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spk01: Good day, ladies and gentlemen, and thank you for standing by. Welcome to El Pollo Loco's second quarter 2023 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, August 3rd, 2023. And now I would like to turn the conference over to Ira Filz, the company's chief financial officer. Thank you. Thank you, operator.
spk03: And good afternoon. By now, everyone should have access to our second quarter 2023 earnings release. If not, it can be found at www.elpoyoloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our strategic and operational initiatives expectations regarding cash flow, sales and margins, potential changes to our menu platforms, capital expenditure plans, future share repurchases, expectations regarding commodity and wage inflation, remodel plans, expected new store openings, franchise partnerships, and our 2023 guidance, among others. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our Form 10-K, for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-Q for the second quarter of 2023 tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website. With respect to the restaurant contribution margin outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. Now, I would like to turn it over to our President and CEO, Larry Roberts.
spk02: Thanks, Ira, and good afternoon, everyone. I'd like to start by thanking our El Pollo Loco team members and our franchise partners for the hard work they put in every day to make this brand great. Without the dedication of everyone in the organization, we would not have been able to achieve the outstanding improvements we've seen across our operational metrics, including drive-through times, social media ratings, and customer complaints for both company and franchise restaurants. These efforts helped deliver restaurant contribution margin of 16.9%, an improvement of 190 basis points compared to last year's second quarter, and adjusted earnings per share of 23 cents. While our system-wide comparable restaurant sales decrease of 3.4% was below our expectations, primarily due to the lapping of our extremely successful beef dairy promotion last year. We are encouraged by the positive trend we've seen to start the third quarter, with system-wide comparable restaurant sales growth of 1.8% over the past four weeks ending July 26th. This includes comparable sales growth at company restaurants of 2.1% and a 0.4% decline in transactions. We believe that our improved sales performance is to some extent driven by refocusing on our famous fire grilled chicken through our current promotions, including our new double chicken chop salads and our new summer family meal that includes eight pieces of fire grilled chicken, three large sides, tortillas, and fresh salsa. Notably, guest feedback on our new chopped sals has been very strong, with quality, taste, healthy, and overall ratings among the highest we've seen for some time. Most importantly, the sals emphasize a major differentiator for Apoyo Loco relative to our competition, which is the freshness of our food and the healthier options we offer on our menu. This differentiation consistently shows up in our consumer research, and is highlighted by last week's recognition in the 2023 USA Today 10 Best Readers Choice Awards as we were voted by readers as a best restaurant for quick, healthy food. Going forward, we will continue developing products and advertising campaigns that drive this differentiation versus our competition. While we continue work to determine whether there is incremental opportunity for alternative proteins, including a carnitas promotion in the fourth quarter we will primarily focus on what makes El Pollo look unique, which is our fire-grilled citrus-marinated chicken and freshly prepared entrees that our guests crave. In addition to our promotional activities, with the launch of our double-chop salad promotion, we have reallocated media spend towards those channels that more effectively drive sales. This reallocation is based on a recently completed media effectiveness study and includes reducing spend on several digital channels while increasing it on more traditional channels like TV. We will continue to adjust our media allocation based on further analysis to ensure we are maximizing sales from our media spend. As we previously highlighted, we believe additional menu platforms are a significant opportunity for us to grow incremental sales, with the largest one being catering. Today, catering sales represent about 1% of our total system sales. Given how well our food travels, we believe catering can reach 5% of our system sales mix within the next one to two years. Over the past two months, our team has been hard at work revamping our catering program, including the development of a new catering menu that provides more options for customers in addition to our chicken-on-the-bone offerings. This work is largely completed, and we're now developing the market materials and training programs required to roll out the new program later in the third quarter. We're also evaluating partnerships with third-party catering delivery services that will further drive the program. After the initial rollout of the program, we will be testing the use of area catering managers to determine the impact they can have on growing our catering business. We are very excited about the potential of catering and believe it can become a $50 to $100 million sales layer for the Pollo Loco system over time. In addition to a catering platform, we continue to make progress on our menu board test, which includes several new menu items, the creation of an add-on panel, and potentially a new value menu. The goals of the new menu are to make it easier for consumers to navigate our menu and identify new items and platforms that will resonate with consumers to build sales over the long term. We're excited about the progress and expect to roll out a revised menu and menu board at the beginning of next year. Ultimately, growing comp sales depends on restaurants consistently delivering great food and service. Along these lines, I couldn't be more pleased with the operational improvements we made this year across both company and franchise restaurants. Drive-through times, customer complaints, and social media scores continue to improve in the second quarter and are at the best levels we have seen in years. As part of our efforts to continue improving the customer experience, we recently completed a recalibration process with each of our general managers to reiterate the importance of food quality and ensure consistency and continued availability of our fire grilled chicken across the system. In addition, we continue to make progress simplifying our operations. We expect to start rolling out new salsa processing equipment to the system later this year, and our kiosk test continues to yield positive results. We've begun expanding the task to 10 more restaurants with a number of franchisees participating. We believe these and other operational initiatives will further drive efficiencies and allow our teams to better serve our customers. With regards to our company culture, servant-led leadership continues to be the foundation with which we operate and what better way to demonstrate our familiar culture than providing greater support to the communities in which we operate. If you recall, back in November, we announced a new partnership with Feeding America with a goal to raise $400,000 for the Feeding America network of local food banks. I'm thrilled to report that through our limited time roundup campaign, our restaurant teams were able to raise over $474,000 as of June 30th, 2023, with our charitable organization, Apoyo Local Charities, matching the first 100,000 roundup transactions. Ninety percent of these donations are being distributed to food banks around our restaurants and the communities we serve. Lastly, let me provide an update on our unit expansions. In recent quarters, we've seen positive momentum in our franchising efforts as showcased by the development agreements we announced on our previous earnings call for Northern Colorado, New Mexico, and El Paso, Texas. That said, For 2023, we are reducing our unit guidance to two company-owned restaurants and three to four franchise restaurants. Similar to what you've heard from others in our industry, we continue to face permitting and construction delays outside of our control, as well as ongoing economic uncertainty causing franchisees to delay their development plans. Discussions on new development agreements continue with both existing and potential new franchisees, and we expect to make further progress during the balance of the year. In closing, we believe the initiatives we're executing against will drive same-store sales, increase restaurant margins over time to over 18 percent, and attract high-quality franchisees to a political system to drive new unit development. Moreover, we expect to continue being in a position to return cash to shareholders as we did in the second quarter through our share repurchase program. As we look to the back half of the year, we will continue to execute against our key strategies and position ourselves for sales and profit growth. Lastly, I'd like to once again thank our team members and franchise partners for the work they do each and every day to make Apoyo Loco a truly special brand. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.
spk03: Thanks, Larry, and good afternoon, everyone. For the second quarter ended June 28, 2023, Total revenue decreased 2.1% to $121.5 million compared to $124.1 million in the second quarter of 2022. Company operated restaurant revenue decreased 2.4% to $103.9 million from $106.5 million in the same period last year. The decrease in company-operated restaurant sales was primarily driven by a 2.3% decrease in company-operated comparable restaurant sales, including a 2.3% increase in average check size offset by a 4.5% decrease in transactions. During the second quarter, our effective price increase versus 2022 was approximately 9.5%. As Larry mentioned earlier, we are encouraged with our improved sales performance in July, with system-wide comparable sales for the month up 1.8%, including a 2.1% increase in company-operated restaurants through July 26th. Franchise revenue increased 0.5% to $10.1 million during the second quarter, driven by eight new franchise restaurant openings, and four company-operated restaurants sold by the company to existing franchisees in each case during or subsequent to the second quarter of 2022. This was partially offset by a franchise-comparable restaurant sales decline of 4.1%. Turning to expenses, food and paper costs as a percentage of company restaurant sales decreased 240 basis points year-over-year to 27.4% due to higher menu prices partially offset by increased commodity costs. Commodity inflation did moderate during the second quarter to approximately 1%. We expect commodity inflation to decelerate to between 1% and 2% for 2023. Labor and related expenses as a percentage of company restaurant sales increased 10 basis points year over year to 31.1%. Higher menu pricing and improved labor management was offset by wage rate increases and the leverage lost on the comparable sales decline. Labor inflation during the second quarter was a little over 4%, and we expect inflation of about 4% for the full year 2023. Occupancy and other operating expense as a percentage of company restaurant sales increased 30 basis points year-over-year to 24.6%, primarily due to higher rent, insurance costs, and repair and maintenance expense partially offset by lower utilities. Our restaurant contribution margin for the second quarter was 16.9% compared to 15% in the year-ago period. For the full year 2023, we expect our restaurant contribution margin to be in the 15.5% to 16.5% range. General and administrative expenses increased 130 basis points year over year to 9.1% of total revenue. The increase for the quarter was primarily due to $1.1 million in restructuring costs recognized during the second quarter and a $300,000 increase in labor-related costs. During the second quarter, we recorded a provision for income taxes of $2.7 million for an effective tax rate of 27.9%. This compares to a provision for income taxes of $3.1 million and an effective tax rate of 30% in the prior year period. We reported gap net income of $7.1 million or $0.20 per diluted share in the second quarter compared to gap net income of $7.1 million or $0.20 per diluted share in the prior year period. Adjusted net income for the quarter was $8 million or $0.23 per diluted share compared to adjusted net income of $7.6 million or $0.21 per diluted share in the second quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. During the quarter, we remodeled two company-operated restaurants and seven franchise restaurants. For the year, we continue to expect to remodel 10 to 15 company-operated and 20 to 30 franchised restaurants. Turning to liquidity, as of June 28, 2023, we had $60 million of debt outstanding and $10.2 million in cash and cash equivalents. In addition, during the quarter, we repurchased about 1,272,000 shares for approximately $11.9 million. Finally, based on our results to date, we would like to provide the following update to our 2023 guidance. The opening of two company-owned restaurants and three to four franchise restaurants, remodeling of 10 to 15 company-owned and 20 to 30 franchise restaurants, capital spending of $22 to $25 million, G&A expenses between $42 and $44 million, inclusive of approximately $1.4 million in one-time costs, and an adjusted income tax rate of 26.5 to 27.5%. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today. We are now happy to answer any questions that you may have. Operator, please open a line for questions.
spk07: Thank you.
spk01: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Todd Brooks with the Benchmark Company. Please proceed.
spk05: Hey, thanks for taking my questions. Appreciate it. Larry, I want to lead off with a question, just kind of reflecting on the comments that you made tonight. Maybe a shift in kind of tone or thinking about strategy with fire-grilled working, core menu focus, being recognized for fresh, and the rework of the marketing balance. Is there kind of a, I don't want to say repositioning, but strategic change that you're looking to make for the brand going forward from here?
spk02: Thanks, Todd. So, let me step back. You know, I hit a number of points, you know, in my opening remarks, but I wanted to step back and talk about, you know, what are the really the key things we're focused on right now. And, you know, first and foremost to me is to continue the progression in operations. You know, to me, ultimately, like I said in my opening comments, you can't drive sales and profitability over any time period in a restaurant business without having great operations. The great thing is we, you know, we fixed company operations service from where they were last year. We got the cost under control. Now in operations, it's really around raising the bar on food quality and consistency across the system. And we started doing that by retraining. We are starting to monitor. complaints around food issues and making sure then we hold people accountable and address them as quickly as possible. So again, raising the bar in operations and really focused on food quality consistency is a major focus. So that would be really the first thing I'd say. On the marketing side, more your question, you know, really I see three things. First of all, refocus and drive a brand differentiation. It's all around chicken and freshness. You know, our consumer insight data tells us those are the things that really differentiate us in front of consumers. And so in order to do that, you know, the advertising campaign, you know, the content on your social and digital channels, you know, product news and the menu all have to be geared towards driving that differentiation. So to some extent, yeah, I mean, that's something we already talked about, but we are now going to be really, really focused on driving that in the business. In addition to marketing, it's going to be around the new sales channels, which I talked about, catering being the biggest one, big opportunity. You've got to get that out there. You've got to get that done. We've got to make it into a 5%, maybe even 10% system sales type of number on catering. And the last one is the loyalty program, which we relaunched it. It's We need to get the loyalty program to be a real incremental sales driver in the business, and it's kind of stalled out a bit, so we need to figure out how we're going to really use that to drive incremental sales. Third, I would say, is really around the assets. As a brand, if we're looking to modernize and really push the freshness cues, we really have to remodel our assets. And so we've been doing that. We need to continue doing that and make sure that we don't – Lose step on that and perhaps even accelerate on the remodels because, again, we've got too many assets out there where people, especially newer customers, just won't come to us because of the asset base. I guess the fourth one I'd call would be economics. And we talked about that is we have to get back to 18%. And quite frankly, my target is 20% margins in the business. And so we've got a game plan to get there. And so we'll deliver against that game plan. Next would be around development. We are going to be franchise-driven in development. We've got to improve the economics. Part of that is from the margin work we're doing, but we also got to push ourselves to find ways to get our building costs down. And then we need to increase efforts to attract new franchisees into the system and make sure that they open successfully. So a lot of work going on there. And the last one, which we talked about just real briefly, is We are a cash flow generator, and, you know, we need to continue returning cash to shareholders. We've done that through a special dividend, our recently completed share repurchase program, but we'll continue finding the best ways to return cash to shareholders. So I break it down into, I guess that was six areas that we're just really, really focused on. And to your point around the brand, it's not necessarily a shift in focus, but I think the Beria promotion was a, you know, it did great last year. It may have been a bit of a distraction for us. We're just getting back to the key things that we really do great, which we know is around chicken and how we prepare our food from the entree items to the sauces to the salsas. All those things in the restaurant are fresh. And so we just need to drive that differentiation.
spk05: That's great to hear. And I guess a follow-up on one of the pillars that you just laid out there, hearing you kind of a potential internal goal, wanting to get back to 18, but potentially getting back to 20. What's the unlock to do that? Is that AUV-driven in your mind? It feels like you've extracted a lot of efficiencies out of the business and the operations already. Is this a volume-driven recovery to that type of restaurant level, Martin?
spk02: I think it's a bit of both, but honestly, I'm... I'm trying to do it without relying on sales. I think sales will be the add-on. So it's looking at, you know, where we can find efficiency. So, you know, as we're looking at the new salsa processor equipment, I think that's an opportunity. Kiosks, we're pushing those tests. That could be a huge opportunity to drive margin improvements. And then I think there is on the sales line, I mean, especially catering, I think we estimate for every 1% catering sales, we get about, what, a 30 basis point improvement in margins, somewhere in that range. So, it's a combination of both, but, you know, we're not just saying, hey, we've got to grow sales, because we want to make sure that we're also doing it on the cost side.
spk07: Okay, great. I'll jump back in queue. Thanks, Larry.
spk01: Our next question comes from Jake Bartlett with Truist.
spk06: Great. Thanks for taking the question. Larry, my question is about the momentum in the business. And, you know, I understand the difficult compare from Varia last year in the second quarter. But there was a deceleration versus 19, kind of as I look at a four-year stack on same-source sales. So I'm wondering what you think is driving that. And you might speak to the macro environment, how MoCo is positioned in that. But, you know, just trying to understand you know, the underlying, you know, momentum in the business and really what's driving that.
spk02: Yeah. So, Jake, I mean, I think actually right now we're seeing a change in momentum in the business. I mean, you know, we provided a four-week look as of July 26th, 27th. I can't remember which day it was. But actually, the first week of that was actually negative. That was 4th of July weekend. And the lap was just a little strange way before the July fell, but so that was a negative week. And so then the last three have been even better. I think when you look at call it last quarter, again, I highlighted that I thought we're seeing some pullback from lower income consumers in terms of frequency check. So I think that was a driver. And I think Beery itself just, you know, didn't resonate the second time around. And I think getting away from focusing on chicken actually hurt us the second time around with Birria. So I think those are some of the factors. And I'm just, you know, really watching now the trends in the business now. And, you know, there's some encouraging trends. I don't want to get too far out there in terms of, hey, everything's great and, you know, sales are going to keep climbing. But I've definitely seen better trends. And I'd say what's great is on the sales side, what we're seeing is, The change in trend is being led by L.A. and Southern California. So that's been great to see. It's been mainly lunch-driven, but dinner's also been positive. And then we're also seeing pretty much consistency across the different demographics. So it seems to be pretty widespread and, again, L.A., Southern California-driven, which is great to see since, you know, that's where the majority of our business is.
spk06: That's great to see. And, you know, I guess given that, given the improvement, I guess maybe that means you don't need to make any meaningful changes to the balance of value. But how do you feel you're positioned in terms of value? And, you know, there's the menu innovation and the more premium side. But do you think you need to make any kind of changes there, any tweaks to get the balance to be more effective in this environment?
spk02: Well, first thing I'll say that when we look at our value scores via our consumer surveys, they're actually very strong right now overall. However, what we are doing is in the menu board test is we are looking at providing perhaps a value panel. And so right now we are screening with consumers various options around value, whether it's at probably more $6, $7. How do those screen? And then we'll get out and test that with consumers to see, you know, do they drive incremental sales? What you don't want to see is a lot of trade down, but, you know, doing it in a way that's got very good margins and look at those ones that screen the best with consumers. So we are looking at that. And so that would be something, you know, we would look at either, you know, really back half the year, early next year. You know, it really seems to resonate. We try to get that on the menu. But we've got to test our way to that. Other than that, we still have our $5 bowls. We've got fire grill combos, which are all at, you know, pretty attractive value price points. And like I said, our value scores right now are strong with consumers.
spk06: Great. And then my last question is just on margins and, you know, a good quarter for margins and restaurant level margins. Your commodity inflation has been taken down. I think your labor inflation a little bit to four from four to five. But at the midpoint of guidance, I think you're stay the same for the annual number. So Just wondering what the moving pieces are there. And maybe within that, I think pricing is going to make a difference. So if you could share what you expect menu pricing to be in the back half of the year. And just to add on to this long question, you know, in the past, you've given us some guidance for the current quarter. You gave us guidance for the year with restaurant level margins. But any guidance or any indication for the third quarter would be helpful.
spk03: Yeah. Yeah, Jake. So, you know, our pricing plans are pretty similar to what they've been. If you think about, so in Q2, we were at about 9.5% effective pricing year over year. As you roll forth through the balance of the year, you'll see that decline as we took a lot of price towards the end of last year. So Q2, I'm sorry, Q3, we should be about 7.25%. And in Q4, we'll be about 5.5%. And if you think about how how margin plays out kind of for the balance of the year. You know, typically you see Q2 as our best margin quarter and you see Q1 as our lowest margin quarter. And the last couple quarters of the year tend to be similar to kind of like the full year number. for the most part, with Q4 being a little better than Q3, as you typically see a little spike because of utilities. So just to give you a little play how that plays out, I think, you know, we feel really good about our visibility in regards to commodities, and that's why we're able to bring the guidance down. and our our wage our wage rates have been pretty consistent as well so we feel um we have a lot of visibility from from a cost standpoint and a lot of um then really what drives any differences is is how sales moves as larry talked about it's about 30 basis points or so on the margin depending upon any one percent move in sale great i appreciate it thank you so much thanks jake
spk07: Our next question comes from Andy Barish with Jefferies. Please proceed with your.
spk04: It sounds like from the prepared remarks, you know, you expect Tom's to stay positive, you know, in the back half of the year, even against some tougher laps. I assume that, you know, that confidence is coming from sort of the promotional lineup, but is there anything else that, I mean, I know there's a lot of initiatives, but what kind of gives you that, you know, that confidence at this point?
spk02: Yeah, so I see as a key sales growth drivers the back half the year. You know, first of all, I think getting back and refocusing on chicken, the chopped salads, and then we have quesadillas are next up, and quesadillas performed very well last year. So that gives us confidence that we've got good promotions both going on now and coming up next. I expect that we'll continue to see improvement in operations and customer service. And I think one of the big opportunities is, and this comes from focus groups I watched last week, which is around, we did focus groups with lapsed users and Asked them, well, you know, why did you stop coming to Apoyo Loco? And these go back, they've lasted for a while, and it was really around, it wasn't around price points or anything like that. It was around their last experience at Apoyo Loco. And so with the improvements we made in operations and the continued improvements we'll make, you know, we will really be targeting to bring last users back into the restaurants back half a year. I do think the loyalty program will continue to make changes to that, so that will be a driver. And I think the realignment of the media spend that I talked about versus the first half of the year, continue to fine-tune that to really get focused on those channels that deliver the strongest sales will be a driver. And then I think the last one that's going to be around, catering, which we'll look to roll out the end of September. So he's moving to fourth quarter, certainly going to the holidays, you know, having a really strong catering platform, I think will be a sales driver. So I think we got a number of good things on the agenda to, you know, drive the sales in the back half of the year.
spk04: Just to follow up on the marketing, I think I think you've got a new agency record. I'm not recalling the timing exactly, but has the creative from that group started to be out there yet?
spk02: Yeah, so that group started. The first run was, I guess, February, so our module two. But that was kind of a throw them there quickly, put something together quickly. So it wasn't the full-blown, here it is. But they are now full in force, and the advertising we have now is full on with a new agency. The agency's name is Organic. And really pleased with what we're seeing in terms of the look and feel of the advertising. I mean, it's got more energy with the music. We're now really focusing on the food, how it's prepared. Done that before, but, for example, the chopped salads, you know, show the chicken being chopped. And so... doing those things, and then we really reshot the whole family dinner promotion, the advertising, and really made sure that, okay, we need families in it. So we've got families now in there because you're targeting moms. So the look and feel, the energy, the vibe, and I think we've got a lot of the right ingredients in there that we want to have to really drive, first of all, a slightly – quote, more modern brand and more energy behind the brand, then also the product quality and the freshness of the food are really coming through in the advertising.
spk04: Got it. And then finally, just, you know, the 10 or so units, you know, from both company and franchise have, you know, have been pushed now from this year. Are those expected to open in 24 or some of those kind of evaporated with you know some challenges out there or how do you kind of look at that you know start to 24 is it is it right to think of these 10 units kind of moving into next year uh some are moving into next year i'd say somewhere around oh about half are probably moving next year and half have just fallen through um
spk02: You know, either the development is stopped or the landlord went with a different deal. So, you know, so I say it's half and half at this stage.
spk07: Okay. Thanks, guys.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Drew North with Baird. Please proceed with your question.
spk00: Great. Thanks for taking the question. A number of mine have been asked already, but I'll follow up on margins or the inflation outlook. Can you just update us on how much the commodity basket is locked for the balance of 2023 and perhaps any earlier reads on your contracting efforts for chicken looking out to 2024? Do you see opportunity to lock in at rates below the levels paid in 2023 or What's your level of visibility to the inflation outlook to 2024 at this point?
spk03: You know, I think more broadly, we view the outlook next year positive, just given, you know, we haven't seen a lot of pressure in regards specifically on the chicken side. We don't have, we just started, quite frankly, our RFP process. So we'll have more on that in the next quarter. So, but we feel, I think that we've seen commodities decelerate substantially this year, and we're definitely looking for 2024 to be a much more moderate, you know, commodities inflation environment. For the back half of the year, I think we're around 80-plus percent or so locked in on the chicken side. Really, what's not locked is just the breast meat, which floats. And we have a collar on that. So, again, the spot price on that has been very favorable. And we feel like we do have quite a bit of visibility to where we're headed from a commodity standpoint.
spk00: That's helpful. And one clarification, Ira – The pricing metrics you mentioned earlier on in the call as we got to Q3, Q4, was that contemplating additional pricing as we got to September or assuming no changes in price as the new menu rolls out?
spk03: It is. There's a 2% price increase built into that when the new menu rolls out in the September time frame.
spk00: Perfect. And then one more from me. Just Thought I'd give you the chance to update on the kiosk rollout, if you have any details to share. I know it's expanded to additional locations this past quarter, so it's still early, but getting to a more critical mass of the test, I guess. And other brands have been successful with the rollout of the kiosk, so maybe if you're willing to share, could you speak to the benefits you're seeing on check or margins? at this point in the units where the kiosks have been rolled out and perhaps the interest level from franchisees at this point?
spk02: Sure. A little more detail on kiosks. Like I said, we have, I believe, 11 kiosks now in service. That includes some franchise restaurants. In company restaurants, what we have found is that to really drive kiosk usage, It's important to have new cash machines, you know, the ability to use cash to pay. And so when we put those in, we're seeing anywhere in our test restaurants from, you know, dining room transactions. So meaning either, you know, somebody eating in the dining room or coming in and ordering for it to go. We're seeing anywhere from restaurants 75% to 80% kiosk usage. And the lows will be in the 20s, but even those we're seeing increase. And so overall, we're seeing really good usage on the kiosks. We're seeing nice average checklists. And the other thing we're seeing is when you start getting up to 50% plus in terms of usage, you can start looking at labor hours. So we are pulling some labor hours out of those restaurants that have a high usage rate. And so now given success there, we are rolling out 10 more kiosks on the company side. They'll be in Las Vegas. And the reason why we've chosen Las Vegas is because there's no EBT. ability in Las Vegas. So in California, we think the usage will even go further as we integrate EBT usage into the kiosk system. And because we get a lot of EBT sales here in California, but Vegas, they don't have EBT. And so we're already in a couple restaurants there. We're seeing very high usage in Vegas. And in fact, I think we're going to basically test a restaurant where it's just kiosk service. and see what that does. So we're trying to really push the envelope on the kiosk, similar to what other concepts have done. I see what they're doing, and I think there's a big ability there to both drive check and reduce labor hours in the restaurant.
spk07: Thanks for all the color. I'll pass it on. Sure. Our next question comes from Jake Bartlett with Truist.
spk01: Please proceed.
spk06: Great, thanks. This is a fairly detailed question about compares, but I just want to make sure I, you know, getting it right. So, last third quarter, you know, July was relatively weak, you know, weak relative to the quarter. That was, you know, going up against the opposite where, you know, July of 2021 was the strongest. you know, last year might've been just related to the year before. So the question is, as we think about, you know, the rest of the quarter and kind of, you know, where, where sales can land, do you view the compares as more difficult going forward or, you know, maybe on a kind of a stack basis for your basis or, you know, versus pre COVID it's not. So I just want to make sure I don't get too carried away by the fact that compares seem to get considerably harder, you know, in August, in September.
spk02: Yeah, Jake, so the way I was looking at it actually is I threw out the 4th of July week and looked at, say, the last three weeks plus. And actually, again, we were positive last year in that same time period, year over year. And then especially L.A., You know, company restaurants, I mean, I'll just give you 2022 over this timeframe, we're up about 1.6%. In LA at this point, we're up close to five. So, you know, I think we're lapping, you know, I don't think the numbers are as negative when you actually throw away Fourth of July weekend and do the compares. And so I feel like there's good enough momentum that as we move through the quarter, the laps get more challenging. So I still think we'll be able to deliver positive same-source sales growth, but I think that's probably one reason why, you know, we're just, you know, don't get too far out there in front of your skis. We still got to deliver. But certainly, I think the trends over the last several weeks have been reassuring, especially in terms of the L.A., Southern California market.
spk06: Great. That's helpful. And, yeah, no, that's, I think that's it.
spk07: Thank you so much. Appreciate it.
spk01: Ladies and gentlemen, we have reached the end of today's question and answer session. I would now like to turn the call back over to Mr. Larry Roberts for closing.
spk02: Just like to thank everybody for joining the call tonight and hope you have a great night. And we'll talk to you next quarter.
spk07: Thank you. This concludes today's teleconference. You may disconnect your lines at this time.
spk01: Thank you for your participation.
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