Q2 2021 Franchise Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to franchise skips fresco and thoughts on spine and 1 second quarter conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session I would now like to hand, the conference over to your house and you can minsky.
Executive Vice President and Chief administrative officer of franchise group. Please go ahead.
Thank you.
And thank you for joining our conference call I'm on the call with Brian calling franchise groups, President and CEO and Eric scene and franchise groups CFO.
Before getting started and I would like to mention that certain matters discussed on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and other provisions of the Federal Securities laws. These forward looking.
The statements are based on management's current expectations and are not guarantees of future performance actual results could differ materially from those expressed in or implied by the forward looking statements. The forward looking statements are made as of the date of this call and except as required by law franchise group assumes no obligation to update or revise them invest.
Investors are cautioned not to place undue reliance on these forward looking statements for more detailed discussion of these and other risks and uncertainties that could cause franchise groups actual results to differ materially from those indicated and our forward looking statements. Please see our form 10-K for the fiscal year ended December 26, 2020, and other filings we make with the SEC.
Measures discussed today include non-GAAP measures that we believe investors focus on and comparing results between periods and among peer companies. Please see our earnings release and the news and events section of our website at franchise G. R. P. Dot com for a reconciliation of non-GAAP financial measures to GAAP measures non-GAAP financial information should not be considered and isolation from.
And as a substitute for or superior to GAAP information, but included because management believes it provides meaningful supplemental information regarding our operating results and when assessing our business and is useful to investors for informational and comparative purposes.
Non-GAAP financial measures. The company uses have limitations that may differ from those used by other companies now I'd like to turn the call over to Bryan Bryan.
Thanks, Andrew.
And good afternoon to our listeners and thank you for joining us I'll briefly discuss the highlights of franchise group second quarter provide and update on recent corporate activities and discuss current trends and our markets and businesses before turning the call over to Eric to provide financial details. We will then be happy to answer questions.
And the second quarter of 2021 franchise group continued to execute operationally and capitalize on the momentum and our businesses.
Pet supplies, plus and its associates and seamlessly become part of franchise group and they continue their robust growth trajectory.
We demonstrated our commitment to a conservative financial policy after a large acquisition by paying down approximately $182 million of debt since closing on the PSP acquisition and March all of our brands continue to grow and generate progressively healthy levels of cash flow and all of our brands and Ed.
Positive 2 year stack same store sales.
Our management team will continue to allocate discretionary cash flow to the highest and best uses to increase franchise group's long term shareholder value.
New store openings from increasing franchise momentum and providing unit count growth and expanding footprints or our brands and the second quarter, we increased store count by 29 units consisting of 23 franchise locations and sic corporate locations for the first half of fiscal 2020, 1 we opened 100 and the <unk>.
11, new locations signed area development agreements for 96, new franchise locations and it.
Grown our total backlog of new stores across all brands and 284 units.
1 of the franchising highlights of the quarter was the recent announcement of our first vitamin Shoppe area development agreement for 3 stores and the Rio Grande Valley of Texas.
And just the first quarter and being franchise ready vitamin Shoppe already hosted twenty-five perspective franchise entities. During 3 discovery days and vitamin Shoppe. Currently has 16 candidates who are completed or in the process of completing a franchise application for vitamin Shoppe approval. We're thrilled about the initial popularity of the <unk>.
And shop franchising opportunity and we believe this high level of interest is a testament to the vitamin Shoppe overall brand awareness and and acknowledgment of the trust consumers putting that brand.
And right Buddies, and pet supplies, plus and continue to see robust demand from both existing and potential franchisees due to the strength of their operating models and their economic resiliency.
And the second quarter pet supplies also advanced a variety of internal growth and improvement initiatives management rolled out its online subscription business introduced a new private label for fish under the brand pins burst and grew its franchise backlog of store openings to over 200 units P. S. P same store sale.
For the second quarter were up over 23% and it.
At the end of the quarter PSP operated 573 stores with 333 of those being franchise locations and 240 corporate stores.
Total revenue and American freight grew more than 14% year over year during the second quarter due to new store openings and the acquisition and conversion of the debt. Both stores same store sales were down only about 4%.
In the quarter American freight completed 4 area development agreements with a total commitment of 16 stores in multiple markets. We continue to see significant interest and a free franchising opportunities and we anticipate more development agreements and what will materialize over the balance of 2021.
American freight operated 364 units at the end of the second quarter, including 6 franchise locations.
Supply constraints and elevated freight costs have continued and American freight throughout the second quarter, while supply constraints have eased a bit lately, we still do not believe that American inventory levels will normalize until next year, but despite these current inventory constraints, we will continue to aggressively pursue new store openings when real estate opt.
<unk> arrays for a free.
Buddy's home furnishing supply constraints have improved although inventory levels of upholstery case goods and mattresses are still not at optimal levels due to the recurring nature of buddies revenue stream from inventory out on lease, but he same store sales were up 0.4% in the second quarter, but he just care.
<unk> its franchise momentum into the second quarter as well by signing area development agreements for 23, new stores. The buddies footprint now stands at 306 units, including 261 franchise locations.
Vitamin Shoppe has continued to benefit from the consumers focus on their health and wellness and growing demand for vitamin Shoppe products and gyms and fitness studios have reopened and we have seen a significant increase in demand for sports nutrition weight management and fitness supplements layered on to the sustained higher level of vitamin and general supplement demand.
Store traffic has increased as consumers gain comfort, leaving their homes to shop on premise. These trends are clearly seen and vitamin Shoppe second quarter same store sales growth of more than 28% consisting of a positive 44, 8% in store and negative 14, 8% for direct to consumer via.
And shop ended the second quarter with 716 stores overall and their system.
Regarding M&A.
We continue to evaluate several M&A opportunities that will either further diversify franchise group revenue and cash flow streams accelerate our growth or both.
Each acquisition candidates that we are pursuing has robust unit level economics, and we believe are or will be attractive to franchise partners and each acquisition candidate and provides a clear path to enhancing franchise group discretionary cash flow on.
Our current candidates include a full range of opportunities from nascent brand that we believe we can grow rapidly to larger established franchise businesses and our goal is to execute on both ends of the spectrum.
We continue to cement our track record of Delevering rapidly after we lever up for a diversifying and scale building transaction.
We're confident that our lenders will support us again for the next opportunity.
Before turning the call over to Eric I would once again like to thank all of our dedicated associates for their hard work and their support of each other and their support of our franchisees Eric.
Thank you Brian before I address the results of operations I would like to remind you that we will be making many references from pro forma items throughout this call on our press releases and filings may refer to historical financial results for the acquired businesses prior to their acquisition by franchise groups.
These items have been adjusted to align with our fiscal calendar and accounting policies to the extent and reasonable comps.
Comparisons pro forma results will allow us to discuss and evaluate performance of the acquired companies on a comparable period does not available due to the timing of the acquisition.
As a reminder, in order to conform with FCC rules consistent with concepts and article 11 of regulation S. Dash acts for non-GAAP reporting franchise group will not be reporting synergies and other acquisition costs. The company will continue to reported adjusted EBITDA and the same format as it has and the past.
At this time, we do not anticipate reporting any supplemental information for 2021.
The specific amounts included in each disclosure are fully discussed in detail on the non-GAAP financial measures and metrics section section of our earnings release.
For the second quarter of 2021 total reported revenue for franchise group was $862.8 million GAAP net income from continuing operations was $32.5 million or 74 cents per fully diluted share adjusted.
Adjusted EBITDA was $91.8 million and non-GAAP EPS was $1.16 per share.
We currently have 4 reportable segments American freight and vitamin Shoppe pet supplies plus and bodies.
And now report Liberty tax as a discontinued operation for the cash.
Water ended June 'twenty, 6.2020, 1 American freight had revenue and adjusted EBITDA of $216.8 million and $28.9 million respectively.
Vitamin Shoppe had revenue and adjusted EBITDA of $302.6 million and $37.5 million respectively.
But he said revenue and adjusted EBITDA of $15.6 million and $4.3 million respectively.
And pet supplies, plus had revenue and adjusted EBITDA of $275.8 million and $22.9 million, respectively for our ownership period.
For the quarter consolidated cash flow from operating activities for average it was $29.9 million and capital expenditures of $13.1 million netting to free cash flow of $16.8 million defined as operating cash flow less capital expenditures.
Within these amounts Liberty had cash flow from operating activities of $20.8 million and capital expenditures of 2.1 million free cash flow attributed to F. RG and our franchise group continuing operations was $9.1 million from operating activities less $11 million of capital expenditures netting to free cash flow of negative $1.9 million.
We ended the quarter with approximately $1.3 billion and outstanding term debt, a fully undrawn $150 million ABL revolver and cash of $165.4 million on.
On July 2nd we reduced the term debt by approximately $182 million from the cash proceeds from the closing of the Liberty transaction with next point.
In conjunction with our balance sheet and business performance. We believe we have sufficient liquidity to continue and meet all of our obligations and support all of our businesses for the foreseeable future.
As of today, we are increasing our expectations for annual adjusted EBITDA for fiscal 2020, 1 from at least $315 million to at least $320 million non-GAAP EPS from at least $3.35 per share to at least $3.45 per share and revenue from 3 to $3.1 billion to at least 3 point on.
$5 billion.
And calculating EPS, we're using approximately 41 million weighted average shares outstanding.
And our expectations for 2021.
Do not include any assumption for additional acquisitions divestitures or additional refranchising activity.
I want to thank all of our shareholders and lenders for their support today on.
Operator, please open the line for questions. Thank you.
Thank you, ladies and gentlemen, and I have a question at this time please press.
And then the number 1 key on your question on telephone.
And that's been answered or you wish.
From the queue. Please press accounts.
We also ask that you please limit yourself to 1 question and 1 follow up.
And for our questions.
Our first question comes from the line of Larry Solow from CJS Securities. Your line is open.
Great. Good afternoon, and thanks for taking my questions on just perhaps a couple of questions on on vitamin Shoppe, which really on a phenomenal quarter it seems to be driving the.
The majority of the beat here I guess same store sales 40, plus percent it gets hard too difficult to kind of look on it because last year, you had some closures and whatnot, but what's your do you have a rough outlook I know you don't guide quarterly, but sort of back half of the year do you still see that it sounds like you know with the raws and sports drinks and whatnot you would.
And I respect you still think same store sales continues to grow.
And then maybe you know roughly what you think that might be and then longer term do you know do you think this category can be can you still see same store sales growth as we look at it and over the next couple of years.
Sure. Thanks, Thanks, Larry.
And you may have to remind me of some of those questions and I'll and I'll probably work backwards to go for sure, but you know over the long term, we do think that growth and this category is sustainable and vitamins and supplements have grown.
Religiously here and you're out you know take right and get out of the equation near the issue. The vitamin Shoppe had previously was that it was really coming from a much smaller online business because most of the growth is online and in brick and mortar wasn't performing.
Covid has changed that quite a bit and in a couple of ways number 1 the online business direct to consumer is a larger base.
Certainly what you see and this quarter is a result of Covid because he had stores that were closed last year and and the stores that were opened still weren't seeing them the kind of traffic that they would see even in a normalized.
Situations. So this is just kind of getting back I don't think you're going to see and <unk>.
It's easy for me to say, although I don't think we're going to forecast same store sales for any particular business I'm pretty sure. We won't see 40 plus percent same store sales on a on a regular basis.
And vitamin and that's just not going to happen.
But the model doesn't require that either.
So.
As we look at the second half of this year. If you think about just generally what what happened.
Last year with Covid and the reopening occurred so you're now you're through the second quarter and most of.
The odd comparisons for all of the businesses are over the second half of the year showed continued strength continued strength for vitamin Shoppe and and all the stores were open and so you're not going to be anniversarying.
Store closures and.
And the second half of the year, you will be anniversarying.
On some pretty decent strength both.
Online and in the stores, so certainly youre going to have a higher base that you're comping too, but demand right now is strong could that change tomorrow, absolutely but day.
And as strong management is doing a great job of capturing that demand.
They're doing a good job, winning and and so we're very optimistic about the long term outlook.
Vitamin Shoppe, and certainly you know very pleased that the franchising community seems to agree with that as theyre showing up with significant interest and opening new stores for us.
And there's some mix shift to more in store sales versus online and helped or hurt your guidance I think right, but the online and there's some more freight costs and whatnot I assume right.
Yeah. So.
Speaking generally are the the margin flow through of a dollar of revenue in the store creates more free cash flow than a dollar of revenue through direct to consumer.
And and it's and it's it's not an insignificant GAAP I think that's an area that management is spending a lot of time focusing on I think that we can we can keep more of that cash flow off that dollar overtime, but so it's an opportunity for us and and and as that base grows and it and it should grow.
And we significantly over time.
You're going to end up having the law of larger numbers, helping you out there as well.
And but you're right with your additional hypothesis of the margin differential between retail and in store and and the direct to consumer channel generally right right exactly and then just last question. If I may just a sort of general and it sounds like I can probably answer this 1 but just general interest level among prospective franchisees.
He's not necessarily the vitamin shoppe, but just you know you've obviously been around these kind of business for a long time. This environment do you think and I would suppose interest level is probably as high as it's been and a while and I know we're coming out of Covid. So maybe there's still some sluggishness for that so I'm, just trying and get a gauge of that on a general scale.
Yeah. So the interest level is high I think that the interest level really never waned I think that Covid helped these kinds of businesses relative to foodservice businesses from an interest level, but the interest level throughout our ownership period of any of these businesses has had.
Been there I think that where 1 we're better equipped to handle the interest is as we've been growing our franchising infrastructure.
Largely from scratch and some cases and then also you know the the real benefit I think is the availability of capital to franchisees, which if you remember several conference calls ago that was a real question.
It will free.
Franchisees, who have interest actually be able to find the capital to.
To take advantage of the franchising opportunities I think that that has loosened up a bit and and so I think we feel pretty good about our ability to execute.
Great I appreciate the color. Thanks.
Sure.
Thank you next we have Mike.
And from D. A Davidson your line is open.
Hi, Thanks, guys I would like to start by focusing on the pet business. If I could so I think you said trends.
But this is really we're up on and on a 2 year basis in terms of the comps can you quantify that at all but we don't really have a pet supply numbers from a year ago. So I'm wondering what this year's ramp was on top of and and then I guess from wage that well can you talk about momentum in that business was cycling I think against some day.
Pet industry numbers, a year ago during the pandemic when it was started adopting pets. It sounds like you're still growing and topped up on them up to you know.
Sort of flush that out and how does that 2 year stacked look in the second quarter versus the first quarter for instance, and any kind of indication of momentum even as we come up against the Covid related comparisons would be helpful. Thanks sure.
And then and without being too specific on on the percentages and any year.
Happy to.
Say that last year. So this this number was comping a I'll.
And I'll say.
Lately, a normal positive number I'm sure and of course, we didn't own the business at that time I'm sure that the CSP management team would tell you that although the the result in their Q2 of 2020 looked like a normal comp the way they've got there was I'm sure a little scary and.
Also very different than what they were used to but but this comp is on top of a positive comp from last year from on ongoing basis. I think you were talking about cash.
And it sustain and I'd say, we we we never expected.
This kind of comp or.
2 to continue and we certainly don't expect there's going to come to continue I think that we.
Okay.
So the strength continues.
And I don't I don't know that I would expect it to continue.
At the at the traffic and and the average.
Basket size and that they've been running it but you know generally speaking and I and I think this is the same for all of the businesses. The demand has been there that that's not been an issue can't tell you how how much of the demand is generated by <unk>.
Customers, having extra dollars and their wallets that they want to wash out because they're used to.
Getting a paycheck and spending their money, but you know right now demand remained strong.
Okay. That's helpful. On 2 more from me 1 just switching gears on to the American freight business you said our day.
The supply chain issues were getting better so I assume the issue you're still referring to is not having a open box appliances.
Can you you actually I think you've quantified it last quarter and I think it took you comped down 10% and and.
And that business and a lot of that was because of the appliance business. I think these are called sales were down 30% and in that or even 40% and that open box appliance business can you sort of put some numbers to that this corner.
Relative to what you saw on the first quarter. Thanks, Yeah. So so first well first let me say, it's not just <unk>.
As is appliances, where the supply chain and had been disrupted and there we struggle.
And we struggle and really all categories, but they are able to manage better and some of the other categories, but the supply chain is limited and management is having to go.
And demand to different vendors bring on new vendors, but they are managing through it and that's exciting to city, but but it's a lot of additional hours for the team just to be able to make sure that there is sufficient product on the floor to meet the customers' demand.
On on the as is business specifically.
You know without being.
Too specific on the numbers is it a similar situation this quarter left or a lot of high margin revenue on the table.
And because of a lack of and this product that that has not improved offset some of that.
As his loss with lower margin, new and the box sales, but generally speaking that the net.
Net loser force relative to what you know the on.
<unk> business and badges would look like so I hope that helps.
Yeah, It does side and 1 more just bigger picture on the on the guidance.
It's sort of an obvious question, but you raised the EBITDA and EPS guidance.
And you took the sales guidance up to the midpoint.
The midpoint, I guess, but but not necessarily above so it's just something you know that's not as good on the gross margin.
SG&A or you know just trying to or was it just being conservative.
No it's nothing nothing specific there.
Our expectations have improved and we certainly wanted to be able to.
Relay that to.
The public and demonstrate that through and adjustment of the numbers, but.
Generally speaking.
No theres nothing I wouldn't read through.
From revenue to incremental margin to earnings per share and in any particular way, but certainly feel very comfortable debt.
And that will produce at least those numbers debt that we are you know.
Told you our expectations were at this point.
Fair enough appreciate the time, thank you sure.
Thank you moving on we also have.
From Oppenheimer Your line is on.
Alright, great. Thank you very much.
And I guess the question would be just.
And on the dividend side.
And I guess, you kind of reiterated the dividend today.
Today, and just trying to think about what we should be expecting going forward.
Is it on a level that you wanted to pay out.
Net matches out Brent linked and cash flow and how you're thinking about free cash flow. Thanks.
Yeah, It's a fair question.
And something we certainly think about a lot as you know our stated.
You know long term goal or expectation is to distribute 25% of our annual EBITDA out of the dividend and and we're well below that.
Distribution today and and.
And the next dividend will continue to be well below that when you annualize it as well.
You know what.
What I think we're trying to avoid is.
Herky-jerky or having 1 quarter, 1 level and then you're increasing it.
And <unk>.
Hey.
Just some kind of random right and and certainly also trying to avoid ever having to decrease and.
Things happen and it's possible, but you know certainly where we're trying to guard against that and we think that debt is over the long term and going to be and important part of the track record that we're trying to establish I believe this.
Dividend that we just declared is <unk>.
Fourth if I'm not mistaken at this rate.
And next quarter, we will have another board meeting and we'll have a better sense of how this year's finishing and and what expectations are for next year, and it's probably a better time to address and.
And he kind of change and the dividend after.
We've paid a full year at a rate based on the expectations that we had at the start of the year.
And we're doing better than we had expected at the start of the year, but.
Still still have another what 5.5 months to go to get through this year too.
Okay, Thanks, and and you know on on the same token and how we.
Think about debt now I guess it has made it pretty big debt repayment. This net.
This quarter, we saw on the FERC and some of Liberty.
Are we where we want to be or are we looking at bringing our.
And just thoughts in general there.
Sure. So look I think that over time, where we only want to be involved and businesses.
And that or the debt should be levered, so if they're not consistent enough.
To have leverage than debt, that's kind of a box it doesn't check for us because then they're not consistent enough for shareholders either.
So I think over time, we expect to.
Have leverage on the business under 3 times 2 to 3 times to be specific is probably the sweet spot for us.
You can and the bigger we get the larger the quantum.
We'll be as well so it's not we're not looking at a dollar amount and we're really looking at a at a leverage ratio and we're we're we're comfortable we are willing.
Willing to.
Stretch up to 4 turns of leverage for us.
On a transaction when it makes sense, assuming we've got a clear plan to delever back under 3 times very rapidly.
We just did that or PSP I think we took it to 3 and and Pat and I don't think we got all the way to 4 but now we've de Levered and were back in the sweet spot for us in terms of leverage it.
If we are successful and.
Further diversifying the business through M&A I think that that's the right time to look at <unk> and and then we will go to Delever again and.
And everybody what we told them, we were going to do and that we did it all over again and I think that the more that we demonstrate that rubber band philosophy and the.
On the easier it is for us to execute the lower cost of capital over time and that means a higher percentage of our cash.
Cash flow will become truly free cash flow that we can use for dividends as well. So that's still the strategy and so far knock on wood, it's working and.
You just have to keep operating.
Alright, great. Thanks for the color guys sure.
Thank you next.
Susan Anderson from B Riley your line is open.
Hi, good evening nice job on the quarter.
And I was wondering so for vitamin shoppe and pet supplies plus.
It looks like the top line there revenue per floor, and maybe quite a bit above expectations is that just a return to the stores and then for vitamin Shoppe shall we say it doesn't seem like that business isn't necessarily that seasonal so it looks very similar to first quarter should we think about that is the new baseline, obviously and creating and.
Any additional stores and for the margins there and they were up quite a bit and first and second quarter. So should we think about this low teens EBITDA margin is being at baseline or can expand further from there.
So I'll take a first stab at some of that and and if Eric has anything to add.
And 2 it feel feel free where we're not on the same room today.
So we we don't we didn't provide any and and we don't provide any quarterly expectations for any of the businesses. So.
Yeah, certainly understand how.
And analysts looking at it that doesn't have complete information may have different expectations than we would have and and it makes complete sense and everything works out at the end of the day, specifically as it relates to vitamin shop.
There is seasonality and that business and typically the first quarter is actually the strongest quarter in terms of revenue as you know people.
Got to renew their vows after new year's and for whatever reason, that's when they're spending their money on supplements and in the fourth quarter is typically the lowest revenue.
Certainly note as you know the second quarter revenue and vitamin Shoppe.
It was pretty high and it was certainly higher than than I expected.
But it's I wouldn't look at it as a run rate debt that you build off of just because of the inherent seasonality and the business. So hope that helps a little bit.
Yeah, and I guess, maybe just on the EBITDA and margins should we think of it as a low teens EBITDA margin business.
Yes, so the EBITDA margins at any particular period of time are driven more by the revenue and then anything else that the operating expenses or the operating expenses by and large.
But you know when you think about your pretty.
Pretty high incremental margins to revenue and and their their high whether it's super high product margins in.
The AR in the stores.
Or or not quite as high.
Direct to consumer although there are various channels of direct to consumer that each have different margin profiles as well, it's all pretty high. So if revenue is increasing the margins on the EBITDA level. I think you can certainly expect will expand and if revenue is decreasing because you're losing and incremental dollar.
And that just generates so much of an EBITDA margin that you're going to see that go down so.
From my money I would think of the first quarter typically and it doesn't mean, it's always going to be as we just saw on the second quarter had very high revenue, but it would be because first quarter should have highest revenue and should also have the highest EBITDA.
EBITDA margins and then.
And I'm sure. We can help you Andrew can help you as you're building your model, but that's that's how it should flow through and and really determine what what you and EBITDA margin. It would just be a result right.
Got it yeah and that May.
And then I'm wondering if maybe you can give some color on and.
How you see I guess franchising as the businesses, how that kind of a nickel.
Nickel is longer term in terms. If there is a goal for the U S and and American freight and P. S. P. What percentage of business do you see being franchise longer term and I guess, you know their timeline that you're thinking about kind of reached that call.
Sure so that the timelines will absolutely vary by brand.
Certainly if you're starting with a very heavily franchise business you may already be there, but our target and I think we'll we'll say it consistently we we'd like.
To get involved and businesses, where 90% of the units or more can be franchise.
Clearly you know when you when you start a 100% company owned or or <unk>.
80%.
Franchise that you're going to have a different rate of getting there and also it depending on where they are and their.
Saturation of their whatever their geographic footprint will be will have an impact as well.
American freight.
Let's just you and your buddies as already about 90% franchise Liberty was well over when we.
Transacted with that 1 PSP and <unk> 60 per cent or so franchise. So those are real franchise business and American freight and vitamin shoppe being on the other and really the vitamin Shoppe had no franchise business and.
American freight American freight didnt, either outlet had a couple but it was really zero at American freight so you're talking about a 100% company owned businesses and at what rate are you going to get there.
So if you look at a and American freight business that had.
Called 300 stores when when we started and the footprint that you just in the United States can easily exceed 1000.
The ability to get it.
Really have a higher penetration rate of franchise versus non franchise, you can get there at a pretty decent clip, whereas and vitamin shoppe coming in with 700 and risk.
Started with 750 stores all corporate you got to open a lot of stores and and the footprint can't handle that many stores to get the 90% franchise just through a new store growth.
And so.
Just an illustration of why you you can certainly expect that debt free.
And <unk> activity will occur at different rates and.
And we may never get there with some businesses, but but we really have to believe that that the business.
Can be 90% franchise for us to be interested in it but we're also not going to give away that cash flow, we're not going to re franchise stores just for the sake of refranchising stores.
We look at our company stores as assets that if we're going to re franchise.
On the store, it's because we expect we're going to get.
Significant amount of growth and.
And the footprint from that franchisee opening additional stores otherwise it just.
And just doesn't make sense the math doesn't work.
Got it okay, yeah that makes sense and then I guess last 1 and you talked about you continue to evaluate M&A opportunities. It sounds like you feel good about the position you're at with your balance sheet now I guess, maybe if you could talk about or give any color on you know thoughts.
Thoughts around what you're looking for in terms of size or does it vary pretty dramatically and then you know what.
Is there any industry are a brand that.
And that you wish you had in your portfolio right now.
And <unk>.
The answer to the last question, there and there certainly is but but but I'm not going to tell you because that hurts my negotiating leverage with the sellers right. So debt, but certainly there are things that you covet and and that would make a lot of sense to and.
When you're building a diversified business like like we're building in terms of.
The sizes of what we're looking at we've looked at we've looked at a lot of businesses and.
And and we've looked at businesses ranging from literally a single concept.
1.1 unit, which is a concept.
2 very large businesses that are maybe are already heavily franchise or not so much. So we really are all over the map and it's about what makes sense. Yeah. We actually had a board meeting day and we were talking about we've looked at over 100 businesses and last year, we acquired 1 and that was PSP.
So that is our job and it will continue to look.
And everything that comes our way and we learned a lot.
About.
The businesses when we do the diligence we learned about it a lot about franchising, we learned a lot about ourselves and what we're good at and where we're not good at and where we're comfortable with where we're not comfortable with so so we will continue to do that.
In terms of industries I think debt.
The acquisitions that we're looking at can be add ons to existing brands that we have and and we've spent quite a bit of time.
Looking at those and and there's certainly some debt that were that had made it through the funnel and we're still interested and we also.
Looking at diversifying and go through a key part of what we're doing.
Now we have quite a bit of I guess perceived.
Retail brands and we we know we want to be and services and we want to be heavily and services and so I think you can expect debt.
Services are an area that that we spend quite a bit of time, and and would expect to transact and and and they're not too distant future.
That's really helpful. Thanks for all that day.
Sure.
Sure.
Thank you moving on and also have.
Brian Holland and from Aegis capital Your line is open.
Hi, guys. Thanks for taking my call.
And so most of the questions have been answered, but are you having challenges and finding labor and are you seeing sort of cost inflation within the businesses.
And yes.
And yes, so I'd say across the board.
<unk>.
On labor is an issue.
Whether it's finding people.
2 to work for you or getting people, who work for you to show up every day. It's just it's been a challenge and the management teams have I think universally and they both struggled through that low.
Labor is also an area, where we are seeing cost pressures and and and that net debt. That's real you know how long does it last day.
No, but I think that just the environment that we're in.
Which is just not a normal environment and and so many different ways just something everything on our management teams are just having to deal with it and manage through it. The demand is strong and so you don't really notice the cost pressures because of that but you know absolutely you know we're seeing.
Inflation and both labor costs with the wage rates and and also product cost as well and and passing those product costs.
Increases on has not been an issue.
Okay, and then last 1 from me after the vitamin Shoppe, what sort of revenue and margins are you expecting from the launch and the ecommerce site and South Korea is that something that you know will become profitable within the first year.
Good good question and I and I don't know the answer to it.
Small at this point I wouldn't expect it to be a major contributor day 1.
But certainly.
Looking outside of the United States for areas of.
Untapped growth for vitamin shop, and a way to expand their brand and and looking for partners overseas as well.
On a long term strategy of the vitamin Shoppe management team that they're executing them.
Yes.
Alright, that's all from me.
Great.
Thank you I'm showing no further questions I would now like to turn the call back to Mr. Brian Cantrell.
<unk> closing remarks.
Great well again, thank you all for joining us this afternoon and operator, please conclude the call.
Thank you ladies and gentlemen, this concludes today's conference call and thanks, all for joining him and all disconnect.
Yeah.
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