Denny's Corp (DENN) 2013 Q4 法說會逐字稿

Good day and welcome to the Denny's Corporation fourth quarter and full year 2013 earnings conference call. Today's conference is being recorded. (Operator Instructions). I would like to turn the conference over to Whit Kincade, Senior Director of Investor Relations. Please go ahead sir.

Thank you Angela. Good afternoon. Thank you for joining us for Denny's fourth quarter and full year 2013 Investor conference call. This call is being broadcast simultaneously over the internet. With me 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 and full year results. I will conclude with commentary on Denny's full year guidance for 2014. As a reminder we will be filing the 10-K by the due date of March 10th, 2014.

Before we being, 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 uncertainty 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 most recent Annual Report on Form 10-K for the year ended December 26, 2012, 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 Whit. Good afternoon everybody. We are pleased to finish 2013 with another solid quarter of performance marked by an additional quarter of positive same-store sales. We also grew adjusted earnings per share by 21% this past year. We did this in the face of an ongoing challenging economic environment for our consumers. Most importantly, we have demonstrated that our franchise focused business provides financial stability and flexibility while enabling us generate earnings growth and significant free cash flow. With growing confidence and momentum, we remain committed to executing against our key objectives to increase shareholder returns through the revitalization of the Denny's brand. Our first key objective is to achieve consistent positive same-store sales performance through continued improvements in our food service and atmosphere.

The foundation of Denny's revitalization is our competitively distinct and uniquely ownable America's Diner positioning. We see evidence that we are moving in the right direction with our positive sales performance relative to key industry benchmarks. In addition, we continue to see better performance in key geographies for Denny's, like California, Texas, Arizona and Nevada, where we have over 700 restaurants. Same store guest traffic was positive throughout 2013 in California, which represents 24% of our system. According to recent surveys, our guests have at Denny's had a lower visit frequency than the guest visit frequency of our competition.

Our guests have told us very clearly what needs to improve to get them to come back. Better quality and more cravable food, better more consistent service, and a more pleasant atmosphere. The initiatives we have in place are focused on improving all three critical elements which I will now review. Guests increasingly see us as a viable and relevant place to satisfy their craving for their diner favorites, and we continue to evolve our menu to meet their expectations. At the beginning of this year we launched a redesigned reinvigorated core menu which further emphasizes our diner heritage. Our efforts to continue to the core menu with many new products for ourBreakfast All Day, and beyond breakfast offerings, is an ongoing process. But our guest satisfaction scores are much closer to where they need to be.

They have been pleased with many of our newer offerings, like our Fit Fare healthy offerings, Spaghetti and Meatballs, Sirloin Steak, Prime Rib, Cobb Salad, improving side dishes and our expanded Skillet platform, just to name a few. In addition, we are trulyproud of the new coffee program introduced last year, and continue to look for ways to strengthen our coffee culture and leverage one of the many strengths of our diner positioning. Going forward we will continue to utilize a tiered pricing strategy, combining exciting and flavorful new product news, and every day value to motivate both heavy and light users to visit Denny's more frequently. Our Limited Time Only menus will continue to merchandise our strengthening beyond breakfast diner offers, while also maintaining our core breakfast strength. We have also begun showcasing a number of our core menu items to reintroduce or remind our guests of new or improved brand favorites. This includes adding highlights to our ever-growing Fit Fare products on both the LTO and core menus. Operational complexity on a number of items has also been addressed in our overall menu evolution.

January saw the launch of a new line of value-oriented breakfast sandwiches, and for beyond breakfast, a new lineup of signature and Build-your-own skillet options. We will finish the quarter emphasizing our most popular items, the Build-your-own Grand Slam and its many healthy choices, we will continue to balance our compelling limited-time-only offerings with our highly competitive and effective 2-4-6-8 value menu, with gives us a tiered pricing strategy with very attractive starting price points for full service diningLaunched in 2010, our 2-4-6-8 value menu has over 75% brand awareness, with around 19% average incidence rate, helping to drive one in five visits.

We will balance the traffic driving that yields the menu's high brand awareness with new or limited time premium offers and add-on sales initiatives. The key to our brand revitalization is to deliver consistent reliable service, and diner hospitality across all of our Company and franchise units. The implementation of our guest satisfaction tool in early 2011 has been a key driver of the improvements we have seen so far. We have a deeper understanding of each location's performance, not only compared to other Denny's restaurants but also compared to other full-service restaurants.

We are focused on improving all guest satisfaction measurements, including intent to return, and intent to recommend, along with speed, taste, attentiveness, and restaurant atmosphere. Our strengthened operations team with an increased emphasis on training restaurants level staff has driven significant improvements in our scores. We are seeing almost a 10 percentage point improvement in our overall guest satisfaction scores over the past three years, driven by intent to return, and intent to recommend. We are encouraged by the progress we have made to date, but we realize thatit will take some time to move to the top of the category.

In addition to the enhancements to our food and service, we are focused on our updating atmosphere to reflect the more contemporary diner feel to further reinforce our America's diner positioning. Out of 20% of our restaurants that were built in the past five years,most of our restaurants are well over 20-years-old, with about 25% of locations on one of our older schemes. Our facilities need to compete in an increasingly competitive marketplace, and our guest feedback confirms the opportunity to improve the initial restaurant atmosphere. The desire for home comfort came through loudly and clearly in our research. Customers are looking for an up-to-date but come-as-you-are space, and not the diner from the 1950s approach to reconnect with family and friends, a place with a warm environment and fresh decor, like they would have at home.

We have taken this feedback to heart working closely with our franchisees to create an updated atmosphere with an attractive return on investment. Getting the space right matters more today than ever. The goal for our new Heritage design is for the environment to no longer hold Denny's back as a brand. This new Heritage scheme has a significantly updated look and feel, with new flooring, wall and accent colors, booth and tabletop colors, and signature touches. We are encouraged by the positive consumer reviews and same-store sales increases, primarily in traffic which have been consistent with our historical mid-single digit range of gains.

With an investment range of $150,000 to $300,000 very similar to our previous remodel program, the Heritage program provides an attractive return on investment. Of the 174 remodels completed last year, 49 restaurants incorporated the Heritage image, including all 26 Company restaurants. In 2014 franchisees will remodels due will be utilizing the new scheme. With the typical seven year remodel cycle, approximately 70% of the system will be due for a remodel over the next five years. The Company will be leading the way be accelerating remodels in 2014, primarily focusing on our older-looking restaurants first. In conclusion these continued revitalization efforts to improve our food, service and atmosphere, put us further down the path to achieving consistent positive same-store guest traffic, and recovery of lost transactions over recent years.

Our second key objective is to increase the growth of the Denny's brand, both domestically and internationally through traditional and non-traditional locations. In 2013 our franchisees opened 46 new restaurants which is the highest number of gross openings since 2001, excluding the Flying K conversions. Specifically our franchiseesopened 41 new domestic restaurants, with 19 of the openings participating in our new and emerging markets incentive program. We achieved a positive 12 net restaurant growth during the year, bringing the total number of restaurants to 1,700, which is the highest restaurant count for Denny's since the middle of 2001. We are pleased to sign a significant development agreement for Atlanta. Which is one of the many large markets in the Eastern half of the United States where we do not have significant market share. We added five international locations in 2013, including our first restaurants in Chile and El Salvador. Denny's now has over 100 restaurants outside of the US, which is the largest number of international locations of the American Family dining chain.

We most recently signed a development agreement to open 30 restaurants in the Middle East over the next 10 years. In addition, we opened two non-traditional locations, including the first non-traditional military base location which was opened at Nellis Air Force base in partnership with the Army and Air Force Exchange Service. This is a great milestone for the brand, as it expands the number of potential demand points for Denny's in more high profile non-traditional locations. Our goal is to build on our momentum in filling our domestic and international pipelines, resulting in a growing number of openings each year.

Our third key objective is to be a model franchisor with close partnerships with our franchisees, communities, and vendors. I am pleased to say that our partnership with our franchisees is as strong as ever. We currently have 274 franchisees, with 37 who operate more than 10 restaurants. New franchisees continue to come into the Denny's family, with 15 new franchisees joining in 2013, leading to a net increase of nine new franchisees over the past two years. Over 40% of our franchisees are new to the system since 2007, when we launched our refranchising strategy.

We maintain a very high level of communication with franchisees, who remain heavily involved in many key strategic initiatives. We continue to make investments in certain areas to support our franchisees like our new restaurant opening and training team. We also continue to look for ways to leverage our strong financial position to support key brand building initiatives. We have worked with Direct Capital, a leading lender to franchisees to facilitate a $250 million loan pool for the Heritage remodel program. Denny's will backstop up to 5% of the outstanding loans used under this program. This kind of support is one of the many ways Denny's stands out among other restaurant franchising competitors.

Our fourth key objective is to support growing profitability and free cash flow, with a disciplined approach to operating costs, corporate G&A expenses, and capital allocation. Our G&A excluding equity and cash performance based compensation improved in 2013, hitting the lowest amount on record. Although we continue to make investments in certain areas, like franchise recruiting and new restaurant opening and training, we continue to look for efficiencies in our operations. In the past three years we have generated a little over $140 million of free cash flow after capital investments.

Since we initiated our share repurchase program at the end of 2010, we have allocated approximately $72 million to repurchase 16 million shares. Since the end of 2010, our total debt has decreased by approximately $90 million. With a franchise focused business that generates significant free cash flow we will continue to balance capital allocation between reinvesting in the growth of the brand, returning cash to shareholders, and to a much lesser extent reducing our outstanding debt. Given that we have a meaningful base of Company restaurants, we will look to reinvest in our restaurants, and are on track to complete approximately 40 remodels in the first half of this year. In addition, we will continue to opportunistically look at acquiring franchised restaurants where we can generate attractive returns.

With that, I will turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer. Mark

Thank you John. Good afternoon everyone. Our fourth quarter results were highlighted by increasing domestic system-wide same-store sales by 0.9%, expanding Denny's restaurant count by 14 locations, growing adjusted net income per share by 19%, and generating $8.9 million of free cash flow after capital expenditures. During the quarter Denny's opened 19 franchise restaurants, and closed five system-wide restaurants, comprised of four franchised restaurants and one Company restaurant. As a result we ended the quarter with 163 company restaurants and 1,537 franchised restaurants, bringing the total restaurant count to 1,700.

Denny's total operating revenue including Company restaurant sales and franchise and license revenue decreased $1.7 million to $114.3 million driven by decreases in both Company restaurant sales and franchise and licensed revenue. Same-store sales of domestic franchised restaurants increased 0.8%, primarily due to an increase in same-store guest check average, driven by higher menu pricing.

Franchise and license revenue of $33.2 million decreased $1.1 million due to decreases in both occupancy revenue and initial fees, which were partially offset by a $300,000 increase in royalty revenue resulting from 7 additional equivalent franchised restaurants. Franchise operating margin of $21.6 million decreased $700,000 primarily due to decreases in occupancy margin and initial fee revenue. Franchise operating margin as a percentage of franchise and licensed revenue increased 0.1 percentage pointsto 65.3% compared with the prior year quarter. This increase was primarily due to the decrease in occupancy margin.

Same-store sales of Company restaurants increased 1.5% primarily due to an increase in same-store guest check average driven by higher menu pricing. Sales at Company restaurants decreased $600,000 to $81.1 million, primarily due to six fewer equivalent Company restaurants, which reflects the impact of our refranchising strategy that was completed at the end of 2012. Company restaurant operating margin of $11.2 million, or 13.8% of Company restaurant sales, increased $200,000, or 0.3 percentage points compared to the prior year quarter. Products costs increased 0.8 percentage points, due to the unfavorable impact of product mix, and higher commodity costs compared to the prior year quarter.

Payroll and benefits costs increased 0.6 percentage points. The increase included $400,000, or 0.5 percentage pointsof unfavorable Workers' Compensation claims expense compared to the prior year quarter. Occupancy expense decreased 0.5 percentage pointsdue to favorable general liability accrual adjustments, compared to the prior year quarter. Occupancy was also favorably impacted by more leases being classified as capital leases during the year. A.3 percentage pointdecrease in Other operating costs was primarily driven by lower marketing expense compared to the prior year quarter.

Total General & Administrative expenses decreased $1.3 million from the prior year quarter, primarily due to decreases in incentive compensation and professional fees. Partially offset by a $700,000 increase in share based compensation. The fourth quarter adjusted EBIDTA of $19.4 million, or 17.0% of total operating revenue increased $1.7 million, or 1.7 percentage points, primarily driven by the decrease in G&A expenses. Depreciation and Amortization expense increased by $600,000 compared with the prior year quarter. Primarily resulting from remodeling of 26 Company restaurants in 2013.

Net operating gains, losses, and other charges which include restructuring charges, exit costs, impairment charges, and gains or losses on the sale of assets increased $4 million in the quarter. The increase was primarily the result of a $4.2 million increase in impairment expense compared to prior year. This increase was related to the partial impairment of the Company restaurant located in downtown Las Vegas. Our policy is to test for impairment after a restaurant has been open for a full year. This restaurant was opened in November of 2012. It is adjacent to the Fremont Street Experience and part of the Neonopolis shopping and entertainment development.

Denny's long track record of success on the Las Vegas strip helped to support the case to build another high volume location, with showcased the brand with a more contemporary atmosphere. Due to investments in a number of unique design elements and equipment, we spent more than $6 million constructing this location. There is about $2 million more than we would have spent without these additional design investments. In addition sales at the Neonopolis restaurant had been below expectations as the retail complex has not been fully developed, and the customer mix at this location has not responded as anticipated. We have made changes resulting in improvements in top line and bottom line perform performance. Regardless, given the above average level of investment and lower than expected sales, we determined it appropriate to write down the asset, resulting in a $4.8 million non-cash impairment charge in the fourth quarter.

Interest expense for the fourth quarter decreased by $400,000 to $2.5 million. Resulting from a $17.1 million reduction in total debt over the last 12 months, and lower interest rates under our refinance credit facility. In the fourth quarter our provision for income taxes was $1.1 million, reflecting a 20.6% effective income tax rate, and a 31.9% annual income tax rate.

Due to the use of non-operating loss and income tax credit carry forwards we only paid $2.8 million in cash taxes during 2013. At the end of the fourth quarter the deferred tax asset on our balance sheet was $51.6 million. We will continue to utilize additional net operating loss and incomes tax credit carry forwards to eliminate the majority of our cash taxes for the next several years. Cash capital expenditures were $7.4 million in the fourth quarter,and $20.8 million for the full year. The Company completed 16 Heritage remodels in the fourth quarter, and 26 Heritage remodels during the full year. Free cash flow $8.9 million in the fourth quarter, and increased $1.6 million compared to the prior year quarter, primarily due to theincrease in adjusted EBIDTA.

In the fourth quarter we repurchased 459,000 shares for $3.1 million bringing our full year totals to 4.2 million shares for $24.7 million. As of February 14th we had a total of 8.6 million shares authorized and remaining in our ongoing share repurchase program.

We ended the fourth quarter with $173.1 million in total debt outstanding. With a total debt to adjusted EBIDTA ratio of 2.22 times. We will continue to use our free cash flow after capital expenditures towards both share repurchases and to a lesser extent debt repayment. While also making investments to grow and strengthen the brand.

That wraps up my review of our fourth quarter and full year results. I will now turn the call over to Whit, who will comment on our annual guidance for 2014

Thank you Mark. Good afternoon everyone. I would like to take a few minutes to expand upon the business outlook section of today's press release. 2014 will include 53 operating weeks, with the extra week falling in the fourth quarter of the year. We estimate that the 53rd week will contribute between $3 million and $3.5 million of pre-tax income. We anticipate that between 35 and 40 system restaurants will close in 2014. That is consistent with the 2% annual closure rate we have seen over the last seven years. We anticipate that two or three will be Company restaurants.

At the end of January one of our Company operated restaurants located in Honolulu, Hawaii permanently closed due to loss of property control. This was a high volume location generating over $4 million in sales last year. At the beginning of the year we announced that our Las Vegas Casino Royale location, the highest volume Company operated restaurant has been closed for reconstruction. It is currently not expected to reopen until early 2015. The landlord is redeveloping the location to include a completely rebuilt Denny's funded by the landlord. In 2013 this restaurant contributed $7.9 million ofsales, and $2.9 million of pre-tax operating income.

We expect our Company percent margin to range between 13.5% and 14%, as we face a number of headwinds, including minimum wage increases, most notably in the State of California, and the roll out of Affordable Care Act. We anticipate that commodity cost inflation will be flat to 1% this year. That is the lowest it has been in a number of years. We are locked into approximately 60% of our need for the year.

The temporary closure of our Las Vegas Casino Royale location creates a 60 basis point headwind to the Company percent margin from 2014. We anticipate that our Company sales as well as our payroll and other operating costs will be impacted in the first half of the year by the revitalising of Company restaurants. Remodeled restaurants typically close for around one week during which additional training takes place. As a result of inflationary pressures impacting our industry, we did take around a 1% price increase with our new January core menu, and plan on an additional modest price increase at our California restaurants in July, when the minimum wage increases is $9.00 per hour.

We expect our franchised percent margin between 66% and 67%, with total franchised revenues to be between $136 million and $138 million. We expect a favorable impact from the 53rd week. New restaurant growth and same-store sales increases to be partially offset by lower occupancy margin resulting from a decrease in the number subleased locations from 2013 and 2014. We currently expect our annual effective income tax rate between 34% and 38% with cash taxes to be between $3 million and $4 million in 2014. Cash capital expenditures, annual guidance of $20 million to $22 million, includes remodeling of approximately 40 Company restaurants, the majority of these remodels will be completed in the first half of the year.

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. (Operator Instructions). We will take our first question from Michael Gallo with CL King Investments

Good afternoon. Just a question on the change in the way you are marketing this year with the monthly modules and the chalkboard specials. It seems like LTO urgency that gets created as opposed to the two or three month modules that you were running before. What kind of impact have you seen from that? What kind of mix you have seen on whatever the monthly module you are running is, and then also how you can help use that to respond to change in consumer trends perhaps more rapidly than you could have under the old ways you were running the modules?

Mike, it is John. Great questions. I would say at 50,000 feet it is a little too early to tell with great precision where the change leads us. I would say in general it is simpler on our operators and gives us more flexibility. That has generally the same sort of from a marketing, from a consumer side,I think it feels a lot like it has always felt. We are able to divide what used to be five approximate 10-week modules, into four modules with about the same number of media messages and production pieces. But to the server and to the operators it feels like 12 different distinct focus points. Over the course of Module one, call it Q1, that used to be module one and then parts of module two bleeding over into that same period of time, there might have been about the same number of overall media messages, the value message, a couple of LTO premium products, there are some value launch price point LTOs, and some 2-4-6-8 messaging that kind of all blur together. These are a little bit more distinct, and they go at the end of one it rolls into the next. That then one rolls over to the next. It allows us to get a little bit more focus on the line, focus on training, higher quality execution, one less training rollout for the year. About the same overall broadcast time, and so forth.

It is too early to answer it like we will be able to answer at the end of the year. The important part is the mix is holding up well. Consumers are responding. We came out of the gates with a value sandwich promotion. We end the quarter with our Build your own Slam with a focus on Fit Fare, we think the bill of equity is in the brand on these platforms is better when over the whole month you can talk about Fit and Build-your-Own versus scattered all throughout a 10-week module. We feel good about it. It is more frequency-like and less casual-like, I guess, if you want to look at a historical perspective. It is not a new approach. It is one that has been in the industry for a number of years

Thank you.

Now we go to Will Slabaugh with Stephens.

This is J.R. here asking a question for Will. Thank you for the call. Congratulations on the quarter. On sales for geography, I know a lot of them in your space have been referencing weather across different geographies, and in California, in addition to what you are seeing in California, have you experienced any negative year-over-year weather impact throughout other regions?

This is John. There is no question that the Midwest and Northeast has been hit harder. Whether it be early last year or the beginning of 2013 or the beginning of 2014. What effects other brands and what you see would affect Denny's in the same way. The fact that we have more weight of units in our whole portfolio, 700 between the states that I mentioned earlier, 24% of our units in California, 36% of the Company units in California, plays to it probably lowers the volatility of weather for us overall. Our guidance for the year however includes the impact of that, the guidance that Whit took you through just a moment ago.

Great. And along the menu, I know that you added some new coffee in there, and I am wondering if you are seeing any impact from that, if it is the platform similar to the coffee, are there other platforms that you can expand the day part menu, and items that you think can add onto the check in different day parts?

Yes, there are. The first was to have some credibility around our coffee program. We started out, we talked about our heritage quite a bit as a diner, and regional coffee shops or diners obviously were known for coffee. The world has changed since those days, where now in hotel lobbies to convenience stores, you expect to have choice and more than one blend. First was to get a high-quality coffee with arabica beans that was roasted both light and mild, and have the options available, also to have a respectable decaf coffee that moves from just having one to having one that delighted people. So the first and important goal was to reduce the number of comments or complaints associated with our coffee program. We are delighted to report that goal has been accomplished. To your point then we can build on that. We have added iced coffee since then. We have also built on other platforms. That create significant add-on opportunities for us, whether it be build-your-own programs, build-your-own shakes, which is now our number one selling dessert item, and other ways to continue to add on and build the check.

Great, thanks guys.

Now to Mark Smith with Feltl and Company.

Hi guys. Just real quick one to confirm your occupancy revenue is down due to fewer subleases, and that is to continue into next year, is that correct?

Yes, that is right, Mark, this is Whit. That is correct. When you look at, you really saw the impact on the fourth quarter of this past year. Overall for 2013 our occupancy margin dollars were pretty much flat at about $12.5 million. The reason is we have had subleases. This is where we are on the head lease and then we are subleasing to franchisees. We have had some franchisees when the options become available, they have stepped in and taken over and renegotiated the lease, and cut us out of the middle. You see a headwind to occupancy revenue. You will see a decrease in the expense piece in terms of occupancy. How much in terms of the margin, the net EBIDTA margin impact really depends on the lease, and there is also for some of these leases that are defined as capital leases, you would also have a corresponding decrease in depreciation and interest expenses as well. So the net margin impact on EBIDTA when you take into account the lower depreciation and interest. It is smaller than what we saw in the fourth quarter. The $300,000 impact would be closer to on a cash basis would be closer to $100,000. Then this translates for 2014 guidance. It becomes a headwind in one way to think about it to our in terms of the franchise margin dollars. It certainly from a rate basis though, it helps you. It is a low margin business. It is not a growing business for us. You know the history of it well. It is really a reflection of the refranchising efforts that went on and selling leased restaurants to franchisees. We don't anticipate this margin growing with our refranchising efforts having come to an end at the end of 2012. Some of these leases will continue to roll-off as the franchisees step down. On a net basis, it is when you think about the whole pool of dollars, it is about a $6 million of sublease EBIDTA margin, and about a $4 million pool when you include the depreciation and interest expense on the capital leases, that is not included in the EBIDTA. Over time, over a long period of time it is a headwind.

On the real estate front has there been any change there on properties that you guys own?

There has not. It is the same 56 with 35 owned by, sitting under Company restaurants. Excuse me, 56 are under franchise restaurants. 35 are under Company restaurants. Total ownership would be 91 locations, plus the Spartanburg headquarters, and then we have one excess property beyond that.

Just looking at remodels. Have you seen any change in sales lift on remodels, and any real change to look at 2014 on expectations on the remodels?

Yes in 2014 we expect a similar number of restaurants due. We did 148, franchisees completed 148 last year. Then we plan to do 40 Company remodels on top of the 26 we did last year. However they will be front loaded, where you heard in my comments a moment ago, that the 26 we completed on the Company side last year were late in the year. We do expect the number of Company units to be stepped up considerably. We are pleased with the consumer response from this. We engaged the consumers, franchisees in an effort to make sure that we were developing according with their expectations for what the Denny's brand was, in terms of atmosphere, and pleased to see as the franchisor, to model the right behavior to get the space right for our consumers. So that will be 40 plus the 26 last year. That is a total of 66 of our 163 Company operations. We are seeing a good lift, mostly in traffic

Mostly traffic. Mid single I think you said in the past?

That is right.

Then just looking at the franchise openings this year, can you quantify roughly how many will be international or non-traditional?

Sure. This coming year we are guiding another 45 to 50 total. How much of that is international and traditional the year will play out. We expect a portion of that to also be non-traditional units building on top of the momentum from last year. I would say low single-digit in the international arena.

And that would be the same for non-traditional as well, Mark.

Thanks, guys.

(Operator Instructions). We will take our next question from Michael Halen with Sidoti.

Good afternoon. My first question is what was the incidents rate of the 2-4-6-8 value menu in the fourth quarter?

This is John. We moved from about 19% to 19% quarter-over-quarter. On the full year 16.5% to 19%, so 2012 to 2013 was up. But quarter to quarter it was pretty flat.

Great. Can you break out the Company owned comp between guest check mix and traffic?

Hi Mike, it is Whit. In the fourth quarter the Company guest check was positive 2.7%, and the traffic was negative 1.2%

Thank you. When do you expect to roll out the new loyalty program?

We are looking at each other. I think we have a test. Until that, that is all we know at this point.

Fair enough. I guess the last one. Are you willing to talk at all about the impact of the icy weather on your restaurants in Texas in this first quarter?

Yes, we hesitate to guide too much on the quarter other than to say the annual guidance, is we are confident of the guidance.

Okay, fair enough. Thanks very much.

There appears to be no further questions. I will now turn the call back to Mr. Kincaid for any additional or closing remarks.

Thank you Angela. I would like to thank everyone for joining us on today's call. We look forward to our next earnings conference call to discuss our first quarter 2014 results in late April. Thank you, and have a great evening.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation.