Q3 2019 Earnings Call
At this time all participants are in listen only mode of course, you didn't answer session will follow the formal presentation. If anyone should require operator assistance. During a conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded on the call today, we have been art cocoa, President and Chief Executive Officer of El Pollo Loco and Larry.
<unk>, Chief Financial Officer, and now I'd like to turn the conference over to Larry Roberts.
Thank you operator, good afternoon by now everyone should have access to our third quarter 2019 pretty equally if not it can be found that www <unk>.
Well go Dot com any investor Relations section.
Before we begin our formal remarks I need to remind everyone that our discussion today will include forward looking statements.
These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on that.
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially what we expect.
For all of you to our recent FCC filings for a more detailed discussion other risks that could impact our future operating results and financial condition.
We expect to file our 10-Q put a third quarter 2019 tomorrow. It would encourage you to review that document that's your early it's convenient.
During today's call will discuss non-GAAP measures, which we believe it can be useful in evaluating our performance.
The presentation of this additional information should not be considered isolation or anything but they do poor results prepared in accordance with gap and reconciliations to comparable GAAP measures are available in our earnings release.
I'd now like to turn the call over to President and Chief Executive Officer, but Arctic Okay.
Thanks, Larry Good afternoon, everyone and thank you all for joining us today.
Our third quarter results demonstrated accelerating comparable restaurant sales momentum as we continue to make progress executing our transformation agenda. So.
System wide comparable restaurant sales growth in the quarter was 1.1% or 3.7% on a two year basis, representing our fifth straight quarter of positive system wide comparable restaurant sales.
As you May recall, we started out negative in July . So we were very pleased to see sales growth improved throughout the quarter.
In fact, the month of September was our strongest month of the year to date in terms of sales.
Adam comparable restaurant sales growth in September was 4.2% and included positive traffic, which is particularly impressive given the 3% growth comparison from last year.
Our momentum has continued into the fourth quarter systemwide comparable sales and transactions continue to be positive in October .
In addition to the ongoing impact of our transformation agenda. We believe the strong results are being driven by the expansion of our delivery capabilities and our current focus on value.
During the quarter, we supplemented our door dash relationship by adding both postmates new breed delivery marketplaces.
As additional options for our customers. We now have approximately 420 restaurants on all three market places, including all of our company operated locations.
In conjunction with this expansion, we rolled out a new curated delivery menu system wide, which places a heavier emphasis on family meals and combos in order to drive more profitable sales through these third party marketplaces.
Results, thus far have been encouraging and we've seen our system delivery mix increased from approximately 1% to approximately 3%.
Also in September we emphasized value through our five dollar fire grilled cabos promotion.
The combo switch mixed extremely well include a choice of five of our.
Of our most popular entree items, along with our famous chips and a drink.
Given the promotion success, we will continue to highlight it through the balance of the year and our advertising and in our restaurants, and we'll look to sustain it on a permanent basis in 2020.
Five dollar firewall combo is not only highlight the tremendous value we offer to our customers, but they've been value engineered to deliver good margins at this very attractive price point.
Following the five dollar fire grilled Cabos promotion, we're excited to close out the year with our holiday promotion.
We believe the holidays are a seasonal pool loco can be tightly associated with and even on based on the unique products, we sell and the experiences we can deliver.
For the first time never we will be celebrating the holidays any huge way at El Pollo Loco tapping into what makes this time of year. So special.
We're excited to bring back a holiday favorite our handmade chicken tamales, which we have managed to put a new spin on this year with our holiday tamales bowls.
In addition to our holiday tamales goals. We're also introducing two new holiday classics are homemade, but still they've had a day a traditional Mexican holiday soup and our decadent Mexican hot chocolate made with I've witnessed that chocolate.
All our food and drinks will be served in new festive red holiday packaging and cups, which we want to become an annual iconic feature of our Brad.
For those looking for the perfect gift, we will be featuring a beautiful lineup of six gift cards that are suitable for any occasion.
These gift cards can either be purchased in our restaurants or sense to a friend or family member digitally via our new E gift card program on El Pollo Loco Dotcom.
As we look ahead to 2020 culinary innovation is our biggest marketing opportunity to continue to accelerate our momentum.
In recent months, we've made it a top priority to build a new robust product pipeline and we are excited about some very promising new products and test right now that we're eager to showcase next year.
In addition, we continue to drive frictionless convenience by making it even easier for our customers to access and order from us.
Along these lines, we will be rolling out ordering via Facebook messenger, Apple business chat and Amazons Alexa at the beginning of November .
We're also working to add a fourth delivery marketplace provider to our portfolio Grubhub, which is slated to launch in December .
As we bring these exciting promotions and initiatives to market, we continue to optimize our media mix between television social media and digital in order to maximize the effectiveness and efficiency of a marketing spend.
As I mentioned earlier, we credit our transformation agenda with laying the foundation for our improved comparable sales performance.
I'd now like to touch upon some of the privacy progress we've made on our third strategic pillar of our transformation agenda, simplifying operations or making it easier to be an employee and franchisee at Allpoint logo.
On the operations from our team has been focusing on simplification initiatives in order to reduce back of house complexity.
Our focus in everything we do is to make it easier to be an employee and franchisee at El Pollo Loco.
To this end we have virtually completed the company wide rollout of our new inventory management system and we're currently training our restaurants on our new simplified chicken cooking process, which delivers a more consistent higher quality product, while making the work much easier for our grow masters.
In addition, we've completed the rewriting and streamlining of all our standard operating procedures, which will further simplify working in our restaurants, we have taken an operations manual that used to be 477 pages in length and reduced it to only 74 pages.
One Big example of how we are making it easier to work in our restaurants is that we have revised all of our recipes to ensure that they can be made and six steps or less.
We're extremely excited to roll these initiatives out in the fourth quarter as they will free up more time for employees to spend focusing on delivering exceptional customer experiences.
Im incredibly proud of our operations team in what is really encouraging is that we've already begun to see improved results.
Our overall blended index score, which is an internal measurement of customer satisfaction based on mystery shops customer surveys and complaints has improved significantly and is that an all time high since we implemented this program at the beginning of this year.
We believe this is just to start and expect operations to become a key sales driver for us as we continue to make it easier for our employees to work in our restaurants. So that they can focus more of their energy on providing moments of connection with our customers.
As we discussed last quarter, our continued focus on building a culture centered on leadership with heart involves helping the communities of which we are apart.
In Southern California, where the homeless crisis has reached epidemic proportions, we're committed to doing everything we can as an organization to assist those in need.
Based on this commitment we have entered a partnership with the food donation connection.
Which enables us to donate the food we used to throw away at the end of every evening to local shelters in the communities in which we do business.
This program has been rolled out to the entire system and our goal is to get the 70% participation by year end, which we anticipate will enable us to donate over 500000 pounds of food annually.
Along those same lines, we put a new twist on National Taco day, this year, which took place on October four it.
Instead of doing the typical gimmicky buy one get one free promotion, we pledged instead to give away at a minimum 59000, tacos, which symbolically represents the number of homeless people in the greater Los Angeles area.
Any taco sold above this amount, we continue to match and donate to local shelters.
Im extremely proud to share that through the efforts of our employees franchisees and customers, we sold and will now donate 76000 tacos.
The final thing I'd like to highlight today is that as part of our strategy to Opportunistically Refranchise restaurants.
Earlier this week, we transferred our five remaining company operated restaurants in Dallas to our existing franchisee in that market.
We in our franchisee partner are excited about consolidating our Dallas restaurants under one owner and remain bullish on El Pollo Loco as long term prospects in that market.
Before I turn the call over to Larry as always I would like to thank all of our people from making these results possible.
To our employees and franchisee partners. It is your passion.
Commitment and dedication that make this Brad and his family truly special.
I'd now like hand, the call over to Larry to review, our third quarter results in detail.
Hi, Bernard before we get into our third quarter results I'd first like to provide a quick update on our store base during the quarter. We opened one new company operated restaurant in Los Angeles.
We expect to open two to three company operated restaurants, along with two to three franchise restaurants for the full year.
Additionally, we continue to make progress on a remodel effort completing two company operated restaurant remodels in the quarter, our franchisees completed five.
Our new asset design work is near completion, and we look forward to implementing it beginning with remodeled in early 2020.
Now onto our financial results.
For the third quarter ended September 25th 2019, total revenue was $112.1 million as compared to $112.2 million in the third quarter of 2018.
Company operated restaurant revenue decreased slightly to $99.1 million compared to $100 million the same period last year.
A slight decrease in company operated restaurant sales was driven by the sale of 11 company operated restaurants to franchisees and the closure of five restaurants during and subsequent to the third quarter of 2018.
This was partially offset by 1.6% growth in company operated comparable restaurant sales the contribution from the six new restaurants opened during and subsequent to the third quarter 2018, and $500000 related to an increase in revenue recognized from our loyalty points program.
The increase in company operated comparable restaurant sales was comprised of a 2.0% increase in average check partially offset by 0.4% decrease in transaction.
As Bernard noted we were pleased with the progression of our sale trends during the quarter as well as our current fourth quarter momentum.
Franchise revenue increased 9.1% in the third quarter to $7.3 million compared to $6.7 million in the prior year period.
The increase was driven by 0.6% increase in comparable restaurant sales the transfer of the 11 company operated restaurants to franchisees as mentioned earlier in the contribution from seven new franchise restaurants opened during and subsequent to the third quarter of 2018.
This increase was partially offset by three restaurant closures during the same period.
Turning to expenses.
Food and paper cost as a percentage of company restaurant sales decreased 50 basis points year over year to 27.8%.
The improvement with predominately due to higher menu prices and favorable sales mix looking ahead to next year, we expect commodity inflation of approximately 1% to 2% in 2020.
Labor and related expenses as a percentage of company restaurant sales increased 40 basis points year over year to 29.6%. The increase in labor expenses was due primarily to higher hourly wages in California, especially Los Angeles and higher workers compensation expense.
Partially offset by increased menu prices.
We expect labor inflation of 6% to 6.5% in 2020, which continues to reflect the tight labor market and minimum wage increases.
I can be and other operating expenses as a percentage of company restaurant sales decreased 10 basis points year over year to 24.1% has higher prices and lower advertising costs offset increases in occupancy costs and marketplace delivery fees.
General and administrative expenses decreased by $2.6 million year over year to $9.5 million, including DNA or approximately $230000.
Expenses related to legal expenses associated with leave with Securities litigation executive transition costs compared to approximately $3.7 million the third quarter of 2018.
Excluding the costs associated with security litigation executive transition costs Gina expenses in the third quarter of 2019 increased approximately $815000 year over year to 8.3% total revenue for an increase of approximately 70 basis point versus the prior year increase in June expense.
It is but primarily due to higher stock option expense severance costs and project spending.
Depreciation and amortization expense decreased to $4.3 million from $4.5 million, the third quarter of last year or by 10 basis point year over year as a percentage of company revenue.
Additionally, in last year's third quarter, we received $2 million related to the reimbursement a legal costs associated with the securities class action lawsuit.
We recorded provision for income taxes of $2.9 million in the third quarter of 2019 for an effective tax rate of 31.5%. This compares to a provision for income taxes of $2.4 million at an effective tax rate of 25.9% and prior year third quarter.
We reported GAAP net income of $6.4 million or 18 cents per diluted share in the third quarter compared to net income of $6.8 million or 17 cents per diluted share the prior year period.
Pro forma net income for the quarter was $7.2 million as compared to pro forma net income of $7.6 million in third quarter of last year.
Pro forma diluted earnings per share were 20 cents for the third quarter of 2019 compared to 19 cents in the prior year period.
A reconciliation of pro forma net income and earnings per share to the comparable GAAP figures. Please refer to our earnings release.
In terms of liquidity and balance sheet, we had $12.1 million and cash and equivalents as of September 25th 2019, and $101 million and debt outstanding.
For the seeable future, we expect to finance, our operation, including New restaurant development and maintenance capital to cash from operations and borrowing under our credit facility.
For 2019, we expect our capital expenditures that totaled $12 million to $15 million.
During the quarter, we purchased 2 million 825896 shares for approximately $29.9 million or an average price $10 to 57 cents excluding brokerage fees.
Subsequent to the ended the third quarter, we completed the sale of five company operated restaurants within the Dallas area to an existing franchisee. The sale did not result to any cash proceeds nor any gain or loss at the assets had previously been fully impaired.
Turning to our outlook for 2019, we are revising our guidance for full year as follows.
We expect pro forma diluted net income per share a 71 cents to 74 cents this compared to pro forma diluted net income per share a 74 cents in 2018.
Our pro forma net income per share guidance for 2019 is based in part and a filing annual assumptions.
We expect system wide comparable restaurant sales growth to be approximately 1% to 2%.
As I noted we expect to open two to three new company owned restaurant and expect our franchisees opened two to three new restaurants.
We expect restaurant contribution margin of between 18.2% and 18.6% as compared to our previous range of 18.2% to 18.7%.
This adjustment reflects our expectation in the fourth quarter of higher food costs associated with the tamales promotion increased marketplace delivery fees and restaurant level training costs.
We expect Gina expenses at between 8.18, 0.3% total revenue excluding legal fees related Securities class action litigation, and reflecting our change and counting for franchise advertising fees.
We expected adjusted EBITDA of between 61, and $63 million and we're using a pro forma income tax rate of 26.5%.
This concludes our prepared remarks.
I'd like to thank you again for joining us on the call today and we're now happy to answer any questions that you may have.
Thank you we will now be conducting a question and answer session. If you'd like to ask your question you May Press star one on your telephone keypad a confirmation Tom will indicate your line is in the question Q.
You May press Star too if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing starkey.
Our first question comes from the line of Jake Bartlett with Suntrust. Please proceed with your question.
Great. Thanks for taking the questions.
First I just wanted to understand the performance in September in October and trying to figure out how much you think it was attributed to the success of the five dollar.
Bundle or bowl that you're offering it also just remind us what's different about that that offer versus some of the five dollar combos that you've had in the past and also ahead of the on them on the menu permanently in the past.
Sure so.
I think we attribute the growing momentum we experienced in the quarter, both on the topline and more well equally as important and transactions due to I'd say three things I think it was the strength of the fire grilled combos promotion.
It was the expansion of our delivery capabilities. So we added both postmates new breeds in the quarter. In addition to our existing partner door Dash and then I would say the third is in operations improvement. So we're seeing.
Significant improvement in customer complements and as I mentioned, our internal measurement of customer satisfaction, what we term. Our overall blended index is been steadily increasing throughout the course of the year and is now at an all time high So I'd say it was the confluence of all three of those factors specific.
Only addressing your question on the $5 combos.
I think the main difference is.
One we added not chose to that lineup. So we had some success with not shows in LTL in the past and saw a lot of take on that product. So we decided to do a five dollar fire grilled combos version of it.
And I think that was one of the big Big contributing factors, but I think it was also frankly speaking how we executed at both with our advertising and in our restaurants.
Got it makes no sense and then in terms of.
The sale of the stores in Dallas, what does the state of the of the company owned stores in Houston I'm wondering whether that's something that you're also pursuing and then just philosophically as you look at the company versus the franchise mix do you see yourself moving more towards to the franchise mix in shedding some of the.
Maybe the weaker performing markets.
Well in the case, a Dallas, we had an opportunity there too.
Sell our stores to a franchisee who already had a significant presence in that market.
So it made all the sense.
For us to transfer ownership under a strong local partner based out of that part of the world. He knows that local market really well, we all know that Texas is a unique animals. So we thought we'd be better serve putting it under local ownership.
The good news, whether it be Dallas or whether it be Houston.
Is that.
Those stores have been steadily improving in their performance.
In the case of Houston, we're still.
Committed to that market and that market continues to show progress, but as we've mentioned just as a general statement. We're looking at franchise, the transference or I should say the sale of company markets, the franchisees opportunistically and as as as things present themselves that makes sense, what we'll consider.
Yes, and take the only thing I'd add on top of that is I don't see us having a major shift in the company franchise mix as an art highlighted it will be opportunistic, but I wouldn't expect to go through a big selling program of southern company restaurants.
Got it and then last question you know it looks like you're you're making some progress here under the same store sales improvements and getting some traction there. When do you think that should translate into new unit growth and I know you've talked in the past about wanting to open a new marked or two in 2020, where do you stand as in your progress towards that goal.
Yes, so we're still finalizing those two markets one or two markets as we speak.
And we have been working assiduously on our restaurant design in the future, which we day by day get more increasingly excited about not only because of.
The design aesthetic thats going to present to the world through the lens of our new brand.
But also in keeping with our third strategic pillar of the transformation agenda, we have massively simplified the back of house in a way that we think is going to make us more competitive than we've ever been so.
Right now we are on track to open at least one new market next year.
But.
Don't have much more I can share with you at this point.
Great. Thank you very much.
Our next question comes from the line of David Tarantino with Robert W. Baird. Please proceed with your question.
Hi, good afternoon.
Just first question on delivery.
I think Bernard you mentioned that.
Sure.
Especial menu for that to make it I guess, a little bit closer margins or what you're in restaurant transactions are could you maybe explain but how that works and whether there is a difference there on them and then secondly.
If you could comment on whether you think the transactions are seeing there are incremental or not that would be helpful. Agriculture Hall.
So we have what we've called internally termed the bifurcated delivery pricing strategy. So if if Europe customer and you go through our El Pollo Loco website or through our mobile App, we're going to offer you the full entire El Pollo loco menu at regular price and then whatever delivery fees.
You know get attached to that we pass onto the customers. So we retain 100% margin on those sales if someone orders through one of three delivery marketplaces of which were currently part of and we'll add grubhub for a fourth in December .
Then we have a more curated menu a smaller menu with a heavy emphasis on combos.
Family meals, and actually exclusive configurations, because we add chips and salsa to a lot of those.
A lot of those menu items.
That are not cannot be found on El Pollo loco dotcom or through our mobile app and we charge a price premium through those third party marketplaces, let's call. It I'm going to include our franchisees here, although we don't have any influence over their pricing, but anywhere from let's call it 13% to 15% markup on those price.
Products to mitigate some of the margin loss given that we have to pay a commission rate to those third party delivery marketplace providers.
And and thank you for that and what's what's been the customer feedback or do you have the ability they get feedback.
As you look at sort of the execution.
The overall kind of value proposition so the customer.
Anything you can offer on that front.
Yes, the only thing I could really just from.
Kind of more of an empirical point of view I think if you take a look at just our delivery growth.
In terms of sales mix, it's it's largely come in this quarter from our delivery marketplace providers. So we don't see resistance necessarily from the more elevated pricing that we're charging in those channels I think consumers there are looking to pay for convenience first and foremost and.
And so we're kind of enthusiastic and excited about the progress we're making with these providers.
Great and then.
Larry is there a piano benefits.
But you expect to see from a sale of the Dallas restaurants.
Yes, we do.
I think in the path at highlighted.
The the margin.
Hello drain that.
The AD remarks that provided.
So we will see a margin benefit from the sale of Dallas restaurants, and should see an EBITDA benefit in the Dallas restaurants, as we go into next year.
And would you help us and terms or quantifying that.
The margin benefits should be somewhere around 50 basis points.
Great and and then on.
Next year I might've missed this but I think you mentioned that you're going to enter at least one new market do you have a current development plan in terms of company operated and franchise growth that you're on the share at this point.
We are still working through that David right now I would say is I would expect to be in the 10 to 15 total restaurant range for next year.
And probably split roughly half and half.
Great. Thank you very much.
As a reminder, ladies and gentlemen, it is star one to ask your question. Our next question comes from the line of Matthew Difrisco from Guggenheim Securities. Please proceed with your question.
Thank you just wanted to also can you just specified you just say there's three dollar stores that we're transferring over to our market Francesco five okay and are any of those going to.
Not have a royalty you're right away will they have a royalty and there is there any sort of deal as far as transferring them, where there might be some abatements initially.
Yeah. So we have basically in the initial I think couple of years be no royalty on those restaurants.
But it'll still be earnings accretive in.
And that the proceeds you're going to be are you getting proceeds offset more buyback stock or.
Or just carry the balance I'm trying to think of how this is to a piano basis aside from the 50 basis point improvement to the margin you're selling dollars.
What are you getting them returned to offset that as far as the lost EBITDA contribution.
No, we'll get a positive EBITDA contribution Matt they were losing money yes.
Got it okay. So you removed the depreciation.
And you're going to gain.
No there was no depreciation because the restaurants have been fully impaired.
Okay.
But there will be in EBITDA flash cash flow positive benefit our EBITDA benefit from.
Sale those restaurants.
Excellent. Thank you and then just as far as some of the guidance here the Gionee garden sort of 8.28 0.1 to Eightpointthree.
Our son of sales I'm, assuming you're doing that off of your gross sales. So the number of 112 million in this quarter, so inclusive of franchise AD revenue.
Yes, that's the way we reported now yes, and then you back out the legal which was only in the first quarter of 2.2 million.
Well first quarter of 2.2 million.
Well I do we back out the legal expenses associated with the Securities litigation.
What's the total year to date.
I mean second.
At $2.8 million.
Perfect.
Just wanted to be on the same page okay.
Thank you so much yep.
We do a follow up question from the line of Jake Bartlett. Please proceed with your question.
Hi.
This is one I should get chip, we ask every quarter, but I just wanted to ask what the on system wide sales were for the quarter.
227 million.
Now 150000 for two to 7.95 million.
Great and then and then and then lastly, you guys have a unique perspective, they are in California, and specifically southern California wondering any comments you can make on the wildfires.
They are going on in any impact to your stores.
Positive or negative.
Yes, so naturally we're all watching it very very carefully.
So far the impact has been has been minimal it has.
We've had a little bit of power outage here or there in a few stores, but on the number has been extremely small at this point thats not to say that if the situation.
Gets bigger or wider.
One quick it won't be cause for greater concern, but at least at this juncture the impact of that has been pretty minimal.
And just a little more color I mean, really we've only seen a really minimal number of actual closures company and franchise.
And as we're watching our comp sales were really not seeing any impact on comp sales. This point in time.
Great and then actually lastly, we'll win one more.
We're not made the comment that you were lapping it's you had positive your.
Same store sales were strong in September , but you're lapping, 2% disorder, or sorry, 3% want to make sure that was 3% in traffic overall I would make sure you're not referring just to traffic, but that's one question.
Looking at the fourth quarter last year. There was there is a meaningful acceleration.
In the comps you later can you give us an idea of how the monthly progression of same store sales when last year I know that there was I think momentum kind of heading into the fourth quarter, but but it looks like it did actually built beyond that I just want to confirm.
Well first of all I mean, your first question regarding the I think to 3% comparison in September that was actually the comp not just transaction great. Yeah. Okay, and then if you look at.
Last years.
Movement in comps.
Yes, I mean, you saw an acceleration really November December so last year October in September roughly in line and then you saw an acceleration of MBR in December .
Great. Thank you very much appreciate it.
Our next question comes from the line of Andy Barish with Jefferies. Please proceed with your question.
Okay.
Hey, guys couple of just follow ups, and then and then some new step on that on the the new Postmates a new breed sweat what when went in September to that role was it for most of the month.
Yes for most of the month, we started late August and then it kind of.
Was in full full effect starting in September .
Okay.
And then on the on the mix in the in the quarter.
It seems like you're running mid mid to high threes on pricing. So it implies the mix down a couple points can you just give us what was what was kind of move in there with a deliberate picking up I imagine that carry is certainly a higher ticket but.
$5 combo is obviously, an offset maybe.
Yes, ill, let larry going to little bit more detail on it but I think the thing that we were encouraged by NASA as I mentioned before it was that the transactions through the quarter got steadily stronger.
And some of the so while that was inc., while that was improving getting and getting steadily stronger.
Our check with something that we are watching carefully because for the last quarter or too.
We think that theres been a little bit of macroeconomic, California effect with the consumer where there had been careful about how they're spending their dollars. So we saw that within the quarter.
We're not quite sure if it's going to sustain itself we think its.
Something thats, a little bit more short term than than longer term.
I do want to talk a little bit more about yes. It is adding onto up in hours highlight I mean, there are couple other key factors. One was we did have a little higher discounting.
In the quarter.
The other one was.
Our LTL to be in acquire was case, India's which ray.
A lower price points, we had one caveat lower price point versus prior year. So that was also factor and then Bernard highlighted.
We think we're seeing I, what I would call them customer check management.
As it probably as a result of higher gas prices thing here in California, So the real positive.
We are getting more transactions were making more people into the restaurant.
But I think we are seeing a little pullback from customers in terms of what they're spending in restaurants.
Helpful.
And then finally just on on labor.
You know certainly a lot better then it looked in the first half of the year. So.
The improvement in comps I'm sure some of that but was there anything else.
Specific to the quarter other than the operational improvements the teams put in place and then dovetailing into the new new cooking procedures.
Does that actually create some opportunity for labor efficiency or productivity or is it really.
Really focused on product quality and ease of.
Of execution.
Yes, let me I'll start with any of that question first of the new cooking procedures were looking at as making easier to exit in restaurants, we don't have plans a pull any labor out as a result of that it's really making a lot easier for our cooks to execute and what we're seeing also is a better product quality because of the easier.
Procedures, so thats a real driver on that in terms of on the labor line.
Yes, no nothing really unique I mean, we continue to see the fixed the second half percent labor inflation that we talked about all year the wage inflation.
The one thing we did see was probably a little better efficiencies in the third quarter on labor, which help.
But going into the fourth quarter will continue to see that labor inflation. We've also.
Just so the magic mutation little bit we're also making further investments in terms of.
New processes, we're rolling out to our restaurants mean talked about that earlier in the call. So that will involve training costs. So that will be incremental labor cost during the quarter, which will have some impact on labor at present sales and our margins.
So expect to see a little bit lower.
Well more cost and labor line in the fourth quarter relative to the third quarter and the other thing I'd highlight also in the fourth quarter. You generally have lower you these versus the third quarter. So again, you may see a little bit more margin impact on labor line in the fourth quarter.
Okay. Thanks about.
Yes.
There are no further questions in queue I'd like to hand, the call back to Mr. Coca for closing remarks.
Well I want to thank everyone for joining us today and want to wish everyone. A very happy holiday with their families and we look forward to talking to all of you soon take care.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.