Q4 2023 Potbelly Corp Earnings Call
[music].
Good afternoon, and welcome to Potbelly corporations fourth quarter and full year 2023 earnings conference call.
Operator: Good afternoon, and welcome to Potbelly Corporation's fourth quarter and full year 2023 earnings conference call. This call is being recorded.
Today's call is being recorded at this time all participants have been placed in a listen only mode and the lines will be opened for your questions. Following their prepared remarks.
Operator: At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the prepared remarks. On today's call, we have Bob Wright, President and Chief Executive Officer, Steve Cirulis, Senior Vice President and Chief Financial Officer, and Adiya Dixon, Senior Vice President, Chief Legal Officer, and Secretary of Potbelly Corporation. At this time, I'll turn the call over to Adiya Dixon. Please go ahead.
On today's call, we have Bob Wright, President and Chief Executive Officer, Steve sort of Lewis Senior Vice President and Chief Financial Officer, and idea Dixon Senior Vice President Chief Legal Officer, and Secretary of Potbelly Corporation.
At this time I'll turn the call over to a D. Edicson. Please go ahead.
Good afternoon, everyone and welcome to our fourth quarter and full year 2023 earnings call.
Adiya Dixon: Good afternoon, everyone, and welcome to our fourth quarter and full year 2023 earnings call. By now, everyone should have access to our earnings release and accompanying investor presentations. If not, they can be found in the investor relations section of our website.
By now everyone should have access to our earnings release and accompanying investor presentation.
If not they can be found on the Investor Relations section of our website.
Before we begin our formal remarks I need to remind everyone. Certain comments made on this call will contain forward looking statements regarding future events or the future financial performance of the company.
Adiya Dixon: Before we begin our formal discussion, I need to remind everyone that certain comments made on this call will contain forward-looking statements regarding future events or the future financial performance of the company. Any such statements, including our outlook for 2024 or any other future period, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and events or results could differ materially from those presented due to a number of risks and uncertainties. Additional detailed information concerning these risks regarding our business and the factors that could cause actual results to differ materially from the forward-looking statements and other information that will be given today can be found under the headings Risk Factors in our filings with the Securities and Exchange Commission, which are available at sec.gov. During the call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP.
Any such statements, including our outlook for 2024 or any other future periods should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date.
Forward looking statements involve significant risks and uncertainties and events or results could differ materially from those presented due to a number of risks and uncertainties.
Additional detailed information concerning these risks regarding our business and the factors that could cause actual results to differ materially from the forward looking statements and other information that will be given today.
Can be found under the heading risk factors in our filings with the Securities and Exchange Commission, which are available at SEC Gov.
During the call. There will also be a discussion of some items that do not conform to U S generally accepted accounting principles or GAAP.
Adiya Dixon: Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the press release and investor presentation issued this afternoon, both of which are available on the Investors tab of our website. And now, I'll turn the call over to Potbelly's President and CEO, Bob Wright. Thank you, Adiya.
Conciliation of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix of the press release and Investor presentation issued this afternoon, both of which are available at the investors tab of our website.
And now I'll turn the call over to Potbelly, President and CEO Bob right.
Thank you and good afternoon, and thank you for joining our call today I'm very proud of what our team accomplished in 2023, our five pillar strategy maintains our focus on what matters most to our customers and associates, while growing our brand to the benefit of our franchisees and shareholders. We strengthened the potbelly brand with increased system wide.
Robert D. Wright: Good afternoon, and thank you for joining our call today. I'm very proud of what our team accomplished in 2023. Our five-pillar strategy maintains our focus on what matters most to our customers and associates, while growing our brand to the benefit of our franchisees and shareholders. We strengthen the Potbelly brand with increased systemwide sales driven by 12% same store sales growth, while simultaneously improving profitability with a 370 basis point improvement to shop margins, achieving 14.2% for the year. We made significant progress with our Franchise Growth Acceleration Initiative and ended 2023 with 612 open and committed shops. These development commitments support our target of approximately 10% unit growth in 2024, with growth rates increasing in the coming years. Finally, we fortified our corporate balance sheet by achieving a net cash position through the generation of positive free cash flow and the proceeds from our strategic re-franchizing effort.
Sales driven by 12% same store sales growth, while simultaneously improving profitability with a 370 basis point improvement to shop margins, achieving 14, 2% for the year.
We made significant progress with our franchise growth acceleration initiative and ended 2023.
With 612 open and committed shops.
These development commitment to support our target of approximately 10% unit growth in 2024 with growth rates, increasing in the coming years.
Finally, we fortified our corporate balance sheet by achieving a net cash position through the generation of positive free cash flow and the proceeds from our strategic Refranchising efforts.
Robert D. Wright: As I mentioned, these successes began three years ago with the introduction of our five-pillar strategy and a unifying objective of traffic-driven profitability and unit growth. The following year, in March 2022, we introduced our three-year targets of achieving average unit volumes of $1.3 million, shop level margins of 16%, and 10% annual unit growth. So how have we done?
As I mentioned these successes began three years ago with the introduction of our five pillar strategy and a unifying objective up traffic driven profitability and unit growth.
The following year in March 2022, we introduced our three year targets of achieving average unit volumes of one $3 million shop level margins of 16% and 10% annual unit growth.
So how we done we currently generate average unit volumes of $1.3 million I have the opportunity to achieve 16% shop level margins and have visibility into reaching our 10% unit growth goal with the achievement of our 'twenty 'twenty four targets in sight. We think it is prudent to provide a view of what we believe we can achieve.
Robert D. Wright: We currently generate average unit volumes of $1.3 million, have the opportunity to achieve 16% shop-level margins, and have visibility into reaching our 10% unit growth goal. With the achievement of our 2024 targets in sight, we think it is prudent to provide a view of what we believe we can achieve next. Specifically, we are introducing our new long-term growth ranges that we see as a framework we can sustain over time that also coincides with our path to a 2,000-unit system. We expect to generate the following long-term growth: same store sales growth in the low to mid single digits, unit growth in the low double-digits, and adjusted EBITDA growth in the low to mid-double-digits. We have historically proven that we like to set challenging but achievable targets aligned with how we operate the business. We believe this new long-term growth algorithm is an even better way to understand the power of the Potbelly Corporation as a growth brand in the coming years.
Next spin.
Specifically, we are introducing our new long term growth ranges that we see as a framework. We can sustain over time that also coincides with our path to a 2000 unit system.
We expect to generate the following long term growth.
Same store sales growth in the low to mid single digits.
Growth in the low double digits.
Adjusted EBITDA growth in the low to mid double digits.
We have historically proven that we liked to set challenging but achievable targets align with how we operate the business.
We believe this new long term growth algorithm is an even better way to understand the power of the Potbelly Corporation as a growth brand in the coming years.
Robert D. Wright: Turning back to the fourth quarter now, we delivered strong quarterly results with solid top-line performance and 6.3% same-store sales growth. I feel like a broken record at this point, but again, this quarter, I'm proud to say that our strong sales results were driven primarily through traffic growth, demonstrating our ability to grow our traffic share within the fast casual category. In terms of profitability, our team successfully leveraged our food and labor costs against a strong sales trend, resulting in a 150 basis point improvement in shop level margins year over year at 15.7% for the quarter. And, as I said in the past, these results were made possible through our disciplined strategy and execution over the past many quarters as we have strategically rebuilt Potbelly for sustainable, long-term success.
Turning back to the fourth quarter now we delivered strong quarterly results with solid top line performance and six 3% same store sales growth.
I feel like a broken record at this point, but again this quarter I'm proud to say that our strong sales results were driven primarily through traffic growth.
Demonstrating our ability to grow our traffic share within the fast casual category.
In terms of profitability, our team successfully leveraged our food and labor costs against a strong sales trend, resulting in 150 basis point improvement in shop level margins year over year at 15, 7% for the quarter.
And as I've said in the past. These results were made possible through our disciplined strategy and execution over the past many quarters as we have strategically rebuild potbelly for sustainable long term success.
Let us now dive into the specifics on how we plan to achieve our new long term growth targets are laid out earlier, starting with the potbelly digital experience for the quarter. Our digital business represented approximately 40% of our total shop sales an increase of approximately 150 basis points versus last year driven by.
Robert D. Wright: Let us now dive into the specifics on how we plan to achieve our new long-term growth targets I laid out earlier, starting with the Potbelly Digital Experience. For the quarter, our digital business represented approximately 40% of our total shop sales, an increase of approximately 150 basis points versus last year, driven by continued progress in our perks loyalty program. Notably, we continue to see a shift in our digital business away from third-party channels and towards Potbelly-owned app, web, and perks-originated orders. Specifically on Perks, our effort to increase Perks loyalty program member acquisition and activation continues to bear fruit as we grew Perks acquisition by an impressive 87% during the fourth quarter. In January, we further strengthened our digital platform as we launched our Enhanced Potbelly Perks Loyalty Program. Our upgraded perks program celebrates what our customers love the most about Potbelly, great food. Perks members can now earn rewards faster than ever before and have more of our menu items available for rewards redemption. Previously, perks could only be redeemed after 1,000 points were earned, which we believe could take too long and too many visits.
Progress in our perks loyalty program.
Notably we continue to see a shift in our digital business away from third party channels and towards Potbelly owned App web and perks originated orders.
Specifically on perks, our effort to increase perks loyalty program member acquisition and activation continues to bear fruit as we grew perks acquisition by an impressive 87% during the fourth quarter.
In January we further strengthen our digital platform as we launched our enhanced potbelly perks loyalty program.
Our upgraded perks program celebrates what our customers love the most about potbelly, great food perks members can now earn rewards faster than ever before and have more of our menu items available for rewards redemptions.
Sleep parks can only be redeemed after 1000 points, where art, which we believe can take too long and too. Many visits now redemptions can begin and only 200 points.
Robert D. Wright: Now redemptions can begin with only 200 coins. Not only that, but we now also offer 12 different menu items for redemption, including entrees, sides, and desserts. Additionally, members can accelerate the rate with which they earn coins as their status moves from rookie to pro to boss level. We're excited by the reception thus far and have already seen substantial redemptions for the new menu option. And while digital is an area of strength for Potbelly, we're not standing still. Now, delighting our customers with great food and good vibes is always the foundation for sales growth. I continue to be so proud of our company and franchise operators' focus on customer experiences and throughput to drive top line. Additionally, our marketing initiatives continue to fuel our traffic-driven sales. As we look into 2024, we intend to sustain our traffic outperformance.
Not only that we now also offer 12 different menu items for redemption, including entrees sides and desserts.
Additionally, members can accelerate the rate with which they earn coins at their status moves from rocky to pro to Basel IV.
We're excited by the reception, thus far and have already seen substantial redemptions for the new menu options.
And while digital is an area of strength for Potbelly, we're not standing still.
Now delighting, our customers with great food and goodbyes, there's always the foundation for sales growth I continue to be so proud of our company and franchise operators focused on customer experiences and throughput to drive top line.
Additionally, our marketing initiatives continue to fuel our traffic driven sales as we look into 2024, we intend to sustain our traffic outperformance.
Robert D. Wright: To that end, we'll continue to strategically invest in our brand marketing fund, which is expected to be over 20% larger versus 2023, benefiting from a full year of 3% contributions from company and franchise shops, as well as ongoing system-wide sales growth. We believe this full-court press on marketing will help us further drive growth of our Potbelly Perks loyalty program and digital channels. All designed to drive traffic, value, and excitement for our customers.
To that end, we'll continue to strategically invest our brand marketing fund, which is expected to be over 20% larger versus 2023 benefiting from a full year of 3% contribution from company and franchise shops as well as ongoing system wide sales growth.
We believe this full court press on marketing will help us further drive growth of our potbelly perks loyalty program and digital channels.
All designed to drive traffic value and excitement for our customers.
With that I'd like to update you on our franchise growth acceleration initiatives.
Robert D. Wright: With that, I'd like to update you on our Franchise Growth Acceleration Initiative. Our franchising team continues to be very busy at work growing our pipeline of qualified Potbelly franchise candidates as we make great progress building toward our goal of 2,000 units in the U.S. Historically, we've reported new shop commitments to date under the Franchise Growth Acceleration Initiative at the time of our earnings call. This number currently stands at 202 shots.
Our franchising team continues to be very busy at work growing our pipeline of qualified potbelly franchise candidates as we made great progress building toward our goal of 2000 units in the U S.
Historically, we've reported new shop commitments to date under the franchise growth acceleration initiatives at.
At the time of our earnings call.
This number currently stands at 202 shops.
Robert D. Wright: Going forward, starting with our first quarter report, we'll begin speaking about shops committed year to date as of quarter end, which we believe gives investors a better view into the progress we're making in achieving commitments for the remaining approximately 1,400 locations still available in the U.S. To that end, under our new reporting framework, we are pleased to have signed several development deals in 2023, bringing our total year-end shop commitments to 188. Combined with our 424 open shops, we are ending the year with 612 open and committed shops. We plan to continue reporting quarterly shop commitments as well as total open and committed shops as meaningful measures of unit growth progress. As we look at our development pipeline, we have visibility into achieving approximately 10% unit growth in 2024. Adam Noyes and our operations development team work closely with our franchisees to ensure minimal delays at all stages of the development process.
Going forward, starting with our first quarter report, we'll begin speaking about shops committed year to date as of quarter end, which we believe gives investors a better view as to the progress we're making in achieving commitments for the remaining approximately 1400 locations still available in the U S.
To that end under our new reporting framework. We are pleased to have signed several development deals in 2023, bringing our total year end shop commitments to 188 shops.
Combined with our 424 open shops, we are ending the year with 612 open and committed shops.
To continue reporting quarterly shop commitments as well as total open and committed shops, there's meaningful measures of unit growth progress.
As we look at our development pipeline, we have visibility into achieving approximately 10% unit growth in 2024.
Adam noise in our operations development team worked closely with our franchisees to ensure minimal delays at all stages of the development process.
That said as we've spoken to previously we expect our new shop openings in 2024 to be heavily weighted in the back half of the year as we ramp up development sequentially through the year.
That said as we've spoken to previously we expect our new shop openings in 2024 to be heavily weighted in the back half of the year as we ramp up development sequentially through the year.
We look forward to sharing additional updates on both shop development area agreements and new shop openings as we go through the year.
Steven W. Cirulis: That said, as we've spoken about previously, we expect our new shop openings in 2024 to be heavily weighted in the back half of the year as we ramp up development sequentially through the year. We look forward to sharing additional updates on both shop development area agreements and new shop openings as we go through the year. With that, I'll now turn the call over to Steve to detail our financial performance for the fourth quarter. Thank you, Bob. Good afternoon, everyone.
With that I'll now turn the call over to Steve to detail our financial performance for the fourth quarter. Thank you Bob Good afternoon, everyone.
Revenues in the fourth quarter increased approximately four 7% and $125 $7 million, partially offset by the short term revenue impact of our recent refranchising transactions and benefiting from the impact of the 50 <unk> week.
Average weekly sales were approximately $24960.
Steven W. Cirulis: Revenues in the fourth quarter increased approximately 4.7% to $125.7 million, partially offset by the short-term revenue impact of our recent refranchising transactions and benefiting from the impact of the 53rd. Average weekly sales were approximately $24,960. Our system-wide sales of $147.5 million grew by approximately 11.4%. Same store sales growth of 6.3% in the quarter excludes the effect of the 53rd week to better align comparisons against the holiday. Traffic continues to be a strong contributor to that same store sales growth as we drive demand with our compelling value proposition and impactful marketing through our digital. Turning to expenses, food, beverage, and packaging costs were 27.2% of shop sales, a 150 basis point improvement versus the prior year. Overall Q4 commodity inflation has greatly improved at negative 110 basis points versus last year. Our grocery category, which includes produce, soup, condiments, and chips, saw the largest input cost, with meat, primarily chicken, retreating year over year.
Our system wide sales of $147 $5 million grew by approximately 11, 4%.
Same store sales growth of six 3% in the quarter excludes the effect of the 50 <unk> week to better align compares against holiday timing.
Traffic continues to be a strong contributor to that same store sales growth as we drive demand with our compelling value proposition and impactful marketing through our digital channels.
Turning to expenses food beverage and packaging costs were 27, 2% of shop sales, a 150 basis point improvement versus the prior year period.
Overall Q4 commodity inflation was.
Lately improved at negative 110 basis points versus last year.
Our grocery category, which includes produce suit condiments and chips.
The largest input cost increases.
With me, primarily chicken retreating year over year.
Labor expenses were 28, 8% of sales a 200 basis point improvement versus the prior year period.
This improvement is attributed to sales leverage along with ongoing optimization of our hours based labor guide.
Occupancy was 10, 5% of sales a 70 basis point improvement versus the prior year period.
Improvement was driven by top line leverage and the Refranchising of our New York City market earlier in the year, which carried higher than average occupancy costs.
Steven W. Cirulis: Labor expenses were 28.8% of sales, a 200 basis point improvement versus the prior year. This improvement is attributed to sales leverage along with ongoing optimization of our hours-based labor. Occupancy was 10.5% of sales, a 70 basis point improvement versus the prior year. This improvement was driven by top line leverage and the refranchising of our New York City market earlier in the year, which carried higher than average. Other operating expenses were 17.7% of sales, a 260 basis point increase versus the prior year.
Other operating expenses were 17, 7% of sales a 260 basis point increase versus the prior year period.
This was predominantly due to increased brand spend.
Overall shop level margins in the fourth quarter were 15, 7% an increase of 150 basis points year over year.
General and administrative expenses were 11, 9% of revenue the.
The year over year increase in G&A was driven primarily by higher bonus accruals as we outperformed our targets in the quarter stock compensation and increased payroll costs to fuel our development efforts.
As we discussed in recent quarters, we continue to believe general and administrative expenses as a percent of system wide sales is it more applicable way to view our business as we become more franchise based over time.
Steven W. Cirulis: This was predominantly due to increased brand fun. Overall, shop-level margins in the fourth quarter were 15.7%, an increase of 150 basis points a year over. General and administrative expenses were 11.9% of revenue. The year-over-year increase in G&A was driven primarily by higher bonus accruals as we outperformed our targets in the quarter, stock compensation, and increased payroll costs to fuel our development. As we discussed in recent quarters, we continue to believe general and administrative expenses as a percent of system-wide sales is a more applicable way to view our performance as we become more franchise based over time. For the fourth quarter, General and Administrative Expenses, approximately 10.1% of... Fourth quarter adjusted EBITDA was $7.5 million, or 5.9% of total revenue. This was approximately flat year-over-year, given the impact of re-franchizing, bonus accrual, and investments in development G&A, mostly offset by a 150 basis point improvement on shop-level margins. We reported net income of $2.7 million for the quarter. Adjusted net income was $0.7 million, a $1.9 million decrease versus the prior year period.
For the fourth quarter General and administrative expenses were approximately 10, 1% of system wide sales.
Fourth quarter, adjusted EBITDA was $7 $5 million or five 9% of total revenue.
This was approximately flat year over year, driven by the impact of Refranchising bonus accrual and investments and development G&A, mostly offset by a 150 basis point improvement shop level margin.
We reported net income of $2 $7 million for the quarter.
Adjusted net income was $7 million, a $1.9 million decrease versus the prior year period.
This decrease was primarily due to similar drivers affecting adjusted EBITDA as well as higher stock compensation interest and depreciation compared to 2022.
As we announced a few weeks ago, we recently signed a new three year $30 million revolving credit facility led by Wind Trust Bank.
This new facility provides us with significant financial flexibility to pursue our growth ambitions under our five pillar strategy as well as approximately $2 million and net cash interest savings versus a year ago.
Finally, I would now like to provide you with the following guidance items.
For the full year 2024, we anticipate the following.
Steven W. Cirulis: This decrease was primarily due to similar drivers affecting adjusted EBITDA as well as higher stock compensation, interest, and depreciation compared to 2020. As we announced a few weeks ago, we recently signed a new three-year, $30 million revolving credit facility led by Wintrust Bank. This new facility provides us with significant financial flexibility to pursue our growth ambitions under our five pillar strategy, as well as approximately $2 million in net cash interest savings versus a year ago. Finally, I would now like to provide you with the following guidance. For the full year 2024, we anticipate the following: same store sales growth in the low to mid single digits, unit growth of approximately 10%, and adjusted EBITDA growth in the high single to low double.
Same store sales growth in the low to mid single digits.
Unit growth of approximately 10%.
And adjusted EBITDA growth in the high single to low double digits.
The EBITDA growth expectations for 2024 overcome the effect of Refranchising 33 shops, and the 50 <unk> week in 2023.
The impact of Refranchising and our EBITDA growth rate is most pronounced in the first three quarters of 2024 as the majority of our re franchise sales occurred in the second half of 2023.
With the strength of our operational model and management team, we expect to be able to achieve high single to low double digit adjusted EBITDA growth. Despite these headwinds.
For the first quarter of 2024, we anticipate the following.
Same store sales growth of between negative 25 basis points and positive 50 basis points, including the impact of weather to start the quarter.
And adjusted EBITDA of between $4 $4 million and $5 $2 million.
Steven W. Cirulis: The EBITDA growth expectations for 2024 exceed the effect of refranchising 33 shops and the 53rd week in 2020. The impact of refranchising on our EBITDA growth rate is most pronounced in the first three quarters of 2024, as the majority of our refranchised sales occurred in the second half of 2020. With the strength of our operational model and management team, we expect to be able to achieve high single to low double-digit adjusted EBITDA growth despite. For the first quarter of 2024, we anticipate the following: Same store sales growth of between negative 25 basis points and positive 50 basis points, including the impact of weather to start the quarter, and adjusted EBITDA of between $4.4 million and $5.2 million.
Finally, as Bob mentioned.
Today, we introduced the following long term growth ranges.
Same store sales growth in the low to mid single digits.
Unit growth in the low double digits.
And adjusted EBITDA growth in the low to mid double digits.
With that I'll turn the call back over to Bob.
Thanks, Dave Let me end by thanking all of our Potbelly associates for their continued hard work and commitment to this unique brand from our frontline Associates store support center employees for the past two years, we've been working tirelessly to provide our guests with the potbelly experience and their tenacity is what drove our success in 2023 paving the way for.
For us to meet our 2024 growth targets.
As we look ahead, we are excited with what we can accomplish over the long term we've laid the foundation for success as a growth company and with our five pillar strategic plan. We are on the right track to capitalize on the opportunities ahead, and maximize long term shareholder value I look forward to another great year of carrying out our mission to delight customers with.
Robert D. Wright: Finally, as Bob mentioned, today we introduce the following long-term growth: Same store sales growth in the low to mid single digits, unit growth in the low double, and adjusted EBITDA growth in the low to mid-double. With that, I'll turn the call back over to Bob. Thanks, Steve.
Great food and goodbyes and to achieving our vision to be the most loved sandwiched brand in every neighborhood.
Operator: Let me end by thanking all of our Potbelly associates for their continued hard work and commitment to this unique brand. From our frontline associates to our support center employees, for the past two years, we've been working tirelessly to provide our guests with the Potbelly experience, and their tenacity is what drove our success in 2023, paving the way for us to meet our 2024 growth target. As we look ahead, we are excited about what we can accomplish over the long term. We've laid the foundation for success as a growth company. And with our five-pillar strategic plan, we are on the right track to capitalize on the opportunities ahead and maximize long-term shareholder value. I look forward to another great year of carrying out our mission to delight customers with great food and good vibes and to achieving our vision to be the most loved sandwich brand in every neighborhood. With that, we're happy to answer your questions. Operator, please open the line for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
With that we're happy to answer your questions. Operator, Please open the line for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question today comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Thanks for taking the questions congrats on a really strong year and significant progress.
I wanted to start by just making sure that I understood. The FY 'twenty for guidance on adjusted EBITDA. So.
Just in terms of the the table and how it was presented.
Was the guide.
A high single digit to low double digit growth rate for as a percent of total revenue.
Yeah, Hey.
Jeremy Good to hear your voice again, yes, the the guidance of high single digit to low double digit that those are growth rates on EBITDA adjusted EBITDA dollars.
Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jeremy Hamblin with Craig Hallam Capital Group. Please go ahead.
Got it Super helpful.
And then just coming back to the the the target are on your restaurant level margins.
Jeremy Scott Hamblin: Thanks for taking the questions, congrats on a really strong year and significant progress. I wanted to start by just making sure that I understood the FY24 guidance on adjusted EBITDA. So, just in terms of the table and how it's presented, was the guidance, a high single-digit to low double-digit growth rate or as a percent of total revenue? Yeah, hey, how are you, Jeremy?
Approaching here, 16% for 2024, if you look across your line items, where do you see the biggest contributors to making progress towards that target. This year, you know roughly almost 200 basis points of improvement year over year.
Sure I'll take that one I think.
We will certainly benefit from sales leverage and achieving that 16.
Steven W. Cirulis: Good to hear your voice again. Yeah, the guidance of high single digit to low double digit, those are growth rates in adjusted EBITDA dollars. Okay.
The percent margin, but we also continue to benefit from efficiencies on the labor side.
Steven W. Cirulis: Super helpful. And then just coming back to the target for your restaurant level margins, approaching 16% for 2024. If you look across your line items, where do you see the biggest contributors to making progress towards that target this year, you know, roughly almost 200. Here, I'll take that one. I think... We will certainly benefit from sales leverage in achieving that 16% margin, but we also continue to benefit from efficiencies on the labor side. The operations team does a nice job, and we are obviously going to continue to optimize our hours-based labor guide. There are some efficiencies in there as well.
The ops team did a nice job continuing to optimize our hours based labor guide.
We are obviously going to continue to roll our PDK shops, there are some efficiencies in there.
As well we have.
Expanding our aspiration for our catering business, which will also help those margins.
And really when you look down the P&L the occupancy piece will be leveraged quite a bit.
And into the other opex side less leverage, but certainly some leverage I think we've talked in the past about 50% of that other opex gets leveraged.
With sales.
Where where if we could see kind of the velocity. We came out of Q4 into into 2024 with that 16% margin is certainly within our sites.
Steven W. Cirulis: We have an expanding aspiration for the catering business, which will also help those margins. Really, when you look down the shop P&L, the occupancy piece will be leveraged quite a bit, and on the other OPEX side, less leverage, but certainly some leverage. I think we've talked in the past about 50% of that other OPEX gets leveraged with sales. If you can see the velocity we came out of Q4 into 2024 with, that 16% margin is certainly within our sights. Fantastic
Fantastic.
And then just I noticed in your cash flow statement. It looked like you you saw nearly $5 million of proceeds from Refranchising in Q4 pretty pretty healthy step up from what you had seen earlier in the year.
I think it implies that you had sold maybe 13 units.
To franchisees in the quarter just wanted to confirm that number and then you know with the $5 million is that all related just to the 13 locations sold or were there some trailer fees on prior deals.
Steven W. Cirulis: And then, just, I noticed in your cash flow statement, it looked like you... saw nearly $5 million of proceeds from refranchising in Q4, a pretty healthy step up from what you had seen earlier in the year. I think it implies that you sold maybe 13 units of franchisees in the quarter. Just wanted to confirm that number. And then, with the $5 million, is that all related just to the 13? locations sold, or where there's some trailer fees on prior? I appreciate you guys. It's been an honor.
That you guys had already agreed to.
Sure I think.
First of all.
First of all the we sold four shops in Columbus to hit that quarter.
And then we had our Seattle <unk>.
<unk> as well, which were 12 shops.
And the majority of the proceeds.
Certainly came from from the sales of those shops.
As we've talked in the past with our Refranchising.
Steven W. Cirulis: Thank you. Sure, I think, first of all... First of all, we sold four shops in Columbus that hit that quarter. And then we had our Seattle shops as well, which were 12 shops. And the majority of the proceeds certainly came from the sales of those shops. And, you know, as we've talked in the past with our re-franchising, we don't necessarily have a target for re-franchising. We got a few deals done in the fourth quarter, which makes us pretty excited, given the additional unit counts that will come with those on the franchise side. But the proceeds definitely came from the sale of those shops. And as we go forward with refranchising, we've discussed too, it's going to be much more selective in terms of the kinds of deals that we might do. So in terms of thinking about that number that you had laid out before, I think it was roughly 100 locations over a three-year period, is that now a number that you, I would expect maybe to be a little bit Yeah, Jeremy.
Yeah, we don't we don't necessarily have a target or Refranchising, we got a few deals done in the in the fourth quarter, which make us pretty excited given the the additional unit counts that will come with those on the franchise side, but.
But that the the proceeds definitely came from the sale of those of those shops.
And as we go forward with Refranchising, we've discussed to it's going to be much more selective in terms of.
The kinds of deals that we might that we might do.
So so in terms of thinking about that that number that you had laid out before I think it was roughly 100 locations over a three year period is that now a number that you expect maybe to be a little bit less.
Yeah, Jeremy that target.
I I think we always said we'd be willing to sell 100, and we still would be we're just going to be a lot more selective about when and where we do it. It was always for the purpose of development and getting the unit count development that went with it and if it made sense for a particular market or group of of shops to let them.
Steven W. Cirulis: I think we always said we'd be willing to sell 100, and we still would. We're just going to be a lot more selective about when and where we do it. It was always for the purpose of development and getting the unit count development that went with it.
Go then we knew that was part of the long term play.
And we just think that as the sales pipeline is strengthening the franchise candidate interest has strengthened certainly the business. The underpinning business has strengthened we are in a position to be more selective and probably take our time in getting to those and it gives us a chance to to make sure that we're more focused on growth. We we never saw it as a.
Steven W. Cirulis: And if it made sense, you know, for a particular market or a group of shops to let those go, then we knew that was part of the long-term play. And we just think that as the sales pipeline has strengthened, the franchise candidate interest has strengthened, certainly the business, the underpinning business, has strengthened, we're in a position to be more selective and probably take our time in getting to those. And it gives us a chance to make sure that we're more focused on growth. We never saw it as a financial engineering goal.
Financial Engineering goal and that's that's why we've been we haven't guided to the exact target on an annual basis, but you.
You know as we said we're going to be just much more selective.
With with whom and and when and how many units as we go forward because we can be.
Great. Thanks for taking the questions and I'll hop out of the queue.
Steven W. Cirulis: And that's why we haven't guided to the exact target on an annual basis. But as we said, we're going to be just much more selective with whom and when and how many units as we go forward because we can be. Great. Thanks for taking the questions. I'll hop out of here. Thanks, Jeremy. The next question is from Mark Smith with Lake Street Capital Markets. Please go ahead. This is Alex Sternix on the line for Mark Smith today.
Thanks, Jeremy.
The next question is from Mark Smith with Lake Street Capital markets. Please go ahead.
And so this is Alex <unk> on the line for Mark Smith today. Thank you for taking my questions. The first one for me.
Looking at the pipeline for new franchise units.
Growing very strong how are the current units developing and are there any like headwinds for franchisees are they facing anything now getting into our new restaurants.
Operator: Thank you for taking my questions. The first one for me is looking at the pipeline for new franchise units. It's growing very strong. How are the current units developing? And are there any headwinds for franchisees? Are they facing anything now getting into new restaurants? Yeah, thanks.
Yeah, Thanks, where we're excited about the pipeline at all levels and I think we've shared in previous calls our our visibility into each step of the process is where our confidence comes from and so.
I think the other the other element the reverse of that confidence is or concern that we might see along the way and frankly, we're very involved from the time of franchising to deal structure. The the size and the layout of those S. D. A age that we're talking about we then go as we've previously shared we go.
Robert D. Wright: We're excited about the pipeline at all levels, and as we've shared in previous calls, our visibility into each step of the process is where our confidence comes from. And so I think the other element, the reverse of that confidence, is our concern that we might see along the way. And frankly, we're very involved from the time of franchising to deal structure, the size, and the layout of those SDAAs that we're talking about. We then go, as we've previously shared, straight into target area planning and mapping for those targeted trade areas in partnership with the franchisee that puts their master broker and their brokers focused on the trade areas that can be potentially the most successful for them. And they can shop all of those trades at the same time with those real estate brokers. Our pre-approved architectural and engineering firms that franchisees work with give us visibility there. I think we've shared in the past that we do site inspections before the franchisee signs the lease, which does two things.
Straight into target area planning and mapping for those targeted trade areas in partnership with the franchisee that puts their master broker and their brokers focused on the trade areas that can be potentially the most successful for them and they can they can shop all of those trades at the same time with those real estate brokers.
Our preapproved architectural and engineering firms that franchisees worked with gives us visibility there I think we've shared in the past that we do site inspections before the franchisees signs the lease which does two things it empowers them. If they have issues and we are we believe that we will have far fewer surprises when you.
Get to the permitting phase and you get into the construction phase and it really sets up our contractors to be much more efficient.
If you use those designers then of course, you you know youre going to get your designs approved by us into much more XP.
Robert D. Wright: It empowers them if they have issues, and we believe that we will have far fewer surprises when you get to the permitting phase and you get into the construction phase. And it really sets up our contractors to be much more efficient. If you use those designers, then of course, you know you're going to get your designs approved by us in a much more expedient fashion.
Expedient fashion so look.
All along the way I think we are we see each of those steps and we're building confidence in our pipeline as a result of it so no significant slowdowns that we'd be reporting at this point.
Very helpful. And then I'll just take one more from me I'm kind of going back to the restaurant level margin. What's your outlook for commodity prices in anything we should be watching and also any commentary on labor costs going forward.
Robert D. Wright: So look, all along the way, I think we see each of those steps, and we're building confidence in our pipeline as a result of them. So no significant slowdowns that we'd be reporting at this point, helpful, and then I'll just take one more from me kind of going back to the restaurant level margin. What's your outlook for commodity prices, anything we should be watching, and also any commentary on labor costs going forward? Sure. Well, certainly, we benefited in 2023 from a little bit of deflation, honestly, on the commodity side in Q4, down about 110 basis points. For the year ahead, we're looking at a low single digit for our commodity cost increases. And with wage inflation, it's really sort of stabilized.
Sure well certainly we benefited in 2023 from up from a little bit of deflation honestly on the commodity side in Q4 down about 110 basis points for the year ahead, we're looking at a low.
Single digits.
For for our commodity cost increases and with wage inflation, it's really sort of stabilize it we had a lot of movement in 'twenty late 'twenty, one 'twenty two and enter into early 'twenty, three but I think.
Over the last several quarters, we've seen a stabilization in terms of wage inflation is still inflating, but it's inflating kind of in that low to mid single digit range consistently and it's not it's not moving around certainly as much as the commodities.
Steven W. Cirulis: You know, we had a lot of movement in late 21, 22, and into early 23, but I think over the last several quarters, we've seen a stabilization in terms of wage inflation. It's still inflationary, but it's inflationary kind of in that low to mid-single-digit range consistently.
Have moved around on us.
Okay. Thank you guys.
Yes, Thanks, Alex.
The next question is from Matt Curtis from William Blair. Please go ahead.
Hi, good afternoon.
I think you guys took a price increase recently, so I just wanted to ask how much price you're carrying now and then how much of a price benefit you have embedded in your full year guidance.
Steven W. Cirulis: And it's not moving around, certainly, certainly as much as the commodities have moved around. Thank you, guys. Yeah, thanks, Alex. The next question is from Matt Curtis from William Blair. Please go ahead.
And then separately for the first quarter guidance. So I was just wondering.
And if you could quantify the weather penalty that's.
Operator: I think you guys took a price increase recently. So I just wanted to ask how much of a price benefit you have embedded in your full year guidance. And then separately for the first quarter guidance, I was just wondering if you could quantify the weather penalty that's in that negative 25 basis points to plus 50 basis points guidance. Sure, I'll start.
And that negative 25 basis points to plus 50 basis points guidance.
Sure I'll start.
Matt.
With Q4, we carried in about three tenths of a point.
Into into that quarter, we raised private.
Let's see what else do we have we had a gross price increase of three eight so it was three 5%.
Steven W. Cirulis: So Matt, with Q4, we carried in about three-tenths of a point into that quarter. We raised private equity, see what else did we have? We had a gross price increase of 3.8, so it was 3.5% in Q4 plus, so 0.3 on the carry forward and then an additional 3.5 for a 3.8 for Q4. As we look ahead to this year, we're gonna have a similar. Similar story with our price increases. Low, low, low, single digit price increases, three of them, similar timing to what we had last year. We just had one in the quarter.
In Q4 with plus so.
Three on the carry forward and then an additional three five or three eight for Q4.
As we look ahead to Q2 this year.
We're going to have a similar similar.
Similar story with our price increases low low low single digit price increases.
Three of them.
Similar to similar timing to to what we had last year, we just had one.
In the quarter were carrying into this quarter.
Let's see it looks like about.
Steven W. Cirulis: We're carrying into this quarter, let's see, it looks like about 3.3% of price into Q1. Okay, good, and then for the weather penalties, the first quarter. Yeah. Look, man. We don't, you know, yeah, I think we're probably not even able to break out weather impact because, you know, everyone's experiencing it.
Three.
<unk>, 3.3% of price.
Into into Q1.
Okay, Great and then whether penalties for the first quarter.
Yeah.
We don't have.
Yeah, I think we're not.
Not even able to break out weather impact because.
Everyone's experiencing and I think we saw we saw similar.
Steven W. Cirulis: I think we saw similar impact given the geography that we have that you may have seen with other fast casual and QSR brands. I think the key to the discussion around weather is what's happened with the trajectory since January. We saw some nice stabilization in February and continue to be pleased with the trajectories we kind of moved through the quarter. So, you know, it's not very, it's a little more art than science to try to peg exactly what you think the weather impact has been.
Impact given the geography that we have that May you may have seen with other fast casual and <unk> brands.
I think the key with the discussion around whether is what's happened with the trajectory.
Since January we saw some nice stabilization in February and can see and continue to be pleased with the trajectories, we we kind of move through the quarter. So.
You know it's.
No.
Not a very.
It's a little more art than science to try to peg exactly what you think weather impact has been but you can certainly see it when youre experiencing there during that January period.
Robert D. Wright: But you can certainly see it when you're experiencing it during that January period. Okay, understood. And then separately, with the recent Perks update, Bob, you walked through some of the customer facing aspects of the update. Could you tell us anything about what you may have done on the back end to improve your ability to incentivize visits or execute targeted offers more effectively, or otherwise drive engagement? Yeah, it's a great question, Matt, because I think the the beauty of some of the changes that we made when you make those kind of pro customer changes with your loyalty program, it means that you unlock a number of things that we can do on the back, You know, with 12 menu items versus the one entree that you could exchange your perks points for today, we're already seeing the kind of behavioral shifts among our perks consumers and what their preferences are.
Okay understood.
And then separately with you.
The recent update.
Bob you walked through some of the customer facing aspects.
But could you tell us anything about what you may have done on the backend to.
Your ability to incentivize visits or execute targeted offers more effectively.
Otherwise drive engagement.
Yes, it's a great question, Matt because I think the beauty of some of the changes that we made when you make those kind of pro customer changes with your loyalty program. It means that you unlock a number of things that we can do on the backend.
With 12 menu items versus the one entree that you could you could exchange of perks points for today, we're already seeing the kind of behavioral shifts among our perks consumers and what their preferences are.
Robert D. Wright: When they like to redeem something and for what they want to trade it for, we're very pleased with the balance across those categories and across those menu items, and it's very early going. Because we have two different things happening with our consumers, we have customers, Perks members that are able to earn those rewards at several different stages. We have many more things we can communicate with the Perks members about when they're getting close to something, if they're near the next level, with the three levels of performance with achieving boss level, for example, at the peak level, we can start to speak to our Perks members when they're getting close to leveling up to the next level and what that means for them and their ability to accelerate their coins and the earning of their coins.
When they when they like to redeem something in for what they want to trade. It for we're very pleased with the balance across those categories and across those menu items and it's very early going.
Because you have two different things happening with our consumers we have customers perks members that are able to earn those rewards.
Several different stages, we have many more things we can communicate with the perks members about when they're getting close to something if they're they're near the next level with the three.
The three levels of performance with.
With achieving boss level for example at the peak level, we can start to speak to our perks members when they're getting close to leveling up to the next level and what that means for them and their ability to accelerate their coins in the earning of their coin. So the nurturing flows that come in on the backend is is one of the best advantages.
Robert D. Wright: So the nurturing flows that come in on the back end are one of the best advantages of this. And I think the primary number I shared in my prepared remarks should tell you why we're excited about it. To have an 87% increase in Perks member acquisition year over year during the quarter means that we're developing that relationship deeper and deeper with more and more of our customers as they move from consumer to customer, from customer to member, and from member to an even more active member. So there's a lot ahead of us still with the PERS program, but so far, we're very, very pleased with the transition. Okay, sounds good. Thanks very much.
And I think the primary number I shared in the prepared remarks should tell you why we're excited about it to have an 87% increase in perks member acquisition year over year during the quarter.
It means that where we're developing that relationship deeper and deeper with more and more of our customers as they move from consumer to customer from customer to member and for a member to even more active member.
So there's a lot ahead of us still with the perks program, but so far we're very very pleased with the transition.
Okay sounds good thanks very much.
Operator: Thank you. The next question is from Todd Brooks with the Benchmark Company. Please go ahead. Hey, good afternoon, gentlemen. Hope you're well.
Thank you.
The next question is from Todd Brooks with the Benchmark company. Please go ahead.
Hey, good afternoon, gentlemen, hope you're well.
I have a few questions left here of the tag first of all Bob you've talked about roughly a 20% increase in the brand fund year over year again 24 versus 23.
Robert D. Wright: I have a few questions left here at the end. First of all, Bob, you talked about roughly a 20% increase in the brand fund year over year in 24 versus 23. I know there's a certain scale that you want to get to before maybe opening up other channels of spending to support and grow the brand, but can you talk about how you anticipate putting those additional dollars to work, if it's any new channels, is it, Is it more breadth of what we're doing through kind of digital channels? We'd just love to hear how those incremental assets are being put to work. Yeah, thanks. Thanks. We're excited about that. I mean, it's the best of both worlds.
I know theres, a certain scale that you want to get to before maybe opening up other channels of spending to support and grow the brand, but when you talk about how you how you anticipate putting those additional dollars to work if it's any new channels is it.
Is it more.
More breadth of what we're doing through kind of digital channels would just love to hear how those incremental assets are being put to work.
Yeah. Thanks, Thanks, Todd we're excited about that I mean, it's the it's the best of both worlds because of the overall topline growth, we simply get more flow on the percentage contribution made by all of our shops and then of course, the net average higher contribution at a full year of 3%, it's a meaningful impact to our brand.
Robert D. Wright: Because of the overall top line growth, we simply get more flow on the percentage contribution made by all of our shops. And then, of course, the net average higher contribution in a full year of 3%. It's a meaningful impact on our brand fund. So it's exactly the right question. One that David Daniels and and the rest of the team are asking themselves as well.
So it's exactly the right question, one that David Danielson, and and the rest of the team are asking ourselves as well.
Robert D. Wright: We won't go into the specifics of exactly where we're investing that money, but we think that's part of our competitive advantage in our digital space. But I can tell you that you would see us exploring the distribution of those investments across media as well as up and down the funnel. You know, as we go higher up in the funnel to more awareness driving, you would use different media to do that.
We won't go into the specifics of exactly where we're investing that money. We think that's part of our competitive advantage and in our digital space, but I can tell you that you would you would see us exploring.
The distribution of those investments across media as well as up and down the funnel.
As we as we go higher up in the funnel to more awareness driving you would use different media to do that and if we remain consistent or maybe even increase or decrease our spend deeper in the funnel than we're going to go for more of that traffic driving activity.
Robert D. Wright: And if we remain consistent or maybe even increase or decrease our spend deeper in the funnel, then we're going to go for more of that traffic-driving activity. I think what you see as a consumer is a propensity to want to continue to balance that and do more of all of the above to the extent that they deliver at least three to one. We love to get five to one on our return on investment. You know, Steve mentioned the impact on our shop margins at the other operating expense levels, primarily driven by the brand fund contribution but the fact that we've got leverage throughout the rest of the P&L. We expect any incrementality here to be margin expansive. And so far, we're very, very pleased with that. So I think there's a lot more we can do. And we know that at 3%, we're still well behind most of the industry. So as we learn how to do it well, we're gonna keep pushing. Okay, great. Thanks, Bob. A few follow-up ones; these may be more up Steve's alley.
I think what you see as the consumer is a propensity to want to continue to balance that and do more of all of the above to the extent that they deliver at least three to one we love to get to five to one on our return on investment.
Steve mentioned the impact on our on our shop margins at the other operating expense levels, primarily driven by the brand fund contribution, but the fact that we've got the leverage throughout the rest of the P&L.
We expect any incremental <unk> in here to be margin expansion and so far we're very very pleased with that so.
I think theres a lot more we can do and we know that at 3%, we're still well behind most of the industry. So as we learn how to do it well, we're going to we're going to keep pushing.
Okay, great. Thanks, Bob.
Few follow up on that is maybe more up Steve's Valley, you talked about G&A being.
10.1% assist to watch sales in the quarter.
And I think you've talked about this being there's a period as we're going through Refranchising, where this will.
Steven W. Cirulis: You talked about GNA being... 10.1% assisted wine sales in the quarter. And I think you've talked about this being, there's a period as we're going through refranchising where this will reach a peak level and then start to level off going forward. Where are we in that process? And are we at a peak-ish level here at just north of 10?
We will reach a peak level and then start to lever going forward, where are we in that process and are we at a peak ish level here at just north of 10 or how should we be thinking about.
How this tracks over the course of 'twenty four.
Yes, I think the G&A for us.
Steven W. Cirulis: Or how should we be thinking about? how this tracks over the course of 24 hours. Yeah, I think the you know, the DNA for us is is important because it reflects an investment that we're making in our growth. And and there's, The development piece is certainly embedded in that GNA number as we continue to put the infrastructure in place to trigger, and, and launched those new units that were expected. And as we've also kind of made the transition from, you know, refranchising some of our shops, you know, you tend to see some of the G&A, you know, impact there, we are, I would suggest, in a year of 2024 and another year where you're going to see probably some of that close to double digit G&A as a percent of our company sales, you will start to see some of our system sales numbers, though, start to move well below that number of 10%.
This is important because it reflects an investment that we're making in our growth.
And there's the development piece is certainly embedded.
In that in that G&A number as we continue to put the infrastructure in place to to.
The trigger and and.
Launched those new units that we're expecting.
And as we've also kind of made the transition from Refranchising some of our shops.
Tend to you tend to see some of the G&A.
Impact there we are I would suggest in a year or 2024.
And another another year, where you're going to see probably some of that close to close to double digit.
G&A as a percent of our as a percent of our company sales you will start to see some of our system sales numbers, though.
Start to move or well below that that number.
10%.
Steven W. Cirulis: So it's exciting for us to see because as we get into 25 and as we get to 26, you'll start to see those G&A as a percent of system sales drop even further as we get those new units opened up. So it's exciting for us because that's the business model that we're building. And that's a business model that's going to create value. Okay, great. And then just a couple of... education questions.
That's exciting for us to see because as we get into 'twenty five and it isn't going to 'twenty six youll start to see those G&A as a percent of system sales.
Drop even further as we get those new those new units opened up so it's exciting for us because that's the business model.
That we're building and that's a business model that's that's going.
And then to create the value.
Okay, Great and then just a couple of.
Education questions can we talk about what the value of the 53rd week was.
Steven W. Cirulis: Can we talk about what the value of the 53rd week was in the fourth quarter and, sometimes, it matches up where it turns into a higher volume period for people. Sometimes it's a below average week from a sales standpoint, and then there's margin repercussions with that. Can we just talk about what the contribution from the 53rd week was? For sure, for sure.
In the fourth quarter and.
Sometimes a bachelors up where its turns into a higher volume period for people, sometimes it's a below average week from a sales standpoint, and then theres margin repercussion. So that can we just talk about what the contribution from the 53rd week one for sure.
Steven W. Cirulis: Well, just to remind everyone, for us, that 53rd week included both the Christmas holiday as well as New Year's Eve. So, from a system-wide sales standpoint, the additional week actually added dollars, right? So, we added, you know, about $7.5 million, $7.6 million in sales, even though it was a lower volume week. So, on an average weekly sales basis, it probably had a negative impact of about $500, meaning if it were a regular week, right, instead of kind of a slow holiday week, our average weekly sales would have been better. So it had and related right when you're getting lower volume, and you're going to see some shop margin impact from that as well. And is that something you can size with the...
Sure well just to remind everyone for us that 50 <unk> week included.
Both the Christmas holiday.
As well as new year's Eve.
So from a.
System wide sales standpoint.
The additional week actually added dollars right. So we added about 757 $6 million in sales, even though its a lower volume.
Even though its a lower volume week, so on a on a average weekly sales basis.
It probably was an impact.
A negative impact of about $500, meaning if it were a regular week right instead of kind of a slow holiday week, our average weekly sales.
Would have been better so it had an.
Related right when Youre getting lower volume and.
Youre going to see some some shop margin.
Impact from that.
As well.
And is that something that is what the.
Steven W. Cirulis: The stock shot margin impact because you already exit at such a robust rate with the, if there's a little bit of a drag, you're even that much closer to the 16%. It was just a slight headwind on shop margin, not much, but it did have a bit of a drag because we do have some good flow through there. And just to keep everyone kind of aligned for how we're thinking about things going forward, as we're going to report comps, we're going to report comps for 2024 on a calendar-aligned basis or a trailing 52 basis so that the holiday weeks align for the most part, those that are repeated in the same weeks year over year.
Shop margin impact because he already exited at such a robust rate with the impact of that we get them there and if there's a little bit of a drag.
Or even that much closer to the 16% hurdle.
It was just a slight headwind on shop margin.
Not much but it did have a bit of a drag because he doesn't get flow through there and just to keep everyone kind of aligned for how we're thinking about things going forward as we're going to report comps, we're going to report comps for 2024 on a calendar aligned basis or a trailing 52 basis so that.
The holiday weeks aligned for the most part those that are repeated in the same weeks year over year.
And everybody kind of goes through these these.
Steven W. Cirulis: Everybody kind of goes through these 53rd weeks every five or six years, and so this is one for us. Just to remind everyone as well, our same store sales for the quarter four did not include the 53rd week. But our AUVs, our system sales, and our shop margins included the 53rd week for 2020. Okay, perfect. And just a final housekeeping one, and then I'll jump back in. How do we think about the tax rate for fiscal 24, both how we would use it for adjustments to adjusted EPS and adjusted EBITDA and then on a..., on a reported basis? I assume it will still be relatively diminutive.
These 50 <unk> weeks every five or six years and so this is this is one for us.
Just to remind everyone as well.
Our same store sales for the quarter four.
It did not include the.
The 50, <unk> week, but our <unk> our system sales our shop margins included the 53rd week four for 2023.
Okay, perfect and just a final housekeeping, one and then I'll jump back in.
How do we think about tax rate for fiscal 'twenty for both how we would use it for adjustments to our adjusted EPS and adjusted EBITDA amount on that.
On a reported basis I assume it will still be relatively de minimis.
Yeah, I think the good news is as we continue to increase our profits right. We will start to generate income taxes again, we had a lot of.
Steven W. Cirulis: Yeah, I think the good news is, as we continue to increase our profits, we'll start to generate income taxes again. We had a lot of NOLs that offset our tax liability this year, but not all of it, right? You can't offset everything, and there are some jurisdictions that actually put a cap on the dollar amount that you're able to... you're able to use.
Nols that offset our tax liability this year, but.
But not all of it but you can't you can't offset everything and there are some jurisdictions that actually put a cap on the dollar amount that you're able to.
You are able to use.
Steven W. Cirulis: And so the increase in our tax expense from 23 in the fourth quarter reflects that incremental tax, you know, that we can't offset with an NOL. The way that we report our tax rate, right, doesn't show you the cash benefit we get from those NMLs; we're actually showing the tax rate reflective of the way that the business is moving, right, a basis that is, you know, a better comparison in terms of the amount of revenue and profit that we're generating. So as you're looking at your model, the tax rate range sort of in the low to mid 30% range for 2024 is likely where we're going to end up.
So the increase in our tax expense from 23 in the fourth quarter reflects that incremental tax that we can't offset with a with an NOL.
<unk>.
The way that we report our tax rate doesn't show you the cash benefit we get from those Nols were actually showing the the tax rate.
<unk> of the way that the business is moving right.
A basis that is.
A better compare in terms of the amount of revenue and profit that we're generating so as you're looking at your model.
The the tax rate range sort of in the low to mid 30% range for 2024 is is likely where we're going to end up here.
Steven W. Cirulis: But on the cash side, right, you'll see something different because of the NOLs that we're able to utilize. Okay, perfect. Thanks for that, Steve. Hmm?
But on the cash side right Youll see something different because of the Nols that we are able to utilize.
Okay perfect. Thanks, a lot Steve.
Yeah.
Ladies and gentlemen, we have reached the end of today's question and answer session.
Operator: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Mr. Bob Wright for his closing remarks. Thank you, operator. And thank you, everyone, once again, for joining us today. We are very pleased with the year and the quarter, as you can tell from our comments, and delighted that you joined us for the call today. Thanks to our team for their efforts in driving the business. And once again, thanks to our franchisees for helping us grow.
I'd like to turn the call back over to Mr. Bob Wright for closing remarks.
Thank you operator, and thank you everyone. Once again for joining US today, we are very pleased with the year in the quarter as you can tell from our comments and delighted that you've joined us for the call today.
Thanks to our team for their efforts in driving the business and once again, thanks to our franchisees were helping us grow.
Have a great afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yeah.
[music].
Robert D. Wright: Have a great afternoon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. A %uh I %uh %uh I did, Title Microsoft Office Word Document MSWordDoc Word Document.8