Q1 2021 Carrols Restaurant Group Inc Earnings Call
Good morning, welcome to the Carol's restaurant group first quarter 2021 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 require operator assistance during the call. Please press star zero on your telephone keypad.
I would like to remind everyone that this conference call is being recorded today Thursday may 13th 2021 at 830, a M eastern time and will be available for replay.
I will now turn the conference over to Tony Hull Carroll Chief Financial Officer. Please go ahead Sir.
Thank you Robin good morning, everyone.
By now you should have access to our earnings announcement released earlier. This morning, and an earnings review presentation are both available on our website at Www Dot 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 or plans. These statements are not guarantees for future performance and therefore undue reliance should not be placed on them.
We also refer you to our filings with the SEC for more details with respect to forward looking statements as well as risks that could impact our business from results, including among other things 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 presentation of this additional information should not be considered in isolation or as a substitute results prepared in accordance with generally accepted accounting principles a reconciliation to comparable GAAP measures is available with our earnings release.
I will now turn the call over to our chairman and CEO, Dan accurate Dino Dan.
Thanks, Tony and good morning, everyone I will start off by providing a business update before Tony reviews, our quarterly financials and outlook in greater detail we.
We had a very encouraging start to 2021 and delivered what we view as a strong quarter that we believe has set the stage for a great year of Carol.
Comparable restaurant sales rose, 14.7% in the first quarter at our Burger King restaurants, driven by a 49, 5% increase in March same store sales our strong performance in the month of March was preceded by a weak February where we lost 682 store days between our Burger King and Popeye's restaurants.
Due to severe winter weather, particularly in the southern geographies we serve.
We attribute our recent Burger King momentum to a successful dollar value of product promotions that resonated with our customers as well as a partial return to pre pandemic behaviors and activities and recent government stimulus payments are year over year comparisons were also favorable particularly.
Beginning in mid March we began to lap our COVID-19 impacted performance in 2020.
We once again outpaced the overall Burger King system during the quarter as we have done for 19 out of the past 21 quarters.
Using a calendar basis, rather than the physical period basis, we reported on our first quarter 2021 comparable Burger King restaurants sales increased 12.3 per cent compared to six 6% for the U S. Burger King system, and I remind everyone that we are approximately 14% of the Burger King.
System.
Our latest outperformance of the Burger King U S. Burger King system is by far the largest I can recall.
And we believe it was due primarily to three factors for.
First the north East and Midwest regions, which comprise nearly 50% of our footprint performed better than other geographic areas during the quarter.
We did a relatively better job reopening our restaurants, particularly during late night hours than the rest of the system and therefore outperformed during this day part and.
And third we sold about 30% more Bacon cheeseburger units daily per store that were part of the dollar value promotion of Carols then was sold nationally.
Expand them from what are we are currently experiencing our April Burger King comparable sales increased 31.5% much of this improvement is due to lapping lower COVID-19 impacted traffic, particularly as we begin to see our most impacted day parts last year breakfast evening in late May come back and come back strong.
But the momentum we are seeing is more than that in fact, if you compare our April 2021 results through April 2019, our comparable restaurant sales increased 10, 3% even at only approximately 90 per cent of the traffic compared to 2019.
We believe this indicates that we have more positive impacts to come from for our business as the economy continues to rebound.
As a point of reference comparable March and April sales for our Burger King restaurants in 2021 compared to 2019 showed the same improvement of just over 10% in each month.
As of quarter end, our dining rooms in most cases, we're open but not widely used as most activity inside our restaurants represented carryout orders delivery.
Comprised four 8% of our total Burger King.
Restaurant sales during Q1 up from three 5% in Q4 of last year and the average check size rose sequentially to $17 51 sentence from $17 two for delivery.
This compares to our overall first quarter average check for Burger King up 881, including delivery.
Our three largest delivery partners door dashed Uber eats and Grubhub now provide fully integrated delivery services at approximately 90% of our Burger King restaurants at a $17 million plus quarterly revenue run rate. We believe this convenience option will remain significant for us even in a post pandemic environment.
Turning now to profitability adjusted restaurant level EBITDA increased by 73 per cent to 39, and a half million dollars compared to the same period in 2020 as margins improved by 360 basis points to $10 one per cent of restaurant sales.
In terms of some other restaurant level drivers cost of sales as a percentage of revenue was 29, 2% this past quarter compared to 29, 3% a year ago. Even after the addition of delivery costs up 80 basis points.
Beef and waste costs were favorable in Q1 compared to last year and it remains low in Q2 with their favorite bill that he partially offset by higher other commodity costs.
Labor cost as a percentage of sales were favorable versus the same period, a year ago and were up only 4% year over year compared to nearly an 11% growth in sales.
Our current team size for Burger King restaurant averaged 21 employees during the first quarter similar to the fourth quarter of 2020, and we continued to benefit from limited use of our dining rooms for Eaton service until March 2021, when they fully reopened.
Well, we are working through challenging labor availability is virtually all of our quick serve and casual dining competitors have reported.
We believe that this issue could potentially be alleviated a younger people gain more access to the vaccine and the supply of potential high school and college, aged hourly team members seasonally increases within the next six weeks.
We recently increased pricing by approximately 2% and at this point expect to carry this level of pricing throughout the year. However, should we see challenges with respect to restaurant level input cost. We believe we have flexibility to take additional pricing as needed in this robust economic environment and will not hesitate to do so if necessary.
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Turning to restaurant development recall that in January we amended our area development agreement with Burger King Corporation significantly, reducing our required capital expenditure.
Spending on Remodels and new restaurant construction, while for fitting our right of first refusal on any Burger King franchise sales in portions of our geographic footprint.
Under the new agreement, we believe we have the flexibility to grow our business organically and through acquisitions.
Manner that will optimize our profit growth potential while generating consistent free cash flow and keeping our leverage in check and in fact, we are still preapproved to acquire up to 500 Burger King restaurants in territories, where we currently operate and are pursuing a number of acquisition opportunities at the moment.
In March.
Pop is agreed to our request to terminate the development agreement we inherited in connection with our 2019, Cambridge acquisition. We are working with a brand to establish a new area development agreement that optimizes the growth potential of this high growth franchise for both parties.
Over the past 12 months, we have significantly increased our available available liquidity to over $200 million and reduced our leverage by more than one and a half turn to three four times.
While building and acquiring restaurants in both brands remains a strategic objective of ours. If compelling returns are not available. We will instead continue to build free cash flow further delever, our balance sheet and return cash to stockholders.
Looking ahead, we are excited about the promotional calendar with its emphasis on value and several new product offerings, including Burger King's New chicken sandwich, which will be promoted with extensive national advertising in the near future.
We think that the product specific campaign will establish tremendous awareness and enthusiasm for what we view as the best in class Chicken sandwich offering and are eager to see what uplift may come.
Through this support.
On a related note. We are also excited by the rollout of Burger King's New loyalty program entitled the Royal Perks that is geared towards increasing the level of one on one engagement. The Burger King has with its customers, reducing the use of paper coupons in driving traffic to a week or day parts.
In 2020 mobile orders accounted for about 1% of our sales and we are confident Burger King's New loyalty program will accelerate the growth of that distribution channel and drive increased traffic by improving customer engagement.
To conclude we believe 2021 is poised to be a great year for girls. We are undeniable momentum coming out of Q1, we are managing our costs, we are able to execute our organic and nonorganic growth efforts in a balanced way and we are keeping our capital expenditures and leverage in check.
Above all our goal is to generate a meaningful and healthy amount of free cash flow. This year for the benefit of our shareholders.
With that let me turn the call over to Tony to review our quarterly financials.
Thanks, Dan.
Total restaurant sales for the first quarter increased 10, 9% to $390 million compared to the prior year period.
This increase is less than the $14 seven comparable restaurant sales increase due to the accelerated closure of 34 underperforming Burger King restaurants during the last three quarters of 2020.
And the way the day is within the fiscal calendar shift in between two years, particularly during the strong recovery period. This past March.
Average weekly sales at our Burger King restaurants were $28094 in the first quarter of 2021.
This is an improvement of 14% from 2020 levels and more importantly exceeded 2019 levels by 6%.
Similar to what we provided last year. We believe it is helpful to offer greater visibility into our Burger King.
Performance by region as we operate at over 1000 restaurants.
End of Q1 across 23 states.
In the northeast representing 22% of our Bergen restaurant comp sales were up 21% in the Midwest, representing 27 per cent of our Burger King restaurants comp sales were up 18% in the south central representing 25% of our Burger King restaurants consisted mainly of Tennessee comp sales increased 9% and finally.
In our southeast region, representing 26 per cent of our Burger King restaurants comp sales were up 10%.
With respect to our popeye's restaurants comparable restaurant sales increased <unk> five per cent versus a three 2% increase during the same period a year ago. That's a february storms in the south Central region had a dramatic impact on our quarterly results.
Our pop is rare.
Restaurants, representing five 5% of our first quarter revenue.
Adjusted EBITDA increased $15 $9 million from quarter to $19 $9 million, which was almost five times greater than our $4 million of adjusted EBITDA for the first quarter of 2020 are.
Our adjusted EBITDA margin increased 400 basis points to five 1% of restaurant sales.
This marked for seven 2% decline from the same period, a year ago when ground beef prices averaged $2 21 per gout.
Our food supplier as forecasted that beef costs, which are currently at $2.30 per pound are expected to elevate slightly during the summer months and return to the current level for the remainder of 2021.
Restaurant labor expenses decreased 220 basis points as a percentage of restaurant sales compared to the prior year period, Despite a 6% increase in average hourly wage rate.
The improvement is a reflection of the adjustments made to our labor requirements, along with having reduced labor costs across most restaurants during the quarter.
Restaurant rent expense decreased 60 basis points as a percentage of sales compared to the prior year period, primarily due to sales leverage.
Other restaurant operating expenses decreased 20 basis points as a percentage of sales compared to the prior year period due to lower utility repair and maintenance costs and other operating expenses that benefited from dining room closures operating expenses in the first quarter included $200000 in COVID-19 related supplies, including face masks thermometers Sneeze guards.
Sanitizers.
General and administrative expenses were $21 $4 million in the first quarter of 2021, which includes $2 $4 million a higher bonus accrual due to improved operational performance as compared to last year.
It also includes the impact of many corporate cost efficiency initiatives, such as streamlining our regional management structure and reengineering of the employee training process that were completed last year.
Our net loss was $7 $2 million in the first quarter of 2021 or <unk> 14 per diluted share on an adjusted basis, excluding certain non operating items first quarter. Adjusted net loss was $6 $5 million for 13 cents per diluted share.
In the year ago period, adjusted net loss was $19 3 million or 38 cents per diluted share.
Our free cash flow was impacted by seasonal trends in our business as well as the timing of annual payments for insurance and bonuses.
Similar to last year, we did not generate free cash flow during the first quarter. However, the $3 6 million in cash we used in the latest quarter was a $22 $2 million improvement for the cash used in the first quarter of 2020, reflecting we believe strengthening of our business.
We ended the first quarter with cash and cash equivalents from $59 $9 million in long term debt and finance lease liabilities of $493 $3 million. We did not have any outstanding revolving credit borrowings under our revolving credit facility and had $9 million of letters of credit issued under such facilities.
Adjusted net leverage ratios on our senior credit facilities for a three four times at the end of the first quarter compared to three eight times at the end of fiscal 2020.
In April we Upsized, our revolving credit facility to $175 million, adding $29 million of liquidity and extended its maturity to 2026.
Well, we're not providing a full outlook for 2021.
Let me reiterate a few guidelines that we discussed on our last conference call.
We indicated in March that we were expecting flat cost of sales as a percentage of revenue for 2021 compared to 2020.
We now believe that there may be a modest headwind for cost of sales this year due to higher delivery activity and related costs as well as revisions to our commodity basket based on updated information from our national food supplier on.
On the other hand, we expect to benefit from lower promotional and discounting activity compared to last year.
We also indicated on our last call that we were expecting modest labor deleveraging in 2021, mostly as a result of higher staffing levels expected in the back half of the year.
Our view has not changed we expect labor as a percentage of sales to be higher for the balance of the year compared to 2020.
Given the current strong sales momentum it'll be important to prioritize staffing in order for us to capitalize on the favorable revenue trends we are seeing.
Expectations for G&A costs are unchanged and are anticipated to increase modestly.
Lapping against short term pain travel reductions experienced in 2020, but are expected to remain flat as a percentage of sales.
Net capital expenditures. This year are targeted at $60 million. In addition to routine maintenance our plan spending just for the following first.
We are rolling out outdoor digital menu boards to 450 restaurants, this year, including at our popeye's restaurants as of today at 550 of our restaurants have this technology in place.
Second we have installed kitchen equipment at our Burger King restaurants percentage preparation related to the brand's new hand, breaded chicken sandwich.
We are currently planning on remodeling about 20 restaurants of which five will be popeye's and fourth we plan to develop and build nine new Burger King restaurants. This year.
Which two have already opened and one new Popeyes restaurant, we believe all of the two will go online during 2021.
Said another way our Capex. This year consists of approximately $15 million from maintenance $15 million for restaurant equipment upgrades, along with corporate projects and $30 million from new builds net of sale leasebacks and Remodels.
Let me add that given the construction cost trends. We are seeing we remain flexible income can and will adjust the timing of these activities based on careful monitoring, particularly as it relates to remodels.
To conclude we believe that there are numerous tailwind to our business. This year and have many reasons to be optimistic about the year ahead, we expect to generate strong free cash flow again. This year that we will deploy it in a disciplined manner designed to enhance shareholder value.
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.
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One moment, please while we poll for questions.
Thank you and our first question is from the line of Jake Bartlett with true Securities. Please proceed with your questions.
Great. Thanks for taking the question.
My first is on them from the monthly trends and I believe in the release you mentioned that the bow.
March and April were up 10% versus 19.
Could you confirm that or was it could've vessel as a whole or just maybe to confirm that and it also just in that context.
If you could remind us what the monthly comps were in March and April last year.
Just noting the slight deceleration on the on the.
In April versus March this year basically there to make sure I understand what the compares are there.
Sure.
Yes, I can confirm that April and March were up 10% versus 2019 for each month.
And secondly last year Mark.
<unk> was down for Burger King March was down 16, 8%.
And April was down 21 seven per cent.
Great.
If you can touch on.
Moving about the difference between your performance and Burger King as a whole.
Did you have more stores offering the chicken sandwich and the new chicken sandwich in your system vs.
Burger King and could that be part of why you're outperforming by so much.
Yeah. Jake this is Dan no we did not have a.
More chicken.
Matter of fact, I think we may have had fewer because we were one of the last areas to be rolled out in many of our distribution center.
Okay.
Will you be able to share how many stores have it now.
Or are they all have knowledge.
Hey, I'll have it now Jay Yeah, yeah, Okay.
Okay, Yeah, but we want it we.
We didn't get some of these rolled out until April.
Okay, Okay, Great and then and then just moving to the to the cost and the inflation side.
Could you quantify I'm told me, what you expect for commodity inflation.
And then you know how much visibility you have other I know it's from.
It is a concern that investors have we've heard kind of you know pretty varying.
Guidance from from different companies, but what kind of inflation.
Should we expect other on the food.
And then you know.
How much risk is there.
To that.
Sure or overall commodity inflation for our full basket of commodities for 2021 is at 4% to 5%.
And that's based on information, we get from our National food supplier.
So day.
They track it they are in constant communication with the manufacturers and that sort of thing so.
I think they are pretty good at seeing what's going on on the ground.
Of our 4% to 5% increase we think beef will be about 2% and then chicken will be about 5% then there are some other ones.
It is a smaller part of our basket of shortening as one that's up pretty significantly as can be.
Forecast, we have like 16%, but it's only like 3% of our basket and then Bacon is forecasted to be up about 14% again, that's a pretty small percentage of our from our overall basket. So.
You know what we're seeing.
Really on the ground for vs is.
Obviously went up significantly from the low $2 per pound level too.
In the last four weeks, it's been very steady it grew to $2 30, but it's sort of stayed at $2 30 for the last for weeks and again as we mentioned in the.
In the remarks that Dan made earlier.
We think that.
There might be a bit of an increase this summer, but then it'll back down to this $2 30.
That's what our that's what our food Sputters is thinking.
The other thing Jay just to completely.
Long winded answer is.
Is that.
On the chicken side our national.
You know our natural foods supplier has hedged those costs at least for the underlying feed costs for chicken through the end of August and we have good supply.
To put in place to to get the chicken Sandwich launched.
So we feel good about that.
So we think we'll get through some short term volatility this summer and to the end of the year, where things should come down.
Great. That's really helpful. And then my last one just kind of putting that together for a 5% commodity inflation I think mentioned, 6% wage inflation that you saw in the first quarter and.
Two per cent of pricing so.
Is there any are there any offsets or should we can you should we expect your restaurant level margin to contract in 2021, you are there any offsets like efficiencies.
In the store.
As we said on our prepared remarks, Jake our promotional discounts are expected to be about 3% lower than they were in 2020.
Yes.
Yeah, that's very beneficial to the top line net sales growth Jake as well as it helps offset some of the cost of sales you know other things that are going on from the cost of sales line.
It's a pretty material change from last year.
Got it I appreciate it thanks a lot.
Thank you. Our next question comes from the line of James Rutherford from Stephens. Please proceed with your questions.
Alright, good morning, Dan and Tony I'm Hope, you're both doing well.
Grant's on this 10% to your comp here in March and April I think that's really impressive.
Dan you called out differences as far as kind of what what drove that you've called out differences in regional performance.
Better opening of late night and better performance from the dollar menu Bacon cheeseburger, if I got all those correct.
As far as what drove the outperformance versus the system I was curious if you could possibly quantify or even just broadly the impact of those components on the outperformance and then why do you think there is such a difference in the regional performance here in March and April I think I have an idea, but I'm curious your take on that.
I don't have the Ah ha I can't break out how much of the outperformance was in each of those categories James.
I actually got that response from.
Art Burger King Corporation, RBI I asked them why we were.
Why why this outperformance was the most dramatic we've ever seen.
When you consider that were 14% of the $6 six per cent. The outperformance was really oh over 600 basis points.
Uh huh.
So.
Why it as far as opening a restaurant I am poll by again RBI that Oh, we just did a better job in keeping our restaurants open later in the evening.
And also making certain that we were open for breakfast, which apparently.
Not the case in some part of the system.
The northeast has historically been stronger for us and has continued to be so.
And as we mentioned in the script I think.
Some of the underperformance in the central and South East area was due to losing 682 store days in AR and.
In February.
Which was a pretty dramatic effect, primarily on our pop EIS business.
As far as why we're selling more.
Bacon cheeseburgers and a balance of the system no. One has been able to give me an answer.
The only thing I can assume is that we have all of our PLP up advertising. The fact that the Bacon cheeseburger is being sold for a dollar perhaps others aren't necessarily advertising it.
On the Windows in the drive thru, which is primarily where all the business is going through.
Dan did that regional outperformance for the northeast and the Midwest extend into March and April once the weather was no longer a.
Driver.
Yes for us it did I don't know if wait until about the whether the outperformance relative to the balance of the system continued to be at that level, but yes. Our outperformance in those markets continues yes, okay, and then flipping over to breakfast where was your breakfast mix before the pandemic began where does it stand.
A day and I'm just curious how that kind of compares I think the total Burger King system was at 13%.
And just your take on how that day part is performing here in last couple of months.
We're at 14% now which isn't.
It might be a point lower than it was pre pandemic, but it it's pretty similar to what it was pre pandemic James.
And then last one and I'll turn it on to the queue is on labor you all always put a lot of thought into how you manage this line and you mentioned that your hourly labor staff remains at 21 in the quarter here I think before COVID-19 you were at 23 mm Dan can you share where you're running quarter to date on labor per store and if it.
We will post COVID-19 normal world normal label market are you going to be above that 23, now that you have a new person at the chicken station or the breading station.
We will not be above 23, and I hope to get back to 21, James April was not a good month in terms of our ability to staff the restaurants.
And that is our major challenge right now is.
Once all of the stimulus payments came out which was the end of <unk>.
End of March mid to end of March our.
Staffing in April is much more difficult than it was in Q1.
Are there any disruptions on your operating hours or requirements to close the stores temporarily because of that.
Sporadically we've.
We've had some restaurants that are.
Have closed.
Prior to the normal closing hours, it's been a handful but it.
It has happened sporadically.
Simply because you your staff.
For a $5 six people and to show up.
And that's been that's been the challenge is you may have enough people on your roster the question of whether or not they are all going to show up for work.
Okay. Thanks for all the thoughts.
Yes.
Next question comes from the line of Brian Mullan with Deutsche Bank. Please proceed with your questions.
Hey, Thank you Hey, congrats guys on the results I will.
It's encouraging to hear about the two year trends in March and April.
Above 19.
Presumably from here that you know the impact from the stimulus should start to fade, but at the same time you have the menu innovation coming hopefully of a tailwind from mobility. So I'm just curious like when you put it altogether.
You can hold that level of strength for momentum versus <unk> 19 in the coming months and quarters, what's a reasonable way to think about the shape of the rest of the year.
Yeah Brendan.
Brian This is Tony I don't you know, we're not giving forecast because things are certainly moving so fast.
You know we wanted to give you insight into it.
Into.
What happened in March and April it just on a two year stacked basis for the first quarter was up 9%.
So vs versus 19.
So beyond that we're not we're not really prepared to to.
To give.
A finite number but I would reinforce that theres, some really good things coming.
On the product rollout from Burger King.
The main one obviously being the hand breaded chicken sandwich, and then theres. Some other more ancillary type products that are being rolled out.
Over the next several months so we feel we feel really good about the momentum we have and we think it's going to be a good year for the company.
Okay I understood. Thanks, Tony and then on the Sandwich from an operations perspective.
Could you just speak to I know this involves some extra equipment, perhaps some new procedures.
And the sales lift sounds I think everyone's excited for that can you just comment on how the operations for handling and are you pleased with everything so far.
Yeah.
Brian So far in the current Oh.
Level of sales volume for the chicken sandwiches, we've been handling it without any issues whatsoever.
Other than the normal.
Ongoing issue, which is making sure we have enough people in the restaurant in total, but the chicken processed specifically is not it's not a big challenge for us now.
Okay and then the last one from me just wondering if you could talk about expectations about the upcoming launch for.
The loyalty program have you tested it in any locations and if yes.
Are you seeing it impact consumer behavior.
And then.
Longer term do you think that this can be a real transaction driver.
For the business over the long term things.
Yeah.
We probably don't have them.
And update it right now it's only available through the mobile app.
And then that's that's been sort of phase one I mean, we've seen a lot of.
Given.
We're watching it carefully we've seen a lot of.
Redemptions.
So.
A lot is a relative term.
For two or you know tens of thousands of transactions a day, it's not a lot, but we're watching it carefully and you know.
I think when it rolls out into the restaurants that'll be.
More used and I think where you know that that 1%.
Mobile order.
<unk> is really is really low compared to others. So I think theres a lot of upside there once this loyalty program rolls out.
Whereas.
The other big thing about it Brian that we talked about is.
Getting rid of paper coupons, we think having electronic coupons, it's going to it's going to be beneficial to promos and discounts going forward. So that's that's obviously going to help the bottom line on that too so.
It's being rolled out it's early days, but where.
Inc.
You know like the chicken sandwiches doesn't have national advertising behind it yet, but I think it's gonna be a big plus just the same way maybe not to the same magnitude of delivery but.
That is something that really you know Burger King was what was behind and made it easy for us to get that two five per cent of our revenues. So we're hoping they day repeat that success with the loyalty program.
Okay. Thank you.
Thank you. Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your free.
Hey, guys good morning.
Wanted to touch on the traffic and check commentary that was in the release I mean, it sounds like traffic started to approach those pre pandemic levels in April and you're holding onto a decent amount of the check that was benefiting from COVID-19. So could you just talk about how you think traffic and check are going to perform as we reopen over the next few months and then just how you think you know carol's Burger King in the <unk>.
Q S. Our Burger category can participate in that reopening.
Yes.
Well in the first quarter, we had the benefit of both going up I think.
The check was up 11% and traffic was up 3% in the first quarter and then.
As we mentioned in the script that.
It kind of right now, we're seeing sort of stable.
Check at this heightened level as you mentioned.
And we were.
Sort of a 90.
Per cent of our pre COVID-19 traffic.
So we think theres a lot of upside there it's really.
Some of it is from the day parts coming back you know the late night in the breakfast.
Definitely.
Helping traffic, but it's where traffic is up in all day parts.
And then you know as you said, we're maintaining checked so I think the check the check.
Staying at these at least the post COVID-19 levels, it's been somewhat of a reassurance to us that.
You know that we're going to have strong we'll have a strong combination of stable check and then building out the day parts in traffic as the year progresses. So we're pretty encouraged by what we're seeing.
Oh My God. This is Dan tried this is Dan to answer your question net up from an overall standpoint, how we view it.
I think the issue in terms of for.
First of all the loyalty program as well as the chicken sandwich should.
<unk> be incremental to increase traffic I mean, that's the whole purpose of doing it. So we are expecting that traffic will continue to increase.
We would expect that utilization of drive thru will still be a primary focus for for guests and even as other casual dining outlets reopen and I think it'll be a while before they all can reopen at full capacity simply because they don't have enough servers and whatnot, either it's easier for us to staff up.
Our restaurant at least for them.
So I think that we will see both.
We'll continue to see traffic increase and as Tony said, there's no reason to believe that the Czech shouldn't be somewhat stable.
Perfect. It makes sense and on the chicken sandwich I get that it's fully rolled out now, but if you look back throughout the first quarter, but is there anything you can share about the performance of restaurants did versus didn't have the product to understanding and other marketing wasn't really turned on but anything there would be helpful.
Not in terms of same store sales lift because of the way. The rollout was handled I really don't have any quantifiable data.
Because it was a.
And within the same DMA, some restaurants had it in some restaurants didnt in.
It really we didn't have enough enough.
Exposure over the entire quarter to put a number on it.
Okay. That's fair thanks, a lot guys.
Yes.
Our next question is just the line of Jeremy Hamblin with Craig Hallum Capital. Please proceed with your questions.
Thanks, guys and I'll add my congratulations on the impressive performance.
I do want to come back to the for the chicken Sandwich for a second and you know Dan I would say that.
You know you haven't.
Haven't.
Expressed quite this same enthusiasm that you might otherwise do.
Around this new product and I don't know if that's because it's it's a little early on it sounds like operationally your team is handling it really well.
But in terms of you know no national AD support at this point do you have a sense of the number of.
Units that you're selling.
On that how that compares to the <unk>.
Prior crispy chicken sandwich.
And any color that you might be able to add and whether or not you know thats part one other question part two is weather.
Whether or not you think national AD support is coming here in Q2.
And what you think that could do in terms of potentially boosting the overall sales for the product.
Uh huh.
I don't know why I'm, showing a lack of enthusiasm.
Compared to I'm not sure who you are comparing me too but.
You got to remember I had a charisma bypass a long time ago.
Uh huh.
The.
The sandwiches outperforming the old or the previous crispy sandwich by a roughly 10 units a day I would guess free advertising.
And in markets, where it has been advertising on a test basis, the outperformance of the previous chicken sandwich is doubled.
And that is the expectation as the advertising will be launched.
In later on this summer.
That oh.
We will double the amount of units the number of units that we sold them for the previous a chicken sandwich.
Okay. That's that's that that's helpful.
And I wanted to just come back to the same store sales for a second I think what you called out was 49.
49% comp change vs.
And I think it was like a minus $16 eight last March.
Lapping minus.
Almost 22 in <unk>.
April presumably that would imply that you're probably up over 40%.
For the month of April.
And then if we you know.
We kind of look forward obviously the compares get significantly tougher tougher I think may was down three or so last year and then junior we're back to a.
Positive comp.
But in terms of nearer term expectations.
You just.
Put up a pretty significant.
Comp here in Q1 per.
Presumably you guys would expect probably a double digit comp in Q2 is that a fair assumption.
You know I think I think that's a good assumption yes.
Yeah.
Okay and.
In terms of where are you able to call out what the April comp was.
Or would you rather not.
Well it was up 31 five per cent.
Dan mentioned that in his prepared remarks.
Okay.
I missed that.
Okay and then.
I wanted to switch gears and Daniel mentioned.
Acquisitions, and that you were potentially or not potentially that you were working on some deals.
In terms of magnitude of deals what you're seeing out there in terms of.
You know potential sellers you don't have the pipeline.
Become more active now obviously, it's been a stressful.
18 months.
I think for a lot of franchisees.
Do you do you sense are there more people looking to sell a and B you know in terms of the price.
Price multiples that they're looking for and I know you guys kind of target around four times EBITDA.
What's what's the sense that you're getting from those franchise, who are looking to sell.
I can only speak to.
The ones of the few that we are aware of.
The multiples are a.
Ticked higher than what they were pre.
Pre COVID-19.
But still within the range for what.
What are what is reasonable.
In terms of the <unk>.
Number of potentials for sellers.
I mean, there are always people who are <unk>.
Looking for an opportunity if someone is willing to.
Engage in the dialogue. So I think it's about the same as what it was before Jeremy.
Okay, Great and then.
Last item here for me your restaurant of your other restaurant operating expenses.
In terms of thinking about that particular line item.
You know, whether it's credit card fees.
Which I think impact that line item.
How do we think about that one on a year over year basis is that something that you know obviously you leveraged it really strongly in Q1 and you continue to have a lot of momentum here on the sales front in Q2.
You don't.
What type of dynamics do we need to be thinking about on that particular line item.
As you see things like loyalty program rolling out in other.
Other dynamics with day parts, returning to more normalized levels.
How should we be thinking about that one.
I think the.
The other operating expenses, excluding royalties and advertising.
We're a little bit higher.
Because of the February storms than we had forecast.
But.
We think there'll be in the stay in sort of at the 11% type of range of sales for the rest of the year.
11, plus or minus.
We don't see a big increase it increases a little bit in the fourth quarter, probably but not it's not a material you know it's not a material change.
We also Jeremy one other thing is.
In the in that other operating expenses the reason there might be a little bit of.
Pressure on that.
That is we.
We are putting in some.
Sort of more high tech.
Sales in our stores that.
Basically they they automate the process a day.
They basically give us credit for the cash.
The minute, it's deposited into the vault as opposed to waiting for someone to pick it up or waiting for one of our employees to bring it to the bank. So that's a bit of an investment we're making this year, but it's not again, it's not going to move the needle there.
That much.
We think it's really the right long term and it allows the teams that we have in the store to spend more time in the store.
So.
We think we're going to make it up on labor for the most part.
So I think that's the only that's the only.
Increase we're seeing in then.
Maybe a little bit from more usage of of you know the dining rooms for right now that use it just really is really small in the dining room, so that could come up a little bit, but again I don't I don't think this is going to move you know moving any of those this year that much one way or another.
Okay, and I just wanted to clarify on the G&A expectations for the year, excluding obviously.
Anything related to acquisitions, you expected that kind of flattish on a year over year basis.
Yes, as a percentage of revenue yeah.
I mean, it will probably on an absolute basis go up a bit because.
The biggest thing in there is is that in the second quarter in particular.
We reduced we reduced salaries.
And then we also had lower travel last year. So I think the travelers coming back a bit and then we're not doing the salary reduction per quarter. So I think that'll be a bit of a headwind but.
I think what you saw you know again I think as a percentage of sales, it's going to be pretty consistent to last year.
I'm sure Dan is Raring to go I'm getting back out on the road.
I think he's right down the road.
I've been out on the road for a novel.
100 restaurants.
[laughter] alright, thanks, guys for answering the questions and best of luck. Thanks.
Thanks, Dan.
Our next question is from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.
Hi, Thanks, and good morning, I wanted to circle back on the new Chicken Sandwich and appreciate the like you said the 10 more units a day with no added support and the potential available with support and can you just help us frame, what's the base there how many units per day on average where you're selling a deal of the prior chicken sandwich.
About 28 on the prior chicken sandwich and the current our current volume is about a 38 to 40 and the expectation will be when its advertised that we'll get to about 75 units a day.
Yes.
Alright, great and I appreciate all the color on the monthly trends in the regional details as well.
And just to tie the bow on sales could you help me with where average weekly sales volumes in dollars were for Burger King in March and April I was just hoping that you could help us cut through you know a two year comps seasonality calendar shifts et cetera, just to make sure. We're on the same page.
For Burger King we are hitting like 30000.
Okay that was already pretty stable March and April.
Went up a little bit in April, but yeah. If you average the two its about 30.
Okay, Alright, great and then just on the menu pricing Tony what was the I missed it sorry, but you were talking about Q1 comp components, but what was the first quarter pricing in the menu and then once you I think you said you took 2% is that how much you'll be in the menu you expect or is there some from prior increases we should take.
Into account just trying to get a sense of effective pricing in.
Next couple of quarters.
I think Dan the 2% was late March early April right. So it didn't really affect a quarter I think the from last year's price increase it was about 50 bps and.
In the first quarter.
Yeah, that's right Tony we only had a half a percent essentially in the first quarter.
Brian because the 2% didn't take effect until almost the last week of March.
In terms of expectations for the balance of the year.
We'll see what.
What happens in the competitive environment as well as input costs and there's a there's an opportunity for us to take additional pricing as we approach Q4.
Alright, that's great and then last one for me did you did you complete any sale leaseback transactions in the first quarter.
So I think there was.
I don't believe I don't believe so yeah I think there's one day I think there was one early April but nothing in the first quarter net.
That's right.
Okay, Alright, Thank you I'll pass it along.
Our next question comes from the line of Jim Sanderson with Northcoast research.
Hey, Thanks for the question I just wanted to follow up on the discussion of breakfast I think you mentioned that your day part sales mix was relatively stable pre to post a pandemic how does the margin look for that day part has it contributed to the improvement this year.
Just any feedback on that margin impact for the breakfast day part.
And it is a smaller part of it.
It's.
13, 14 per cent of the mix. So I don't think it's had a big impact one way or another on the margin as of yet.
It definitely help sales.
Definitely help sales, but the margin rate is relatively stable as far as its contribution yeah. That's the way to look at it.
Alright, Thanks, Tim.
Just a quick follow up but the lower promotional discounts that didn't have an impact on breakfast margin also the way to look at it.
It's definitely.
It's small compared to the impact during lunch and dinner.
Alright, alright, thank you.
Yeah.
Our next question is from the line of Jake Bartlett with Suntrust. Please proceed with your question.
Thanks for taking the follow up.
Tony I know I'm, a little confused on the monthly same store sales.
And the two year stacks versus the commentary that both March and April were were up 10% versus.
Versus 2019, when they look at it to your Q metrics stack. It looks like March would have been up about 24%.
In April up about 3% so.
Just because the compares get a.
Little easier in April yet the comp is lower than the March so how do we how do I square that.
I mean those are the those are the numbers.
Yeah.
Yeah.
We just looked at it we looked at compared to 2000, and maybe ones that stack and one's just comparing to 19. So the 10% as you know the aggregate increase from.
2019.
Okay, but there was no there was no deceleration in April that you could discern.
Sure.
No no April was very strong.
Okay.
And then if you could quantify I know you gave us and the threat of cat.
Lost operating days.
But maybe just for for Burger King and impart by separately, if you could quantify the impact of the storms in the first quarter same store shipped for sales.
I don't have the.
Breakout by brand and maybe Tony does but I will tell you it negatively impacted top is much more than Burger King.
Most of the difficulties that we had were in Memphis and Jackson.
Memphis, Tennessee in Jackson, Mississippi.
Where we've got a big penetration of our pop is business and we had popeye's restaurants that were closed for over a week.
They had no water.
Infrastructure there is.
Somewhat inadequate in the pipes froze. So we didn't have any of the city didn't have any water. So we we were open we were closed in many popeye's for in those markets for over a week.
Got it.
That's helpful. And then lastly, just your true build on Brian's question about the menu pricing. You had 0.5, then you added two should we assume that that it's two 5% pricing barring any other increases or.
To that 0.5 roll off and get replaced with Qunar. The point to 0.5 rolls off so you've got 2% until we decide what we're going to do going forward and in the first quarter. We only had five that's the way to think about it.
Great. Thanks, a lot.
Thank you at this time I'll turn the flow right to management for closing remarks.
Thanks, everyone for participating in the call and we look forward to speaking to you one on one to the extent you are.
You want us to move towards 101.
And we'll talk to you in August for.
Q2 results.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.