Q1 2020 Earnings Call
Ladies and gentlemen, you were currently standing by for Todays Corporation first quarter 2020 earnings call. At this time, we are still in many additional participants.
Shortly.
And your patience.
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Good day, everyone and welcome to the good news Corp. first quarter 2020 earnings call. Today's call is being recorded at this time I like to turn the conference of the current Nichols, Vice President Investor Relations and financial planning and analysis. Please go ahead Sir.
Thank you Christine good afternoon, everyone and thank you for joining us for getting first quarter. Two girls is whether Youd earnings conference call.
With me today for management, John Miller Journeys, Chief Executive Officer, Robert roster, getting senior Vice President and Chief Financial Officer.
Please refer to our website at Investor Dog any dotcom the dog, our first quarter earnings press release, a longer any reconciliation of non-GAAP financial measures mentioned on the call today.
This call is being webcast. It's been an archive of the webcast will be available on our website later today.
Don will begin today's call with the business update.
I will provide us a recap of our first quarter results in current trends before commenting on our region credit facility Amendment.
After that well open it up for questions.
Before we begin.
They were larger than in accordance with the safe Harbor provision of the private Securities Litigation Reform Act it might be notified the company knows that certain matters to be discussed the members of management. During this call may constitute forward looking statements.
Management urges caution and considering its cons rather than any outlook on earnings provided on this call such statements are subject to risks uncertainties and other factors that may cause actual performance of them to be materially different from a performance indicated or implied by such statements.
Such risks and doctors are set forth in the company's most recent annual report on for Jim Carrey for the year ended December 20.
2019 address any subsequent forms 8-K quarterly reports on form 10-Q.
I'll now turn the call over to John Miller, Chief Executive Officer.
Thanks, Curt and good afternoon, everyone. We hope that you and your families are staying safe and healthy during these challenging times the cope with Nike in pins in making related restrict your government mandates are having an unprecedented impact on our industry and our brands and while we started the year with solid results in our fiscal January and February period.
It's things change quickly in the latter weeks at the quarter has stayed home directory that were implemented along with mandates requiring guidance and closures.
We were required to make equally swift adjustments our business not proud of how long how well our team and our network of franchisees work, so well together to implement these changes in a matter of days as our business was abruptly limited you off premise sales channels. Only we were fortunate already have an established off premise business Jordan is ongoing.
<unk> platform prior to the pandemic off premise sales represented approximately 12% of our business nearly 60% of these transactions will pick up orders with delivery orders, representing the balance as our business was shifting we were able to accelerate some national broadcast media to feature a free delivery message when ordering through our website.
Or mobile that well also introducing a contact list delivery option. We have continued to feature free delivery, while transitioning media to digital and social channels. We also quickly implemented a dime through curbside program to bill pickup transactions and over 700 company franchise restaurants adopted the curbside service has been.
We also these efforts average unit volumes for off premise sales more than doubled between February and April with pickup representing 57% of April transactions.
The remaining built delivery transactions, 28% were attributed to third party partners in April with the balance of delivery transactions coming through our website for our mobile app.
Beyond remind you guessed of our existing Guineas, Ondemand platform and implementing curbside service, we developed a streamlined menu that was optimized feature simpler more popular products. It also allows for greater kitchen speed and efficiency as restaurants adjusted to significantly reduced staffing levels, we encourage online ordering but rest.
Ones can also download and print streamlined menus for single use by our guest earlier. This week, we introduced a slightly larger menu, which added more of our popular products back Shareable family meal patch were also quickly developed and brought to market initially featuring Grand Slam cheeseburger in chicken tinder meals for feeding a family of.
For were permitted we introduced in these markets, creating an opportunity forgets to purchase certain grocery items out of our pantry and over 400 Guineas restaurants have adopted this program, enabling one stop shopping for our guest towards some of our signature menu items as they always have and at the same dawn asking your gross grocery items to there.
Order.
Communication and collaboration had been critical elements in our program, we developed and share training materials with all franchisees restaurant managers in preparation for the impact of the pandemic. We've conducted nearly 30 calls with our system sharing key information and best practices. In this challenging time in addition to daily system email communication.
In advance of jurisdictions, starting to eat dine in restrictions are trainee Jim team did a terrific job developing additional materials focused on our newly implemented health and safety measures and needs were designed to protect the well being of our guest restaurant chains employee suppliers and the public at large our new initiative includes.
Best in class practices for operations customer service cleaning and sanitation newsource social distancing measures to that end, we are encouraging all restaurants. So have a dedicated sanitation specialist who is tasked with disinfecting surfaces bottling every guest visits this person, whereas in our band or best that identifies their role and leaves a car.
On every cable notifying new guests. The theory has been disinfected sure ensure the highest level cleanliness and Sanjay station or high touch services will be regularly deep clean using a two step process clean and disinfect then sanitized.
We've also renewed high touch items like cable caddies in condiments from tables and continue to utilize single use menus. Our employees are expected to where it based masking gloves somebody supplied all restaurants with instructions and supplies for mandatory temperature checks using no touch forehead to monitors temperature checks are necessary for employees as well.
Vendors and service personnel entering the restaurant.
Well these will be required to watch their hands and apply and alcohol based sanitizer every 20 minutes. In addition guests will also have easy access to hand, sanitizer and we are encouraging installation of sanitary shields and each cash register social distancing within restaurant is mission critical we are rearranging, our dining rooms to accommodate proper system.
Distancing measures and have supply stores was so I used to mark tables that are not currently in use we have developed merchandising that highlight social distancing. Another guest safety measures for decals signs door clings roadside banners yard signs posters and take guards just to name a few with these measures in place we'll call.
We can deliver the same high quality food and great experiences guineas is known for and to do so in a safe manner, we'll be sharing these enhanced health and safety measures with consumers to provide them with confidence to enjoy a great guineas meal and one of our dining rooms were permitted in addition to the health of our guest and the general public they have been focused on it.
Financial health of our franchisees direct financial release has consisted of an immediate deferral of remodels until further notice a deferral royalties and advertising piece for fiscal week 11, and the full abate middle forgiveness of such fees for fiscal weeks 12, and 13. You also provided a 12 week lease deferral for franchise.
These operating in the 73 properties owned by the company.
Our development team has aggressively pursued rent relief in the form of abatements or deferrals, securing such relief for approximately 75% other leases, which the company is or let's see.
Our extending that same relieved to franchisees, who sublease from the company. Furthermore, we have worked closely with key vendors and primary third party banks Lindy, our franchisees to secure additional relief on their behalf I want to take a moment to personally thank our little brand partners, who while enduring equally challenging times and their businesses found the ability to.
Provide much needed relief to our franchisees most of our franchisees are small locally owned businesses that have actually felt the economic burden. This crisis that it it's been caused in fact over 70% of our franchisees operate bought or fewer restaurants, and we still have 80 franchisees operating a single restaurant.
That is why federal stimulus programs are critical to our franchisees survival and ability to protect local jobs, we fully support their individual decisions to apply for that's a cure economic aid. During this time today franchisees representing over 82% of domestic franchise restaurants have received funding under the payroll the paycheck protect.
And program with another 7% approved and awaiting funding. In addition to implementing a number of cost savings measures. We also entered into an amendment to our credit facility yesterday, Robert will share more details on both of these items and just a moment.
As of May 13th 2020, approximately 82% of domestic Chinese restaurants, we're operating with some limited capacity dining rooms, most still would off premise sales channels only at this point, let me close by reminding you that our brand was founded on a simple principal feeding people that is why even in these challenging times our restaurant teams.
Donated over 15000 free meals to first responders and medical team that passion for feeding people runs deep in our franchise system drives our collective resolved to quickly adapt to these current challenges well doing everything we can to continue safely serving our guests and the communities in which we live for many years to go well now.
I'll turn the call over rubber roster, Denise Chief Financial Officer Robert.
Thank you John good afternoon, everyone.
As John mentioned arc, Indeed unprecedented times I will start with a brief review of our first quarter results then share some perspective on recent trends in a wrap up with an update on our liquidity position, including details around the credit facility Amendment, we entered into yesterday.
As John noted we started the car order on solid footing delivering domestic system wide same store sales of over 2% through our January and February fiscal period.
Due to the early impacts at Cobiz 19, particularly last two weeks of the quarter domestic system wide same store sales for our March fiscal period were down 19.4% ultimately yielding a same store sales decline of 6.3% for the core.
We ended the quarter, what 1600 95 total restaurants as Denny franchisees opened eight restaurants.
Openings were offset by 15 franchise restaurant closings and one company restaurant closure.
Franchise and license revenue increased 2.9% to $54.4 million, primarily due to our re franchising development strategy that will substantially complete at the end of 20 right.
This was partially offset by the early impact of Cobot 19 on sales that franchise restaurants, and there were weighted abatement of approximately $1.9 billion and royalties and $1.2 million in advertising fees for the last two weeks of the quarter.
Franchise operating margin was 46.4%.
Paired 48.8% in the prior year quarter.
This margin rate decrease was primarily driven by the royalty abatement in a million dollars bad debt allowance our franchise related receivables due to Cobiz 19.
Partially offset by improved occupancy margin.
Company restaurant sales of $42.3 million were down 57.1% due to 102, we closed one unit decline in our portfolio as a result of our Refranchising and development strategy as well as the early impact of coded my team at the end of the core.
Company restaurant operating margin of 14.6%.
Flat compared to prior year quarter.
This was because an increasing occupancy related expenses from re franchising restaurants, where we own the real estate as well as an increase in general liability cost primarily due to higher property insurance costs.
Offset by a decrease in other operating costs.
Total general and administrative expenses were $7.7 billion compared to 18.8 million in the prior year quarter.
The decrease was driven by accrual reversals associated with both our short term incentive plan and long term share based compensation plan based on this revised achievement expectations market valuation changes in the company's deferred compensation plan liabilities and the rationalization of certain business costs in connection.
Without lead franchising and development strategy.
These results contributed to adjusted EBITDA up $15.7 million.
Depreciation and amortization expense was approximately 2.1 billion lower at $4.1 billion.
Primarily resulting from a lower number of a public company restaurants, due to our Refranchising and development strategy.
Interest expense was 4.1 $4.0 million compared to $5.4 million in the prior year quarter, primarily due to lower interest rates lower average credit facility borrowings and a reduction in financing leases.
The provision for income taxes was $2.3 million, reflecting effective income tax rate of 20.5%.
Adjusted net income per share was 17 cents compared to 13 cents in the prior year quarter.
Adjusted free cash flow after cash interest cash taxes cash capital expenditures was $9.0 million compared to $7.2 million in the prior year quarter, primarily due to decreases in cash capital expenditures and the cash and.
Cash capital expenditures, which include maintenance capital and Remodels was $2.8 million compared to $7.8 million in the prior year quarter.
After drilling down $40.5 million under our credit facility near the end of our near the end of the quarter our quarter end debt to adjusted EBITDA leverage ratio was 3.6 times and we had approximately $334 million of total debt outstanding including $318 billion.
Under our credit facility.
We allocated $34.2 million towards share repurchases during the quarter, but suspended share repurchases as of February 27th 2020.
We terminated a tenbfive one trading plan on March 16, 2020 as communicated a press release that same day.
As previously announced on March 16, 2020.
Through our guidance for the fiscal year ending December Thirtyth 2020.
Given the dynamic and evolving impact of Cobiz 19, pandemic operation and substantial uncertainty about future performance.
<unk> region of the we provide an updated business outlook at this time.
Turning to recent trends, we have seen sequential improvement in domestic same store sales performance. Following all the local maybe 80% which occurred in the final week of the first quarter.
Our domestic same store sales results for fiscal week 19 improved to approximately negative 68%.
It's worth noting that restaurants with sales in both current your fiscal week and the equivalent prior year. We are included in the same store sales calculation.
The domestic same store sales results for the second quarter are impacted by many restaurants operating with reduced hours, particularly late night in response to the pandemic.
We excluded from our weekly same store sales calculations only those temporarily closed restaurants that are closed throughout the week.
Any locations that report fields proportions of we are included in the weekly calculation.
As John noted earlier, we have seen a number of jurisdiction jurisdictional start to eat prescriptions on down in service.
With approximately 36% of like total week of sales in a restaurant occurring between Friday late night Sunday lunch, a 50% dining room capacity limit would likely impact dens restaurants for only a few hours during weekends.
Currently there are 521, Denny's restaurant operating with dining room capacity limitations across 21 state.
Same store sales for locations that have been operating with opened dining rooms for a full we are trending down approximately 50%.
Dining room sales down approximately 68% and off premise sales channels up approximately 105% compared to the prior year.
Now I would like to provide some perspective on break even sales levels for restaurants.
In an off premise only scenario denny's restaurant sales of approximately $1500 per day to cover food cost team and manager labor and other variable cost.
Average volume off premise only denny's restaurant exceeded this sales level in late April.
Dining room service requires more stop so our variable cost break even inclusive of bonus and labor would be approximately 2000 $2500 per day.
This would represent a sales level equivalent to approximately 55%.
Average unit volumes generated by Denny's domestic franchise units in 2019.
In an effort to reduce our use of cash implemented numerous cost saving measures, including suspended travel.
Canceled in person field meetings placed holds on all open corporate infield position.
Significantly reduced restaurant level stopping across the portfolio.
Meaningful we reduced compensation for the board of directors in multiple levels of management and Oh over 25% of the corporate office.
While furloughed the company has covered the benefits cost normally borne by the impact of employees.
Unfortunately, with the uncertain length and magnitude of disruption of the pandemic honor business.
We had to make the difficult decision to part ways were roughly half of those furloughed employees earlier this week.
Severance cost for those impacted would be <unk> will be captured as a component the operating gains and losses and other charges net in our fiscal second quarter.
While related payments will be made over the severance benefit period.
Yesterday may 13 2020.
We successfully.
To an amendment to our credit agreement.
The amended credit agreement suspends the testing of the leverage ratio and fixed charge coverage ratio until the first fiscal quarter ending March 30 for March 30, Onest 2021.
At which time modified leverage ratio with fixed charge coverage ratio covenant testing will resume.
The amendment at the monthly minimum liquidity covenant defined as the sum of unrestricted cash and availability under the credit facility.
Through the date of delivery of our financial statements for the fiscal quarter to quarter ending June Thirtyth 2000, 2021, 2021, we will be unable to repurchase shares or make certain investments.
Capital expenditures will also be restricted to $10 million through our first fiscal quarter ending March 30, Onest 2021.
We are extremely appreciative of the long standing relationships, we have had with our participating banks in our credit facility and the way in which they have continued to support our business.
In these challenging times, our management team is focused on managing business cost, while supporting denny's recovery as dining rooms reopened.
In doing so we will leverage the strength of our asset like business model generates strong cash flows, which we are committed to using to reduce leverage in the near term.
That wraps up our prepared remarks, I will now turn the call over to the operator to begin the Q on a portion of our call.
Yeah, if you would like to ask a question. Please press star followed by the number one and your telephone keypad, you're calling for my Speakerphone. Please make sure give me function is off to make sure. Your signal can reach our equipment again I want to ask a question and first of all go to Nick Setyan from Wedbush Securities. Your line is open.
Hi, Thanks for taking my question.
Yeah I guess.
I just bigger picture you know before and you sort of specific question.
How do you.
Error.
Breakfast offering and the breakfast day part.
You're welcome to you know some other.
Yeah, obviously big parts.
They'd be categories, and how are you thinking about sort of addressing the potential.
Changing habits et cetera that we're seeing bound in near term.
But over the longer term.
Nick the Great question first of all the throughout the quarter because the pandemic. It late in the quarter, it's hard to use that as a judge for you know, what's what's happening today and what we expect to continue there's no. There's no question that post pandemic or the.
Pace at which things get back to normal or a new normal will be will be carefully watching and we do not expect things to return to where they were.
He can share one of the one of the things sort of big picture that are going on of course is that the a heightened desire for convenience through technology pick up delivery and family a bundled meals Neal Pat you noted that we did a quite a number of stores participated in a little bit of a grocery test is not a.
Brand standard by any means that you gave us an opportunity to to manage inventory, but also provide a one stop shop service for consumers, so whether or not things like that persist over time, it's too early to say, but what I would say is the our franchise partners in collaboration with the Davies leader.
The team ops development marketing team, all move really quickly to listen and learn to what consumers expected from us into that quickly. Some stores closed some stores operated dine through operations on the parking lots. So I'm just a loud the stayed open for delivery and pick up and did not feel can.
Fell to just sit up cones, and a personal auto stands and and the like so but we got a lot of learning through the number of stores that participate through that Nick and I would expect that as dining room start to feel backed up and customers feel more comfortable and unemployment falls and momentum builds in the economy overtime some will return to.
Normal and some there's an expectation for complete touchless kicked plates on bathroom doors, sneeze doors or registers gloves and masks.
Pure else stations everywhere.
People don't want to enter their ZIP code at the gas station. They don't want to touch anything. So I think some of these things will persist and you'd expect that our brand would be at the forefront as accommodating with consumer expectations are as this unfolds and launch as far as breakfast day part it was our strongest day part the worst of course was black Knight because.
We closed early it to save hours were franchise system. One of the early adaptations, we made and but breakfast day part continues to be very strong in breakfast mix continues to be very strong mixing in the low sixtys all day.
For Giddings prior to pandemic breakfast is as a day part is roughly.
Product mix just in the low sixtys, but as a daypart call. It 28 lunch 36 dinner 20, and late night 16, making up 100% of our daily sales.
Oh, Thank you and the other question that's.
Top of mind right now is.
The off premise gross.
And not just myself, so many timing, but but in casual dining we've seen that a big variation in.
Some as much as over 50% of their current sales are not off premise.
Comps down 40, 45%.
What accounts are you, saying sort of big gap.
Among the different concepts and how can pennies bridge that gap in the near term.
Yeah, I think it's rich by awareness free delivery certainly helps raise awareness because we got breakfast and lunch equities over dinner and late night, a you'd expect us not fair as well in the early going as casual players it would have more they're all day.
Daypart mix already skewed toward dinner I think the overall trend that wouldn't be lost on any thoughts here is your competitors and certainly not denny's and that that's very different on the weekends might need is I got to get out.
I need to breed the air I have cabin fever.
There is I don't want you to make me weight.
But don't Rush me.
Whereas during the week after five dinner sales and and a casual or family I think consistent theme is we are time pressure. We have we are multi tasking or we're doing homework with the kids are honeydew items at home or extending our workday.
And so the need for convenience will persist.
And I'd say, that's true across all retail healthcare restaurants casual fast food whatever it might be.
The the consumers looking to eliminate pain points and technology will play a role in that and then in adapting service style will play a role that so how guineas expects to adapt is to make sure that we have the right pieces in components for customers to use there. There are there are no even in even in the third party delivery or they're not all week.
Some some of their apps for just a little easier to use and you see over time, how a preference is being developed by consumers a couple over the four or five major players just over a convenience alone. So that's very telling Nick.
The consumer expectation they have a they're demanding of some level of protection and the technology works and serve serves them. So we have to make sure didn't he was able to provide debt as well.
Also I don't want to a understates the point I don't want to take up more air time, the necessary here, but just to emphasize the point that anything you can do to signal sanitary environment is critically important right now.
And so we're taking extra steps are there we outlined some of those things on our call. So there isn't expectations of distancing and mask.
But also all these other things to go touchless will will more and more be a consumer expectation in table stakes across the industry in my view.
Thank you very much.
Thanks, Nick.
Next we'll go to Todd Brooks from C.L., King and Associates. Your line is open.
Todd you may be amuses me mapping of the handset.
Apologies I was hoping for all well HM.
Robert when you were talking about the dine in stage are and where we've opened stores down kind of 50% same store sales.
You can stop at what are what the blended capacity restrictions are and if you look across the units where do they fall closer to 25% and 50% of they split right in the middle or.
Yeah. That's an excellent question Todd I I can give you kind of a sense. We have those 521 in the 21 state 75% of those units are five states. So that's Texas, Florida, Arizona, Nevada, and Utah. So did you give your sense, Texas is that 25%.
Like a 25% capacity. So it was Florida, Arizona, just using the terminology social gifting thing that's about 71 units for US a and then the bad at 30 around 30 units at 50%. So when I look across this board my sense is the I mean, it's all over the over the place Todd.
I think we I would work you back to the point that I was trying to team to make within the script with regard to yeah. Yeah. Yeah. There are only a handful of hours over the weekend timeframe of when those those capacity constraints really make come into play, but but to give you sent to you I would say right now.
Now we think it's probably in between that 25 and 50% on a blended average.
Okay, Great interest can follow up because you did say I think it was Arizona is just socially distanced.
If you get from mandated capacity restrictions to just a space based restriction and you look at the restaurant.
And if you have to due to the six which separations, where do you think your capacity with level I would if it was just.
Socially distances, the guideline or maybe what are the Arizona capacities looks like what that guideline.
Yeah, it's odd a great follow on there when you look at the socially Guestrooms and you look at the different.
Requirements with regard to get to the difference by feet that actually gives us more capacity within those units not unless.
We can rearrange the tables, a appropriately to capture even more than these are the 50% top line that that many of these states are showing a so that would give us more capacity.
Okay, Great and then just a final question the 18% of stores that are close so as you're looking at that.
That base of temporary closures, what's the what's the trigger you start to see those kind of continuing to reopen here is that dying and opened in their markets as a dine in opened at 50% what are your what your thoughts of what's kind of work that number down over over the second quarter. Thanks, yeah, the trigger going into that.
That was a mixed bag.
Part of it is emotion.
A franchisee not knowing they could rely on the P.P.P. or not.
Not certain that that would come in so you hear this broad array of franchisees. Some that have really good balance sheets that recently made investments in restaurants, and maybe sort of capped out where levered to may be extended their credit.
But otherwise really good franchisees, but a little more nervous about running out of cash and liquidity de played a role and in some of those and then some are just really sleepy little areas or summer resort areas that you know what sleep you really fast so each has their own varied set of circumstances.
As far as the reopening is concerned I think to it to some degree franchisees will be looking to sort of reloading restaffing reopening inventory and then in waiting for a 50% or better because of its just the gear up costs. So I think a good portion of those will come on.
Online when it's more reliably pass the 25%.
Mark in their jurisdiction.
Okay. Thanks for electronic.
Thanks Todd.
Next we'll go to Michael tenants from Oppenheimer. Your line is open.
Great. Thanks.
Well you mentioned at the most ourselves.
That's what I'm dying in there.
50% I'm just wondering can you talk about what you saw but how consumers use the brand with the off premise mix during that timeframe versus the dynamic.
Sure I'll start the answer and turn it over to Robert for anything I Might've missed but let's just use Texas as an example, with 25% or capacity the stores opened up and still because.
Have a wary consumer or little nervous or in some would say schizophrenia message.
That's not to disparaged Governor Abbott in Texas, or what is trying to do to keep the public safe, but from a retail interpretation.
Socially distancing makes sense, when someone's going to their grocery store and keeping six feet apart or the gas station or the home depot and then when they go in the restaurant is 25% capacity. So some argued that that wasn't the most rational thing to unfold and so with that Oh, there was a lot of.
They have whether or not it was really safe to go out the but it's perfectly fine to pick up some screws and a hammer.
So so I think I think that message created I'm, a little bit of a.
Slower pick up to dine in and frankly, the a the business picked up faster than the dine in business picked up since ago was really accelerated a then I think that continues to evolve daily. So it's I would not say, it's a reliable predictive measure, but the early going is kind of all over the play.
Thanks.
Robert would you add anything that I think I think to go persist way higher and then dining is picking up slowly.
That was the exact when I was going to add on John that we were still maintaining it that the to go off Prem has nearly doubled over this timeframe. So with the advent of additional on Prem seating coming into play we've been able to still maintain a that really robust off premise business either even as the restaurants have come back online Bergen restaurant seen him.
Perfect. Thanks, a lot and then I think you mentioned some around 90% of your franchisees God are still waiting to be funded from somebody's Federal programs and then just mentioned that are sponsored prior questions and generate from franchisees about potentially reopening some of those closed units. So I guess the question as you think that.
The federal programs out there are enough to get the franchisees that are.
To reopen and be successful reopening and that just broadly across your franchise base do you think that there's enough out there that can help bridge them until the environment does improve or do you think they're gonna have to get a little creative between now and some of these programs you're potentially wear off or just don't have enough.
So yeah, thanks, Michael with regard to the programs. He adds you have seen as this evolution. It's kinda taken place through time, Bobby programs have evolved come into play Ben.
Bolstered again with regard to the PPP with the second tranche.
And the reality is it is one of the constrains now that that's being looked at as this eight week timeframe for that for the forgiveness I think many would would hope that that may be extended.
And with that that works do extended I think that.
From a long way with regard to becoming created I think many of the franchisees have already begun creative with regard to you I ensuring.
But they will be able to reopen and we have worked as we noted in these commentaries with many of their they're less or as we sit in a in the master lease position on many and we've worked with many of those are less worse it to get deferrals and abatement, we work with their with banks, we know many of the franchisees.
No I'd be lumpy banks and worked with them. So so again that the liquidity that we have put in place as it has really.
Relieved a lot of the early on and tensions and anxious Smith and we will continue to work down that path to both bolster liquidity to ensure that we can get reopened at the appropriate Tom.
And the on premise to becomes more more widely available.
Thank you very much festival.
Thank you.
And next I'll get you James rhetoric from Stephens Your line is ramping.
Yeah, Hey, thank you thank for taking my questions here.
Robert first one housekeeping housekeeping, what assumption go into those unit level breakeven figures that you gave us just specifically that include normal grant and royalty and see a sustainable kind of long term breakevens figure.
Yes, the right a great question James just for clarity I wouldn't include the variability of the I feel will include the variability for franchisees with regard to royalty.
Regarding the more fixed components with the ones that you just mentioned give would not include Bob.
It's hard to make a supposition alarm up for the fact that we go in all cases, we don't know the lease terms of all the franchisees or whether they own that unit or the debt.
Yes that they may have on that so we really close to all of the variable costs, except for those two larger pieces.
Yeah, so well see the other piece there that that you may get into the to take into consideration is somewhere between the 25 to 3000 love and start to covers the majority of those fixed costs. So not it's not that you've got to go from 55% capacity to 95% to get there. So.
Until step you cover more and more of that but right now given where the as you would suspect as you've seen Curt report for numerous 8-K, a 80% or a negative 80% same store sale 50 thought.
80% same store sales.
During the we will continue to work to get far beyond that.
That's very helpful and as a follow up and kind of circling back on the decision to open the dining room, if I got my math correct. It seems like you're picking up initially about extra 20% lift or improvement in the comp in the restaurant reopened not just going from the negative 68 and the most recent weeks negative 50 for those that if we open which is about.
I think $900 day or so that's that's the right now and it also looks like the cost to reopen the dining room adds about $502000 per day in cost. So it's what I'm, making it seems like it's close to breakeven initially to reopen the dining room. So is that math correct and if so kind of whats the incented initially so.
Franchisees to open back up.
So your math is correctly, we would support jet generally that they you certainly are in the ballpark with that the reality is it is as you open back up you you ensure that you can open up and you can add we've seen sales build upon themselves. So I did just that the notion.
That you are always been kind of feeds upon itself and with very limited perspective.
Only a week or sell with an on Prem business, we're still getting and learning all of those various insight there John other thoughts on that lead the benefits thing getting all the more could well obviously you have to get it momentum with staff.
You know employees.
You know need.
A certain number hours a week to make it worth it the come off on employment and so you know building took hours ins in stages.
Then in another Cook and then building hours and then stages and then another server all those things play a role.
You know you know that the dynamic of managing inventory and menus. The menu will get larger as the Guy who goes back up again, so we sort of stage from very small menu to we've added some items back and then we'll continue to do that as sales increase. So it's you know all these things play a role and what you know a small staff.
Can do and then what a larger staff can do on the line, but it also builds momentum and you sort of hopeful the snake see I toured quite a few restaurants yesterday, one of our larger franchisees 61 unit franchisee the hazard operations in Texas and Florida.
And we in you know we it was just good to see cars on the parking lots. We toured competitors fast food restaurants fast casual and then quite a number of been Ace and then you could just see the the excitement of some of the guest to be able to sit down to be weighed on and is nice to see the momentum starting to slowly build.
It makes a lot of sense, thanks very much.
Thank you.
Next up in a Jake Bartlett from Suntrust. Your line is helping.
Hey, Thanks for taking the questions anymore I think she has all the hard work you guys you're doing right now the stores plus time on my question was about the cash burn rate and some compete some to peers are provided all come or weekly basis on a monthly basis, but what kind of assuming a a level of same store sales.
What would you estimate you're you're kind of the overall cash burn rate to be.
Yeah. So so to the frame that up for you Jake excellent question or what we can tell you is that in the month of April our cash burn rate, where it was somewhere in the five to 7 million dollar range for the month or so you break that down that is somewhere between a million 1.8 million on a weekly Casper and.
Basis, but some of the things to take into account. There. He is the idea that we are working we have a working capital deficit. So a as you as the restaurants were closing down we had that burn off so that was somewhat taken into account in that cash burn rate. So that is one thing to note.
The other the other piece of that is not wanting to be perspective with regard to that that's why we are trying to focus everybody on these kind of breakeven restaurant level things 1500 for off from $2500 for on Crown because the reality is going to move more and more units on 520 or on from now we do more.
More and more units into that status that cash burn rate goes down so I think what.
I can offer that being kind of the worst of the cash flow burn rate would be in that $5 million to $7 million rooms, which represent a really April.
Got it guide and then and then just to clarify maybe you can you kind of a weekly sales but I.
Yeah, I think I'm, calculating or looks like impact where you're bound.
It seems that kills you have to be somewhat north of 50% to be breakeven, including to the gene a on the store level or what what has been running use was down.
Subordinates is that right what would we be executive Greek using that a franchisee when they're not really stupid, but a franchisee would have to see to be breakeven. Good at the and I guess you have to store level.
Yeah, Yeah, Jake I think you're in the ballpark there I think that's what we're trying to relay with that a $2500 2000 $2500 per unit that is in that 54 to 45% to 50% range. So I think you're spot on it without breakeven level, but that's what we're trying to.
Okay, and then maybe because just explain a little bit more about the capacity constraints. What that means relates I think you made the comment that it was only a few hours on the weekend, but it was really impact you, but I know how important Sunday branches or something like that can you maybe you.
Help us understand I'm, just a little bit more of kind of what your typical capacity is in what.
Maybe a little 50% capacity between what that actually needs.
Yeah, So Robert can get sort of more of the financial precision here, but just big picture you know every segment of the industry has its own.
Rhythm in hours.
24 hours seven days, a week basically has less pressure on any particular day parts of spread out there's not a lot of teekay has resolved and to get to the weekend, where you know Saturday and Sunday Friday Night, Saturday and Sunday represent sort of places, where we go on weights and and and so being fully lifted with.
Need a lot to our brand on Saturday, but Sunday afternoon through Friday afternoon. There's there's you don't we don't have the same bell curve as is the casual business does without the breakfast and late night. The 24 hour day part so so it affects us less during the.
We can more on the weekends or it's just very different between us and other brands. So.
Therefore building servers and cooks for us.
25% to 50% make sense to start bringing people on because you can't get them really interested in the role only to work Saturday and Sunday, whereas another segment, maybe really waiting for 50% or higher because of their peaks.
They they require them differently than we do so I don't know if that helps you know that helps I was wondering whether it was actually a disadvantage so kind of maybe kind of focus your business was on the weekends, but but it sounds like it's an advantage to be so spread out.
And I get well and it's an advantage to start at less than 50% capacity yet to start to hear back up again I wouldn't call that a an advantage per se. It's just it's just a restarted advantage for a few weeks that it's not material [noise].
Right right and then.
Looking you'll see like like Georgia, we've been tracking how many stores you have opened.
Open for dining.
Dine in and it seems like about half or will have dining available from <unk> pool, but we can smell Becky steps of capacity, that's a 50% <unk>.
I think you've gotta be Justin's question, you know you did a good just especially a little bit earlier, but.
What you can change for for those died in source.
Turning to open.
In Georgia, and then also what have been the trends over the last couple of weeks as you go up and that's because of the loans. The students had an open the longest if you could share any sort of trend. There. If you can see one.
So let me I'll I'll start with a with that question with regard to George I do think I would point you back.
John's comments I.
Got you sitting here in a moment I I couldn't tell you exactly which the hopper opened in Georgia, but the reality.
The termination on whether a unit openings are not has different dynamics do it is and as John pointed out a with regard to whether he he could be a tourist location that that may not have come back to wipe yet or or the other complications of that I I would say in general it again kind of point you get back.
For the top five states, if you looked at Texas, Florida, Arizona, Nevada, Utah and the number that are reopened again, you're only have 200 reopened in Texas. So the majority of Texas came back online fairly quickly. So I think there is a propensity for states that have an on premise dialing in for the franchise.
The two to get back at a pretty quickly. So I think it's more unique case, a there that maybe they were they have the opportunity to be on prem, but but have not taken that opportunity at that point.
Thanks.
Last question if is there any changes made with your marketing weights in the quarter, whether be television world or digital nobody have impacted your results versus casual dining as a whole or versus competitors, either either pulled back quicker or maybe continuing continuing on.
Yeah. So we focused our efforts on pre delivery switch to some of the social.
Digital channels to.
Make sure that was known take advantage remember that family dining is of all the full service players out there the lowest in overall to go sale. Even though then these on demand program has been successful for us.
We're still a few hundred basis points behind our casual peers and total off premise sales so building momentum poor that.
Especially with people staying at home and wanting to really focus on dinner. He can you know here at home shelter in place you can you can take care of breakfast and lunch pretty easily.
So so the focus on the off premise or delivery dollars would have been after five sooner and make sure. We didnt that we could really optimized.
Our deniers on demand platform, so free delivery messaging and AFFO, a general focus on value seems too.
We have played well for our brand.
We're also mentioned that a lot of a quick.
Work to get signed age.
Streamers banners yard signings, sometimes a tencent awnings and exterior hostess stands cones for drive through curbside.
We do lots to call attention to our sales where otherwise people know just forgotten about a family Guy here for the weekend, if they weren't going to go out to we tried to create some prominence and visibility around our ability to sell to go food, we get some of those groceries sales and eating we could even if you know they were low margin in the.
Case of groceries, or just strictly for the benefit of convenience for customers and into customer tends to ourselves. So that was that was the focus and I'd say that you know.
Fared well on a couple of fronts. One I think you know the the results improved where we would have been without those efforts number one number two I think our franchise community working side by side with us to move quickly to adapt.
What was you know as it is great for our culture inside our brand to to have the high degree of engagement and collaboration.
However, we did our steering committee that the the chairs of all of our brand Advisory Council, we were leading twice a week and sometimes more often that in lengthy calls to talk about our next step so.
I think thats, what you'll see it you'll see more of that throughout the balance of year I'd say among all full service peers focus on to go and delivery and family meal packs, a bundle meals home meal replacement options.
More of those kinds of things that eliminate pain points and provide convenient options for families and didn't leases of course I'm proud of the initiatives we have on each of those as well.
Great I appreciate it thank you.
Thank you.
And next we'll go to threaten the name from Cantor Your line is open.
Great. Thanks for taking the color I hope everyone is doing well.
Appreciate all of the color.
If you could.
I think we said this but I might've missed it did you say what percentage of stores are currently generating by their $1500, a week or $2000 per week.
And also.
For the Bemis said are open you said all kind of sales have been up 105% what would those trending at before we had the dining once we open and that I acute franchise questions.
Yeah, let Robert talked about the the sales that we reported for the quarter in the early look into Q2.
I don't think we have specific number of stores that are at or above breakeven number.
The.
I'm, sorry, I assure you just my pencil the second part of your question.
[noise] was you gave us a public and 5%, but kind of us growth per units that were open with documents what does that trending at before the dining rooms were open.
Yes so.
The we did I think the going back to the script.
The we're going into this.
Call it 12% wrapping up the year.
That's that's correct John.
And in nearly doubled as we moved into the to the only on from business. There so and with regard to what do we have with regard to on Prem I'll tell you that we got about 521 units and I'll tell you that about 18% over among close so the balancing their brett would be the compare.
That is still only off Prem so and the reality is we'll move more and more to the on premise as those as the state get to the point that they can loosen up the those prescriptions.
But again I had a 521 on prem, 18% still not need on Prem often so the balance is really about hall from business.
Right. What I was asked me just at the 520 more where youve reopened do you have any sense, where the off premise sales lots of those units now pushing where they were gonna say that the two weeks before that the opened up the value that's kind of what I was trying to yeah sure absolutely go it goes back into the comments in my script, we they the.
Good news is is that I would be on from the off from business for the units that are still that have moved on Prem have remained robust there's still at 105%. So the that that 12% has nearly doubled even <unk> and it has remained even though for the short again, it's a short period of time everything is moving here in real time.
So that represents about MB two weeks worth of data, but we've been able to maintain that off prem business with the same a robust strength that we did as we move through April.
Great and with respect to franchisees are you hearing any of your franchisees that they're talking about.
Maybe they need to.
Step up closures, that's something that might have been.
Down the road, but maybe they have to take a little bit more aggressive and.
Our stance and also.
If sales challenges persist.
Do you believe you have either the wherewithal or for the neither the desire to offer additional franchisee relief.
So a excellent question with regard to the franchise closures, let's kind of stepped through that I I think it maybe a little bit early in the cycle or to understand that I think the first focus was with regard to capturing liquidity and understanding what level of liquidity may be available in a in trying to assess.
How long this may of last and when we were going to ramp back up so with each passing Dan we get better insight to that I wouldn't surprise me if closure cost went up I you wouldn't surprise me, but we're just not at that point right now it would be conjecture on my part two two and two didnt really.
Put out a number of where that would be as you might expect we scenario playing every different version of what that might look like as we as we understand from a corporate perspective, what a whopping financials may look like but right now I wouldn't say that we've had that big call nor would I be able to even hazard a guess what that.
Might look like at this point in time.
Regardless you the availability of additional funding our goal is it we've worked through this with our franchisees. They in two to keep a strong robust franchise system and to help our franchisees reopened I would be in our best interest, but what we have committed to.
To date is what we have set in the scripts, which was the deferral for a week 11.
Basements for weeks 12, and 13 with regard to royalty and the advertising.
Brand building fund contribution.
Great, but but there's nothing to preclude you other than possibly covenant type prescriptions.
Yeah. Thank you very much.
Yes, so just quickly to that point that covenant type restriction. He is the is the direct loans at the franchisees. The amendment does put a cap within that but but outside of that the restrictions. We really don't have a restriction as long as we say within all of a other cut.
Great. Thank you very much and good luck.
Thank you.
And next thing kind of follow up question from Nick.
<unk>.
Hi, Thanks, clearly when you come back on.
Robert What's the Virginia run rate now.
Let me, they're going to per week or or per month basis.
Yeah mix so when we look at the DNA. He is what we.
What we've said in the and I see if I can figure out how to train translate this you you've noticed that.
We virtually all travel has been shut off a we did have to unfortunately as I mentioned, we had furloughed people with regard to it for about 25 or something of the home office staff and that ended up becoming a more permanent we parted ways with those individuals earlier.
In the week.
I don't know in a moment, if I I have that run rate available that by all have current follow up with you on that one Nick.
Yeah, No problem I mean, just one clarification of the fall within 25 unit.
Diamond open common their company owned.
Oh, that's an excellent question too I guess fight 521 open right now and 21 state I don't I know you're getting that may have to be at current follow up to about on my data sheet here I apologize for that but we will certainly get that number two.
Okay. Thank you so much.
Good well thanks, Nick.
Thank you.
And again at the other question. Please press star followed by the number one on your telephone keypad I'll pass it just to give everyone a chance missing.
And we'll go to change rather front from Stephen Sachs. Your line is that.
Hey, Thanks for squeezing me back in as well I just had a quick to partner on the supply chain and what you're hearing on that right. The first part is on food availability, specifically around beef acute hadn't disruptions and your supply chain. The second part is just on but the price increases around protein and how that might affect your franchise.
These profitability picture in the near term thank you.
Hey, James Ed. Good question, Yeah. Thank you for that with regard to the supply chain is as you might expect a that every time I see one of those articles related to the be processing plant I guess I would call up the head of our procurement and he would he would tell me that we don't have issues that there are plenty of animals on the ground didnt.
At the processing disruption.
Would not be long enough to to work through the the number of weeks on hand that we already had available to us so with regard to the beef that you specifically Mems mentioned, we certainly have a week's on hand with regard to that and believe that that will get us through getting the processing plants.
We opened with regard to commodity inflation I I think you Dan we I think we're in pretty good place we are contracted with with regard.
Too many of our products and <unk>. So we don't do we haven't quoted the exact commodity inflation. This year. There just a lot of disruptions. So deep in the ones that you mentioned, the beef and pork had been highlighted but there.
Obviously, many other products that will will be an abundance of and we may be able to get a break on with rate overall with regard to our supply chain.
We have worked really quite well with our distributor Mclean they have really been a valuable partner as we have worked through this and as we have ramped back up our units. The 521 units that are open a they we give them a heads up of whats coming online and they've been able to get product there are really in a timely fab.
Sure. So they really stepped up so with regard to a supply chain disruptions really haven't seen that in any regard I think we're well covered with regard to our beef products.
With our multiple we saw at hand, and when commodities like inflation I think it really kind of too soon going to give a specific number of what that might look like.
Oh, Okay, and just a for everyone. That's still on the call. So so that make is not the only when that gets this piece of information with regard to.
The 521 units that we have on premise sales right now 30 of those our company. So 30 out of the 521 set that piece of information that everyone on the line can have.
And with no further questions in the key I'll turn it back to current Nichols for closing remarks.
Thank you Christy I'd like to thank everyone for joining us on todays call. We look forward to our next earnings conference call in late July in which we will discuss our second quarter 2020 results. Thank you and have a great.
And that does conclude our conference today. Thank you for your participation you may now disconnect.
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