Q3 2020 Wingstop Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Wingstop Inc. fiscal third quarter 2020 earnings Conference call. Please note. This conference is being recorded today Monday November 2nd 2020.
On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skipworth, Executive Vice President and Chief Financial Officer, I would like to now turn the conference over to Michael. Please go ahead.
Thank you and welcome everyone should have access to our fiscal third quarter 2020 earnings release.
He is posted under the Investor Relations tab on our website at IR Dot Wingstop dotcom orders.
Our discussion today includes forward looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect our FCC filings describe various risks that could affect our future operating results instead.
Natural condition.
We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP reconciliations to comparable GAAP measures are contained in our earnings release lastly for the Q and a.
We ask that you. Please each keep to one question and a follow up question to allow as many participants as possible to ask a question.
With that I would like to turn the call over to Charlie.
Thank you Michael and good morning, everyone. We appreciate you joining us for this call. This morning, and hope everyone is safe and well.
Hey, Good night came true 10 years to impact people and the economy in all markets around the world the.
Wingstop, we continue to navigate these difficult times and remain humbled by our continued strong performance.
We believe our ability to navigate the pandemic and related economic challenges demonstrates the resiliency of our brand and provides us with confidence in achieving our long term strategy.
The strength, we have seen in our performance has enabled us to achieve some key milestones in 2020.
This week, we opened our 1500 wingstop restaurants.
Our domestic average unit volume now exceeds $1.4 million.
Digital sales over the last 12 months now represent more than $1 billion.
And we are on pace for our 17th consecutive year.
Is it if same store sales growth.
These results could not be accomplished without the hard work and highest level of commitment to serve our guests from the more than 25000 team members across the world.
Including our franchisees, who me affectionately refer to as our brand partners as one with our supplier partners.
I'm proud to work alongside all of you and I am inspired by the results we have achieved together.
And while we recognize that we are still navigating this pandemic, we believe our results underscore the strength and resiliency of our brand and allow us to maintain our focus on our long term outlook. Our vision of building wingstop into a top 10 global restaurant brand and.
In executing against our strategic pillars of sustaining the same store sales growth Maine.
Maintaining best in class unit, economics, and expanding our global footprint.
These strategic investments we have made over the years had a commitment to our strategy positioned us well to navigate this difficult time.
We believe our success is a direct result of our culture and our values, which we refer to as the Wingstop right.
We remain steadfast in our service minded attitude.
Containing our authenticity and.
And harnessing our entrepreneurial roots and we believe our culture and our team members are what differentiate us from every other Brad.
At the end of the second quarter, we shared how our brand partners quickly began to mobilize and re ignite restaurant development pipeline as the country began to reopen at that time I.
I'm pleased to report that this momentum continued in the third quarter during which we opened 43 net new restaurants.
Why has continued to strengthen pointing to a healthy outlook for new restaurant openings for the balance of the year.
Leading us to increase our estimate for net new restaurants for fiscal 2020, which we now anticipate to be between 135 and 140 net new restaurants.
You may recall that consensus estimates for net new openings for the year for Wingstop, There's only 95 at the end of Q1.
This pace of development demonstrates the strength of our model and the enthusiasm our brand partners have in growing but the brands and in operating more wingstop restaurants.
As a reminder of the average initial investment to open a wingstop is less than $400000 and at our current average unit volumes per second your restaurants, our brand partners are enjoying unlevered cash on cash returns well above 50%.
Truly best in class unit economics.
It is these best in class economics that have our existing brand partners, who make up over 80% of our pipeline expanding their own wingstop that Fred.
The momentum we have seen building at our new restaurant development has been fueled by our strong top line performance, which has increased our domestic average unit volume to more than $1.4 million.
In fact restaurants opened at least three years on average have an average unit volume now well above 1.5 million.
During the third quarter, our domestic same store sales growth sustained double digit levels of 25.4%.
Which represents a 37.7% comp on a two year basis.
That's almost 40% growth in same store sales over the past two years for the brands and a continuation of our streak of more than 16 years of positive same store sales growth.
While we are extremely proud of these results our focus is not on the quarter to quarter four period. The date same store sales growth numbers, but rather a continuing to execute our long term strategic growth algorithm of sustaining same store sales growth.
Maintaining best in class unit, economics, and expanding our global footprint.
Two key elements of our long term strategy to sustain industry, leading same store sales growth have demonstrated their staying power in 2020.
The continued expansion of digital sales and the introduction of a delivery channel.
In Q3 digital sales were 62% of our total sales and more than doubled versus Q3 in 2019.
As we sit here today, the digital business has now eclipsed $1 billion in sales for the Wingstop system for the trailing 12 month period.
This growth has been enabled not only by our world class digital platform.
But also by the expansion of delivery, which.
Which has doubled in sales mix compared to early 2020 and has brought more new customers to the brand.
You may recall that we launched an extremely successful redelivery promotion earlier this year and in the March April timeframe, and we're excited about another free delivery promotion that just kicked off this week that will run for a three week time period and is being funded through our strategic delivery partner door dash.
And while we are enjoying delivery sales mix in the mid 20% range. We believe we can drive that channel mix much higher as we continue to bring new guests into the brand.
The growth in our average unit volume has created efficiencies in our restaurant piano, including relief from the recent increases we have seen in the price of bone in chicken wings.
To provide further relief for our brand partners. We recently negotiated a pricing mechanism with our largest poultry suppliers that mitigates the impact of continued inflation and bone in chicken wings over the near term.
This coupled with continued semiannual strategic price increases taken by our brand partners have also helped mitigate the impact of inflation on their personnel and it's helped us protect our development momentum.
We will continue to find more ways to deliver against our long term strategy to mitigate volatility in food cost such as the introduction of the new product bone in size.
Which has been tested in several markets today.
I would emphasize offer the juicy meat and crispy skin like bone in wings, but help us leverage more parts of the bird and couldn't be stocked in cost in our 11 bold distinctive flavors.
Our research suggests it will be a fan favorite and we're excited for all wingstop fans to get to try it soon.
Our domestic business is only part of the story and I'm.
Extremely excited to see that the 43 net new restaurants opened in the third quarter nine net new restaurants were opened at our international business in four different strategic markets.
The UK is one I'd like to highlight where we opened four new restaurants in the quarter and we are enjoying average weekly sales consistent with what we have experienced in our domestic business.
We are excited to see the strong development against a challenging operating environment.
Sales trends continue to improve in the third quarter as each market reopened dining rooms, and continued to leverage and grow their off premise business, which bolsters our confidence in our long term strategy for our international business.
We continue to work alongside our international brand partners to ensure they are financially prepared to emerge stronger and better positioned for continued unit growth.
The strength, we're seeing in our strategic international markets reinforces our growth strategy that we introduced to you back in January.
Part of that strategy included expansion into China and in October we kicked off an engagement with BCG to begin to lay the groundwork for our entry strategy.
We believe that China represents a market with great potential for us and believed that we could operate over 1000 restaurants over time.
We remain excited about our international potential and will continue to make the necessary strategic investments position the brand for scale and future growth.
Our brand partners across the world are trying to build new restaurants as they leverage cash from operations and continue to have access to capital from excellent banking relationships that reward our brand strong performance.
We believe this great momentum will set up a strong development year and 2021 as we continue to make progress against our goal of <unk>.
Thousand plus global restaurants.
We're also using our own excess capital to drive growth in the business.
As previously mentioned, we are making a strategic investment with BCG to lay the groundwork for the big opportunities. We believe we have in China.
We also anticipate continued investments in technology as we drive toward our goal of digitizing every transaction and expanding our technology platform globally.
We will also continue to use our excess capital to drive unit development.
One point this could take is the continued acquisition of restaurants in markets with high growth potential.
Our success in re franchising five restaurants in Kansas City, and establishing a growth platform for an existing brand partner drove our decision to acquire five restaurants in the Denver market during the third quarter.
We are excited about the opportunity this presents as a tool to accelerate growth in key markets around the U.S.
We are committed to driving shareholder value and to that end capitalized on an opportunity to refinance our debt and take advantage of the record low interest rate environment.
We are extremely pleased with the outcome of the overwhelming demand from investors and the favorable terms, we were able to secure.
This record setting transaction has provided us with the opportunity to return capital to our shareholders. In addition to the declaring a quarterly dividend we are issuing a special dividend totaling approximately $150 million all while maintaining adequate cash on our balance sheet to fuel continued investments in growth.
Since our IPO, we have returned almost half a billion dollars in capital to shareholders, who have enjoyed over a 600% total shareholder return.
Our track record underscores the strength of our brand and the high cash flow generation of our asset light model.
And confidence in our future.
At least stop we recognize the responsibility we have to all of the various stakeholders, we serve including our team members brand partners supplier partners shareholders and the communities in which we operate.
I'd like to close by again thanking all of them and our guests for their continued support of Wingstop and hope everyone skate safe and well during this difficult time.
And with that I'll turn the call over to Michael.
Thank you Charlie as Charlie mentioned, our business continues to prove its resiliency and the third quarter saw continued strong results across the board domestic same store sales grew by 25.4% in the quarter, which is a 37.7% comp on a two year basis, we're thrilled to be a.
Well to build upon significant transaction gains during 2019, a year that ended with an 11.1% same store sales growth there.
There was a lot of excitement in our brand and despite the challenging circumstances. We opened 43 net new restaurants, resulting in 1479 system wide restaurants at the end of the quarter, which represents a 10.4% unit growth rate [noise] well.
We're proud of the hard work of our brand partners and development teams.
Our openings have culminated in more than 100 net new restaurants. This year, despite losing two to three months of construction time as a result of the pandemic.
Royalties franchise fees and other revenue increased by $6.9 million to $28.8 million for the third quarter, driven primarily by our domestic same store sales growth and 138 net franchise openings since the year ago comparable period.
Advertising teams and related income increased $5.6 million to $19.7 million due primarily to a 32.8% increase in system sales compared to the third quarter of 2019.
Our company owned restaurant sales increased $1.6 million to $15.5 million for the third quarter. This increase is due primarily to same store sales growth of 15.2%.
This strong top line growth average unit volumes for company owned restaurants are now approximately $2.2 million.
Cost of sales as a percentage of company owned restaurant sales increased by 180 basis points compared to the third quarter last year. This.
This increase was driven primarily by higher labor cost from incentive pay associated with COVID-19 for our restaurant team members. The incentive pay is a nonrecurring investment to support our team members working on the front lines in this difficult environment.
The increase in labor expense was partially offset by the leverage gained on operating expenses due to the substantial growth in unit volumes operating expenses include delivery Commission and with deliveries sells more than doubling since last year the efficiencies in our operating expenses highlights the benefits of our strategic partnership with door Dash.
As a reminder, we partner with an industry leader on strategic menu pricing in our restaurants and continue to leverage this platform to mitigate inflationary pressures on our piano. We also now have the newly negotiated when pricing Charlie commented on earlier, we anticipate this will allow us to mitigate some of the.
Rising inflation and hold restaurant level margins for the fourth quarter consistent to what we saw in the third quarter, which were 24% for our company owned restaurants, while we do enjoy an average unit volume of $2.2 million in our company owned restaurants. These margins adjusted for royalties are a good indication of the mine.
Margins, our brand partners enjoy at our system average unit volume of $1.4 million and truly demonstrate the strength of our model.
In the third quarter as Charlie mentioned, we completed an acquisition of five restaurants in the Denver market for modeling purposes volumes for these restaurants are slightly under our system average and we anticipate investing in these restaurants to ready then for re franchising as we position in that market for accelerated unit development similar to our <unk>.
The city market. This is a great example of how we will use our cash to accelerate development.
Advertising expenses increased $5.6 million to $18.3 million in conjunction with the increase in system sales also to remind everyone advertising expenses are recognized at the same time the related advertising revenue is recognized and does not necessarily correspond to the actual time.
Timing of the related advertising.
Selling general and administrative expenses were $17.3 million in the quarter, which is at $3.8 million increase versus the third quarter in 2019, Dan.
The increase was primarily due to approximately $3.4 million and higher variable based compensation expense, which includes higher stock based compensation expense associated with the company's current year performance.
$1 million driven by an investment in talent to support the growth in our business and $500000 related to cope in 19 and support provided to our international brand partners.
This increase was partially offset by a $1.2 million gain we recognized on Refranchising five company owned restaurants in the Kansas City market no the $1.2 million gain on sale is excluded from adjusted EBITDA.
Adjusted EBITDA, a non-GAAP measure increased 19.5% to $18.4 million for the third quarter. There was a reconciliation table between adjusted EBITDA and net income its most directly comparable GAAP measure are included in our earnings release.
We recorded a tax benefit of approximately $200000 in the third quarter. The decrease in the effective tax rate was driven by excess tax benefits associated with stock options exercised during the quarter and it resulted in a nine cents benefit to diluted EPS.
Net income in the third quarter was $10.1 million or 34 cents per diluted share an increase of 71% versus the third quarter in 2019.
At the end of the third quarter, we had $280.5 million in net debt. We ended the third quarter with our net debt to trailing 12 month adjusted EBITDA at four times, which is a full turn lower than at the end of the first quarter of 2020, underscoring our ability to quickly de lever through a combination of.
Adjusted EBITDA growth and strong free cash flow generation.
Subsequent to the end of this quarter, we completed our previously announced recapitalization transaction, which included the issuance of the $480 million of senior secured notes and entered into a $50 million variable funding notes facility.
Proceeds from this transaction will be used to repay our existing $317 million securitized notes issued in 2018 $16 million in borrowings from our prior variable funding note and transaction cost approximately $13.7 million and transaction related expenses will be worked.
Gordon and the other expense line in our PML in the fourth quarter.
We're very pleased with the outcome of this transaction and the favorable debt terms, including an interest rate of 2.84 per cent for a seven year term.
Which translates to approximately $2 million in annual interest expense savings they.
The completion of this transaction puts our pro forma leverage ratio at 6.4 times, which is a level. We are comfortable with given our asset light highly franchised business model and strong cash flow generation.
Leveraging the net proceeds from our recapitalization transaction and excess cash on hand, our board of directors declared a special dividend of $5 per share of common stock payable to stockholders of record as of November 22020.
Special dividend totaling approximately $150 million will be paid on December 3rd.
We also remain committed to returning capital to shareholders through our regular quarterly dividend.
Our board of Directors has also declared a quarterly dividend of 14 cents per share of common stock payable to stockholders of record as of November 28 2020.
This dividend totaling approximately $4.2 million will be paid on December 10.
We are consistently evaluating the best use of capital and believe the return of capital is an important part of our commitment to our shareholders.
This return of capital demonstrates our confidence in the long term outlook for our business.
Given the ongoing uncertainty with Cove in 19, and the broader impact on the U.S. economy, we are not providing fiscal 2020 guidance for same store sales growth. However, we are increasing our guidance for net new restaurants to 135 to 140 as a result of our strong development pipeline mdx.
Right now we are seeing from our brand partners to grow but the Wingstop brand.
And with more clarity around S. DNA for the balance of the year, we are providing guidance for s., DNA, which we expect to be between $63.5 million and $64.5 million for fiscal 2020.
We have included a reconciliation in our earnings release from reported S. DNA to adjusted SGN, a non-GAAP measure that excludes fees associated with our strategic investments totaling approximately $1.3 million noncash stock based compensation of approximately $9 million and expenses related to.
National advertising, approximately $8 million, which had equal and offsetting contributions in revenue and do not impact profitability metrics and gain on sale did you re franchising of restaurants, a $3.2 million adjusting for these items, we expect adjusted EPS DNA for 2022 <unk>.
Between $48.4 million and $49.4 million.
Wingstop business model has demonstrated its strength and resiliency. It's we have navigated this pandemic and are thankful to all of the Wingstop team members and brand partners for their hard work and dedication. During these challenging times, we remain focused on our vision of becoming a top 10 global restaurant brand.
As we look ahead to the balance of 2020 and beyond we believe we are well positioned for continued growth and our long term strategies remains unchanged anchored by our three main growth pillars sustaining same store sales growth maintaining best in class unit economics, and continuing to expand our.
Global footprint.
With that we're happy to answer your questions. Operator, Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and he would like to withdraw. Your question. Please press Star then two as a reminder, please limit yourself to one question and one follow.
So that as many participants as possible may have a chance to ask a question.
This time, we will pause momentarily to assemble our roster.
Our first question comes from Andrew Charles with Cowen. Please go ahead.
Great. Thank you one clarification then my real question, Charlie I know, you're choosing not to disclose fuel for Q quarter to date.
And obviously strong momentum in the third quarter, but is it fair to say that your philosophy is that theres no need to provide an update on sales trends that they are broadly in line with what you saw in Threeq you.
Good morning, Andrew Thank you for the comment.
I would say this that our philosophy centers on looking at the long term potential of our business and if I can just a site fundamentals as it relates to running in a high growth restaurant company our comp for the third quarter was 25.4% that's.
That's 37.7% on a two year basis, our average unit volume as we noted has risen to $1.4 million, which drives exceptional four wall cash flow and great cash on cash returns for our brand partners, we color or franchisees brand partners.
Which led to strong unit growth during this quarter and an increase in our guide to unit growth for the balance of the year, which we believe fundamentally is what is most important and navigating not only this environment, but for the long term outlook of our brand.
We noted we have a strong pipeline for development going into 2021.
And I would reinforce our position as being in a category of one which we believe really isolates wingstop from all the other brands out there in terms of performance and so from a sequential basis I think that it is our focus as it always has been to provide a proper information quarter to quarter.
But not get a hung up on the sequential nature, especially out of 25.4% comp.
Understood and then my real question is that as we think about the impressive 2020 sales performance in the plan to successfully last this in 2021 can you talk about your confidence that delivery can be a positive contributor in 2021, you assuming that we see a vaccine commercially available next year spring fever, presumably kicks in at some point next year and folks.
That would increase mobility with folks or the restaurant little bit more.
Sure I think it's important to note that the way our strategy has been built centers on making sure. There are plenty of levers that we can pull in order to grow our business you mentioned delivery and certainly this year was our formal launch and of delivery we started.
That in our national advertising back in February.
Well timed of course, and you can see that the performance has more than doubled from where it was a year ago and continues to be strong for our brand. We do expect to continue to grow the delivery business in our brand in multiple ways, one of which is investments in technology that we believe will continue to yield higher mix levels for delivery.
But I'd also keep in mind that during this pandemic and through today as we sit here today, we still have our dining rooms closed and all of our restaurants those dining rooms represented roughly 20% of our total sales volume so even with the extraordinary same store sales growth we've seen that is overcoming.
And the closure of our dining room, so to your comment about the potential of a vaccine or something that would give us comfort to reopen those dining rooms. We believe we have plenty of levers in place to continue to drive sustainable comp store sales growth.
Very good thank you Charlie.
Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much a one question and one follow up question.
A question being on the 2021 unit growth outlook, Charlie and I mentioned, a strong pipeline and I know, we typically wait another quarter for.
Actual full year guidance for 21, but with that said theoretically is it fair to assume I mean, it seems like from covered we're hearing about increased real estate opportunities.
S. independent competition.
Seems like when prices, perhaps at least stabilizing.
Labor costs easing comp momentum like you said very strong. So I was wondering if there's any reason conceptually why 21 wouldn't be an even larger class of new unit openings or maybe what could offset those tailwinds, whether there's any franchise pushback or anything along those lines that at least conceptually would limit a further acceleration in the U.S. unit growth.
Hello.
Sure. Thank you Jeff Good morning, I I think your question. It is a as well framed in that all of the right factors are in place for us to have a very strong year or.
Next year and unit development, we've I did mention that our pipeline has strengthened and of course, we will provide that information at year end I'll remind us said at the beginning of the year. We had 610 restaurants in our development pipeline to enter 2020, and we've consistently seen our brand partners reinvest not only by adding new restaurants, but also.
So increasing the size of their development opportunity. So I'm all of them are working in our favor definitely the real estate market is favorable for wingstop given a the unfortunate circumstance of this pandemic. However, we are seeing plenty of sites available our solid banking relationships.
And generating cash flow from our restaurants is fueling a further development and hence why we increased our guidance for this year, so yeah, and barring any unforeseen event, which nobody predicted a pandemic and you know who knows what next year looks like everything is lining up for a solid year next year.
Got it and then just my follow up obviously talked about you know the category or in your industry leadership, but when you think about wings in the past you've talked about how certain restaurant peers, maybe jump in and out of the wing segment, depending in large part on wing prices seems like more recently many of your peers.
Seem to be jumping into the wind category and talking about a willingness to kind of stay focused on wings. Regardless of course. So maybe this is more of a long term strategic decision to be in winning this obviously seeing the strong performance, perhaps you guys are generating so.
Well that is flattering I'm just wondering how you think about the potential impact on your business, whether a positive because it just draws more attention to wings, which you think you guys have the best or whether you see it as a negative because of competitive convergence. How do you think about that as more and more of your competitors focus on the wing category. Thank you.
Sure well I certainly agree with you that we believe we have the best wings that I think it's demonstrated by the strength of our brand and our performance I've also call attention to the fact that we use fresh rarely frozen wings are only during certain cyclical times of the year when we bring those in and so the impact it's having on US is more about.
What it does to the price of chicken wings, because many of these new and already emerging competitors are folks that have sold them before are really buying up all the frozen product. That's in the market usually at this time of year and so you know we know that a frozen weighing is inferior to a fresh a and I think we see that in the quality of the.
Product that's out there and we also believe that most of these are short term because at todays current market prices for wings. It would be hard for most newer competitors to sustain at Wingstop, we've dealt with what Michael and I. Both mentioned in our commentary is put in place with our long term.
Valued supplier partners, a pricing mechanism that mitigates the impact of today's spot market.
Which of course is great for our brand because it does help a curb any negative impact to the unit economics and drive growth in new restaurants, which fundamentally is the right way to run the business.
Oh.
Thank you very much.
Our next question comes from David Tarantino with Baird. Please go ahead.
Hi, Good morning, I have a question just on the bus sales that you've seen.
So far through the third quarter and it does look Charlie like some of the initial strength you saw during cold bid.
As tapered off and I was just wondering do you have anything in your data that would help to explain that trend.
And you know is that visit a circumstance where a lot of people may have tried the offering during <unk>.
During the following the delivery launch and they may not be able to yeah, you may not be retaining a lot of those customers or you think you think that you know something else is going on underneath the surface and then I have a follow up.
Good morning, David Thank you.
I think it would be and necessary for us to apologize for the quarter three versus quarter two comparison in comp as a slowdown when you're going from a 32 a 25.
And having in Q3, a 37.7% two year comps so that's rolling over at more than 12% comp in the prior year. Those are phenomenal results and all happening while our dining rooms remain closed which affects 20% of our total business.
I'll reinforce that our average unit volume has climbed to $1.4 million, which represents what we believe to be best in class.
Unit economics that were above our best in class performance from even most recent years, which is fueling development and new restaurant growth because our our franchisees only a call affectionately our brand partners are recognizing the strength of this brand its willing its ability to navigate even a global.
Pandemic very effectively and therefore driving fundamentally what is most important for us to be looking at which is new unit growth and I think that there's there's just a lot of commentary about sequential nature of comps, which drive short term behavior that wingstop, we're going to focus on the long term and growing our brand.
And growing it by way of adding new restaurants to it while also living up to our long term algorithm of mid single digit comps, 10% plus unit growth.
And continued growth in EBITDA.
That makes sense and my question wasn't meant to imply that your costs or anything other than spectacular. So I apologize if it came across our runway.
I guess the next question I got my follow up question, Charlie was related to the dining room staying close then just wondering if your data.
You know would indicate how how much you're leaving on the table by having the dining rooms close I know, yeah, you might be getting some replacement transactions.
Off premise, but anything and your data that would give us a sense of how much you are bypassing by not having the data rooms open.
Well.
I think from a mathematical perspective, you could certainly recognize that there would be sales opportunity by reopening the dining rooms. However, our focus first and foremost is the safety of our guests and the safety of our team members in our restaurants as we have seen a recent uptick in.
COVID-19 infections I think it demonstrates that our strategy, we affectionately call Fila, which is first to close our dining rooms and last to open.
It is a demonstration that not only are we making sure that we're running a great carry out and digital and off premise business for our guests, but at the same time, we're respecting the importance of safety.
It's it's a difficult operating environment that all of us understand and to be able to demonstrate the kind of performance. We are without having to reopen our dining rooms. I think is just another great demonstration of the resiliency of our model and the satisfaction our guests have with both delivery and carry.
As their primary option for inter enjoying wingstop.
Great. Thank you very much.
Our next question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good morning.
Turning back to development.
Quick question on the cadence if you could help us think that through.
Listening to this dialogue and I mean, its heroic it's Rob I've asked in the past you know about getting these these stores open.
Open end, it's more than we thought yet you had commented that was you know a three month kind of lag in the system actually with what.
With the disruption that occurred so I'm wondering if that actually slowed down something that could show up in the first part of next year, where that cadence then would be higher than normal, but then I'm also wondering at the same time, maybe that also slowed down a little bit of the pipeline as you enter next year still would be more similar.
If that makes sense can you just help us think about the cadence for next year.
Yes, and thank you so much for the development related question, we believe that a the that it would create an opportunity for a strong Q1.
For us because of that lag that you mentioned, so yes, typically we need six to nine months for a restaurant to enter the pipeline and come out as an open restaurant. That's that's on our best case scenario, but it follows you know what it takes to get a site sign a lease get your permits.
Get it built and opened so I think the sequential strength, we've seen from quarter two to quarter three what's expected for quarter, four and definitely carrying into next year based on our commentary of an expected strong 2021 as far as the pipeline itself. It is building.
And growing and so while we don't have specifics for you today on our pipeline I can confidently state that our pipeline is building nicely for a strong unit development into 2021.
Okay, and then just a follow up on that exact point, where you just ended.
Just about how that pipeline is growing so traditionally the franchise partners.
Hum and opened a few successfully and then do a few more in a few more are any larger network partners coming to you with request at this time.
Yeah I was most if not all and usually this is at least 80% to 90% of our new development is from our existing brand partners yeah.
And were seeing much the same if anything perhaps a little bit more they're they're bullish certainly about the performance of the brand, especially those who operate other businesses beyond wingstop and the restaurant category. They certainly see the separation of performance between Wingstop and so many others and so.
So they are making their investments clearly with wingstop going forward that investment means demanding more territory and looking for opportunities to get restaurants in the ground and capitalize on the strong performance.
Thanks for taking my questions.
Our next question comes from Andy Barish with Jefferies. Please go ahead.
Hey, guys nice to hear from yet just wondering on the unit side, if we can ship.
He has made to the international side of things with a good quarter in the Threeq you.
Yeah, but I guess a little bit more.
Visibility on how the pipeline is shaping up there do you have a little bit clear sight line and then I guess when does China kind of enter into that equation and.
Would you guys be willing to put capital into China initially as well.
Morning, Andy and thank you.
AH, Yes, we are really really impressed with the performance of our international business given.
The reality of this pandemic and what we're dealing with like a lot of other brands art. We have sustained you know a big challenge a much bigger challenge overseas than we have in the U.S. primary.
Primarily because a lot of our restaurants in the larger markets were in rely upon dining rooms, and shopping malls for their performance, which have been impacted by the pandemic due to a minimum or you know allowed seating capacities to be utilized and I think if you're if you watch the news you see that.
Markets like a <unk> or Europe.
Our strong <unk> or in Europe are struggling to gain control of the pandemic and in some cases will be shutting down or implementing curfews, which could impact our business, but all that said, we opened nine net new restaurants. There nationally we only have four temporary closures overseas and our total total pipeline of restaurants.
That's that's really best in class, we believe and I think it demonstrates again just like the U.S., the strength and resiliency of our brand and our ability to.
Navigate these difficult times, many of our openings or happened in the UK, which we're very excited about as it relates to a strategic market that is a growing this year.
In fact, we opened four restaurants during that timeframe as we think about China. We mentioned that we have expanded our relationship with BCG to start working on a China entry strategy. We believe over the next two to three years that will create opportunities for growth for us and as we noted and I would reiterate we believe that we can open as much.
He is a thousand restaurants over time in China, but it does require a very thoughtful strategy going in which could include as you asked an investment by Wingstop to get there.
Thank you very much.
Our next question comes from John Glass with Morgan Stanley. Please go ahead.
Morning, guys. This is a bright Herbert for John maybe just a quick one on a company store margins appreciate the the kind of utility or Fourq you will look like there just curious beyond that if you think you know this the same pricing method or the new wing pricing mechanism could come back.
Make the impact on margins or come down over time, and then kind of on the labor side Youve, obviously had more incentive compensation related to covert do you think that will come down over time, just curious how you think margins can kind of trend as we look into next year perhaps.
Yeah, I'd look at the there.
There are couple of things there number one or would we see.
Cost of goods or diminish because of the wing pricing mechanism.
At a minimum they will hold flat to where we are because the price of chicken wings was rising fairly rapidly during the third quarter and so we did put in efforts to mitigate that which could hold them flat, but again, that's still within what we would call our sweet spot for long term sustainable growth or labor it depends.
Yes, we are going to do what it takes to make sure that our team members are taking care of in our company owned restaurants, and we believe that most if not all of our brand partners are following suit on retentive mechanisms to keep people in our restaurants, it's been difficult we've hired as many as 9000 people during this pay.
Demick timeframe and so its a demonstration that with our growth we need to make sure we retain our team and it's a very important investment, we're making to provide them with that incentive compensation some of which would be driven by any further stimulus plans that might come forward.
Great. Okay, one more just.
On the investment in the Denver market do you think are there a lot of other opportunities to do that around the country. I'm. Just just curious on kind of the magnitude of that opportunity.
Yeah, I think given the environment, we're in and the opportunity to accelerate development through these strategic investments like we demonstrated in the Kansas City market.
We believe that a market like Denver presents not only opportunity to buy restaurants, but also to add new restaurants to our portfolio and then ultimately overtime refranchise. Those if we feel that's right. It's a great way to to stimulate investment amongst existing and or net new franchisees to our system. There are.
Other markets in the country, we are looking at to do that with and from time to time, we will opportunistically invest in those markets by way of acquisition of existing restaurants, and or development of new restaurants in territories, where we believe there is ample opportunity to grow quickly.
Great. Thank you.
Our next question comes from Chris Cole with Stifel. Please go ahead.
Yeah. Thanks, Good morning, guys Mike.
Michael You mentioned restaurant margin, a fourth quarter should be similar to the third bucket can you explain the puts and takes that would allow that to be similar at a similar level.
Yeah, No I think it's going to be the the pricing mechanism that you heard us talk about earlier and that's going to allow us to mitigate any sort of continued inflation in the urner Barry and then [noise].
All things kind of remain consistent with what we saw in Q3, obviously, there is a little bit around the incentive pay at the restaurant level, whether or not that continues but as of right. Now we plan for it too. So I would expect to see just similar margins overall.
Is the seasonality in the business about the same in terms of sales volumes.
Oh, there's yeah, there's not a lot of seasonality in our business. If you like I look at it from quarter to quarter, So nothing to call out there.
Okay, and then Michael the Companys clearly investing in its infrastructure to support growth and I. Appreciate the guidance for 2020, but can you help frame up some expectations for 21 or.
Or at least provide what costing 20 may not occur and re occur in 21.
Yeah, Yeah, Chris obviously, we're not we're not at a spot today to give 21 guidance, but what I would say and what we tried to call out is due to you know the company's strong performance, particularly when you think about you know a same store sales growth metro north of 20%.
You think about our ability to what we believe will be to deliver a unit growth number that still in line with our long term target of 10% plus.
And then obviously seen the the great leverage on our on our asset light model flowing through that too as we sit here today year to date, 30% over 30% adjusted EBITDA growth year over year, and so those metrics have led to and those results have led to some additional variable.
The incentive comp that we highlighted in the in the Mdna and as well as the release in the third quarter. One element of that is in stock comp expense as well and so those are not the type of charges I would expect to model out and see recurring year over year.
Great. Thanks, guys.
Our next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.
Good morning, I'm, a couple of modeling questions. So first up with a recapitalization.
What are you guys looking for for interest expense in both the fourth you 20 and 2021 for the full year.
Yeah, I would say just to kinda ankney around the annual savings.
2021, and forward, Jeff we would expect that to be about $2 million in savings on interest expense and that's obviously taken our debt up from 325 million to the $480 million. This really highlights how strong of a deal. It was we were able to execute in the.
Record setting rate, we were able to obtain which we're really excited about but that's helpful. And then I might have missed this but you were asked about this on the last call as well, but in terms of what's driving that rather large and growing spread between company owned and franchise restaurant same store sales right now any color you can provide on that.
[noise], Yeah, there's nothing I'd really I didn't really call out Jeff I mean, we're talking about 30 restaurants. So it's a pretty small sample, but you know its you know these are on average a 15 year old restaurants and are still comping, a double did something.
<unk> extremely proud of to see that a v. at $2.2 million is is really strong and it actually as you know you know similar to other restaurants have that same vintage. So you can think about the great four wall economics, our brand partners are enjoying there as well right. Thank you appreciate it.
Our next question comes from comes from John Tower with Wells Fargo. Please go ahead.
Great. Thanks for taking the question I'm, just kind of curious to get your thinking around the cash balance I think you've been.
We're working through the re Fi and the special dividends or you're still going to be sitting on quite a bit of cash at the end of the fourth quarter.
And you know can.
Can you help us try and think about your priorities for uses of cash going forward, obviously sounds like.
There may be some investments.
In potentially international markets, perhaps some domestic a buying opportunity, but we haven't seen anything.
That large in the past with respect to cash flow outlays. So can you talk about perhaps what we should expect for cash from this point forward.
Good morning, and thanks for the question, we do estimate over the next few years to invest a quite a bit of cash in a number of things, including what we've already talked about today, which is the opportunistic acquisition and or buildout of restaurants across the U.S., but also.
So an effort that we're working on currently we've hired a group to come in and help us look at the.
Potential for a scalable infrastructure for our global Tech stack that would carry us over the next few years and include not only our U.S. digital business, but also a consistent digital presence by way of our web site across the globe.
Which offers us global online ordering capabilities, a standard restaurant technology and of course, a best in class business intelligence infrastructure that would help us.
With scaled data visualization as well as analytics for our business. So there is a a desire for us to invest that capital now.
And over the next couple of years to prepare us for a long term sustainable growth globally.
Okay, and then thinking about that with maybe a mechanism in place such that your payback over time, you know some of the larger global Pizza players do they get paid.
For online transactions that their franchisees do you know is that something that's contemplated today or not part of the equation.
Well I definitely think there is a payback on that investment and I and what I would do is remind you of what we've done over the past four or five years to develop what we believe is best in class in terms of a tech stack for our us business and the best way to demonstrate that return on investment is our performance. This year, we were very well position.
And going in to what we didn't expect was a pandemic, but certainly what it has done is accelerated for US two years worth of what we anticipated in growth in our digital business, which feels topline that topline growth helps support our brand partners. So that they can invest in new restaurant.
It also helps us in driving same store sales and sustaining our performance all of that is paid back to us in the form of royalty increases in dollars not percentages, but in dollars that help fuel growth in EBITDA. So we believe that making this position and pivoting towards a global outlook for our technique.
Algae platform will create long term sustainable advantages for the brand and create growth.
Thanks, and if I may one more just.
Thinking about the what are your Oh, there's been an introduction of a virtual brand.
During is.
This summer and into the fall period, and I'm curious if perhaps you could talk about how your stores in markets, where the brand over last with it's just ways. How those stores, perhaps performed maybe initially and and how they're sitting in today or even through the third quarter.
Was there much of an impact on your business as that business ramps up.
Yeah, we we don't see any impact associated with that brand, which I think you're referring to chili's.
We will you know they have locations all over the country, we know that they're leveraging their kitchens wisely during a very difficult time for their business. So I applaud. The fact that they're working hard to try and do everything they can to support their own locations.
But it is the only impact we're seeing it have as I mentioned earlier is that they are really acquiring a lot of the frozen wings stock out of the market that normally is available this time of year and utilizing that for this virtual brand effectively or their virtual brand is operating the same as ours is.
Ours is operating virtually quite well and in fact, as we mentioned we're already on pace to generate over a billion dollars of digital sales through selling wings. This year out of our total performance. So we don't see that as an impact to our business at all.
Great. Thanks for taking the questions.
Our next question comes from Michael Tomorrow, what topic Oppenheimer and company. Please go ahead.
Hi, Thanks Hope everyone's well you know you mentioned a few times that your dining rooms, historically were 20% of sales and there's still closed but years economics, even with them close are still fantastic. So that causing you in your franchisees just think about what wingstop look like going forward you know could you drive even faster growth if you didnt have dining rooms.
Even like upside to your relative.
In terms of targets. Thanks.
Yes, we are having a lot of discussions about this and it depends market by market as to what the right answer is strategically for the brand and maybe even trade area by trade area. We have been and are investing in ghost kitchens as an as an opportunity. We believe this brand is well positioned for we want to.
Stand them very carefully the unit economics are and how they work because it isn't always this panacea people believe in virtual brands and certainly and goes kitchens. There is a necessity to understand how they behave in different markets, which is what we're working on right now.
We believe those have application both here in the U.S. as well as overseas and we've invested in them in both markets and so more.
More to come on that but there are a lot of markets, where it is necessary for us to have dining rooms, because that's what our guests expect of us and so we aren't going to make a material pivot, but you certainly can see that the advent of these dark kitchens can help us a look for ways to grow the mark grow the brand and Mark.
Its we may not have gone into with a traditional retail location.
Got it thanks, and just a follow up on the Denver transaction and that sort of strategy as a whole you know can you talk about maybe what are the growth prospects of Denver look like before this transaction and what it could look like coming out the other side, maybe two or three franchise I'm just trying to understand how impactful some of these.
Can be relative to what your growth is now thanks.
Sure I think you know Denver, it's been a great market for us for a long time we.
We have some very long term well sustain brand partners in that market, but it also represents for US a market. That's at about 50 or so percent of its capacity for growth. So our acquisition offers us an opportunity to build some restaurants, but certainly puts into play the opportunity to continue to expand that market quicker.
Just like we did in Kansas City, which has really taken off nicely, so where we see markets like that in the future. We'll continue to look at those there are a few around the country as I mentioned before that we're interested in and we'll look at those opportunistically as they come about.
Thank you.
Our next question comes from Brian Vaccaro with Raymond James. Please go ahead.
Thank you and good morning, just a couple of questions on the S. DNA line I just wanted to clarify the guidance of 63, and a half to 64 and a half just wanted to confirm that that embeds reported year to date edge DNA of around 45 million. So it implies around 19 million for the fourth quarter Michael.
Yeah, no. That's it that's exactly right that's the reported number okay.
Okay, and as we try to understand sort of the underlying growth in that line could you help frame how much the variable compensation is that a sort.
Sort of year to date or versus a normal level.
Yeah, that's what we attempted to call out in the release and it's it's just north of $4 million, that's inclusive of incremental stock based comp expense as well as the variable based compensation.
Okay, that's in the quarter or year to date, you have that I can't.
Yeah that was that was kind of the if you will the year to date true up.
I'm sorry, Okay catch that was reported in the third quarter yeah. Okay. Okay, and then at the analyst day, which seems like a long time ago, obviously, but you had spoken to sort of a DNA algorithm growth algorithm, maybe around half a half of revenue growth plus in international investments is that algorithm still broadly in place.
Sure. So many investments that you had mentioned I previously incremental to what you had in mind at the analyst day Yeah.
Yeah, I would say, Brian we're probably not here today to kind of reiterate those targets or or communicate anything about 21, I think what's important to to kind of highlight Charlie hit on it a little bit earlier with where we are in the growth phase of the company, we're going to be making the right structure.
TJ investments to make sure we're positioning the brand for future growth and so you could see US you know similar to what you you you heard us talk about here today, the incremental investment with BCG.
As as well as an area, where we could we could be a we can do making some investments that werent originally contemplated in some prior guidance.
All right that's helpful I'll pass it along thank you.
Our next question comes from and Juice Strelzik with BMO capital markets. Please go ahead.
Hey, Good morning, guys is actually dead on for Andrew today, Thanks for taking the questions.
I think people look at some of the pizza players and assume a large portion of those gains are temporary given the current environment.
And then maybe sort of extrapolate that sentiment to you guys given the similarities and the business model, but given where awareness started it but it does feel like you've gained perhaps a larger portion of new customers. During the pandemic. So I. So I guess my question is are you starting to get a better sense for whats sticking as some gains might look like as we trend back towards a more normalized environment and how would you compare and contrast, the gains you've read.
Lies with that with some of those pizza guys.
Well I think the comparison to a pizza chain is probably only relevant as it relates to having a strong digital presence, which as you know we exited the quarter at 62% of our sales as digital which compares right in line with where those chains, where a year ago or so I'm certainly.
They've grown because of the pandemic as have we.
Set that aside our strategy going into 2020 was to fuel growth in delivery and continued to expand our digital business. We had invested heavily in technology to make sure that that was seamless as well as to our partnership with door Dash, which has worked out exceptionally well for us.
Both of those were considered long term ventures for us that would steadily grow new customers and bring them into our business and our job of course is to deliver the same high quality product and guest experience that our guests are normally used to which we are and that in and of itself creates a stick.
During this and retention that we believe carries for a long period of time, the only nuance of time during the pandemic is we accelerated that by what we estimate to be as much as two years of performance.
Which is good news, but I don't think there's any indication otherwise that would suggest these aren't sticky new guests to our business and that's demonstrated by our guest experience metrics that tell us that they are enjoying these occasions as much as anyone did before the pandemic.
Thank you that's helpful color.
And then just one follow up maybe related to that I guess Im just wondering with a few more months of data under your belt is there anything interesting you've noted in terms of the demographics of customers. You added I know last quarter. You indicated you were maybe adding more of those heavy QSR user is returning lapsed customers and seeing an uptick in frequency within the core so is that still where gains are coming from and how would you compare.
In contrast, the demographics of the new customers you've added over the past seven or eight months with maybe your customer base prior to the pandemic.
I don't think there's a meaningful difference in the demographics.
These guests you are correct and that our goal was to target heavy QSR users that were either light or non users of wingstop, but.
But there isn't a real substantial demographic difference there that we've seen and then the other thing I would add back to delivery is there where guests who are coming into wingstop now that chose delivery over carry out and they really don't cross those occasions, very often and so we are seeing new guest coming in that are associated with delivery that adds to that mix.
Great. Thanks for taking the questions.
Our next question comes from Jared Garber with Goldman Sachs. Please go ahead.
Good morning, and thanks for taking the question many of minus obviously been asked.
Asked and answered but wanted to focusing here on potential for menu innovation, you talked about testing some bone and chicken ties in certain markets wanted to just get a sense of any color you can share on those tests, how many markets there and maybe how the pricing compares to your traditional products and what the consumer feedback has been.
Absolutely. We just started this test a little over a week ago. So very early in the stage, but overtime over the past couple of years. We have started to test the concept of a side product. Its bone in has a lot of the characteristics of our existing bone in chicken wings and that they cook in about the same amount of time.
They develop that crispy skin, but that you've seen us if you want on that product that a is a good comparison to chicken wings and we've said for a long time that it is our desire to use more parts of the bird.
In strategic ways to help mitigate the impact of bone in wing price inflation, which we believe these have the potential to do aside from the fact that they're just really really good so that isn't tests currently as we look into 2021 or we are in the works with some flavor innovate.
And that we'd like to bring forward and so getting back on that rhythm of bringing a new flavor.
Out to our existing and core guests as well as some new guests to introduce them to something unique and different but aside from that that that is probably the the entirety of our product development pipeline.
Thanks, and as a follow up can you just give us a little bit of an update on the progress of the speed of service technology, and central time, where you stand today and potential timing of a further rollout. Thank you.
Yeah, well certainly of the pandemic has changed the behavior of our guests in our restaurants, the necessity for social distancing the end the in the assurances of a clean environment make it difficult for us to execute kiosks and the the lockers that we had been working on so he stepped those in pause mode for a peer.
At a time, but that doesn't preclude us from continuing to enhance the user experience from our online ordering and ER and ER.
Our investments in technology that we believe we can accelerate given our experience through this timeframe. So for right now our focus is safety cleanliness and.
An environment, where guests can easily get in a grab their food and exit more so than some of the expectations. We had previously.
Our next question comes from Jake Bartlett with the Truest Securities. Please go ahead.
Great. Thanks for taking the question Charlie My question is about the performance of stores in markets, where restrictions had eased.
Is it correct to assume that that sales would be lower in those markets and then Conversely, as we've seen some restrictions come back, saying, Illinois, you should we expect the sales to improve in those markets just trying to understand the dynamic.
As we see sales decelerate a little bit just just trying to see whether it's really that consumers are kind of returning back to some in store dining.
Well, there's no doubt that consumers are returning 10 store daily dining by nature of the fact that dining rooms are opening in other brands and then quite frankly, I'm thankful for that for them.
Because we need our industry to continue to thrive.
There is no regionality associated with our performance that I would call attention to in terms of markets that have or have not reopened we're quite confident that reopening is not what is driving our business. We believe it has more to do with ease of access to our brand the quality of our product and the fee.
Fact that we're taking strong and very specific measures to protect our guests and our team members. So.
If if we saw any regionality, we would call that out but quite frankly, our performance has been strongest you know even in emerging markets and so we're excited by that but nothing specific to call out as it relates to dining or every openings.
Okay and Charlie in your comments just about the focus of your long term focus isn't I'm kind of hearing loud and clear that you expect your that you're trying to maintain positive same store sales, but how confident you are you that you can maintain positive same store sales in 2021 as you lap the initial boost from the busy.
And is during the cobot crisis. These initial phases <unk>.
<unk> and maybe in answering that what kind of drivers would give you that that positive outlook.
Sure and all [noise] I'll go back to a comment I made earlier, we have over the years and continue to have a lot of opportunities to pull levers to grow our business.
You know one of the fortunate realities of our strong top line performance. This year, but you know over 25% same store sales in the third quarter. Even is that that is fueling a lot more dollars into our national advertising funds. Those funds are increasing at a similar rate nearly 30% year over year if you.
Include new development, which means that we're going to reinvest that money back into increasing awareness of our brand and also driving conversion of.
Of those guests by way of consideration to our to our brand and those Rex. Those are primarily those are heavy QSR users that have not or have limited occasions with wingstop as we continue to drive awareness. So that's one lever the second as I mentioned before is that we have not opened our dining rooms.
To this point that represents about 20% of our total sales and we believe that that's another great way to pull a lever.
We're really thrilled with the partnership we have with door Dash. In fact, just this last week, we introduced a free delivery promotion that was funded by door dash because of their confidence in our business and helping drive theirs.
They're investing with us too or investing in us I should say to drive the top line for both businesses and so as we considered it as we consider what 2021 it looks like Theres no doubt we have some really high.
Hurdles to jump, but what we don't see it our business is a temporary increase here what we see is a long term sustainable type of algorithm and that's been the history of Wingstop for a long time, we're closing in on our 17th consecutive year of positive same store sales growth. So.
We do have the confidence to be able to lap even this performance next year.
Great. Thank you very much.
Our next question comes from Peter Sally with B T. G. Please go ahead.
Great. Thank you Charlie.
Charlie I think you've touched on this in the last response there on as fun No. Clearly you had a building of the dollars and the advertising fund are you. So it does sound like you're able to defer some of the the <unk> dollars that you earn 21 and 2020 for 2021 spending.
If that is the case could you give us a sense of how much of the <unk> dollars you guys are pushing into next year versus spending some time in 2020.
Yeah, I think it's important to note a couple of things number one we did not modify our approach to 2020, but we definitely do have increased dollars that we can differ.
And in some cases have deferred into 2021, we also make ours media buys strategically in the month of September usually which means we've already made that by and as I was mentioning levers not only do we have the increased dollars, but we also have the benefit of being able to place those dollars.
At the time of year, where we believe we're going to need them, the most to be able to accelerate performance and so.
As we close the year, we'll talk a little bit more about what that will look like going into 2021, but it is safe to assume that we would redeploy our advertising dollars to the time frames that are most.
Got it.
Great and then can I just ask on the on the decision.
To the volatility on the on the Wayne can you just give us a little bit more detail. On this is is this a collar agreement not kind of caps the upside and the downside.
And did you have to pay upfront to get this any sort of details on that would be helpful. Thank you.
Hey, Peter Thanks.
Thanks for the question, obviously more limited you know for competitive reasons as to what exactly we can share, but I think the one thing I would point to is this.
This is really more than anything the byproduct of some really long term strategic relationships with our with our supplier partners and they know that we're buying wings year round, we're not just jump in and out of the market or buying frozen wings, but rewarding us for for the long term relationship we have.
With them and so.
You know, we're encouraged by by their level of commitment to wingstop to us to be able to offer this type of pricing arrangement for our brand partners and ER and to minimize the impact of inflation. So we're excited about it.
All right. Thank you very much.
Our next question comes from James Anderson with Northcoast Research. Please go ahead.
Yeah. Thanks for the question I just wanted to follow up on the free delivery promotion that you highlighted in the.
Initial commentary could you remind us who actually pays to delivery for you the customers normally pay and then if you could perhaps provide some insight on the sticky notes that you experienced when you offered this free delivery promotion back in March and April if you notice that the consumers that trial to return to more frequently or any type of insight.
Right on how this impacted consumer behavior. Thank you.
Yeah. Good morning, we are.
Just for clarity the guest pays for the delivery fee typically.
In this scenario with the free delivery promotion the offsetting.
The cost of that fee. If you will is being borne by door dash. So there is no cost to us or to our brand partners for that that's a door dash driven initiative as it relates to sticking to us I think the consistency weve seen in holding our delivery mix.
Since the pandemic started has been the best indicator of the stickiness of the promotion it's still a little early you want people to go through a few cycles to demonstrate stickiness, but all of our research would suggest that it's performing quite well.
Hey, Charlie. Thank you have got one quick follow up related to the bone in chicken type test you mentioned that just started recently could you give us an idea of the major markets that are being tested right now we picked up a menu.
Menu additions in California, Colorado, Georgia, I'm wondering if it's in every market you operate owners or just a share.
What we can say is that it is in seven markets across the country.
All right. Thank you.
This concludes our question and answer session as well as today's conference call. Thank you for attending the presentation you may now disconnect.