Q3 2023 Carrols Restaurant Group Inc Earnings Call

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Speaker 1: Welcome to Carol's Restaurant Group, Inx, Third Quarter, 2023, Earnings Conference Call. At this time, all participants are on a listen only mode.

Welcome to Carol's Restaurant Group, Inc. Third quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

Speaker 1: Following the presentation, we will conduct a question and answer session. Instructions on how to ask a question will be given at that time. I would like to remind everyone that this conference call is being recorded. Today, Thursday, November 9, 2023 at 8.30 a.m. Eastern time, and will be available for replay.

Following the presentation, we will conduct a question and answer session.

Structures on how to ask a question will be given at that time I would like to remind everyone that this conference call is being recorded today Thursday November 19, 2023 at 830, a M eastern time and will be available for replay.

Speaker 1: I will now turn the conference over to Greta Miles, Carol's controller and assistant treasurer. Thank you, please go ahead.

I'll now turn the conference over to your credit miles Carol's controller and assistant Treasurer. Thank you. Please go ahead.

Speaker 2: Thank you, operator, and good morning, everyone. By now, you should have access to our earnings announcement released earlier today in our earnings presentation that are both available on our website at www.caros.com under the Investor Relations section.

Thank you operator, and good morning, everyone by now you should have access to our earnings announcement released earlier today and our earnings presentation that are both available on our website at www Dot dot com under the Investor Relations section.

Speaker 2: Before we begin our remarks, I would like to remind everyone that our discussion, including answers to questions posed to management, may include forward-looking statements or comments with respect to our strategies, intentions or plans, and the future direction of revenues in the class or other aspects pertaining to our business. These statements are not here to use the future performance, and therefore, our new reliance should not be placed on them.

Before we begin our remarks I would like to remind everyone that our discussion including answers to questions posed. Your management may include forward looking statements or comments with respect to our strategies intentions or plans in the future direction of revenues and by class or other aspects pertaining to our business.

Statements are not guarantees of future performance and therefore undue reliance should not be placed on them.

Speaker 2: We also require you to our filings with SEC for more details. Both who respect to forward looking statements as well as risks that could impact our business and results.

We also refer you to our filings with the SEC for market cap well go with respect to forward looking statements as well as risks.

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Speaker 2: During today's call, we will discuss certain non-get measures that we believe can be useful in evaluating our performance.

During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance.

Speaker 2: The presentation of this additional information should not be considered an isolation or the substitute for results prepared in accordance with generally accepted accounting principles. And a reconciliation to comparable GAAP measures is available without earning.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles and a reconciliation to comparable GAAP measures is available with our earnings release.

Speaker 2: With that, I will now turn the call over to our president and CEO , Deborah Derby.

With that I will now turn the call over to our President and CEO Dr. Jerry.

Speaker 3: Thank you, Greta, and good morning, everyone. We're thrilled with our results for the third quarter as we not only achieved comparable sales growth of 8.1% at a Burger King restaurant, we also saw positive traffic growth earlier than anticipated this year.

Thank you, Greg and good morning, everyone.

We're thrilled with our results for the third quarter as we not only achieved comparable sales growth of eight 1% at a Burger King restaurants. We also saw positive traffic growth earlier than anticipated this year.

Speaker 3: In addition, we had great traction with recent product launches, such as the DK Royal Caspirat, which significantly outperformed expectations.

In addition, we had great traction with recent product launches such as the BK rail cars, Iraq, which significantly outperformed expectations.

Speaker 3: Our strong top line growth drove a 530 basis point expansion in restaurant level EBITDAB margins compared to a prior year period and was a basis for free cash flow generation of over 30 million dollars in the quarter and the reduction in our net leverage ratios to 2.8 times.

Our strong top line growth drove a 530 basis point expansion in restaurant level EBITDA margin compared to our prior year period and was the basis for free cash flow generation of over $30 million in the quarter and the reduction in our net leverage ratio to two eight times equally important our team members continue to remain focused on providing our new <unk>.

Speaker 3: Equal important, our key members continue to remain focused on providing our new and returning guests with an excellent customer experience. As we saw improvements in all KPIs measured by our franchisee or including a 33% increase in guest satisfaction.

And returning guests with an excellent customer experience as we saw improvements in all kpis as measured by our franchisees, who are including a 33% increase in guest satisfaction.

Speaker 3: As a result, we are on the cost of achieving a level operator status under a franchisee or scoring system in less than 12 months. To see such progress across our portfolio of a 2020 Burger King restaurant in such a short period of time is a real testament to the talent and hard work of our field and restaurant team members.

As a result, we are on the cusp of achieving a level operator status under a franchise there were scoring system in less than 12 months to see such progress across our portfolio of a thousand in 'twenty Burger King restaurants in such a short period of time is a real testament to the talent and hard work of our field and restaurant team members.

Speaker 3: Together, our operational improvements allowed us to increase our hours of operation by over 3% while reducing labor hours by about 2% compared to the prior year period. We continue to see productivity efficiencies in labor with wage inflation decelerating to approximately 4%. Manager an hourly turnover remaining stable and enhanced operational efficiency from our team members.

Together, our operational improvements allowed us to increase our hours of operation by over 3%, while reducing labor hours by about 2% compared to the prior year period, we continued to see productivity efficiencies in labor with wage inflation decelerating to approximately 4% manager and hourly turnover remaining stable and enhanced operational.

C from our team members.

Speaker 3: Our success in the quarter also extended to our Popeyes restaurants, which are now part of the second largest chicken fast food chain in the US. The introduction of sweet and spicy wings help drive both comparable sales growth and improve profitability. Similar to our Burger King restaurants, we are seeing continued progress in our customer satisfaction scores at our Popeyes restaurants as well.

Our success in the quarter also extended to our popeye's restaurants, which are now part of the second largest chicken fast food chain in the U S.

Production of Sweet and spicy wings helped drive both comparable sales growth and improved profitability.

Laura to our Burger King restaurants, we are seeing continued progress in our customer satisfaction scores at our popeye's restaurants as well.

Speaker 3: These strong quarterly results and operational improvements have not been possible without the hard work and dedication of our more than 24,000 carols team members. And I want to thank them personally for their continuing efforts and commitment.

These strong quarterly results and operational improvements would not have been possible without the hard work and dedication of our more than 24000 Carol's team members and I want to thank them personally for their continuing efforts and commitment.

Speaker 3: A digital business, including delivery and mobile, has also seen substantial growth and is now approaching 10% of our overall sales. A year-over-year increase of 300 patients.

Our digital business, including delivery and mobile has also seen substantial growth and is now approaching 10% of our overall sales a year over year increase of 300 basis points. There are two major areas, which we believe are contributing to this increase.

Speaker 3: There are two major areas which we believe are contributing to this increase. First, the successful marketing and product launches by our franchise or, including the B.K. Royal Crispy Raps, have amplified Burger King's relevance across demographic groups, including a younger consumer, which is generally more tech savvy. We've seen across the board improvements to both mobile and delivery in terms of com sales, traffic, and average chat.

First the successful marketing and product launches by our franchise door, including the BK Royal Crispy reps have amplified burger king's relevance across demographic groups, including the younger consumer which is generally more tech savvy, we've seen across the board improvements to both mobile and delivery in terms of comp sales traffic and average check.

Speaker 3: Second, delivery continues to benefit from a relatively strong dinner and late-night performance, with the latter continuing to be aided by our increased hours of operation that I referenced earlier.

Second delivery continues to benefit from a relatively strong dinner and late night performance with the ladder continuing to be aided by your increased hours of operation that I referenced earlier.

Speaker 3: To further drive the momentum we are seeing in our digital business, we are in the process of rolling out self-order kiosks at approximately 250 of our restaurants over the next four months, with the vast majority of this investment being funded by Burger King's Royal Reset Program. While Burger King is still early in the testing and adoption process, we're encouraged by the results that they have seen thus far.

To further drive the momentum we are seeing in our digital business. We are in the process of rolling out self order kiosk that approximately 250 of our restaurants over the next four months, but the vast majority of this investment being funded by Burger King's Royal reset program, while Burger King is still early in the testing and adoption process. We're encouraged by the results that they have seen thus far.

Speaker 3: In addition, we recently expanded our local value initiatives that I talked about last quarter, now reaching approximately 60% of our Burger King restaurant. These promotions continue to drive incremental traffic and increase the average check in day parts where we see an opportunity for increased business.

In addition, we recently expanded our local value initiatives that I talked about last quarter now, reaching approximately 60% of our Burger King restaurants. These promotions continue to drive incremental traffic and increase the average check in day parts, where we see an opportunity for increased business.

Speaker 3: I would also like to touch in our capital spending plans as we look towards 2024. We are still in the process of finalizing our strategy, but we continue to remain focused on organically driving sales and profitable growth in the near term, primarily through reinvestment in our restaurant.

I would also like to touch on our capital spending plans as we look towards 2024, we are still in the process of finalizing our strategy, but we continue to remain focused on organically driving sales and profitable growth in the near term primarily through reinvestment in our restaurants.

Speaker 3: In order to accelerate that organic growth, in 2024 we plan to remodel about 45 Burger King restaurants.

In order to accelerate that organic growth in 2024, we plan to remodel about 45 Burger King restaurants, while this will increase our overall capital expenditure somewhat from 2023 levels. We will continue to only invest in remodels that we believe cumulatively will meet our mid teen return hurdle rate threshold.

Speaker 3: Well, this will increase our overall capital expenditure somewhat from 2023 levels. We will continue to only invest in remodels that we believe cumulatively will meet our mid-teen return hurdle rate threshold.

Speaker 3: Similar to the benefits we are leveraging with our 2023 remodels, we will be able to avail ourselves of meaningful contributions from our franchisor for our 2024 remodels through their Reclaim the Flame program. We believe that such economic assistance, along with our robust earnings profile, makes it an opportune time to accelerate the modernization of our portfolio and reap the benefits of our investment.

Similar to the benefits we are leveraging with our 2023 Remodels, we will be able to avail ourselves with meaningful contributions from our franchisor for our 2024 Remodels do their reclaim the flame program.

I believe that such economic assistance, along with a robust earnings profile makes it an opportune time to accelerate the modernization of our portfolio and reap the benefits of our investment.

Speaker 3: Burger King's latest restaurant format, named Sizzle, was unveiled in October at the Burger King Franchisee Convention. The new Sizzle image will meaningfully enhance the guest experience through digital improvements, updated drive-thru and pickup, as well as signature design elements. We are excited to have the first ground-up Sizzle restaurant in the entire Burger King system, which just opened a couple of weeks ago in Marion, North Carolina. For 2024, we are planning for approximately half of our Burger King remodels to be in this new and improved image.

Burger King's latest restaurant format Sizzle was unveiled in October at the Burger King franchisee convention the NUCYNTA image will meaningfully enhance the guest experience through digital improvements updated drive through and pickup as well as signature design elements. We are excited to have the first ground up sizzle restaurant in the entire Burger King system, which just opened a couple of weeks ago.

And Marion North Carolina for two.

2024, we are planning for approximately half of our Burger King Remodels to be in this new and improved vintage.

Speaker 3: We are delighted to add another great quarter to a string of excellent quarters since the beginning of 2023 for the fourth quarter we expect a strong finish to the year with comparable sales that are Burger King restaurants in the mid single digits, aided by accelerating traffic growth. Finally, based on the board confidence in the outlook for our business and strong cash flow profile, they have declared an initial two cent per share regular quarterly dividend.

We are delighted to add another great quarter to a string of excellent order since the beginning of 2023 for the fourth quarter, we expect a strong finish to the year with comparable sales in our Burger King restaurants in the mid single digits aided by accelerating traffic growth.

Finally based on the board's confidence in the outlook for our business and strong cash flow profile. They have declared an initial two cent per share regular quarterly dividend.

Speaker 3: As we look to 2024 and beyond, we remain focused on maintaining the momentum we achieved this year while continuing to drive positive traffic roads and incremental EBITDA. As I have said in each of the previous borders, Carol's is a great company, the talented and committed team members. We believe we have only scratched the surface of our immense potential and looked forward to building on these achievements going forward. With that, I will now pass the call over to our chief financial officer in treasure at Tony Hall for a more detailed discussion of our financialors.

As we looked at 2024 and beyond we remain focused on maintaining the momentum we achieved this year, while continuing to drive positive traffic growth of incremental EBITDA.

I have said in each of the previous borders Carol is a great company with talented and committed team members. We believe we have only scratched the surface of our potential and look forward to building on these achievements going forward with that.

I will now pass the call over to our Chief Financial Officer, and Treasurer, Tony Hawk for a more detailed discussion of our financial results.

Speaker 4: Thank you, Deb. And good morning, everyone. Restaurant sales in the third quarter increased 7% to $475.8 million, compared to $444 million in the third quarter of 2022.

Thank you Deb and good morning, everyone.

Restaurant sales in the third quarter increased 7% to $475 $8 million compared to $444 million in the third quarter of 2022.

Speaker 4: For the quarter comparable restaurant sales at our Burger King restaurants increased 8.1%, comprised of a 7.7% increase in average check and a 0.3% increase in traffic.

For the quarter comparable restaurant sales at our Burger King restaurants increased eight 1% comprised of a seven 7% increase in average check and a <unk>, 3% increase in traffic.

Speaker 4: As we anticipated, we saw a sequential step down in our comparable restaurant sales in the third quarter, as our average check moderated with reduced benefit from pricing and lower discounting that began in 2022. This was partially offset by the improvements that we saw in traffic.

As we anticipated we saw a sequential step down in our comparable restaurant sales in the third quarter as our average check moderated with reduced benefits and pricing and lower discounting that began in 2022.

This was partially offset by the improvements that we saw on traffic.

Speaker 4: Comparable restaurant sales at our Popeye's restaurants increased 11.7%, comprised of an 8.6% increase in average check and a 2.8% increase in traffic.

Couple of restaurants sales that are popeye's restaurants restaurants increased 11, 7%.

Comprised of an eight 6% increase in average check and a two 8% increase in traffic.

Speaker 4: Turning to expenses, our cost of food, beverage, and packaging improved 380 basis points to 27.3% of restaurant sales as commodity inflation fell to approximately 0.7%.

Turning to expenses, our cost of food beverage and packaging improved 380 basis points to 27, 3% of restaurant sales as commodity inflation fell to approximately <unk>, 7%.

Speaker 4: It is important to point out that in the quarter, we've benefited from a new vendor agreement that improved product rebates, which is retroactive to the beginning of 2023.

It is important to point out that in the quarter, we benefited from a new vendor agreement that improved product rebates, which was retroactive to the beginning of 2023.

Speaker 4: This was responsible for about 70 basis points of the 380 basis point margin improvement in the third quarter. This will continue to benefit us in the fourth quarter of 2023 and thereafter by about 20 basis points per quarter for a number of years.

This was responsible for about 70 basis points of the 380 basis point margin improvement in the third quarter. This will continue.

To benefit us in the fourth quarter of 2023, and thereafter by about 20 basis points per quarter for a number of years.

Speaker 4: Beef was $2.84 per pound during the quarter, which was a 4.8% increase from the same period last year.

Beef was $2.84 per pound during the quarter, which was a four 8% increase from the same period last year as we normally see in Q4. These costs currently are on the decline in hovering around $2 65 per pound.

Speaker 4: As we normally see in Q4, beef costs currently are on the decline and hovering around $2.65 per pound.

Speaker 4: From where we stand today, we expect commodity inflation to be in the low single digits for the remainder of 2023.

From where we stand today, we expect commodity inflation to be in the low single digits for the remainder of 2023.

Speaker 4: Restaurant labor expense decreased 120 basis points to 32.3% of restaurant sales as labor inflation was more than offset by labor efficiencies and higher average checks.

Restaurant labor expense decreased to 120 basis points to 32, 3% of restaurant sales and Slaveling inflation was more than offset by law.

Labor efficiencies and higher average check.

Speaker 4: Hourly wage rates for our team members increased by 3.8% during the quarter compared to the prior year period. As we look ahead, we expect wage inflation in the mid-single digits for the remainder of 2023.

I really wage rates for our team members increased by three 8% during the quarter compared to the prior year period. As we look ahead, we expect wage inflation in the mid single digits for the remainder of 2023.

Speaker 4: Our restaurant operating expense decreased 10 basis points to 15.7% of sales. Rent expense decreased 20 basis points year over year as a percentage of the sales compared to the prior year period. General and administrative expenses as a percentage of sales increased 40 basis points year over year due to incentive compensation accruals that were absent in the prior year period.

Our restaurant operating expense decreased 10 basis points to 15, 7% of sales rent expense decreased 20 basis points year over year as a percentage of sales compared to the prior year period general and administrative expenses as a percentage of sales increased 40 basis points year over year due to incentive compensation accruals that were absent.

In the prior year period.

Speaker 4: Adjusted EBITDA increased to $41.9 million in the third quarter of 2023 compared to $17.7 million in the prior year period, an increase of 137% on a sales increase of 7%.

Adjusted EBITDA increased to $41 $9 million in the third quarter of 2023 compared to $17 $7 million in the prior year period, an increase of 137% on a sales increase of 7%.

Speaker 4: Adjusted EBITDA margin came in at 8.8%, more than double the prior year period.

Adjusted EBITDA margin came in at eight 8% more than double the prior year period.

Speaker 4: As we near the end of the year, we anticipate achieving adjusted EBITDA of between $145 million and $149 million for 2023. This equates to adjusted EBITDA between $28 million and $32 million in the fourth quarter.

As we near the end of the year, we anticipate achieving adjusted EBITDA of between $145 million and $149 million for 2023.

This equates to adjusted EBITDA of between $28 million and $32 million in the fourth quarter.

Speaker 4: For the third quarter, our net income was $12.6 million, or $0.20 per deleted share, compared to the net loss of $8.7 million, or $0.17 per deleted share in the prior year period.

For the third quarter, our net income was $12 6 million or 20 cents per diluted share compared to a net loss of $8 $7 million or <unk> 17 per share.

The chair in Macquarie.

On an adjusted basis third quarter net income was $10 million or 16 cents per diluted share compared to an adjusted net loss of $7 3 million or 14 cents per diluted share in the prior year period.

Speaker 4: On an adjusted basis, third quarter net income was $10 million or $0.16 per diluted share compared to an adjusted net loss of $7.3 million or $0.14 per diluted share in the prior year period.

Speaker 4: Free cash flow in the third quarter was $33.9 million, a significant improvement compared to free cash flow of $14 million in the same period last year.

Free cash flow in the third quarter was $33 $9 million, a significant improvement compared to free cash flow of $14 million in the same period last year.

Speaker 4: Over the past 12 months, we've generated free cash flow of over $80 million.

Over the past 12 months, we've generated free cash flow of over $80 million. This indicates a robust free cash flow yields given our current stock price.

Speaker 4: This indicates a robust free cash flow yield given our current stock price.

Speaker 4: At the end of the third quarter, cash and cash equivalents totaled $73 million in long-term debt, including the current portion, and finance lease liabilities was $475 million.

At the end of the third quarter cash and cash equivalents totaled $73 million in long term debt, including the current portion and finance lease liabilities was $475 million.

Speaker 4: Our overall interest rate on our debt this past quarter was 5.7% as approximately 90% of our debt remains fixed.

Our overall interest rate on our debt this past quarter was five 7% as approximately 90% of our debt remains fixed.

Speaker 4: As a quarter end, there were no revolver borrowings and $11 million of outstanding letters of credit, leaving us with $205 million of availability under a revolver.

As of quarter end, there were no revolver borrowings at $11 million of outstanding letters of credit, leaving us with $205 million of availability under our revolver.

Speaker 4: We currently have no condiments applicable on our senior credit facility at this time.

We currently have no covenants applicable on our senior credit facility at this time.

In addition, they had mentioned a few minutes ago. Our board of directors has authorized and declared an initial quarterly dividend of <unk> <unk> per share. This dividend will be paid on December 15th 2023 to shareholders of record as of November 21, 2023.

Speaker 4: In addition, Deb mentioned a few minutes ago our Board of Directors has authorized and declared an initial quarterly dividend of two cents per share. This dividend will be paid on December 15, 2023 to shareholders of record as of November 21, 2023.

Speaker 4: This concludes our prepared remarks. We'd like to thank you again for your interest in Carol's. Deb, Greta, and I are now happy to answer any questions that you may have. Operator, please open the line for questions.

This concludes our prepared remarks, we'd like to thank you again for your interest in Carol's Deb Greta and I are now happy to answer any questions that you may have.

Operator, please open the line for questions.

Speaker 1: Thank you, the floor is now open for questions if you would like to ask a question, please press star one on your telephone keypad. At this time, a confirmation tone will indicate your line is in the question queue. You may press start to if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys again. That's star one to register a question at this time.

Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star Keys again Thats Star One to register a question at this time.

Speaker 1: Today's first question is coming from Joshua Long of Stevens. Please go ahead.

Today's first question is coming from Joshua long of Stephens. Please go ahead.

Speaker 5: Great. Thank you for taking my question. I was curious if you could talk a little bit about the overall competitive environment.

Great. Thank you for taking my question just curious if you could talk a little bit about the.

Overall competitive environment and what you saw through the quarter I know that there's been this ongoing trend of normalization versus pre COVID-19 periods are coming out of COVID-19, rather, but you know when you think about your core consumer all the work that the Burger King brand has put together and all the great operational efforts that you've done at the store level I'm just curious how those two.

Speaker 5: what you saw through the quarter. I know that there's been this ongoing trend of normalization versus pre-COVID periods or coming out of COVID rather. But when you think about your core consumer, all the work that the Burger King brand has

Speaker 5: Put together and all the great operational efforts that you've done at the store level. I'm just curious how those 2, you know, those dynamics come together in what otherwise could be seen as somewhat of a still challenging operating environment.

Yeah.

But it's come together in what otherwise could be seen as somewhat of a still challenging operating environment.

Yeah, I would say Josh.

Speaker 3: Yeah, I would say Joshua that I guess a couple of things as you mentioned the operational improvements we think are a key part to what we're seeing with the S.

Joshua that I guess, a couple of things as you mentioned the operational improvements. We think are a key part to what we're seeing with the customer.

Speaker 3: You know customer satisfaction and we continue to believe that you know guest satisfaction is a key driver of repeat visits and incremental traffic growth And so that's one of the reasons we believe we've had you know We got to see positive traffic sooner than we otherwise expected to also think that our friend Troy Zora has done a really good job with the you know the promotions and marketing that They've done earlier in the year and that has continued to support the brand overall as well as our

Customer satisfaction and we continue to believe that you know guest satisfaction is the key driver of repeat visits and incremental traffic growth and so that's one of the reasons. We believe we've had you know we've got to see positive traffic sooner than we otherwise expected to also think that our franchise has done a really good job with the you know the promotions and marketing that are.

They've done earlier in the year and that has continued to support the brand overall as well as our performance.

Speaker 5: Great. Thank you for that. And when we think about the guide for the mid-single-digit

Great. Thank you for that and when we think about the guide for the mid single digit same store sales at Burger King supported by traffic growth can you talk about some of the pushes and pulls there as we go through the rest of the year, obviously, great results. This quarter. It seems like Theres a lot of momentum, but maybe still some pushes and pulls for your core consumer just in terms of.

Speaker 5: Interest sales at Burger King, supported by traffic growth. Can you talk about some of the pushes and pulls there as we go through the rest of the year? Obviously, great results this quarter. Seems like there's a lot of momentum, but maybe still some pushes and pulls for your core consumer just in terms of inflation, affordability, broadly. Obviously, your brand is well-positioned for those. But just curious, as you see there, as your team sees it, any pushes and pulls that could influence that mid-single-digit comp either way?

Inflation affordability broadly obviously your brand is well positioned for those but just curious as you see there.

<unk> team sees that kind of any pushes and pulls that could influence.

That mid single digit comp either way.

Speaker 6: Love it. I said that, you know, yin and the yang of the...

Well.

I'd say the <unk>.

You know union the Yang of the.

Speaker 4: of the COP is that we continue to expect positive traffic in the fourth quarter. We think that's going to be bolstered by the additional incremental spending that Burger King is planning on doing. They've sort of been saving up for it for the fourth quarter. And they announced on their call, it'd be about $35 million incremental. So I think that would really bolster.

The comp is that.

We continue to expect positive traffic in the fourth quarter.

We think that's going to be bolstered by the additional incremental spending that Burger King is planning on doing that they've sort of been saving up for it for the fourth quarter.

And they announced on their call with you about $35 million incremental so I think that really bolster.

Speaker 4: You know, that'll help bolster traffic, you know, the other side of it is, is, you know, as we, as we said last quarter, the average check piece of it is.

That'll help bolster traffic.

The other side of it as you know as we as we said last quarter.

Average check piece of it is is coming down because we're lapping lower discounting in our ability to raise prices, we're not pushing the envelope on that so.

Speaker 4: coming down because we're lapping lower discounting and our ability to raise prices, we're not pushing the envelope on that. So those are the two things that are kind of driving the mid-single digits.

So those are the two things that are kind of driving the mid single mid single digit.

Speaker 3: I guess nothing I would add to what Tony just said is that we continue to see the same trends we talked about in the earlier quarters with some of that but we believe to be trade down occurrence and so as we continue to potentially have some more challenging economic environments, we believe that will ask the Lee to stain our business

Comp growth in the fourth quarter I guess, the only thing I would add to what Tony just said is that we continue to see the same trends we've talked about in the earlier quarters with some of that but we believe to be trade down occurring and so as we continue to potentially have some more challenging economic environments, we believe that will absolutely.

Yeah sustain our business.

Speaker 5: Great, thank you. And then one more, I think there was discussion that maybe 50% of the remodels would be under the new store format. And that's certainly exciting in terms of driving brand image and just the overall strength of the system. Curious if there's flexibility in that number or just how you think about arriving at 50% of the system. Maybe there's just, you know, certain elements or trade areas that just don't make sense, but just try to contextualize the opportunity on kind of bringing that new store format into the system.

Okay. Thank you and then one more if I could I think there was discussion that maybe 50% of the remodels would be under the new store format and that's certainly exciting in terms of driving brand image and just the overall strength of the assistant curious if there is flexibility in that number or just how you think about arriving at 50% of the system, maybe there's just certain elements of trading.

Or is it still makes sense, but just trying to contextualize the opportunity on a kind of bringing that new store format into the into the system.

Speaker 3: Right. So a lot of it depends, obviously, on the site and the existing building that's there, in some cases, with remodels. So if it makes sense economically to be able to put it into the CISL format, we're absolutely going to want to do that because we're pretty excited with some of the features that that more modern image offers. But unfortunately, not all of the sites will allow us to take advantage of that. So it's very much a site-by-site determination. And the number, we gave out approximately half. At this point, where we sit in 2023, that's kind of where we would put it. But that's always going to be our preference if we can do it.

Right. So a lot of it depends obviously on the site and the existing building. That's there in some cases with remodels. So yeah. If it makes sense economically to be able to put it into the central format, we're absolutely going to want to do that because we're pretty excited with.

Some of the features that that most more modern image offers but unfortunately, not all of the sites will allow us to take advantage of that so it's very much a site.

Site by site determination and the number we gave out at approximately half yeah. At this point and you know where are we.

CIT in 2023, that's kind of where we would put it but that's always going to be a preference if we can do it.

Speaker 7: Thank you.

Understood. Thank you.

Speaker 1: Thank you. The next question is coming from Jeremy Hablin of Craig Hallam. Please go ahead.

Thank you. The next question is coming from Jeremy Hamblin with Craig Hallum. Please go ahead.

Speaker 8: Thanks, and congratulations on the strong momentum in the business. I wanted to follow up here on menu pricing.

Thanks, and congratulations on the strong momentum in the business I wanted to follow up here on menu pricing.

Speaker 8: we look for just a reminder of where menu pricing stands here in Q4, and then, you know, kind of the breakpoints as we enter 2024, and thoughts around just how to think about, you know, competitive set and the backdrop of the macro, how you might, you know, think about pricing.

As we look for just a reminder, we're menu pricing stands here in Q4, and then you know kind of the breakpoints as we enter 2024 and thoughts around just how to think about you know a competitive set and the backdrop of the macro how you might.

About pricing overall.

For 2024.

Speaker 4: The Q4 is sort of a mid-single-digit pricing, which is...

The.

Q4 is sort of a mid single digit pricing, which is.

Speaker 4: You know, just accumulation of what we've done over the previous 12 months and net of what's dropping off. We had a big one drop a big price increase drop off in September . So that's that gets us to sort of this year, I think, for next year. You know, we're very cautious about it and we're very, you know, we're going to, you know, I think we'll move at a more normal cadence sort of pre coven type of cadence.

Just the accumulation of what we've done.

Over the previous 12 months net of what's dropping off.

We had a big one drop.

The big price increase drop off in September.

So that gets us to sort of this year I think for next year.

We're very cautious about it and we're very we're going to I.

I think it will move at a more normal cadence sort of pre COVID-19 type of cadence on.

Speaker 4: On price increases that's that's what that's what we're, you know, in terms of frequency of price increases and levels, you know, percentage increases, which were pretty modest obviously pre coded so.

Price increases.

That's what we are.

Terms of frequency of price increases and levels percentage increases, which were pretty modest obviously pre COVID-19. So.

Speaker 4: But our expectation is that's the way, that's how we're going to do it.

Our expectation is that that's the way that's how we're going to do it next year.

Speaker 8: Got it. So I think historically that's been more like in the 2-3% range, correct?

Got it and so I think that's historically that's been more like in the 2% to 3% range correct.

Yeah.

Got it and then you know congrats on the success here of the Royal Crispy wraps.

Speaker 8: and uh... you know congrats on the the success here of uh... the world crispy wrapped

Speaker 8: uh... wanted to see oftentimes you guys have a little bit of visibility on on uh... new product uh... pipeline but you know it's it hadn't really been uh... part of the the bk turnaround story until uh... you know until that uh... you don't have August time frame but wanted to just get a sense for you know are are there are kind of expectations on additional new products uh... better that could be you know big traffic drivers here is as we think ahead to twenty twenty

Wanted to see often times you guys have a little bit of visibility on on our new product pipeline, but it's.

It's it hasn't really been a part of the the BK turnaround story until.

You know until that are you know kind of August timeframe, but wanted to just get a sense for you know or are there kind of expectations on additional new products that are that could be big traffic drivers here is as we think ahead to 2024.

Speaker 3: I guess what I'd say on that one, Jeremy, is that what I thought was awesome about the wraps is that it almost wasn't a new product. I mean, they were taking a sandwich.

I guess, what I'd say on that one Jeremy is that what I thought was awesome about wraps that honestly it wasn't a new product I mean, they were taking a sandwich that already exists the railcars to be sandwich, and we're basically tapping into us and putting it into wrap so the beauty of that as well, yes, youre using something that you already have and putting it in kind of a new.

Speaker 3: that already exists the Royal Coastie Samuage and we're basically chopping it up and putting it in a wrap. So the beauty of that is well, yes, you're using something that you already have and putting it in kind of a new format from an operational standpoint that was a significant help with the launch of that. I think going forward, I think our franchise or BK continues to work on new opportunities and they'll unveil them at the appropriate times.

Format from an operational standpoint that was a significant help with the launch of that I think going forward I think our franchise, there where BK continues to work on new.

New opportunities and yes, they'll unveil them at PREPA.

At times.

Speaker 8: Got it. And then one last one on the dividend congrats on the initial dividend here. In terms of how the board and management is thinking about the capital allocation plan and having the dividend which should kind of open you up to a broader set of potential investors.

Got it and then I wanted to ask one on the the dividend congrats on the initial dividend here in terms of how the board.

And management is thinking about.

You know the capital allocation plan and having the dividend, which you know should kind of open you up to a broader set of potential investors.

Speaker 8: Is there a payout ratio that the company is thinking about for rule of thumb? The free cash flow generation is tremendous this year, I think, well over a dollar share by our math. But I wanted to just get a sense if there's a ratio that's being targeted. And then a couple of that, in terms of Whether or not.

Is there you know kind of a payout ratio that the company is thinking about for a rule of thumb I mean, the free cash flow generation. You know is tremendous this year I think well over a dollar a share by our math, but wanted to just get a sense. If there's you.

No kind of a ratio that's that's a you know being targeted and then.

You know a kind of coupled with that in.

In terms of whether or not the company is going to you know what we would consider additional share buybacks down the road, how do we balance the attention of all of those too.

Speaker 8: consider additional share buybacks down the road? How do we balance the tension of?

Speaker 3: I guess I would just say, you know, obviously the dividend is an expression of the board's confidence overall just in the, you know, momentum and strength of the business. And that's, that's really what what drove that. And I think from a, you know, capital allocation perspective, as we go into, you know, next year, we kind of continue to look at it with kind of a three pronged approach, which is, you know, continue, obviously, to pay down debt, organic growth within the business, and then finding a way to return capital to shareholders. And those are kind of our three guiding principles as we move forward.

I guess I would just say obviously the dividend as an expression of the board's confidence overall, just in the momentum and strength of the business and that's really what what drove that and I think from a capital allocation perspective as we go into next.

Next year, we kind of continue to look at it was kind of a three pronged approach, which as you know continue obviously to pay down debt organic growth within the business and then finding a way to return capital to shareholders and those are kind of our three guide.

Guiding principles as we move forward.

Speaker 8: Great. Last one quickly, if I could sneak this in. As we look ahead, Tony, to 2024, and we look at your occupancy costs, what is the same store sales level needed to lever rent next year? Are we looking at?

Great last one quickly if I could sneak this in.

Look ahead, Tony to you know to 2024, what's the you and we look at your occupancy cost what is the same store sales.

Level needed to lever rent next year are we looking at you know kind of you know 3% to 4% is there kind of a baseline that you'd be looking at us.

Speaker 8: three to four percent uh... is there kind of uh... a baseline that you'd be looking at uh... uh... to lever on that number

To lever on that number.

Speaker 4: Um, yes, but, you know, you know, there's a lot of ins and outs for next year. So, um, that's probably not in the highest priority of those, you know, those things we're looking at. So, um, you know.

Yes.

There's a lot of ins and outs for next year. So.

That's probably not the highest priority of those.

Those things we're looking at so.

You know.

We said in our prepared remarks that we expect to continue to grow EBITDA next year or so.

Speaker 4: We said in our pair of remarks that we expect to continue to grow even down next year. So I think that's basically whatever falls out of that in terms of leverage on labor, leverage on COGS, it'll be what it'll be.

I think thats.

That's basically.

Whatever falls out of that in terms of leverage on labor leverage on Cogs.

It'll be what it'll be but.

Speaker 4: We'll get further into that when we get into 2024.

We'll have to we'll get further into that when we get into 2024.

Great Congrats and thanks for taking the questions.

Thank you.

Speaker 1: Once again, ladies and gentlemen, that is Star One. If you would like to register a question at this time, next question is coming from Jake Bartlett of Truth Securities. Please go ahead.

Once again, ladies and gentlemen that is star one if you would like to register a question. At this time next question is coming from Jake Bartlett of Securities. Please go ahead.

Speaker 9: Great, thanks for taking the questions. Telling my first question is on, you gave guys for mid-single digit positive comps in the fourth quarter, but also mid-single digit price. So I just want to maybe get a little more specific there because it sounds like that implies.

Great. Thanks for taking the questions.

No totally Mike My first question is on you gave guidance for mid single digit positive comps in the fourth quarter, but also mid single digit price.

So I just wanted to maybe get a little more specific there because it sounds like that in place.

Speaker 9: you know, flat traffic. So in any detail there on the pieces of the comp in the fourth quarter, and then Tony, could you give us the exact, you know, what the level of menu price was in the third quarter? There.

Flat traffic so in any detail there on the pieces of the comp in the fourth quarter and then Tony could you give us the exact what the what the level of menu price was in the third quarter.

Sure.

Speaker 4: So the price increase in the third quarter was 6%.

So the menu price increase in the third quarter was 6%.

Speaker 4: And, you know, our view on traffic, given all the advertising.

And.

Our.

You know our view our view on traffic given all of the <unk>.

Advertising and momentum we have right now is we.

Speaker 4: We expect to be positive. We're not getting specifics detailed beyond mid single widget, but there's a lot of pluses and minuses. But we do expect traffic to continue to increase in Q.

We expect to be positive.

We're not giving specifics detail beyond sort of mid single digit, but theres a lot of <unk>.

And minuses, but we do expect traffic to continue to increase in Q4.

Speaker 9: Okay, and is that outlook, you know, predicated on, you know, what's coming ahead with the marketing, the supplemental contribution from Burger King or is that kind of, you know, already kind of what you're seeing, just trying to get a sense of how much of that is.

Okay and is that is that outlook.

Predicated on you know what's coming ahead with the marketing that you the supplemental contribution from Burger King or is that kind of.

And kind of what Youre seeing just trying to get a sense as to how much of that is.

Speaker 9: As racial or kind of know what you're seeing in current.

Aspirational or kind of what youre seeing in current trends I think Jacobs two things I think it's one obviously the increased marketing spend that we're anticipating from and Burger King, but it's also the operational improvements that we've made over the past.

Speaker 3: I think Jake, it's two things. I think it's one obviously the increased market and expand that we're anticipating from Burger King, but it's also the operational improvements that we've made over the past.

Speaker 3: You know, several months this year that we believe that is again the key to kind of that repeat traffic and incremental traffic. So I think all those together is what makes us optimistic about the traffic continuing to be positive.

Several months of this year that we believe that is again, the key to kind of that repeat traffic and incremental traffic. So I think all of those together is what makes us optimistic about the traffic continuing to be positive.

Speaker 9: Great. And then the KIAAS grow out, pretty significant roll out across the system. I guess it's kind of free for you. So in terms of the ROI, I guess that's pretty high. But what do you expect that to do? Are you excited about the potential for KIAAS to drive a check or a traffic? That's gonna be real driver of sales in 24.

Great and then.

The kiosk rollout.

Pretty significant rollout across the system.

I guess it just kind of shrink for you. So in terms of the ROI I guess, that's pretty high but.

What we know.

What do you expect that do you mean are you excited about the potential for a kiosk to you know to drive check.

Jack or traffic that is going to be real driver of sales in 'twenty four.

Speaker 3: So I think we're very excited about it. Obviously we're in the early stage of rolling it out, but based on what we've seen from some others that have already implemented in our PS that we are expecting.

So I think we're very excited about it obviously, we're in the early stage of rolling it out but based on what we've seen from some others that have already implemented in Rps that we are expecting.

Speaker 3: You see an increase in average check. So that's what we're pretty optimistic about on that one. And we also just think from a guess satisfaction. I mean, in certain areas of the country, people like to actually interact with a GF more than, potentially a person just because it can be faster and that's just how they like to do it. So I think those two things are things that we're hoping to see realized.

You see an increase in average check so thats what were pretty optimistic about that one and we also just think from a guest satisfaction I mean in certain areas of the country people like to actually interact with the gas more than potentially a person just because it can be faster.

And that's just how they like to do it. So I think those two things are things that we're hoping to see realized and.

Speaker 3: When we do the pilot, there's always obviously the possibility of labor efficiencies down the road as well, depending on how far along the track you go with that.

When we do the pilot and Theres always obviously, the possibility of labor efficiencies down the road as well depending on how far along the track you go with that but.

Speaker 3: But like I said at this point in time, we just want to kind of prove as the initial concept and then that's good. Then we'll plan on taking it further.

But like I said at this point in time, we just want to kind of prove out the initial concept and then that's good then we'll plan on taking it further.

Speaker 9: Great. And then last question is on the remodel. So you're, you know, opening or you're going to do 45 next year. How many do you expect to do or have you done in 23? And I'm wondering whether you can just comment on the kind of lift you're seeing, you know, how much of a sales lift, you better, better or worse than expected. That would be helpful.

Great and then last question is on the Remodels. So youre opening are you going to do 45 next year. How many do you expect to do or have you done in 'twenty three and I'm wondering whether you can just comment on the kind of lift you're seeing how much of a sales.

Sales lift.

Rather than better or worse than expected that would be helpful.

Speaker 3: So we did about half that amount in 2023, but I would say we got a lead start in 2023. So a lot of the work got underway in the second half of the year. So in terms of actually openings on them, a lot of those will actually drift into the first quarter of 2024. But based on the few that have opened, and they really just opened them last few weeks, and then we had the Marion Sizzle-1 just opened literally. I think it was the beginning of last week, and we had Ben and Tim Vermont that opened the end of last week. So we're just really seeing it, but we've been very pleased with the with the soft openings on them.

So we did about half that amount in 2023, but I would say we got a late start in 2023. So a lot of the work got underway in the second half of the year. So in terms of actually openings on them.

A lot of those will actually drift into the first quarter of 2024, but based on the few that have opened and they've really just opened through last few weeks and then we had the Marion Sizzling just opens literally I think it was the beginning of last week and we had Bennington, Vermont that opened at the end of last week. So we're just really seeing it but we've been very pleased with the with the soft openings on us.

Speaker 10: I appreciate it.

Great I appreciate it.

Speaker 1: Thank you. Thank you. The next question is coming from Fred Reitman, Oful Free Search. Please go ahead.

Thank you.

The next question is coming from Fred Wightman of Wolfe Research. Please go ahead.

Speaker 8: Hey guys, good morning. The mid-single digit compound look for 4Q. Did you guys give an October comp number?

Hey, guys good morning.

Mid single digit comp outlook for for Q did you guys give an October comp number.

No.

Kenya.

Speaker 11: I mean, we gave you a quarterly number, so it's definitely consistent with that. Okay. That's all. Okay. Great. And then just on the new vendor agreement, I think you called that out. This is 70 basis point benefit in the quarter. A 20 basis point benefit, I think is what you said on an ongoing basis. What exactly is that?

I mean, we gave you a quarterly number so.

It's definitely consistent with that.

Okay great.

And then just on the the new vendor agreement I think you called out how this is 70 basis point benefit in the quarter, a 20 basis point benefit I think is what you said on an ongoing basis, what exactly is that.

Speaker 4: You know, Birking negotiated, you know, improved deal with one of their large vendors at the end of August that I think it was.

Burger King negotiated.

But.

<unk> deal with one of their large vendors at the end of August I think it was.

Speaker 4: And, you know, the benefit of that was...

And the benefit of that was.

Speaker 4: There were incremental dollars that went to the ad fund from that, and then there were incremental dollars going to the franchisees. So, you know, we're really happy with that. It was kind of unexpected benefit for the year, and for the next 10 years. So, you know, I think they did a fantastic job. We negotiated that deal.

There were incremental dollars that went to the AD fund from that and then there were incremental dollars go into the franchisees. So.

We're really happy with that it was kind of unexpected.

Benefit for the year and for the next 10 years or so.

I think they did a.

Fantastic job negotiating that deal.

Okay perfect. Thank you.

Yes.

Okay.

Speaker 1: Thank you. At this time, I would like to turn the floor back over to Deborah Derby for closing comments.

Thank you at this time I would like to turn the floor back over to Ted for therapy for closing comments.

Speaker 3: Thank you again, everyone, for joining us this morning and for your interest in the company. We appreciate your time and we look forward to speaking with you next quarter.

Thank you again, everyone for joining us this morning entry interest in the company. We appreciate your time and we look forward to speaking with you next quarter.

Speaker 1: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or walk off the webcaft at this time and enjoy the rest of your day.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines have log off the webcast at this time and enjoy the rest of your day.

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