Q4 2019 Earnings Call
Thank you for calling may I have your confirmation code, please?
Give me one moment, please.
Okay. May I have the spelling of your first and last name, please?
Thank you. And your phone number, please?
28697
Oh 36369 7 thank you. And your company's name, please?
A as in apple, I as in Edward, r as in Robert, A as in Alpha.
Okay. Thank you. I've listened to the dentist Corporation call.
off off
Thursday
Yep.
Please stand by.
Good day everyone and welcome to the Denny's Corporation fourth quarter and fiscal year 2019 earnings call today's conference is being recorded at this time. I'd like to turn the conference over to Kurt Nichols dead president investor relations and financial planning and Analysis, please go ahead sir.
Thank you.
Sharon good afternoon, everyone. Thank you for joining us for Denny's fourth quarter 2019 earnings conference call with me today from management or John Miller in Chief Executive Officer took a finger when he's president. And Robert Frost is Jimmy senior vice president and Chief Financial officers. Please refer to our website at investor to find our first quarter earnings, press release along with any reconciliation of non-gaap financial measures mentioned on this call. This call is being webcast and an archive of the webcast will be available on our website later today and will begin today's call with his introductory comments Mark will then provide some comments on recently announced leadership changes in Robert will provide birth of a fourth-quarter results along with brief commentary on our annual guidance for 2020 after that. We'll open it up for questions.
Before we begin let me remind you that in accordance with the Safe Harbor provision of the private Securities litigation Reform Act of 1995. The company knows that certain factors to be discussed by members of management during this call May constitute forward-looking statements management urges caution and considering its current trends in any outlook on earnings provided on your own bank statements are subject to risks and uncertainties and other factors that may cause the actual performance advantage to be materially different than the performance indicated or implied by such statements. That's Rick Ross doctors are set forth in the company's most recent annual report on form 10-K for the year ended December 26th, 2018. And in any subsequent quarterly reports on em with that I will now turn the call over to John Miller and his chief executive officer. Thank you. Good afternoon, everyone achieve positive same-store sales for the month.
consecutive year despite shopping yet
Dynamic industry environment, I grew progressively transition to a more highly franchise bran during twenty. Nineteen. I'm especially proud of our team for balancing are we franchising efforts with a steadfast commitment to our vision of becoming the world's largest most admired and beloved family of local restaurants. This vision is driven by our consistent execution of our for strategic pillars first dog in a different shade and relevant Grand around our dire position with the goal of perpetuating consistence going to our sales growth second operating great restaurants with consistent and reliable service off 3rd, expanding Geographic reach throughout the US and international market and Ford Driving profitable growth with a discipline focus on cost and capital allocation for the business of our franchisees wage employees and shareholders and these pillars are supported by our continued investments in technology and training along the close collaboration with our franchisees. We also continue to do a job.
our menu to read s expectations
Or higher quality and more credible products. Are they just lto menu feature Sizzlin Skillets, and he'll good flavors, including our Hardy ninth grade changing breakfast and our new home.
We also have been featuring the new super duper slam with all you can eat pancakes starting at six ninety nine as part of our everyday value offering to drive traffic while dine-in transactions continue to represent a majority of our sales are steady growth and delivery has contributed to a 67% growth and or off-premise business from nearly 7% of sales prior to the launch of being drugged managed to approximately $12 in sales in fourth-quarter. Approximately eight 89% of domestic system of our domestic system is no actively engaged with at least one delivery partner these transactions continue to be highly, you know, you toward a younger guest in the showroom that's in the late night and day today Parts anticipate continued long-term growth and off-premise sales From the Dunes on demand platform restaurant expand their delivery channels Heritage remodel program continues to perform. Well consistently receiving favorable Gatsby back in generating mid single-digit range sales less.
the ending 2019
2089 percent of the system had the Heritage image after extensive extensive testing with our franchisees. We have started rolling out the next remodel prototype, which we're calling Heritage 2.0 off this new prototype was developed based on consumer research and features more attention-grabbing exterior elements relaxing neutral colors with fiber accents modernized boost and Community. Just remember to the latest images now in 34 restaurants and similar to the original here in three model program ranging cost from approximately $150,000 to $300,000 also similar to the original Heritage baggage. The Heritage 2.0 prototype is yielding mid single-digit sales driven by Guess traffic improvements across all day Parts. While most pronounced dead part three models including the new Heritage 2.0 pro tide will continue to provide detail in for our brand revitalization strategy for years to come are Learning and Development team DED.
Need to create and deploy Progressive curriculum.
Mhm system throughout his ninety running platform, which is currently focused on our delight and make it right service initiatives and our franchisees pride scores do continue to rise moving on the development a growth initiatives have approximately three hundred eighteen restaurant opens since the beginning of our only reservation efforts in 2011, representing over 20% of the current system for Thursday. We open 9:00 restaurants in the fourth quarter including for international openings in Canada Border Rico in the United Arab Emirates, the 14 International openings 2019 was equal to our strongest year off International expansion today turning to our re franchising development strategy. We completed the sale of nine restaurants in the fourth quarter resulting in a total of 113 restaurant. So long since the announcement of our strategy in the fourth quarter 2018 a year end we had for restaurants marked as held-for-sale and we have a high degree of confidence the sale of those will occur in the month.
Sure, which effectively will conclude?
Re franchising efforts have been extremely pleased not only with the franchise can use interest and paste the transactions. But also with the number of development commitment secured through this effort the real exciting strategies at your statements to development to develop 78 new domestic restaurants, successfully, achieving one of our primary objectives to stimulate domestic restaurant Road home and just these new developments stores will begin opening in 2021 these domestic commitments along with our recently announced in hand International Development agreement with an expander our Global development pipeline by nearly 130 restaurants while we franchising a bird is wrapping up we anticipate our strategy to upgrade the quality of our real estate portfolio page completed by the end of 2020 to continually assess our Capital allocation strategy with the balance and shareholder-friendly returns with an optical leverage profile that supports these provider log
In addition to investing, you know.
Monster standing internal review process continues to actively consider multiple alternative uses of cash. This practice is thorough and comprehensive with a full array of considerations from neighboring the acquisition of another concept to Acquisitions for conversion. Like are Flying J transactions earlier in the decade considering a dividend to our office here repurchase program each was due consideration to accretion and risk balance these various considerations with our leverage velocity and more recently proceeds from the franchise and transition. We have remained the passing, you know, revolving credit facility and intend to moderately increased leverage beyond the approximately 3 times easier all Rebel from when we begin with franchising efforts near-term increased temporarily in 2019 from the notes as well as we franchising proceeds. We remain steadfast however in our commitment to increase our leverage birth
And generate the most accretive risk-adjusted shareholder returns to the timing Improvement assessment of these Alternatives and closing as we complete our transition to a more accurate life business model. We remain committed to our revitalization initiatives including quality enhancement to our menu and everyday value and convenience and video on demand and Banking and training going to guess experience and are successful remodel program. These initiatives will continue to support our commitment to profitable as a sales growth market share gains, the generation of long-term Returns on invested capital and highly Improvement shareholder-friendly allegations of Justin free cash flow the better equip us for continued success. We mail a realignment of some leadership position last week including the promotion of Mark wolfinger to present has been in the promotion of John Dillon's Executive Vice President and chief brand officer and promotion of Robert Frost the senior Vice wage.
2012
I'll now turn the call over to Mark to briefly discuss these changes. Thank you. John. The changes announced last week are the culmination of a multi-year planning process led by our board of directors leadership roles were deliberately kept intact during the refranchising effort to ensure a successful transition to a more highly franchise business. Now that we are substantially complete with our refreshing strategy. It is the appropriate time to realign responsibilities for the continued long-term success of our business here Dennis.
Going for a John Miller will continue to serve as CEO and a member of our board of directors free John from a number of administrative responsibilities will enable him to focus on extending our brand revitalization strategies to his ongoing Visionary leadership as president. I will be more involved in broader aspects of our business including greater oversight of the day-to-day administration of our evolving support center and greater influence in the function of our leadership committee. I will also continue to serve as a member of our board of directors John billing is promoted to Executive Vice Presidential finding his leadership as Chief brand officer with increasing responsibility for franchise of relationships. He will advance the alignment among marketing operations and development functions as we met his brand synergies.
Robert Bostic is being promoted to Chief Financial Officer in recognition of his increase in
Financial leadership where he will be responsible for accounting finance and purchasing functions.
Now before I hand the discussion of a Robert Frost, then his new CFO. I want to express my appreciation for the support. I received during my nearly 14 and 1/2 years as the Benny CFO. It's been a challenging that extremely rewarding experience to represent this great brand as Chief Financial Officer. I am very confident the board has chosen an excellent leader Robert Bostic who has spent over twelve years with Denny's in a multitude of financial leadership positions. I remained as always very excited about the future opportunities for the Denny's brand and I look forward to contributing to to the continued growth off-brand in my new role and now is indeed my pleasure to turn the call over to Robert Frosty. Then he senior vice president and Chief Financial Officer to further discuss our 2019 results Robert wage. Thank you Mark and good afternoon everyone our fourth quarter highlights include growing domestic system-wide same-store sales by 1.7% in general.
adjusted ebitda of 24
4.9 million dollars
adjusted free cash flow was 12.1 million dollars and adjusted net income per share increased 27.6% to $0.23 up from $0.18 a month prior year quarter. We ended the quarter with 1703 total restaurants as Denny's franchisees open 9:00 restaurants. These openings were offset by twelve inch eyes restaurant closings.
Franchise and license Revenue increased 17.9% to 65.0 million dollars primarily due to the impact of our franchising and development strategy took a 1.8% increase in domestic same-store sales franchise operating margin was 48.9% compared to 48.3% in the prior quarter. This margin rate expansion was primarily driven by the company's re franchising and development strategy, which yielded an increase in royalty revenue and an improved occupancy margin moving to our company restaurant sales were impacted by a refranchising and development strategy, which resulted in a lower number of equivalent Company restaurant.
this was
Play offset by 0.5% increase in same-store sales accordingly sales were forty eight point four million dollars for the quarter or down approximately 53.5% Company restaurant. Operating margin was 17.7% compared to 16.2% in the prior year quarter.
This margin rate change was primarily due to decreases in payroll and benefit costs and other operating costs from the leveraging benefits of refranchising restaurants.
Offsetting these cost improvements with an increase in occupancy related expenses including higher property insurance costs and the mix of owned versus leased properties. Welcome to the refranchising of restaurants.
Total General and administrative expenses of fifteen point four million dollars for impacted by a decrease in share-based compensation expense in addition to a reduction in Personnel, partially offset by market valuation changes in our Deferred Compensation Plan liabilities, and an increase in performance-based incentive compensation, these results contributed to adjusted ebitda of twenty four point nine billion dollars depreciation and amortization expense was approximately 2.8 million lower wage at four point two million dollars primarily resulting from a lower number of equivalent Company restaurant due to a re franchising and development strategy and classifying wage. Its held-for-sale interest expense was approximately three point six million dollars compared to five point four million dollars in the prior-year quarter primarily due to a ninja
decrease in the balance of our credit facility
The provision for income taxes was five point 1 million dollars reflecting an effective income tax rate of twenty 1.5% adjusted net income 4shared was $0.23 compared to 18% in the prior year quarter.
Adjusted free cash flow after cashier pay cash taxes in cash Capital expenditures was 12.1 million dollars compared to a seventeen point seven million dollars in the entire year quarter primarily due to increases in cash taxes. We waited to the gains on the sale of company restaurants partially offset by a decrease in cash interest in cash Capital expenditures.
Cash Capital expenditures included real estate Acquisitions and Facilities maintenance of 3.2 million dollars compared to four point seven million dollars in the prior-year quarter off. Our quarter-end debt to adjusted ebitda leverage ratio was 2.7 times and we had approximately $256 of total debt outstanding in a $240 under our revolving credit facility. We allocated forty five point four million dollars in ninety six point two million dollars towards monthly purchases during the quarter and full-year 2019 respectively these open market repurchases represent a reduction of 4.9 million shares in 2019 at an average price of $19.72 per share.
between
The quarter and February 10th, we allocated an additional twenty two point two million dollars to share repurchases as of February 10th. We had approximately two hundred million dollars remaining an authorized share repurchases since beginning our share repurchase program in late 2010. We have allocated approximately $542,000 to repurchase approximately 54 million shares at an average price of $10 and fifteen cents per share leading to a net reduction in our share count of approximately 54% Now I would like to update everyone on the status of our previously announced tree franchising and development strategies.
We have been migrating from a 90% franchise business model to one that is between 96% and 97% franchised and we are substantially complete that effort off at the end of 2019 as a reminder. We anticipated selling between 115 and 125 total Company restaurant with between 70 and 80,000 attached development commitment during the fourth quarter. We sold nine restaurants to franchisees bringing the strategy to date total to 113 restaurants sold additionally as of the end of 2019 we have for Country restaurants classified on Caliper sales.
With these transactions, we have secured 78 development commitments that will continue to enhance our domestic development for years to come.
We expected to receive multiples in the range of 4.5 * 25.5 * restaurant level, even on these transactions yielding total pre-tax re franchisee posting between 125 and 135 million dollars strategy to date. We have received approximately 128 million dollars and pre tax proceeds front-end fees and other transaction fees and an ebitda multiple of approximately 4.8 ties while this transition to a lower risk more asset-light business model will initially have a deluded impact on adjusted ebitda table. We anticipate in the Creative Impact on adjusted earnings per share and enhanced adjusted free cash flow.
Need the creative actions combined with three franchising proceeds are expected to enable us to generate more compelling returns for our shareholders the contribution of restaurants Soulja a partially offset by royalty Revenue rental income and cost rationalization.
We are.
The process of rationalizing approximately eleven to thirteen dollars of business costs with approx 40% of the savings coming from reductions in field support functions current wage captured in our company and franchise operating margins.
Approximately 35% of the savings will come from adjustments in our corporate G&A support structure and the remaining 25% will come from gradually migrating certain support costs from divorced. You're made to share costs with franchisees over the next couple of years.
We expect a yield and adjusted ebitda level that is similar to the results. We delivered in 2018 following the conclusion of our re franchising efforts and the trailing rationalization of business cost excluding inflationary pressures.
While we continue operating a portfolio of Company restaurant in our highest volume trade areas such as the Las Vegas Strip our transition to a more asset-light business model is expected to reduce annual cash Capital expenditures associated with maintenance and remodel cost by between nine and ten million dollars.
the reduction
An ongoing maintenance and remodel capital A coupled with three franchise and proceeds and future royalty revenue on the associated development commitment will further support are committed to commitment to Chef friendly Investments and returns including the return of capital to our shareholders.
The second part of our strategy and upgrading the quality of our real estate portfolio through a series of like kind exchanges. We anticipate generating approximately Thirty million dollars and proceeds from the sale of between 25% and 30% of the approximately $20.95 properties that we owned at the start of the strategy proceeds from the sale of real estate under lower unit will be redeployed to require higher quality real estate during the fourth quarter. We acquired one property for approximately 1.9 million dollars off the strategy to date total to six properties for approximately eleven million dollars with these proceeds. We have we have acquired five properties through a series of like kind exchanges.
Let me now take a few minutes.
To expand on the business Outlook section for fiscal year 2022 the anticipate the following annual guidance ranges is important to note that fiscal year 20 includes fifty three weeks of activities. We expect domestic system-wide same-store sales growth of between zero and 2%
We anticipate 30 to 40 new restaurant openings with a net system change of between a decline of five restaurant and our growth of 5 restaurant.
We expect total operating revenue of between $453 and $459 including franchisee and license revenue of between $260 and $563 million dollars.
We we expect franchise operating margin of between 48.0% and 49.0% and companies restaurant operating margins to be between 8 0% and 19.0% total General and administrative expenses are expected to be between $66 and $69 wage is inclusive of approximately ten million dollars of share-based compensation expense as a reminder total General and administrative expenses will be impacted by a Pack 1 million dollars due to an additional operating week as a result. We anticipate adjusted ebitda of between $97 and $100.
We expect nothing.
It's expense to be between $17 and $19.
Our effective income tax rate is expected to be between 22% and 25% with cash taxes of between nine and twelve million dollars. We continue to compromise the value of a real estate portfolio by selling property under some lower volume stores in order to acquire higher-quality real estate through a series of like kind exchanges nationally cash Capital expenditures are expected to range from $28 to $33 including between $13 and $18 of anticipated real estate Acquisitions, excluding these anticipated real estate transactions. The otherwise would expect cash cap cash Capital expenditures to be approximately 14 million dollars.
As a reminder cash proceeds from the sale of real estate will be reported in cash flows from investing activities in our Consolidated statement of cash flows, but these girls State proceeds are not captured in the cash cap ex or adjusted free cash flow guidance metrics, we provide however, the cash outflow to purchase real estate is in clubs in addition as John mentioned. We are very encouraged by the success of our heritage 2.0 test and therefore will be accelerating some of the initial Heritage company three models, which is also included in our guidance range. Finally our guidance for adjusted free cash flow is anticipated to be between $39 and $42 million.
Yep, the anticipated.
Real estate transactions were excluded or expectations for adjusted free cash flow would be between approximately $55 and $58 billion dollars in that wraps up. Our prepared remarks. I will now turn the call over to the operator to begin the question-and-answer portion of our call.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signature reach our equipment again, please press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And our first question will come from a second.
Thank you. Just first congratulations Mark Robert and Kurt on the on the well-deserved promotions. You know, I think we find very few detractors with the comment, uh regarding John Visionary leadership and it's maybe an appropriate time to have given two quarters in a row. Now you've talked about Alternatives. You said the cash and increase folks in the Strategic opportunity ahead of you know, is there an opportunity to to maybe take a page of just sharing purchases going forward?
Thank you for question and answer.
Kind words toward the leadership team here. I think you know, we're we're entering an ERA with these changes so that Mark and Robert and teens and focus on education of the brand and and John Dolan and and I and Steve guns our focus a little bit more on sort of missing man to to make the best proposition boobs Ki Tomar completely think there's a lot of growth unlocked in this business at breakfast lunch dinner and late night. We think the diner positioning can be very powerful think there's a lot of domestic momentum we can gain after having been a little bit sake past couple of years and we think that the global growth for this brand is can be pretty powerful tool. Will of course be our primary objective and then and then as to strategic Alternatives, I think what we've been trying to characterize for those that asked the question persistently. Have you thought about this or that wow.
Leaving you do think about these things and give them due consideration and and have done that for years and come back to betting on our brand and share repurchases for the for the time of hand-washing. I appreciate the question.
In terms of the the remodels on the company on site approximately how many remodeled and the company on site do we expect in 2020?
Hey Nick, this is Robert. If you recall back when we launched into the last 3 miles remodel cycle was Heritage 1.0. We accelerated wage. And I think that was back in 2014. And we ended up accelerating and functioning finishing the remodel update in approximately three years. So so fast forward we're beginning the the the next cycle again, and is John pointed out when you look at the returns are very similar to what we experienced during during the hair is 1.5 rollout. So we're very encouraged by that and what that could deliver for the company of portfolio. So going forward with although we haven't guided specifically took the number of remodels. Again, if you look back at history and the returns that we had we we are bullish about this and and we'll go further into the remodels and otherwise wage.
And it's been suggested by.
But not knowing the pattern. Okay, and the last question let others take over in terms of the franchise Mark and you know 48.9% Is there an opportunity that maybe you know get that to to move a little bit higher as on the rationalization takes place over the next you know few years Beyond 2020.
So, this is Robert again with regard to that margin as you would expect it in the current year the the volatility with regard to that had been impacted by the transactions particularly with regard to the occupancy margin. So you when you look at that wage, yeah. Yeah the office of Mark and there is the benefactor is that a compliment of the the lease versus own model? So so you have that within that 58 to 49% is leveraging impact as you would expect when you grow unit the normal complement of oversight on the franchise South is that 40 to 45 what we call franchise Business Consultants to One Restaurant. So there is a leveraging effect with each each as we grow those units compared to what would have been
on the company side, which was
More than one to 7 to 8 range. So as we grow continues to grow franchise units particularly as John mentioned through these development commitment switch off and commitments will capture through the fdp process. We will that would potentially be an opportunity as John noted that looks to be the to really begin in Earnest in 2021.
Thank you very much. And our next question will come from Michael Thomas with Oppenheimer & Company.
Great. Thanks. First on same-store sales need to maybe talk about how you thinking about sales in 2020. What kind of gets you most excited? What do you see as the biggest drivers thing off? I think that the Denny's on demand and the the off-premise will continue to grow moderately and so forth A lot of people are sort of stopped pressing on the gas for that. Well, we'll do some promotional effort there, but it is a little bit lower margin. And so rather than run headlong into the wind on that we're looking for, you know, cost optimizations and and some benefits out there among the third party providers and I think that's helped us, you know focused on on how to think about some business long-term. So I thought well, well some people are just getting in the game. I'd I'd say that we're going to watch that carefully. The bigger driver for us would be our promotional calendar just from improvements in food service and environment and getting more and more credit app.
That with every passing cord or what?
Could be pried scores g x g l scores online scores reductions complaints better management of you know, ticket times through Delight make it right service recovery initiatives and we get it wrong and need to recover a guess all those things. If sort of gone from the Dark Ages a few years ago to sort of you know in the game and and now we're sort of working towards acting class and and how we roll out and get these get these initiatives to be stickier and how the impact one shift after another and the restaurant so but I'm most excited about you starting to feel you know, much better much more consistent much more reliable service standards throughout the brand and and my my confidence at that will drive off sales and transaction growth is the highest in our food is better. It's more capable and we're building equities Beyond, you know, just value proposition dead.
Got you. Thanks.
Maybe talk about that company on margin guidance of eighteen and nineteen percent relative to like the post refranchising commentary. I think it was Nineteen to twenty 1% previously, you know, when when would we be there or if it's not the case anymore? What are some of the differences now? Thanks. Yeah Michael one of the one of the key differences you correctly look at the investor presentation that we put put out when we took first began talking about this FTP this development strategy you are correcting in in in that range that you quoted one of the things that that that what that representative was the for wall margin before wall company operating. Margin what that means is it excluded the district managers and I believe we began calling Thursday as we got back on the road. So that really is the key key component between that nineteen twenty Twenty-One range in the eighteen two to 19% off.
That we put out today.
As you have seen as we've migrated throughout 2019 that rate has continued to improve and and we do have confidence that we will be with inside that range throughout as we moved throughout twenty-twenty. Thanks very much. Thank you.
Our next question will come from Jake Bartlett with SunTrust.
Me thanks for taking the question. Like my first question is is this about I know you have the ability to toggle media weights to either end of your barbell menu strategy as you see the promotion environment evolve, but but how do you expect 2022 look you if you expect to be able or two to have to kind of wait more than the value side or the premium side or or do you expect a more more balanced approach and and that's also in the context of kind of the opponent put breakfast Wars that are about to break out here need to USR.
Great question. I do believe you're going to see a general theme of mostly the same throughout 2020 vs. 2019 Dodge driven by all this the same, you know issues. There are there is an all-out battle for share with you know battle for transactions throughout the entire you got industry and so Thursday is a security among some, you know, undefined 15 to 25% of gas may be driven a little bit more for their frequency around the value proposition at the same time. There's a dead Earnest desire among the franchise systems to focus a little bit more on profitable transactions and quality transactions in light of high wage inflation. And so pricing is a little more aggressive than you know, a longer history of the industry and and the consequences of that are usually, you know, a willingness to give up a little bit of transactions at some level wage.
for a respectable margin
And tool for law economics to support and growth continued growth of a suit County in in a in a theater well-rounded wealth of a franchise brand interesting to grow 3250 restaurants here like Denny's so so the the tension between those two creates the account or that requires some of both so dead inside any quarter and then for our planning throughout twenty-twenty, we will have value propositions that we can talk of the wakes up and down as required and toward premium manual value propositions and took Delight part of the Delight make it right service model does prepare our service to to do a better job of highlighting new menu items that are on the premium side and took cell when there's nice up-sell opportunities and rather than taking too much air time. I could go back inside and maybe up Kurt to follow up share some of the advances I last year how that works. Yep.
Well on our credit promotion and and a couple of others one last thing I'll add is that overall 2.68 value menu in the fourth quarter mixed of barely in.
Double-digit rain around 11% that's down from where we ended eighteen, which is a little more than 12% on the year. And then when you add the super slammed to that call them another 5% So middle teens where a few years ago. That would have been in the High Teens are low 20s. So we have the emphasize that side of the menu will continue to do that through 2020.
Got it. Is that a reflection of just just consumers willingness or are you doing that reaction to Consumers willingness to spend more or you're doing that to try to help protect margins for the system? Well, it's a way of saying that all things are true at the same time. It's not one or the other are true. So well, it's true as the consumer wants more credible products is that our culinary wage and standards throughout the eat out industry and so dining out is becoming more competitive. And so the expectations would be nice to have premium offers that meet the test of a good quality standard is true. It's also true that there's a good song and a willingness to try those items. It's also true that if they're smart consumers in the face of lots of deals have lots of deals to shop. So if today's available day in their mind or a visit, they might have spent at home, but they'll go out of here to deal tomorrow might be I just got paid and I don't I feel prosperous. I don't feel like a deal. I feel like a birth.
You know and experience and so all are true. We have Smart consumers with lots of dealing going on. So we have to be in that business to hold on to share as our competitors due to some degree at the same time compete for the premium.
Experience side of the occasion and so both are true at the same time and so good brands have strategies to address those needs great in in the last question on on the cost savings on a spec through the the refranchising related to the roof franchising trying to kind of levels that work with the starting point is 4 g n a. I believe there's somewhere around 6 and 1/2 to 8 million life savings expect over the next two, you know, two or three years, but what's the starting point, you know kind of moved around a lot in nineteen given the stock comp and some of the incentive compensation that was kind of wage was higher because the stock price and partly but what's the good starting point and then how much have you saved so far too so we can kind of think about what's left to go.
That's a great question. I'll turn that over to Robert and just a second. It can be confusing. There's stock-based, There's tax implications. There's this guidance instead of Thirteen based on the number of units sold, which is cost. Rationalisation. Not just g n a it's a lot of numbers can get jumbled together. So we'll take a shot at trying to add some clarity. Yeah so long, uh with regard to that the the basis when we look back the announcement for our this strategy strategy, excuse me, what the Q4 of 2018. So the reality is the a good leaping off point for this kind of reconciliation would be 2018. But it's as John spoke to there are different points in to your point that different points that need to be included or over that course, you have these the in the current year. You have the 53rd week you off.
Don't have inflationary pressure.
Stores that have affected that you also have the the fact that the cost-sharing components of that have not yet been fully realized. So when you take all of that into account, it really kind of gets to the guidance range that we put for today now that does that range today does contemplate what we have said consistently throughout this program, which is returning to an ebit on level that we achieved in 2018. So 2018 was just north of a hundred and five million dollars. So on the far side of this once all of the the rationalization efforts have been baked in inclusive of the cost-sharing with the franchisees, we will return to that level. So again, there are a number of components that need to be contemplated at through that reconciliation. So and I'll leave it. I can probably leave it with Kurt to follow up if there are more specifics with that.
Great. I appreciate it.
Thank you.
And once again, if you'd like to ask a question, please press star one. We'll take our next question from Todd Brooks & Associates.
Hey, everybody. Congratulations on the new roles as a starter a couple of quick questions and hi everybody. Just following up on the kind of the Thirteen million cost savings range. It feels like we do have more car now on the program being substantially complete with the Ford units now marked as held-for-sale and edit. My impression on the cost savings is 11:00 was tied more to the hundred fifteen units sold 13 time or two if we got 125 is it not as black and white box that you know, is there an amount of kind of the success and cost saves that is performance-based against the business going forward or should we be thinking about this closer to the 11 million because just be just slightly above a hundred fifteen. That's an excellent point. Thank you for bringing that up in like the explanation that I was providing earlier. That is one of the
additional
On it that I left out in that kind about reconciliation was that the the number of units would impact that so so your view of that I couldn't argue with your view of life that the ultimate rains there between 11:13 would be affected by the number of units and having completed 113 as you know, with the four assets and held for sale wage. That would be towards the lower end of that range. So that would be an additional component in addition to the ones I had previously mentioned.
Okay, great. And then just a follow-up on Heritage 2.0 as well. I know you've always the excitement about it and and the fact that will probably perceived quickly through the remaining corporate stores. But with the success of Heritage one point zero and the the consistency of the success and the returns that the franchisees wage. So when we when do we expect franchisees to really start to get involved in Heritage 2.0 it would be kind of as mandated to refresh the restaurants or do you perceive franchisees maybe getting involved earlier in the process of stuff? Right? So there's two ways to interpret the question and therefore the answer it franchisee involvement here then is pretty much a way of life so far from the association board and the franchise the development brand Advisory Council. There's a color change aspect change Avenger review a booth test birth.
involved from the
That cost rationalization consumer response panels, they get a front-row seat to everything we do. So by the time it becomes a program or therefore, you know sort of the month and Brands would say a brand standard or a brand mandate to the franchisees. It feels like it's it's time and welcome and they've endorsed it throughout the whole process when when they get involved. We don't really go and big material crunch waves here when it comes to remodels our franchisees tend to be a reasonably compliant to their due dates, which is a 7-year remodel cycle and so because of leases and successor and transfer agreements that sort of dragged into a 78 year cycle just sort of by practicality. And so that's why you see this overlay. You've got a seven year cycle before all of them are finished. You got the right at or just short of 90% Some of the early folks are going down.
You know where they said got.
I got to get a landlord happy. I'm doing my remodel maybe a little have a schedule some of the I'm better off negotiating like, you know later so that dragged but it is off today. Those are doing planning. They need to see what's coming next and others are just now getting around to do but they tend to do that inside. There's any day in that cycle and right now we have a big wage Flying J remodels coming out this we're excited about and so that's what's going on in 2020.
And the the franchise easier to do throughout this year if they weren't already permitted on the 1.0. They'd be moving to the 2.0. The advantage of that is if they have the sunroof scheme they would skip right past the scheme in between Heritage 2.0 just Rings modernizes the colors and some of the finishes inside the building to be a little more eclectic a modern version of Diner, you know Community tables and seating some treatments at the counter and and some color schemes. I think you know how to get to primary they become dated because just become dated every seven or eight ten years. But but on the exterior, there are more enhancements through 2.0 this time around so long that that's where a lot of the enthusiasm been tried this coming from.
Okay, great. Thanks for the call.
Thank you.
Bradley Dee with mkm Partners has our next question great. Thank you. The with the consumer and the competitive landscape maybe a little bit more granularity on Trends, maybe since the quarter ended or regionally and then just when do you think you're going to start to see the unit closures shrink? So that instead of just a 30 to 40 gross. We're actually seeing, you know, the net number starting to age accelerate and then just finally you said you'd leveled off you can leveling off them off premise it at 12% What's the rate of growth in the quarter? And I'm thinking about the rate of growth for 2020. Thank you.
Okay. Sure. Well, let me let me start and toss it through the second question. I'll take one in three have that I think on the consumer. I can't you know talk about inside the quarter just yet. But what I can say is that we see evidence of foul a consumer that is drawn. If you if you look inside our categories just trying to think we sell our top-selling omelet is a prime rib table is also our most expensive omelet. It's also more unique and differentiated from what a ham and cheese omelette you might get somewhere else at least branded elements like a moons over my hammy or something like that that have been around the brand a long long time that there's more and more interest of trial not necessarily daring or crazy. But but but a new Twist on traditions of culinary standard wage.
A lot of experimentation menu items across are competitive set.
You know to you know, give some kudos to Cracker Barrel. They grow about that suggested Fried Chicken program. Those things are not easy to do so my congratulations to them but not the kind of things that they were saying. Let's do some great things in the marketplace with some great food and and and sort of Raise The Culinary delivery and expectations to meet that growing expectation the consumer and so we see that applied in our business to there's a number of people that are sort of right down the middle where we've been but we're we've done more interesting things in our breakfast mix are mixed bag has grown to a bigger percentage of our all-day menu. We finish the fourth quarter at about a 64% total breakfast mix all day 85% of our customers at breakfast ordered breakfast items that all day to 64% up from about 62% in Q3. So so these items where you know, we're a little short of introducing continued dying or dinner items just yet although it's in our dog.
Return plan the the crates. We've added the different things. We've done to be Innovative around the breakfast and Wednesday Park have drawn the attention of our guests and and give them the brands and brilliancy and and our Nike gear cause of the month. We see this running across the industry. There are a lot of breakfast and incentives that were mentioned earlier. I think by Nick it's very competitive out there with you know, a lot of fast casual Concepts being lost and tried some will scale some won't make it but but in each of these offerings, it's not just what you can already get in the marketplace for the new Twist Off on some traditional items that have been plussed up a little bit from a culinary Stan standard. So these are the kinds of things that are driving Innovation. I need out industry. I think it gives a very good place to be this Renaissance. We've been talking about where people just want, you know, really good mom's cooking but with a Twist and maybe something that would have been able to prepare at home. So that's what we call log.
the consumer we saw we
So, you know basically the fourth quarter grow in momentum all the way through the holidays and that's about where we expected to see happen growth was about 67% since the launch of Denny's on demand which started at about 7% of total sales and grew to 12 and 3 That Grew From about eleven percent total to about 12% and few forces calculate that percent. Yes, I'll take I'll take a little break bread with with regard to the the openings and closings question. So we kind of set the table there. Let's talk about the closing side first in the current year. It was $36,000 that is down from fifty fifty six closers that we had in 2018. So we worked diligently to get that number back in like 2018 a club.
He was impacted.
Like a higher and better use issues where we would have preferred to to keep the unit open, but the landlord would not necessarily Thursday. We we couldn't necessarily negotiate what we needed to to get those opened. So that was about half of the the about half the size of it was that it was in 2018. We had about 17 or so of those back in 2018, but half that number in 2019. So the 36 number that we have in 2019. It is actually pretty close to the system averaging look over the last decade or so and and working with a brand that 67 years old that 2% range is is likely the number that will continue to persist. There's just a natural evolution of trade areas and units moving in and out of trade area. So I I wouldn't expect that that number the birth.
Using number will necessarily change.
All that much from that that 10-year kind of historical average now where we can go with the opening is the other side of the the the equation. So when you look at these guidance for the current year off 30 to 40 openings with the Rangers down 5-2 up 5:00 as we spoke a little bit ago as John mentioned his comment and I reiterated there are seventy-eight develop commitments that we have captured through our Lounge Housing and Development strategy that will likely come online in 2021. Those will have very little impact in 2020 given the lead time that it takes from the signs that commitment to the actual opening of that first unit that was typical in the eighteen to twenty-four months range. So that'll have a much bigger impact in twenty Twenty-One. We are also quite excited about the development agreements International that we have captured and they have experienced some really dead.
Solid growth in in are particularly. Look at Canada and the Philippines so it was continued on.
Something there with the development commitments coming online from the from the development and we franchising strategy coupled with maintaining that that level of closure. I think you will get really kind of get to the question that you're after which is when will we be on be beyond the the plus 5 in in net unit growth? So again, I think it would it it should be more seen on how to get the gross openings up as opposed to the closing down. It's still one more question. Could you please put a little a little bit of background in the process of how we should think about your plan based initiative? Thank you.
Yeah, so we we launched Beyond Burger and it's doing well I'd say, you know, we had a conservative estimate on it and because of that it's outperforming that conservative estimate wage, but it's only in the California market so and well we started the California Market would be for my Nationwide says it's just now showing up across all been a I I think you know, we get asked this question all the time is this, you know, add a trend, you know long-term. I've seen some videos whatever it is to be around for a while but downside people are critical of fact that it may not be really better for you than high sodium and and the processes that are required to get there on the other hand. There are those people that conscientiously want to eat less red meat and their concerns about that and the high in sodium they put on their carbohydrate snack foods in the lights in any case so they're not particularly concerned about that trade and there's a very high club.
. Going on right now.
So I would expect more things to come from bacon and eggs to fish too chicken to anything plant-based you can imagine and uh, my sense of it is that's a good brands will have some place holders in their menu over the now or the coming year.
Thank you very much.
And once again, if you'd like to ask a question, please press star one. We'll take our next question from Steven Anderson paak want to have a question in regards to the off-premise program. As you certainly know you've mentioned a potential for catering. Is that something you and the franchisees essentially looked at something that with regard to the potential for, you know, raising average ticket something to see if that's something you've got home. So the catering aspects I think are when you have stronger dinner equities than they need to have like a Cracker Barrel. That would be an appropriate conversation. I think when when you look about a breakfast Centric menu, like we have today it's not our long-term goal to be strictly breakfast or into but today dominant on our mix you when you're not when yep.
Not coming to dine in then to go have lots of drive-thru Solutions. So the notion.
It's the kind of product that you would naturally cater and trades or party trays or boxed meals like Bakery Deli does where it can sit on the Shelf until you're getting ready to eat it and break from the meeting or what barbecue does it sort of room temperature stable for a three four five hour. Or easily to read me. That's not the kind of thing. You see with eggs pancakes or even Burgers where the bottom button gets soggy so long so off-premise family packs I think is what we more specifically spoke to but catering in the traditional sense is not an initiative that we've announced.
I thank you.
And there are no further questions at this time. So Mister Nichols, I'll turn things back over to you for any additional or closing remarks.
Thank you Sarah. I'd like to thank everyone for joining us on today's call would look forward to our next earnings call some call in late April to discuss first quarter of 2020 results. Thank you and have a great.
And that does conclude today's conference. Thanks everyone for joining us.
home
Thursday Thursday
Yes.