Q1 2022 El Pollo Loco Holdings Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by and welcome to the alcohol. Your local first quarter 2022 earnings conference call. At this time, all participants have been placed in a listen only mode and lines will be open for your questions. Following the presentation.
Please note that this conference is being recorded today may four 2022.
And now I'd like to turn the conference over to Naveen Roberts, Chief Executive Officer Interim Chief Financial Officer. Please proceed.
Thank you operator and good afternoon.
By now everyone should have access to our first quarter 2022 earnings release.
If not it can be found at www <unk> <unk>.
They'll go dot com in the Investor Relations section.
Before we begin our formal remarks.
I need to remind everyone that our discussions today will include forward looking statements, including statements related to the impact of the COVID-19 pandemic on our business and strategic actions. We are taking in response as.
As well as our marketing initiatives cash flow expectations capital expenditure plans and plans for new store openings among others.
These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them.
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect.
We refer you to our recent SEC filings, including our Form 10-K for a more detailed discussion of the risks that could impact our future operating results and financial condition.
We expect to file our 10-Q for the first quarter of 2022 Tomorrow.
And we encourage you to review that document at your earliest convenience.
During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
And reconciliations to comparable GAAP measures are available in our earnings release.
With that I'd like to touch on our first quarter results and the progress, we're making on our strategic initiatives.
While the Covid resurgence heavily impacted our restaurant performance in January and early February .
Pleased to say that the omicron impact largely dissipated and became negligible.
Half of the quarter.
And wide comparable restaurant sales increased seven 8% in the first quarter, including a two 3% increase at company owned restaurants, and 11, 5% increase at franchise locations.
From an earnings standpoint, COVID-19 related costs negatively impacted store level income during our first quarter results by approximately $2 $3 million, while commodity and labor inflation also continued to persist, which I will speak to in a moment.
However, despite the challenges our teams managed to the external headwinds well and we earn pro forma diluted earnings per share of seven.
More importantly, the launch of our shredded beef period limited time offer on March 17th significantly accelerate our top line momentum, which has continued into the second quarter with system wide comparable restaurant sales growth of 12, 4% through April 27th.
This is our first promotion utilizing several new marketing strategies. So we are very excited by the positive results, we are seeing and our prospects for the balance of the year.
To further strengthen our business and accelerate growth in 2022 and beyond we've been working on executing the four pillars of our strategic priorities during the quarter, which our culture.
Brand differentiation and awareness customer service and accelerate development.
Today's call I'd like to update you on two of the pillars.
The first pillar I would like to discuss is brand differentiation and awareness.
But clearly distinguishes el Pollo loco from other restaurant concepts as our food.
This was clearly demonstrated by the shredded beef peri launch.
A couple of years ago, our team identified a popular California, food trend and which shredded meet housing tacos and burritos was dipped into Mexican consummate an eaton similar to beef O U.
As we said in the past our food combines our Mexican routes with the culinary culture of Los Angeles, and our beef Berry offering and biases characteristic perfectly.
Our take on the project consists of marinated shredded beef served and tacos case ideas and burritos and comes with a unique Mexican consummate dipping sauce.
All served in a unique box with chips and salsa.
The timing of the offer could not have been better for us as it coincides with the completion of new marketing strategies that have combined to make <unk> one of if not the most successful new product launches we've ever implemented.
Our marketing campaign refocus on what differentiates El Pollo Loco, which is our freshly prepared food and significantly increase our emphasis on social media.
Not only did we increase our marketing spend on social media, we created new and unique content across a major social media platforms, enabling us to send targeted messages to various user groups, particularly to our younger consumers.
As an example, we create a dip and drip tictoc campaign to promote our beef dairy offerings using multiple influencers.
That campaign has resulted in over 21 million social media impressions and thousands of pieces of organic user generated content created by customers online.
We recently crossed 125000 followers on tick Tock and El Pollo Loco hash tag now has more than 120 million views on our platform.
The shredded beef period product and our messaging clearly resonated with our customers as we experienced a strong acceleration in our <unk> sales, even before our television marketing went live.
<unk> product mix reached 12, 5%, which helped drive new company franchise and system sales records three weeks in a row during March and April .
To build upon this excitement we promoted the barrier burrito, a national Burrito day, which resulted in a record sales day for the system.
Sales mix for beef barrier remained above 10% for six straight weeks and as a result of this success we are.
Testing the use of the shredded beef product for future <unk> to further diversify offerings, while still staying true to our L. A mex positioning.
Next up on the marketing calendar, <unk>, which was our strongest limited time offer promotion last year.
<unk> are a customer favorite and we believe they will be successful once again, especially when combined with our new marketing tactics.
Looking to the longer term, we are furthering our research and customer segmentation efforts.
We believe that Covid has changed the way consumers access our brand and we have active research underway and overall customer segmentation value in our family meal group occasion.
In addition, we continue to invest in our loyalty delivery and digital marketing platforms to improve the user experience and to more finely segment consumer data in order to increase the effectiveness of our promotions.
These platforms continue to grow with e-commerce, now contributing over 12% of our sales mix and delivery of approximately 8%.
Needless to say, we are very excited by our marketing initiatives and believe that they will continue generating strong sales results.
That brings us to our next pillar customer service.
Because of employment issues has been a challenge across certain segments of our company operated restaurants.
While things have improved slightly hiring and retaining employees has been challenging in a number of areas, especially Las Vegas, and east of Los Angeles, where there is heavy competition from casinos and warehouse facilities.
In addition to our culture initiatives launched last year, we are taking additional actions to recruit train and retain team members.
These include adding both external and internal recruiting resources.
Further wage adjustments retention bonuses.
<unk> training programs and other incentives.
While these may result in incremental cost to our business. We are confident that they will be more than offset by increased sales from improved customer service.
While we have many company operated restaurants executing at a high level, we are very focused on improving our operations.
To improve execution, we have rolled out a new operation scorecard and tools to enable our ARY leaders and general managers to better manage their restaurants and remedy issues as they arise.
We've also may drive thru execution, the number one priority for all our company operated restaurants.
With approximately 55% of our sales coming via the drive through we believe better execution has the potential to significantly improve sales at company operated restaurants.
Longer term, we continue to work on initiatives to simplify our operations, including additional product reductions revamp back of house processes, new equipment and a revised menu board.
As the gap between franchise and company sales performance demonstrates.
Many company operated restaurants have a significant sales opportunity by improving their operations, especially at the drive thru.
As evidenced by our system sales.
El Pollo Loco is resonating with consumers.
Confident that our company operations will significantly improve which will just further strengthen our brand.
In summary, we.
We believe the strategic initiatives, we put in place are gaining traction and positioning El Pollo Loco brand to capture the opportunities ahead.
Most importantly, I'd like to thank all of our team members and franchise partners for their passion commitment and dedication in making this brand and this family truly special.
With that let me briefly review, our first quarter financial results in greater detail.
For the first quarter ended March 32022, total revenue increased two 2% to $110 1 million compared to $107 $7 million in the first quarter of 2022.
Company operated restaurant revenue decreased slightly to $94 million from $94 $2 million in the same period last year.
The decrease in company operated restaurant sales was primarily due to a $2 $6 million decrease due to the sale of eight company owned restaurant to a franchisee during 2021.
And zero point $5 million from restaurants closed during the past year.
The decrease was partially offset by a two 3% increase in company operated comparable restaurant sales and $1 1 million and non comparable restaurant sales, which included restaurants temporarily closed due to the pandemic during last year's first quarter.
The increase in company operated comparable restaurant sales was comprised of a 6% increase in average check and a three 5% decrease in transactions.
During the quarter, our effective price increase versus 2021 was eight 2%.
As I mentioned earlier.
<unk> continued into the second quarter and through April 27th second quarter Systemwide comparable restaurant sales increased 12, 4% consisting of a six 5% increase at company owned restaurants, and a 16, 4% increase at franchise restaurants.
Franchise revenue was $9 $3 million during the first quarter compared to $7 6 million in the prior year period.
This increase was driven by a franchise comparable restaurant sales increase of 11, 5% as well as the opening of four new franchise restaurants during or subsequent to the first quarter of 2021 and revenue generated from eight company owned restaurants sold to an existing franchisee during 2021.
This was partially offset by the closure of two franchise restaurants during the same period.
Turning to expenses.
Food and paper costs as a percentage of company restaurant sales increased 360 basis points year over year to 29, 5% due to increased commodity costs and investments in new packaging.
Marcia offset by higher menu prices.
Commodity inflation during the first quarter was approximately 18%.
We have yet to see any easing in commodity inflation and currently expect it to be approximately 21% in the second quarter and 18% for the full year.
Labor and related expenses as a percentage of company restaurant sales increased 210 basis points year over year to 34, 8% due to higher wage inflation overtime costs and other labor related costs.
Based on the continued labor pressure that we're experiencing we're expecting wage inflation of 7% to 8% for the full year.
As I noted during the first quarter, we incurred approximately $2 $3 million of Covid related expenses, including leave of absence and overtime pay.
Occupancy and other operating expenses as a percentage of company restaurant sales increased 10 basis points to 25, 4% due to higher and marketplace delivery fees and utility costs, partially offset by lower operating supply costs.
Our restaurant contribution margin for the quarter was 10, 3%.
Margins were especially challenging January but recovered during the quarter to 14, 3% in March.
As I noted previously effective pricing during the first quarter was eight 2% versus 2021.
Due to continued commodity inflation pricing in the second quarter will be approximately 9% and roughly the same for the full year.
Our planned pricing may be adjusted based on economic conditions and consumer sentiment.
In addition to our pricing actions. We're currently testing cost reduction initiatives to further mitigate the impact of labor and commodity inflation on our margins.
General and administrative expenses decreased to $10 million from $10 $5 million and a year ago period, primarily due to a decrease in management bonus expense.
As a percent of total revenue G&A decreased approximately 70 basis points to 9%.
We recorded a provision for income taxes of zero point $9 million in the first quarter of 2022 for an effective tax rate of 30%.
This compares to a provision for income taxes of $1 $6 million.
<unk> tax rate of 28, 7% in the prior year first quarter.
We reported GAAP net income of $2 1 million or <unk> <unk> per diluted share in the first quarter compared to GAAP net income of $4 million or <unk> 11 per diluted share in the prior year period.
Pro forma net income for the quarter was $2 6 million or seven cents per diluted share compared to pro forma net income of $4 7 million or <unk> 13 cents per diluted share in the first quarter of last year.
For a reconciliation of pro forma net income and earnings per share to the comparable GAAP measures. Please refer to our earnings release.
Regarding development during the first quarter one company restaurant was opened in Las Vegas, and two franchise restaurants were opened in California.
Turning to liquidity as of March 32022, we had $40 million of debt outstanding and $25 $5 million in cash and cash equivalents.
Lastly, due to the uncertainty surrounding the COVID-19 pandemic and current economic conditions, we won't be we won't be providing a full financial outlook for the year ending December 28 2022.
However, we are providing the following limited guidance for fiscal 2022.
The opening of three to six company owned restaurants, and six to 10 franchise restaurants.
Three modeling a 10% to 15 company operated restaurants, and 20% to 30 franchise restaurants.
Capital spend of 20% to $25 million and a pro forma income tax rate of 26, 5%.
This concludes our prepared remarks I'd like to thank you again for joining us on the call today I'm now happy to answer any questions you may have.
Thank you.
We'll now conduct a question and answer session. If you will.
Like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is any question queue you.
You May press Star two if you would like to remove your question from the queue.
Put participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment, while we poll farmers.
Our first question comes from Jake Bartlett with Chewy Securities. Please proceed.
Great. Thanks for taking my question and congrats Larry on the recent improvement it's great to see.
<unk>.
My first question My first question is.
You mentioned excitement and how much the beef beef promotion has helped.
Turning to all the increased improvement to that or.
What degree did increase staffing your ability to staff the restaurants.
Operator.
Ours will contribute to that increase do you think.
Yes, I think that may have helped a little bit Jake.
Do think though we really saw a big inflection point.
With launch of area, Yes, we've been seeing steady I'll call comp sales improvement through late February .
Early March a pretty consistent basis, but then the launch of the <unk> product with the the marketing initiatives really you saw again, an inflection point, where it really accelerated.
Point, where we're seeing obviously a high comp sales.
And as I highlighted Rex.
Record sales across the company the franchisees in our system for three straight weeks. So that product launch again, we are seeing improvements with that product launch really accelerate that improvement.
Great great.
That's good to hear.
The next question is on the differential between average or the same store sales between the company and the franchise and it sounded in your comments like you attribute a lot of that differential to the operations and franchisees just running running better operations.
The question is is that is that true I mean is that how are you.
Looking at it now that really is the operations as the opportunity to close that gap.
I think historically over the last year or two you've talked about the company stores being more impacted by labor shortages, just given where you were where you are.
If you have the stores. So I'm wondering if you can differentiate or just disaggregate the impact of.
The pace of operations quality of operations versus just being in stores that are or hindered by staffing more.
Sure Yes.
So let me first start by saying.
A huge shout out to our franchisees and our franchise system.
We have done.
Really phenomenal job of operating throughout Covid.
Throughout the current economic challenges I mean, when you look at the ops metrics.
The kiosks metrics they continue to operate in throughout the operated at really high levels of execution.
So real shafter with franchisees and we have a number of company restaurants.
Operating at really high levels, but.
But when I step back and look at the business.
And you see the sales gap between company and franchise.
In general it's entirely driven by transactions.
So for example, I think the first quarter as I highlighted we were down three 5% transactions franchisees were plus five.
And the franchisees has been consistently around 5% transaction growth, while we have.
Generally been negative so that.
Immediately points to the execution in a number of our restaurants.
That is creating that gap now I will say.
Number of our company restaurants.
Especially as a highlight in the call in Vegas.
And I'll call to east of La inland Empire, the desert area.
They are the most staffing challenge.
And we have a little bit more exposure in those markets and franchisees, but yes, so that's where we're really focused on.
But.
Again.
I just look at the way the franchisees reacted and remember our franchisees tend to be small to mid sized.
And so when I look at and when I talk to the franchisees I think the thing that stands out to me is.
They are enabling they react very very quickly to what's going on in the in the economic.
Environment, so they need to make changes quickly they make it in days.
And quite frankly, while we think in the company we're moving fast.
We're still taking too much time.
In this environment, we have to move faster, we can't be taking three weeks to a month to make a decision we need to be moving in days or weeks.
And I think that's one area, where the franchisees really excel I think is an area that we can emulate our franchisees and so me and my team are very fun, how do we accelerate.
The adjustments, we need to make out in the restaurants, where we're especially challenged.
Around staffing to move faster to make sure that we recruit and retain people.
I think the other area where.
And I highlight this a little bit on the call that we're really focused on now is.
Yes, we have a number of new employees in our restaurants.
And so you have really means we have to build what I would call knowhow and the restaurants I mean, we have to we have to build the knowledge in the restaurants and.
Obviously, one way retina is training.
Other way is to be more prescriptive about yes.
What we want people to do from our area layers down towards general managers down to our team members and really lay out in detail around here's what you do at certain points a day for earlier, here's when you visit our restaurants, here's what your restaurant visits look like here's the coaching you leave behind.
For them in writing so we're getting more prescriptive as.
As we try to build that knowledge base.
Within our system and like I said the other thing is just a maniacal focus on the drive thru in fact, we're launching <unk>.
We're retraining every company restaurant on the drive through on a fixed and then we're going to have a drive thru incentive scheme, which will be fairly significant.
Really drives the execution a drive through.
And I, just really believe when you look at our ops metrics fixing the drive thru fixes a lot of things and.
Yes, we have a lot of improvement we can make in the drive thru and a number of our restaurants. So that's what we're going to you're going to focus on and that starts may 6th as we kick off a training and then like I said the incentive program to really drive the execution. So just to summarize it's really around getting faster and how we react to the market conditions.
Really building Knowhow, and our restaurants through being more prescriptive and more training and then really focus on the drive thru given <unk> about that because so much of our business goes through the drive thru and so much of our consumer.
Feedback and consumer.
The experience is really driven by the drive thru.
That's what we're focused on.
Great. Thank you so much I appreciate it.
Our next question comes from Andy Barish with Jefferies. Please proceed.
Hey, Larry.
Just trying to kind of level set on.
Some of the margin commentary obviously.
There is about 250 basis points of Covid stop in the first quarter, but then.
You kind of left the quarter as you mentioned doing about 14% in March.
Is that.
Kind of a good run rate on restaurant level margins.
Again, taking into account.
Some of what you just went through in terms of some incremental costs from.
Retention and training and wages and things like that how should we kind of level set on on restaurant level margins here.
Yes, if I look at the balance of year and things.
Things we have in place.
Especially on the pricing and some of the cost reduction things we're working on.
I think March is a starting point, but I expect to see a gradual improvement in margins through the end of the year.
Starting out March I'll call that mid teens again, I would expect to improve every quarter.
<unk> call it the mid slash.
Call it the mid upper teens by end of the year.
Great. Thanks, very helpful and.
I guess on the learnings from <unk>.
Sounds like.
The consumer certainly associated.
You know a crazy chicken chain with deep for the last month or so.
Yes.
I guess did you learn from from the Bay area and the deep promotion and how might we see that.
Return at different points later in the year or for next year.
Well break it into two things the first is the product itself with B area.
And Barry you have the beef was initiated deep product and then you have the consummate.
We are looking to test.
Well not test we're actually is.
It's in test right now.
As a limited time offer item as part of our mix some of them will be chicken beef that we would look to do and what we call module five which will be kicking off I think early November .
So we think there could be a place for beef.
At least in one more <unk>, possibly even a full time menu item at some point.
Yes, we're really looking at the full blown.
B area that we're doing now.
Something we'll look at doing next year as another MTO given the success and we call it a b.
<unk> 2.0, so we'll make some changes in terms of the product and packaging.
We definitely see it as something that we could look to do again.
Next year, so that's on the product side.
The second piece is just around the approach to marketing that we've taken.
And real kudos real shout out to the marketing team and the way they execute against this and even the ops team, which we execute we actually rolled out I'll call. It pre training for this product to make sure. The execution was was really strong as we roll it out but in the marketing side, you're just going to see more and more of what we do with B area.
Again, it just happened to coincide with B area. These new marketing tactics that we wanted to put in place, which was again heavier spend on social media.
And really going on those platforms to attract a younger customer we really felt like <unk> was going to appeal to a younger customer base. It was a great opportunity for us to bring younger consumers into.
And to the brand.
So we really focus, especially on Tictoc, yes, I'll just give you.
Insight into how much of an impact that had yes, we did a soft roll a barrier.
Probably about four or five days before we did anything on social media or TV.
It was mixing this off for what you would expect probably about one 5% already have with point of sale materials up so it wasn't great.
We then went on to talk in that day that makes went up to eight 5% just by tick tock.
So.
It's a phenomenal platform for us, but it just really caught on.
So as you can call going viral.
And just that alone really grew it and then of course went on television. The following week. We just took it up to the 12, 5% mix levels that we saw.
Initially with the product.
And so a lot more of that to come as we launched the balance of year are limited time offers and just more and more for.
Because.
On the social media platforms again, creating separate content for the platforms, which we talked about for US is a must do you can't just use your common.
Television advertising and cut it up and put it on there you really have to create unique content on these platforms and the team did a fantastic job and you can see a lot more of that as the year progresses.
That's great and then.
The just on the on the product itself I mean, I know it was priced.
In our premium kind of band on your on your menu.
Was it gross margin Duluth.
Dilutive or neutral or maybe even slightly favorable just given how expensive chicken is right now.
How should we think about that.
No I had a.
Hi.
Higher food costs, so from a calendar perspective.
It was it was an investment on food costs.
So again through the second quarter Youll have Barry on therefore.
Really the month of May obviously April it comes off and then we go to stars, which has a lower food cost item. So Barry is the most expensive item from a food cost.
Percentage that we'll do this year.
That's great Thanks and have a.
Happy Cinco de Mayo Tomorrow Alright.
Thanks, Andy.
Our next question comes from Sharon Zackfia with William Blair. Please proceed.
Hi, Good afternoon, I guess I'm curious on theory.
That kind of 10%.
<unk>.
That it generated.
Oh six weeks how.
How much of that do you think is incremental versus telco.
Consumers slopping around on the menu and I asked that because I think <unk> first.
Yes.
Kind of wondering how you think about any potential comp falloff that we should all be thinking about.
As the <unk>.
And then secondarily as you brought in these younger consumers and it sounds like you did bring in maybe.
Some newer.
Mcgrath <unk> shale play a local where do you see.
Successful kind of getting any kind of rewards.
Sign ups in tandem with ours.
There's new demographics that were coming in or how do you kind of plan on continuing the momentum.
<unk> dealt with those younger demographics.
Yeah. Thanks, Sharon first on the <unk> mix.
We didn't really see much shift in the menu mix overall crossed.
The rest of our categories.
Maybe a little bit on.
Family would be difficult to tell because we actually changed our approach on the family meals a bit but overall.
B area.
It didn't really look to pull much from.
Are there other items on the menu so now having said that.
We're going in with to start is if you recall at the start of last year normally there like 7% to 8% mix somewhere in that range and they were about 14% mixed during our limited time offer last year. So we really feel like to start is it really a strong follow up to.
<unk> and we'll be able to maintain momentum.
We've built now.
Shifting to I'll call it the demographics piece.
Yes.
There's no doubt we are seeing a lot of new users coming to the concept at least by the barrier products.
We've seen that through our loyalty program and just some of the consumer research that we have and now the challenges.
How do we keep them coming.
And so as you look at our approach around to status.
And even the balance of the calendar.
A lot of work we're doing is.
Really analyzing what is going to resonate with younger consumers.
And get them excited we do think <unk> is a is a unique product and has that capability just around the different ways you can eat to starter and the variations and you can do a lot with that on social media, especially tictoc, they really make it exciting and resonate younger consumers and then looking at the price bounce here I mean, everything we look at now is.
Even just even bone in chicken where were looking at that saying well normally we just go on air and we'll show family viewing the chicken and just drive the family meals, but the reality is there's a lot of different ways that you can use bone in chicken that could be I think exciting for younger consumers. So that's all of the work we're doing is everything through the <unk>.
Lens of not just our core customer, but how do we make it interesting and exciting.
For a younger consumer base to keep them engaged with our with our brand <unk> really create that engagement.
Hey, Larry in tandem with them.
Yes, Sam or are you talking about the idea of any changes to your hours or doing any kind of later.
Day part.
I would say right now.
No.
Right now given the staffing issues and challenges.
I think it would be a challenge to extend it out.
I think at some point as we develop a better menu.
For late night, that's certainly something on the I'll call it longer term strategy something to look at and the team is starting to look at your product set or I'll call. It more snapple and things that we keep putting on the menu that would be more appealing.
To a younger consumer and also to our late night consumer. So I think that's down the road is probably not this year, but maybe something that we look at next year.
Okay.
Thanks.
Yes.
Our next question comes from David Tarantino with Baird. Please proceed.
Hi.
Good afternoon, Larry I wanted to come back to this.
Question about marketing and I guess.
The way.
I think I will ask it is.
Is there anything in your consumer data or your learnings, thus far that would suggest that.
The lift you've seen from <unk> more about the marketing and the product itself.
And the reason I ask that I guess is that would perhaps be a leading indicator for for success on future offerings. So I just wanted to get your thoughts on whether you think it was more about the marketing and the product or do you think it was the combination of the two.
I definitely think that the combination of the two and I, just say that B area highlighted at 10.
Six straight weeks of over 10% mix.
And it's coming down the curve, but it continues to be a very strong mix, which just tells US we'll dig into a more with data.
It indicates that there is a good amount of repeat now the one area, where we do know that we've seen <unk> is around loyalty.
And I think in the first couple of weeks that 25% repurchase rate.
Which is actually pretty good in that short timeframe.
So we feel good that the product has definitely resonated.
But certainly when.
When you see.
To kick off with the tick tock and other social media channels.
The growth we saw that clearly indicates so I think it's the power of the end.
When you have a great product that really resonates along with a great marketing strategy.
And again, that's why we're excited about the status because again, we know that the sizes.
A distinctive product for us.
It's a great product for us.
And working through how we promote that you're assuming in Iberia.
Our target is to get back to last year's makes sense of size is to beat last year's it makes sense to start and.
And continue driving the grant the brand and how it resonates with younger consumers.
Okay makes sense.
And then I had one clarification on your margin outlook you mentioned.
Is that.
The move to high teens.
Would that be assuming that the current momentum in the business.
Continues are you.
Making some assumption that the sales.
Trajectory will change in the second half of the year.
No I mean, it really assumes.
Continuation of where we are more or less I would couch it I mean.
I expect from where we are in March to continue improving margins.
I would say, it's going to be in between mid to high teens, where I would.
Yet to be.
Towards the end of the year.
And but that does rely on.
Inflation doesn't get any worse.
And that our sales.
<unk> to perform as they have.
At the current unit volumes that we're seeing.
Got it got it and then and then on the.
Commodity costs.
I think I think you had locked in chicken prices.
Perhaps.
More favorable rates in the current market conditions I guess is that is that correct and have you.
Given any.
Initial thoughts on what.
123 could look like if the market stays the way it is.
Yes.
The majority of our chicken on the bone is locked in.
Certainly favorable cost at current market conditions, we do have a portion with one supplier that is.
It is not locked in.
But the key is the big inflation drivers, obviously are the boneless breast meat and boneless thigh yearly boneless breast meat so.
That's what we're really watching and I have to say.
I don't think at this point, we have an outlook for next year.
Just continues to be a tight market.
Chicken as a whole, but especially around boneless breast meat.
So much demand out there and suppliers are having a hard time keeping up with that.
So it's a little <unk>.
Premature for us to be taking a stab at what next year will look like.
Another quarter or so and then I think we'll have a better idea of what next year looks like from a chicken supply standpoint.
Okay makes sense.
Alright. Thanks.
Once again, ladies and gentlemen to ask a question Thats Star one on your telephone keypad. Our next question comes from Todd Brooks with the Benchmark Company. Please proceed.
Hey, Larry how are you.
Question for you with the strength of the area.
Which is impressive in and of itself can you give a sense of what your consumer we're seeing otherwise we've heard other concepts talk about stimulus lap.
Kind of curious three period for as a headwind.
We've heard concepts talk about fuel price increases with the UK.
The Ukrainian war that we saw in March.
Being a headwind do you have a sense of.
Where your consumer stands and maybe how much if any kind of weakness or lap pressure you were able to overcome with b are you actually implying the periods that much more powerful than the reported number.
Yes.
I mean, great question, I guess I go back and look at.
Again, the first quarter.
Yes.
I mean, we again we had.
Fairly good momentum coming out of March, especially when you go to our franchisee comps.
Yes, first quarter 11, 5% and they were still.
Improving so it felt like from a consumer standpoint.
And I said this on our March call as <unk>.
Tumor standpoint.
Our brand looks to be really strong I mean, we're seeing.
Growth across the business our franchisees.
Especially seeing transaction growth with our franchisees and the reality is I mean, there are price points are still higher than ours. So the brand is clearly resonating now Barry I took it to a new level.
But when I look at.
Are we seeing any consumer pushback at this point.
Im not seeing it yet.
Not to say it won't happen, but.
Our transaction numbers are roughly pretty comparable to where they've been over the last several quarters.
Franchisees are driving positive transactions despite taking.
Pricing.
And so thus far not seeing the pushback that maybe other some other concepts are seen so.
I think beer propelled us to level I'm not sure from a brand standpoint, whether we were seeing.
The impact that others have highlighted.
From reduced stimulus checks and things like that I, just wasn't seeing in the business leading up to <unk>.
Perfect that's great to hear and then you.
<unk> talked about still working against staffing, especially in the company stores and some of the tight markets.
You have a sense, even though the reported numbers were great for the quarter, what either reduced operating hours.
So if you have any full unit closures anymore is once we got omicron, but what.
What staffing might have cost you from a same store sales standpoint on the corporate stores in the quarter.
Well in terms of.
What we look at is not necessarily the impact of overall staffing, but it's the impact where we've had to either close early.
Our reduce our service channels.
And that continues to be.
15 to 20 restaurants a day.
And that can be from staffing from call outs, which as I recall I have to thank the numbers.
It could be 1% of sales.
1% sales impact.
As I recall.
Look at the numbers. So it's not it's not a huge impact on the business overall is a very very slight drag on our comps.
But but not huge.
Okay, great. Thanks for the thanks for the question Larry.
Thank you.
Our next question comes from Jake Bartlett with <unk> Securities. Please proceed.
Great. Thanks for taking the follow up on my question is going to require kind of looking way back in time.
You'll definitely be for you or your time at the brand.
Question is will help me local his position.
Downturns, so how what where same store sales I think my model doesn't go back that far during the great recession normal here.
Have that but just maybe if you could if you had that there would be helpful and maybe just how the brand is positioned now versus say in terms of value and your ability to pivot towards that if need be.
R. R word comes comes to pass.
Okay.
Can't hold me, a 100% accountable for these numbers, but as I recall the great recession.
<unk> looked at a number of years ago play a logo was definitely impacted I think they were down somewhere in the 5% to 10% range.
During one of the years.
So definitely saw an impact now if you go back to that time.
I'll play a local is very very reliant on it was just strictly strictly had entrees, but really reliant on chicken on the bone family meals.
And individual mills, I mean, thats that was the the core.
If you recall, you're kind of coming out of that timeframe is when the brand began shifting.
More of a focus or at least emphasizing more the entre side of the business. So.
I would say pre 2013 2012.
Recall, we were at 55% to 60% chicken on the bone.
And the balance was entrees and coming out of 2013 2014, it flipped around.
Basically being the other way around.
And so that part of the business. So I'm not sure you can use the last recession as the best bellwether because.
The business has changed in terms of what we offer on the entre side of the equation and the value we offer in an answer on the entre side of that question.
And so.
Yes.
It's my recollection of what took place back years ago, but I'm also very optimistic that.
Given our positioning today and even more of the value offerings that we have today versus where we were previously.
I think we're well situated at a recession.
Not that we won't feel something but.
I think we'll hold up very well and see.
Hopefully it quite a bit of trade down into our brand.
Great that's really helpful and actually I did have another one.
Believe last quarter, you gave an indication of what you thought G&A was going to be up year over year in 2022.
The first quarter came in a little lighter than we were expecting so any change on just how we should think about G&A for the second through the fourth quarter.
Yes, I think the second or third secondary fourth quarter G&A should be.
Higher year over year.
Then it was <unk>.
I looked at the <unk>.
Full year.
Yes, I am expecting it to be.
Again higher.
Then last year, I'm thinking probably somewhere in the two.
$2 million to $3 million range overall.
Great. Thank you so much that's helpful.
Yes.
Thank you at this time I would like to turn the call back over to Mr. Roberts for closing comments.
Well, thanks, everybody for joining the call today I really appreciate it and.
I Hope you took away that we really feel great about where the business is.
We're situated we've got a lot of great things in the pipeline from a product standpoint, a lot of great marketing initiatives.
And a real focus on.
The company operations and a big opportunity there as we improve those very confident that we're going to see additional sales growth come from those.
Company restaurant. So thanks again, everybody have a great night.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.