Q4 2019 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to today's fruits Hospitality Group 2019 fourth quarter earnings Conference call. At this time all participants are in listen only mode. Following the formal remarks. It will conduct a question and answer session and instructions will be provided at the time for you to.
[music] up for questions. As reminder, today's call. This call is being recorded I would now like turn the conference over to Mark Traylor, Vice President financial planning and analysis. Please go ahead.
Thank you Gerry and good morning, everyone. Joining me on the call today, our Cheryl Henry President and Chief Executive Officer, and already Hawk Executive Vice President and Chief Financial Officer.
Before we begin I'd like to remind you that part of our discussion today will include forward looking statements.
These statements are not guarantees of our future performance and therefore undue reliance should not be placed upon them. We would like to refer you to the Investor Relations section of our website at <unk> Dot com as well as the Fccs website at <unk> Si Si Dot Gov for copies of today's earnings press release, and our recent filings with the FCC.
For more detailed discussion of the risks that could impact our future operating and financial result. During this call. We will refer to adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items as well as losses from discontinued operations.
We believe that this measure represents a useful internal measure of performance you can find a reconciliation of adjusted earnings per share in our press release for today's call I would now like to turn the call over to our Chief Executive Officer Cheryl Henry.
Morning, everyone and thank you for joining us on the call today, the fourth quarter 2019 marks the end to another year strong without at least credit takeout.
Period, our revenues grew in excess of 6%.
Earnings grew 3% despite double digit beef inflation all revenue centers were positive in the quarter as well led by the strength of our special occasions doesn't it.
Looking back at the full year of 29 team I am proud of all the team accomplished we grew our same store sale, our total revenues and our yeah, marking our 10th consecutive year sales and earnings growth, we successfully integrated three new franchise locations into the company system.
And opened two new company operated restaurant.
We also continued our evolution of the brands or remodel enhanced experiences and compelling product offerings for our guy.
Overall, our performance remains consistent due to the focus on operational excellence and our restaurant and I'd like to bank our team members and franchisees for the incredible work they do each day.
Our ongoing focus is to evolve and grow our iconic brands, we've done work to better understand our guest demographics and their evolving needs and behavior.
What we have concluded two bulk Bert we need to amplify the guest experience by elevating what has worked craft and.
The traditional steakhouse.
And second we need to create additional ways to experienced read through increased variety. Let me touch on a couple of ways. We are doing that.
Many of you know I pacemaker program, which is our wine dinners series that we started more than five years ago now we're leveraging the pacemaker brand equity throughout our restaurant revenues Tonight, if guests want pacemaker wind didn't experience for special event in a private dining room weve carried it for them if guest love.
The tastemaker wise, it's available on our wireless or in the bar for unique pairings and engagement I.
I guess can now purchase a gift cards with pacemaker dinner or even purchase a path to all pacemaker dinners and 2020, we believe highlighting the pacemaker brand in unique ways offers an elevated experience to our GAAP.
Secondly in late 2019, we launched a new bar experience.
Over the past five years, we have physically expanded or upgraded many of our bar at.
The reached 2.0 remodel initiative.
This past year, we introduced a new bar experience that includes new menu and employee training to address our guests desire for a variety, including new products and price point.
Early results of the program.
Which is intact currently in about a third of our restaurants have been positive.
We continue to evaluate incorporate feedback from our GAAP and operations team.
Look for the future roll out this year.
Last initiative that I'll discuss it's our digital strategy. There's no doubt that technology has played and we'll continue to play and increasing role in our industry. However, the nature of our high touch hospitality driven brand requires us to be very deliberate and how we introduce it into our business.
When we evaluate the use of technology, we want to ensure that it reduces friction enhances the guest experience in an authentic way or increasing the productivity of our team to that and we regional recently launched gifted experiences on our ecommerce site.
And our off premise Ruth anywhere program, which includes sites to go online ordering and delivery and 21 market.
Now that I've discussed how the brand is evolving let me turn to how we grow it.
In the fourth quarter, we opened two new restaurant, one in Columbus, Ohio, and one is Somerville, Massachusetts. We are pleased with the early results in both locations.
Already in 2020, we have opened one new location in Washington, D.C., which replaced the previous D.C. locations is lease expired. It was closed at the end 20 Nike.
We currently expect to open three more restaurants, and 2020, bringing the full year total before.
Restaurants to open later this year include short Hills, New Jersey, and Western Massachusetts in the third quarter and Melville New York on long Island in the fourth quarter. We will also relocate one restaurant and when a park, Florida fourth quarter of here.
In January we announced the signing of a new lease for a restaurant and Aventura, Florida. It today I'm pleased to announce another new location on long Island, our second restaurant lease signed in our newly acquired territory for 2021, we now expect opened four company owned restaurant, which include.
Like rope long island happened to our Florida.
Fournier in Oklahoma City, Oklahoma.
On the franchise side of the business our partners expect to opened one new restaurant in the first half of 2020 in the Philippines.
We continue to actively work on additional development opportunity and will provide updates on updates on lease signings as they occur.
Last topic I'd like to touch upon as the return of excess capital to our shareholders.
During the year returned $41.4 million to shareholders, including dividend payments of 15.6 million and share repurchases of 25.8 million.
Since 2011, we have returned over $270 million to our shareholders.
This was accomplished while continuing to invest in our core driving our AG. These from 4.5 million to 5.6 million in growing our base of company restaurant expanding from 63 to 83 locations.
We are incredibly proud of this accomplishment and believe that are focused on protecting evolving in growing our brand will allow us to continue to create long term shareholder value. The execution of our total return strategy with that I'll turn it over to Arnie to review our fourth quarter financial result in more detail.
Thank you Sheryl for the fourth quarter ended December 29, 2019, we reported GAAP net income of $14.5 million or 50 cents per diluted share compared to net income of 14.9 million or 49 cents per diluted share during the fourth quarter 2019.
Net income in the fourth quarter 2019 included $124000 in expenses associated with the previously completed acquisition of the three restaurants for more Philadelphia in long Island franchisee.
And $374000 and closure costs associated with accelerating the closure of a restaurant in Washington DC.
Net income in the fourth quarter 2018 included $250000 and expenses associated with the acquisition of six restaurants from our Hawaiian franchisee.
Prudent these adjustments as well the results from discontinued operations in certain discrete income tax items.
GAAP diluted earnings per common share were 52 cents in the fourth quarter 2019, compared to 50 cents in the fourth quarter of 2018.
Year over year company owned restaurant sales growth accelerated 5.9% in the fourth quarter from 120 million in 2018 to 127.1 million in 2090.
The increase year over year was driven by new restaurants.
Our recent franchise acquisition and a 1.4% increase in comparable restaurant sales.
Traffic during the quarter as measured by entrees decreased 0.5% compared to last year, while average check increased 1.8%.
Our sales were positive in all three months of the core or holiday business was particularly strong up 7% to Thanksgiving, 8% to Christmas Eve and 12% to Christmas day.
This helped offset the loss of a week of holiday dining in early December due to the late Thanksgiving.
It's important to note that the continued improvement to the sales cadence since April just now continued into the first quarter up this year.
2020 quarter to date sales trends are currently running up in the low single digit range.
Franchise income in the fourth quarter was flat year over year $5 million total franchise comparable sales increased 1.2% during the quarter driven by domestic franchise restaurants, which were up 1.7, and slightly offset by our international franchise restaurants, which were down 1.7%.
Other operating income for the quarter was $2.9 million up 39% from 2.1 million in 2018.
Year over year increase was driven by the higher contributions from our restaurant operating under management agreement as well as increased gift card breakage income.
Now turning to our expenses food and beverage costs as a percentage of restaurant sales increased 215 basis points year over year to 29.8%.
The increase was driven by an 18% increase in total beef cost and was higher than we had guided to on our previous earnings call.
Restaurant operating expenses as a percentage of restaurant sales increased approximately 45 basis points year over year to 46.2%, primarily due to higher labor and occupancy expenses.
Marketing and advertising cost as a percentage of total revenues decreased approximately 35 basis points to 3.3% decrease as a percentage of total revenues was primarily driven by the plan shifting marketing tactics across the period.
DNA expenses as a percentage of total revenues were down approximately 865 basis points year over year to 6.4%.
Decrease as a percentage of total revenues was primarily driven by cost management initiatives and lower performance based compensation.
During the quarter, we repurchased 208000 shares for approximately $5.2 million or an average price of $25 an 11 cents. This.
This brought our 2019 repurchase totals to 1.1 million shares or $25.8 million with an average purchase price of $22.48 per share.
At the end of the fourth quarter, the company had $64 million in debt outstanding under its senior credit facility, which was down 19 million from a third quarter of 2019.
Subsequent to the into the fourth quarter. Our board of Directors has approved at 15 cents per share quarterly cash dividend, which represents a 15% increase over the dividend paid in March 2019.
Now turning to our guidance I'd like to provide or outlook based on our current information for the full year of 2020 for some of our key financial metrics.
Our 2019 beef inflation accelerated in the back half of the year and we expect this to continue in the first half of 2020 in the range of 5% to 10%.
We expect modest deflation in the back half of the year and for the full year, we expect beast inflation to be between two and 4% primarily driven by continued retail demand for prime cuts.
Based on our current expectations for beef inflation, we expect expect or cost of goods sold to be in the range of 20% to 30% restaurant sales.
Annual operating restaurant operating expenses.
Are expected to be between 48, and 50% restaurant sales marketing advertising costs to be between 3.13, 0.4%.
We expect DNA expenses to be between 35 and $36 million.
And we expect our annual effective tax rate to be between 17, and 19% excluding the impact of discrete income tax items.
And your Preopening costs should be between 3.3 million and $3.5 million based on the timing of new restaurant openings.
Capital expenditures are expected to be between 43 and $45 million.
Depreciation expense is expected to be between 20 $325 million.
We expect our fully diluted shares outstanding to be between 28.8 at 29.3 million shares exclusive of any share repurchases under the companys share repurchase program.
With that I'd now like to turn the call back to show for some closing remarks. Thank you Arnie in closing I'm excited about the opportunities to grow and evolve our friend I'm confident in the sales driving initiatives. We haven't player and then our ability to evolve to meet the different needs of our cat, while maintaining our core strength and our operational okay I told.
Return strategy has worked very well cross over the past decade, <unk> can you to create value for our shareholders and the long run with that I'd now like to turn the call back to share. It for any questions you may have.
Thank you at this time will be conducting in question and answer session. If he would like to ask a question. Please press star one I know telephone keypad, except for me should tell indicate your line is in the question Q you made press star too if you would like to remove your question from like you have for participants choosing speaker equipment, it may be necessary to pick up.
Your handset before precedent to start he is our first question is from Brian Vaccaro with Raymond James. Please proceed.
Oh, Thank you and good morning, just a couple of details for me.
First quarter comps on what was menu pricing within that and what level of pricing do you expect to maintain and twentytwenty.
[music].
Sure Brian.
For the quarter, we were around 2.2% in the fourth quarter, we have a similar amount of price on the menu for the first quarter of this year.
Okay.
Okay and on the commodity side I think you said he was up 19% if I heard correctly and can you fill US then on what are you seeing in terms of inflation.
Other key categories within the basket in the fourth quarter.
Oh, the other places that were seeing pressure, there's a little bit or pressure on seeking cost, particularly lobster.
And there's some pressure as well and produce costs as well [noise].
[noise], Okay and in terms of your 2020 outlook are actually on the fourth quarter.
What was the total inflation on the basket you have that number handy I.
One second here the total in place and for the basket in the quarter was 8.9%.
Okay, Great and then on the outlook for 2020 appreciate the color on on beef.
But how do you what do you see in any other areas of the basket.
Whether it be sees the any update on what's going on in the wine market and that's a big item, but typically stable for you, but any color on the rest of the basket would be helpful. Embedded in that 2020 outlook. Thank you Oh, Yeah, I think it it's kind of the continuation of a little bit of the fourth quarter themes you know.
We share with you around beef lobster is expected to be pretty inflationary. This year I'm going from a dollar perspective, that's we expect that to be meaningful and then there's a little bit or pressure on produce we're not really seeing anything material at this point on online costs.
Okay and have you.
I think your contract on the on the Tenderloin side rolled off or maybe in February and any update on August contract. You may have been able to enter into as we go into 2020.
Oh, no no new information on locks the share at this point.
Alright, Thank you I'll pass it on.
Our next question is from Andy Barish with Jefferies. Please proceed.
[noise] <unk> to two quick questions can you give us kind of a sense on the enhanced you know experience initiatives and the bar program or are you expecting any additional.
Labored training costs as you look at that rolling out through 2020.
Yeah, so Andy it shouldn't impact that the training. It you know the good news isn't our restaurants were constantly doing training and development of the in place. So this kind of roll that into that as we roll out new items, a along the way, but we do anticipate as we take the operational and guest feedback around the new bar program, specifically and make some changes that will start rolling out.
It out into additional restaurants.
Thanks, and then Capex Arnie looks looks like it's ramping up can you give us a little more color on what's going on there is that some of the 21 development that's leaking into what to 20, capex or how should we think about that number.
So its really about new unit development.
Development, Andy that that's driving that Capex.
Oh, that's the majority of it we're probably going to run about $30 million total between that building the new units that we announced that Sheryl announced and also the relocation of our winter Park restaurant as well. So we have a relocation the been part of the year in Washington, D.C., it's going really well.
And we have another one in the back part of the year, but that's the biggest changes as you look at our Capex and think about it is around the real estate pipeline and of course, there's a little bit more coming to I think this isn't about as good as we've been on our pipeline. This far in advance type work.
Already for 2021.
Thank you.
Thanks Sandy.
As a reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Joshua along with the papers had their please proceed.
Great. Thanks for taking my question wanted to see how much if any capex is really earmarked for some of these experienced simplification you talked about Cheryl.
I think that we talked about before a lot of these have been done in a pretty thoughtful way like you do all of your other initiatives, but just curious what kind of dollars are pretty against that and then as we think about that new bar experience, but then a third of the restaurants now can you remind us what your thoughts are there in terms of testing before expanding out to do a larger part of.
Of the portfolio.
Sure. Thanks, Josh So the question. So on your first question I think you asked is there a significant impact the cap accident, regardless of rollout there really isn't there's some new small where's that will go into the restaurants as part of the enhanced kind of dining table experience.
But to support some of the new menu items, but not not significant and that number overall and then as far as I think Andy asked a similar question around at their costs that are rolling into the restaurants as we if you kind of the IDR needs that that's something that put into the marketing budgets as we think about marketing more as a brand function than we do that.
I guess for advertising into a lot of those costs are dedicated to that so not necessarily incremental in the air.
Great. Thank you and then as you think about gaining more experience with that.
The bar test you're in a third of the restaurants now is that something you'd expect to expands your in 2020 do you want to what it marinate, a little bit longer and maybe thinking about that more than 2021 opportunity.
Yes, so I think you'll probably see it but those areas <unk>. We are as you know and you stated we are in hospice brought new programs because our number one focus is on the operational foundation of the business. So we don't want as we don't want to unpack that in anyway. So we do a good deal it passed and and we go over a longer period of time to make sure we won for the operator.
They can manage through the new programming, it's working for them and then she that they got the ultimately it's resonating with them and it's behaving the way we expect it to so probably little bit more tests with its first group that we're adding some potential tweaks to the program and then future rollouts towards the back half of the year.
Great. Thank you, we just to be able to provide an update on the off premise strategy you mentioned a couple opportunities there whether it's through yeah.
Delivery or maybe some of them Yeah decides to go program, but what do you think in there and what's the appetite for getting that roofs experience. Both in store, but then also supplementing it with some off premise occasions over the course of.
Over the course of the year.
Yeah, great questions asked so I you know delivery for US probably is not going she is meaningful opened its first other brands big part of that it's the kind of in restaurant experience, having said that it's you know we've had a lot of these what I would call revenue line come at the request of gap. So our sites to go program actually it's something that's been in.
In our system, we do every year around the holidays, where people say oh, okay, I'll make the protein, but I love your sweet potato casserole and I love your cream spending so how can I get that into what we've done is used technology to take that online. So it's really about.
Added convenience to the gathman away for us to increase share of light. So you can have recently holidays, whether you're not restaurant or out your house, that's wonderful connection with the brand.
So we don't necessarily played a significant meaningful sales number on it at this point, what I would say if it's part of our overall package of how do we increase our guest awareness about than how do we keep them tied into that relationship with them going forward and went right now we're in a we did we are in delivery, we have a couple of partners or not.
It's a 21 restaurant I I would not say something that will go everywhere throughout the system, but there is a possibility for expansion in certain markets as the guest demand.
Great. Thank you and then last one for me you mentioned the comps to date here in one Q being in that low single digit range, which is very encouraging given the strong comparison from the prior year is I looked back at my notes I think once you 19 at it.
Nice benefit from new years, you shift into that once you 19 period can you remind us money or anything else, we ought to be lapping over from last year and then provide any comments on the what do you think might be driving this increased momentum here into the first quarter as well.
Yeah. So I think that was the big one from last year. As you mentioned, we had the new years Eve shifts that we are comping over that seem to if you go back 10 months I think we had a fairly I think if we had concern in the it was towards the April time frame of last year and since that point. We've seen we've been encouraged that things have been moving into more positive direction and I really think what we're seeing.
Thing now is a continuation of that we have increased you know some of the marketing initiatives and new brand campaign I can't quantify that at this point, but we're excited about that and to that to continue that momentum.
Thank you.
Yes.
We have reached end of our question and answer session I would like to turn the conference back over to Cheryl Henry for closing remarks.
[noise] again, thank you all for joining us this morning on the call I look forward to speaking with you all the near future have a great day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Yeah.