Q3 2023 Noodles & Co Earnings Call
Speaker 1: Good day, and thank you for standing by. Welcome to the Noodles & Company's third quarter 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising you that your hand is raised.
Good day, and thank you for standing by and welcome to the noodles <unk> Company's third quarter 2023 conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the <unk>.
You will need to press star one one on your telephone you will then hear in automated message advising you that your hand is raised to withdraw your question. Please press star one one again.
Speaker 2: To withdraw your question, please press star 11 again.
Speaker 3: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Hines, CFO . Mike, you have the floor.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Mike <unk> CFO, Mike you have the floor.
Speaker 4: Thank you and good afternoon everyone. Welcome to our 3rd quarter 2023 earnings.
Thank you and good afternoon, everyone welcome to our third quarter 2023 earnings call.
Speaker 5: Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer.
This afternoon.
Our Chief Executive Officer.
Speaker 6: 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.
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.
Speaker 7: Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
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 to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K for it.
Speaker 8: And actual events or results could differ materially from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news.
Speaker 9: and the cautionary statement in the company's annual report on Form 10-K for its 2022 fiscal year and subsequent filings with the SEC.
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 about <unk>.
Speaker 10: which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Evaluating the company's operating performance.
Measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Speaker 11: A reconciliation of these measures to the most directly comparable GAAP measures is available in our third quarter 2023 earnings report.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our third quarter 2023 earnings release.
Speaker 12: To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of forward-looking non-GAAP .
To the extent that the company provides guidance it does so only on a non-GAAP basis.
Does not provide reconciliations for forward looking non-GAAP measures, specifically forecasted adjusted EBITDA adjusted EPS and contribution margin.
Speaker 13: specifically forecasted adjusted EBITDA, adjusted EPS, and contribution margin.
Speaker 14: Quantitative reconciling information for these measures is unavailable without unreasonable
Quantitative reconciling information for these measures is unavailable without unreasonable efforts.
Speaker 15: The corresponding GAAP measures are not accessible on a forward looking basis, and such information is likely to be significant.
Corresponding GAAP measures are not acceptable on a forward looking basis.
Such information is likely to be significant to an investor.
Speaker 16: Now, I would like to turn it over to Dave Fenninghausen, our Chief Executive Officer.
Now I would like to turn it over to Dave.
Our Chief Executive Officer.
Speaker 17: Thanks, Mike, and good afternoon, everyone. During the third quarter, Googles and Company gained meaningful traction improving our financial performance.
Thanks, Mike and good afternoon, everyone.
During the third quarter. It doesn't the company gained meaningful traction improving our financial performance, culminating in adjusted EBITDA of $11 $7 million nearly 20% above the third quarter of 2022.
Speaker 18: culminating in adjusted EBITDA of $11.7 million, nearly 20% above the third quarter of 2022.
Speaker 19: This growth can primarily be attributed to restaurant level margin improvement of 200 basis points relative to prior year to 16.4%.
This growth can primarily be attributed to restaurant level margin improvement of 200 basis points relative to prior year to 16, 4%.
Speaker 20: Compared to the second quarter of 2023, adjusted to even over twenty six percent and restaurant level margin improved one hundred and sixty base.
Compared to the second quarter of 2023, adjusted EBITDA grew 26% and restaurant level margin improved 160 basis points.
Speaker 21: During the third quarter, we were able to take advantage of continued favorability in the expense environment.
During the third quarter, we were able to take advantage of continued favorability in your expense environment. The.
Speaker 22: benefit of labor efficiency initiatives and real life savings from our focused GNA restructuring that occurred earlier this year.
The benefit of labor efficiency initiatives.
Realized savings from our focus G&A restructuring that occurred earlier this year.
Speaker 23: After a challenging second quarter, I'm encouraged by the progress that we made in margin expansion and even.
After a challenging second quarter Im encouraged by the progress that we made and margin expansion.
Speaker 24: From a top-line perspective, total revenue decreased 1.2% in the third quarter versus prior year to $127.9 million, driven by a 3.7% decline in system-wide comparable restaurant sales.
No.
From a top line perspective total revenue decreased one 2% in the third quarter versus prior year to $127 9 million.
Driven by a three 7% decline in system wide comparable restaurant sales.
Speaker 25: Thus far in Q4, sales are trending similarly to Q3 with a modest deceleration in comparable restaurant sales by the acceleration in two-year growth.
Thus far in Q4 sales are trending similarly to Q3 with a modest deceleration in comparable restaurant sales.
Acceleration in two year growth.
Speaker 26: As we discussed at our last earnings call, we are focused on five initiatives to drive our sales performance through the balance of the year and beyond.
As we discussed at our last earnings call. We are focused on five initiatives to drive our sales performance through the balance of the year and beyond.
Speaker 27: First, price optimization with a balance of appropriate discounting and promotion.
First price optimization with a balance of appropriate discounting and promotions.
Speaker 28: Second, advancement in our technology platforms to increase guest engagement and analytics.
Advancement of our technology platforms to increase guest engagement analytics.
Speaker 29: Third, leveraging the recent introduction of a highly recognizable consumer favorite into the fast casual world, chicken parmesan.
Third leveraging the recent introduction of a highly recognizable consumer flavor into the fast casual world Chicken parmesan.
Speaker 30: 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 fifth, a significant expansion of our catering program.
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.
With a significant expansion of our catering program.
Speaker 31: The first area that we've been actively addressing has been around value and optimizing our pricing strategy.
The first area that we've been actively addressing has been around value and optimizing our pricing strategy.
Speaker 32: Clearly, in today's environment, value is increasingly important, and we believe we have an opportunity to address the price of our proteins, which are added to their dish by 80% of our debt.
Clearly in today's environment value is increasingly important and we believe we have an opportunity to address the price of our proteins, which are added to their desk by 80% of our deaths.
During the third quarter, we began testing pricing strategies to address this opportunity, as well as partnering with third-party research firms to better understand the elasticity of our pricing, both at a dish and trade area level.
During the third quarter, we began testing pricing strategies to address this opportunity as well as partnering with third party research firms to better understand the elasticity of our pricing both in a dish and trade area level.
We are encouraged by the initial results of this work and anticipate both broadening our test as well as introducing more surgical pricing tiers within our menu and across trade areas in future months.
We are encouraged by the initial results of this work and anticipate both broadening our cast as well as introducing more surgical pricing tiers within our menu and across trade areas in future months.
Our second area of focus is the improvements that we have made to our technology and data.
Our second area of focus is the improvements that we've made to our technology and data platforms.
Nearly 50% of our guests experience the brand in the restaurant, including dine-in and
Nearly 50% of our gas experienced the brands and restaurants, including dine in and orders to go.
In 2023, we've been installing digital menu boards across all of our company restaurants.
In 2023, we've been installing digital menu boards across all of our company restaurants, which will allow us to quickly incorporate insights from our current pricing and extensive menu research across the system.
which will allow us to quickly incorporate insights from our current pricing and extensive menu research across the system.
Digital money boards have now been installed in over 75% of company restaurants, and we anticipate being fully rolled out by the end of the year. As an example of the benefit.
Digital menu boards have now been installed in over 75% of company restaurants, and we anticipate being fully rolled out by the end of the year.
As an example of the benefit of digital menu boards are primary messaging has been around chicken parmesan and rice crispy add on the digital board restaurants and in those units in restaurant sales of those items were meaningfully higher than those restaurants without digital boards.
Our primary messaging has been around chicken, parmesan, and rice crispy add-on, the digital board recipe.
And in those units, in restaurant sales, those items were meaningfully higher than those restaurants without digital boards.
While the Interest in our guest experience improves with the implementation of digital many boards, we also continue the meaningfully enhance our ability to engage with guests through a better understanding of their behavior with our recently implemented customer data platform, as well as through our rewards program.
While the in restaurant guest experience improves with the implementation of digital menu boards. We also continue to meaningfully enhance our ability to engage with gas through a better understanding of their behavior with our recently implemented customer data platform as well as through our rewards program.
We're excited to announce that Noodles Rewards just recently welcomed its 5 millionth member.
We're excited to announce the noodles rewards just recently welcomed its $5 million member.
As an example, we have now introduced nationwide a product recommendation engine on our website and app driven by machine learning.
As an example, we have now introduced nationwide product recommendation engine on.
Our website and App driven by machine learning.
This has led to a 45% increase in the likelihood of a digital guest adding a recommended item and ultimately an approximate 1% lift in average check on our digital platforms. We have a very strong.
This is led to a 45% increase in the likelihood of a digital gas, adding a recommended item and ultimately an approximate 1% lift in average check on our digital platforms.
We have a very strong technology foundation to build from and with the completion of digital menu boards.
And with the completion of digital menu boards, increased learnings from our customer data platform, and third party work around optimizing our menu pricing and layout, I'm excited at the potential to positively impact the business, both in the short and long term.
<unk> learnings from our customer data platform and third party work around optimizing our menu pricing and layout I'm excited at the potential to positively impact the business both in the short and long term.
Another example of this strength can be seen with our third focus area, leveraging our recent introduction of chicken parmesan.
Another example of the strength can be seen with our third focus area leveraging our recent introduction of chicken parmesan.
As we introduced chicken Parmesan, we were able to tailor messaging and imagery to guests that had previously added chicken to their entree.
As we entered as chicken parmesan, where we're able to tailor our messaging and imagery to gas that had previously added chicken to their entre.
This more personalized approach led to a meaningful increase in message engagement, as well as increased trial of chicken Parmesan for those guests when compared to guests who did not receive specific message.
This more personalized approach led to a meaningful increase in messaging gateway as well as increased trial of chicken parmesan or those guests when compared to gas you did not receive specific messaging.
We're very pleased with the guest response thus far from Chicken Parma.
We're very pleased with the gas response, thus far from chicken parmesan. Thanks.
Since launch, it has consistently been one of our top 3 selling dishes, has one of our highest Taste of Food scores, and we saw a 33% increase in Rewards Program sign-ups during the 2-week Rewards-exclusive period prior to full launch.
Thanks, Walt since launch it has consistently been one of our top three selling dishes as one of our highest taste of goods food scores and we saw a 33% increase in rewards program sign ups during the two week rewards exclusive period prior to launch.
Encouragingly, we have seen the DISH appeal primarily to young and lower-income cohorts, which are the most price-sensitive.
Encouragingly, we have seen the dish appeal, primarily to young and lower income cohorts, which are the most price sensitive in today's environment.
We are only two months into the launch of chicken Parmesan, and given its broad appeal and attractive price point, we believe we continue to have significant runway for the product to drive traffic from loyal last and new guests alike.
We're only two months into the launch of chicken parmesan and given its broad appeal and attractive price point. We believe we continue to have significant runway for the product to drive traffic from oil lapsed and new guests alike.
We believe the introduction of chicken Parmesan is an integral step in advancing our menu, which will be further transformed by our fourth focus area, a comprehensive review to enhance.
We believe the introduction of chicken Parmesan is an integral step in advancing our menu, which will be further transformed by our fourth focus area a.
<unk> had some review to enhance and optimize our current menu.
supported by an industry-leading third-party culinary consulting firm.
Supported by an industry, leading third party culinary consulting firm.
While we're still relatively early in this partnership, we're very excited at the progress and potential from their areas of focus and look forward to integrating their work into our operating model and menu strategy over the course of 2020.
While we're still relatively early in this partnership we're very excited at the progress and potential from their areas of focus and look forward to integrating their work into our operating model and menu strategy over the course of 2024.
One of the areas of our menu we're optimizing is our fifth focus area, our catering profile.
One of the areas of our menu, we're optimizing as our fifth focus area our catering program.
During the third quarter, catering grew 35% over prior year, and we continue to believe the opportunity is much larger.
During the third quarter catering grew 35% over prior year and we continue to believe the opportunity is much larger.
The variety inherent in our menu, which eliminates the veto.
The variety inherent in our menu, which eliminates the veto vote combined with how well our food holds for the catering occasion.
Combined with how well our food holds for the catering occasion, provides the opportunity to substantially grow this part of our business.
The opportunity to substantially grow this part of our business.
As we enter the holiday season, we feel well positioned to further expand the program and I look forward to sharing the future updates, our progress and catering as well as our other sales driving initiatives clearly building.
As we enter the holiday season, we feel well positioned to further expand the program.
I look forward to sharing future updates, our progress and catering as well as our other sales driving initiatives.
Clearly building sales remains a top priority.
That said, as we discussed on our last call, we're focused on strengthening our financial performance in its entirety. I'm pleased with the progress we made in the third quarter, leaving a significant margin and even expansion. And we'll now turn it over to Mike to discuss our results and expectations in more detail.
That said as we discussed on our last call. We're focused on strengthening our financial performance in its entirety I am pleased with the progress we made in the third quarter leaves a significant margin and EBITDA expansion I will now turn it over to Mike to discuss our results and expectations in more detail.
Thank you, Dave. In the third quarter, our total revenue decreased 1.2%.
Thank you, Dave and the third quarter, our total revenue decreased one 2% to $127 9 million compared to last year, driven by a decline in comparable sales, partially offset by revenue from new restaurants.
to $127.9 million compared to last year, driven by a decline in comparable sales, partially offset by revenue from new revenue.
system-wide comparable restaurant sales during the third quarter decreased 3.7%
System wide comparable restaurant sales during the third quarter decreased three 7% include.
including a decrease of 4.3% at company-owned restaurants and a decrease of 1.2% at franchise locations.
Including a decrease of four 3% at company owned restaurants, and a decrease of one 2% at franchise locations.
Company average unit volumes in the third quarter were 1.34 million.
<unk> average unit volumes in the third quarter were $134 million.
Company comparable traffic during the third quarter declined 6.7 percent. Pricing during the third quarter was.
Company comparable traffic during the third quarter declined six 7%.
<unk> during the third quarter was three 9%, we anticipate a similar amount of price to carry forward through the fourth quarter.
We anticipate a similar amount of price to carry forward through the fourth quarter.
Turning to the P&L for the third quarter, restaurant level contribution margin was 16.4%, a 200 basis point increase compared to last year. Our restaurant contribution margin continued to benefit from significant year-over-year improvement in our cost of goods sold line, offset by modest de-leverage across other areas of restaurant revenue.
Turning to the P&L for the third quarter restaurant level contribution margin was 16, 4%, a 200 basis point increase compared to last year.
Our restaurant contribution margin continued to benefit from significant year over year improvement in our cost of goods sold line offset by modest deleverage across other areas of restaurant expense.
caused in the third quarter was 25.1%.
Caused in the third quarter was 25, 1% of sales a 290 basis point improvement from prior year. This improvement was primarily due to continued favorability in commodity markets compared to last year, which led to food deflation of five 7% during the quarter.
a 290 basis point improvement from prior year. This improvement was primarily due to continued favorability in commodity markets compared to last year, which led to food deflation of 5.7% during the quarter. We continue to expect overall low single digit food deflation for 2023, led by chicken, which is contracted for the full year.
We continue to expect overall low single digit food deflation for 2023 led by chicken, which is contracted for the full year.
Labor costs for the third quarter were 31.3% of sales compared to 30.8% in the prior year. Wage inflation continues to moderate with year-over-year hourly rate growth of 5.5% for the full quarter.
Labor costs for the third quarter were 31, 3% of sales compared to 38% in the prior year.
Wage inflation continues to moderate with year over year hourly rate growth of five 5% for the full quarter.
September was our lowest hourly inflation of the year at 3.9% growth year over year.
September was our lowest hourly inflation of the year at three 9% growth year over year.
As a percentage of sales, third-quarter labor costs were lower than the first and second quarters, primarily due to the impact of labor productivity.
As a percentage of sales third quarter labor costs were lower than the first and second quarters, primarily due to the impact of labor productivity initiatives.
Labor productivity initiatives in the third quarter also contributed 70 basis points to restaurant contribution margins when compared
Labor productivity initiatives in the third quarter also contributed 70 basis points to restaurant contribution margins when compared to 2022.
Due to de-leverage, occupancy costs increased 40 basis points over prior year to 9.2%. Other restaurant operating costs increased slightly in the third quarter to 18% compared to 17.9% in 2022.
Due to deleverage of occupancy costs increased 40 basis points over prior year to nine 2% other.
Other restaurant operating costs increased slightly in the third quarter to 18% compared to 17, 9% in 2022.
GNA for the third quarter was $11.9 million, compared to $11.6 million in the prior year.
G&A for the third quarter was $11 9 million compared to $11 6 million in the prior year.
GNA included non-cash, stock-based compensation of approximately $694,000 during the third quarter.
G&A included noncash stock based compensation of approximately 694000 during the third quarter compared to 751000 in the prior year, we anticipate full year G&A to be between 50 and $52 million.
compared to 751,000 in the prior year. We anticipate full-year DNA to be between 50 and 52 million.
Gap net income for the third quarter was $700,000, or $0.02 per diluted share, compared to net income of $795,000.
GAAP net income for the third quarter was 700000 or <unk> <unk> per diluted share compared to net income of 795000 last year.
non-GAAP diluted earnings per share was flat to prior year at $4.70.
non-GAAP diluted earnings per share was flat to prior year at <unk>.
Please refer to our earnings release for reconciliations of non-GAAP members.
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 guide.
Turning to the full year I would like to provide an update to the 2023 guidance. Our 2023, we anticipate full year revenue of $502 million to $506 million.
For 2023, we anticipate full-year revenue of $502 to $506 million, inclusive of negative low-single-digit comparable restaurants.
<unk> of negative low single digit comparable restaurant sales.
For this current fourth quarter, we anticipate total revenue of between $123 million and $127 million, and comparable restaurant sales to decline mid-single-digit.
For this current fourth quarter, we anticipate total revenue of between 123 and $127 million in comparable restaurant sales to decline mid single digits.
We anticipate full year restaurant contribution margin of approximately 15% with our current guidance reflecting margin expansion of 100 basis points versus prior year. For the current fourth quarter, we anticipate restaurant margin between 15 and 16%.
We anticipate full year restaurant contribution margin of approximately 15% with our current guidance, reflecting margin expansion at a 100 basis points versus prior year.
The current fourth quarter, we anticipate restaurant margin between 15 and 16%.
Building on our third quarter performance, we expect adjusted EBITDA of between $36 and $40 million. Included in our full year guidance is expected adjusted EBITDA for the fourth quarter of $8 to $12 million.
Building on our third quarter performance, we expect adjusted EBITDA between 36% and $40 million.
Alluded in our full year guidance as expected adjusted EBITDA for the fourth quarter of $8 million to $12 million.
Our adjusted EPS expectations for 2023 are now between negative eight cents and zero.
Our adjusted EPS expectations for 2023 are now between negative <unk> in Europe.
For the fourth quarter, we anticipate adjusted EPS between negative $0.05 and positive $0.03.
For the fourth quarter, we anticipate adjusted EPS between negative <unk> <unk> and.
And positive <unk>.
For further information regarding our 2023 expectations, please see the business outlook section of our press.
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 $2.5 million and a total debt balance of $65.4 million. We currently have over $50 million of incremental liquidity available for future borrowings under our amended credit facility.
Turning to the balance sheet at quarter end, we had cash and cash equivalents of $2 5 million and a total debt balance of $65 4 million. We currently have over $50 million of incremental liquidity available for future borrowings under our amended credit facility.
Additionally, during the third quarter, the company retired over 1.7 million shares at an average price of $2.86.
<unk> during the third quarter. The company retired over one 7 million shares at an average price of $2 86.
Our share effectively completing the $5 million share repurchase authorization that was announced on our prior earnings call.
In the third quarter. The company opened four new restaurants for the full year. We continue to expect approximately 20, new restaurant openings system wide, including one franchise opening in the fourth quarter, representing 5% growth unit growth in company owned restaurants for the year.
For the full year, we continue to expect approximately 20 new restaurant opening system wide, including one franchise opening in the fourth quarter, representing 5% gross unit growth and company owned restaurants for the year.
With that, I'd like to turn the call back over to Dave for final remarks.
With that I'd like to turn the call back over to Dave for final remarks.
Thanks, Mike. We are pleased with the traction the Noodles and Company made during the third quarter, with meaningful expansion both in restaurant level margin and adjusted EBITDA, as well as improvement in top line performance relative to the prior quarter.
Thanks, Mike we are pleased with the traction of the noodles <unk> company and made during the third quarter with meaningful expansion both in restaurant level margin and adjusted EBITDA as well as improvement in top line performance relative to the prior quarter.
But we are far from satisfied.
While building on our financial performance in Q3, we continue to aggressively execute on our sales driving initiatives for the balance of the year and beyond, including price optimization, improved guest engagement analytics,
Building on our financial performance in Q3, we continue to aggressively execute on our sales driving initiatives for the balance of the year and beyond including price optimization.
Improved guest engagement and analytics.
Leveraging our recent introduction of chicken parmesan.
Comprehensive third-party supported enhancement and optimization of our menu and brand messaging for 2024 and a significant expansion.
Our comprehensive third party supported enhancement and optimization of our menu and brand messaging for 2024.
And a significant expansion of our catering program.
These initiatives will build upon our strong foundation with a differentiated brand, robust digital and rewards program, and the culinary and pricing flexibility that we will garner from the impending completion of our digital menu board rollout. I look forward to sharing our progress in upcoming quarters. Thank you for your time today.
These initiatives will build upon our strong foundation with a differentiated brand robust digital and rewards program.
And the culinary and pricing flexibility that we will garner from the impending completion of our digital menu board rollout.
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. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from Tyler Pross with Stephen.
Our first question comes from Tyler <unk> with Stephens.
Tyler, please go ahead with your question. Thanks for taking the question, and congrats on the great quarter. Just the third-party pricing optimization efforts are especially encouraging, and I was going to see if you could talk more about the learnings from, you know, possibly overstepping on price earlier in the year and what could be different this time around.
Please go ahead with your question. Thanks.
Thanks for taking my question and congrats on the great quarter.
Just.
The third party pricing.
<unk> efforts are especially encouraging and I was going to see if you could talk more about the learnings from possibly overextending on price earlier in the year and what could be different this time around.
And then I had one follow up.
Sure, Tyler, and I appreciate that. And, you know, ultimately, as we said in the last earnings call, we do believe that we were too aggressive with price and totality during 2022, as well as early 2023. That said, we do feel there's some opportunity for modest price by just becoming more surgical with our pricing strategy. We feel there's great optimization opportunities from a trade area tiering perspective, specific menu items, and importantly, that interplay between the entree level and protein.
Sure Tyler and I appreciate that.
Ultimately as we said on the last earnings call. We do believe that we were too aggressive with price in totality during 2022 as well as early 2023 that said, we do feel there is some opportunity for modest price by just becoming more surgical with our pricing strategy, we feel there's great optimization opportunities from a trade area.
Sharing perspective specific menu items, and importantly that interplay between the entre level and protein prices. The digital menu boards. The third party conjuring pricing study that we're working on they're all going to they are all in process right now that will help us optimize the prices. We go forward and since then we will be kicked our time, we want to make.
The digital menu boards, the third party conjoint pricing study that we're working on, they're all in process right now. They'll help us optimize the price as we go forward. At the same time, we will be taking our time. We want to make sure that we test it appropriately, complete the research to optimize price for the long term.
Sure that we tested appropriately complete the research to optimize price for the long term.
Great. Thank you for that. And if we could just get an update on what you're seeing at the brand level from different income cohorts, you know, any trends of trade down or mixed management would be very helpful. And that's it for me.
Great. Thank you for that and if we can just get an update on what youre seeing at the brand level from different income cohorts any trends or trade down or mixed management would be very helpful and that's it for me.
Yeah, we're not seeing much difference, Tyler, between what we had seen during the tail end of Q2 as well as Q3. What I will say, one aspect that is encouraging is as we normalize different trade areas based on their economics and demographics, chicken parmesan in particular has an index almost 30% higher in trade areas that are younger and a bit lower income than those that are a bit older and higher income. So I think we are starting to really effectively address.
Yes, we're not seeing much difference Tyler between what we had seen during the tail end of Q2 as well as Q3, what I will say one aspect that is encouraging is as we normalize different trade areas based on their economics and demographics chicken parmesan in particular has an index almost 30.
<unk> higher.
In trade areas that are younger and a bit lower income than those that are older and higher income. So I think we are starting to really effectively address some of the challenges we have with the lower income cohorts with the introduction of chicken farm.
some of those challenges we have with the lower income cohorts with the introduction of chicken farm.
Great. That's it for me thank you.
Please standby for our next question.
Our next question comes from Andrew Barish with Jeffries.
Our next question comes from Andrew Barish with Jefferies.
Andrew. Please go ahead with your question.
Hey, guys, good afternoon, I'm just just wondering on October , you know, for the industry was better and, you know, your 4th quarter guide.
Hey, guys good afternoon.
Just wondering on October for the industry was better.
And your fourth quarter guide.
you know, kind of in a similar range, you know, as, as three Q, I mean, is that mostly comparisons just given the big lap you have, you know, coming up you know, with, with over 10% in the company owned same store sales last year?
Kind of in a similar range.
As <unk> I mean is that mostly comparisons just given the big lab you have coming up.
With over 10% in the company owned same store sales last year.
Yeah, and just to level set as a reminder, Andy, you just mentioned it, we had a very strong Q4 last year with same source sales of about 10% and it was higher during the first half.
Yes, and just to level set as a reminder, Andy you just mentioned it or we had a very strong Q4 of last year with same store sales about 10% and it was higher during the first half of Q4 of last year.
of Q4 of last year. That's when you look at the overall cadence, there's obviously a lot of moving pieces and what's kind of considered normal seasonality. As we said on the call, thus far in Q4, what we're seeing is an acceleration in our two-year same-shore sales growth as we face that more challenging comparison, while one-year same-shore sales has modestly decelerated.
When you look at the overall cadence there is obviously a lot of moving pieces and what's kind of considered normal seasonality as we said on the call. Thus far in Q4, what we're seeing is an acceleration in our two year same store sales growth as.
As we face more challenging comparison, while one year same store sales has modestly decelerated from an average unit volume perspective, which we think is a very appropriate look at the health of the business is behaving as we expected we've seen some stabilization in average unit volumes are clearly we're not satisfied but we're pleased at how the.
From an average unit volume perspective, which we think is a very appropriate look at the health of the business, it's behaving as we expected. We've seen some stabilization in average unit volumes. Clearly, we're not satisfied, but we're pleased at how the economic model performed at those volumes in Q3. As you look at the cadence of where our volumes are today, we're at 1.33 million quarter to date. That's on par with full Q3. It's actually a little bit of a step up from where we were during the September fiscal period. So, overall, we feel that the trajectory, especially given those comparisons, is pretty steady and healthy.
The economic model performed at those volumes in Q3 as you look at the cadence of where our volumes are today were at $133 million quarter to date. That's on par with full Q3 is actually a little bit of a step up from where we were turning to September fiscal period. So overall, we feel that the trajectory, especially given those <unk>.
<unk> is pretty steady and healthy.
Yeah.
Yes.
Got it. And then.
Got it and then.
Can you just update this kind of, you know, timing on.
Can you just update us kind of.
Timing on.
Some of the menu work is, you know, you look out to 24 and.
Some of the menu work as you look out to 'twenty four.
And how do you, you know, working with your your third party consultants, how do you balance kind of the
And how do you working with your third party consulting how do you balance kind of the.
you know, the simplification and operational improvements you've made over the last couple of years with, you know, wanting to do more stuff on the menu, which, you know, potentially could add some complexity back.
The simplification and operational improvements you've made over the last couple of years with.
Wanting to do more stuff on the menu, which potentially could add some complexity back on.
Sure, no, it's a great question. So the firm we're working with is called the culinary edge. We've been very impressed and pleased with their work together. We're looking at 3 different areas. Andy, how the menu is architectured the offerings themselves and then how to enhance the culinary operations. I think that's when you'll really see.
Sure No. It's a great question. So the firm we're working what's called the culinary as we've been very impressed and pleased with their work together, we're looking at three different areas A&D.
Many of these architectures the offerings themselves and then how to enhance the culinary operations I think that's when you'll really see us look at the operating model and say how can we potentially actually find some efficiencies while at the same time investing some areas to make our menu, even more compelling and resonate better and be more kantar.
us look at the operating model and say, how can we potentially actually find some efficiencies while at the same time investing
some areas to make our menu even more compelling and resonate better and be more contemporary.
The first area that you're going to see us address is around the menu.
Temporary the first area that youre going to see us address is around the menu architecture collectively we feel with culinary actually theres opportunities to make the menu less overwhelming to emphasize our position as the new authority and to optimize price we're already in task with certain aspects of that area and I think you can expect.
Collectively, we feel with Culinary Edge that there's opportunities to make the menu less overwhelming, to emphasize our position as the new authority, and to optimize price. We're already in test with certain aspects of that area, and I think you can expect to see us broaden the test and implement that in relatively short order. And then following that will be some of the new menu introductions, as well as ultimately looking at some of the culinary procedures.
<unk> broadened the task to implement that in relatively short order and then following that will be some of the new menu introductions as well as ultimately looking at some of the culinary procedures.
Got it. Very helpful. And then are you willing to share what chicken farm mixed in the in the or in the month of September ?
Got it very helpful. And then are you willing to share what chicken pardon mixed in the in the call or in the.
Month of September.
It's not something that we share, we do share though that it is the third highest item in sales. It's been very consistent with being the third highest in terms of sales volume and from a taste of food score perspective, with our internal metrics, it's actually the number one performing dish on our menu. So, very pleased with what we're seeing from a mixed perspective and just an overall performance of chicken parm.
It's not something that we share we do share though that it is the third highest item in sales has been very consistent with being the third highest in terms of sales volume and from a taste of food score perspective, with our internal metrics. It's actually the number one performing dish on our menu. So very pleased with what we're seeing from a mix.
Perspective, and just an overall performance of chicken pardon me.
Okay. Thank you very much.
Please hold for our next question.
Our next question comes from Jake Bartlett with Truist. Jake, please go ahead with your question.
Our next question comes from Jake Bartlett with Truest Jacob. Please go ahead with your question.
Great, thanks for the question. Mine was building on Andy's questions just about the timing and you know regarding the menu boards it seems like that's going to allow you to do a lot.
Great. Thanks, Ron Thanks for the question Mike was building on Andy's questions just about the timing regarding the menu board. It seems like Thats going to allow you to do a lot.
with adding some surgical value and kind of, you know, the tiered pricing in different markets, but
With adding some surgical value and kind of detour.
Pricing in different markets, but.
You know, is that something that you can turn on before it's fully rolled out? Or I mean, is the main impact, you know, the primary impact of those digital menu boards to come? You know, is that really much more of a first quarter 24 story?
Is that something that you can turn on before.
Fully rolled out where is the main impact the primary impact of those digital menu boards to come is that really much more of a first quarter 'twenty four story.
Yeah, so where we're at today actually is where by the end of this week, Jake will be an 85% of our restaurants that are company owned having the digital menu boards.
Yes, so where we're at today actually is where by the end of this week.
Jake will be at 85% of our restaurants that are company owned having the digital menu boards. So we're actually already starting to develop some of the work with the culinary edge on how we can potentially redesign that layout menu you can expect us to turn that on.
So, we're actually already starting to develop some of the work with with the culinary edge on how we can potentially redesign that layout menu. You can expect us to turn that on in certain markets. Actually, at the very beginning of next year, as we test and validate the performance from that will certainly expand beyond that to the rest of the country.
In certain markets actually at the very beginning of next year as we test and validate the performance from that will certainly expand beyond that to the rest of the country that said, we have already been able to use the roster of restaurants that have done it and already have digital menu boards.
That said, we have already been able to use the roster of restaurants that had already had digital menu boards to start testing certain things. And an example of that would be, we started to test what if you had a net neutral price structure, but it was such that the base price was maybe modestly.
To start testing certain things and an example of that would be we started to test what if you had a net neutral price structure, but it was such that the base price was maybe modestly higher than what it was in the past, but the protein price lower and so we're seeing some great learnings from that that we're able to marry with the larger work.
higher than what it was in the past, but the protein price lower.
And so we're seeing some great learnings from that that we're able to marry with the larger work. So we're already in process with some of the testing that will inform learnings that we'll be able to implement early in Q1.
So we're already in process with some of the testing that will inform learnings that we'll be able to implement early in Q1.
Okay, and just a question on value perceptions in the impact and obviously when you took the the large price increase in I think February was traffic went up when when negative pretty or further further negative pretty quickly. I guess my anticipation was that would kind of.
Okay, and just a question on the value perceptions in the impact and obviously when you took the large price increase and I think February was in traffic when it went negative pretty or further negative pretty quickly.
I guess my anticipation was that would kind of.
somewhat, you know, work itself out over time, that time would kind of help there as consumers just got used to it. Is that something that you're, it doesn't feel like you're seeing really that. And so the question is, you know, are you seeing, you know, value perceptions just starting to kind of recover just with time, or you think that really for you to see a meaningful improvement in traffic, it's going to really require, you know, all the measures you're under.
Somewhat work itself out over time that time would kind of help there as consumers just got used to it is that something that youre. It doesn't feel like you're seeing really that and so the question is are you seeing value perception is just starting to kind of recover.
Just with time or you think that really for you to see.
Meaningful improvement in traffic, it's going to really require all the measures we are undertaking.
No, it's a great question. And what we see is we did see improvement relative from Q2 to Q3 and we think a component of that.
No. It's a great question and we see this we did see improvement relative from Q2 to Q3, and we think a component of that.
is the ability for us to quickly pivot and address some of the value opportunities. That said, we do believe that this is the time for us to look at overall transforming the menu, the layout structure, and the pricing structure to really optimize it for the long term. So, over the course of time, I think you'll just continue to see an accretive nature to the benefit of that, especially as we kind of transform some aspects of the menu and are able to be more compelling for maybe that last guest, that guest that we potentially lost.
Is the ability for us to quickly pivot and address some of the value opportunities.
That said, we do believe that this is the time for us to look at overall transforming the menu the layout structure and the pricing structure.
Really optimize it for the long term.
So over the course of time I think you'll just continue to see an accretive nature to the benefit of that especially as we kind of transform some aspects of the menu and are able to be more compelling for maybe that last gas back after we potentially loss.
that we're still having a bit of challenges bringing back.
Still having a bit of challenge is bringing back.
Okay, and it was at last year at this time, you first gave us your view on 2024 COGS. You had, I think, been looking at locking down your chicken supply and price. Anything you can tell us about expectations in 24 and what kind of visibility you have on the commodity inflation side?
Okay and it was at last year at this time you first gave US your view on 2024 Cogs you had.
I think we've been looking at.
Locking down your chicken supply and price anything you can tell us about expectations in 'twenty, four and what kind of visibility you have on that on the commodity inflation side.
Hi, Jake. This is Mike and your memory is correct. This is the time when we're talking to our suppliers and trying to lock as much of our price as we can for 2024 where we are in the process right now. It's it's a little early to give 24 guidance on where we expect inflation or deflation to be.
Hey, Jay this is Mike.
Your memory is correct. This is the time when we're talking to our suppliers and trying to lock in much of our prices. We can for 2024, where we are in the process right now it's a little early to give 24 guidance on where we would expect inflation or deflation debate.
But our goal is to lock a substantial portion of our basket at prices that are
But our goal is to lock in a substantial portion of our basket at prices that are.
Um, very close or even I'll just say close to 23 levels. Yeah, I think 1 thing that's encouraging is our basket here. Jake is is probably beneficial. Um, certainly you're seeing beef and steak, which is not a significant portion of our menu basket. You know, that's been 1 of the more challenging markets, so that's not as impactful for us.
Very close to or even just say close to 23 levels. Yes, I think one thing that's encouraging is our basket here Jake is probably beneficial certainly youre seeing beef and steak, which is not a significant portion of our menu basket.
That's been one of the more challenging market. So that's not as impactful for US and then chicken, which was the largest it has been the largest driver of our Cogs improvement our initial conversations as we contract that ingredient also we're pretty pleased with how those are progressing.
And then chicken, which was the largest has been the largest driver of our COGS improvement, our initial conversations as we contract that ingredient. Also, we're pretty pleased with how those are progressing.
Right. And then last question is, is the visibility on 2024 development? Maybe just remind, remind me what your, what your thinking is on the pace, kind of in rough terms in 24. And then, you know, how many, how many, you know, signed leases do you have? What's your, what's your progress, you know, so far on terms of 24 development?
Great and then last question is this is the visibility on 2020 for development.
Maybe just remind remind me what youre, what youre thinking is on the pace kind of in rough terms in 'twenty four and then.
How many signed leases do you have what's your what's your progress.
So far in terms of 'twenty for development.
Yes, we're happy with the new restaurant performance. We continue to be pleased with those as well as feel that there's big unit growth opportunity ahead of us.
Yes, we're happy with the new restaurant performance, we continued to be pleased with those as well as feel that Theres Big unit growth opportunity ahead of US currently we're at Jake We do expect 2024 growth will look pretty similar to 2023 from a numeric perspective franchise potentially playing a bit of a bigger.
Currently, where we're at, Jake, we do expect 2024 growth will look pretty similar to 2023 from a numeric perspective, franchise, potentially playing a bit of a bigger part than it did last year. As we look at where we're at from a development pipeline. Currently, I mean, obviously, it's still a fluid environment. We expect it to be a little bit more evenly balanced than what we've seen in prior years. And all those restaurants, we have enough restaurants to hit that pipeline that are already under leased.
Part than it did last year as we look at where we're at from a development pipeline.
Currently I mean, obviously, it's still a fluid environment, we expect it to be a little bit more evenly balanced than what we've seen in prior years and all of those restaurants.
Have enough restaurants at that pipeline that are already under lease.
It's more so just the timing you can't control around landlord delivery and aspects like that, but all of those sites are accounted for in the pipeline.
It's more so just the timing you can't control around landlord delivery and aspects like that but all of those sites are accounted for in the pipeline.
Great. Thank you so much.
This concludes the question and answer session. I would now like to turn the call back over to Dave Bennehausen for closing remarks.
This concludes the question and answer session I would now like to turn the call back over to Dave <unk> for closing remarks.
Thank you, Stacy. We know it's yet another busy earnings season, so appreciate everybody's time today and please have a safe and relaxing holiday.
Thank you Stacy we know it's yet another busy earning season. So I appreciate everybody's time today and please have a safe and relaxing holiday.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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