Denny's Corp (DENN) 2010 Q2 法說會逐字稿

Good afternoon. I will be your conference Operator today. At this time, I will like to welcome everyone to the second quarter 2010 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to Vice President of Investor Relations, Mr. Enrique Mayor-Mora. You may begin your conference, sir.

Thank you, Patrick.

Good afternoon and thank you for joining us for Denny's second quarter 2010 investor conference call. This call is being broadcast simultaneously over the internet.

With me today from management are Deborah Smithart-Oglesby, Denny's Interim Chief Executive Officer and Board Chair, and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer. Deborah will begin today's call with an overview of our business and our strategic initiatives. After that, Mark will provide a financial review of our second financial results. I will conclude the call with a review of Denny's full year guidance. As a reminder, the 10-Q will be filed today.

Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends, and any outlook on earnings provided on this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the Company's annual report on Form 10-K for the year ended December 30, 2009, and any subsequent quarterly reports on Form 10-Q.

With that, I will now turn the call over to Deborah Smithart-Oglesby, Denny's Interim CEO and Board Chair.

Thank you, Enrique, and good afternoon, everyone.

I will be talking to you today about my primary areas of focus as the Interim CEO, and the progress we are making against those priorities. Specifically, these include building a world class leadership team; a commitment to driving guest count growth and ultimately sales; the solid execution of the Flying J conversion; our re-initiation of a full review of our cost structure; and I will touch on our recent rollout of a facilities refresh program; then lastly, we do continue to refranchise company units and pay down our debt.

We are making solid progress building the Denny's leadership team. Following the departure of our previous CEO, we immediately put in place a steering committee to provide leadership to the organization. This committee consisted of myself, Mark Wolfinger, our Chief Financial and Administrative Officer, and two of our Denny's franchisees. Each of these franchisees has over 30 years of experience in the restaurant industry, and a combined 30 years of direct experience with the Denny's brand. The contributions of these two large franchisees, Bob Langford and Bill Cox, have supported our ability to quickly and efficiently execute on our initiatives, while giving us the continued opportunity to build strong relationships throughout our franchisee community.

Late in July, we hired our new Chief Marketing Officer, Frances Allen. Frances is a marketing and food industry veteran, and brings nearly 25 years of restaurant and retail experience to Denny's, including leadership positions that she held with Dunkin' Brands, Pepsi-Cola, Sony Erickson and Frito-Lay. Frances will be responsible for leading brand development, executing marketing strategies and campaigns, advertising, new programs and products across the Denny's brand to drive sales, profitability and value.

The Denny's Board of Directors also recently announced that Gregg Dedrick had been appointed to our Board. Greg has held senior executive positions at KFC, Yum Brands, Pepsi-Cola and Pizza Hut, and he brings nearly 30 years in experience in operations and organizational resource planning in franchise-based restaurant systems. So we are glad to have him as an addition to our Board as well.

We remain active in our search for a Chief Operating Officer and a Chief Executive Officer. We have engaged an international executive search firm, Spencer Stuart, to assist us in completing the CEO search.

Across the Company, we are all committed to driving sales and guest count growth. In the second quarter, with the strong support of our franchisees, we launch nationally the 2-4-6-8 value menu and our Skillet limited time offer, with attractive value price points starting at $3.99, $4.99 and $5.99. These are our current key offerings to support our every day affordability value platform, and we have been pleased with the result so far.

Similar to the results of the 2-4-6-8 test earlier this year, we are seeing that the national rollout builds guest traffic over time. In fact, our guest count performance has improved every month since the national rollout of the program began. From April through June, guest counts have improved sequentially from a negative 5.6% to negative 3.5%, to negative 2.9%, and in July we continued this improving trend with Company unit guest count at a positive 1.8%, and sales down 1.7%. Now importantly, we've seen this improving trend in our key markets across the country including California, Texas and Florida. These trends have also allowed us to begin to narrow the performance gap that we had experienced in the mid-scale segment.

Looking ahead, we will continue to utilize and promote our every day affordability proposition; through a refreshed 2-4-6-8 menu that will include new items, as well as compelling new LTOs with attractive price points, we will be able to support this positioning. We will utilize a heavier media rate than last year, due to the reallocation of funds within our national advertising fund, and through the growth of our local marketing cooperatives, which now covers 60% of our sales. We believe that value-oriented, every day affordable menu items, supported by focused marketing efforts, improved hospitality and execution at our restaurants, will continue to drive momentum throughout our system.

Furthermore, to support our marketing initiatives, we will be rolling out a facilities' refresh program to our system. The refresh is a scaled-down version of a full remodel that focuses on elements visible to our guests, including interior and exterior paint, new carpet and booth refurbishment. This refresh costs approximately $50,000 per unit, versus a full remodel of $250,000. We've tested the scope over the past year in several of our markets in partnership with our franchisees, and we've seen an approximate 2% lift in guest count in those units with the refresh. As the franchisor, we will lead in this process, and anticipate 50 Company units to be refreshed in the back half of this year. Our expectation is that our franchise community will follow in 2011.

Let me discuss now our plan and execution of the Flying J conversion. Immediately after the FDC approved the pilot Flying J merger, we announced our intention to convert 80 Flying J sites this year out of a total opportunity of 140. Since our announcement in early July, we have converted 16 Flying J sites, bringing our year to date number to 21. These include eight Company and 13 franchise sizes. The unit levels sales have definitely met our initial expectations, and we will provide updates to this as we continue to roll out the conversions.

Our traditional unit growth continues to benefit from strong franchisee interest in our brand. In the second quarter, our franchisees opened six new traditional units, bringing our year date openings to 12. We are also pursuing opportunities on university campuses across the country. Based on initial reads of guests and partner acceptance, we anticipate opening three more campus locations this year in addition to the sites that we opened at Cal State, San Bernardino, in the first quarter in partnership with Sodexo. We believe that the investment being made by our partners and our franchisees in opening new Denny's restaurants demonstrates the strength and the potential of this brand.

In the second quarter, we refranchised nine Company units to franchisees. This brings our franchise growth initiative program to date to a total of 299 units, or 58% of our pre-program base of Company units. We have also garnered commitments for a future 100 units through this program. So looking forward, we are committed to continuing to sell targeted Company units, and attaining that 90% franchise mix from our current franchise mix of around 85% at the end of our second quarter. We've taken the proceeds from the sale of units, in addition to cash flow generated from operations, to continue to pay debt down by $10 million; and under our current capital structure we intend on continuing to reduce our debt.

In addition to executing towards our previously communicated strategic priorities, we will also be reinitiating a full review of our cost structure to ensure that the resources are all optimally aligned to achieve our priorities. Over the past three years, Denny's has consistently taken an sharp pencil to its cost structure, and we have been effective in increasing operating efficiencies and decreasing operating and G&A costs. In fact, we've lowered our G&A on a per unit and percent of sales basis to below the median of our peers, and we've delivered improving four wall margins, in part by improving both efficiencies and reducing costs in our units.

That being said, we will approach this review with a similar commitment. I expect we will take a look at everything, from our support center to the four walls of our restaurants, focusing on the opportunities to improve both profitability and efficiency for both the Company and our franchisees. At this point in time, we aren't yet in a position to communicate our expectations, but we do intend on updating and sharing that with you at the appropriate time.

I will conclude my comments by stating that we recognize that there have been clear leaders in the industry, who have been driving sales despite the challenging economic environment and very limited visibility into the near future. We fully intend on taking the Denny's brand back to its rightful place as the leading family dining restaurant chain in the nation, and we firmly believe that we are taking the right steps to achieve this goal.

I will now turn the call over to Mark Wolfinger, Denny's CFO and CAO.

Good evening, everyone.

Our second quarter performance continued to deliver the benefits of emerging business model, while also showing traction to our sales and guest-driving initiatives. We continued to open new restaurants and announced beginning of the Flying J conversions, which will result in over 100 new Denny's units this year. We also refranchised nine Company units, paid down debt by $10 million, reduced our debt leverage from 3.6 times to 3.2 times, and, excluding the one-time proxy contest-related costs incurred this quarter, we grew profitability and free cash flow.

As Deborah mentioned, we have started to see an improving trend in system sales and guest count comp within the quarter and into July, driven primarily by the rollout of our everyday affordability strategy. In the second quarter, same store sales at Company restaurants decreased 6.2%, and decreased 5.9% at our franchise restaurants. Looking at the details for Company sales performance, we saw same store guest count decline of 3.7% in the quarter, but this does represent a 1.9 percentage point improvement in trend from the first quarter. The quarter also saw sequential improvement from month to month, that carried into July. July posted a positive guest count comp of 1.8%, with sales down negative 1.7%. In the second quarter, average guest check decreased by 2.7%. This was driven by our 2-4-6-8 value menu, and the limited time offering of our LTO Sizzling Skillet starting at $3.99. The decline in total Company restaurant sales in the second quarter largely reflects the continuing impact of our franchise growth initiative, or FGI, as sales decreased $20.2 million or 16% due, to 37 fewer equivalent Company restaurants compared with the same period last year.

Now turning to the quarterly operating margin table on our press release, the decrease of half a percentage point in the second quarter for our Company-operated units was driven in part by the deleverage driven by negative same store sales, which was offset by lower restaurant management incentive compensation, lower utility rates, efficiency gains in labor, and the selling of lower margin units through FGI. Product costs decreased by 0.1 of a percentage point to 23.3% of sales, primarily due to the impact of lower non-ingredient costs and lower commodity costs, partially offset by a higher mix of value-priced items.

Payroll and benefit costs decreased by 0.4 of a percentage point to 41.2% of sales, primarily due to lower restaurant management incentive compensation, as well as efficiency improvements in team labor, partially offset by the deleveraging effect of lower sales and unfavorable workers' compensation claim development. Occupancy expense increased by 0.2 of a percentage point to 6.6% of sales, primarily due to the deleveraging effect of lower sales, offset by the impact of selling units through FGI. Utility costs decreased by 0.2 of a percentage point to 4.2%.

Denny's is benefiting from the natural gas and electric rates that have fallen considerably from the levels seen in 2008 and early 2009, as well as from the recognition of $400,000 in losses on natural gas contracts during the prior year quarter. Repairs and maintenance expense decreased 0.1 of a point to 1.9%. Marketing expenses increased by 0.5 a point to 4.3% of sales, in part due to additional spending related to the Super Bowl and the testing of the 2-4-6-8 value menu program. These costs are being recognized throughout the year, based on sales. Legal settlements increased by 0.1 of a point, due to no costs recognized in the second quarter of the prior year quarter. In summary, the gross profit from our Company operations decreased by $3.5 million on a sales decline of $20.2 million.

For the second quarter of 2010, Denny's reported franchise and license revenue of $29.8 million, compared with $30.3 million in the prior year quarter. The $500,000 decrease in franchise revenue was driven by a $600,000 decrease in franchise fee revenue and a $200,000 decrease in royalties; partially offset by $200,000 increase in franchise occupancy revenue. The franchise fee revenue decrease resulted from nine FGI transitions in the second quarter, as compared to 22 in the prior year quarter. The decline in royalties was driven by the negative same store sales, offset by an additional 49 equivalent franchise restaurants compared with the prior year period.

Franchise operating margin decreased $1 million to $18.7 million in the second quarter. This decrease was primarily driven by the decrease in revenue, in addition to temporary overhead costs associated with converting Flying J sites. Franchise operating margin as percentage of franchise and license revenue was 62.6%, a decrease of 2.1 percentage points compared with the same quarter last year. The franchise margin decrease was primarily due to a $600,000 decrease in FGI-related franchise fees, and temporary overhead costs associated with converting Flying J sites, offset by higher contribution of higher-margin royalty revenue generated through FGI.

The franchise side of our business contributed 56% of the gross profit, which is $4.2 million more than our Company restaurants. This income shift continues to allow us to reduce the risk and increase the predictability of our earnings.

General and administrative expenses for the first quarter decreased $2.8 million or 17.6% from the same period last year. This decrease resulted from a $1.9 million decrease in share-based compensation, and a $2.6 million reduction in incentive and deferred compensation, partially offset by $1.5 million in costs related to our recent proxy contest. The decrease in share-based compensation resulted primarily from the change in our stock price during the quarter. Depreciation and amortization expense declined by $700,000 compared with the prior year period, primarily as a result of the sale of restaurants over the past year.

Operating gains losses and other charges on a net basis, which reflect restructuring charges, exit costs, impairment charges, and gains or losses on the sale of assets, decreased $3.6 million in the quarter. The decrease was primarily the result of a $2.2 million decrease in gains on the sale of Company restaurants and real estate, and a $1.8 million increase in restructuring exit costs, which includes $800,000 for the departure of our Chief Executive Officer. We have received notice that our former CEO has elected to arbitrate the amount. We estimate that the arbitration, which will take place by late September, could result in payments ranging from $800,000 to $3.2 million.

Operating income for the second quarter decreased $4.5 million from the prior year period to $12.9 million, despite a $20.8 million decrease in total operating revenue, attributable primarily the sale of Company restaurants and negative same store sales. Below operating income, interest expense for the second quarter decreased $1.7 million or 20.9% to $6.5 million, as a result of the termination of our interest rate swap, and a $51.4 million reduction in debt from the prior year period. Other non-operating expense increased by $1.3 million in the second quarter, primarily due to the recognition of $700,000 in losses on the assets in our deferred compensation plan.

Because of the significant impact to our P&L from non-operating, non-recurring and non-cash items, we give earnings guidance based on internal profitability measure, adjusted income before taxes. We believe this measure best reflects the ongoing earnings of our business.

Our adjusted income before taxes in the second quarter was $6.2 million, a decrease of $1.1 million over the prior year period. Excluding the $1.5 million of proxy-related costs, adjusted income before taxes increased by $400,000. We are pleased that we were able to generate adjusted income growth despite the difficult sales environment. We believe this success is a direct result of our FGI program, our debt reduction efforts, and our cost containment activities.

Moving on to capital expenditures, our cash capital spending year-to-date through the second quarter was $6.3 million, a decrease of $1.6 million compared with the prior year period. Facilities and remodel expenditures have decreased as we reduced our Company restaurant portfolio. We reduced our outstanding debt by $10 million in the second quarter. We will continue to balance our debt reduction goals and our commitment to maintain an ample liquidity cushion. Our cash balance, combined with access to our credit facility at the end of the second quarter, provided us with ample liquidity of approximately $72 million.

Given the challenging environment, we are very pleased to have reduced our debt by $287 million or 52% since mid-2006. This has driven our debt leverage ratio to 3.21 times, as compared to 5.18 times at the beginning of 2006. Our aggressive debt reduction efforts during the last few years have placed us in a position to actively review the refinancing opportunities in the marketplace. As a reminder, our debt maturities are in late 2011 and 2012, and the call premium on our bond steps down to par this October.

That wraps up my review of the second quarter results. I will turn the call to Enrique, who will speak to you about the full year guidance.

Thank you, Mark and good afternoon, everyone.

Based on year-to-date results and management's expectations at this time, Denny's is reaffirming the majority of its [natural] guidance for the full year 2010, as announced in the fourth quarter 2009 earnings release on February 17 of this year. The two key exceptions to our previous guidance are, first, restaurant unit development, which is being increased to reflect anticipated Flying J conversions and university campus openings. And second, cash capital, which is being updated to reflect the conversion of certain Flying J units to Company-operated sites.

Same store sales are expected to be within our previous range, yet at the lower end of the Company range of negative 4% to negative 2%, and a franchise range of negative 5% to negative 3%. In both cases, this represents a expectation that the positive change in trend we experienced within the second quarter and then in July will continue in the back half of 2010. Incorporating Flying J into our new unit development takes our total development to 111 units, up from 41. This will represent the most new Denny's units built in a year since 2000. 80 of the units are anticipated to be Flying J conversions.

For the Company, we expect that there will be a total of 11 new builds; ten Flying J sites, one -- of which four opened in the first quarter, and one traditional unit in Hawaii. We are expecting franchisees and licensees to open 100 total units this year; 70 Flying J sites, 26 traditional Denny's, and four university sites.

Adjusted EBITDA is expected to be at the lower end of the original guidance of $71 million to $75 million. This guidance excludes any restructure costs related to the departure of the former CEO. Adjusted income before taxes, our internal profitability metric, is also expected at the lower end of our original guidance of $23 million to $28 million. As a reminder, this guidance includes the $2 million of proxy-related costs we incurred in the first half of this year.

Cash interest expense is expected to be $24 million, per our original guidance. Cash capital guidance is being raised from the $17 million to $21 million, to reflect the Flying J conversions. On average, the Flying J conversions are expected to cost $565,000 per unit, approximately 60% less than a traditional new build. The cost of the 50 facilities' refreshes that were discussed earlier will be offset by fewer full remodels.

That concludes management's prepared comments for this call. I will now turn the call back over to Patrick for the question-and-answer session.

Thank you.

(Operator Instructions) Your first question comes from the line of Michael Gallo from CLK.

Hi, good afternoon. Just wanted to delve into the guidance outlook a little bit. Adjusted income before taxes, I guess if I back out the $2 million if, call them one-time proxy costs, would be closer to the middle of the range. I want to understand if there is any other anticipated costs in the back half of the year that you expect there that might be more one-time in nature? Two, what kind of contribution you expect from Flying Js in the back half of the year, which I would think would be incremental to the guidance? And three, what kind of costs you expect for Flying Js for pre-opening, which I presume won't recur next year, once we get through the initial opening of the Company restaurants? Thank you.

In terms of one-time costs that would impact the back half of the year that will impact the adjusted income, I can't tell you we have a view into those at this point in time. So the guidance would stand. I think in terms of the costs associated with Flying J, I think a way to think about it, Michael, is that for the units that we're going to roll out this year, given the preopening costs and the investment on the Company and franchise side to make sure we execute this rollout effectively, we expect about $1 million roughly in contributions from the Flying J this year. And as we provided in our earlier conversations, it does get much more accretive flowing into 2011 and beyond, but because of the timing of the rollout this year, and because level of investment that we have, both in the Company and franchise side to make sure we execute it, pretty much $1 million dollars we would expect this year to flow to the bottom line.

Just can you give us the breakout of how much that preopening and investment costs would be relative to what the ongoing profit contribution would be? Is it possible to get that granularity on it at this point?

The Flying Js, on average the pre-opening would cost about $200,000. When I include the pre-opening, but then I include any new unit has certain ramp up efficiencies, if I include those two things, you are really looking at about $200,000 per unit.

Your next question comes from the line of Sam Yake.

Hello. Thanks for taking my questions. I was wondering, do you have any data on what percent of customers in the quarter were ordering off the 2-4-6-8 menu?

Yes, sure, hey, Sam. It's Enrique. The incidence rate was about 15%, and so ranging between 15% to 18% incidence rate, which is a little higher than what we saw on the test, but certainly is a reflection of how well it's being received by our guests. It is the highest mixing offering, if you will, on the menu at the current point in time.

And how are the margins on the items on the menu? Are they about consistent with the other items?

You know, going into the value menu, going into every day affordability, we were careful in engineering the items on the 2-4-6-8 value menu. What we did not do was just take items that were on the existing menu, and take down the price, therefore impacting margins. So we were very careful in creating new plates that not only stimulate demand, but that also protect us on the margin standpoint.

(Operator Instructions)

Our next question is from the line of Mark Smith.

A quick follow up on the 2-4-6-8, and average -- can you tell us about what the average check might be running on those tickets? And I guess I'm looking for how much the decline in price during the quarter might be due to that promotion?

Most of the decline in the quarter, which was about three points, was due to the 2-4-6-8 value menu. There was also a component due to the limited time offers starting at $3.99 that we talked about earlier; most of that decline in check is due to the 2-4-6-8 value menu, and again you can see in our product costs we were careful in value engineering those products as well to protect our margins.

And then on the 2-4-6-8, can you talk about the opt-in from your franchisees? How many are using and actively doing that promotion or maybe opted out of it?

I think when we did the test work and then we rolled nationally, 95% of the franchise community was signed on to the program.

Okay.

If you recall, this is Mark, when we tested it starting late December, early January, we had 300 restaurants that participated in that test, which obviously included quite a few franchise restaurants in that testing process.

Mark, they were very involved in the entire process, the development of those menu items, the consideration of how it was going to be promoted; so they worked on it from all of the inception up through the testing, they were heavily involved. And then in the rollout, Bob Langford, who is on our leadership team, was a big part of working with the franchise community to make certain that everything worked as well as it had in the test period.

It sounds like it has a passing grade from your franchisees thus far?

Yes, yes.

Just one follow-up question. Can you give insight on timing on the CEO and COO?

The COO search has been going for a few more months, and I believe that we are getting very, very close to being able to announce an individual joining us in that capacity. We are very excited about that, so stay tuned.

And the CEO search, we believe that we will be in a position to name a CEO by fourth quarter.

Great. Thank you.

(Operator Instructions)

We do have a follow-up question from Sam Yake from BGB Securities. Sam, your line is open.

Yes, thank you. I had a quick question on the leverage ratio. You have done a great job of paying down debt, and I'm glad to see that you said you are at 3.2 times on the leverage ratio now. I'm wondering if you could maybe tell us on what level of -- of the leverage ratio you would be comfortable with? When you get to that point, that you might start doing shareholder-friendly things?

It's Mark, I would tell you that we still have certain limitations within our existing debt agreements on what we can do from a stockholder standpoint. But as I mentioned in my comments, part of the strategy on debt reduction was not simply the deleveraging situation, which obviously we were aggressively focused on that, trying to get it into the low 3s, which we have been successful at, but also to set us up for the next refinancing and the next capital structure event, in which we are very targeted in making sure we have stockholder-friendly actions within the next structure.

As I mentioned, our debt comes due in 2011 and 2012. Our bonds goes to par on October 1st of this year. So subject to what the markets look like in the next six to 12 months, we are hopeful we can move aggressively on our capital structure.

Okay, thank you very much.

(Operator Instructions) Our next question is a follow-up question from the line of Mark Smith.

One quick follow-up. Where do you stand right now on your contracts on your commodities?

We are locked in to about 65% -- we are still locked in to 65% of our commodities at this point.

I guess primarily on the proteins where you stand?

Primarily on the proteins, where we're not locked into, we aren't locked in to pork, hamburger and cheese. That's where we would have some exposure to the market, as well as from a local produce standpoint, certainly.

Is that something that you are looking at, primarily on the pork and hamburger?

We are always assessing whether or not it's a good time to lock in, and that's where we stand currently.

And most of the 65% that you are locked, that goes through the end of the year?

That's absolutely through the end of the year.

Perfect. Thank you.

(Operator Instructions) Our next question comes from the line of Tony Brenner from Roth Capital Partners.

Thank you.

Hey, Tony.

Your operating focus clearly is on bolstering discounts. The 2-4-6-8 promotion was in the works since, I believe, before the beginning of the year, and is beginning to gain some traction. I'm wondering with the new management committee in place, what other strategies might you employ to bolster your discounts, and perhaps do that without reducing [petty] profits at the same time? Whether it's looking at other day parts or other types of promotions or menu additions, or what's on your mind as you run the Company?

Well, in addition to 2-4-6-8, which we did have going into the system earlier, we rolled the Skillet promotion, the limited time offers, within the last few weeks. We have a number -- we have a refresh coming on 2-4-6-8, as we go into the next month or so. We also have a new menu, new core menu that will be rolling through the system. We are looking at regional menus in different pars of the country, to really play to the local market.

We have a significant emphasis on regional and local marketing programs that are rolling at this same period of time. There -- through from now until the back end of the year there will be a refresh of existing items, new items that will be rolling on limited time offer, a number of new and much more focused and directed local and regional marketing programs; all of these are lined up from now through the back end of the year.

Thank you.

(Operator Instructions)

Your next question comes from the line of Bryan Hunt from Wells Fargo Securities.

Hi, Bryan.

Hello. I was wondering if you can talk about your average volumes out of your Flying J locations, and whether those are meeting your expectations so far?

Brian, it's Mark, I would say, as Deborah mentioned in her comments, we are very satisfied with what we have seen thus far in the openings. Again, obviously this is, I'd argue, just a great strategic partnership that's developed. I would say on average what we have seen is close to our national system average when it comes to volumes, and again that ranges, and obviously when you open a new store you go through some form of a honeymoon period and a learning curve. But on average they've sort of met what our system averages are. And again, that would be from a franchise standpoint, AUVs in a $1.5 million to $1.4 million range, and on the Company side up at a $1.8 million range. But again, those are early numbers, with obviously just a few operating weeks in several of these locations.

Okay. And next, and forgive me if I'm asking something that was also discussed. Did you discuss day part sales, where you saw majority of the weakness during the quarter? As well as when you look at sales, was there any regional -- significant regional differences?

Yes, certainly. We did not talk to that. We can, certainly. So what we've seen with the 2-4-6-8 value menu, what's interesting is actually it has benefited all the day parts. So we seen movement in every day part, which really speaks to the consumer acceptance at all points of time of the day, along with similar incidence rates across every day part; they're really not materially different at all. I think the day parts that continue to underperform would be actually breakfast, that has been challenging, I think, for the past several quarters; I think that has a lot to do with the economy and employment. We've seen especially relative strong performance at lunch and at dinner.

Geographically, as we mentioned in the call, California, Florida and Texas are starting to improve their trend from where they had been last year, and really in the first quarter of this year. So we are seeing an improvement in those key states. Still not where we need it to be, still not where we expect it to be, but certainly an improvement in trend.

And then lastly, the John Kruk advertising, I was wondering if you could talk about the response to that so far? It definitely was out of vein relative to the 2-4-6-8 value message you were communicating; a little bit more comedic?

It has been, and our social media, if you will, has a little bit more of an edge to it from a humor perspective. We were finding that getting a very positive response to that. That particular relationship came out of a lot of customer insight work that we did, about what was important to our heavy users, and that connection to Americana and baseball, and a little more of a male skew and sports-oriented. We asked our customers for some insight of who they thought were good spokespersons for the brand, and across the social media, and his name came up on a number of occasions. So we were very fortunate that we also happen to be a restaurant that he particularly likes to use, so it was a great partnership for us.

And lastly, did you give any guidance on the number of franchise openings you anticipate for the year at this point in time?

Yes, we did. So we expect 100 franchise openings for the year.

Is that a net number?

That is a gross number.

Do you have a guesstimate on what the net number might be?

On the closures? I think the way to think about the closures, if you look historically we've closed anywhere in the past several years between 26 and 30 units, and I expect it to be there as well.

Thank you.

(Operator Instructions)

And at this time, there are no further questions in queue. I would like to turn the call back over to Vice President of Investor Relations, Enrique Mayor-Mora.

Thank you, Patrick. I would like to thank everyone for participating on the call today, and we will see you next quarter. Thank you, and have a great evening.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.