Q3 2020 Fiesta Restaurant Group Inc Earnings Call
Good afternoon, and welcome to the Fiesta restaurant Group Inc. third quarter 2020, <unk> earnings Conference call.
Today's conference call is being recorded.
At this time all participants are in a listen only mode.
Leaving our presentation.
A question and answer session.
[laughter] they'll be provided for you at that time to queue up for questions.
I'd now like to turn the call over two or three Oclock managing director I see our.
Thank you.
Yes to a restaurant group third quarter 2020 earnings release was issued after the market close today easier not already accept that it can be found on the company's website www dot org dotcom under the Investor Relations section before we begin I'd like to inform you that during the call today.
The company will make various statements that are not based on historical information. These forward looking statements include without limitation statements regarding the company's future financial position and results of operation business strategy budget projected costs and plans and objectives of management for future operations actual outcomes.
Actual results may differ materially from what is expressed or forecasted in such forward looking statements and the company can give no assurance that such forward looking statements will prove to be correct important factors that could cause actual results to differ materially from those expressed or implied by the forward looking statements can be found in the company's asking.
See filings.
Please note that during today's conference call certain non-GAAP financial measures will be discussed, which the company believes can be useful in evaluating its performance any discussion of such information should not be considered in isolation or as a substitute for results purport were prepared in accordance with GAAP and a reconciliation to comparable GAAP measure.
Sure is available in the company's earnings release on the call with me today are President and Chief Executive Officer, Rich Soc, injure and Chief Financial Officer, Dirk Montgomery and now I will turn the call over to rich.
Thank you Ray.
I'd first like to thank all of the investors and other participants on the call today for their continued support during the COVID-19 crisis.
I'll be covering three topics today.
Our key priorities for the balance of the year.
An update on the status of our sales driving efforts and third quarter results highlights Dirk.
Eric will then provide a financial update.
Our top priority has been and will continue to be effectively managing through the COVID-19 crisis.
Focus on the safety and well being of our team members and our guests.
Our decision to temporarily close or dining and effective July 12 was primarily driven by our concerns about the increased infection rates you know markets.
In late September we began selectively reopening certain dining rooms, and patios with limited capacity and hours at both brands and we'll continue to make changes to our operations model as needed to safely operate.
Our leadership and operation teams have been spending a significant amount of time, taking the appropriate steps to ensure team member and customer safety.
Uhhuh Cobot, 19 employee and guest protocols and precautions.
We are continually adapting those procedures to changing conditions and help regulator recommendations.
Our second priority is maximizing liquidity.
We continue to improve liquidity over the course of the third quarter through better working capital management.
Prove margins and cash flow from operations.
We generated significant improvements in margin rates and profits for the quarter compared to both the second quarter and last years third quarter.
Net income was 4.6 billion.
Which included benefits from deferred tax valuation allowance adjustments and benefits from the Cures Act that it's described in more detail in the earnings release, we published this afternoon.
Pre tax income was point $4 million.
Driven primarily by strong restaurant level, adjusted EBITDA margin growth and Gionee efficiencies consolidated adjusted EBITDA increased 22% versus last year to $14.8 million.
We believe that the restaurant level margin improvement, we saw versus last year should continue into the fourth quarter at current sales trends.
As of November 2nd.
Total debt was 21.4 million.
Net revolver that was 9 million.
At the beginning of the call we'd crisis on March 18, our total debt was 148.4 million and net revolver debt was 74.4 million.
We have successfully reduced our net debt balance by $65.4 million during the last seven and a half months.
Please see the non-GAAP disclosure in our earnings release for more details on how we calculate net revolver debt.
We sold four of our 16 owned properties during the quarter.
Sold another five properties in the fourth quarter.
And have offers or contracts on the remaining seven properties.
Although there can be no assurances that those transactions will ultimately be completed.
We are also exploring the potential refinancing of our current credit agreement.
Again, although we cannot make any assurances of completing a refinancing transaction at this time.
Dirk will provide additional details of our liquidity plans and his update.
Our third key priority is finding new and better ways to drive profitable sales growth.
As a reminder, our business mix historically had been more heavily weighted toward the dining occasion compared to where it fast casual peers for both brands at approximately 26% of our revenue.
Involving status of the pandemic has clearly had an impact on consumer comfort levels with the dining experience.
Approach to opening dining rooms will be based on two key criteria on the location by location basis.
Our ability to maintain itself safe health environment for our team members and their guests.
And our ability to generate a profit on dining room sales base.
Based on incremental staffing requirements, while not deteriorating margins.
Boyle Tropicana currently has 23 dining rooms open to Taco Cabana has 20 dining rooms, and 70 patios open.
We are evaluating sales trends weekly to determine which units should be open for dine in business.
We continue to operate our drive throughs as well as our counter curbside pickup delivery and online ordering.
We also have been and will continue to make investments in our digital platform.
And our restaurant infrastructure to enhance the customer experience in those channels.
We have made very good progress during the third quarter and developing a better business model designed to enable our customers to enjoy our brand safely across all channels.
Wherever and however, they choose.
During the third quarter, we fully launched curbside carried out at both brands.
We released new apps for both grant brands to create a much improved digital experience and continue to invest and drive through customer experience enhancements that improved speed of service.
All of those efforts led to the growth in the third quarter comp sales versus the second quarter.
In October month to date trends at both brands show continued improvement versus the third quarter comps.
Our menu innovation efforts have been focused on new items that are attractive in growth channels, such as dry through in delivering well.
We're very excited about our new cubin breast sandwich lineup oil Tropicana.
And the return of an expanded offering of Enchiladas at Taco Cabana with both platforms launching recently.
We are also encouraged by the upside potential of a margarita platform at Taco.
Which is bringing new customers to the brand and driving check average growth.
Now I'll highlight Q3 results and the status of our initiatives to accelerate sales in this changing environment at each brand.
Starting with boiled tropical third quarter comparable restaurant sales showed strong acceleration sequentially over the course of the quarter with third quarter comp sales of minus 11.1%.
Third quarter comps were benefited by a negative impact of hurricane during in 2019 by approximately 140 basis points.
But oil showed very good growth, even after adjusting for that weather impact you.
The improvement in sales trend also continued into October.
This improvement.
All came despite the state of Florida being more negatively impacted by Kobin related challenges compared to other regions impacting our sales compared to national brands.
Driven in part by menu innovation and improve speed of service from efficiency initiatives.
Oil dri through average sales per week in the third quarter grew 16%.
Versus the second quarter, and 29% versus last year.
We will continue to focus on drive to operating model and technology improvements going forward and believe we can continue to aggressively grow this channel.
With shifting consumer preferences.
Our off premise initiatives are gaining traction with total off premise sales penetration of 12.1% compared to 4.4% in the third quarter last year.
Delivery sales in the third quarter more than tripled compared to last year driven in part by.
The expansions are for delivery service providers from only one last year.
Average delivery sales per week accelerated from the second to the third quarter with average weekly sales growing 33% driven by both traffic and check growth.
Our new App developed by a leading digital design developer bought a rocket went live for polio in late July.
And we expect.
To significantly grow our online sales through this much improved experience.
Although the App was just recently launched loyalty club sign ups since the <unk> went live have increased 53% compared to the average weekly sign up rate prior to the new.
On the menu innovation from our biggest news is the launch of our new line of five Latin inspired pressed sandwiches, including a classic Cuban sandwich, a grilled and they crispy chicken Cuban and they moho those ports sandwich at a price of 599 to six nine.
The New line was launched in early October October after a very successful test.
All of these sandwiches are hand, breast and travel very well in the drive through.
And delivery.
Early results on the launch are very encouraging.
Handheld category sales per day have roughly doubled.
On the average check for transactions with sandwiches is well above the brand check average syk JAK, suggesting a significant check growth opportunity.
Four transactions with sandwiches.
We will be marketing the new sandwich line through traditional digital and social media across spot, Florida now that the elections are over.
On the margin side, our operations team continues to drive sustainable margin improvement.
The team once again did a great job optimizing staffing models and food cost management to improve efficiency during the quarter.
Third quarter restaurant, adjusted EBITDAR margins grew from the second quarter level to 21.2%.
And were 110 basis points over last year.
We're very proud of the polio Tropicana leadership team for the strong third quarter performance.
Turning to Taco Cabana, the third quarter comparable restaurant sales improved 500 basis points from the second quarter comps to down 14.2%.
Sales acceleration has continued in October with month to date comp trends showing improvement from the September trends.
The dry food business will be increasingly important channel in our business with 37% growth in average weekly sales in the third quarter compared to last year.
A significant contributor to this growth acceleration has been the success of the Margarita platform.
Which is driving revenue growth and bringing new customers to the brand.
Through value pricing menu innovation and creative promotions.
A great example of our menu innovations and promotion strategy is the Margarita Palooza promotion that ran in the third quarter. This.
This promotion featured 12 flavors.
For $2, including summer seasonal flavors, such as Strawberry mango and spicy wealth.
Alcohol penetration average, 7.5% over the quarter, but peaked at 9% during the first four weeks of the promotion compared to 3% liquor mix pre code.
Alcohol transactions, our check accretive averaging over $3 per transaction above non alcohol transactions.
We believe that the Margarita platform is also bringing more new customers to the brand.
The excitement around Margarita Palooza event was very strong.
In July social media, we had 1 million impressions, a 147% improvement in reached 57% increase in page views and a 175% increase in likes compared to the prior month.
The Margarita platform is bring also bringing in new customers. The post cobot, new customer acquisition rate increased 4% based on credit card person purchasing research through August.
And we really we realized a 154% increase in social media engagement during the to lose that promotion.
Taco has developed a calendar of Margarita promotional events for the remainder of 2020 and into 2021 to continue to leverage the revenue growth opportunity from this platform.
Off premise sales is building momentum and grew average weekly sales compared to the second quarter with significant revenue growth over last year drill.
Driven by delivery well.
Off premise sales penetration was 7.9% compared to 3.6% last year.
Delivery average weekly sales in the third quarter more than tripled versus last year and grew over second quarter levels.
The new App went live on schedule in September and we expect to significantly grow our online sales through this much improved that.
Finally in the second and third quarter, we refocused our culinary menu selection criteria to focus more on differentiated and authentic in Tex Mex recipes that are true to the heritage of this 40 year old brand.
This impart was made possible by our new chef Sergio Rosalina, who has 30 years of Colin Air experience and it was previously the director of Latin cuisine studies at the commentary Institute of America.
Late in the third quarter, we began to test some of the the ideas coming out of our improved culinary process in late September we rolled out a line of tortoise and in October we launched an expanded and higher quality. It's a lot along that tested very well in late Q3 and has continued to show exciting results.
In terms of margin improvement the Taco operations team did an outstanding job in the third quarter, improving margins to well above the second quarter and last year's third quarter Red.
Restaurant level adjusted EBITDA margins for Taco improved over 500 basis points versus last year from 9.2% to 14.9%.
The restaurant margin improvement was driven in part by significant labor efficiencies from optimizing our restaurants staffing model and lower cost of sales driven by lower commodity costs and waste reduction.
Taco Cabana adjusted EBITDA grew significantly above last year to 4.2 million.
Moving the adjusted EBITDA margin rate from 1.6% in 2019% to 7% in 2020.
We are very encouraged by the sustainable margin growth and foundation revenue growth the Taco team established in the third quarter.
As we look forward toward 2021.
We plan to continue investing income.
Customer facing technology and operation improvements at both brands can make the dining experience more convenient in the channels that are most important.
During the fourth quarter, we plan to implement enhancements enhancements to our curbside technology.
<unk> improve the customer experience.
Including Geo fencing capability to allow our operations teams to automatically see when a customer is close to the restaurant for pickup.
We will continue the process of updating and improving our drive through pod order, taking devices and drive through menu boards.
To improve speed of service and marketing quality.
For driver.
In addition, our loyalty programs are being enhanced including a recently introduced program for catering.
In summary, we are excited with the progress we have made over the quarter.
Managing the Cobi crisis successfully.
Growing margins and profit and finding new ways to meet our customers needs.
And improve sales.
We believe the investments that we have made in sales growth initiatives.
We'll provide returns in the future.
We improved our restaurant level adjusted EBITDA margins at both both brands compared to the second quarter.
Prior year third quarter.
And grew consolidated adjusted EBITDA by 22% versus last year.
In addition, we reduced net debt by over $65 million down to $9 million compared to net debt at the beginning of the coli crisis, while staying current.
On rent with our landlords.
I want to thank our leadership team.
Operations team members and my Executive Committee.
We're not only persevering during this tough quarter, but in seizing the opportunity to reimagine, our business to find better ways to meet our customers needs.
Thanks to our team we are stronger today than when the crisis began.
And we'll be even stronger at the end of the year.
Ready to capitalize on opportunities that await beyond the crisis.
I'll now turn it over to Dirk to cover the financial highlights in more detail.
Thank you rich and good afternoon, everyone.
Let me start by reviewing our third quarter or this quarter results and then provide you with an update on our cash and liquidity.
Total revenues decreased 16.4% from the prior year period to 137.3 million because of the comparable restaurant sales declines at both brands, which was due principally to the impact of COVID-19, along with a decrease in sales related to close restaurants, a taco cabana, but.
<unk> up a cow and Taco Cabana significantly improved their comparable restaurant sales trends from the second quarter to the third quarter. In addition, queer Tropicana generated strong sequential improvement and monthly comp sales during the third quarter, but.
Both brands also showed improved comp sales momentum in October versus the third quarter trends.
From a channel perspective consolidated off premise sales grew to 10.3% of total revenue during the third quarter as we continue to evolve our operating model and make it easier and safer for our guests to order the freshly prepared delicious food. They love as rich indicated drive thru is an increasingly important growth driver for our business and average weekly sales rep.
Revenue showed strong growth versus the second quarter sales rate and prior year third quarter, driven by successful promotions in menu add ons, such as tacos Margarita Palooza promotion in the top 10 is tonys menu add ons and put a tropical.
Consolidated net income in the third quarter was 4.6 million or 18 cents per diluted share and included approximately 12 cents per diluted share of negative impact primarily from impairment charges and close restaurant rent charges offset by the favorable impact of 22 cents per diluted share premier.
Only from adjustments to the deferred tax asset valuation allowance.
Impact of federal tax rate changes in other income.
This compared to net loss of 22.2 million or 84 cents per diluted share in the prior year quarter, which included a 73 cents per diluted share negative impact primarily from 19 point threemillion and goodwill impairment charges net of tax.
On an adjusted basis. The net income was 2.1 million or eight cents per diluted share. This year. This compares to adjusted net income of 2.2 million or one cents per diluted share in the third quarter of 2019. Please.
Please see the non-GAAP reconciliation table in our earnings release for more details.
Strong growth in restaurant margins versus last year at both brands led to an increase in consolidated adjusted EBITDA, a non-GAAP measure of 22% versus last year to 14.8 million.
At both brands improved labor efficiency and food cost reductions were major drivers and the margin improvement.
We believe our sustainable going forward at current sales trends.
Now turning to our individual brands.
Where tropical comparable restaurant sales decreased 11.1% compared to a 3.8% decrease in the third quarter of last year. This.
This year's decline consisted of a 22.1% decrease in comparable restaurant transactions, partially offset by 11% increase in the net impact of product channel mix and pricing.
The increase in product channel mix, some pricing was driven primarily by increases in delivery and drive through average check and sales channel penetration and menu price increases of approximately 8.2%.
Note that third quarter comp sales appointed Tropicana benefited from the negative impact of Hurricane Dorian in 2019 after adjusting for that impact comp sales. This year would have been approximately 140 basis points lower.
Drive through sales penetration increased to 67% of net sales in the third quarter and average check for drive through grew by over 14.6% versus the third quarter of last year.
Delivery sales dollars more than tripled versus last year, while penetration grew to approximately 9% of net sales and average check for delivery grew by 15% versus the third quarter of last year, driven by an increase in items per order.
Turning to the brand profitability for the third quarter restaurant level adjusted EBITDA, a non-GAAP measure as defined in our SEC filings decreased Tupperware Tropichop by 1.3 million to 16 point Fourmillion, but improved as a percentage of restaurant sales to 21.2% from 20.1% in the third.
Quarter of last year.
As a percentage of restaurant sales were Tropicana experienced lower cost of sales by 30 basis points compared to last year of 31.7% due to operating efficiencies lower promotions and discounts, partially offset by sales mix, lower rebates and discounts and higher commodity costs.
Lower restaurant wages and related expenses due to labor efficiencies, partially offset or partially offset by incentive bonus and lower advertising costs.
These were partially offset by higher rent expenses and higher other operating expenses, which included higher third party delivery fees.
Despite lower comp sales poor traffic count did an exceptional job managing food cost and labor to improve restaurant level adjusted EBITDA margins compared to last year.
We incurred incremental costs related to COVID-19.2 million during the third quarter, including quarantine pay and cost related to mass can sanitizer.
Management in our labor management and hourly wage cost as a percentage of net sales decreased compared to last year by 0.9% due to labor efficiency initiatives.
Adjusted EBITDA decreased 5.4 million to 10 point Sixmillion for poor at Tropicana in the third quarter of 2020. We view. This is a great outcome considering the decline in restaurant sales.
At Taco Cabana comparable restaurant sales decreased 14.2% compared to a 4.8% decrease in the third quarter of last year.
This year's decline consisted of a 23.8% decrease in comparable restaurant transactions, partially offset by a 9.6% increase in the net impact of profit channel mix and pricing.
The increase in product channel mix and pricing was driven primarily by increases in drive through and delivery delivery sales channel penetration and an increase in average check for drive through orders driven in part by an increase in transactions with alcohol sales and menu price increases of 1.6%.
Taco drive their revenue per unit grew roughly 36.6% versus last year, representing 83% of net sales driven in part by increased average check of roughly 17.4% over last year in part driven by alcohol promotions turn.
Turning to the brands third quarter profitability restaurant level adjusted EBITDA, a non-GAAP measure is defined in our SEC filings increased the Taco Cabana by 1.9 million to 8.8 million or 14.9% of restaurant sales from 6.9 million or 9.2% of restaurant sales prior year.
As a percentage of restaurant sales Taco Cabana decreased cost of sales by 270 basis points to 28.9% in the third quarter due to lower commodity costs operating efficiencies lower taxes, lower promotions and discounts in menu price increases partially offset by sales mix.
The rebates and discounts.
Lower rebates and discounts lower restaurant restaurant wages and related expenses due to labor it efficiencies and lower payroll taxes, partially offset or partially offset by higher incentive bonus and lower advertising expenses.
These were partially offset by higher rent increases in other operating expenses, which included higher third party delivery fees. In addition to the negative impact of lower comparable restaurant sales.
Similar to play our team's ability to manage food cost and labor has allowed Taco cabana to improve restaurant level adjusted EBIT margins compared to last year outstanding work, there Taco cabana incurred incremental costs related to COVID-19.2 million for the third quarter, including quarantine pay and costs related to mass sand.
Ties are encoded testing driven.
Driven by efficiency initiatives manager in hourly wage cost as a percentage of net sales decreased versus last year by 200 basis points.
Adjusted EBITDA increased to Taco Cabana by 3 million to $4.2 million in the third quarter of 2020.
Regarding income taxes, we had a benefit from income taxes of 4.2 million in the third quarter of 2020.
This benefit was primarily from accelerating depreciation as a result of changes permitted by the cares Act and a cost segregation study completed prior to filing our 2019 federal income tax return.
This acceleration allowed us to carry additional tax net operating losses back to prior periods with a higher tax rate and resulted in a reduction in net deferred tax assets and their related valuation allowance against those deferred income tax assets.
These were discrete items in the third quarter let.
Let me quickly touch on our cash and liquidity at the end of the third quarter, we had 18 million in cash and $41.8 million in debt, including 39.9 million outstanding borrowings under our amended senior credit facility and 1.9 million and capital lease obligations.
The reduction in our net revolver debt a non-GAAP measures defined in our SEC filings to 9 million as.
As of November 2nd 2020 from 74.4 million at the beginning of the Cobot crisis was funded by cash flow from operations, including extended vendor payments and the sale or sale leaseback of nine company owned properties.
As we indicated previously we had 16 on properties that we've been marketing for outright sale or sale leaseback of which nine have sold through early November. We currently have offers or contracts in place for the sale or sale leaseback of all seven remaining company owned properties being marketed with additional transactions expected to close.
The remainder of the year to enable further debt paydown. However, there can be no assurances that such transactions will be completed during the fourth quarter or at all.
We're also exploring the potential refinance of our refinancing of our current credit agreement, although we cannot make any assurance of the timing or uncertainty of completing a refinancing transactions at this time.
Turning to capital expenditures total capital expenditures in the third quarter of 2020 were $3.2 million, which primarily included 2.1 million and for maintenance and $1.1 million for technology and corporate investments as a reminder, our 2020 capital expenditures are not expected to exceed 20.
$2 million.
In summary, our team has done a tremendous job during this challenging time as they work tirelessly tirelessly to not only keep our guests safe, but also improve operating efficiency.
In addition, we believe our financial position is actually better now than it was at the onset of the pandemic combined with growth initiatives, we've already put in place, including curbside capabilities, new apps and delivery channel sales. We believe that we have positioned vs. It to emerge stronger once the pandemic has subsided.
Thank you for listening and we will now open the call up to questions operator.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any key.
I would draw your question. Please press Star then too.
Our first question comes from Nicole Miller of Piper Sandler. Please go ahead.
Hi, and thanks, so much for the update this afternoon Adcom question and then just a follow up question on drive too, but first on comp.
Very happy to see the October improvement frankly.
That's not what we've been hearing this earning cycle from a lot of your peers and so I was just looking through the numbers and wondering if you could give a little contacts I see in polio topic, how bad.
Comparisons actually get more difficult by 400 basis points for the quarter, maybe there was something different in October of the prior year can you just give us some context when I look at Taco and comparisons actually get easier by 400 basis points. So you wanted to just model that improvement or is there something else going on thank you.
Sure. Thanks, Nicole I'm so on the on the plus side I mean, I think where we're seeing I think the benefits of some of the growth drivers that we talked about in the third quarter continued to accelerate you know as we head into the fourth quarter on that on the Taco side as you know as you noted 'em, we we had a de sell.
Coloration in comps in the fourth quarter of last year. So I think that that combined with our new product initiatives and continued effective promotions on the Margarita platform are really what we see is as growth drivers as we're heading here early into the fourth quarter.
Let me try that one more way.
Could you give us the exit rate.
And then maybe we could understand.
What to do with Fourq you todays commentary.
Sure. So I mean, we in the press release, we we disclose the the exit rate comps.
By month, so just just to recap the the comps for point, though in September were down 8.7 for Taco down 14.2, we don't as we kind.
Got it in the past, we don't give specifics on a in quarter, a monthly comp trends, but the trends have improved.
From a that.
The rate that they were at the tail end of the of the third quarter.
All right and then I think you said the driver there was up 37% can we talk about what percent of sales and maybe it's still almost everything frankly going through the drive through.
And then what are you measuring these days in terms of performance around speed accuracy and overall guest satisfaction metrics.
Yes, so let we can answer the second question first so you know in terms of yeah specific metrics around that and I think you're are you talking about drive through.
Yes, yes, so right yeah, Okay Sun drive through we definitely are proud of the fact that we're seeing improvement actually in our drive through speed of service year over year at both brands. Both brands are are a little bit different but they are both trending in that and that didnt.
Below five range, which is yeah, five five minutes as a benchmark and quick serve I think around that I'm customer serve other customer service metrics.
Were there they've been improved particularly at Taco Taco as a customer service managers have improved significantly and dramatically actually a year over year.
Into the third quarter.
I'm sorry can you repeat the first part of that question Nicole I'm sorry.
Oh sure I was just curious if it I think you said up 37, but just what percentage of sales or the drive through and and I guess it it could be almost all of them all of it these days.
Yes, I mean, we and we I think we commented on the on the relative mix from derived through in the prepared comments.
Let me just go back to those.
So for Taco the penetration is 83 for was 83% as we commented on and then 4.0.
Just bear with me here.
[noise], whereas in the 65% range.
[noise] that's penetration of total revenue.
All right. Thank you so much.
Thanks, Nicole and welcome Thanks Nicole.
Yeah.
Thank you.
The next question comes from Brian Vaccaro of Raymond James. Please go ahead.
Hi, Thanks, Good evening I wanted to circle back on some of the investments you've made in your planning to make further around the drive thru experience I think you mentioned handheld order takers and digital menu boards and yes. The question is do you have these in place an existing units or to what extent have you tested it.
And could you help quantify some of the benefits you've seen whether the sales are drives higher speeds or perhaps it perhaps average check benefits via suggestive selling and the like.
Sure. So I mean, we've had more progress and more just more work done on the pods on the pod three investments we haven't completed the program yet, but essentially what we're doing is we're updating both the.
Well the pod the pod as an order taking in a payment device and so what we're doing is we're we're working to upgrade those devices to be.
Be able to process payments or faster. We're also working on our.
[laughter] connectivity and and signal signal distance capability, which.
Which which will allow us to actually take orders more in advance in the line. So if you can imagine if you've got a signal that only go to say six cars deep.
Extending a signal suddenly you can go 10 cars deep with orders and processing those payments frankly, we're really just getting our technology updated to what many of our peers have implemented as far as as far as the pods in the in the payment and the benefit to specific benefit of that is empty.
Movement in in speed and so were definitely seen.
Speed improvements in terms of the the line cycles the speed of service metrics. If we talk about in the order turnaround is really actually from order. So there is also a weight.
When you're in when you're in your car and you are in line prior to placing that order and what what the the investments in pod and payment technology are going to allow us to do is to it's a really compressed that time. So you know, it's it's really going to it's really all about increasing flow through on the good news is that our Weve Peru.
Given that our kitchens actually have the capacity to handle significant improvements in a you know in order in order speed improvement or speed reduction. So there's not a we're not going to create a constraint in the kitchen and we're actually we're right now we're in the process of.
Testing with with good results I might add a reengineered kitchen line, that's more modular that allows for faster speed in terms of assembling components for order. So you know we're working both the order side as well as the kitchen efficiency side, and it's really all about speed.
And I'm sorry, Brian can you can you repeat that I think there was that was there were two parts to that question.
I think I answered I was just yeah. If you if you had any sort of quantification of what you've seen in terms of.
Sales benefit or average check related to the digital menu boards, if you've had a joke and tests that at this point.
Yeah. So the answer is no that we're in very early stages. There. We're in the process of really selecting the technology that we're going to go with but we've got a we've got a huge opportunity there.
You know, we benchmarked our in our digital menu board platform against the competitive set and frankly, it's a big opportunity for us to to create an update which should resolve and a check average increases due to add on sales.
All right that's great and then I guess shifting to margins if we could obviously.
Obviously, some significant efficiency gains at both brands the across multiple cost line.
I guess, there could could you walk through sort of how you see underlying margins playing out for each brand, obviously not quarter by quarter or anything of the like but could you walk through some of the maybe near term efficiency gains that might reverse as that environment, hopefully normalizes six 912 months whatever you see on the other side of.
That I'm thinking about things like wage reductions and streamlined menus and how order patterns have shifted or may be reduced repair and maintenance budgets reduced advertising just how you see this kind of being slowly as we lived through the environment.
Sure I mean, so I mean that that's a that's so let me kind of kind of take those one at a time I think the big then that.
The prime cost you know food cost and labor, we see the margin improvement in those lines being largely sustainable obviously, if you pay if if not for those of you that are in the state of Florida, you know that the I think it's I'm not sure if it officially passed but there was a a minimum wage legislation on the ballot that past.
Per $10, that's going to be a cost increase for us, but I, you know, which which we can easily accommodate through price increases given that we haven't been aggressive on price historically, but I would say, we feel like beyond that our ability to maintain largely maintain.
And the margins that we're seeing on the labor and food cost side are very high we we do expect it in.
In general were still not completed whether negotiations for 2021, but we do a there there. So far you know, they're pointing toward a had a stable or better cost versus last year in 2021 versus 2020.
In the Opex category, there's there's a lot in there you know that's that's kind of a kind of a difficult difficult item to two the break down but generally speaking as we grow sales because there is a fixed component to out to you know other opex expense, we should be seeing leverage as revenue you know climbs back.
To to historical levels.
And you know on the DNA from the last item I mean, we we I think we felt we felt good about our ability this year to reduce DNA and we expect that to that to maintain certainly as we head into next year.
[music].
On the M&A front have you identified any incremental savings opportunities versus what you've already accomplished.
Accomplished a year to date.
I mean, we're always looking to try to improve efficiency at particularly in the non guest facing activities. I know you know no news yet no no nothing nothing no new news on that front.
At this time.
Okay and then the last topic you mentioned it briefly there the Florida increase and the state minimum wage going to 15 Bucks I think by 2026.
I guess, how do you see that playing out on both the demand and labor cost perspective, and the question I was going to ask me I'm not sure. When the last time you completed the customer segmentation study was but do you have a sense of the average income of your customer base and what percent might be sort of in the lower middle income bands.
So let me answer the first part of that question first Brian. So the legislation just for everybody on the phone is not right isn't isn't didnt see it is a it.
It is is time based or it's.
Required to be enacted by September Thirtyth. So we have time to that phase to phase in that increase.
So and I I, what I'm, sorry, what was there another question around that rental.
Around the legislation.
Oh no not the legislation itself I was really trying to think through what benefit could that have.
Certain percentage of your customer base will be seeing obviously income growth through their wages.
So I was asking if he if you had a sales of what the average income of your gas was or what percentage of your sales or traffic sort of come from different income bands. We have any data on that you might be able to share.
Yeah, I mean, we don't have any specifics, but we would say that I mean, a large percentage of our of our customer base. You know our problem why are certain likely service employees that would be positively benefited by you know by any kind of wage legislation. So I think certainly it's a I think we expect that it's it's going to be a benefit.
For for a significant percentage of our customers.
Okay and can you help us frame the cost a little bit whats the average wage today, where an hourly employee.
In South Dakota.
Yeah. So the average wage for our employees right now is in the 90 60 range. So the cost for us to if on an annualized basis that cost impact I went through with no no pricing just the straight up cost impact would be roughly two and a half a million dollars.
That's great. Thank you.
All right. So that that represents a roughly 70 basis point price increase so we feel like given the fact that we haven't taken price aggressively in the last couple of years that that's that's not really going to be a big challenge. If we choose to increase price a 70 basis point price increase would would not be something that we feel like.
We we feel like we can take a price increase at that level if needed to offset that cost.
With any luck hopefully that's our Oh gosh, our negotiations on commodity costs will be enough to partially offset some of that increase which by the way just to remind it doesn't start until September.
Thirtyth.
That's very helpful. Thank you.
Thank you.
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