third-party delivery markups.” Advertising revenue grew 5.6% in the quarter while royalties grew 11.3%.

What this balance sheet is made of

Trade name                              5,710
Franchise agreements and other, net     1,680
Goodwill                                  407
Intangible assets and goodwill          7,797    95.5% of assets
Cash and cash equivalents                 231
Restricted cash                            34
Accounts receivable, net                   39
Property and equipment, net                10
Prepaid and other                          52
Everything else                           366
Total assets                            8,163

95.5% of the balance sheet is the brand and the franchise contracts, carried at the values set when Blackstone bought the company in January 2025. Property and equipment is $10 million — across a system of 3,378 stores, almost all of which belong to franchise owners.

This is what an asset-light franchisor looks like, and it is also why net income is a poor guide to this company’s cash.

Net income                                     13
depreciation and amortisation                51
gain on sale of stores                      (14)
loss on debt extinguishment                   7
equity-based compensation                     6
lease-related exit costs                      6
debt cost amortisation, working capital
and other                                    36
Operating cash flow                           105
Capital expenditure                             4

Depreciation and amortisation of $51 million ran 12.75 times capital expenditure of $4 million. That gap is not deferred maintenance. It is the amortisation of franchise agreements written up in the 2025 purchase accounting, and it will keep running whether or not anything is spent. Operating cash flow was 8.1 times net income.

The mechanism is the same one we traced at CoreWeave, where depreciation and interest together exceeded $1.5 billion of EBITDA, and the mirror image of Casey’s, where EPS rose 28% while free cash flow fell 28%.

The debt, and the ratio it exceeded

At 28 June 2026 Jersey Mike’s had $2,096 million of securitisation notes outstanding, at rates from 2.49% to 5.64%. In February 2026 it issued $760 million at 4.95% and 5.48% to refinance existing notes, which is where the $7 million loss on debt extinguishment in the half comes from.

Then one sentence in the liquidity section:

“As of June 28, 2026, our leverage ratio exceeded 5.0x and accordingly, we were required to make total principal payments of $5 million.”

The notes let the company choose whether to amortise principal while a defined leverage ratio stays at or below 5.0x. Above it, the choice goes away. The amount is small; the disclosure is that the test was failed rather than passed.

After the quarter ended, the company put IPO money against it. On 17 August 2026 it repaid about $301 million — $46 million of the $250 million Series 2026-1 notes and $255 million of the $510 million Series 2026-1A notes — using the net proceeds from the 13,782,609 shares it sold itself. That leaves roughly $1,795 million outstanding.

For scale, $2,096 million against the first half’s Adjusted EBITDA annualised is about 5.3 times. That is our own crude proxy and not the covenant’s measure, which nets certain cash accounts and letters of credit and divides by a defined net cash flow.

The obligation that is not on this balance sheet yet

Total liabilities at quarter end were $2,319 million against $8,163 million of assets — 28.4%. That ratio is about to look different, and the filing says by roughly how much.

Under the tax receivable agreement signed at the IPO, Jersey Mike’s Subs Inc. will pay pre-IPO owners 90% of certain tax benefits it realises. The filing gives an estimate, on stated assumptions — a $23.00 share price, a 24.8% blended rate, sufficient taxable income, no change in law, and a hypothetical exchange of all remaining units:

a deferred tax asset of approximately $503 million, and an “aggregate noncurrent liability” under the agreement of approximately $2,084 million.

Both figures are the company’s own and both are hypothetical. The second is roughly the size of the securitisation debt, and it is owed to the people who sold the shares.

This is the piece of an umbrella-partnership listing that the earnings release has no reason to mention, in the same way that Docusign’s headline operating income jump was 80% above the line and 23% below it.

Growth is stores. Sales per store is doing less.

Total stores reached 3,378, up 8.1%, with 83 opened in the quarter. Same-store sales grew 2.3% against 3.6% a year earlier, 1.3 percentage points slower, and average unit volume moved from $1.354 million to $1.376 million.

Revenue growth of 10% is therefore mostly new stores. The chief executive’s framing of the same-store number is that it “accelerated in the second quarter, driven by transaction growth, which is particularly encouraging given challenged traffic trends across the industry” — acceleration against the first quarter, not against last year. The half-year figure is 2.0% against 4.2%.

One more number puts the franchisor model in proportion. Systemwide sales were $1.210 billion; the company’s own revenue was $208 million, or 17.2% of it. The rest belongs to franchise owners.

What the full-year guidance requires

The release gives three lines for fiscal 2026: same-store sales growth of 2.5% to 3.0%, including 3.0% to 4.0% in the third quarter; net unit growth of at least 8%; and Adjusted EBITDA growth of at least 20%, including at least 13% in the third quarter.

First half 2026                               198
Successor, 16 Jan to 29 Jun 2025              163
Predecessor, 1 to 15 Jan 2025                  12
Prior-year first half, combined               175
Growth, first half                         +13.1%
Full-year guidance                    at least 20%

The first half grew 13.1%. A full year at 20% with a first half at 13.1% requires the second half to grow faster than 20%. The guidance says at least 13% for the third quarter specifically, which places the weight in the fourth.

Two things in the filing point that way without settling it: the Area Director buyouts that cost $52 million in the half are finished, and the advertising fund deficit is described as timing. Neither is a forecast, and the company publishes none for GAAP net income — its release says a reconciliation of forward-looking Adjusted EBITDA to GAAP “cannot be provided without unreasonable effort.”

Where the shares stand

The offering priced at $23.00 on 29 July. Through the close on 8 September, the session before results, the stock was $20.82 — 9.5% below the offering price. On the 233,405,414 Class A and 84,233,486 Class B shares outstanding at 4 September, that is a market value of about $6.6 billion for both classes together.

We stop there. The results came out on 9 September and our licensed price source runs a redistribution delay covering the sessions after it, so this article contains no reaction to the numbers it describes.

What this article does not settle

• The tax line is not a tax avoidance story. A partnership passes its taxable income to its members, who pay. The point here is comparability: this quarter’s $37 million sits above a line that the next filing will have to fill in.
• The prior-year first half is a combination. The company splits 2025 into a predecessor period ending 15 January and a successor period beginning 16 January. We add them where we compare halves, because the company does the same in its own net income commentary — but it is an addition of two differently-lengthed periods and the 10-Q does not print a combined column.
• The advertising fund gap is a timing statement, not a verdict. The company says so and quantifies the quarterly effect at $10 million. We have not seen the fund’s own accounts, and an advertising fund can legitimately spend ahead of collections within a year.
• The leverage proxy is ours. $2,096 million over annualised first-half Adjusted EBITDA is not the covenant’s ratio. The filing states the covenant test was exceeded and gives the consequence; it does not print the ratio itself.
• The tax receivable agreement figures are hypothetical. They assume a full exchange of units that has not happened, at a stated share price and tax rate. Actual payments will differ.
• No consensus comparison. Analyst estimates are not filings and we do not verify them.
• No share price reaction. Prices here stop at 8 September, the session before results.
• Same-store sales, systemwide sales, AUV and Adjusted EBITDA are company-defined. Definitions are in Item 2 of the 10-Q and in the release.
• The earnings release exhibit is furnished, not filed. The 10-Q is the filed document and carries every statement figure used here.

Check it yourself

The income tax note is Note 8 and runs to four sentences. The sentence about what changes is in Item 2 under Components of Results of Operations, in the income tax paragraph. The Area Director note is in Note 2 under Area Director Costs and Buyouts, and its last sentence is the one that matters. The leverage sentence is in Liquidity and Capital Resources under Securitized Financing Facilities, two paragraphs above the tax receivable agreement estimate. Amounts throughout the statements are in millions, not thousands.

For a company that reported its first profit and had to explain what came with it, see Peloton; for the wider pattern of profit rising while cash does not, see the 45 US companies where it happened in 2025; and for a quarter where a one-off receipt did the same work a disposal gain does here, see American Eagle.

Every calculation above is written out in this article’s front matter and re-checked when the site builds.

If a figure here does not match a filing, tell us and it will be corrected on the article and on the corrections log, with the date.