Q4 2020 Carrols Restaurant Group Inc Earnings Call
Good morning, welcome to the Carol's Restaurant Group, Inc, fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session and instructions will be given at that time.
If anyone should Inc. Operator assistance during the call. Please press star zero on your telephone keypad.
I'd like to remind everyone that this conference call is being recorded today Wednesday March 3rd 2021 at 830 am Eastern time and will be available for replay.
I will now turn the conference over to Tony Hull, Chief Financial Officer. Please go ahead Sir.
Thank you Melissa and good morning, everyone by now you should have access to our earnings announcement released earlier. This morning and earnings review presentation. Both are available on our website at Www Dot Carol's dot com under the Investor Relations section.
Before we begin our remarks I would like to remind everyone that our discussion will include forward looking statements, which may consist of comments regarding our strategies intentions and plans.
These statements are not guarantees of future performance and therefore undue reliance should not be placed on that and.
We also refer you to our filings with the SEC for more details with respect to forward looking statements as well risks and impact our business and results, including the impact of COVID-19.
During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles and <unk>.
Reconciliations to comparable GAAP measures is available without earnings release.
With that I will now turn the call over short chairman and CEO and aggregate Dan.
Thanks, Tony and good morning, everyone.
And they begin by briefly recapping the current state of our business and then briefly review our quarterly results.
Tony will followed by discussing our financials in greater detail.
After enduring one of the most challenging periods and our country's history. We believe the fundamentals of our business and the health of our company are extremely strong.
Our liquidity position has improved substantially our near term capital requirements are very manageable, we continued to deleverage and we have grown comparable restaurant sales for the company's Burger King restaurants for three consecutive months through January we've.
And we further believe that the combination of vaccinations continued stimulus and trading our core customer base and easier year ago comparisons will add to that momentum this year.
For a long time, a recurring concern we have heard from investors regarding franchisees, including large ones like Carroll's Where's that we for weed perpetually.
And we'd be perpetually hampered by on a risk capital requirements imposed by the franchise doors.
Any free cash flow generated by the business would be required to go towards seemingly endless new store construction refurbishments and renovations. Additionally, some portion of those projects would inevitably have low returns on invested capital.
Over the last three quarters and even throw of pandemic. We believe we have demonstrated that those concerns were and misguided.
The nature of the franchisee franchise or relationship kind of in fact, the equitable and despite being a franchisee or business model enables us to generate significant free cash flow and direct of thoughtful capital allocation program to benefit our shareholders.
And January we shared that we had elected to amend our area development agreement with Burger King Corporation for fighting our right of first refusal.
And on any Burger King franchise sale and portions of our geographic footprint.
We felt that and as we do know that Carroll was being given little to no value for it.
We also believe strongly that our ability to opportunistically acquire stores.
That'd be attractive won't suffer as a result in fact, we are still preapproved to acquire up to 500, Burger King restaurants, and territories, where we currently operate.
Under our new arrangement with our franchise or we have the flexibility to grow our business organically and through acquisitions and a manner that we believe will best optimize our profit growth potential while generating consistent and enhanced free cash flow and keeping our leverage in check.
What has permanently changed because of the results of amending the area development agreement and as a meaningful reduction on our multiyear capital obligations.
Long time investors and followers of the sector have to reorient their thinking for this new reality.
While acquiring restaurants and both brands seems of strategic remains a strategic objective.
Compelling store level of returns aren't there, we won't chase them or simply build free cash flow further delever, our balance sheet and return cash to shareholders through the repurchase of our own shares.
We generated free cash flow of $56 $1 million during the first quarter of 2020 during the full year of 'twenty, and 'twenty and utilized $10 million of cash to repurchase one and a half million shares from the fourth quarter. After we reinstated our repurchase program.
We think growing free cash flow, while permanently retiring shares on on opportunistic basis will be beneficial to shareholders overtime.
Our business generated a meaningful level of free cash flow last year, and we believe that we can continue to generate strong free cash flow.
Well, we will leave it to the analysts and investor communities to determine what's the right multiple is for our business. We certainly believe that our current stock price doesn't reflect our current level of free cash flow generation.
I would also note companies can boost of free cash flow metrics for periods of time by starving their business of much needed capital.
We have not we have not done that.
And we will not do that and the future.
We are targeting of 16 billion dollar and net capital expenditure.
Spend for 2021.
This is modestly higher than our earlier plan reflects what we believe will be strong ROI initiatives, such as and acceleration of our digital menu board rollout of.
No equipment that are king restaurants related to preparing the brand's new chicken sandwich.
And remodels and new builds that will be at or slightly above our previous intentions still we feel very comfortable making these investments and our brands and they do not detract from our commitment to generate meaningful free cash flow.
Longer term, we feel good about the promotional calendar ahead of us with its emphasis on value of new product offerings and are excited by the testing of a new loyalty program.
We're also pursuing a number of acquisition opportunities now that we are close to completing the integration of the large number of stores we acquired in 2019.
And we see white space and our geographies for high value high return new store development.
Turning to our fourth quarter results, we demonstrated our resiliency with improving trends and our Burger King restaurants, and November and December compared to October despite the challenging operating environment.
Our popeye's restaurants lap of full introduction of these well received chicken sandwich, yet still delivered positive comparable restaurant sales on a two year stack basis of eight 3%.
Comparable restaurant sales in January for our Burger King restaurants, and improved five 5%, which was greater than we expected February he's been on another story, however, due to some unprecedented and severe winter weather and all of our regions, particularly in the South Central region.
Fortunately spring is around the corner and we expect to show renewed momentum in March as we begin to lap of Covid impacted 2020 performance and the latter part of the month and Burger King launches, what we believed to be of best in class chicken sandwich offerings.
Our geographically diverse restaurant part portfolio of of nearly 1100 restaurants across 23 States has provided us somewhat of a cushion and dealing with the pandemic given the shifting rise and cases and it's on.
Also help limit short term staffing and supply issues across our portfolio and.
And the fourth quarter, we performed relatively better in the northeast, but worse and the south Central region as Tony will elaborate more specific terms.
And as you all know our service model of centered on convenience through drive through with the counter takeout and small but growing delivery business.
These attribute of enabled us to navigate COVID-19 better than our full service peers because of these channels are more resilient sales platforms, and depending primarily on and sit down dining.
And whether it's indoor or outdoor and subject to ever changing capacity restrictions and the majority of our dining rooms remain closed and the fourth quarter based upon mandates or at our discretion.
We are open for takeout only.
Delivery comprised of approximately 3.5% of our Burger King restaurants sales during the fourth quarter with an average order size of $17.02 and January delivery accounted for four 6% of sales.
These improvements are up from two 9% and in the third quarter as more customers sought out this enhanced level of convenience, particularly and colder climates are for delivery partner door to actual breach postmatch and Grubhub are now providing fully integrated delivery services at approximately 889 of our Burger King restaurants up for.
870 at the end of the third quarter.
Lucky and you're looking ahead, we believe that more of our Burger King restaurants can provide a delivery option.
Providers begin servicing their markets and a meaningful way.
Turning now to fourth quarter profitability, we were able to improve restaurant level EBITDA adjusted EBITDA and adjusted net income compared to the same period a year ago.
Even excluding the impact of contributions from the additional operating week, we still enhanced profitability margins on lower comparable restaurant sales.
Within our four walls of our traction was reflected in lower food waste and we have adjusted our production requirements based on our ships and certain day parts and even more so on labor, where we have incurred higher wage or wage rates and what have been able to modify of labor hours based on day part sales trends.
Our current team size for Burger King restaurant average 21 employees during the fourth quarter up from 20, and the third quarter and 19 and the second quarter. The slight increase was due to the normalization of certain labor elements, depending on geography, and local conditions related to the expansion of hours. We view. This average is a reasonable target run rate going forward.
By way of comparison on the fourth quarter of 2019, we averaged 23 employees.
In addition of favorable expense trends at the restaurant level. We've also benefited from reduced regional and corporate overhead by having streamlined our regional management structure and our training process.
For the full year, we opened seven new Burger King restaurants, including one on the fourth quarter. We also permanently closed 30 for underperforming Burger King restaurants. These locations were losing money and a post COVID-19 environment and their closures should benefit our EBITDA in 2020 one.
We believe we have a stronger company as a result of the actions taken last year, particularly with the addition of meaningful and profitable delivery sales and the implementation of certain cost savings initiatives that we expect will continue to benefit us throughout the year.
Turning to our balance sheet, we remain and our strong position financially we ended the year with $65 million and cash of 136 million and available to be borrowed under our revolving credit facility.
We believe we have a very manageable debt level of 494 million given the attractive current interest rate environment with no near term maturities and we have no outstanding borrowings under our revolving credit facility.
One of recurring theme we've been asked about lately is the discussion in Washington about of federal minimum wage increase of $15 an hour.
While it is unknown and.
And what time frame this could become a factor on our business, we would like to point out some of our thoughts on the topic.
And New York State, where we will reach of minimum wage rate of $15 an hour of this summer for fast food workers and specifically this change has not altered. The fact that these are some of the best performing restaurants and our portfolio.
In fact, EBITDA of our New York restaurants has grown 10% over the past five years, despite that increase and the minimum wage rate during the same period.
We have seen that in an environment, where just a small proportion of employees are earning upwards of $15 an hour our sales benefit even without the ability to raise prices. We believe we believe that on a situation where all workers benefit from higher minimum wages, we will have the ability to reassess restaurant and staffing levels and raise product prices more aggressively.
Of late to offset rising labor costs.
In closing, we believe that we are well positioned to execute on our stated goals and can now step up on organic and nonorganic growth efforts and a balanced way, while keeping our capital expenditures and leverage and checked off.
Our game our game plan is to continue generating a significant level of free cash flow and we are confident and our ability to execute on this objective.
Finally, I would like to now end of my prepared remarks by welcoming two new individuals' for the Carroll and team.
First Carroll of Carl House recently joined US as Chief operating Officer, Karl has proven experience managing large scale restaurant and retail operations as well as a well deserved reputation for growing businesses and managing cost.
Most recently he served as the president and CEO of the Wendy's Division of N. P. C International the largest wendy's franchisee and the system. During his tenure there and Mr House led that Wendy's organization to their most successful year in 2020.
Prior to their recently announced sale price.
Prior to that Karl served as vice President of stores and Kochi E. All for Barnes and noble Senior Vice President of National operations and customer experience with advance auto parts and worked on a variety of operational positions.
Including district manager director of operations, and regional Vice President and Starbucks over a 14 year timeframe. He also ran national operations in Australia and became CEO of manager on managing director of Starbucks, and Switzerland, and Austria, where he led a complete turnaround the business and the span of 24 months.
I previously served as CEO C O all of Carol's from 1993 to 2011 before becoming CEO in 2012.
And while I do not have any immediate plans to retire we do think of it is crucial to build our bench of especially given our anticipated growth.
Second Gerald Landauer recently joined Us as bright as general counsel for.
Prior to joining Carol's Jared was the Chief operating officer, and General Counsel of Barrington Capital Group.
A value oriented investment firm, Vice president of Blah, and international specialty products, and an attorney and Skadden Arps.
We are confident that both Karl and Garrett will be valuable members of our executive team and want to thank Bill Myers, who we could Joel and out of retirement after nearly two decades with Carol for servers, our interim general counsel of this past year.
With that let me turn the call over to Tony to review our quarterly financials.
Thanks, Dan.
Total restaurant sales for the 14 week fourth quarter of 2020 increased five 8% of $425 million.
I'm proud of your 13 week period of $397 $6 million.
And the incremental 14th operating week, we generated $28 $4 million and restaurant sales.
Comparable restaurant sales for our Burger King restaurants decreased <unk>, 9% during the fourth quarter of 2020 outpacing the U S. Burger King system by 200 basis points.
And see that our trend strengthened in November and December relative to the October results. We previously reported.
Similar to what we provided in Q3 and we believe it is helpful to give greater visibility to our Burger King performance by region as we operate.
That was on non restaurant.
And as of the end of Q4 across 23 states.
And of northeast, representing 22% of our Burger King restaurants comp sales were up two 6%.
In the Midwest, representing 27% of our Burger King restaurants comp sales and the fourth quarter were off one 8%.
In south central representing 25% of a verity of restaurants, and consisting mainly of Tennessee comp sales declined 4% and finally in the South East region, representing 26% of our Burger King restaurants comp sales were down <unk>, 7%.
With respect to our popeye's restaurants comparable restaurant sales decreased 12, 9% against the 21, 2% increase a year ago as we lap of the full rollout of the chicken Sandwich and November 2019.
Ah Popeye's restaurants are located and the brand's weakest region, South central and this entire business represents less than 5% of our total revenues.
Adjusted EBITDA increased $9 million and the quarter to $31 $8 million or just under 40% compared to $22 $8 million and the fourth quarter of 2019 and.
Adjusted EBITDA margin increased 190 basis points to seven 6% of restaurant sales.
For the 14th week of the quarter contributed an estimated $5 $3 million to this result, and was responsible for about half of the margin increase.
Looking more broadly comparing 2020 on a 52 week basis to 2019, adjusted EBITDA increased 18, 8% year over year.
Adjusted restaurant level, EBITDA also increased $9 million and the quarter and $51 $9 million from $42 $9 million and the fourth quarter of 2019.
Strong level of adjusted EBITDA was 12, 3% of restaurant sales, an increase of 160 basis points compared to the prior year period.
This year includes an estimated impact of $6 $3 million of 70 basis points from the 14th week of the quarter.
Even without the impact of the extra week in 2020 margins improved to the lowest cost of sales labor costs and other operating expenses as a percentage of revenue cost of sales and improved 20 basis points and benefit from that.
From both less food waste and lower ground beef prices with average $2.04 per pound during the fourth quarter net.
Margin, 10% decline from the year ago period of $2 26 per pound and greater promotional activity was offset by a favorable sales mix.
Restaurant labor expense decreased 80 basis points as a percentage of restaurant sales compared to the prior year period, Despite the near 6% increase and hourly wage rate and lower comparable restaurant sales.
The improvement is a reflection of the adjustments made to our labor requirements and hours based upon operating day part sales trends along with having reduced our costs across most restaurants and are not operating downwards.
Late night out are still weaker than prior to Covid and restaurants that were previously opened 24 hours are still closing have been met.
Restaurant rent and expense increased 30 basis points as a percentage of sales compared to the prior year period, primarily due to the impact of the extra week and 2020.
Other restaurant operating expenses decreased 60 basis points as a percentage of sales compared to the prior year period, due to lower utility repair and maintenance and other operating costs and benefit.
And from dining on closures.
Operating expenses and the fourth quarter included $337 of Covid related supplies, including face masks thermometers Sneeze guards and Sanitizers.
General and administrative expenses were $24 $2 million for the fourth quarter 2020, which includes of half a million dollars higher bonus expense due to improved operational performance compared to last year.
And also includes the impact of many corporate cost efficiencies.
Such a streamlining of our regional management structure and reengineering of the training process that were completed earlier last year. These savings are expected to carry over into 2021.
Our net loss was $18 $6 million and the fourth quarter of 2020 or 37 per diluted share. This concludes and adjustment of about $12 $9 million for the fourth quarter of 2020 to record and incremental valuation allowance for certain income tax credits that may expire prior to their usage by the company.
And on adjusted basis, excluding certain non operating and Greg.
And the tax adjustment fourth quarter, adjusted net loss was $5000 or zero cents per diluted share.
And a year ago period, adjusted net loss was $6 $1 million of 12 cents per diluted share.
Free cash flow generation was strong and 2020 and as a result of our adjusted leverage ratio under our credit agreement. Instead of 382 times of January 3rd compared to four point of six times at September 27th of last year.
While we are not providing a full outlook for 2020. One here are a few guidelines to keep in mind.
We believe that with the current outlook for lower beef costs in 2020, one compared to last year.
Cost of sales as a percentage of restaurant sales will remain in line for 2020 levels of such savings are likely to be largely offset by higher delivery and food distribution and other commodity cost increases.
We expect modest labor deleveraging as a result of wage increases of about 4% of course, our restaurants as well as higher staffing levels expected in the back half of the year.
G&A costs are expected to increase modestly on an adjusted basis due to the lapping and short term PE and travel reductions experienced in 2020 and are expected to remain flat as a percentage of sales.
Is that and set our net capital expenditure.
This year, our targeted at $60 million. This is obviously higher number six.
$50 million range, we provided previously and it's changed based on the following items first.
We decided to accelerate the rollout of our digital menu boards to 500 or outdoor digital menu boards for 500 restaurants. This year, which is up from our original plan.
We will be installing new kitchen equipment, and our Burger King restaurants for sandwich preparations and anticipation of the brands and the crispy chicken sandwich, which costs and additional $5 million and whatnot and could my original range third.
And third we're now planning on remodeling of about 30 restaurants of which of about five will be popeye's and this is at the high end of our previous plan and.
And fourthly, we now expect to develop and build nine to 11, new restaurants. This year of which we believe all but a few of them go on line during 2021 number.
And I hope that in 2020 are net of capital extend ex interest and well it was about $47 million and consisted of 19, Remodels and seven new restaurants, and addition to $13 million and maintenance Capex.
And then with a continued favorable Q of Saar environment, the near term launch of a loyalty program and a meaningful new food product coming and the next few months, we are optimistic about the year ahead.
To generate strong free cash flow of again, this year and plan to allocate that cash flow and a way that we believe will be beneficial to our shareholders and.
And with that operator, let's go ahead and open the lines for questions.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad of confirmation tone will indicate your line is and the question. Kim You May press star two and if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Jake Bartlett with choice of Securities. Please proceed with your question.
Great. Thanks for taking the questions.
And my first as is and it's kind of a broad one, but it's really the impact of reopening of.
Post COVID-19 or as Covid wanes and the impact on the on the Q S. Our industry and so it was really helpful to see your your same store sales by region, but most of them knowing that there seems to be a correlation between the positive same store sales and new.
Markets, where that are most close from restaurant perspective so.
And broadly do you expect the reopening or what impact do you expect the broad reopening and consumers getting out and about and also going and dining and to have on the queue of SAR space and.
And it's eating of for instance.
The spike and drive from sales that you've had.
Jake This is Dan.
You know our experience has been that as states reopen and whatever fashion and it's difficult to define what reopening means because theyre, all up and dining and then close dining and reduced capacity and that's what are they as more people are out and about.
Excuse me and on the road.
Our sales benefit whether you have more casual dining or full service restaurants opened with any savings or not so I would expect that the fast food sales in general will still continue to.
B of very resilient sector as it relates to increased delivery, which is ever increasing.
And continual utilization and not a very high level of takeout and drive thru.
Okay, Great and helpful and and then also as we as we think about kind of recent trends and it was helpful to see and and encouraging to see the spike and in January it sounds like Theres been a reversal and in February and understand Kimble with weather.
Give us a sense as to as to how I'm. The kind of the day February of sales had been on a regional basis I'm up here in the northeast and that seems pretty normal year over year, but you know of any kind of comfort. We can have with interest the trajectory of the business by looking at the regions, maybe at least impacted by by the weather.
Yeah.
And the northeast is still performing at the highest level and that's been at least the fact of at least impacted on a year over year basis by the weather. The primary weather impact has been in Tennessee and Mississippi.
Some of them the Carolinas and that area of Tennessee was particularly hit hard at one point in time, and Memphis had Marshalls and Zurich.
Right, but in any of them.
And can we if you look at of the northeast and February was it similar to January or was there any kind of and anything.
And anything else impacting the trajectory of of of sales and then whether that you can that you can tell.
Yeah, so and as the stimulus and then we got a big impact as soon as the stimulus came out and then there's the stimulus.
Uh huh.
Ah well used you could see a bit of of sales deterioration across the board. So the stimulus absolutely helped.
And now we're very much looking forward to the next round of stimulus checks.
Great and then and then last question what would influence your decision to step up capital spending and increase Remodels open.
Opened a few more stores and what was the driver of that versus kind of a couple of months ago and when you had a lower expectation.
Well I'd say number of Remodels.
Oh go ahead go ahead Tony.
I was just going to say that yeah. We were on the high end of Remodels and and.
You know, we just saw the opportunity to step up those restaurants and improve those restaurants, we have for them under the.
You know under of dollars budget. The the biggest thing I think was the restaurant.
Equipment that was needed that we didn't normally.
For sea as much as it came through it came to light and the fourth quarter in terms of what we have to spend both at Popeyes and Burger King.
You know for the equipment and I think that was that was a print and of putting that plus the outdoor.
And you know the outdoor digital menu boards added about $15 million. So that's really the delta between where we were and where we are and I mean.
Once those are installed and once that equipment is installed.
And you expect it to be kind of a one time, but we still wanted to build the base and have the organic growth and the base that we had forecasted for next year at the high end of those levels.
And just to understand and.
I'm surprised it would be equipment or it wasn't surprised anybody and I understand that.
And this thing which has been and test is that of has there been a shift in or some sort of a change and how you know operation and operationally how this is going to be executed.
No we are.
And we only had the chicken sandwich and a half of dozen restaurants. So we had only a block of the equipment for that number of restaurant. So now that we're and the throes of of National rollout, we've had to buy that equipment for the whole balance of the Burger King system.
Okay. Thank you very much I appreciate it.
Yeah.
Thank you. Our next question comes from the line of James Rutherford with Stephens Inc. Please proceed with your question.
Hey, Dan and Tony Good morning, and I'm, sorry on advance I've been bouncing between calls so if you could talk about this my apologies, but I wanted to talk about that chicken sandwich and you noted that it is.
Best in class and your view can you talk about what portion of your sales of the previous chicken sandwich drove at least roughly and then what kind of uplift you're seeing and task.
So really that uplift and help us kind of gauge that and then if you expect you would need to modify and labor hours given the additional complexity of the of the sandwich production.
Hi, James This is Dan.
Yeah, we don't and we're just now on the very early stages of the chicken sandwich, So and it has not yet been advertised and so I can only respond to you know what's happened and the other test markets are outside of Carol's, where theres been more restaurants involved and as I sat on the last call I think that was doing a quite.
Quite a bit better than the significantly better than the existing chicken sandwich, but at this point and time I would be reluctant to put on a sales lift on on.
And what we think it will do because we're just now rolling it out.
In terms of the labor impact.
It will require a dedicated person if the number of sandwich units that we hope for in terms of one of its marketed.
Right.
If it generates the of that that level of revenue it'll be one more person.
Okay fair enough and one more if I may on restaurant level margins of 12, 3% and the quarter I think I saw that 70 basis points of that came from the extra week, but even excluding that it's still up nicely from the $10 seven year over year of what were the biggest pieces of that and more.
Importantly, how do you think about sustainability of these elevated unit margins for the full year of 2021 I heard some of the color on.
But Tony gave on the various lines of in restaurant expenses, but just in terms of sort of the overall impact as we calibrate our models to restaurant margins and how those have progressed through 2020 one thank you.
Yeah. The other items the biggest item was labor and Q4.
That drove the improved.
And then other operating costs were better than weighted.
Better than we had expected so I think those two things of the big driver of that.
The $2 million on adjusted EBITDA.
The going forward.
For the first half of the year.
There are very few costs that are coming back there.
Increment and the number of managers and the stores coming back and the first half just of relieve some of the pressure there.
And then we'll see how the market opens up but we expect that there will be some headwinds on labor and the back half of the year and then some of the other cost savings.
And particularly in the corporate overhead that we put in place.
But the most part and especially related to trade training and and that sort of thing.
And we should we expect to stay and sort of the lower levels that we saw last year, because it was effective and.
And the way, we did of last year with less travel.
But there will be for travelers coming back on the G&A line this year.
We expect and.
And there's some other kind of just mentioned some labor you know some some productive labor and the back half of the year should be should go up a little bit. So those are some headwinds on that.
On sort of post COVID-19.
But we expect to we expect to see things stay pretty steady state and the first half of the year.
Okay. Much appreciate it thanks guys.
Thank you, ladies and gentlemen, and as a reminder, if you'd like to join the question queue. Please press star one on your kind of Funky pad. Our next question comes from the line of Jeremy Hamblin with Craig Hallum Capital Group. Please proceed with your.
With your question.
Thanks, and I wanted to just come back to the February results just to see if we could.
Pin it down a little bit more.
So obviously some deceleration could you quantify for us.
The magnitude of that.
And more detail sure sure.
We expect it to be about a two to two 5% impact.
You know on February but again.
It's weather related it's very unusual what happened in February. So we really you know now that spring.
In February since the weather has sort of.
And then is that past us that things are.
Improving back towards what were seeing in January and.
The first week or so of February so we're seeing we're seeing those things normalize pretty quickly.
Most of the storm so it's a it's a onetime blip and you know every one of the industry.
So you have to pay for that but it's a modest.
It's two 2.5% of you know we lost two two and 5% and February so it's not a it's not a big thing and you know overlapping as we start to lap the March Covid reductions last year that were.
No.
On a per said, we think that the comparable will recover nicely for the quarter.
Gotcha and.
And in terms of thinking about that weather impact and you know just pointed out you know and in the northeast.
And it's kind of been.
Somewhat typical.
And the type of weather did you are you seeing a bigger impact in that south central and South East.
More than that two and 2.5%.
In terms of impact on the weather versus the door and things, maybe having a very minor or no impact.
Definitely definitely.
Okay fair enough.
I wanted to ask about store closures and for.
For 'twenty one.
And you know you.
You ended up with like 30 for a total closures in 'twenty in.
In terms of thinking about a range of expectation on 'twenty, one and I might've missed that but what are you looking at.
Our current view as.
You know and we sort of took care of and business.
Of that business of 'twenty, and 'twenty sort of maybe one or two and the.
This year, so it shouldn't be.
It won't be a big factor.
The growth is obviously going to outweigh.
Outweigh the.
You know the closure and.
And 2021, and that's our current expectation for sure.
Okay.
And then the next question comes back to the Chicken Sandwich, and you know that and I think the last messaging.
Corporate wide was a little bit of a cryptic message and in terms of Ah you know wanting to get the launch right, which you know we assume meant that there it was going to be of a little bit later than maybe previously had been viewed.
Viewed and which I would've thought the launch was happening and first half of the year, maybe even by April timeframe.
Can you give us a sense for.
And because it's really imply a national marketing campaign and its support for it is this something that we should now be thinking about and like the second half of 'twenty one in terms of Nashville.
No on the launch will be completed in May.
Okay great.
And then just coming back to the trends on delivery I think I think of quoted that the average ticket was like just over $17.
In Q4.
In terms of the trend on that and that.
And slightly pulling back from what you had been.
I think the number was maybe a little closer to $18 before.
Any noticeable trends that youre seeing in terms of the size of your average ticket on delivery.
It peaked in January and went back over $18.
Jeremy.
And it was.
I think of what's left as we said and description of his for 5% of sales.
Sales. So it's it's it's picked up and in volume and it's picked up and I mean, I think we generated.
$6 million and January and delivery sales. So it's double what we were seeing.
And when we first launched it.
When we were sort of mid line. So it's definitely.
And we picked up it's definitely picking up steam.
In January so.
It was a temporary decline in the fourth and that.
And that $17 number I think definitely sort of pick up as the weather got colder.
Gotcha, and then I think you're used to fight and beat price of $2.04 a pound in Q4.
Where is that level today and then what are some of the other because you you noted the cost of sales.
Expect to be and that kind of 'twenty, one and point to 29, 3% range for the year. What is what are some of the other commodity pressures or benefits of what you're saying.
But where's the prices today.
These today is $2.07.
And I would say the other.
Say chickens.
Some short term pressure on chicken.
But as I've learned and last year of moving this job that the chicken supply can be for.
<unk> faster than the beef supply so I think that that will adjust as we go forward, but that definitely you know we're seeing some increase there and that's about 10 and on the Bergen level, that's about 10% for each.
Chicken sandwich launch of what might go up a little bit you know in terms of the total commodity basket.
Tony you can react to the fact that we put our Tony put.
And in fact that we put our delivery fees and our cost of sales not and operating expenses as well.
That's true too.
So when you're when you're comparing and Jeremy our cost of sales to others, we look at the.
The delivery fee is a cost of sales expense and I know of at least and Burger King system and the majority of the operators put it as an operating expense.
So that's that's a that's helpful color and what was the delivery fee is a in terms of basis points on your your Cogs and <unk>.
2020.
But that 40 basis points.
Great guys. Thanks, so much and best of luck this year and 'twenty one.
Okay.
Thank you. Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.
Thank you and good morning, and just wanted to circle back on I appreciate the incremental color on the February trends, just just to make sure I'm interpreting your comments correctly. I think you said you lost about two or two and a half percentage points of altitude that's versus January so its right to interpret that that your Burger King system was somewhere in the threes.
And.
And I just wanted to clarify that.
No that's that was calculated it.
It's really as a percent of sort of the days in February that we loss compared to the total restaurant days in February.
So it would be February day February now.
Okay, but the underlying momentum of the business somewhere what was in the mid single digit the comparisons are pretty similar February versus January before Covid hit.
And I guess could you could you just help us with what what and just to make sure. We're on the same page.
Well I mean, I think the important thing as of March 'twenty, and 'twenty was down 16, 8% last year and.
And January was up five 5% and you're going to see stimulus so and.
And then the one week and.
And what we can February is first of all of industry wide and not that material.
I think the big comp momentum is going to come on.
As we start lapping March 2020, and and even if we stayed.
Everywhere.
If we stayed flat for January obviously, we'd see some nice numbers and March and that'll and that's you know.
And that will really help the quarter.
So I I view of your you know I don't want to.
How much it tends to on weather anomaly as a draw of long term driver of our value and of our business. When you know when March and April was down 22% last year and it's.
We're going to see some very strong comps and.
You know from from this month on first for several months and then we have the chicken sandwich and we have stimulus and so.
And I again, I wouldn't put too much emphasis on our strength and on and Varian.
A very anomalous and winter storm.
And that affected a week in February.
Tony I couldn't agree with you more and I'm trying to level set expectations and models for the first quarter. It's noise that's under water under the bridge at this point, it's more of about just setting expectations and maybe I'll ask it. This way could you level set where average weekly sales trends are quarter to date.
For each brand.
I don't have that quarter to date I mean January we were at.
We were up.
Six and 5% on a V versus last year of everything.
Some of them.
Okay, I'll follow up offline on that switching to the dining room and status of the dining rooms. I think you said nearly all of our still currently closed what's the latest thinking on the potential timeline for when those might reopen across your system.
Well closed as of as this is Dan closed is a nebulous term all of our dining rooms are opened.
We have.
Opportunities for seating.
And probably 30% of our system, whether or not they get used on a regular basis is another matter.
We've been open for takeout.
Every place and and still are in.
In terms of opening the dining rooms for a greater level of seating at store specific frankly.
We've got some rural stores, where the guests really Wanna sit there because that's a social gathering place and that sort of thing and we have more seats available and in some cases of the entire of dining room available and those restaurants and so we're making those decisions are individually by by restaurant, but the all of our dining rooms are.
<unk> opened and have been opened and opened for for takeout.
Alright, and thanks for that clarification, and and you talked about adding some of ours.
And as you move through 2020, one as part of that related to an assumption that you reopen dining rooms are further or seating capacity further later in the year.
They are there and the second half of the year, we're assuming that once the vaccine vaccinations are further ahead and Covid is.
And Ah and a better and a different place that we will have more opportunities for seating as you'll have more opportunities proceeding we're gonna have to add a bit of labor in order to from a maintenance standpoint for maintaining the restrooms and they and the dining rooms.
So there'll be some of that but as I indicated around the chicken sandwich and the chicken sandwich. The expectation is that will be a dedicated person.
Right.
And that not only in terms of the amount of sandwiches that we expect to sell but youre dealing with of raw product and as you're dealing with or on a product that person has to be dedicated to that station they can't move between areas.
Yeah understood understood last one for me I just wanted to ask about the digital menu boards can you remind me how many of you have installed at this point the outdoor digital menu boards at the end of 'twenty and then could you expand on all of the benefits that you're seeing what are you seeing and in terms of average check and customer satisfaction and any improvements in terms of throughput and the drive through.
Thank you.
Yeah.
It's difficult to determine what the impact of digital menu boards isn't of Covid environment. When you've got 80 plus percent of our sales coming through the drive thru.
And check averages are up whether you have of digital menu board of you don't.
Customer satisfaction.
From a N P S of standpoint, it seems to be a bit higher.
Because of the visibility of the boards.
And in terms of throughput the throughput is is purely a function of whatever your staffing levels are in the restaurant and whether you have two windows. So that you have of cash window on the pick up window and that sort of thing the real benefits of the digital menu board other than the existing visibility improvement.
Will occur.
When.
Burger King gets further along with the interfacing digital menu boards for the loyalty program.
Where are they can identify guests.
They go through the.
On the drive thru.
The artificial intelligence that we will have software implemented in the <unk> and the new digital menu boards and the hope is that we'll have that day in 2021 as well.
Brian we thank you all.
And we're up to about two <unk>.
Yeah, Brian we were about to up to 250.
And then we'll be well on another 500 this year.
Great. Thank you Tony.
And we'll have them, all and BOP ice two and 2000 and by the end of 2021.
Yeah that was another addition to the capex for the year.
Thank you. Our next question is a follow on from the line of Jake Bartlett with true and Securities. Please proceed with your question.
Thanks, a lot and <unk>.
And a question about the Burger Kings and focus on food quality and you know taking preservatives out of out of the whopper et cetera. It seems to be no real of brand building effort.
And what what do you what do you see maybe in terms of surveys or <unk>.
Customer low reactions to that do you think that's of a yeah.
Either of long term or of near term.
Needle mover for.
And for sales of for brand perceptions.
You would have to ask a burger king in terms of the brand perception and because I don't I don't see the brand perception.
Research.
In terms of our guest satisfaction surveys.
Yours are food temperature food taste.
Food quality that sort of thing it doesn't speak to whether or not.
You have improved the or eliminated any artificial ingredients.
So and in terms of overall brand perception of everything being natural I guess, that's where the industry is going so I would expect that it's very it will be positive for the brand, but I certainly couldn't put any sense of a sales improvement on it no.
Okay, Great and then Tony.
You mentioned commodities being certainly being favorable now and it sounded like you expect and be payable for for the year as a whole I have some commodity sources that they think that or the restaurant store for a a spike and in beef costs and keep trimming costs and towards the back half of the year.
How much visibility do you have on your supply and how confident are you that and youre going to see a you know a.
And helpful kind of commodity environment.
I mean, we get our information from resi, which is our co.
Co op and.
And based on their research stuff up there and get our forecast, which is that we put on our budget.
Okay, and then and then and maybe just lastly on the on acquisitions, you've talked a couple of times about.
And some kind of bolt on acquisitions up very big can you give us just a sense for modeling purposes.
And how many of those might be or when they might be closed and then also just any any instead as you rebuild the of the acquisition pipeline you know how that's coming together is it is it a.
Good environment.
To acquire stores right now of how confident are you that the <unk>.
Acquisitions can really become a part of the growth story here.
Yeah, We've got a we've got a few deals that were currently working on.
Jake and I would expect that we will have a two to two acquisitions with a total of <unk>.
19 restaurants.
We're gonna go to contract on those are within the next month. So I would expect that we would have those things closed.
And the.
Early part of the second quarter.
And beyond that we've got a few more deals that were taking a look at but and the near term I think it would be it would be fair to model of 19 restaurants.
Great and are you feeling good about the supply of of potential deals out there and <unk>.
And what impact Covid has had.
On the dynamics that drive of the.
Transfers, but any insight there would be helpful.
I think yeah, I think that the.
Once a.
Now that we have signaled for the world that we're back in and of acquisitive mode.
The number of.
Inquiries of certainly has increased and I would expect that that will continue through the balance of the year Jay.
Great I appreciate it thank you.
Thanks Jay.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr Hall for any final comments.
I appreciate everyone joining us for this call and we'll speak to you in any way.
Julia Bye bye.
Yeah.
Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.