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spk01: Good morning. Welcome to the Carroll's Restaurant Group first quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session, and instructions will be given at that time. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. I would like to remind everyone that this conference call is being recorded today, Thursday, May 13, 2021, at 830 a.m. Eastern Time, and will be available for replay. I will now turn the conference over to Tony Hull, Carol's Chief Financial Officer. Please go ahead, sir.
spk10: Thank you, Rob, and good morning, everyone. By now, you should have access to our earnings announcement released earlier this morning and an earnings review presentation that are both available on our website at www.carols.com under the Investor Relations section. Before we begin our remarks, I would like to remind everyone that our discussion will include forward-looking statements which may consist of comments regarding our strategies, intentions, or plans. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We also refer you to our filings of the SEC for more details, both with respect to the forward-looking statements as well as risks that could impact our business and results, including, among other things, the impact of COVID-19. During today's call, we will discuss certain non-GAAP measures that 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 generally accepted accounting principles. The reconciliation to comfortable gap measures is available with our earnings release. With that, I will now turn the call over to our Chairman and CEO, Dan Accardino. Dan?
spk07: Thanks, Tony, and good morning, everyone. I will start off by providing a business update before Tony reviews our quarterly financials and outlook in greater detail. We had a very encouraging start to 2021 and delivered what we view as a strong quarter that we believe has set the stage for a great year at Carroll's. Comparable restaurant sales rose 14.7% in the first quarter at our Burger King restaurants, driven by a 49.5% increase in March same-store sales. Our strong performance in the month of March was preceded by a week February where we lost 682 store days, between our Burger King and Popeyes restaurants due to severe winter weather, particularly in the southern geographies we serve. We attribute our recent Burger King momentum to a successful dollar value product promotion that resonated with our customers, as well as a partial return to pre-pandemic behaviors and activities and recent government stimulus payments. Our year-over-year comparisons were also favorable, particularly beginning mid March as we begin to lap our COVID impacted performance in 2020. We once again outpaced the overall Burger King system during the quarter as we have done for 19 out of the past 21 quarters. Using a calendar basis rather than the fiscal period basis we report on, our first quarter 2021 comparable Burger King restaurant sales increased 12.3% compared to 6.6% for the the U.S. Burger King system, and I remind everyone that we are approximately 14% of the Burger King system. Our latest outperformance of the U.S. Burger King system is by far the largest I can recall, and we believe it was due primarily to three factors. First, the Northeast and Midwest regions, which comprise nearly 50% of our footprint, performed better than other geographic areas during the quarter. Second, we did a relatively better job reopening our restaurants, particularly during late night hours than the rest of the system, and therefore outperformed during this day part. And third, we sold about 30% more bacon cheeseburger units daily per store that were part of the dollar value promotion at Carroll's than was sold nationally. To expand on what we are currently experiencing, Our April Burger King comparable sales increased 31.5%. Much of this improvement is due to lapping lower COVID-impacted traffic, particularly as we begin to see our most impacted day parts last year, breakfast, evening, and late night come back and come back strong. But the momentum we are seeing is more than that. In fact, if you compare our April 2021 results to April 2019 results, Our comparable restaurant sales increased 10.3%, even at only approximately 90% of the traffic compared to 2019. We believe this indicates that we have more positive impacts to come for our business as the economy continues to rebound. As a point of reference, comparable March and April sales for our Burger King restaurants in 2021 compared to 2019. showed the same improvement of just over 10% in each month. As of quarter end, our dining rooms in most cases were open but not widely used, as most activity inside our restaurants represented carryout orders. Delivery comprised 4.8% of our total Burger King restaurant sales during Q1, up from 3.5% in Q4 last year, and the average check size rose sequentially to $17.51 from $17.02 for delivery. This compares to our overall first quarter average check for Burger King of $8.81, including delivery. Our three largest delivery partners, DoorDash, Uber Eats, and Grubhub, now provide fully integrated delivery services at approximately 90% of our Burger King restaurants at a $17 million-plus quarterly revenue run rate, We believe this convenience option will remain significant for us even in a post-pandemic environment. Turning now to profitability, adjusted restaurant-level EBITDA increased by 73% to $39.5 million compared to the same period in 2020, as margins improved by 360 basis points to 10.1% of restaurant sales. In terms of some of the restaurant-level drivers, cost of sales as a percentage of revenue was 29.2% this past quarter, compared to 29.3% a year ago, even after the addition of delivery costs of 80 basis points. Beef and waste costs were favorable in Q1 compared to last year, and it remains so in Q2, with their favorability partially offset by higher other commodity costs. Labor costs as a percentage of sales were favorable versus the same period a year ago, and were up only 4% year over year compared to nearly an 11% growth in sales. Our current team size for Burger King Restaurant averaged 21 employees during the first quarter, similar to the fourth quarter of 2020, and we continue to benefit from limited use of our dining rooms for eat-in service until March 2021 when they fully reopened. While we are working through challenging labor availability, as virtually all of our quick-serve and casual dining competitors have reported, we believe that this issue could potentially be alleviated As younger people gain more access to the vaccine and the supply of potential high school and college aged hourly team members seasonally increases within the next six weeks. We recently increased pricing by approximately 2% and at this point expect to carry this level of pricing throughout the year. However, we see challenges with respect to restaurant level input costs. We believe we have flexibility to take additional pricing as needed in this robust economic environment and will not hesitate to do so if necessary. Turning to restaurant development, recall that in January we amended our area development agreement with Burger King Corporation, significantly reducing our required capital expenditure, spending on remodels and new restaurant construction while forfeiting our right of first refusal on any Burger King franchise sale in portions of our geographic footprint, Under the new agreement, we believe we have the flexibility to grow our business organically and through acquisitions in a manner that will optimize our profit growth potential while generating consistent free cash flow and keeping our leverage in check. In fact, we are still pre-approved to acquire up to 500 Burger King restaurants and territories where we currently operate and are pursuing a number of acquisition opportunities at the moment. In March, Popeyes agreed to our request to terminate the development agreement we inherited in connection with our 2019 Cambridge acquisition. We are working with a brand to establish a new area development agreement that optimizes the growth potential of this high-growth franchise for both parties. Over the past 12 months, we have significantly increased our available liquidity to over $200 million and reduced our leverage by more than 1.5 turns to 3.4 times. While building and acquiring restaurants in both brands remains a strategic objective of ours, if compelling returns are not available, we will instead continue to build free cash flow, further delever our balance sheet, and return cash to stockholders. Looking ahead, we are excited about the promotional calendar with its emphasis on value and several new product offerings, including Burger King's new chicken sandwich, which will be promoted with extensive national advertising in the near future, We think that the product-specific campaign will establish tremendous awareness and enthusiasm for what we view as a best-in-class chicken sandwich offering and are eager to see what uplift may come about through this support. On a related note, we are also excited by the rollout of Burger King's new loyalty program entitled Royal Perks that is geared towards increasing the level of one-on-one engagement Burger King has with its customers, reducing the use of paper coupons and driving traffic to weaker day parts. In 2020, mobile orders accounted for about 1% of our sales, and we are confident Burger King's new loyalty program will accelerate the growth of that distribution channel and drive increased traffic by improving customer engagement. To conclude, we believe 2021 is poised to be a great year for Carroll's. We have undeniable momentum coming out of Q1, We are managing our costs. We are able to execute our organic and non-organic growth efforts in a balanced way, and we are keeping our capital expenditures and leverage in check. Above all, our goal is to generate a meaningful and healthy amount of free cash flow this year for the benefit of our shareholders. With that, let me turn the call over to Tony to review our quarterly financials.
spk10: Thanks, Dan. Total restaurant sales for the first quarter increased 10.9% to $390 million compared to the prior year period. This increase is less than the 14.7% comparable restaurant sales increase due to the accelerated closure of 34 underperforming Burger King restaurants during the last three quarters of 2020, and the way the day is within the fiscal calendar shifted between the two years, particularly during the strong recovery period this past March. Average weekly sales at our Burger King restaurants were $28,094 in the first quarter of 2021. This is an improvement of 14% in 2020 levels, and more importantly, exceeded 2019 levels by 6%. Similar to what we provided last year, we believe it is helpful to offer greater visibility into our Burger King performance by region as we operated over 1,000 restaurants as of the end of Q1 across 23 states. In the Northeast, representing 22% of our Burger King restaurants, comp sales were up 21%. In the Midwest, representing 27% of our Burger King restaurants, comp sales were up 18%. In the South Central, representing 25% of our Burger King restaurants, mainly of Tennessee, comp sales increased 9%. And finally, in our Southeast region, representing 26% of our Burger King restaurants, comp sales were up 10%. With respect to our Popeyes restaurants, comfortable restaurant sales increased 0.5% versus a 3.2% increase during the same period a year ago, as the February storms in the South Central region had a dramatic impact on our quarterly results. Our Popeyes restaurants represented 5.5% of our first quarter revenue. Adjusted EBITDA increased $15.9 million in the quarter to $19.9 million, which was almost five times greater than our $4 million of adjusted EBITDA in the first quarter of 2020. Our adjusted EBITDA margin increased 400 basis points to 5.1% of restaurant sales. Cost of sales improved 10 basis points and benefited from both less food waste as well as lower ground beef prices, which averaged $2.05 per pound during the first quarter. This marked a 7.2% decline from the same period a year ago when ground beef prices averaged $2.21 per pound. Our food supplier has forecasted that beef costs, which are currently at $2.30 per pound, are expected to elevate slightly during the summer months and return to the current level for the remainder of 2021. Restaurant labor expenses decreased 220 basis points as a percentage of restaurant sales compared to the prior year period, despite a 6% increase in average hourly wage rate. The improvement is a reflection of the adjustments made to our labor requirements, along with having reduced labor costs of across most restaurants during the quarter. Restaurant rent expense decreased 60 basis points as a percentage of sales compared to the prior year period, primarily due to sales leverage. Other restaurant operating expenses decreased 20 basis points as a percentage of sales compared to the prior year period due to lower utility repair and maintenance costs and other operating expenses that benefited from dining room closures. Operating expenses in the first quarter included $200,000 in COVID-related supplies, including face masks, thermometers, sneeze guards, and sanitizers. General and administrative expenses were $21.4 million in the first quarter of 2021, which includes $2.4 million of higher bonus accrual due to improved operational performances compared to last year. The quarter also includes the impact of many corporate cost efficiency initiatives, such as streamlining our regional management structure and reengineering of the employee training process that were completed last year. Our net loss was $7.2 million in the first quarter of 2021, or 14 cents per diluted share. On an adjusted basis, including certain non-operating items, first quarter adjusted net loss was $6.5 million, or 13 cents per diluted share. In the year-ago period, adjusted net loss was $19.3 million, or 38 cents per diluted share. Our free cash flow is impacted by seasonal trends in our business, as well as timing of annual payments for insurance and bonuses. Similar to last year, we did not generate free cash flow during the first quarter. However, the $3.6 million in cash we used in the latest quarter was a $22.2 million improvement to the cash used in the first quarter of 2020, reflecting, we believe, the strengthening of our business. We ended the first quarter with cash and cash equivalents of $59.9 million and long-term debt and finance lease liabilities of $493.3 million. We did not have any outstanding revolving credit borrowings under our revolving credit facility, and had $9 million of letters of credit issued under such facility. Our adjusted leverage ratio of defined and our senior credit facilities stood at 3.4 times at the end of the first quarter, compared to 3.8 times at the end of fiscal 2020. In April, we upsized our revolving credit facility to $175 million, adding $29 million of liquidity and extended this maturity to 2026. While we're not providing a full outlook for 2021, Let me reiterate a few guidelines that we discussed on our last conference call. We indicated in March that we were expecting flat cost of sales as a percentage of revenue for 2021 compared to 2020. We now believe that there may be a modest headwind for cost of sales this year due to higher delivery activity and related costs, as well as revisions to our commodity basket based on updated information from our national food supplier. On the other hand, we expect to benefit from lower promotional and discounting activity compared to last year. We also indicated on our last call that we were expecting modest labor due leveraging in 2021, mostly as a result of higher staffing levels expected in the back half of the year. Our view has not changed. We expect labor as a percentage of sales to be higher for the balance of the year compared to 2020. Given the current strong sales momentum, it will be important to prioritize staffing in order for us to capitalize on the favorable revenue trends we are seeing. Expectations for G&A costs are unchanged and are anticipated to increase modestly due to the lapping against short-term paying travel reductions experienced in 2020, but are expected to remain flat as a percentage of sales. Our net capital expenditures this year are targeted at $60 million. In addition to routine maintenance, our planned spending is the following. First, we are rolling out outdoor digital menu boards to 450 restaurants this year, including at our Popeyes restaurants. As of today, 550 of our restaurants have this technology in place. Second, we have installed kitchen equipment at our Burger King restaurants for sandwich preparation related to the brand's new hand-breaded chicken sandwich. Third, we are currently planning on remodeling about 20 restaurants, of which five will be Popeyes. And fourth, we plan to develop and build nine new Burger King restaurants this year, of which two have already opened, and one new Popeyes restaurant. We believe all but two will go online during 2021. Said another way, our CapEx this year consists of approximately $15 million for maintenance, $15 million for restaurant equipment upgrades along with corporate projects, and $30 million for new builds, net of sale e-specs, and remodels. Let me add that given the construction cost trends we are seeing, we remain flexible and can and will adjust the timing of these activities based on careful monitoring, particularly as it relates to remodels. To conclude, we believe that there are numerous tailwinds to our business this year, and have many reasons to be optimistic about the year ahead. We expect to generate strong cash flow again this year that we will deploy in a disciplined manner designed to enhance shareholder value. And with that, operator, let's go ahead and open the lines for questions.
spk01: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, please press star 1 on your telephone keypad, and the confirmation tone to indicate your line is in the question queue. You may press star 2 if you would like to move 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. Thank you. And our first question is from the line of Jake Bartlett with Truist Securities. Please proceed with your questions.
spk06: Great. Thanks for taking the question. My first is on the monthly trends, and I believe in the release you mentioned that that both March and April were up 10% versus 19. Could you confirm that, or was it kind of as a whole, or just maybe to confirm that? And also just in that context, if you could remind us what the monthly comps were in March and April last year, just noting there's a slight deceleration on the, you know, in April versus March this year, but I just wanted to make sure I understand what the compares are there.
spk10: Sure. Yes, I can confirm that April and March were up 10% versus 2019 for each month. And secondly, last year, March was down for Burger King, March was down 16.8%, and April was down 21.7%.
spk04: Great.
spk06: If you can touch on, like, you know, I'm wondering about the difference between your performance in Burger King as a whole, Do you have more stores offering the chicken sandwich, the new chicken sandwich, in your system versus Burger King? And, you know, could that be part of why you were outperformed by so much?
spk07: Yeah, Jake, this is Dan. No, we did not have more chicken. As a matter of fact, I think we may have had fewer because we were one of the last areas to be rolled out in many of our distribution centers.
spk06: Okay. Dave, will you be able to share, you know, how many stores have it now? They all have it now.
spk07: They all have it now. Yeah, yeah.
spk06: Okay.
spk07: Yeah, but we didn't get some of these rolled out until April.
spk06: Okay, okay. Great. And then just moving to the cost and the inflation side, can you quantify, Tony, what you expect for commodity inflation today? And then, you know, how much visibility you have on that. I know it's a concern that I know investors have. We've heard kind of, you know, pretty varying guidance from different companies. But, you know, what kind of inflation, you know, should we expect on the food side? And then, you know, how much risk is there to that?
spk10: Sure. Our overall... commodity inflation for our full basket of commodities for 2021 is at 4% to 5%. And that's based on information we get from our national food supplier. So they, you know, they track it. They're in constant communication with the manufacturers and that sort of thing. So, you know, I think they're pretty good at seeing what's going on on the ground. Of our 4% to 5% increase, we think beef will be about 2%, and then chicken will be about 5%. Then there's some other ones. The smaller part of our basket, shortening is one that's up pretty significantly. It's forecast to be up like 16%, but it's only like 3% of our basket. And then bacon is forecast to be up about 14%. Again, that's a pretty small percentage of our overall basket. So, you know, what we're seeing – you know, really on the ground for beef is it, you know, it obviously went up significantly from, you know, the low $2 per pound level to, you know, in the last four weeks, it's been very steady. It grew to 230, but it's sort of stayed at 230 for the last four weeks. And again, as we mentioned in the remarks that Dan made earlier, we think that, you you know, there might be a bit of an increase this summer, but then it'll go back down to this 230. That's what our, you know, that's what our food supplier is thinking. The other thing, Jake, just to completely give you a long-winded answer, is that on the chicken side, our national, you know, our national food supplier has hedged those costs, at least the underlying feed cost to chicken, to the end of August. And we have, you know, good supply you know, in place to get the chicken sandwich launched. So we feel good about that. And, you know, so we think we'll get through some short-term volatility this summer and to the end of the year where things should calm down.
spk06: Great. That's really helpful. And then, you know, my last one, just kind of putting that together, you know, 4% to 5% commodity inflation. I think you mentioned 6% wage inflation that you saw in the first quarter and 2% of pricing. So, you know, is there anything Are there any offsets, or should we expect restaurant-level margins to contract in 2021? Are there any offsets, like efficiencies less for people in the store?
spk07: As we said in our prepared remarks, Jake, our promotional discounts are expected to be about 3% lower than they were in 2020.
spk10: Yeah, that's very beneficial to the top-line net sales growth, Jake. as well as it helps offset some of the cost of sales, you know, other things that are going up in the cost of sales line. It's a pretty material change from last year.
spk06: Got it. I appreciate it. Thanks a lot. Thank you.
spk01: Our next question comes from the line of James Rutherford of Stevens. Please proceed with your question.
spk05: All right. Good morning, Dan and Tony. Hope you're both doing well. Congrats on this 10% to your comp here in March and April. I think that's really impressive. Dan, you called out differences as far as kind of what drove that. You called out differences in regional performance, better opening of late night, and better performance in the dollar menu bacon cheeseburger, if I got all those correct, as far as what drove the outperformance versus the system. I was curious if you could possibly quantify, even just broadly, the impact of those components on the outperformance, and then why do you think there is such a difference in the regional performance here in March and April? I think I have an idea, but I'm curious your take on that.
spk07: I don't have the – I can't break out how much of the outperformance was in each of those categories, James. I actually got that response from – uh, Art Burger King Corporation, RBI, I asked them why we were, why, why this outperformance was the most dramatic we've ever seen. Uh, when you consider that we're 14% of the 6.6%, the outperformance was really, uh, you know, over 600 basis points. Uh, so, uh, why it's, uh, as far as opening restaurants, I am told by, again, RBI, that, uh, we just did a better job in keeping our restaurants open later in the evening and also making certain that we were open for breakfast, which apparently was not the case in some part of the system. The Northeast has historically been strong for us and has continued to be so. And as we mentioned in the script, I think some of the underperformance in the central and southeast areas was due to losing 682 store days in February, which was a pretty dramatic effect primarily on our Popeyes business. As far as why we're selling more bacon cheeseburgers than the balance of the system, no one has been able to give me an answer. The only thing I can assume is that You know, we have all of our POP up advertising the fact that the bacon cheeseburger is being sold for a dollar. Perhaps others aren't necessarily advertising it on the windows in the drive-thru, which is primarily where all the business is going through.
spk05: Dan, did that regional outperformance for the Northeast and the Midwest extend into March and April once the weather was no longer a driver factor?
spk07: Yes, for us it did. I don't know about whether the outperformance relative to the balance of the system continued to be at that level. But yes, our outperformance in those markets continues, yes.
spk05: Okay. And then flipping over to breakfast, where was your breakfast mix before the pandemic began? Where does it stand today? And I'm just curious how that kind of compares. I think the total Burger King system was at 13%. And just your take on how that day part is performing here in the last couple of months?
spk07: We're at 14% now, which isn't – it might be a point lower than it was pre-pandemic, but it's pretty similar to what it was pre-pandemic, James. Okay.
spk05: And then last one, I'll turn it on to the queue, is on labor. You all have always put a lot of thought into how you manage this line, and you mentioned – that your hourly labor staff remains at 21 in the quarter here. I think before COVID you were at 23. Dan, can you share where you're running quarter to date on labor per store? And if, you know, we'll post-COVID, normal world, normal labor market, are you going to be above that 23 now that you have a new person at the chicken station or the breading station?
spk07: We will not be above 23, and I hope to get back to 21, James. April was not a good month in terms of our ability to staff the restaurant. And that is our major challenge right now is once all the stimulus payments came out, which was the end of March, mid to end of March, staffing in April is much more difficult than it was in June.
spk05: Are there any disruptions on your operating hours or requirements to close the store temporarily because of that?
spk07: Sporadically. We've had some restaurants that have closed prior to the normal closing hours. It's been a handful, but it has happened sporadically simply because you staff four, five, six people and two show up. And that's been the challenge is you may have enough people on your roster. The question is whether or not they're all going to show up to work Okay, thanks for all the thoughts.
spk01: Yep. Next question comes from the line of Brian Millen with Deutsche Bank. Pleased to see you with your questions.
spk03: Hey, thank you. Hey, congrats, guys, on the results. You know, I was encouraging to hear about the two-year trend in March and April above 19. Presumably from here, you know, the impact from stimulus should start to fade, you know, but at the same time you have the menu innovation coming. Hopefully you have a tailwind from mobility. So I'm just curious, like, when you put it all together, do you think you can hold that level of strength or momentum versus 19 in the coming months and quarters? You know, what's a reasonable way to think about the shape of the rest of the year?
spk10: Yeah, Brian, this is Tony. I don't – you know, we're not giving forecasts because things are moving so fast. You know, we wanted to give you insight into – you know, what happened in March and April, you know, just on a two-year stack basis, the first quarter was up 9%. So, you know, versus 19. So beyond that, we're not really prepared to give, you know, a finite number, but I would reinforce that there's some really good things coming, you know, on the product rollout from Burger King, you know, the main one obviously being the hand-breaded chicken sandwich, and then there's some other more ancillary type products that are being rolled out over the next several months. So we feel, you know, we feel really good about the momentum we have, and, you know, we think it's going to be a good year for the company.
spk03: Okay, understood. Thanks, Tony. And then, you know, on the sandwich, you know, from an operations perspective, can you just speak to, I know this involves some extra equipment, perhaps new procedures, and the sales list sounds, you know, I think everyone's excited for that. You know, can you just comment on how the operations are handling it, and are you pleased with everything so far?
spk07: Yeah. Brian, so far at the current level of sales volume for the chicken sandwiches, we've been handling it without any issues whatsoever other than the normal ongoing issue, which is making sure we have enough people in the restaurant in total. But the chicken process specifically is not a big challenge for us now.
spk03: Okay, and then the last one is just wondering if you could talk about expectations about the upcoming loyalty program. Have you tested it in any locations? And if yes, are you seeing it impact consumer behavior? And then longer term, do you think that this can be a real transaction driver for the business over the long term? Thanks.
spk10: We probably don't have – Right now, it's only available through the mobile app. And then that's been sort of phase one. I mean, we've seen a lot of, you know, given, you know, we're watching it carefully. We've seen a lot of redemptions. So, you know, a lot is a relative term. I mean, compared to our, you know, tens of thousands of transactions a day, it's not a lot. But we're watching it carefully. And, you know, You know, I think when it rolls out into the restaurants, that'll be, you know, it'll be more used. And I think, you know, that 1% mobile order is really low compared to others. So I think there's a lot of upside there once this loyalty program rolls out. And we're excited. You know, the other big thing about it, Brian, that we talked about is the, you know, getting rid of paper coupons. We think, you know, having electronic coupons is going to be beneficial to the promos and discounts going forward. So that's obviously going to help the bottom line on that too. So it's being rolled out. It's early days, but we're, you know, like the chicken sandwich, it doesn't have national advertising behind it yet, but I think it's going to be a big plus just the same way, you know, maybe not to the same magnitude of delivery, but that is something that really, you know, Burger King was behind and made it easy for us to get that to 5% of our revenues. So we're hoping they repeat that success with the loyalty program.
spk04: Okay, thank you.
spk01: Thank you. Our next question comes from the line of Fred Whiteman with Wolf Research.
spk00: Please proceed with your question. Hey, guys. Good morning. I just wanted to touch on the traffic and check commentary that was in the release. I mean, it sounds like traffic started to approach those pre-pandemic levels in April, and you're holding on to a decent amount of the check that was benefiting from COVID. So could you just talk about how you think traffic and check are going to perform as we reopen over the next few months, and then just how you think, you know, Carol's Burger King and the broader QSR Burger category can participate in that reopening? Sure.
spk10: Well, you know, in the first quarter we had the benefit of both going up. You know, I think the check was up 11% and traffic was up 3% in the first quarter. And then, you know, as we mentioned in the script that it kind of, you know, right now we're seeing sort of stable check at this heightened level, as you mentioned. And we're at, you know, sort of at 90%. percent of our pre-COVID traffic. So we think there's a lot of upside there. It's really some of it's from the day part coming back, you know, the late night and the breakfast. That's definitely, you know, helping traffic. But traffic is up in all day parts. And then, you know, as you said, we're maintaining check. So I think the check, you know, the check staying at these, you know, the post-COVID levels has been somewhat of a reassurance to us that, you know, that we're going to have strong, you know, we'll have a strong combination of, you know, stable check and then building out the day parts and traffic as the year progresses. So we're pretty encouraged by what we're seeing.
spk07: Dan, sure, this is Dan. To answer your question from an overall standpoint, how we view it, I think the issue in terms of First of all, the loyalty program, as well as the chicken sandwich, should be incremental to increase traffic. I mean, that's the whole purpose of doing it. So we are expecting that traffic will continue to increase. We would expect that the utilization of drive-through will still be a primary focus for guests. And even as other casual dining outlets reopen, And I think it'll be a while before they all can reopen at full capacity simply because they don't have enough servers and whatnot either. It's easier for us to staff our restaurants than it is for them. So I think that we will see both. We'll continue to see traffic increase. And as Tony said, there's no reason to believe that the check shouldn't be somewhat stable.
spk00: Perfect. It makes sense. And on the chicken sandwich, I get that it's fully rolled out now, but if you look back throughout the first quarter, is there anything you can share about the performance of restaurants that did versus didn't have the product, understanding that marketing wasn't really turned on, but anything that would be helpful?
spk07: In terms of same-store sales lift, because of the way the rollout was handled, I really don't have any quantifiable data because it was – Within the same DMA, some restaurants had it and some restaurants didn't, and really we didn't have enough exposure over the entire quarter to put a number on it. Okay, that's fair. Thanks a lot, guys.
spk01: Our next question is from the line of Jeremy Hamblin with Craig Callum Capital. Please proceed with your questions.
spk04: Thanks, guys, and I'll add my congratulations on the impressive performance of I do want to come back to the chicken sandwich for a second. And, you know, Dan, I would say that, you know, you haven't expressed quite the same enthusiasm that you might otherwise do around this new product. And I don't know if that's because it's a little early on. It sounds like operationally your team is handling it really well. But in terms of no national ad support at this point, do you have a sense of the number of units that you're selling on that, how that compares to the prior crispy chicken sandwich, any color that you might be able to add and whether or not – that's part one of the question. Part two is – you know, whether or not you think national ad support coming here in Q2, you know, and what you think that could do in terms of potentially boosting the overall sales of the product.
spk07: I don't know why I'm showing a lack of enthusiasm, Jeremy, compared to – I'm not sure who you're comparing me to, but you've got to remember, I had a charisma bypass a long time ago – The sandwich is outperforming the old or the previous crispy sandwich by roughly 10 units a day, I would guess, pre-advertising. And in markets where it has been advertising on a test basis, the outperformance of the previous chicken sandwich is doubled. And that is the expectation as the advertising will be launched. later on in the summer that will double the amount of units, the number of units that we sold with the previous chicken sandwich.
spk04: Okay. That's helpful. And I wanted to just come back to the same store sales for a second. I think what you called out was 49% 49% comp change versus I think it was like a minus 16.8 last March, lapping minus almost 22 in April. Presumably that would imply that you're probably up over 40%, you know, for the month of April. And then as we kind of look forward, obviously the computers get significantly tougher. I think May was down three or so last year, and then June you were back to a positive comp. But in terms of near-term expectations, you just put up a pretty significant comp here in Q1. presumably you guys would expect probably a double-digit comp in Q2. Is that a fair assumption?
spk10: You know, I think that's a good assumption, yes.
spk04: Okay. And in terms of are you able to call out what the April comp was? Or would you rather not?
spk10: Well, it was up 31.5%. Dan mentioned that in his prepared remarks. Okay.
spk04: Missed that. Okay. And then I actually wanted to switch gears. And, you know, Dan, you mentioned, you know, acquisitions and that you were potentially or not potentially that you were working on some deals, right? In terms of magnitude of deals, what you're seeing out there in terms of potential sellers, has the pipeline become more active? Obviously, the stressful 18 months, I think for a lot of franchisees, do you sense are there more people looking to sell, A, And B, you know, in terms of the price multiples that they're looking for, and I know you guys kind of target around four times EBITDA, you know, what's the sense that you're getting from those franchises who are looking to sell?
spk07: I can only speak to the ones, the few that we are aware of. And the multiples are fantastic. a tick higher than what they were pre-COVID, but still within the range of what is reasonable. In terms of the number of potential sellers, I mean, there are always people who are looking for an opportunity if someone is willing to engage in the dialogue. I think it's about the same as what it was before, Jeremy.
spk04: Okay, great. And then last item here from me, your other restaurant operating expenses, in terms of thinking about that particular line item, whether it's credit card fees, which I think impact that line item, how do we think about that one on a year-over-year basis? Is that something that obviously you leveraged it really strongly in Q1, and you continue to have a lot of momentum here on the sales front Q2. What type of dynamics do we need to be thinking about on that particular item as you see things like loyalty program rolling out and other dynamics with day parts returning to more normalized levels? How should we be thinking about that one?
spk10: I think the other operating expenses, excluding royalties and advertising, were a little bit higher because of the February storms than we had forecast. But, you know, we think they'll be in the, you know, stay in sort of at the 11% type of range of sales for the rest of the year. 11 plus or minus. You know, we don't see a big increase. It increases a little bit in the fourth quarter probably, but it's not a material, you know, it's not a material change. We also, Jeremy, one other thing is in that other operating expense, the reason there might be a little bit of pressure on that is we are putting in some you know, sort of more high-tech safes in our stores that basically they automate the process. They basically give us credit for the cash the minute it's deposited into the vault as opposed to waiting for someone to pick it up or waiting for one of our employees to bring it to the bank. So that's a bit of an investment we're making this year. But, again, it's not going to move the needle that much, and we think it's really the right long-term solution. It allows, you know, the teams that we have in the store to spend more time in the store. You know, so, you know, we think we're going to make it up on labor for the most part. So I think that's the only, you know, that's the only, you know, increase we're seeing. And then, you know, maybe a little bit from more usage of, you know, the dining rooms. But right now the usage is really small in the dining rooms. So that could come up a little bit. But, again, I don't think this is going to move, you know, move any needles this year. that much one way or another. Okay.
spk04: And I just want to clarify, on the G&A expectation for the year, excluding obviously anything related to acquisitions, you expected that kind of flattish on a year-over-year basis? Yeah, a percentage of revenue, yeah.
spk10: I mean, it will probably on an absolute basis go up a bit because – You know, the biggest thing in there is that, you know, in the second quarter in particular, we reduced salaries, and then we also had lower travel last year. So I think travel is coming back a bit, and then we're not doing the salary reduction per quarter. So I think that will be a bit of a headwind. But I think what you saw, you know, again, I think as a percentage of sales, it's going to be pretty consistent to last year.
spk04: I'm sure Dan is raring to go on getting back out on the road. I think he's out on the road. I've been out on the road. I've been in over 200 restaurants. All right. Thanks, guys, for answering the questions, and, you know, best of luck. Thanks.
spk01: Thanks, John. Our next question is from Brian Vaccaro with Raymond James. He answers your questions.
spk08: Thanks, and good morning. I wanted to circle back on the new chicken sandwich and appreciate what you said, the 10 more units a day with no ad support and the potential to double with support. Dan, can you just help us frame what's the base there? How many units a day on average were you selling of the prior chicken sandwich?
spk07: About 28 on the prior chicken sandwich, and the current volume is about 38 to 40 units. and the expectation will be when it's advertised that we'll get to about 75 units a day.
spk08: All right, great. And I appreciate all the color on the monthly trends and the regional details as well, but just to tie the bow on sales, could you help me with where average weekly sales volumes and dollars were for Burger King in March and April? I'm just hoping that you could help us cut through, you know, two-year comps, seasonality, calendar shifts, et cetera, just to make sure we're all on the same page.
spk10: For Bird King, we were hitting like $30,000. Okay.
spk08: That was pretty stable March and April?
spk10: Went up a little bit in April.
spk08: But, yeah, if you average it to, it was about $30,000.
spk10: Okay.
spk08: All right. Great. And then just on the menu pricing, Tony, what was the – I missed it, sorry. You were talking about Q1 comp components, but What was first quarter pricing in the menu? And then I think you said you took 2%. Is that how much will be in the menu you expect, or is there some from prior increases we should take into account, just trying to get a sense of effective pricing in the next couple of quarters?
spk10: I think, Dan, the 2% was late March, early April, right? So it didn't really affect the quarter. I think that from last year's price increase, it was about 50 bps in the first quarter.
spk07: Yeah, that's right, Tony. We only had a half a percent essentially in the first quarter, Brian, because the 2% didn't take effect until almost the last week of March. In terms of expectations for the balance of the year, we'll see what happens in the competitive environment as well as input costs. And there's an opportunity for us to take additional pricing as we approach Q4. All right, that's great.
spk08: And then last one for me. Did you complete any sale-leaseback transactions in the first quarter?
spk10: I think so. I don't believe so. Yeah, I think there was one early April, but nothing in the first quarter.
spk08: No, that's right. Okay. All right, thank you. I'll pass it along.
spk01: Our next question comes from the line of Jim Sanderson with North Coast Research.
spk09: Hey, thanks for the question. I just wanted to follow up on the discussion of breakfast. I think you mentioned that your day part sales mix is relatively stable pre to post a pandemic. How does the margin look for that day part? Has it contributed to the improvement this year? Just any feedback on that margin impact for the breakfast day part?
spk10: I mean, it's a smaller part of it. You know, it's, you know, 13%, 14% of the mix, so I don't think it's had a big impact one way or another on the margin as of yet. It definitely helps sales.
spk09: Definitely helps sales, but the margin rate is relatively stable as far as its contribution. Yeah. Is that the way to look at it? I think so, yeah. Yep. Just a quick follow-up. The lower promotional discounts, that didn't have an impact on breakfast margin. Is that also the way to look at it?
spk10: It's definitely small compared to the impact during lunch and dinner. All right. All right. Thank you.
spk01: Our next question is from the line of speak, Bartlett with Truist. Please proceed.
spk06: Thanks for taking the follow-up. Tony, I'm a little confused on the monthly same-source sales, you know, in the two-year stack versus the commentary that both March and April were up 10%. versus 2019, you know, when I look at a kind of two-year geometric stack, you know, it looks like March would have been up about 24%, and April up about 3%. So, you know, just, you know, because the compares get a little easier in April, yet the comp is lower than in March. So how do we, you know, how do I square that?
spk10: I mean, those are the numbers. You know, we just looked at – we looked at, you know, compared to – maybe one's a stack and one's just comparing to 19. So, you know, 10% is, you know, the aggregate increase from 2019.
spk06: Okay. So there was no deceleration in April that you could discern? No. No, April was very strong. Okay. And then if you could quantify – I know you gave us a lot of – lost operating days. But maybe just for Burger King and Popeyes separately, if you could quantify the impact of storms on the first quarter stands for sales.
spk07: I don't have the breakout by brand. Maybe Tony does, but I will tell you it negatively impacted Popeyes much more than Burger King because most of the difficulties we had were in Memphis and Jackson Memphis, Tennessee, and Jackson, Mississippi, where we've got a big penetration of our Popeye's business. And we had Popeye's restaurants that were closed for over a week because they had no water. The infrastructure there is somewhat inadequate, and the pipes froze. So we didn't have any – the city didn't have any water. So we were open – we were closed in many Popeye's in those markets for over a week.
spk06: Got it. That's helpful. And then lastly, just to build on Brian's question about the menu pricing, you had 0.5 and then you added 2. Should we assume that it's 2.5% pricing, barring any other increases, or do that 0.5 roll off and get replaced with 2?
spk07: No, the 0.5 rolls off. So you've got 2% until we decide what we're going to do going forward. And in the first quarter, we only have 0.5. That's the way to think about it.
spk06: Got it. Great. Thanks a lot.
spk01: Thank you. At this time, I'll turn the floor back to management for closing remarks.
spk10: Thanks, everyone, for participating in the call, and we look forward to speaking to you one-on-one to the extent you want to speak to us one-on-one. And we'll talk to you in August for our Q2 results.
spk01: Thank you. This will conclude today's conference. We'll disconnect your lines at this time, and thank you for your participation.
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