Q4 2021 Carrols Restaurant Group Inc Earnings Call
[music].
Good morning, welcome to the Carole <unk> restaurant group fourth 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.
<unk> on your telephone keypad I would like to remind everyone that this conference call is being recorded today Thursday February 24th 2022.
Eight a M 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.
Actually I'm going to turn it over to Greta miles Gregg.
Go ahead.
Thank you, Paul and Tony and good morning, everyone. By now you should have access to our earnings announcement released earlier. This morning in our earnings presentation that are both 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 including answers to questions posted management may include forward looking statements or comments with respect to our strategy and pensions our plan on the future direction of revenues input costs or other aspects pertaining to our business.
These statements are not guarantees of future performance and therefore undue reliance should not be placed on them.
We also refer you to our filings with the SEC for more detailed both with respect to forward looking statements as well as risks that could impact our business and 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.
The presentation of this additional information should not be.
Centered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles and a reconciliation to comparable GAAP measures is available with our earnings release.
With that I will now turn the call over to our chairman and CEO , Dan aggregate now Dan.
Thanks, Greg and good morning, everyone.
Let me begin by addressing the elevated labor and commodity costs affecting us and the entire restaurant industry, because these headwinds meaningfully impact that our adjusted EBITDA and margins during the fourth quarter of 2021 later I will discuss our top line trends and how we are using a combination of pricing menu.
And promotional activity optimization to offset a portion of the margin pressures we had been experiencing.
During the fourth quarter, we worked diligently to keep our restaurants open from at least six a M until 11 P M, but given the competition to recruit and retain workers. We also had to increase average hourly wages of our team members by approximately 14% compared to the prior year before overtime, so that we could meet.
Customer demand.
Looking ahead, although we are seeing some stabilization on hiring and wage challenges early on in 2022, we believe labor rates will continue to rise throughout the year.
Further we believe that on a year over year basis, our labor cost will increase faster than the first half of 2022, after which we expect comparisons to ease.
Supply chain constraints also greatly impacted our fourth quarter 2021 results as they did during the third quarter beef represents about a quarter of our commodity basket in beef costs increased 33% compared to last year as we lapped very low beef costs in 2020.
On a sequential basis from the third to fourth quarters in 2021 beef costs rose only 1%.
Domestic food paper producers and distributors supplying most of our commodities are dealing with labor constraints, along with higher fuel cost and are passing these increases on to us.
As a result commodity inflation overall was approximately 16% this past quarter compared to the prior year period, including the previously mentioned impact of higher beef costs.
While we cannot predict when these inflationary cost pressures ball and we can say that we believe that in the back half of 2022, the year over year percentage increases for labor and commodity costs will moderate. We also intend to continue to move pricing to partially offset inflation to the extent possible without impacting traffic.
On a cumulative basis. They should also benefit margins in the back half of the year.
As you May have recently read the Burger King brand has about a dozen menu and promotional initiatives some of which have already been implemented and some that will be implemented over the course of this year. These actions contributed incrementally to our average check increases this past quarter and are designed to limit the impact of higher.
Input costs and help improve restaurant level profitability.
Recent actions in this regard from our franchise or include lifting price caps on value menu items, and reducing the number of nuggets and meals from 10 pieces to eight.
The whopper the brand's most popular product by a wide margin.
<unk> has also been removed as a core discount item and is no longer available and the two for six or two for five promotions. We believe this to be one of the most impactful initiatives underway.
Turning to sales comparable Burger King restaurants sales rose seven 4% during the quarter or.
Our monthly results fluctuated, which we attribute to the impact of Covid variance on both consumer behavior in staffing for the entire quarter. We estimate that we lost about 1% of operating hours due to COVID-19 and staffing related challenges.
You didn't take out channels combined contributed about 14% of total sales at our Burger King restaurants, well drive through was approximately 80%.
This was on par with the third quarter as well, we also benefited from a delivery sales mix of 5%, which compared favorably to a three 5% mix in the fourth quarter last year.
The average check size for delivery rose to $17 58 compared to $17 53.
In the third quarter, while the average check overall, including delivery rose to $9 57, compared to $9 23 in the third quarter.
The Burger King average check increased 12, 1% year over year as a result of higher menu prices and reduced promotional discounting.
In terms of sales trends.
At Burger King by day part we were most encouraged by the recovery of our breakfast and evening late night day parts compared to the same quarter in 2020.
Breakfast increased nine 5% and contributed 12, 8% to our sales well evening late night improved 15% and contributed 11, 2% to our sales in the fourth quarter we.
We also outpaced the U S Burger King system and comparable restaurant sales as we have now done for 22 out of the last 24 quarters.
On a calendar comparison basis, our comparable Burger King restaurants sales for the fourth quarter exceeded the U S. Burger King system by approximately 600 basis points, which is among the largest gaps in recent history.
We believe that this was accomplished through a combination of quick execution of menu price actions and actively maintaining restaurant hours.
Turning now to January 2022, this was a challenging month for comparable sales has three major snowstorms hit most of our largest markets.
Due to staffing issues caused by the spread of the AUM of Crown variant.
Sales at our Burger King restaurants decreased one 4% in January 2022, compared to January last year, but were up four 1% compared to January 2021 of our last pre COVID-19 months.
During January of 2022, we estimate that we lost about 4% of Burger King restaurant operating hours compared to January of 2021 due to these unplanned restaurant closures that meaningful meaningfully reduce traffic to our Burger King restaurants more.
More encouragingly as of last week of January Covid related staffing closures and reduced operating hours had abated for the most part and for the first several weeks of February have been promising.
Yeah.
Burger King's Royal Perks loyalty program is now available to our dining room and drive thru guests as well as through the BK mobile App mobile orders represent a small but growing part of our sales mix and we believe the brand has a significant opportunity to increase one on one engagement through the digital channel, while reducing the use of paper coupons.
There is no question that our current cost challenges are among the toughest if not the toughest I have seen in all my decades as a restaurant operator, we are combating these headwinds as best we can through aggressive pricing menu changes and lower promotional discounts. We believe that these efforts will serve to alleviate margin pressure.
We further believe will be most evident in the back half of the year as cost comparisons ease on a relative basis and with that let me turn the call over to Tony to review our quarterly financials.
Thank you Dan.
Total restaurant sales for the fourth quarter of 13 week period were $416 $1 million compared to the 14 week period of $425 million in the prior year.
2020 sales number included $28 $4 million from the additional operating week.
<unk> out the extra week in 2020 restaurant revenue increased six 1%.
Our Burger King comparable restaurant sales increased seven 4% during the quarter average check growth came in at 12, 1%, which reflects menu price increases taken during the year and lower promotional activity, partially offset by a traffic decline of four 2%.
Average weekly sales for Burger King restaurants were $29812, representing an improvement of six 6% from 2020 levels, while exceeding 2019 levels by five 6% during.
During 2021, we acquired 19 restaurants opened four new restaurants and closed six restaurants.
Let's now discuss our Burger King quarterly performance by region as we operated 1026 restaurants at the at year end across 23 states.
In the northeast representing 21% of our Burger King restaurants comparable sales were up 10, 3% in the Midwest, representing 29% of our Burger King restaurants comparable sales were up eight 4%.
In the South central represented 24% of our Burger King restaurants comparable sales were up eight 3% and finally in our southeast region, representing 26% of our Burger King restaurants comparable sales were up two 5%.
Turning to our popeye's restaurants, which represented four 8% of total revenues in the fourth quarter comparable restaurant sales increased 1% versus a decrease of 12, 9% during the same period in the previous year.
Staffing challenges during evening hours are particularly impactful on our top line sales. Nevertheless, we outperformed the popeye's U S system by 300 basis points in the fourth quarter of 2021.
As a result of the inflation challenges experienced in the fourth quarter adjusted EBITDA decreased $17 9 million to $13 $9 million, while adjusted EBITDA margin decreased 430 basis points to three 3% of restaurant sales cost.
Cost of food beverage and packaging as a percentage of net sales increased 138 basis points, primarily because of higher beef pork and other commodity costs and in contrast to the extremely favorable commodity conditions in the fourth quarter of 2020.
In particular beef costs during the most recent quarter were $2.71 per pound compared to $2 <unk> in the year ago period.
They were also they were also only slightly higher than the cost per pound in the third quarter, which was $2 68.
Sequentially cost of food beverage and packaging as a percentage of net sales improved 30 basis points between the third and fourth quarters of 2021 Rep.
Restaurant Labor expense rose 170 basis points as a percentage of restaurant sales in the fourth quarter of 2021 compared to the same quarter a year ago compared to the third quarter labor expenses as a percentage of net sales only rose 50 basis points.
Excluding the impact of the extra week of labor in 2021.
Uh huh.
Labor costs increased excuse me, excluding the impact of the extra week of labor in 2020 labor costs increased $15 3 million.
Or excuse me 2021 labor cost increased $15 3 million to $141 4 million in the fourth quarter of 2021.
This increase was primarily due to the higher hourly wages, which inclusive of overtime increased $8 3 million or about half. The total increase this past quarter compared to the same number of weeks last year. The remainder of the increase was due to the necessity of paying team members' premiums to take on additional responsibilities such as opening and closing our restaurants and higher management labor.
Students salary increases for our assistant managers to improve retention rep.
Restaurant rent expense in the fourth quarter increased 50 basis points as a percentage of sales compared to the prior year period, primarily due to the benefit from the extra week in 2020.
Other restaurant operating expenses increased 45 basis points due to a number of factors, including higher recruiting spend and other employee related incentives as well as utility rate increases. We also now have smart safes in the majority of our Burger King locations that provide for labor efficiencies faster cash collection and greater security, but this initiative added.
<unk> operating expenses.
General and administrative expenses fell to $22 $4 million in the fourth quarter of 2021 from $24 2 million last year and declined 40 basis points to five 4% of restaurant sales.
The decrease in dollar terms was due to lower incentive compensation accruals. This year and was partially offset by higher regional administrative costs.
Our net loss was $16 $4 million in the fourth quarter of 2021, or <unk> 33 per diluted share on an adjusted basis, excluding certain non operating items fourth quarter adjusted net loss of $7 $5 million of 15 cents per diluted share.
In the prior year period, adjusted net loss was $5000 or zero cents per diluted share.
Free cash flow for the fourth quarter of 2021 was $8 8 million compared to $9 4 million in the prior year period for the full year, we generated $22 $9 million of free cash flow.
We ended the fourth quarter with cash cash equivalents of $29 million and long.
Term debt, including the current portion of debt and finance lease liabilities of $449 million.
There were no borrowings drawn under our $215 million revolving credit facility and we had $9 million of letters of credit issued under such a facility at the end of the year. This left $206 million of unused availability under our credit facilities and when added to our cash balance provided us with $235 million of liquidity at that time.
As of February 23, 2022, we had $25 million drawn on our credit facility, which we expect to repay as we get into a stronger seasonal period.
As a reminder, our ability to utilize our revolver capacity requires compliance with one senior secured leverage ratio and is only in effect when more than 35% of the available capacity is being used we are currently below that threshold and have no maintenance covenant requirement.
When in effect, we need to stay under 575 times senior secured net debt to covenant EBITDA.
Our senior secured leverage ratio was 167 times at the end of the fourth.
The fourth quarter. So we have headroom to use our current available revolver capacity.
Our total net debt compared to a covenant EBITDA as defined in our senior credit facility stood at five two times at the end of the fourth quarter, we did not repurchase any shares of our common stock during the fourth quarter as we were above the leverage guidelines set by our board once again from an M&A perspective, we do not have any multi restaurant transactions in the pipeline. We currently intend to use cash flow.
Generated this year primarily to repay debt.
Net capital expenditures for 2021 were $48 million, which included seven completed Remodels and four new restaurants. This.
This total also includes $10 million that was used to commence work on a number of remodels and new restaurants that are scheduled to be completed in 2022 or.
Our net capital expenditures have been under $50 million per year over the last two years for 2022, we expect our net capital expenditures expenditures to come in at a similar level, which is reflective of the construction supply chain delays, we have been experiencing.
To conclude while the ongoing cost headwinds affecting our business model are clearly evident and pronounced we have made and are continuing to make adjustments to our pricing menu and promotional strategies that would enable us to gain a portion of the margin erosion, we experienced in 2021.
This should be particularly true in the back half of 2022 from a combination of continuing average check gains along with potentially using cost pressures on a year over year basis.
And with that Paul Let's go let's go ahead and open the lines for questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Okay.
Yeah.
Thank you our first question from Jake Bartlett with true Securities. Please proceed with your question.
Great. Thanks for taking the question.
My first is on is on menu pricing.
And related to that.
Comfort in taking pricing.
Concerns about the lower income consumer.
Potentially being squeezed by by inflationary pressures.
So one question is you have what was what was menu pricing I'm, sorry, if I missed it.
If you've mentioned, but what was the menu total menu pricing in the fourth quarter and how should we think about menu pricing progressing throughout 2022.
And second you as part of that are you seeing any signs it sounds like mix is still very positive but are you seeing any signs of let's say down to the menu or maybe even increase value mix anything that would.
Address some of the concerns around around the lower income consumer.
And I can I can take that if you want me to.
Yes.
The 8%.
8% was the menu the menu price increase in the fourth quarter.
The remainder was lower promotions and discounts.
We improved our promotions and discounts by about 4%.
You know our.
We're looking at price increases for this year and we think that we're in.
You know given what the competitors are doing we are in a mode, which is probably something we couldnt have said for sure in 2019 or 2019, but we're in a mode. In the industry is in a mode, where we think we can take price without affecting traffic that dramatically and we expect to continue to do that during the year as we lap some of the price increases we put.
Put in place last year, so and we're not seeing.
We're not seeing any.
Traffic indicators that would.
Say that where we're going too fast on price increases.
Menu price increases.
Okay. Okay.
The 8% that you saw in the fourth quarter.
Considering what Youre lapping do you expect it to go up I think.
Thank to come in in the in the press releases that maybe pricing would help more in the back half of the year. So I think the implication would be higher than we're seeing now but is that the just so we understand how to.
And that progresses throughout the year.
Yes, we expect to take pricing in 2022, so that will.
On accumulative basis that will get the average check.
You know above the nine.
Whatever it is 940 it'll continue to grow.
Next year, so when we get on accumulative basis, when we get to the back half of 2022.
We should see continued steady growth of the average check.
Okay and then the other question I had was on on some of the other offsets to the to the inflationary pressures that Youre seeing and you mentioned operating efficiencies.
And my impression is that the girls is a very very tight ship, probably I mean, I think better than most and in our system. So can you talk about the opportunity there.
You have to to support margins through.
Through.
Better operations, maybe what some of those those more efficient operations with some of those are and maybe if there's any way you can kind of quantify what kind of benefit you think that theres to be had on that front.
Yes, I think I think the point on the operating efficiencies is that.
In the first half of this year, we'll see the same kind of.
To see the same kind of increases.
For labor year over year, and and for commodities year over year that we saw in the third and fourth quarter of last year.
And then in the back half when we start to lap those higher levels.
We think the the.
Increases of those two categories will be less at the same time, we're seeing.
We're seeing.
Tom's going up because of average check going up so that's I think that's where the.
That's where we think we'll get some leveraging on cost cost of sales and labor costs in the back half of the year I think.
In terms of efficiencies, we would agree that we run the business pretty effectively.
Some of those efficiencies are really coming through the price increases that that.
Our franchise or.
It's allowing us to do on like the value menu went from $1 to $1 29.
Last week I think on the 10th of February or so.
The two for five to six became to provide but the whopper came out.
So that that's.
That's very valuable to us to have the whopper come out of the combo meal or none of the commentary about the value menu.
So those types of things that are franchise or is doing is really helping us offset some of those.
The higher costs, we're seeing higher input costs per se.
Got it and just just to be clear you Didnt mentioned anything youre going to be doing differently operationally and I'm thinking maybe a bit.
Much slimmed, our late night menu by might impact but are there.
Are there any changes to operations that you are proactively doing or is there really no opportunity there because you're already but it's such a great ship.
No. We're not this is Dan we're not doing anything differently from an efficiency standpoint in that respect.
Youre right I think we're pretty efficient we have we've looked at hours of operation and which hours to make the most sense to stay open and which restaurants and we've adjusted for that but.
As Tony said.
The efficiencies are going to come from various promotional activities from Burger.
Burger King.
As well as.
Opportunities that we have to take price.
Okay, Great and then last question is on G&A.
G&A increased pretty sharply in the fourth quarter from the third and is the highest of the year.
Is that the fourth quarter G&A the right run rate as we think about 2022 or was there anything abnormal.
In the fourth quarter G&A that wouldn't be recurring going forward.
Yeah.
You have to adjust out some of the I mean, the biggest thing in the G&A last year was we had lower.
Merritt on lower bonus compensation.
So.
That actually got us too.
Pretty low number as a percentage of sales. So I think I think the kind of level I don't think the level of G&A.
Excluding the bonus is really going to change between this year and next year.
'twenty one versus 'twenty two.
The big difference in G&A in 'twenty, two is gonna be restoration of the.
Bonus, which is about a $5 million headwind on G&A.
So to be clear that there was the bonus did not get paid so so all else equal at the very least we should see G&A up $5 million in 'twenty, two because that what you're saying.
Uh-huh.
Okay. Thank you very much I appreciate it.
Yeah.
Thank you. Our next question is from Jeremy Hamblin with Craig Hallum Capital. Please proceed with your question.
Thanks.
Firstly, just wanted to ask about beef prices are as you noted 25% of Cogs.
So I think Tony the math is it like about $2 $72.71 a pound in Q4.
And I just wanted to get a sense of where the current run rate was.
It's at about that level hasn't really moved.
Okay and in terms of thinking about.
Restaurant level margins for the year.
Karin.
Quite a bit of menu pricing.
Which seems to be helping.
Some degree, but obviously.
Pretty pretty hard to cover the labor numbers, the hourly wages that you're talking about but in terms of thinking about.
For the year.
Where menu pricing needs to be.
For restaurant level margins to be up.
We're 95% for the year end 'twenty, one or your expectations given the current conditions in the expectations at least for the first half of the year.
Do you think that restaurant level margins can be up.
You know in 'twenty, two and if so what's the menu pricing that you would need for that to happen.
Well, we haven't we have a budgeted number for that.
Price increases, but obviously, we're going to be.
Testing in.
Looking pretty hard to make sure that you can put it to effect doesn't.
It doesn't hurt traffic and we're also going to take advantage of the things that.
The franchise is doing for our menu pricing. So that's good that's going to have an interplay.
As the year progresses, but.
No.
I guess on a big picture level.
The the first half our expectations. The first half restaurant level margins are going to look a lot like the.
Third and fourth quarter of last year.
And then when you have that cumulative effect of the of the average check going up by the end of the year plus moderating.
Input cost increases that's when we would expect to see restaurant level margins start to improve.
Okay got it that's helpful.
And then just thinking about the geographic performance.
Notable call out on the southeast as a laggard is that more of you think a reflection of kind of COVID-19 impacts or more reflection.
In Q4 of.
Weather impacts are.
The three regions I think averaged close to 9% or maybe even a little over northeast Midwest, South Central and your South East was.
Quite a bit behind that but any color you might be able to share on that.
Sure.
Our sense is that the weakness in that region.
Or the softness in that region is.
It's across the board for the Burger King system, it's not just our restaurants in that region.
And.
There's been a lot of building of.
Introduction of <unk>.
New competition.
And that in that region, and we think thats been the biggest you know that was the biggest drag in the Q you know that was sort of the adjustment. We saw in Q4. After we get through that we think we should see improvement.
And those comps as we start to lap that digestion of.
The new competitors in that market.
Okay.
Okay got it and then last one for me in terms of.
There's just so much going on here as Dan mentioned in his decades, maybe the most challenging headwinds in terms of inflationary pressures.
When you look at what.
Parent is doing to help manage that.
It is the focus more on <unk>.
Justin.
The items on the value.
Menu.
And pricing thoughts as opposed to.
Kind of new product pipeline is that something where we should be thinking for the BK brand that you know this.
This is going to be less about.
New products this year as opposed to you know kind of kind.
Kind of re imagining the menu to fit the current operating environment.
This is Dan Jeremy you're going to see both there are some new products in the pipeline.
I think that the major change promotional is gonna be a focus on the core menu.
The whopper and variations of the Whopper and and Burger focus as opposed to.
2021, which was the primary focus was to Kim So there will be some modifications in the chicken lineup, but the primary focus is going to be around burgers and yes. There is going to be variability in the menu as well as at breakfast are there some new product introductions, there as well in conjunction with as Tony said.
The modifications to our some.
Some of the pricing on the <unk>.
<unk> menu gaps in that sort of thing. So I think it's gonna be a balance of the two.
Yes.
Got it.
So my best wishes guys.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question Kipp.
Yeah.
Our next question comes from William Reuter with Bank of America. Please proceed with your question.
Good morning.
My first is you mentioned that price for the <unk>.
Fourth quarter was up 8%.
And it sounds like margins in the first half of next year are expected to be relatively in line with the back half of this year is there any pricing actions that were taken during the first quarter that might lead to modest sequential improvements.
Yeah.
No but.
We are looking at a price increase.
For next months of this year.
But in the fourth quarter I think all the price increases were sort of that we took in 2021, where before the fourth quarter. So you saw the impact of those in the fourth quarter.
Got it.
The pricing that was referenced in terms of 8% that pricing is anticipated to be the pricing through 2022.
The pricing that Tony is talking about is what we are attempting to do or what the company is attempting to do is to simply have price increases at the same time and same level as what we experienced in 2021, which will keep the price increase roughly at the same the same level, it's not incremental too.
The 8% that we had last year.
Okay. So to make sure I understand I think it sounds like you're saying you've taken this pricing as you're not really anticipating additional price increases on top of that at this point that kind of the takeaway there.
What you're going to lap the price increases that occurred the prior year. Therefore, you will have an increase in the average check.
Yes.
Okay, alright, there won't be sequential and we won't be sequential it will be year over year changes because.
Pushed through the price increases in the back half of 'twenty one basically.
Okay, and then there was commentary about rising wages.
And there was also some commentary about hey, a lot remains to be seen but some of the data that we have about restaurant staffing kind of implies that we're actually seeing sequential improvement and I was a little surprised to hear that we would still see sequential increases in wages through the year, even though we will have the year over year increase.
He says.
I guess, what you're seeing there.
Our our wages are up about 1% over where they were in the fourth quarter.
And I would expect that you'll see some increases just due to normal merit increases and that sort of thing.
But it's the year over year impact.
Certainly will diminish as the year goes up because we had more significant increases in 2021 towards the second half of the year.
Okay, but sequential but sequentially, yes, it slowed down dramatically from where we work.
Yeah Yeah.
Okay and then.
There are obviously many portions of 2000.
2021 that were challenged due to operational restrictions and lack of labor availability, excluding kind of the storms that we saw in January thinking about this year is there any way to think about what the tailwind of just incremental operational hours will be on comps.
I mean.
I don't think in the first and second quarter when the first quarter we had.
In February of the first the first quarter of last year.
We had severe very severe weather. So I think the February comps are looking.
We're seeing in our current the first couple weeks of February were.
We're seeing pretty dramatic increases in our comp sales, but a lot of that is that we got whacked, so hard a year ago in February .
The one thing that the one indicator I'm looking at.
That I think is pretty interesting is last year, we were comping.
[laughter] about especially in the fourth quarter, we were comping.
About 15% traffic decline versus two years prior the pre COVID-19 period.
And that has improved to be down 10%. So that sort of takes the weather out of the equation. If you look two years before because there wasn't a weather event.
We all like Covid did not have a weather event in February of 2020.
So I think the fact that we're seeing.
This two year.
Increased improvement in traffic from down 15 to downturn.
<unk> is very encouraging so I think.
We think thats.
That's a strong.
Indicator for for the balance of the year, even though it's just one month.
It's really noisy just to compare the two years and then January as you know looked a lot worse, obviously January of 2020 because of.
If you'd look to those three snow storms I Didnt January they line up perfectly with our with our store footprint. So.
I think feeling.
Feeling pretty good though about what we're seeing in February about the traffic improvement versus two years ago.
Okay, and then just one last one when you speak about new competition in the South East is this just additional store openings from traditional competitors or are you seeing new concepts. Okay, it's kind of more traditional competition.
A lot of right.
Cool alright, thanks, that's all from me.
Thank you. Our next question comes from Jake Bartlett with true Securities. Please proceed with your question.
Great. Thanks for taking the question was about abnormal costs in labor you mentioned.
Member retention bonuses hiring bonuses.
Recruiting cost.
Overtime.
How much of the costs, you're seeing in labor or kind of.
Normal that might wane as the year goes on is that you saw in the fourth quarter, maybe some in the first.
I think it's going to be pretty similar in the first quarter.
We haven't I'm, not because most of that incremental pay.
Is due to.
Having team members open and closed stores, because theres not an assistant manager available that sort of thing.
And we haven't seen that.
Yeah, I'd say in terms of hiring trends it hasn't gotten worse than it was in the fourth quarter, but it hasnt materially improved either so I think until you see.
The manager assistant manager ranks sort of those vacancies fill in.
And we don't have to use the team members to do that those activities I think youll see some.
We see some improvement.
But.
We haven't seen it yet so we're not we're not sort of forecasting that.
We're forecasting a pretty tight labor market for the year.
Got it and then in terms of the tight labor market.
Do you I mean, maybe if you can help us help us understand kind of where you are now with staffing and where you'd like to be maybe what what percentage down you are from optimal staffing levels and do you think that staffing.
Is gonna be a headwind.
The sales recovery is that is it still kind of a gating factor towards.
A more material improvement in traffic.
Our our staffing is better than it was throughout any of 2021 Jake.
And again, it's there are pockets of weather more problematic than others, but we're down to two or three employees per restaurant, which is not a big deal.
And in terms of the.
Staffing negatively affecting our sales as you can see we increased our sales were pretty pretty formidable in Q4, and we continue to outperform the Burger King system as well as other competitors in terms of our.
Continual sales increase year over year, and I would expect that to continue so we make pretty certain that our stores are adequately staffed and our hours of operation R. R.
Similar to what.
What they ought to be in order to make sure that we continue with those sales dynamics.
Great and then my last question is on.
Promotions and new product new product innovation and the first is on the I believe you're testing or you were testing.
Posted breakfast sandwich.
And a number of stores or markets, maybe if any any update there on is that a material a potential new product launch.
As we think about asset sales driver.
And then the second question is recently the system launch the two for five.
With the Big King.
The Walker from the two for six.
What was the net impact of that is that neutral.
Neutral to sales and margins that official how should we think about.
That promotion might be contributing to the to the February results.
It's a positive the quarterfinal king increased by about 20 units per store in the locker decreased by about 20 units per store.
But the whoppers that decreased by 20 units per store all the wipers that we sell now or at full price.
So it was a positive.
In terms of breakfast, yes, we're testing a lot of different things for breakfast, Jake and in terms of the <unk>.
Testing that you referenced.
It's still in a test phase and RBI has yet to decide whether or not it's going to be a wide scale.
Rollout and if so when.
Yeah, but there will be a.
Breakfast focused and there are other new products that.
Alright anticipated to be launched mid year.
Great. Okay. Thank you very much I appreciate it.
Can I just I do want to add one point to what Ken said, it's less about innovation at more.
Just sort of the environment is that.
We talked about how strong the breakfast.
Day part was in the fourth quarter.
In.
In February post omicron.
Or whatever is causing this we're seeing we're seeing this continued.
Strength in breakfast, so whether thats people starting to go to the office again, because we're sort of in a more relaxed environment or.
Or just people are out and about more in general.
That is one day part that continues to even without the product innovations that we have in the pipeline continues to get better and better.
Got it and then maybe last question and this is for Dan you've been around the.
Obviously the system for a long time, and the brand and through good times and bad, but you know I think a key investor question now is that lower income consumer and you're taking 8% price, reducing the really the value proposition and in terms of the value items by increasing the <unk>.
Is there I mean, reducing number of items.
How comfortable are you that that the Burger King consumer specifically is not going to push back on that but you might reach a point where that both of those two things together are kind of really negatively impact traffic how confident are you that.
This system might not be overstepping their with lower income consumer.
Well I can't speak to the system I can speak to carols and.
We're mindful of that Jake and all of the pricing that we take.
<unk> is based upon competitive surveys that we do with our two major competitors, Mcdonald's and Wendy's and our pricing relationship.
Uh huh.
It has been pretty consistent relative to pricing that they take in each of the geography. So we have various pricing levels by region.
And by DMA, and we make certain that we maintain our pricing on a relative basis to what they're doing as well.
So to the extent that the entire industry for.
Perhaps is.
Stretching the consumer that's something that the industry will have to evaluate but I think as it relates to carols, we're very mindful of our lower income consumer and Oh, we're making certain that our pricing is done in a very systematic manner.
Great I appreciate it. Thank you and again is this is this your last last earnings call I was just trying to make sure if there's any way as well.
Hum.
I wanted to just wish you the best and congratulate you on a great long career and and hopefully you'll have a lot of fun in the Sun.
Thanks Jake.
Thank you there are no further questions at this time I would like to turn the floor back over to Dan <unk> for any closing remarks.
Thanks, operator, and a J.
Jake said before signing off I wanted to take this opportunity to say goodbye and.
Thank you to all of our investors and analysts who cover the company as.
As well as our great <unk> team and our dedicated employees that are over 1100 restaurants, who serve hundreds of thousands of guests everyday I have greatly enjoyed my career at carol's.
And.
Now as we welcome our new incoming CEO Paulo Pena.
Both Paul and Carol the very best in the future.
And with that thank you and have a good rest of your day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
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