Q3 2023 First Watch Restaurant Group Inc Earnings Call
Thank you for standing by and welcome to the first POS Restaurant Group, Inc. Third quarter 'twenty two 'twenty three earnings conference call occurring today November one 2023, a M eastern time.
Please note that all participants are currently in a listen only mode. Following the presentation at the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time.
The call will be archived and available for replay at investors thought first watch dot com under the news and events section.
To turn the conference over to Steve Marotta, Vice President of Investor Relations at first watch to be yet.
Hello, everyone I am joined by first watches Chief Executive Officer, and President, Chris Tommaso and Chief Financial Officer. Mel Hope. This morning first watch issued earnings release for the third quarter 2023 on Globe Newswire and filed its quarterly report on Form 10-Q with the SEC. These docs.
Humans can be found at investors Dot first watch dot com.
Let me cover a few housekeeping matters before introducing Chris.
This conference call will include forward looking statements that are subject to various risks and uncertainties that could cause the companys actual results to differ materially from these statements.
The statements include without limitation statements concerning the condition, the company's industry and its operations performance and financial condition.
Strategies and future expense at any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in the company's filings with the SEC, including quarterly report on Form 10-Q for swaps no obligation to update these forward looking statements, whether as a result of new information future developments or otherwise.
As may be required by law.
Managements remarks today will include references various non-GAAP measures, including restaurant level operating profit restaurant level operating profit margin adjusted EBITDA and adjusted EBITDA margin investors should review the reconciliation of these non-GAAP measures to comparable GAAP results contained company's earnings release filed this morning.
With that I will turn the call over to Chris.
Good morning.
Before I share the details of another terrific quarter of growth I would like to first note that this earning season marks our eight quarter since our IPO.
Well, we're still early in our journey I'm proud of how this organization has established itself as a public company build credibility with investors and consistently produced positive results at a high rate of growth over a multiyear time horizon to everyone listening. This morning from the first watch organization. Thank you.
Now onto our third quarter.
Our organization once again delivered outsized performance top to bottom in the quarter first watch generated $219 2 million in total revenues, a 17, 3% increase versus a year ago.
We opened 13 system wide restaurants, surpassing the significant milestone of 500 restaurants, ending the quarter with 505 first watch restaurants across 29 states.
Our same restaurant sales increased four 8% once again supported by positive dining room traffic.
As we've noted in past quarters expected softness in our off premise channels has persisted as consumer behavior continues to shift and moderate post pandemic.
Finally, bottomline growth benefited from easing food and beverage inflation and effective four wall management by our operators.
We also continue to outperform the industry highlighting the benefit of our differentiation to other full service operators through our focus on the breakfast brunch and lunch day parts.
As compared to Black box intelligence first watch bested the industry by nearly 400 basis points illustrating our ability to grow traffic share. Our share growth is also supported by placer AI, which showed our consolidated traffic share gaining several hundred basis points against the full service segment.
My confidence in our ability to successfully navigate virtually any environment is higher than ever, especially in light of our consistent growth of course, given the macroeconomic backdrop, we remain cautious with respect to the state of the consumer.
While we have observed and in fact benefited from the strength and resilience of the consumer throughout the year. There's reason to believe that the weight of the environment is beginning to have an impact.
But as we have experienced in prior downturns consumers are less willing to gamble with their discretionary dollars and we'd rather seek out more familiar and enjoyable experiences that are consistent and deliver value like first watch.
Given our long standing record of exceeding industry traffic trends, we are well positioned to benefit from the consumers flight to quality.
In times like these the best operators are winning by that I mean brands that relentlessly lean into the basics for the benefit of their teams and their customers are winning.
We remain confident and unwavering in our commitment to culinary forward food served by highly trained teams who exemplify our you first mission in a way.
Warm and inviting atmosphere and at a tremendous value.
We deliver an exceptional dining experience at a compelling per person average of just $16 35.
Ensuring that first watch remains a reliable experience as well as her an affordable luxury.
Our focus on executing the basics at a high level remains key to our success.
Beyond our financial performance, we know we are well positioned when our employees and our customers are happy and by both measures, we're playing from a position of strength.
Both manager and employee turnover have continued to improve throughout the year, including during the third quarter.
Our customer experience scores are also at historical highs and continue to be a great indicator of future performance.
To further illustrate our focus here in the quarter, we completed our annual wide tour short for we hear you, where our chief people Officer, Laura Sorenson and Chief Operating Officer, Dan Jones joined me in speaking with hourly team members from every region in the company for.
For perspective, that's 22 separate 90 minute tours, comprising over 1900 minutes with more than 300 hourly team members there.
There is no more important task that we carry as leaders then to receive feedback and perspective from those that are serving our valued customers every day.
We learned what they love about working for first watch and how we can do better their insights and opinions are invaluable as we seek to continuously improve but it's our tactical reactions to this frontline information that allows us to effect positive change in real time, so that we're fully supporting our teams and better serving our customers.
I finished this year's tour encouraged that our culture in our restaurants, and our team's genuine desire to serve our customers and each other is as strong as ever our deep bench of human capital gives me confidence in our ability to execute our high growth expansion plans.
Double clicking on the topic of culture I'm also pleased to share that first watch was once again named to Newsweek's list of most loved workplaces. This is especially noteworthy to me because it's largely generated from more than 2 million employee surveys. We are proud to be the only restaurant brand that made the 2023 list a remark.
<unk> achievement for sure.
Our strong culture begins and ends with the environment fostered by our general managers and their restaurants on a daily basis I've always viewed the GM position as the most important role at first watch.
Well, we are one company, we consider ourselves to be a network of individual neighborhood restaurants in each of these are led by a general manager responsible for creating a positive environment for their team and customers awards like this demonstrate that we are keeping the culture flame bright as we raise the bar on nationwide expansion.
On the topic of nationwide expansion I am excited that the quarter ahead will be one of the most prolific in the company's history and our team is ready we will open 18 to 21, new system wide restaurants across 16 states in the fourth quarter alone.
In total we have over 100 restaurants in various stages of development and more than 120 promotion ready managers ready to lead them. We believe we are well positioned to capitalize on the white space in front of us.
We're in a select group within the public restaurant space opening new restaurants at a low double digit pace annually are highly portable brand succeeds in both existing and new markets with our top decile restaurants spanning 10 states and 19 Dma's, we're targeting third year <unk> of $2 5 million with restaurant level operating.
<unk> of 18% to 20% and cash on cash returns of 35% or greater these attractive unit economics achieved in $1 seven and a half hour shift support our long term goal of 2200 domestic first watch restaurants.
Finally, we continue to execute our strategy of complementing strong organic unit growth with the acquisition of certain franchise owned restaurants and related territories.
Earlier this year, we acquired 17 restaurants in the Milwaukee, Omaha, and South Carolina, Georgia markets.
Today, we are announcing an agreement to purchase an additional franchise partner with six restaurants in the Florida Panhandle and expect that transaction to close later this month.
Following these acquisitions, we will have 11 franchisees remaining who operate 97 restaurants and of those 46 are subject to purchase options I'll reiterate what I said last quarter for us converting franchises to company owned restaurants is compelling from both a financial and strategic perspective and represents a significant <unk>.
The opportunity for our entire enterprise.
And before I turn the call over to Mel while we still have two more months before turning the calendar on the new year, the effort and execution necessary to generate more than 30% adjusted EBITDA growth, assuming the midpoint of our updated guidance range as a point of pride for our entire organization and energize as all of us to double down on our commitment to serve.
More demand in our restaurants and with that I'll turn it over to Mel.
Thanks, Chris and good morning.
As Chris shared we're proud of our teams who continue to deliver strong results quarter after quarter.
Same restaurant sales growth increased four 8% and while traffic declined one 9% as we expected our dining room traffic growth remained positive.
Total revenues were $219 $2 million, a 17, 3% increase over the third quarter of 2022, reflecting both same restaurant sales growth as well as the sales in our newly opened and acquired restaurants.
Our food and beverage costs were 22, 6% of sales in the third quarter, which compared to 24, 2% in the same period last year.
Cost benefited from 220 basis points of favorability across our market basket compared to late last year.
Which were driven mostly by decreases in pork and avocado costs as well as leverage from our previous menu pricing actions.
Labor and other related expenses were 33, 9% of sales in the third quarter.
Up from 33, 3% in the third quarter of 2022, and driven primarily by an increase in the number of managers per restaurant.
We ended the period with an average of three one managers per restaurant compared with $2 eight a year ago.
We view three manager average.
Our standard of X as it provides the strength necessary to support our large number of planned new openings.
Restaurant level operating profit was $40 4 million for the quarter with a margin of 18, 7%.
An increase versus the 17, 3% restaurant level operating profit margin in the same period last year.
The margin improvement reflects increased leverage from our same restaurant sales growth improvement in food and beverage costs and favorability in other restaurant operating expenses, primarily driven by lower cost but to go supplies.
General and administrative expenses were $25 $2 million, approximately $3 5 million higher than in the prior year primarily.
Due to higher compensation expense from additional head count to support our rapid growth.
Adjusted EBITDA was 21 6 million, reflecting a margin of nine 9% an improvement versus the nine 1% margin we realized in the third quarter of 2022.
The quarter benefited from just over $1 million in G&A expenses, mostly head count and departmental projects.
Now expected to be incurred in the fourth quarter.
We opened 13 system wide restaurants during the quarter of which 10 were company owned and three were franchise.
As we have stated throughout the year our company owned restaurant development schedule in 2023 is heavily weighted towards the fourth quarter.
Operator: Thank you for standing by and welcome to the first Watch Western Group Inc. 3rd quarter, 23rd year earnings conference call, occurring today, November 1, 2023, at 8am Eastern time. Please note that all participants are currently in a listen only mode.
This year, we've often been asked about our customer check management.
We continue to believe our growing dining room traffic reflects our customers' preference for meaningful experiences to.
The Bora from one of Chris's statements made earlier this year the industry wide shift away from off premises.
Operator: Following the presentation, the conference call will be open for now as questions and instructions on how to ask a question will be given at that time. This call will be archived and available for replay at investors.firstwatch.com under the news and events section.
Appears to be a new indicator of check management.
And while declining off premises occasions will remain a headwind to our consolidated traffic growth our teams drove profitable growth in the third quarter due in part to the increased in restaurant visits.
Steven Marotta: I would like to turn the conference over to Steven Marotta, Vice President of Investor Relations at First Watch to begin. Hello, everyone.
Steven Marotta: I am joined by First Watch's Chief Executive Officer in President Chris Tomasso and Chief Financial Officer Mel Hope. This morning, First Watch issued earnings release of the 3rd quarter, 2023, on Globe Newswire and filed this quarterly report on form 10Q for the SEC. These documents can be found at investors.firstwatch.com Let me cover a few housekeeping matters before introducing Chris.
Now I'd like to update our full year outlook as follows.
We are increasing 2023 same restaurant sales growth expectations to a range of 7% to 8%.
It's up from our previous range of 6% to 8% and now expect our full year traffic will be generally flat.
We're carrying price of just below 6% in the fourth quarter compared to the prior year.
Steven Marotta: This conference call will include forward-looking statements that are subject to various risks and uncertainty that could cause the company's actual results to differ materially from these statements. The statements include without limitations, statements concerning the condition, the company's industry and its operation, performance and financial condition, growth strategies and future expenses. Any such statement should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosed during the company's filings with the SEC, including quarterly report on form 10Q for Swatch.
We now expect to open between 37, and 39 company owned restaurants, and 13% to 14 franchise owned restaurants. This year with one company owned restaurant closure.
On a consolidated basis, we expect a total of 49 to 52 net new system wide restaurants.
We now expect total revenue growth in the range of 20% to 21% that range is an increase from our previous range of 18% to 21% with acquisitions contributing about two 5% to total revenue growth.
Steven Marotta: No obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise, that does may be required by law. Lastly, the management's remarks today will include reference to various non-gap measures, including restaurant level operating profit, restaurant level operating profit margin, just a deba-dah and a just a deba-dah margin.
We now expect full year commodity deflation of negative 1% to flat.
With net commodity cost inflation for the balance of the year.
Steven Marotta: Investors should review the reconciliation of these non-gap measures to the comparable gap sales contained in company's earnings release file this morning, and with that, I will turn the call over to Chris.
We continue to expect hourly labor cost inflation to remain in the range of 9% to 11% with overall restaurant level labor cost inflation in the range of 8% to 10%.
Christopher Tomasso: Good morning. Before we share the details of another terrific quarter of growth, I would like to first note that this earning season marks our eighth quarter since our IPO. While we're still early in our journey, I'm proud of how this organization has established itself as a public company built credibility with investors and consistently produced positive results at a high rate of growth over a multi-year time horizon. To everyone listening this morning from the First Watch organization, thank you.
We are increasing our adjusted EBITDA guidance to a range of $91 million to $92 million from our previous range of $89 million to $92 million.
Acquisitions are expected to contribute about $3 million to our adjusted EBITDA This year.
We now expect a blended tax rate in the range of 26% to 28%.
We are adjusting our capital expenditures range, not including the capital allocated to the acquisitions of franchise owned restaurants.
Christopher Tomasso: Now on to our third quarter. Our organization once again delivered outsized performance top to bottom. In the quarter, First Watch generated 219.2 million in total revenues, a 17.3% increase versus a year ago. We open 13 system wide restaurants surpassing the significant milestone of 500 restaurants, ending the quarter with 505 First Watch restaurants across 29 states. Our same restaurant sales increased 4.8% once again supported by positive dining room traffic. As we've noted in past quarters, expected softness in our off premises channels has persisted as consumer behavior continues to shift and moderate post pandemic.
285 million to $90 million. This is down from our previous range of $100 million to $110 million mostly.
Due to the timing of new restaurant openings.
As a reminder, our fiscal 2023 is a 53 week year and our guidance includes the extra weeks contribution, which we estimate to be $10 5 million in total revenues $2 5 million in adjusted EBITDA.
And as much as we're in the middle of our budget season that would be premature to furnish expectation for 2024.
Christopher Tomasso: Web. Finally, bottom-line growth benefited from easing food and beverage inflation and effective four-wall management by our operators. We also continue to outperform the industry, highlighting the benefit of our differentiation to other full-service operators through our focus on the breakfast, brunch, and lunch day parts. As compared to Black Box Intelligence, First Watch bested the industry by nearly 400 basis points, illustrating our ability to grow traffic share. Our share growth is also supported by place or AI, which showed our consolidated traffic share gaining several hundred basis points against the full-service segment.
However, among our own modeling assumptions for the first quarter.
We see no reason to expect off premises traffic to reverse its trend.
Are there more because of the calendar shift our most productive week of the year falls into the fourth quarter of 2023 and out of the first quarter of 2024.
For further details on the third quarter. Please review our supplemental materials deck on our industrial relations website beneath the webcast.
And we will open the line now for questions operator.
Christopher Tomasso: My confidence in our ability to successfully navigate virtually any environment is higher than ever, especially in light of our consistent growth. Of course, given the macroeconomic backdrop, we remain cautious with respect to the state of the consumer. While we have observed, and in fact benefited from, the strength and resilience of the consumer throughout the year, there's reason to believe that the weight of the environment is beginning to have an impact. But as we have experienced in prior downturns, consumers are less willing to gamble with their discretionary dollars and would rather seek out more familiar and enjoyable experiences that are consistent and deliver value like First Watch.
Yes. Thank you at this time, we will begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone.
If you're already Jayant speaker phone, please pick up your handset before pressing the keys.
Your question. Please press Star then two.
Time, we will pause momentarily to assemble the roster.
And today's first question comes from Jeffrey Bernstein with Barclays.
Great. Thank you very much.
Hi, Joe Good question.
Two questions the first one on.
The comp trends since.
It seems like your absolute results for the third quarter close to 5% or modestly above expectation.
Christopher Tomasso: Given our long-standing record of exceeding industry traffic trends, we are well-positioned to benefit from the consumer's flight to quality. In times like these, the best operators are winning. By that, I mean brands that relentlessly lean into the basics for the benefit of their teams and their customers are winning. We remain confident and unwavering in our commitment to culinary fort food served by highly trained teams who exemplify our youth first mission in a warm and inviting atmosphere and at a tremendous value.
But yeah, we don't get to see the granularity within that or any thoughts on the fourth quarter. So I'm just wondering.
You said you had a.
<unk> quarter, yet the weight of the macro I think it was beginning to have an impact Chris I think was your reference I'm wondering if you could provide some color in terms of what you're seeing whether it's something specific first watch or whether you're just referring to the broader government data and metrics that lead people to believe there is a slowdown, but perhaps you're not yet seeing it and then I had one follow up.
Christopher Tomasso: We deliver an exceptional dining experience at a compelling per-person average of just $16.35, ensuring that First Watch remains a reliable experience as well as an affordable luxury. Our focus on executing the basics at a high level remains key to our success. Beyond our financial performance, we know we are well-positioned when our employees and our customers are happy, and by both measures we're playing from a position of strength. Both manager and employee turnover have continued to improve throughout the year, including during the third quarter.
Yes, I think.
<unk>.
I think to get to your question yes.
I think the industry is seeing some some softness overall.
But in terms of the guidance on the fourth quarter I think.
We've considered what.
We've considered what we're seeing in the market today and what we had in the third quarter in terms of the full year guidance. So I think you can back into pretty much what our thinking is about the fourth quarter.
Okay, but that's not something that.
I know you said the industry is seeing some softness if you were just looking at your own results through the third quarter and through October would you say that first what you are seeing some softness similar to the industry or not yet evident.
Christopher Tomasso: Our customer experience scores are also at historical highs and continue to be a great indicator of future performance. To further illustrate our focus here in the quarter, we completed our annual Y-tore, short for We Hear You, where our Chief People Officer Laura Sorenson and Chief Operating Officer Dan Jones joined me in speaking with hourly team members from every region in the company. For perspective, that's 22 separate 90-minute tours comprising over 1900 minutes with more than 300 hourly team members.
Consistently talked about our traffic, particularly where the off Prem.
Traffic is concerned that we've seen.
That kind of seeking a new home don't know exactly where it's going to land at some points.
That traffic has descended throughout the year, while our dining rooms have remained <unk>.
Christopher Tomasso: There is no more important task that we carry as leaders than to receive feedback and perspective from those that are serving our value customers every day. We learn what they love about working for First Watch and how we can do better. Their insights and opinions are invaluable as we seek to continuously improve. But it's our tactical reactions to this frontline information that allows us to affect positive change in real time so that we're fully supporting our teams and better serving our customers, customers.
Main positive they are probably less positive in the third quarter than they were earlier in the year. So there is there is that there is some downward pressure and I think thats, what first what you're seeing and thats what the industry is seeing.
Understood and my follow up was just on the menu pricing I think you mentioned that you'll be running roughly 6% in the fourth quarter.
Obviously, we're seeing cost pressures abate. So I'm wondering why you don't have specific thoughts yet on 2020 for how you think about pricing more theoretically whether you'd be inclined to take incremental price going into next year or whether based on the caution around the macro you'd perhaps.
Christopher Tomasso: I've finished this year's tour and courage that our culture in the restaurants and our teams' genuine desire to serve our customers in each other is as strong as ever. Our deep bench of human capital gives me confidence in our ability to execute our high growth expansion plans. Double clicking on the topic of culture, I'm also pleased to share that First Watch was once again named to Newsweek's list of most loved workplaces.
Take that incremental price I'm, just wondering how you think about that outlook going into 'twenty four thank you.
Christopher Tomasso: This is especially noteworthy to me because it's largely generated from more than two million employee surveys. We are proud to be the only restaurant brand that made the 2023 list, a remarkable achievement for sure. A strong culture begins and ends with the environment fostered by our general managers in their restaurant on a daily basis. I've always viewed the GM position as the most important role at First Watch. While we are one company, we consider ourselves to be a network of individual neighborhood restaurants and each of these are led by a general manager responsible for creating a positive environment for their team and customers. Awards like this demonstrate that we are keeping the culture flame bright as we raise the bar and nationwide expansion on the topic of nationwide expansion.
Thanks, Jeff This is Chris.
Just reiterate our our previous.
Plan and approach on pricing, which is to price to cover inflation. Obviously, we have been and continue to be a price laggard.
But the basis for that is that we're playing the long game here and we have been in all the decisions that we've made.
Round staffing and specifically menu pricing have been with that in mind. So we'll continue to do that that said, we will obviously continue to watch the environment and watch the consumer.
Our focus is on more visits.
And again, our long term view and approach. So that's what we're going to we're going to stay true to that.
Sounds good thank you.
Uh-huh.
Thank you and our next question comes from Sarah Senatore with Bank of America.
Christopher Tomasso: I'm excited that the quarter ahead will be one of the most prolific in the company's history and our team is ready. We will open 18 to 21 new system wide restaurants across 16 states in the fourth quarter alone. In total, we have over 100 restaurants in various stages of development and more than 120 promotion ready managers ready to lead them. We believe we are well positioned to capitalize on the white space in front of us.
Hi, This is actually Catherine Griffin on for Sarah. Thanks for the question I wanted to follow up just on the same store sales guidance, just given that it looks like the you know the rain.
<unk> tightened a little bit higher 70 E versus 6% to 8% prior but traffic has edged down I guess I was just hoping you could elaborate a bit more on whether you are expecting more pricing mix is it benefit from attach our trade up.
Christopher Tomasso: We are in a select group within the public restaurant space opening new restaurants at a low double digit pace annually. Our highly portable brands succeeds in both existing and new markets with our top death style restaurants spanning 10 states and 19 VMAs. We are targeting third year AUVs of 2.5 million with restaurant level operating margins of 18 to 20% and cash on cash returns of 35% or greater. These attractive unit economics achieved in one seven and a half hour shift support our long term goal of 2,200 domestic first watch restaurants.
Any color there would be helpful. Thank you.
The only thing that's really affecting.
Im trying to really understand the question, but at any rate I think I've already answered. The fact that we do expect to see the transaction piece.
Continue under some pressure.
The only thing that would be different in the fourth quarter is that we're rolling.
The winter storm.
Elliot right around last year's holiday period.
Christopher Tomasso: Finally, we continue to execute our strategy of complementing strong organic unit growth with the acquisition of certain franchise own restaurants and related territories. Earlier this year, we acquired 17 restaurants in the Milwaukee Omaha and South Carolina Georgia markets. Today, we are announcing an agreement to purchase an additional franchise partner with six restaurants in the Florida Panhandle and expect that transaction to close later this month. Following these acquisitions, we will have 11 franchisees remaining who operate 97 restaurants and of those 46 are subject to purchase options. I'll reiterate what I said last quarter. For us, converting franchises to company own restaurants is compelling from both a financial and strategic perspective and represents a significant growth opportunity for our entire enterprise.
And.
So theres, a little there's a little bit of that noise in there, but im not.
I'm not sure I'm answering your question, but I'm not sure exactly.
Understood.
Yeah, its really its really just the topic Nino topic first is price mix component I think gotten again, just sort of following up on the first the first question, but on that I appreciate the answer and that's.
That's fine.
The second question no. We were just wondering you know if you're since you're raising revenue guidance and new store guidance about lower Capex I'm. Just curious if we if we should understand that that means you are finding ways to build more efficiently if you're seeing less inflation on your build costs.
Any sort of commentary on the belden environment as it relates to that guidance, yes. That's a good question.
Christopher Tomasso: And before I turn the call over to Mel, while we still have two more months before turning the calendar on the new year, the effort and execution necessary to generate more than 30% adjusted EBITDA growth, assuming the midpoint of our updated guidance range, is a point of pride for our entire organization and energizes all of us to double down on our commitment to serving more demand in our restaurants.
The answer to that though is that really developers have.
Cause us to push out some projects that we would expect it to be spending into at this time of the year and we've kind of been seeing that leakage throughout the year or so so <unk>.
Eric and his team are.
Working hard to manage new projects and have done a really good job of keeping them on track, but there were but we would hope to have more projects.
Mel Hope: And with that, I'll turn it over to Mel. Thanks, Chris, and good morning. As Chris shared, we're proud of our teams who continue to deliver strong results quarter after quarter. Same restaurant sales growth increased 4.8%, and while traffic declined 1.9% as we expected, our dining room traffic growth remained positive. Total revenues were $219.2 million, a $17.3% increase over the third quarter of 2022, reflecting both same restaurant sales growth as well as the sales and are newly opened and acquired restaurants.
Spending more heavily into projects in the pipeline right now, but it's really the pace of a.
Developers delivering our hour.
New.
New sites, so that we can begin to finish them out and open them faster. So we're seeing some some pace at which were taken delivery slowdown.
Okay. Thank you.
Yeah.
Thank you and the next question comes from Andy Barish with Jefferies.
Good morning, guys.
Sure.
Just wondering on.
Mel Hope: Our food and beverage costs were 22.6% of sales in the third quarter, which compared to 24.2% in the same period last year. Costs benefited from 220 basis points of favorability across our market basket compared to last year, which were driven mostly by decreases in pork and avocado costs, as well as leverage from our previous menu pricing actions. Labor and other related expenses were 33.9% of sales in the third quarter, up from 33.3% in the third quarter of 2022, and driven primarily by an increase in the number of managers per restaurant.
On the commodity basket.
The update for this year and then on <unk>.
Some of the key items.
Eggs and potatoes that you'd been contracted on anything.
Provide for 24 at this point yet.
Really not ready to talk about 2024, and we will we will get to that but.
We're kind of sticking to the third quarter fourth quarter guidance right now.
Gotcha and then just one one additional question on.
Comps I'm assuming.
Hmm.
Mix was still positive in the quarter or is that is that correct.
Any change on Sandy.
Turning to alcohol or coffee beverage attach or anything like that.
Mel Hope: We ended the period with an average of 3.1 managers per restaurant compared with 2.8 a year ago. We view a 3 manager average as a standard of X as it provides the strength necessary to support our large number of planned new openings. Restaurant level operating profit was $40.4 million for the quarter with a margin of 18.7%, an increase versus the 17.3% restaurant level operating profit margin in the same period last year.
Would have been a change in what you've been seeing.
Mix mix remains positive.
<unk> or limited time offers are so popular.
And that always falls into our mix category.
And so they they remained a real push to our mix.
Beverage beverage incidences.
Particularly our our new our new premium iced coffees.
Create a little bit of noise for us.
Mel Hope: The margin improvement reflects increased leverage from our same restaurant sales growth, improvement in food and beverage costs, and favorability in other restaurant operating expenses primarily driven by lower costs of to-go supplies. General and administrative expenses were $25.2 million, approximately 3.5 million higher than in the prior year, primarily due to higher compensation expense from additional headcount to support our rapid growth. Adjusted EBITDA was $21.6 million, reflecting a margin of 9.9% an improvement versus the 9.1% margin we realized in the third quarter of 2022.
It's a new line and so where we're seeing the.
Mix well.
But it's really a small cohort that we're looking at since Thats a brand new line.
And then just just one more follow up if I could.
You guys had been pointing to kind of flattish EBITDA for the quarter you talked about G&A.
Permanent to the fourth quarter anything else that you would point to in terms of the upside.
Versus your expectations.
In terms of.
I guess I would say the thing I would caution people who are modeling the company about is our preopening costs in the fourth quarter.
Because we have so many projects that will be coming online.
Mel Hope: The quarter benefited from just over $1 million in GNA expenses, mostly headcount and departmental projects that's now expected to be incurred in the fourth quarter. We opened a 13 system-wide restaurant during the quarter of which 10 were company owned and 3 were franchise owned. As we have stated throughout the year, our company owned restaurant development schedule in 2023 is heavily weighted toward the fourth quarter. This year, we've often been asked about our customer check management.
So heavily weighted to the fourth quarter, our pre opening costs.
Will be a substantial contribution.
To the to the.
Adjusted EBITDA Formula.
Okay helpful. Thank you.
Thank you and then last question comes from Alex <unk> with Stifel.
Good morning, this is al ill answer Chris.
The Companys adjusted EBITDAR guidance for the year implies 60 million shares have been neely, but all for the fourth quarter, which would be a year over year improvement, but more of a death rate of improvement compared to the third quarter and the year to date results and.
Mel Hope: We continue to believe our growing dining room traffic reflects our customer's preference for meaningful experiences. DeBora from one of Chris's statements made earlier this year, the industry-wide shift away from off-premises appears to be a new indicator of check management. And while declining off-premises vacations remain a headwind to our consolidated traffic growth, our teams grow profitable growth in the third quarter due in part to the increased in-restaurant diseases.
Oh, Trc imply a lower margin year over year, why would that be the case.
So I just mentioned the fact that we've got we're heading up on Preopening costs in the fourth quarter, which will be part of the.
Part of the story and then we mentioned during our Com our scripted comments that we have about $1 billion of timing favorability on G&A in the third quarter that will slide into the fourth quarter and then our fourth quarter generally has.
Mel Hope: Now I'd like to update our full-year outlook as follows. We are increasing 2023 same-restaurant sales growth expectations to a range of 7 to 8%. That's up from our previous range of 6 to 8%. And now expect our full-year traffic will be generally flat. We're carrying price of just below 6% in the fourth quarter compared to the prior year. We now expect to open between 37 and 39 company owned restaurants and 13 to 14 franchise owned restaurants this year with one company owned restaurant closure.
Other higher costs as well for our National conference and that sort of thing.
Got it thank you.
Thank you and the next question comes from Brian Vaccaro with Raymond James.
Hi, Thanks, and good morning, I wanted to just circle back on the New unit performance. If we could could you provide a little more color just on the sales performance on the class of 2003, and then on the Capex side, what is the average development costs settling out in 'twenty, three and does that settling out or do you expect that to continue to rise in the 'twenty four.
Mel Hope: On a consolidated basis, we expect a total of 49 to 52 net new system-wide restaurants. We now expect total revenue growth in a range of 20 to 21%. That range is an increase from our previous range of 18 to 21% with acquisitions contributing about 2.5% to total revenue growth. We now expect full-year commodity deflation of negative 1% to flat with net commodity cost inflation for the balance of the year. We continue to expect hourly labor cost inflation to remain in the range of 9 to 11% with overall restaurant level labor cost inflation in the range of 8 to 10%.
So new restaurants that we built this year I think the I think the average before.
Before tenant improvement dollars.
Len landlords oftentimes.
Give us support when we enter into a lease with them. So I think the average bridge.
Overall is maybe above 1 million and a half and a net.
As in line with what we've said before which is a $1 million four or so net of the Ti dollars.
And then our our new restaurants in terms of sales on the on average I think theyre performing in line with our previous expectations.
Okay. Thank you for that and then just back to the commodity inflation no I think I heard you say you expect it to tick back into slightly inflationary territory here in the quarter.
Mel Hope: We're increasing our adjusted EBIT data guidance to a range of 91 to 92 million from our previous range of 89 to 92 million. Acquisitions are expected to contribute about $3 million to our adjusted EBIT data this year. We now expect a blended tax rate in the range of 26 to 28%. We're adjusting our capital expenditures range, not including the capital allocated to the acquisitions of franchise owned restaurants to 85 million to 90 million. This is down from our previous range of 100 million to 110 million, mostly due to the timing of new restaurant opening.
Could you just walk through kind of what items are kind of moving on yet back into slightly inflationary territory.
The one that sticks out to me right now is avocados are taking up some of it's just seasonal.
But we use a lot of avocados.
That's the significant mover I think in the market basket.
Okay, and then you mentioned just on Preopening costs.
Obviously understand the dynamic there, but outside looking in that's the number that's pretty difficult.
For us to estimate given timing and it's pretty sensitive is there any way you could put up.
Mel Hope: As a reminder, our fiscal 2023 is a 53-week year and our guidance includes the extra week's contribution, which we estimate to be 10.5 million in total revenues to and a half million in adjusted EBIT data.
Little bit of a sharper pencil on your expectation on pre opening in the fourth quarter. Thank you.
Sure.
Sure.
Well.
I don't know exactly what preopening costs are.
Right now for.
For.
Our fourth quarter plan.
Mel Hope: In as much as we're in the middle of our budget season, it would be premature to furnish expectations for 2024. However, among our own modeling assumptions for the first quarter, we see no reason to expect off-premises traffic to reverse its trend. Furthermore, because of the calendar shift, our most productive week of the year falls into the fourth quarter of 2023 and out of the first quarter of 2024. For further details on the third quarter, please review our supplemental materials deck on our industrial relations website beneath the webcast.
I think if you.
Look at what the average has been in the average number of projects that we have built through three quarters, it's probably not radically different from that.
Okay. Appreciate it thank you.
Thank you and then that's where that comes from Brian Piper Sandler.
Hi, This is Ashley on for for Brian you.
You Didnt mentioned in your prepared remarks, but I believe the <unk> system is fully rolled out or is about to be here.
Can you just talk through some of the benefits you've started to see flowing through the system and the expectations of that in 2024 do they primarily come from traffic or do you see some benefits in labor as well.
Operator: And we'll open the line now for questions. Operator? Yes, thank you. At this time, we will begin the question in an intercession. To ask a question, you may press star then one on your test tone phone. If you are using a speaker phone, please pick up your hands up before pressing the keys. To throw your question, please press star then two. At this time, we will pause momentarily to assemble the roster.
There is a number of benefits from the <unk> system.
Starting with <unk>.
Opening up the hiring pool for us.
And reducing training time.
And one of the biggest benefits of it as visibility into our ticket times that we didn't have before so as I've said, we've been establishing benchmarks, we have dashboards and other evaluation tools now that we're using to.
Jeffrey Bernstein: And today's first question, Constan Jeffrey Burns, team of Parkwise. Great. Thank you very much.
Christopher Tomasso: Good morning. Two questions. The first one on the Comtrends seems like your absolute results for the third quarter, close to 5% were modestly above expectation, but yet we don't get to see the granularity within that or any thoughts on the fourth quarter. So I'm just wondering, you know, you said you had a strong quarter yet the way to the macro, I think, was beginning to have an impact. Chris, I think, was your reference.
Really measure ticket times at peak times and Thats been the goal all along is to improve our performance during peak sales hours and increase those peak sales hours. So.
We havent reported on the impact of that yet.
As I've said in the past the rollout and implementation of that is inning number one as it relates to <unk> and we're continuing to learn a lot about it in and tweak and refine the system and perfect it and.
Christopher Tomasso: I'm wondering if you could provide some color in terms of what you're seeing, whether it's something specific, the first watch, or whether you're just referring to the broader government data and metrics that lead people to believe there's a slowdown, but perhaps you're not yet seeing it. And then I had one follow up. I think to get to your question, yeah, I think the industry is seeing some softness overall. But in terms of the guidance on the fourth quarter, I think we've considered what we're seeing in the market today and what we had in the third quarter in terms of the full year guidance.
But we are seeing some data that shows us that we're getting.
Much better ticket times during those peak sales hours.
That's great. Thank you I also I was just wondering what what commodity inflation was in this past quarter.
Commodity deflation.
Was about 200 basis points to 220 basis points something like that.
Great. Thank you I'll pass it back.
Thank you and once again. Please press Star then one if you would like to ask your question.
Christopher Tomasso: So I think you can back into pretty much what our thinking is about the fourth quarter. Okay, but that's not something that they said the industry seeing some softness. If you were just looking at your own results through the third quarter and through October, would you say that first watch is seeing some softness similar to the industry or not yet evident? Well, we've consistently talked about our traffic, particularly where the off-prem traffic is concerned that we've seen that kind of seeking a new home.
And the next question comes from John Mcnamara with Guggenheim.
Hi, Thanks for the question I'm, just wondering if you guys have any updates on the labor market and turnover and how turnover has evolved over the last couple of quarters.
I would say.
Our our staffing has continued to improve.
Now mentioned were $3, one managers per restaurant, where.
Previously we were at $2 eight so.
We feel good about where we are there I think overall.
Christopher Tomasso: I don't know exactly where it's going to land at some points, but that traffic has descended throughout the year, while our dining rooms have remained positive. They're probably less positive in the third quarter than they were earlier in the year. So there is some downward pressure, and I think that's what first watch is seeing and that's what the industry is seeing. Understood.
<unk>.
Inflation or excuse me turnover, it's held pretty steady for us.
And.
We're in a good place from a staffing perspective, specifically with the bench strength that we think we need to to support our growth and obviously our continued operations.
Turnover.
I mean, you asked specifically about that it's actually been ticking down for us through the year.
Christopher Tomasso: And my follow-up is just on the menu pricing. I think you mentioned that you'll be running roughly 6% in the fourth quarter. Obviously, we're seeing cost pressures, a bait, some wondering, well, you don't have specific thoughts yet on 2024. How do you think about pricing more theoretically, whether you'd be inclined to take incremental price going into next year or whether based on the caution around the MAC rail you'd perhaps not take that incremental price and just wondering, how do you think about that outlook going into 24?
I think our teams are doing a really really good job of.
Training and working with the cruise so as we've seen.
Throughout this year.
Whole industry.
Dealt with a lot of turnover right after the worst.
And first big waves of Covid during the first couple of years and we Werent, we werent an exception, we I think we stayed.
Christopher Tomasso: Thanks. Thank you. Thanks, Jeff. This is Chris. You know, I would just reiterate our previous, you know, plan and approach on pricing, which is to price to cover inflation. Obviously we have been and continue to be a price laggard. But the, you know, the basis for that is that we're playing the long game here and we have been in all the decisions that we've made around staffing and specifically menu pricing have been with that in mind.
I think we stayed better than the industry throughout that time, but.
But it was still higher than we like and we've seen it all year long.
We've worked to try and try and slow the turnover and it has.
Load considerably.
Since since 2000 22021, it's kind of been stepping down gradually so we've seen some improvement we've got.
Christopher Tomasso: So we'll continue to do that. That said, we'll obviously continue to watch the environment, watch the consumer. You know, our focus is on more visits and, again, a long-term view and approach. So that's, we're going to, we're going to stay true to that. That was good. Thank you.
I like the momentum there for us.
Thanks, and then just one more just might have already been asked but I think I missed it.
I know unit growth is heavier in the fourth quarter.
Possibility of any slippage into <unk> of 'twenty four for that.
Sure there's always some possibility of that once you get kind of close to the holidays, we don't want our trainers to be away from home.
Katherine Griffin: And the next question comes from Sarah Senator with Bank of America. Hi. This is actually Captain Griffin on for Sarah. Thanks for the question. I wanted to follow up just on the sensor sales guidance. Just given that it looks like the, you know, the range tight end a little bit higher, seven to eight versus six to eight percent prior, but traffic has edged down. I guess I was just hoping you could elaborate a little bit more on whether you're, you know, expecting more pricing mix.
During holiday times, but if it but if we do have slippage.
There might be a couple of projects.
That would slide but David.
For the most part you would expect them to open within a couple of weeks of the first of the year theyre not going to impact the overall.
Overall.
Katherine Griffin: Is it benefit from a tax or trade up? Any color there would be helpful. Thank you. The only thing that's really affecting it. I'm trying to really understand the question, but anyway, I think I've already answered the fact that we do expect to see the transaction piece, continue under some pressure. The only thing that would be different in the fourth quarter is that we're rolling a, you know, the winter storm. Elliott right around last year's holiday period.
Our performance next year contribution next year.
Awesome.
Sure.
I would say I would say this that the every project that we have.
We expect to open this year is under construction today. So so.
<unk>.
There is definitely there.
There's definitely a ratio under the finish line.
All of them.
I appreciate it.
Thank you and the next question comes from Andrew Charles with Cowen.
Katherine Griffin: And so there's a little, you know, there's a little bit of that noise in there, but I'm not, I'm not sure I'm answering your question, but I'm not sure exactly. It's really just a traffic, you know, traffic versus price mix component. I think, again, just sort of following up on the first, the first question, but that I appreciate the answer. And that's, that's fine. On the second question, though, we were just wondering, you know, if you're, since you're raising revenue guidance and new store guidance, but lower cap X. I'm just curious if we, if we should understand that that means you're finding ways to build more efficiently.
Thank you. This is <unk> I've got two questions on labor are the first one is that in the 10-Q, you called out labor inflation is expected to remain in that 8% to 10% range.
Sequentially are you seeing that getting better.
On an inflationary.
Basis not really.
Meanwhile, a lot of our labor inflation is attributed to.
Regulatory increases in minimum wage in different states.
And so it's.
Fairly fairly reliable.
[laughter].
Okay. Thank you and then the second question is that.
Katherine Griffin: If you're seeing less inflation and your build costs, you know, any sort of commentary on, on the build environment as it relates to that guidance. Yeah, that's a good question. I think the answer to that, though, is that really developers that have caused us to push out some projects that we had expected to be spinning into at this time of the year. And we've, we've kind of been seeing that leakage, you know, throughout the year.
Are you at the right level staffing now or should we include the incremental staffing in our models.
Yes, we are at the right with the right level level now.
Alright, great. Thank you.
Thank you and this concludes our question and answer session I would like to return the call to Chris Tommaso for any closing comments.
Katherine Griffin: So, so Eric and his team are working hard to manage new projects and have done a really good job of keeping them on track, but there were, but, but we would hope to have more projects. Spinning more heavily into projects in the pipeline right now, but it's, it's really the pace of developers delivering our, our new, you know, new sites so that we can begin to finish them out and open them faster. So we're seeing some, some pace at which we're, we're taking delivery slowdown. Thank you. Yeah. Thank you.
Thank you for your thoughtful questions. This morning, we appreciate it we look forward to finishing the year strong with our continued focus on serving more demand and making days brighter for every <unk> customer I hope you all have a joyful and restful holiday season. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
Andrew Barish: And the next question comes from Andy Barish with Jeffries. Morning, guys. I'm just wondering on the commodity basket, you know, the update for this year, and then, you know, on some of the key items, like eggs and potatoes that you've been contracted on anything, you know, will provide for 24 at this point yet.
Mel Hope: Really not ready to talk about 2024. We'll get to that. But we're kind of sticking to the third quarter, fourth quarter guidance right now. Gotcha. And then just one additional question on the comps. I'm assuming mix was still positive in the quarter, is that correct? And, you know, any change on, you know, sort of alcohol or, you know, the coffee beverage attached or anything like that that, you know, would have been a change in what you've been seeing.
Mel Hope: Yeah, mix, mix remains positive, you know, our LTOs are limited time offers are so popular that, and that always falls into our mix category and they, and so they, they've remained a real push to our mix beverage, beverage incidences, particularly our, you know, our new, our new premium ice coffees create a little bit of noise for us. Because we're, it's a new line. And so we're, you know, we're seeing those mix well.
Mel Hope: But it's really a small cohort that we're looking at since that's a brand new line. And then just, just one more follow up if I could Mel just, you know, you guys have been pointing kind of flat it, EBITDA for the quarter, you talked about DNA, some, you know, deferment into the fourth quarter, anything else that you would, you know, point to in terms of the upside versus your expectations. In terms of, I guess I would say the thing I would caution people are modeling the company about is our pre-opening costs in the fourth quarter, because we have so many projects that will be coming online. So heavily weighted to the fourth quarter, our pre-opening costs will be a substantial contribution to the, to the adjusted EBITDA formula. Okay, helpful.
Mel Hope: Thank you.
Ella Zhou: And then I ask question comes from our review with staple.
Mel Hope: Good morning. This is Ella, I'm for Chris. Now the company's adjusted EBITDA guidance for the year implies 16 million to 17 million EBITDA for the fourth quarter, which would be a year over year improvement, but a more of a desperate improvement compared to the third quarter and the year today results. And they also appear seeing quite a lower margin year over year.
Mel Hope: Why would that be the case? So I just mentioned the fact that we've got we're having up on pre-opening costs in the fourth quarter, which will be part of the, part of the story. And then we mentioned during our come our scripted comments that we have about a million dollars of timing favorability on GNA in the third quarter that will slide into the fourth quarter. And then our fourth quarter generally has other higher costs as well for our national conference and that sort of.
Operator: Thank you.
Brian Vaccaro: And the next question comes from Brian Vaccaro with Raymond James. Hi, thanks. Good morning.
Mel Hope: I want to do a circle back on the new unit performance if we could and could you provide a little more color just on the sales performance on the class of 23. And then on the 10th side, where's average development cost settling out in 23 and is that settling out or do you expect that to continue the rise in the 24. So new restaurants that we built this year, I think the I think the average before before tenant improvement dollars, you know, landlords oftentimes give us support when we enter into a lease with them.
Mel Hope: So I think the the average overall is maybe above a million and a half. And the net is in line with what we said before, which is a million for net of the ti dollars. And then our our new restaurants in terms of sales on average, I think they're performing in line with our previous expectations.
Mel Hope: Okay, thank you for that.
Mel Hope: And then just back to the commodity inflation. No, I think I heard you say you expected to tick back into slightly inflationary territory here in the corner. Could you just walk through kind of what items are kind of moving on you back into slightly inflationary territory. The one that sticks out to me right now is is avocados are taking up some of it's just seasonal. But that's it, you know, we use a lot of avocados that that's the significant mover, I think, in the market basket.
Mel Hope: Okay, okay, and then you mentioned just on pre opening costs, obviously understand the dynamics there, but outside looking in that's a number that's pretty difficult for us to estimate given timing and it's pretty sensitive. Is there any way you could put a little bit of a sharper pencil on your expectation on pre opening the fourth quarter. Thank you. Sure, well, I don't know exactly what pre opening costs are right now for for our fourth quarter plan. I think if you look at what the average has been and the average number of projects that we have built through three quarters, it's probably not radically different from that.
Mel Hope: Okay, appreciate it. Thank you.
Operator: Thank you, and that's got a customer Brian Maroon, five percent.
Zach Ogden: Hi, this is Ashley on for Brian, you didn't mention in your prepared remarks, but I believe the KDS system is fully rolled out or is about to be. Can you just talk through some of the benefits you've started to see flowing through the system and the expectations of that in 2024. Do they primarily come from traffic or do you see some benefits in labor as well? There's a number of benefits from the KDS system, you know, starting with opening up the hiring pool for us and reducing training time.
Zach Ogden: And one of the biggest benefits of it is visibility into our ticket times that we didn't have before. So as I said, we've been establishing benchmarks. We have dashboards and other evaluation tools now that we're using to really measure ticket times at peak times. And that's been the goal all along is to improve our performance during peak sales hours and increase those peak sales hours. So we haven't reported on the impact of that yet.
Zach Ogden: As I said in the past, the rollout and implementation of that is ending number one as it relates to KDS and we're continuing to learn a lot about it and tweak and refine the system and perfect it. But we are seeing some data that shows us that we're getting much better ticket times during those peak sales hours, of course. That's great. Thank you. Also, I was just wondering what commodity inflation was in this past quarter?
Zach Ogden: Commodity deflation was about 200 basis points, 220 basis points, something like that. Great. Thank you. I'll pass it back. Thank you. Now once again, please press star. Then one, if you would like to ask a question.
Christopher Tomasso: And then ask question, Constan John, Matt Demar, who's good? Hi, thanks for the question. I'm just wondering if you guys have any updates on the labor market and turnover and how turnover is evolved over the last couple of quarters? I would say our staffing has continued to improve. Mel mentioned where 3.1 managers per restaurant were previously we were at 2.8. So, you know, we feel good about where we are there. I think overall, you know, inflation or excuse me, turnover has held pretty steady for us.
Christopher Tomasso: And, you know, we're in a good place from a staffing perspective, specifically, you know, with the bench strength that we think we need to support our growth and obviously our continued operations. Turn, turnover, I mean, you asked specifically about that. It's actually been picking down for us through the year. I think our teams are doing a really, really good job of, you know, training and working with the crews. So, as we've seen throughout this year, you know, the whole industry dealt with a lot of turnover right after the worst and first big waves of COVID through the first couple of years.
Christopher Tomasso: And we weren't an exception. I think we stayed, you know, I think we stayed better than the industry throughout that time, but it was still higher than we like and we've seen it all year long. We've worked to try and slow the turnover and it has slowed considerably since 2021. It's kind of been stepping down gradually, so we've seen some improvement. We've got I like the momentum there for us.
Christopher Tomasso: Thanks. And then just one more this might have already been asked, but I think I missed it. I know unit growth is heavier in the fourth quarter. Any possibility of any slippage into one queue of 24 for that? Sure, there's always impossibility of that. Once you get kind of close to the holidays, we don't want our trainers to be away from home during holiday times, but if we do have slippage, you know, there, there might be a couple of projects that that would slide, but they, you know, for the most part, you would expect them to open within a couple of weeks of the first few year.
Christopher Tomasso: They're not going to impact the overall overall performance next year or contribution next year. Awesome, but you know. I would say this that every project that we have, that we expect to open this year is under construction today, so there's definitely a race on to the finish line on every day.
Zach Ogden: I appreciate it. Thank you.
Andrew Charles: And then that's Christopher Andrew Charles with PD Cowan. Thank you. This is Zach Ogden off of Andrew.
Zach Ogden: I've got two questions on labor. The first one is that in a 10Q you called out labor inflation is expected to remain in that 8% to 10% range. But sequentially, are you seeing that getting better? On an inflationary basis, not really. I mean, a lot of our labor inflation is attributed to regulatory increases in the minimum wage in different states. And so it's fairly, fairly reliable. Okay, thank you.
Zach Ogden: And then the second question is that are you at the right level staffing now or should we include the incremental staffing in our models? Yeah, we're at the right level now. Okay, great. Thank you.
Operator: And this concludes the question in the intercession.
Christopher Tomasso: I will let you turn the call to Chris Tommaso for any closing comments. Thank you for your thoughtful questions this morning. We appreciate it.
Christopher Tomasso: We look forward to finishing the year strong with our continued focus on serving more demand and making days brighter for every First Watch customer.
Christopher Tomasso: I hope you all have a joyful and restful holiday season. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation and we're now to centralize.