Q3 2019 Earnings Call
Good day, ladies and gentlemen, thank you for standing by <unk>.
Welcome to the habit restaurants third quarter 2019 earnings conference call. Please.
Please note that this conference is being recorded today October Thirtyth 2019.
On the call today, we have Russ Bendel, President and Chief Executive Officer, and IRA Fils, Chief Financial Officer.
These are not alter well chief brand officer will also be joining Russ and Iraq for the Q and a portion of the call.
By now everyone should have access to the company's third quarter 2019 earnings release.
If not it can be found a triple W habit Burger dot com in the <unk> Investor Relations section.
Before the company begins their formal remarks, I need to remind everyone that the discussion today will include forward looking statements.
These forward looking statements are not I guarantee of future performance and therefore, you should not put undue reliance on them.
These statements are also subject to numerous risks and uncertainties.
That could cause actual results to differ materially from what the company expects.
The company refers you to the recent FCC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.
Lastly, during today's call the company will discuss non-GAAP measures, which they believe can be useful in evaluating the company's performance.
The presentation of this additional information should not be considered in isolation or a substitute for the results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in the Companys earnings release with that I would like to turn the conference over to Russ Bendel. Please go ahead.
Thank you and good afternoon, everyone as usual I'll start the call with a brief overview of the third quarter.
Update you on all progress are becoming a total access brand and share some thoughts about the balance of 2019 I will then review our third quarter financial results in more detail as well as review our 2019 guidance before we open the call for your questions.
With that I will the way, let's dive into our third quarter results.
Total revenue increased 12.1% year over year, and our company operated comparable restaurant sales increased 3.1% in the third quarter, which is our six consecutive quarter of comp store sales growth.
As a reminder, we were rolling over a 3.6% increase in last year's third quarter, our best calm quarter of 2018.
Adjusted EBITDA increased 9.9% to 10.6 million and adjusted fully distributed pro forma net income was one point sixmillion or six cents per share compared to when adjusted fully distributed pro forma net income.
1.4, or five cents last year.
We continued to make progress on our mission to be a total access brands to our customers in this ever changing consumer environment.
Oh off premise business continued to grow during the quarter, allowing our guests to enjoy habits, great suits without leaving the comfort of their home office. As a reminder, we currently have door dash and Postmates as partners. We're currently in test with <unk> and next.
Back to roll them system wide body ended the year, we believe that adding a third partner will allow us to continue to grow our delivery business by reaching customers that are currently not being served by the other two providers. We're very pleased with the trajectory of that delivery channel.
Uh-huh and.
And it has quickly grown to be a meaning said part of our business.
In addition to delivery our sales through our current online ordering platforms and mobile channels continue to experience significant gross with same store sales through this channel up 25.8% during the third quarter.
We executed a system wide soft roll out of our new mobile App in mid July making it even easier for customers to water ahead and skip the line in store.
What's a little marketing support Weve quickly seen over 100000 guess download all App, we plan on putting marketing support behind them overlap in Q4 of this year.
Speaking of the in store experience, we now house, we now have self order kiosks installed in 20 of our restaurants, allowing customers a different and faster way to order in store on average, we're finding that over 8% of our sales are coming through the kiosks.
At these locations.
So both App and kiosk orders were also experiencing a higher check average as opposed to these ordering platforms feature our menu in a way encouraging the guests to add or to upgrade their orders going forward, all new stores and all Remodels will have self.
Order kiosks in the store.
And lastly, with regard to convenience, we open for dry food locations during the quarter, bringing our overall total to 51 at the end of the third quarter, which is about 20% of our store base.
Dr. Seuss, we'll continue to account for at least half of our development schedule going forward as well.
During the quarter, we continue to flex or connery muscles by first returning with our summer favorite fresh Barry and toasted Almond salad, featuring Chargrilled chicken, we followed that with they'll French Onion chart limited time offer it takes or classic flow.
I mean, grilled char Burgos to a new level by being top was roasted French onion sauce, and two golden Brown on your drinks more recently, we launched a pumpkin shakes, which should be on the menu through early December .
As well as our Santa Barbara charts, which is going back to work, California roots and features a double chart with cheese fresh avocado on our signature grilled sourdough bread.
Moving onto marketing, we beefed up our marketing team with the addition of a new Vice President of digital marketing and a new partnership with the AD agency in Ocean USA.
During our last promotional window, we targeted selective markets, whereas our digital first marketing campaign promoting the French on your chart and our next campaign will support the Santa Barbara Char promotion.
We're very pleased with the result, so far, especially considering that the fact, the fact that we're lapping our radio campaign in the third quarter of last year.
In addition to the Santa Barbara Chart campaign as they said previously we will promote our mobile app on a nationwide basis in the fourth quarter. We will focus initially on customers who are familiar with the habit and promote the app by announcing the app to our Charclub members.
The promotion with all will also include some in store merchandising, including point of purchase materials. Additionally, we're looking at different incentives to encourage our guest to download the app.
We believe that the mobile labs will be a great addition to our growing online ordering sales channel as we said previously we've seen a large number of app downloads and usage in the third quarter and expect even better results in Q4, when we are actually promoting this option.
We're excited about the ability to communicate directly with our customers.
Finally in the third quarter, we had our no kid hungry campaign and raised over $340000 for them. This year, which is expected to feed 3.4 million hunky hungry children.
We are proud to have supported this worthwhile charity for the last five years and we are grateful that our guests and team members contributed to this incredible cause.
Switching now to development.
During the third quarter, we opened six new company operated restaurants, including four drive through locations. One of the Ford Drive-thrus was our first drive through location in North Carolina for the full year 2019, we expect to open approximately 20.
One new restaurants.
Our franchisees did not open any locations in the quarter and we now expect them to open a total of six restaurants in 2019.
While 2019 franchise development will end up below our initial expectations, we're setting up for a more robust franchise development in asked for next year.
With franchisees expecting to open 12 to 15 locations in 2020.
Next year's franchised and license development driven by in international activity will be more than doubled our 2019 openings.
In total we expect to open 29 to 35 locations in 2020, including 17 to 20 on the company operated side again, 50% of the company operated stores will be drive-thrus and approximately 25 to 30 per.
That said on the East coast.
With that I'd like to turn the call over to IRA to discuss our financial results in more detail.
Thanks, Ross now turning to the results of our 13 week third quarter after September 24th 2019.
Total revenue increased.
1% to 117.3 million for the third quarter of 2019 compared to 104.6 million in the comparable quarter last year.
The six new company operated restaurants opened in the quarter. We're open for a combined 65 sales weeks and the three company operated restaurants that we closed in the quarter. We're open for a combined 23 sales weeks.
Our other 231 company operated locations. We're open for a combined 3003 weeks in the quarter in total the 237 company operated locations opened at the ended the quarter were opened 3091 weeks in the quarter.
As Russ mentioned, our sales trends during the quarter were strong as comparable company operated restaurant sales increased 1%.
We're also very pleased with our comp sales to trajectory as the individual monthly comps improved sequentially as we move through the quarter with September bad benefiting from our digital marketing campaign supporting the franchise in chart.
And breaking down the comp store sales increased traffic decreased 2.7% offset by a 5.8% increase in the average transaction them out.
During the quarter, we were carrying.
Cumulative pricing of approximately 5.3%, which was the price increase we took in may to combat increased wage pressure in our California markets.
Even with the recent price increase we have taken we strongly believe that we still have pricing power. However, we do not plan to take any more price increases through the remainder of 2019.
Now turning to expenses as a percentage of company revenue food and paper costs were 30.1% increase of 30 basis points compared to last year.
The increase was due to higher product costs during the quarter as well as pressure in beef.
[noise] labor related expenses as a percentage of company revenue were 30% 70 basis point decrease from the third quarter 2018.
The decrease was driven by lower payroll related costs of about 50 basis points and lower direct labor costs of about 20 basis points for the third quarter, our average hourly rate increased approximately 5%.
Increase in average wage was offset by price increases and improved labor productivity the tight labor market combined with government mandated wage increases for hourly employees continues to put upward pressure on our labor costs.
Occupancy and other related expenses as a percentage of company revenue increased approximately 130 basis points to 20%.
About 70 basis points of this increase was due to higher third party delivery costs with another 35 basis points related to higher advertising expense.
We also experienced higher rent expense of about 30 basis points, resulting from the lease accounting standard assay, a 42, which we adopted at the beginning of 2019.
Our general and administrative expenses increased approximately 619000 to 10.5 million during the third quarter as a percentage of total revenue GNS expense decreased 50 basis points to 8.9% as we were able to leverage our 12.1% sales increase.
Preopening costs were approximately 465000 in our third quarter of 2009 days compared to 658000 in the prior year quarter.
As Russ mentioned, we opened six company operated restaurants in the third quarter of 2019 compared to eight openings in the third quarter of 2018.
We continue to expect Preopening costs to range between 100000 105000 per restaurant for 2019.
Net income for the third quarter of 2019 was 1 million or five cents per diluted share compared to a net loss a point sixmillion worth three cents per diluted share in the prior year.
On an adjusted fully distributed pro forma basis net income for the third quarter was 1.6 million or six cents per.
Diluted fully distributed weighted average share compared to net income of 1.4 million or five cents per share and a third quarter of 2018.
In terms of our liquidity and balance sheet as of September 24, 2019, we had cash and cash equivalents.
Approximately 37 million and no debt, we expect capital expenditures to range between 33, and 35 million before landlord contributions for the fiscal year 2019.
Based on our growth plans, we believe cash flow from operations in current cash on hand will be sufficient to fund our capital needs. The next couple of years.
With regards to fiscal 2019, we are updating our full year guidance as follows.
We now expect revenue to be between 463 million and 465 million and we expect comparable restaurant growth of approximately 3% to 3.5% for the full year 2019.
We now expect our restaurant contribution margin to be between 16.5, and 16.8% slight increase from our prior guidance of 62, five and 16, 75%.
We expect commodity inflation of approximately 3.5% for the full year and we also continue with respect our average wage rate increases will be approximately 5% for the year.
General and administrative expenses are now expected to be between 30, 43, and a half million and 44 million, which is down from our prior guidance of 44 million to 45 million.
And as Ross mentioned earlier, we remain on track to open 21 comp company operated locations and six franchise locations for the year.
We continue to expect our depreciation and amortization expense to be approximately 28.5 million for the year and we expect interest income to be approximately 250000 in 2019 as opposed to 1 million an expense we saw in 2018.
The difference reflects the change in lease accounting, which previously resulted in 1.1 million of interest expense related to financing in 2019, which is now recorded an occupancy in 2019.
With regard to taxes, we expect our pro forma tax rate to be between 20.5% and 29% and finally I would like to remind everyone that too that 2019 will contain 53 weeks with the extra week in Q4 2019.
With that I'd like to turn the call back over to Ross for some final remarks.
Thanks IRA.
Next month, the habit Burger grow will be celebrating its fiftyth anniversary 50 years of providing great food with great service and now with the added bonus of convenience.
We're celebrating it not only with different marketing initiatives some promotions, but also by supporting our communities of guests and our employees with $50000 in scholarships.
I'm really proud of the company, we are today and even more excited about where we're going.
With that operator, we'd like to turn the call over for questions.
Certainly.
Well now begin the analyst question and answer session to join the question Q Urea Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then too.
Our first question is from Nicole Miller with Piper Jaffray. Please go ahead.
Thank you and good afternoon, I needed a clarification I would kind of light as quick as they needed to so I apologize, but what we did you know as a percent of sales and how much or was it up and then the fundamental question behind that as Nick how much of that could be direct on your part from say consumer and how much do you think that would.
Well be out into the marketplace.
Well, so we didn't give the actual digital percentage of sales as far as mix goes the number that we did talk about was just sales through our online platform, including our our new mobile App grew year over year, a little over two.
25%.
Is there a digital number you're ready to reference.
Not yet you know we feel pretty good about where we're ahead from a heading from a digital standpoint, it's a growing dramatically as we've kind of gone through this digital transformation, but we were just not ready to reference what that total I.
I mean, if we were to reference a number on the growth Nicole.
It would be pretty staggering percentages and with all the initiatives that we've been working on for more than the last year.
We're in a really good place.
With them and feel very confident that the growth of these channels, whether it be third party delivery, which we haven't disclosed.
What percentage of sales that is and what now than the App and the enhancements, we're making to our own online platform along with our call Center and self order kiosks. I mean, this is going to be a significant part of our business.
Going for forward, where the orders or will it come into the restaurant, a without interacting necessarily with an employee.
That's helpful. Okay understood and then just a second and final question I want to come back and revisit unit level economics, a couple of reasons you.
You know you if I recall, you have to kind of the three year maturation process I could take to a very very healthy, 40% cash and cash return and I just want to see if you're seeing anything different structurally in today's restaurant landscape to change that and then if he could also dig a little deeper into the idea of you know 50% of new stores now will be drives.
And I imagine that pushes those numbers higher and higher and more fostered a maturation.
Hi, the question market, how is the east coast progressing is that still at a bit of the drag there or maybe not as you backfill that channel. Thank you.
Yeah. So thats great question. So just to clarify so our target has been 30% cash on cash returns historically, you're absolutely right and we you know we have.
Years, a few years ago did see that 40% number but we've you know over the last couple of years as as comps have been you know plot or a little lower and we have seen cost pressures that 30% target really is our target as we think about what we're expecting from our new restaurants now in regard to your question about.
Drive throughs as as drive throughs is settling for us that they're the right around the same.
Cash on cash return as the traditional units, we do invest a little more money, we do get a little higher sales from it but the net cash on cash returns are coming in similar similar to the traditional restaurant.
And just in regard to your your final question with regard to the East we are.
Pleased about the trajectory that those those restaurants are on obviously, excluding Orlando, but the east in general is we're seeing same store sales growth higher than we're seeing out in the west but they are they don't perform at the same level the west us.
So that 30% number is a blended number that that obviously has the west higher than that 30% and the east below that.
Thank you very much.
The next question is from will Slabaugh with Stephens. Please go ahead.
Yeah. Thanks, a follow up on the Drive-thrus are you seeing a meaningful percentage of those customers order ahead digitally and then come through the drought.
Not dissimilar to what some others fast casuals have done with.
Yes, we are so so we're seeing a more traditional known about 45% of our guests.
Just lower I think than traditional QSR, but we're seeing about 45% of our guess orders through the drive through and we are seeing it's about half the rate you typically see in a traditional store you see people ordering ahead mobily digitally and then going inside the restaurant to pick it up.
Today, we are not we're not set up where you would order ahead and then pick up through the drive through if you do order ahead, you go inside and pick it up.
But we're looking at those opportunities you know as we.
Look at this ever changing consumer environment, but as I said well today. They are format. It in the traditional drive through kind of scenario.
Got it and I did want to revisit.
I know closures and.
I guess the initial question.
Before really last year was the first year, we slowed it down and we were slowing it this year and then a little bit next year and with the amount of stores that were going to open.
In the markets that we're in we have in the east we would prefer to penetrate other markets, where we're doing better and we just weren't going to deploy any with additional account additional capital in Orlando and it and at the rate that they worry with the understanding part of how we grow.
Grow brand awareness is a new restaurant in new markets is through building new restaurants.
We were going to leave those stores kind of on an island by themselves for a little while in based on their amount of losses. It just didn't make sense for us keep operating them, we were better off closing those down and then really focusing our capital in other markets in the east.
And you know we have stores, obviously that perform at different levels all across the country, but we don't have Oh, a list of stores that were planning on doing anything with at this point in time those three stores in particular were significantly below the average of the rest of the rest of the system and the rest of the east.
Understood. Thank you.
Yeah.
The next question is from Andrew Charles with Cowen. Please go ahead.
Hey, guys, Brian It's actually Brian Vietnam for Andrew Thanks for taking the question. So just to for me first.
Are you guys thinking about plant based proteins are so you guys tested them in the past and just wondering what.
I would prompt you to add them on maybe more permanent basis, and then separately just on the franchising front.
Thank you guys had a couple of good dealers lately you guys provide.
I'm kind of split whether its domestic versus international for next year or just kind of over the next couple of years do you.
I see that being more of a international story or.
I haven't even split just just.
Well around the cadence or would be great.
Yes.
I'll start out with the plant based yeah last year, we did a test of approximately it was nine stores with the impossible Burger and we hear feel that the impossible Burger is the plant based protein that most resembles.
Oh, the taste and texture appearance of our beef charburger.
We were pleased with the results of that test.
But when we spoke to the impossible people.
We learned that was impossible to secure supply chain for all their early part or really throughout this year our 2019.
We have a secured supply chain to again revalidate attached since it's almost the or about one year old now and are going to do a test of about a half a dozen stores just to revalidate, our learnings from the last time and it is our play.
Plan and were file Wow.
Trying to finalize with impossible so.
Supply chain for a system wide LT show for 2020.
So that you know that's that's that's you know we're encouraged by.
The plant based products one thing that we didn't learn that it really didn't in effect, we have a great veggie Burger we've had on the menu for a long time and it really for from the the test. We did you know it it did not in any way hurt the sales of the veggie Burger So it appears to be.
A beef.
Customer that's looking for a alternative product and we think that it or potentially right represents incremental visits. So that's our thinking on a on the impossible and plant based products and franchisee you know we have a true.
Current franchisees.
Domestically that have been into system pre our IPO five years ago and they continue to open two to three restaurants. Each year. We also have are currently to franchisees internationally, our China, which is opening seven restaurants.
In less than that.
Our two years they've been our partner.
I would you know it's hard to nail down what that split will be.
But we continue to have a lot of interest internationally and are in various discussions with different groups in different countries and I you know based on how those discussions go you know you could see.
That mix shift slightly to maybe a more international growth, which were I'm pretty excited about.
That's great. Thank you very much.
The next question is from Nick Setyan with Wedbush Securities. Please go ahead.
Thank you congrats.
I'm very very solid corridor.
Just kind of marketing this year, we saw an uptick in terms of <unk>.
You know percentage.
Obviously, it seems to have had a pretty good resolved.
How are we thinking about marketing going into 2020.
Whether we'll see another uptick or not and also just kind of bigger picture you know what are some learnings from the marketing.
You know evolution. This year, a you know what is that spend going to go towards and 2020 or maybe talk about the differences between existing markets versus core market versus somebody in your markets what are some.
You know brand attributes you guys are highlighted.
Quality I any and all of that would be helpful. Thank you.
Yeah Hynek thing thanks for the question.
So as a rough talked about we.
Did that support our French on chart, a with digital marketing I. It was very much mobile focused on so we did look at the partners that featured the product as is our guests are out in about what we also.
Infused in terms of the creative Ingles <unk>. It was not only to represent the product, but also start conveying what the brand stands for as far as the quality Hughes answer one.
And what we have seen first of all I'm a very positive response, it's fine so brand awareness direction. So as we looked at our metrics and this was a and several markets a everywhere we did move the needle.
In terms of a introducing the brand and explaining the brand.
And as far as the response that we had seen <unk> in terms of the sales a component and the popularity off the product again positive and I would say that our newer markets did react or even more positively and to the product news.
So all around Oh, we do feel that the mobile and digital first direction is what what work right. Now you probably are seeing some of a similar communications for the Santa Barbara chart, I and we will.
Continue refining it I'm, a with a with in ocean in terms of.
What that spend optimally is and which partners work best as far as driving the traffic into the restaurant.
One of the things that we do love about having the digitally oh, so worried a marketing is that weekend actually measure that traffic coming into our stores.
So next year, you will see potentially more of the brand story being conveyed through that media and and incremental change it's a two to product promotion.
Hey, Nick <unk>. That's that's a great question. Then you know we you know historically, our spending and the marketing area. It's been a pretty low you know we we've made a commitment to you know one we brought ivano on board to continue to invest in.
Some very talented resources on the inside here and and add to our infrastructure. We brought on in Ocean. It's a digital agency that we're we're very pleased with early on and we're committed to anchor link incrementally.
And a little more and well be able to measure its effects and that's a pretty pretty quickly. We we certainly believe.
That.
Telling our story, especially in and newer markets really is up big opportunity for us and are very pleased with the early stage results.
Oh, that's very helpful have you got seeing the mix of burgers versus howitzers salads start to try and in in your markets more in line with what some of your core markets or is still very heavily.
Burger centric.
Oh, you know that new markets as we've said before really don't behave that much radically different than then.
New stores and in many places you know all our our new market a new store in a new market. When it opens will typically sell 80% to 90% of the menu mix entrees will be burgers, okay in our more mature markets.
The west.
Primarily you know that menu mix is about 60% burgers and we see the same trends in the east more in North Jersey, and and in South, Florida, where we where we have a couple of years of of operating history, where they.
Certainly come into that that overall menu mix menu mix.
Got it.
We've seen that you know.
Across the industry restaurants going back and we're negotiating there a third party delivery fees to make them more favorable is there an opportunity for you guys to maybe a you know approach some existing partners to see a what opportunities are.
Yes, I think there's an opportunity there.
And is there like a timeframe or anything like that you can communicate.
Oh, no that's not for us to talk on this call about timing of that but we.
We like you're thinking I think theres, an opportunity because you are seeing that across the industry for short so yes, there's an opportunity.
And then just last question Capex next year as they got to be similar this year or could it be down a little bit.
There will be down a little bit 'cause work you know, we'll probably end up you know a restaurant our two below this year. So we were policy is similar to down index.
Down a tick Nick thanks.
[laughter].
The next question is from June 39 with Baird. Please go ahead.
Great. Thank for taking the question I just wanted to ask line on the Labor line you commented on benefits from labor productivity. In Q3 can you just provide some additional contact kind of what you're doing specifically to drive those productivity gains and how we should think about the sustainability of these productivity gain in Q4 and maybe even in it.
2020.
Yeah, I think you know, what's a little bit of what Russ talked about you know, we're getting a lot of sales digitally and so when you're starting to bring in more of the more of the revenue. You know is timing you know is key is being keyed in by not our cashiers, but are you know, but by the gas themselves makes the lake.
We're a little more efficient and you know I think our ops team just as a great job using the tools that they have in the restaurant to manage labor efficiently.
Our our technology team internal has done an incredible job on a number of initiatives, whether they be consumer facing or or older tools that are really geared towards a the management teams inside the rest.
Stronz and we have great tools on how to deploy labor that are really very proprietary to each store each market based on the configuration on how large the restaurant is whether it has a drive through with a lot of you know individual.
Characteristics that give our our the men and women in the restaurants, great tools to forecast their business and really deploy the labor and they're all geared around maximizing sales at the key times and focus.
So on throughput and then minimizing labor costs in those Downtimes worst are slower times and especially when there are no customers in the restaurant, so big kudos to the Tech Oh, Gee team and as I reset the men and women.
In in the field are have really embrace them over the years and you know while labor is very challenging, especially in the west.
Oh, we have a lot of confidence in our operators and doing smart things around scheduling labor.
Great Thanks kind of color.
Once again any analysts to wishes to ask a question can press Star then one.
The next question is from Stephen Anderson with Maxim Group. Please go ahead.
Yes. Thank you I want to go onto the a food cost line seems a little bit of de leverage on that line I was wanting to get a little deeper into the reasons why we had I mean I saw that I ground, so little bit an uptick in ground beef <unk> and certainly avocados, though we're in the mix that's going to see if there's anything else we should.
To add and anything that was you look out for going into Q4.
Yeah.
Yes, as we called out on the in the call. There was so there's certainly a little little bit a pressure on beef I've got the avocado market has been very challenging, especially with the Mexico crop and what's going on there, but you know we had earlier earlier in the year, we had a lot of.
Extreme heat in the west and that put a lot or pressure on Greens, they'll let us leafy products and.
While those spikes or more short term. They we certainly felt the pressure that and a little more recently right now there's a little bit of upward pressure on on dairy you know again.
Not gigantic, but probably a little more pressure on food cost than we thought earlier in the year. One we were doing our forecasts.
He thought at all to what you would expect for 20 at this point.
You know it's still early we haven't really given any guidance on that right. Now you can expect to hear more for us on our next call around what our thinking is on supply chain market basket et cetera, et cetera, but nothing is jumping out at us right now that were.
You know.
Overly concerned about.
Thank you.
The next question is from Brian Vaccaro with Raymond James. Please go ahead.
Hi, Thanks, again eating I just following up on that that Cogs question I or the updated guidance. So for Q, we should be thinking about somewhere two 2.5% on the basket year on year that right.
No I think you're going to be more in the three plus range three to four ish range.
Okay. Okay. So three okay.
All right and after the drive throughs, well I try to ask that can you remind us how the store margins of the drive through compared to a traditional unit and as part of some of the labor favorability, you're seeing a related to the rising mix and drive throughs.
No. It's not knows I know you know actually it takes a little more labor to operate a drive through the same volume compared to a traditional restaurants, but we have expectations. They do higher sales correct. So so typically that will do higher sales to get them to get you know enough.
Margin to get the proper return yeah.
Okay. That's it that's what I would have thought that sounds a lot higher but are.
They're hiring to drive too, but it's not enough to offset from margin perspective on the labor side.
Yes, that's exactly right, but we we've learned a lot you know we opened our first drive through in 2011 in the next three years only opened one each year, it's really only been a two and a half year really where we've penetrated with a lot of drive-thrus and our development.
Same as learned a lot along with the operators on how to make that drive through more efficient and in a habit kitchen and we've taken some space out of it and engineered the layout to be much more of fish and not only.
<unk> through a better technology.
Different equipment in some fashion and then a especially more labor efficiency. So I drive through that we built today is much different in regards to the labor profile than a drive through we may have built in 2006.
<unk> team so you know.
We we feel much better about you know the capital the labor et cetera et cetera.
Okay and one other one on the drive throughs. It comes to mind I'm thinking about efficiency than through but how did the sort of optimized drive through today compare from average time through the drive through compared to where we where are you seeing improvements in drive through speed for instance.
Only as the kitchen get slightly more efficient hey, we still.
We don't make anything to you order it so our cook times or approximately six minutes. So really the drive through experience is a more about not having a the appropriate Q off five to six cars and.
If we're not able to have that you are the line is longer which has a good problem. We will have a habit teammates take the order on on digital pads and we can start to coking process.
Jumpstart that a little earlier, while you're in the queue line.
But we still we still cook everything to order and our customers appreciate that.
Yeah that's helpful.
I wanted to ask a quick follow up on the delivery side I know you don't typically share sales mix on but can you share what the what you saw in terms of year on year growth in that channel and maybe how that compared to Q2.
It was over 100% so pretty significant growth in that channel.
Okay.
And then similar to sorry go ahead.
And that was similar to Q2 yeah.
And why we that's why our marketing team operating team and technology folks.
Are currently implementing over with a direct technology connection to our our Katy Yes systems.
Right, Okay got it and then on capital allocation with slowing growth looks like they'll start generating and it's not $15 million is a free cash flow I'm curious, how you're thinking about capital allocation kind of balancing perhaps a I need to build up some cash to Reaccelerate company unit growth at some point.
Down the road or perhaps thinking about share repo or some other use.
Yeah, I mean, there obviously are board discussions, let's take take place and those actions, but they are all options that are will be under consideration or have been under consideration for awhile.
Alright, thank you.
This concludes the question and answer session I'd now like to turn the conference back to Mr. Russ Bendel for any closing remarks.
Hey, as always I want to thank you for for your time and your interest in the habit and.
We feel good about where we've been and the initiatives and the focus that we've had over the last year on becoming much more convenient are certainly starting to pay results. So thank you again for your time.
This concludes today's conference call you May now disconnect. Your lines. Thank you for participating and have a pleasant day.
[noise].
[noise] Oh.
HM.
<unk>.
[noise].
[noise].
[noise].
Uh huh.
[noise].
[noise].
Oh.
<unk>.
[noise].