Denny's Corp (DENN) 2010 Q4 法說會逐字稿

Good evening, my name is Patrick and I will be your conference operator today. At this time I would like to welcome everyone to the fourth quarter and full year 2010 earnings release. (Operator Instructions) I would like to turn the call over to Vice President of Financial Planning, Analysis, and Investor Relations, Enrique Mayor-Mora.

Thank you Patrick. Good afternoon and thank you for joining us for Denny's fourth quarter 2010 investor conference call. This call is being broadcast simultaneously over the internet. With me are today from management are John Miller, Denny's President and Chief Executive Officer, and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer. John will begin today's call with his introductory comments. After that, Mark will provide a financial review of our fourth quarter results. I will conclude the call with Denny's 2011 full-year guidance. As a reminder, we will be filing the 10-K by the due date of March 14th, 2011.

Before we begin, let me remind you that in accordance with the Safe Harbor Provision 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 it's 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 in any subsequent quarterly reports on form 10-Q.

With that, I will now turn the call over to John Miller, Denny's President and CEO.

Thank you Enrique. I've been here now for two weeks, focused primarily on meeting the team and listening. We are fortunate here to have Mark Wolfinger as our CFO and to benefit from his talent and history with Denny's. We also have the good fortune to have added Frances Allen as Global Head of Marketing, and Robert Rodriguez as Chief Operating Officer to our leadership team this past year. They provide proven leadership and experience to build on, and, indeed, have already contributed to the progress that was made in 2010.In addition, it became clear to me even while interviewing that we have a strong, dedicated and passionate franchisee base, talented and capable to compete in and win in the marketplace. They truly are the face of our brand. In the coming weeks and months I will continue to educate myself about the company. I plan to spend the majority of my time conducting in-depth meetings with members of our management team, our suppliers, field operations leaders, restaurant employees, and, of course, our franchisees. As the designated listener I will keep asking questions, listening and learning and expect to acquire a more complete understanding of our strengths, opportunities and our potential in the industry.

The conversations I've had thus far confirm what I already knew to be true. Denny's is a great brand with a lot of very talented people, and more than capable and committed to seeing that potential realized. The opportunity to grow in this $600 billion industry, having just completed our strongest gain in unit counts in a single year on record is evident all around us. My initial sense is that many people, including customers and investors, see Denny's as a brand that has not yet captured its full potential. I can tell you that Denny's is committed to becoming a much more competitive player in its segment and in the industry.

The process has started with many positive changes already implemented and plenty of upside remains for the company from the areas not yet addressed. By way of background I have more than 30 years of restaurant industry experience. From 2005 through January of this year I was the President and CEO of Taco Bueno restaurants, a quick-service Mexican concept with 190 company and franchise locations operating out of the state of Texas and five states around Texas. Prior to Taco Bueno I was with Brinker International for 17 years. The last seven years I was President of Romano's Macaroni Grill, and in an earlier time there a new concept development as well as international and domestic franchise development.

What I've learned through these experiences is that a solution for improvement involves building a strong leadership team, developing a differentiated brand positioning, aligning the customer experience and marketing plans around that positioning, and then executing towards common goals. Improved performance will come from the multitude of details that flow from this approach, not very likely from tackling just one or two big items. I believe the situation will prove to be similar here, but I need to make sure I fully understand all of the issues we face and the opportunities in front of us before casting my perspectives on the brand.I want to be confident I have understood and considered our best options to move Denny's ahead on a sustainable path of sales and guest-count improvements now and in the future.

I expect to share my plans in more detail in the coming quarters. Over the next several months our leadership team will be working to develop an ambitious but achievable growth plan. We will make progress, but in the near-term we anticipate a period of transition as we build that plan to drive share-holder value over the longer term. It's an exciting time for our Company, and I want to thank our customers who remain loyal in these challenging economic times, our team members franchisees, suppliers, and shareholders for supporting us as we build upon the foundation currently in place at Denny's. I look forward to leveraging my experiences to build upon our current momentum and accelerate the resurgence of the Denny's business and brand. I look forward to speaking to you next quarter and meeting with you in the future. With that, I will turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer.

Thank you John, and good afternoon, everyone. Our fourth quarter performance continued the momentum we experienced in the third quarter. In particular, we continue to execute on Denny's sales and guest-driving initiatives, made significant progress towards our Flying J conversions, refinanced the company's debt and bought back shares in the open market. In the fourth quarter, we opened 58 new Denny's restaurants; 47 of these sites were Flying J conversions bringing us to 100 Flying J conversions in 2010. 36 of the sites in the fourth quarter were converted by franchisees bringing the year-end total to 79 franchise Flying J conversions. 11 of these sites in the fourth quarter were converted by the company bringing the year end total to 21.

In addition to the Flying J openings, our franchisees and licensees opened six traditional units, one university location and one international location. We opened a total of six university locations in 2010 demonstrating the attractiveness of the Denny's brand and new distribution points. The company opened two fast-casual or cafe test units in California, one traditional unit in Hawaii, and relocated one unit in Milpitas, California. In the fourth quarter same-store sales and company restaurants decreased 1.6% and decreased 1.4% at our franchise restaurants. System sales in the fourth quarter were comparable to our third quarter results. We have seen nearly a five percentage point improvement in same-store system sales the second half of 2010, as compared to the first half.

Looking at the details for Company sales performance, we saw a same-store guest count decrease of 0.2% in the quarter. We estimate that our same-store guest count would have been positive in the fourth quarter without the estimated negative zero point five percentage point impact from the severe weather across the country. In the fourth quarter, average guest-check decreased by 1.4%. This represents an improvement relative to the third quarter when our check decreased by 2.9%. This improvement is attributable to the higher mix of our limited-time-only offers in the fourth quarter relative to third quarter. The decline in total company restaurant sales in the fourth quarter largely reflects the continuing improvement of our franchise -- continuing impact of our Franchise Growth Initiative of FGI, as sales decreased $7.6 million, or 7% due to 17 fewer equivalent company restaurants compared to the same period last year.

I'll now turn to the quarterly operating margin, which decreased four percentage points in the fourth quarter. The operating margin was negatively impacted by a $3.9 million reduction in workers compensation claims benefit and by new store opening expense associated with the opening of 11 Company owned Flying J units. Product cost increased 1.3 percentage points to 25% of sales, primarily due to the impact of increased commodity costs and a higher mix of value-priced items. Payroll and benefit costs increased 3.3 percentage points, to 41.9% of sales, primarily due to a $3.9 million reduction in workers compensation claims benefit compared to the prior year, as mentioned previously. Occupancy expense of 6.3% was the same as prior year, as favorable property tax accruals offset the impact of adding 21 new leased Flying J restaurants during the year.

Utility costs decreased two tenths of a point to 4.1%. Denny's is benefiting from lower natural gas rates compared to the prior year quarter. Repairs and maintenance expense decreased four tenths of a point to 1.7%. Marketing expenses decreased 1.6 percentage points to 3.8% of sales, primarily due to the corporate investment in media in the prior year quarter and favorable local-store marketing accruals. Legal settlements decreased by three tenths of a percentage point, due to favorable claims development. Other operating costs increased by two percentage points, primarily due to higher new store opening expenses associated with opening 11 company owned Flying J units in the quarter and a favorable credit card claim settlement in 2009.

In summary, the gross profit from our company operations decreased $5.4 million, on a sales decline of $7.6 million. For the fourth quarter of 2010, Denny's reported franchise and license revenue of $32.2 million, compared with $29.2 million in the prior year quarter. The $3 million increase in franchise revenue was driven by $1.5 million increase in franchise fee revenue and a $1.4 million increase in royalties. The franchise fee increase resulted from opening 44 franchise units in the four quarter this year, which included 36 Flying J travel center conversions, one university location and one international unit. The royalty revenue increase was due to 106 additional equivalent franchise restaurants. In addition to opening 44 franchise units during the fourth quarter, Denny's franchisees closed 11 restaurants relocated two units and purchased 13 company units.

Franchise operating margin increased $1.9 million to $20.7 million in the fourth quarter. This increase was driven by the increase in franchise fee revenue and 106 additional equivalent units partially offset by temporary overhead costs associated with converting Flying J sites. Franchise operating margin as a percentage of franchise and license revenue was 64.3%, a decrease of point three percentage points, compared with the same quarter last year. The franchise margin decrease was primarily due to the temporary overhead cost associated with converting the Flying J sites offset by higher franchise fees. The franchise side contributed 62% of the gross profit which is $7.9 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 fourth quarter increased $1.9 million from the same period last year. This increase was primarily driven by the timing of incentive compensation accruals as general administrative expenses for the full year decreased $1.7 million. Depreciation, amortization expense declined by $100,000 compared with the prior year period, primarily as a result of sale of company owned restaurants over the past year, offset by the addition of 24 new units in 2010. 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 $5 million in the quarter. This decrease was primarily the result of an $8 million reduction in gains on the sale of company restaurants and real estate to franchisees, offset by a $3.1 million decrease in restructuring and exit costs, largely due to the departure of Denny's chief operating officer and Denny's chief marketing officer in the fourth quarter of the prior year.

Operating income for the fourth quarter decreased $10.3 million from the prior year period, to $14.1 million primarily due to the $8 million reduction in gains on the sale of assets and a $4.6 million decrease in total operating revenue, attributable primarily to the sale of company restaurants. Although operating income interest expense for the fourth quarter decreased by $1.3 million, or 16.3%, to $6.5 million as a result of the termination of our interest rate swap, a $15.4 million reduction in debt from the prior year period, and lower interest rates under our new $300 million credit facility. Other non-operating expense increased by $6.1 million in the fourth quarter, primarily due to $4.3 million of expenses associated with the refinancing of our debt. Because of the significant impact to our P&L from non-operating, non-recurring or non-cash items, we give earnings guidance based on our 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 fourth quarter was $5.1 million, which was negatively impacted by $3.9 million reduction in workers compensation claims benefits.

Moving on to capital expenditures. Our year-to-date or full-year cash capital spending was $27.4 million, an increase of $9 million compared with the prior year. The increase was driven by an $11 million increase in new construction expenditures, reflecting impact of opening 21 company operated Flying J units this year.This increase was offset by decreases in facilities and remodel expenditures which continued to decline as we reduced our company restaurant portfolio. We completed 47 company facility refreshes this year, at an average cost of $50,000 to $60,000, and have signed up a significant number of franchise units for the same program in 2011.

The execution to our FGI program and focus on cost containment has allowed us to aggressively reduce debt by $285 million since late 2006. Lowering interest expense by $32 million, when comparing full year 2006 to full year 2010. This placed us in a position to refinance our credit facility, and on September 30, we closed on a $300 million senior secured credit facility which lowered our borrowing costs, extended maturities, and gave us increased flexibility to perform shareholder friendly actions. Our strong financial position allowed us in the fourth quarter to repay $10 million in debt, open 14 company owned units and repurchase one million of the three million shares approved by our board of directors. In addition, we are currently pursuing an opportunistic repricing of our credit facility to take advantage of lower interest rates available in the current senior secured debt market. That wraps up my review of our fourth quarter results. I will now turn the call over to Enrique, who will speak to our full year 2011 guidance.

Thank you, Mark, and good afternoon, everyone. I would like to take a few minutes to expand upon the business outlook section in today's press release. The following estimates for the full year 2011 are based on the 2010 results and management's expectations at this time. We expect full year franchise and company restaurants same-store sales to perform between negative 2% and positive 1%. This range reflects our cautious optimism. We are optimist that the programs and brand positioning we have in place will continue to build on the momentum we established in the second half of 2010. We are also cautious of the seemingly choppy economic recovery and its impact on our core demographics. We are committed to a continued focus on everyday affordability for our guests. Accordingly, if we take any pricing it will be slight and due to the escalating commodities pressures the industry is experiencing.

Strategically, we are focused on increasing the relative price value gap between ourselves and competitors. Any slight pricing we take will reflect this approach. We expect to open between 70 to 75 new restaurants in 2011. Approximately 25 of those openings will be Flying J Travel Center locations.As a reminder, we opened 100 of these locations in 2010. Therefore, for the program we expect to convert a total of approximately 125 of the 140 total population sets. We will continue to assess the viability of converting a portion of the final 10% of these units, but for the time being we believe our guidance is appropriate. Both Denny's and Pilot Flying J continue to be very pleased with the progress made to date and the performance of the conversion. For company restaurants, we expect to open between seven to 12 sites in 2011. Five to ten of these sites will be Flying J conversion opportunities. Two will be fast-casual Denny's cafe test sites, bringing the total company test sites for the cafe concept to four.

Franchisees are expected to open approximately 63 new restaurants. 15 to 20 of these are expected to be Flying J locations. Ten will be university locations and the balance will be a mix of traditional and several international units. Based on our analysis of potential closures, we anticipate the system will increase by plus 40 units in 2011. It is important to consider that the average sales volume of a unit closed in 2010 was $1 million, while the average sales volume for an opening was projected at $1.5 million, or 50% higher. Our income guidance is presented based on two metrics which we detail in all our earnings releases, adjusted income before tax and adjusted EBITDA. Adjusted income before tax is our internal profitability metric which we believe most closely represents our ongoing business income. We also utilize adjusted EBITDA as it is the metric used to determine company compliance under our credit facility.

Please refer to the historical reconciliation of these metrics to net income in today's press release. Our adjusted income before taxes estimate for 2011 of $36 million to $40 million is $9 million to $13 million greater than our 2010 results. Key contributors to this increase include the impact from the Flying J conversion sites and the continued focus on cost efficiencies across the P&L. Our adjusted EBITDA estimate for 2011 is $80 million to $85 million. This reflects an increase from the $73.8 million in 2010.It's important to note that the refranchising program or FGI that Denny's began in 2007 has contributed to our rising adjusted income, but has placed downward pressure on EBITDA for the past four years. As Denny's is in the final stages of the program, we expect that 2010 will be the trough of EBITDA for Denny's.

Two other items of note for 2011 are cash interest expense and cash capital spending. We expect cash interest expense to be $19 million in 2011, a reduction of $4.1 million as compared to 2010. This reduction is based on the successful refinancing of our debt in the fourth quarter of 2010, and to an anticipated modest debt pay down in 2011. As Mark mentioned, we are currently pursuing an opportunistic repricing of our credit facility. Any benefit from this action is not embedded in our guidance.

Turning to capital expenditures. We completed 2010 with capital spending of $27.4 million. Our estimate for 2011 is $18 million, or $9.4 million less than in 2010. This decrease is attributable primarily to fewer Company Flying J conversions, and fewer facilities refreshes as we completed the majority of our refreshes in company units in the fourth quarter of 2010. Cash taxes are expected to increase by approximately $1 million over the $900,000 in 2010. Based on the components of guidance our free cash flow is implied to be between $41 million to $46 million, double the amount delivered in 2010. This metric solidly reflects positive impact of our transitioning business model. That wraps up our guidance commentary. I will now turn the call over to the operator to begin the Q&A portion of our call.

Thank you, sir.

(Operator Instructions)

Michael Gallo from CL King & Associates.

I just have a couple of questions on Flying Js. I was wondering, maybe you broke it out maybe I missed it, what were the preopening costs related to Flying Js in the fourth quarter or just the overall cost that you incurred in that? Two, give us a sense for where the margins were in the Company stores obviously you have your normal start up and efficiencies as you get that going. Three, if you could give us a little more color on the difference again between the -- up to 140 you were originally planning to open along with your franchisees and 125 you are contemplating and 15 additional ones, still units you think will open? Or are they units you just put aside for now and you are not sure if and when those will be converted? Thank you.

Sure. On the preopening costs, for every Flying J conversion there is about $150,000 of preopening costs. So, in the fourth quarter alone it was roughly $1.7 million of preopening costs involving the Flying J conversion. The margins of the units at this point in time, given that they just opened, are below what the performers are, but that's a natural ramping up period. What we expect is that the Flying Jay units will ramp up to their expectations by the fourth month of performance. In terms of the 15 units left, I will turn it over to Mark.

I think as Enrique said in his guidance, we targeted 125 of the 140, and really going back in time when we first issued the press releases around the Flying J Pilot opportunity, I think we said up to 140 was the total universe. To your question on the last 15, some of those locations are in difficult outlying geographic areas; some of them just from the standpoint of underlying volumes. We want to make sure that, obviously, from investment standpoint they line up appropriately. So we are working with Pilot, who is a terrific partner, and we really appreciate obviously that partnership very strongly for this brand. And as Enrique said, right now, we are going to provide that 125 number with, obviously, the handful to be discussed between the two parties.

Thanks very much.

Tony Brenner from ROTH Capital Partners.

Thank you. I've got two things I wanted to ask about. One is Denny's pretty consistently has had one of the higher labor-cost ratios in the industry. I'm wondering, other than sales leverage, whether there are ways to bring that cost-ratio down meaningfully?

Absolutely. We have been focused for the past couple of years on actually putting in efficiency systems into the units and we've been effective in taking out labor costs within the four walls, in spite of the challenging sales environment for the past two years. Up until midpoint of this year, we had actually leveraged our labor despite negative guest count. We have put in place efficiency programs into our units both from a team labor and management labor standpoint. In 2011 we are going to continue to focus on that. It's really about staffing the units to peak times and matching those to guest counts and optimizing that as well as focusing on outliers within the scope of the 200-plus Company stores we have. We continue to be focused on that in 2011 as well.

The other thing I wanted to ask about is that a year ago or two years ago there was a lot of talk about creating additional portability. Is that something that is just not going to happen near term in any meaningful way?

Hi, Tony; it's Mark. How are you?

I'm well, sir, how are you?

Terrific. On the portability side, that continues to be an opportunity for our brand. Our carry-out/take-out mix runs probably somewhere in the 4.5% of sales range, something in that range. It can vary depending upon certain promotional activities. Interestingly enough, we've seen a great deal of portability focus in the university locations. As you can imagine, with students on-the-go to class, or returning from class. That's been a real good opportunity; we have been able to leverage there on campus. But I think in our traditional restaurants, that remains an opportunity. We know that clearly there is other competitors, although they may not be in family dining, but they are the competitors that are full service competitors that run higher than that 4.5% range in take-out. So, it's still an opportunity in front of us, Tony.

Fair enough, thank you.

Mark Smith from Feltl.

First, just a housekeeping -- the restructuring and exit costs, was that about $600,000?

Restructure, I think it was more than that.

I will follow up with you after the call. For the quarter or for the year?

For the quarter.

$600,000 for the quarter.

Just wanted to look in and see, is there still an opportunity -- you guys had talked about a potential for maybe 50 Pilot units that you could go in and change. Is that still out there on the table somewhere?

Absolutely. Our relationship with Pilot goes back to 2007 and with the Flying J merger, Pilot and Flying J, we are focused now as they are on converting those Flying J units. Thereafter, we are going to go back to building Denny's with Pilot in Pilot sites. And the way we are thinking about that is that it will take place over three to five year period where we will build about 50 more Denny's in Pilot locations.

Then, second just looking at Pilots and Flying Js. I know this is an old story that we haven't talked about for a while. But, gas prices, as they move higher, are you guys starting to see more sensitivity, especially on the Company side as you have got more of a mix maybe that are near highways and freeways?

It's been fairly steady in terms of what we are seeing with the 100 units we opened by the end of last year. It's been fairly predictable in terms of the performance. We have not seen that yet.

Perfect. Thank you.

Michael Gallo from CL King & Associates.

I just had a follow-up question. If I go back to the third quarter, I recall you were doing some evaluations of the SG&A structure. Have you completed that, or any conclusions to draw off of that?

Mike it's Mark. I would tell you that , obviously, that's ongoing as any business entity goes through the process. We have obviously, over time, taken a considerable amount of G&A out, and that's not just in what is classified as G&A, but also within our field management structure as we've gone through the refranchising process. I think that piece of our cost structure has been reduced by probably around 45% in that range over the last several years with FGI and obviously the reallocation of field management depending upon whether it's a Company location versus a franchise location. I think as we mentioned or I mentioned in my comments, I think our G&A declined for the year about $1.7 million I think on a year-over-year basis. There was a bit of a spike in the fourth quarter just because of the timing of incentive accruals. We are going to continue to leverage it and focus on it. It continues to be obviously an opportunity for us, although I would tell you that we think we've made considerable headway

Thanks very much.

Sam Yake from BGB Securities, Inc.

Thanks for taking my question. I was just wondering do you have an update for us on the how the $2, $4, $6, $8 value menu is doing? I think you said last quarter that somewhere around 20% of people were ordering off it. Can you give us update on how it's doing?

Absolutely. We saw in the fourth quarter the way to look at the overall focus on every day affordability is really the $2, $4, $6, $8 value menu as a foundational piece and we've surrounded that with LTOs, Limited Time Only offers. In the fourth quarter we had a very strong build your own Slam holiday, and build your own omelet. And what we saw in the fourth quarter is that the $2, $4, $6, $8, value menu, actually the incidents rate went to down a little bit. It went to about 17%, 18%, and the LTO's actually went up. That's part of the reason -- actually the driving reason behind why our check average was not deflated as much as in the third quarter. Still very strong incidents rate when you look at the limited time only offers and the $2, $4, $6, $8 value menu in combination. One of the stronger aspects of having the value menu and the LTO's is that we had the ability to promote what we want to focus on. That's what we did in the fourth quarter.

Okay. and then one other thing. You've done a great job with the Pilot Flying Js. I know you had a development agreement internationally. In 2010 is there any positive developments on possible international unit growth?

This is Mark; how are you? On the international side, I think the opening we mentioned was in Central America. It was the Honduras unit that opened during the fourth quarter. That's done extremely well for us; I believe it's an eight store multiple development agreement for four countries in Central America. Overall, I would tell you we believe international is an opportunity for this brand. As we mentioned before in calls and face to face meetings we really have relatively limited penetration or presence outside of North America I guess is what I would say. So the US and Canada. We continue to believe that's a strong opportunity for us in the right parts of the world. I think as we have also mentioned, Enrique has mentioned this, that one of the advantages we have is our brand is very strong in a number of domestic markets from a tourist standpoint. So, when you look at the Denny's brand penetration on The Strip in Las Vegas or Los Angeles or South Florida or Orlando. In those spots, obviously, in the US have tremendous level of tourism into them. We think there is a significantly building awareness in the Denny's brand already outside North America, and we hope to leverage that.

Thank you very much.

Mark Smith from Feltl and Company.

Hi, guys, just a couple of quick things. First, Mark can you talk a little bit about the demand for FGI restaurants that you're seeing, it looks like that ramped up back here in Q4? Then next, just give us any early signs from some of these other nontraditional restaurants, universities as well as fast-casual concepts? Just what you are finding and what you are seeing out of the gate with these?

On the FGI side obviously we have -- we've communicated that we are targeting about a 90% franchise mix, 10% Company mix longer term in this brand. Today we are 86% approximately on the franchise side. We've also mentioned that -- so if you look at those 4 percentage point difference, the 86% to 90%, we still have some restaurants that we would like to sell on to our franchise community, but it's obviously not nearly as material where we started back in 2007. The demand is still there, but obviously, the number of markets and the number of opportunities have been dramatically reduced. Really it's just a supply and demand situation. But again, we see that as, sort of, closing out that opportunity in the next year or so per se.

Hopefully that answered the FGI question. On the nontraditional units, if we split that apart a little bit, as we mentioned we opened two of our fast-casual cafes, those are Company operated out in California. They both opened -- those are test units, they opened during the fourth quarter. One of them opened right at the end of the fourth quarter. It's still relatively early on that side. On the university side we opened six locations with licensees. It's interesting; those operating models on campus range from a kiosk type of setting inside a food court to a full-service 100 plus seat Denny's. And so as an example, if you went down to Florida state you'd find that full service model on campus. If you went out to California we have more of a food-court setting. We are very excited about that opportunity. We have got some great partners there on the institutional licensee side, and some great partners on campus. We see that as obviously another strong opportunity from a development standpoint.

Thank you.

Buzzy Geduld from Cougar.

Just out of curiosity, what are you guys doing to make sure that the stores are all spruced up and that the quality of service, cleanliness, appearance of employees, et cetera is at a standard, let's say, to a McDonald's or something like that?

On the spruce-up question of the stores as we mentioned we have developed a refresh -- I will call it a light remodel, which we are calling new days, the internal term. I think as we mentioned we did around 48 new days on the Company side. So, we've really brought most of our Company stores, of the 232 Company stores are pretty much up to the remodel standard that we have. In 2011, we've had a significant interest on the part of our franchise community, and they have signed up for that same type of refresh. So, that should have a material impact on the, what I will call the physical customer touch point surfaces of a major chunk of our franchise piece. Again, not 100%, but a significant response from the community there. On the hospitality side, Enrique, you want to just quickly discuss is that?

On the hospitality side, yes, one of the strengths of Robert Rodriguez joining us in the fourth quarter of this past year has been the experience that he brings to the table. He is certainly in the process of building and focusing on hospitality as one of his key goals for 2011. We have already seen the benefit of some initiative he has in place; very specifically we've invested in a tool -- a customer metric tool called SMG, which we did not have before, which allows us to get customer feed-back on an average of 30 points of feedback per unit, per month that will allow us to really focus in by unit and understand where our opportunities lie. He has immediately brought to table his experience set and his focus on hospitality.

Are you -- just as a follow up, are you able to go to a franchisee and say the feedback we are getting is the bathrooms are filthy or the hamburgers are coming out with black spots all over because the griddles aren't clean, et cetera, et cetera.

The feed-back actually goes directly to the unit, Company or franchise.

So if it's a franchise, it goes directly to the unit how do you ensure that that's taken care of and its remedied?

We get it through follow up. We see the information as well. We get it through our field leaders, or franchise business leader, who partner with our franchisees.

Okay. Thank you.

At this time, I would like to turn the call back over to management for closing remarks.

I'd like to thank everyone for joining us today. We look forward to our next call which will be the first quarter 2011 call. Thank you and have a great evening.

This concludes today's conference call you may now disconnect