Q2 2023 Noodles & Company Earnings Call
Yeah.
Good afternoon, and welcome to today's noodles <unk> company second quarter 2023 earnings conference call.
All participants are now in a listen only mode.
After the presenters remarks, there will be a question and answer session.
As a reminder, this call is being recorded.
I would now like to introduce noodles, <unk> company's Chief Financial Officer, Mike Hines.
Thank you and good afternoon, everyone welcome to our second quarter 2023 earnings call.
Here with me. This afternoon is Dave <unk>, our Chief Executive Officer, I'd like to start by going over a few regulatory matters.
During our remarks, we may make forward looking statements regarding future events or the future financial performance of the company.
Any such items should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act.
Such statements are only projections and actual events or results could differ materially from those projections due.
A number of risks and uncertainties.
Including those referred to in this afternoon's news release.
In the cautionary statement in the company's annual report on Form 10-K for its 2022 fiscal year and subsequent filings with the SEC.
During the call we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
Measures should not be considered in isolation.
As a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our second quarter 2023 earnings release.
To the extent that the company provides guidance on a non-GAAP basis and does not provide reconciliations of forward looking non-GAAP measures, specifically forecasted adjusted EBITDA adjusted EPS and contribution margin.
Quantitative reconciliations information for these measures is available without unreasonable efforts.
Corresponding GAAP measures are not accessible on a forward looking basis and such information is likely to be significant to an investor.
Now I would like to turn it over to Dave building housing, our Chief Executive Officer.
Thanks, Mike and good afternoon, everyone in the second quarter noodles, and company's revenue decreased four 5% versus prior year to $125 2 million and adjusted.
EBITDA decreased 17% to $9 3 million.
As we discussed in our last earnings call. During the last portion of Q1 as well as the beginning of Q2, we began to see softness in our guest trends, particularly surrounding the lower income consumer.
We believe our larger than historical price increases, which included an additional 5% increase from the first quarter and therefore peaked at an overall, 13% year over year in late Q1.
Ultimately led to a degradation in our overall value proposition, which manifested itself in a sudden and significant double digit decline in traffic during the first portion of Q2.
As we noted during the most recent call we pivoted quickly to more prominent value messaging during the second quarter, including an effective 3% decrease in our menu pricing starting at the beginning of May.
With this pivot our traffic quite steadily improved from a negative 14% in April to a decline of five 8% during July the first month of Q3.
Comparable restaurant sales, which was also impacted by lapping a price from 2022 fell seven 7% system wide in may before improving to a decline of three 8% in July .
Additionally, we are seeing an increase of our average unit volumes, which were $135 million during July a 14% increase over the same period pre COVID-19.
We feel our strengths with off premise and our suburban oriented footprint remain long term tailwind.
And as such we feel we are well aligned to benefit from longer term macro and consumer trends.
However, we do feel from a year over year perspective, they've put more pressure on our near term comparable sales trends.
To put this in perspective, our comparable sales decline in the second quarter, our company restaurants was five 9%.
However, our diner indication, which represented 22% of sales in the second quarter saw 14, 2% increase in comparable sales growth.
Similarly, while they represent a small percentage of our portfolio on a year over year basis, our collegian urban restaurants outpaced our suburban locations.
That said, our overall challenges during the second quarter.
Have caused us to react and focus on opportunities to improve our overall competitive positioning as we clearly do not believe the results represent the potential of the noodles <unk> company brand.
We are focused on the five following initiatives to drive our sales performance well above the current reset up revenue that we saw in the second quarter.
First price optimization with a balance of appropriate discounting and promotions.
Second advancement in our technology platforms to increase guest engagement and analytics.
Third the introduction of a highly recognizable consumer favorite into the fast casual world Chicken parmesan.
Fourth a complete evaluation and assessment of our culinary offerings, including our approach to our menu layout utilizing a leading industry third party consulting firm and.
And fifth a significant expansion of our catering program.
The first area that we have been actively addressing has been around value and optimizing our pricing strategy.
Our Q2 shift toward communicating our low entry level price point and the introduction of a Mac and cheese meal deal helped lead to an improvement in air stabilization of traffic trends.
As we look ahead, we are in the process of completing third party research to enhance our overall pricing strategy as well as how our menu is presented to gas both online and in person.
Our second area of focus to drive sales as improvements that we've made to our technology and data platforms.
Nearly 50% of our guest experience the brand and restaurant, including dine in and orders to go.
We expect digital menu boards to be installed in 75% of company restaurants by the end of Q3.
With our continued rollout of digital menu boards, we will be able to quickly incorporate any findings from the current pricing and extensive menu research across the majority of our system for our in restaurant test.
We're already seeing the power of digital menu boards as an example, when we introduced our Mac and cheese meal deal and May restaurants that have digital menu boards achieved sales of that deal, 24% greater than those with physical menu boards.
In July we completed the implementation of our CDP, our customer data platform.
Which will now allow our marketing team to have a more complete and thorough understanding of our guests and the ability to communicate with them in a more personalized and effective fashion.
Similarly, we have made enhancements to our online and app ordering systems, including launching a new product recommendation engine driven by machine learning.
During the testing period, we saw a 50% increase in recommended items purchased from this engine.
Additionally, we recently or enhance the flow of our web checkout page, which has driven a 220 basis point increase in our web order conversion.
Finally, as we think about digital activation our rewards program continues to strengthen.
Our rewards membership grew 14% year over year during the second quarter to $4 8 million members and importantly, we saw 2% growth in frequency amongst our rewards members during the quarter versus prior year.
As a reminder, over 50% of our sales come through digital channels and 25% of our sales can be attributed to rewards members.
Consequently, we have a very strong technology foundation to build from.
The further installation of digital menu boards increased learnings from our customer data platform and third party work around optimizing our menu pricing in lab I'm excited at the potential to positively impact the business both in the short and long term.
We're also aggressively looking at our culinary and menu strategy, including menu design to identify opportunities to SaaS and improve our positioning while still capitalizing on our strengths.
Noodles <unk> company continues to have a differentiated linear bringing together made to order globally inspired dishes that meet a wide variety of tastes and preferences.
Historically, we've had great success for much of our menu innovation for being the first national chain to offers akane noodles to our popular toward alone that was launched a couple of years ago.
Our newest menu activation will be the launch of chicken parmesan, a staple of Italian cuisine.
We're very excited about chicken parmesan, given its broad appeal gas familiarity and our opportunity to provide a casual dining favorite at a fast casual price point and speed.
As we launched chicken Parmesan. We're also in the process of engaging with an industry, leading third party culinary consulting firm to comprehensively assess and evaluate our current menu to ensure that every desk exceeds consumer expectations and is crafted to deliver exceptional taste and satisfaction in everybody.
We anticipate this work to be completed by the end of the year with the results being integrated into our strategy over the course of 2024.
Finally, the company has unique strengths for the growing catering market there.
The variety inherent to our menu, which eliminates the veto vote combined with how well our food travels for the catering occasion.
<unk> the opportunity to substantially grow this part of our business.
Our catering program is easy for our restaurant teams to incorporate into their operations and with staffing and turnover now at levels better than pre Covid, we feel it's the appropriate time for our teams to be more focused on building catering sales.
The Companys catering represented one 4% of sales during the second quarter, 40% growth for the second quarter of 2022.
But we believe the opportunity is meaningfully larger we've begun more aggressive promotion of our catering opportunity both inside and outside our restaurants to develop a business that we believe can be mid single digits as a percentage of sales over the long term.
Notably our top 10% of restaurants already drive nearly 4% of sales from catering.
And appropriate carrying menu and offerings will also be incorporated into the work of our culinary consulted for further growth opportunities.
Similar to our guest engagement strategies, we feel our menu and catering program have strong foundations to build for them and.
And I look forward to sharing our progress to optimize sales and profitability as a result of our initiatives.
As we execute our five sales driving initiatives. We additionally have taken actions to improve our overall financial position.
These actions have been centered around three key areas.
First continued but moderated new restaurant growth.
Second the streamlining of certain administrative functions to reduce G&A cost and third the return of shareholder value including share repurchases.
One of our primary objectives going forward is to achieve positive free cash flow in 2024 through the combination of revised unit growth. The completion of our customer data platform and digital menu board investments and a corporate restructuring effort to align our organization with our growth objectives.
In support of our free cash flow objectives, and considering continued delays in the development of permitting process as well as construction inflation. We are revising our targeted annual unit growth rate to 5% for the coming years, including 2023.
We continue to be pleased with the performance of our new units, but believe this slower growth rate will allow us to achieve long term sustainable growth and achieve positive free cash flow next year.
Combined with the completion of our customer data platform and digital menu boards investments. These actions are driving factors in our revised capital expenditure guidance of $45 million to $50 million for 2023 down from our prior guidance of $53 million to $58 million.
Additionally earlier this quarter, we reviewed our needs as an organization to meet our long term growth objectives.
As a result of this review we implemented a corporate restructure that we anticipate will yield nearly $2 million of G&A savings annualized.
These actions allow us to continue to invest in areas such as our digital experience and technology initiatives, while streamlining our administrative functions.
Finally today, we announced that our board of directors has authorized a share repurchase program given the company the opportunity to purchase up to $5 million of common stock as part of our strategy to increase long term shareholder value.
Before I turn the call over to Mike while we are disappointed in our results for the second quarter I want to reiterate my belief that the core of the noodles brand is well positioned for success and there is significant upside potential of our current results.
You have heard today, our plans and strategies to address our current shortcomings build upon our strengths and deliver sustainable shareholder value.
We are excited to provide you an update our progress in the quarters to come.
As we execute these strategies I'm excited to welcome Mike <unk> to the team as our Chief Financial Officer.
Mike brings nearly 25 years of finance accounting and Investor relations experience to the team and I look forward to working with him and for Mike to have a significant influence with our team and company to achieve our full potential.
Thank you, Dave it's great to be here I'd like to thank the noodles team for welcoming me into the business I have only been with the company a few short weeks and energized by the opportunity ahead of us and excited about what our team can achieve.
Turning to results for the second quarter total revenue decreased four 5% to $125 2 million compared to last year driven by a decline in comparable sales, partially offset by revenue from new restaurants.
System wide comparable restaurant sales during the second quarter decreased five 5%, including a decrease of five 9% at company owned restaurants, and a decrease of three 4% at franchised locations are.
Our recently completed July fiscal period included a system wide comparable sales decline of three 8%, including declines of four 5% at company owned restaurants, and 3% at franchise locations.
Company average unit volumes in July were $135 million, 14% above pre Covid July of 2019.
Company comparable traffic during the second quarter declined nine 1%.
As Dave mentioned traffic was especially challenged during our April fiscal period with a decline of 14%.
Followed by sequential improvements to declines of eight 7% in may and 5% in June .
Pricing during the second quarter was six 1%.
Although given the lapping of pricing from 2022 as well as strategic actions taken in may pricing year over year came down meaningfully throughout the quarter, we entered the quarter carrying 13% of price, but during the last half of the quarter pricing decreased to three 2% we.
We anticipate this level of price to carry forward three the third quarter.
For this current third quarter, we anticipate total revenue of between 125 and $130 million and comparable restaurant sales to decline mid single digits.
Turning to the P&L for the second quarter restaurant level contribution margin was 14, 8% a 70 basis point decrease compared to last year. Our restaurant contribution margin included meaningful improvement in our cost of goods sold line offset by deleverage across other areas of restaurant expense.
Cogs in the second quarter was 25, 1% of sales a 270 basis point improvement from prior year. This.
This improvement was the result of continued favorability and normalized commodity markets relative to last year as well as the impact of initiatives executed over the last 12 months.
We continue to expect overall low single.
Food deflation for 2023 led by chicken, which is contracted for the full year.
Labor costs for the second quarter were 32, 4% of sales compared to 33% in the prior year.
Wage inflation continues to moderate with year over year cowardly inflation growth of seven 7% for the full quarter, but only six 1% during the recently completed yet July fiscal period.
While we continue to expect deleverage across the labor lines for the balance of the year, we expect that deleverage to moderate as wage inflation subsides and we implement initiatives from our recent menu and operations simplification efforts.
Due to de leverage other operating costs and occupancy costs, both rose 70 basis points over prior year to 18, 5% and nine 3% of sales respectively.
G&A for the second quarter was $12 5.300 million less than prior year, due primarily to reduced cash incentive compensation.
G&A also included noncash stock based compensation of approximately $1 5 million during the second quarter in line with prior year for the current third quarter, we anticipate G&A expense of between 12 and $13 million, including 250000 of restructuring expenses and approximately one.
<unk> 5 million of noncash stock based compensation.
Inclusive of the impact of the restructuring Dave noted, we anticipate full year G&A to be between 50% and $53 million.
GAAP net loss for the second quarter was $1 3 million or a loss of <unk> <unk> per diluted share compared to net income of $1 $3 million last year.
non-GAAP diluted earnings per share was a loss of <unk> <unk> compared to earnings of <unk> <unk> last year. Please.
Please refer to our earnings release for reconciliations of non-GAAP measures.
Turning to the full year I would like to provide an update to the 2023 guidance as Dave mentioned, although the company has gained traction relative to our performance at the beginning of the second quarter, we have revised certain expectations given the current performance.
For the full year 2023, we are providing guidance of $500 million to $510 million for the full year revenue inclusive of negative low single digit comparable restaurant sales, we anticipate full year restaurant contribution margin between 14, five and 15% with there.
Our current guidance, reflecting margin expansion of 60 to 110 basis points versus prior year.
For the current third quarter, we anticipate restaurant margin just north of 15%.
We now expect adjusted EBITDA between 35% and $40 million.
With the upper end of our guidance, reflecting EBITDA growth of over 20% versus 2022.
Included in our full year guidance as expected adjusted EBITDA for the third quarter of 9% to $11 million.
Our adjusted EPS expectations for 2023 are now between negative 11 and zero for.
For the third quarter, we anticipate adjusted EPS between negative <unk> <unk> and positive <unk>.
For further information regarding our 2023 expectations. Please see the business outlook section of our press release.
Turning to the balance sheet at quarter end, we had cash and cash equivalents of $3 1 million.
And a total debt balance of approximately $64 7 million.
We currently have nearly $60 million of incremental liquidity available for future borrowings under our amended credit facility.
During the second quarter the company opened six new restaurants, and as discussed at the last earnings call. We closed two restaurants.
In the third quarter, we expect three to four new company openings and no company closures.
For the full year, we now expect approximately 20, new restaurant openings system wide.
<unk>, 1% to two franchise openings in the fourth quarter, representing 5% growth unit growth for the year.
As we complete our onetime investment in digital menu boards across the system, we expect to be able to support our ongoing 5% unit growth target primarily through operating cash flow.
With that I would like to turn the call back over to Dave for final remarks.
Thanks, Mike clearly, we face disruption and the momentum that we have been experienced leading into the second quarter.
Although we've made traction since the initial challenges that we saw during the early part of Q2, we are aggressively executing strategies to enhance our competitive positioning and financial performance.
Again from a sales perspective these initiatives include price optimization.
Improved guest engagement analytics.
Introduction of chicken parmesan.
A third party supported evaluation and assessment of our menu.
And a significant expansion of our catering program.
Meanwhile to improve our financial performance, we're leveraging our operational initiatives to improve productivity and to achieve our goal of positive free cash flow, we have already enacted the following.
Continued but moderated new restaurant growth <unk>.
Streamlining our G&A infrastructure.
And the authorization of a share repurchase program.
Fortunately, we have a strong foundation to build firm with a differentiated brand robust digital and rewards program and the culinary and pricing flexibility that we will garner from the upcoming completion of our digital menu board rollout.
Average unit volumes have stabilized and are growing and the cost environment remains favorable.
We have great confidence in both our short term and long term strategies to address opportunities, we see both in our value proposition and our overall competitive positioning and I look forward to sharing our progress in upcoming quarters.
Thank you for your time today and please open the lines for Q&A.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Okay.
Thank you.
Our first question comes from Jake Bartlett with Truth Securities. Please proceed.
Great. Thank you so much for taking the question Dave I wanted to start with just the diagnosis of what's caused this this really sharp deceleration I know you've talked about the menu pricing that you took in February .
As you've dug deep into this is there any other.
Explanation, whether its service levels.
Customer satisfaction.
Maybe it's.
Delivery has been a headwind any anything else that can just help us understand such a sharp deceleration in the trend here with traffic.
Yes, Jay it's certainly certainly we feel that pricing has been the dominant factor we've not been alone in raising prices. We obviously know that but we do feel that ultimately we were more aggressive with pricing that many of our peers.
We are running 13% year over year pricing of nearly 20% two year pricing.
While we've remained strong with rewards members higher income gas.
We needed to and we're continuing to work to win back some of those more price sensitive guests.
That said as you look at all of the other metrics to your point about what the diagnosis is.
We feel very comfortable with the people metrics, improving cook times operational metrics, improving but one thing. We noted today is that we do think it is time for us to take a fresh look at our overall menu. We feel the menu has a strong foundation our internal analysis research gives us lot of confidence in the potential of chicken parmesan is.
Well as other optimization opportunities, but that said, we think it's an appropriate time for us to take a comprehensive fresh look at the overall menu and culinary strategy, because we know the upside AAV potential of this brand is much higher than where we are today from a channel perspective again, we've seen strength in diamond.
We've actually seen a rebound in part of the delivery program as well.
Some of the digital and the to go area is an area that again, we think will be specifically benefited by digital menu boards. Those are some opportunities we have as well.
Great and just to follow up on that and just wanted to make sure I understand that the pricing commentary correctly and the 13% increase year over year.
How much of that was on the in store menu I know, 20% two year, 13% one year, but my impression that it was that a lot of the menu pricing you've taken has been on the delivery side. So just if you could isolate that to the to the in store menu that'd be helpful.
Yes, actually the 13% year over year.
It really was across all channels.
So during the course of Covid, when we did implement a price increase and as you look at the two year. There was a significant amount that had to do with the delivery price premium, but really over the last last year or so that price increase has been kind of across all of our all channels, including in restaurant.
Just some more texture behind it you as a reminder, we implemented an 8% price in Q2 of 2022 and an additional 5% here in February of 'twenty three.
Those were across all channels not just on the delivery side as we lap the 8% price increase from last year, we didnt replace it and as we introduce the seven for seven menu during our pivot that effectively dropped our price another 2% or so so our run rate as we sit today again is approximately 3%.
So we've gained some good traction.
Gas back from a value perspective, but it's going to take some time and we continue to be focused on improving our value perception.
Great and then my last question is just on the cost side.
You've taken some some pretty.
Solid measures to decrease your G&A I wanted to make sure that the level that you are cutting it too.
Is the rate is the right kind of level to grow from in 2000 and for just to kind of make sure. We understand how G&A growth from here on out and then also I didn't I didn't hear you mentioned I know youre kind of had been going back into the kitchen.
Future sort of.
Efforts to try to find efficiencies but is.
It was operating cost efficiency, a big focus for you at the store level in 'twenty four as well.
Yes, so I'll start with the G&A expense items as we said we completed the G&A kind of an overview of our entire structure really wanted to ensure that as we continue to grow at a pretty solid rate that we have the right level of resources to invest in areas such as unit growth technology.
Digital enhancements so absolutely maintained the integrity of those aspects of our G&A structure. What we saw is that over the course of the last few years as we've implemented new systems, New technologies. There were certain administrative functions that we felt we'd probably just gotten a little bit too heavy frame.
So we feel very comfortable that as you look at the core G&A right, where it sits today that that should be a good spot for very modest just more inflationary type increases as we go into the future.
From a labor cost perspective, we have made great progress over the last several years, we have reduced roughly 10% to 15% of hours out of our system per.
Per restaurant per day basis.
That continues with some of the work that we did last year.
<unk> operations menu simplification perspective, we are incorporating some of those initiatives here into.
The model just season as we sit today, we'll continue to look hard at that everything from how the management team is structured are there efficiencies. We can gain there continued enhancements in technology as well as just looking at equipment overall flow. So certainly we've made great progress on labor will continue to do so as we go forward.
Also buttressed by the fact that we're now not seeing the wage inflation rate that we have been seeing in prior quarters.
Great. Thank you so much.
Thank you please standby for our next question.
Our next question comes from Joshua Long with Stephens, Inc. Please proceed.
Great. Thank you for taking my question, Mike Welcome aboard looking forward to working with you in this next chapter.
David following up on that.
Following up on some of the comments you made in terms of just the guests that you lost during the quarter.
Yeah makes sense, but it might be that more economically sensitive guests, but just curious what you've been able to see in terms of.
That specifically and then as you think about going forward can you talk about some of the digital systems or marketing messaging systems that you have in place to be able to go back and target that guess how do you.
As you start to see traffic start to improve how do you know if its that guests that youll off coming back in or maybe just your core guests coming a bit more frequently.
Yes, sure I think one of the exciting things has been.
Our key message I think for us as we look forward Josh is just the overall flexibility that we're going to have based on our technology investments from an in restaurant perspective, with the digital menu boards as well as with the customer data platform and just overall our ability to target guests one thing that has been extremely occur.
<unk> is that when you think of flexibility as we started to diagnose and see a value issue. We were able to first off touch those rewards members rewards members or people were able to quickly and easily access we're able to give them specific promotions or specific messaging, maybe not even tied to promotions.
We saw as we talked about in the earlier remarks, we actually saw an increase in frequency from our rewards members up 2% as well as overall growth in the program.
That gives us quite a bit more information.
We're able to maintain and retain that guests partially because we've been able to act quickly again spin now you incorporate a CDP so of CDP. Our team has already made tremendous strides in being more targeted with how we approach our gas.
This allows us just to have a significantly more surgical approach to segmentation to messaging to just overall, how we communicate with our teams and that really just went live a couple of weeks ago. So we're just starting to reap some of the low hanging fruit when it comes to that technology.
Another aspect as we continue to evolve from a technology perspective, as we said, we're starting to use machine learning in terms of recommendation engines. The testing of that has been very successful. So we're implementing that as we speak that should be another nice tailwind. So the overall infrastructure from a rewards program perspective as.
Well as the technology that drives our digital programs continues to improve and become best in class.
Now you layer on top of the digital menu boards digital menu boards for US one reason why they are so so powerful is that it just gives us flexibility across nearly every aspect of the business whether it's how the menu is laid out the pricing structure, new culinary items messaging.
Traditionally we couldn't pivot or test very quickly because we always had to wait on the physical menu boards to kind of catch up to the digital assets. This even impacted some of our flexibility when it comes to things like pricing because we didn't want a disjointed experience.
So we feel digital menu boards.
Bind with all of the enhancements we've made from a technology and data perspective really allows us were frustrated with the reset from a revenue perspective, but as we go forward from here Phil that we have extremely strong foundation is just going to continue to strengthen.
Very helpful and when we think about that target for I think you said, 75% by end of year on digital menu boards correct me, if I'm wrong, there, but just can you walk through just maybe high level bolt puts I think the question would be in our minds.
Sounds amazing why don't we roll it out faster obviously, it never works that way.
Implications you got to make sure we get it done right can you talk through what.
The pushes and pulls are there in terms of rolling that out across the system and when you think you could be at 100%.
Yes, it will actually expect to be Josh at 75% by the end of Q3.
So 75% by the end of Q3, you expect to be in all company restaurants by the end of this year as we implement digital menu boards. It certainly to your point, it's not just simply.
Plug in plug in the screen and there you go where net we're upgrading all of the network within every single one of our restaurants to enable us to not just execute digitally.
Perfectly from a menu perspective, but any further network.
Technology enhancements will be able to execute as well. So there is a network upgrade that happens a little bit of construction and then setting up and ensuring we have the right cabling all the electrical components as well as we do that one thing thats exciting as we're already seeing good results from leading indicator perspective check average some of them.
Messaging being really responded well too, but we haven't even started it really to implement things like price optimization.
Where we're really looking at the interplay of pricing throughout the menu, we have been able to test some of the aspects of that as well as menu layout until really just in the upcoming quarters.
So it's really expect some good step change from that perspective, moving quickly, but what also obviously ensure that we have the right network infrastructure and the right systems enabled to execute and really garner as much of the benefit as possible.
That makes sense I appreciate that and then one last one for me when we think about the new menu work.
On one hand definitely makes sense, you've done a lot of innovation over the years and so maybe a good time to maybe stop taking inventory of what you have what works and I understand that the research is not complete yet but.
It would be done by the end of the year can you talk a little bit more about why now is the right time, what do you expect to find and then maybe any sort of early research in terms of what supports the idea of chicken Parm, obviously sounds delicious. That's a favorite of mine, but just curious if that's something you've tested in the past or any sort of.
Yes over overarching strategy, you might be able to offer up in terms of kind of that next leg of culinary innovation.
Yes, I mean, I'll first start with chicken Parm, and one reason, we absolutely love it as a staple of Italian cuisine, it's not something that you are able to really see in any format from a from a price fast casual perspective, so it will be really on the front edge. There. So we're excited to bring it in the fast casual environment.
It just right down the middle of fairway extreme breadth of appeal, great familiarity over the years, we've typically try to as you know Josh balance.
More familiar items, such as the toward alone that we launched a couple of years ago with a bit more innovative unique items such as linguini.
This is kind of the natural sequencing.
Overall culinary innovation towards chicken Parm, which is something that we have seen with all of our research has as much potential as as toward alone. We did which was extremely successful. This is just the natural progression from that perspective.
That said as you look overall at the menu.
The World has changed in the last several years, we all know that the shift towards more off premise.
Catering is now coming back.
We want to ensure that we are not missing some potential big opportunities in terms of our menu and we are open to understanding we're working with one of the best out in the business.
To really evaluate it and say what are we potentially missing from a gas perspective that could really meaningfully have legs. So the fact that we've gained a lot of traction.
Our overall traffic trends, but are still not comfortable with where we're at and we know we have tremendous upside. We think this is a really good time for us to step back now that theres more normal guest behavior and identify where there is some some opportunities.
I appreciate it thank you.
Thank you as a reminder to ask a question. Please press star one one on your telephone.
Our next question comes from Andy Barish with Jefferies. Please proceed.
Hey, guys.
Welcome Mike.
On.
Just trying to contextualize.
The dine in sales increase with.
The off Prem challenges I mean last quarter you.
You've kind of focused on the delivery channel.
Seeing the most weakness.
Imagine just given the numbers that that has continued but I am not not exactly sure kind of by how much.
Or.
Kind of where that that starts to flatten out.
Yes, we've actually interestingly enough Andy as we did pivots in our overall value messaging one of the areas that we looked at specifically is in digital isn't delivery.
And really put some focused attention on that both from a marketing perspective and a bit on the promotion side, we've actually seen a nice rebound in the delivery business.
So from our perspective, if you think about the channels where people maybe are the least price sensitive which would be when they're going out to eat they're looking for a good experience or is that part of that delivery occasion, where they recognize they are paying a premium but date. They ascribe a significant value to that those are the areas, we're actually seeing strengthening.
Where we're seeing a little bit more weakness is kind of that off premise occasion, where somebody may be the alternative would be bringing something at home that could be a little bit less expensive than our offerings. So one reason, we're really again focused on that value proposition as well as focusing on.
Proving our overall competitive positioning including looking at the culinary aspect.
Does delivery has come back a bit dining again is strengthening.
That kind of to go area as well as the digital the digital quick pick up we're seeing a bit more softness.
And just a quick.
Quick follow up did you actually.
Thank your.
And your premiums down on third party delivery areas.
Responding with with.
Promotional activity.
That was more marketing as well as promotional activities and marketing could also include higher featured on the website. As an example, so we did not reduce the pricing on the third party delivery side.
Okay and then.
Yes.
Culinary I mean.
<unk> been working on actually kind of streamlining menu.
Kind of focusing what is.
Consumer.
Im telling you.
In this pivot to kind of looking at more variety potentially or or.
Wherever the culinary assessment is going to it's going to take you.
What's kind of the.
The consumer feedback in your in your research.
Yes, certainly internally of the research that we've already done Andy.
We're seeing the opportunities that we talked about with chicken parm as well as some optimization of our existing dishes.
So looking at really ensuring that they are able to travel our food generally travels great, but there are certain areas that we feel we could optimize potentially.
This will increase in source or looking at the recipes of those items.
So that's what our internal research is showing that we're already activating against.
In terms of overall, where they're potentially our culinary holds what should be the right size of the menu are there areas right now, where we said double down or may be areas, where we don't necessarily need a desk.
Those are areas that we're really going to be very open as we're working with that third party consultant.
To really evaluate the menu in its entirety to ensure that every single dish has delivered towards surpasses our guests' expectations. So we're honestly pretty open we have some good ideas for our internal research but.
We want to be able to have somebody else take a fresh look at it.
Got you and then I'm, sorry, if I missed it but when does it kick in palm launch and do you have.
Price points are a price point range.
You are considering.
It will be.
Early fall is what we're targeting at the moment.
Price perspective, hoping to be around $2 95. So what we think is a very attractive price point for what should be a very very popular dish.
Okay.
Got it thank you.
Thanks, Andy.
Thank you please standby for our next question.
Our next question is a follow up from Joshua long with Stephens, Inc. Go ahead Josh.
Thanks for taking my follow up just wanted to throw it over to Mike I realize it's been relatively recent that you joined we're excited to have you curious if you could give a little bit of perspective, just on early days, what you've seen and learned from the team the structure thats in place any sort of observations there and then.
Secondarily on the Cogs side I know you said you were locked in on chicken for the year, but curious if you could give us a little bit of a peek into the rest of the basket and kind of how things are positioned as we've started to hear more about inflation on the food side moderating from from peers.
Sure. Thanks, Josh.
It's just been a couple of weeks as you know and.
Really excited to join the team off to a good start with the team.
As far as the support office here, it's an impressive group of people that are supporting the restaurants and.
I have been impressed with how energized and focused everybody is.
Leading in and driving towards the initiatives that Dave talked about today. So.
To a great start and looking forward to.
Getting more entrenched in.
Getting involved with with the initiatives Dave talked about.
As far as Cogs, because youre right were locked in for the rest of the year.
Kick in.
With chicken and a lot of our primary.
Commodity basket items.
One area, where we're looking at as we start to talk to our suppliers about pricing for next year as we're seeing the same thing everybody seen around beef, which that's very familiar to me and it's a familiar story about.
The beef rollercoaster and so we're seeing that goes around the way in the market right now.
We're talking to our suppliers and doing some things to try to get ahead of that.
Outside of that it's pretty early to talk about 'twenty four for the rest of the year.
Anticipating very consistent Cogs as a percentage of sales for the balance of the year.
Thank you.
Thank you.
Im showing no further questions at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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