Denny's Corp (DENN) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Denny's Corporation fourth quarter and full year 2015 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Whit Kincaid, senior Director of Investor Relations. Please go ahead, sir.

Thank you, Katherine. Good afternoon. Thank you for joining us for Denny's fourth quarter and full year 2015 earnings conference call. 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.

Please refer to our website at investor.dennys.com to find our fourth quarter earnings press release along with any reconciliation of non-GAAP financial measures mentioned on the call. This call is being webcast and an archive of the webcast will be available on our website later today. John will begin today's call with his introductory comments. Mark will then provide a recap of our fourth quarter results along with brief commentary on our annual guidance for 2016. After that we'll open it up for questions.

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 risk, 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 risk and factors are set forth in the Company's most recent annual report on Form 10-K for the year ended December 31, 2014 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 Chief Executive Officer.

Thank you, Whit and good afternoon, everybody. 2015 was another great year for the Denny's brand. Our strong performance reflects the momentum generated by the brand revitalization initiatives that we launched in 2011. We achieved the highest same store sales and traffic growth in over a decade with gains at both remodeled and non-remodeled restaurants. The outperformance of our sales growth versus the family dining bench marks demonstrates that we have the right strategies in place.

We grew our revenues and margins despite lapping a 53rd week and making significant investments in our brand support functions. As a result we grew our key profitability metrics, adjusted EBITDA and adjusted net income per share 7.5% and 16.4% respectively. We are still in the early stages of our brand revitalization with about a third of our system currently reflecting our successful Heritage remodeling program.

Despite what has become an increasingly choppier consumer economic environment we believe that we can continue to grow sales and profits as we seek to become a $3 billion brand before the end of the decade. We continue to return value to our shareholders through our ongoing share repurchase program as we increased our leverage target and accelerated share repurchases at the end of the year. Our success depends on the execution of key initiatives in four key strategic areas which I will now touch on.

The first is to deliver a differentiated and relevant brand in order to achieve consistent same-store sales growth supported by profitable gains in guest traffic. The success of our initiatives to enhance our food, service and atmosphere is evidenced by the system's same-store sales growth in 18 of the last 19 quarters. We continue to evolve our menus to match our guest needs by responding to their desire for better quality and more cravable products.

Since 2013 more than 50% of the core menu items have been improved through a combination of additions, deletions and revisions. And over half the entrees we sale are breakfast entrees regardless of the time of the day. The advantage of our breakfast-centric menu is the breadth of value operations for our guests with operational complexities that make it difficult to replicate in other brands.

We will continue to drive new, offering food innovation and enhance our product quality while improving speed and consistency with an eye towards even bolder and more flavorful product enhancements. Our limited time only menu strategy will continue to focus on a barbell news core strategy showcasing fewer harder working premium products while also highlighting products on our core menu and 2-4-6-8 everyday value menu. Our latest menu called Extreme Skillets features fresh ingredients and bold flavors like the Crazy Spicy and the Supreme Green Skillet.

These are higher quality more premium entrees for all dayparts providing perceived value as the starting price for the Supreme Green Skillet is less than $8 in many markets. We continue to leverage our 2-4-6-8 Value Menu by highlighting a variety of 16 products on the menu. Over the past 18 months we have changed 50% of the 2-4-6-8 menu providing more percent margin friendly products. Local and national media showcase popular products like the $4 Everyday Value Slam, the $6 Blueberry Muffin Pancake Breakfast and the $8 Grand Slam Slugger.

We are currently featuring the $8 Grand Slam Slugger on the menu and in commercials which provides a balance to our limited time only premium skillet offerings. Our Heritage remodel program further reinforces the improvements we have made to date in our food and service. It is critical to our revitalization strategy and offers updated atmosphere with attractive return on investment for our franchisees. The program was launched at the start of 2014 after extensive testing with our franchisees and continues to get very positive consumer reviews and generate middle single digit range of same-store sales lifts.

While we completed over 200 remodels this past year the fact remains that only 32% of the system has the enhanced atmosphere. This includes nearly 80% of the Company restaurants as we have been accelerating remodels at company locations. There were 200 more to be done in 2016. We will end up this year with about 45% of the system in the updated image which includes completing almost all the company restaurants. Remodels will continue to be a significant tailwind for the brand over the next few years as we expect over 70% of the system to have the new image by the end of 2018.

Our second key strategic area is to consistently operate great restaurants with the primary goal of being in the upper quartile of satisfaction scores of all full service brands. Although significant improvements have been made to date, many opportunities remain to realize these goals. Our overall guest satisfaction scores ended the year in the mid-70% top box overall satisfaction range. This is the highest point since we first started measuring in the system in 2011.

Although we are encouraged by the results we have realized thus far, we recognize the need to continue to invest in our strategies to further evaluate the Denny's experience. Our investments in restaurant operations and training talent and systems to support our strategies will drive further improvements in the coming years. This includes our pride review program which allows us to measure and coach restaurant managers in their execution of our operating standards.

Not surprisingly we see better sales and operational metrics at restaurants with higher pride reviewed scores. After a year we are seeing steady improvements in scores and we will be conducting at least two visits each year with the goal of additional self-evaluations and targeted coaching opportunities. In addition to enhancing our training efforts we are working to improve our speed of service especially during our peak periods.

This includes our ongoing menu and service optimization work which supports our product development efforts. With each and every quarter we are getting better at delivering higher quality products with more consistent service standards supported by our field training and coaching initiatives. The foundations of these efforts is our mission to be a model franchisor and support and coaching towards running great restaurants in collaboration toward the achievement of franchisee goals.

This focus drives us to partner, listen, share, refine and invite participation from our franchisees in virtually all brand strategies and initiatives. We accomplish this through Denny's franchisee association and brand advisory councils which are led by Denny's executives with leadership participation from Denny's franchisee association board members and at-large member volunteers.

Our third key strategic area is to grow the global franchise in order to expand Denny's geographic reach of domestic and international locations. Our growth initiatives have led to 366 new restaurant openings since 2009. This includes 40 international locations and represents nearly 20% of the system and makes Denny's one of the top full service brands when looking at the number of gross openings. We recently opened our first two restaurants in Dubai and signed new development agreements for Indonesia, the Philippines and Turkey. This brings our international pipeline to nearly 100 new restaurants.

In the U.S. we have nearly 1,600 restaurants including 164 company-operated locations with geographic concentration in the West coast, Southwest, Texas and Florida. In 2015 our strongest markets for new development were Arizona, Georgia and Wisconsin. We were pleased to open three new Company restaurants in Wisconsin in partnership with Kwik Trip convenience stores at the end of the year and look forward to opening our fourth location this week. Our strong performance continues to drive new interest in the brand as we have approved new franchisees entering the brand either through acquisition of existing franchised restaurants or new development.

Our fourth key strategic area is to drive profitable growth for all stakeholders with a goal to grow margins and profits with a disciplined focus on cost and capital allocation benefiting franchisees, employees and shareholders. Consistent profit growth will be driven by growing our highly franchised business by provides a lower risk profile with upside from operating a meaningful base of high-volume Company restaurants. Since completing our refranchising program in 2012 we have grown adjusted EBITDA nearly 15% and adjusted net income per share over 60%. This leads to strong free cash flow generated with significant flexibility to support brand initiatives.

Over the last five years we have generated $232 million in free cash flow after capital expenditures, cash interest and cash taxes. Our continued growth and profitability will be driven by a combination of investments in our brand and our Company restaurants along with shareholder-friendly allocation of free cash flow. We believe acquisition of franchised restaurants is one way to enhance our company restaurant portfolio.

So far we have acquired six franchised restaurants including three this past year and we will continue to review opportunities as they come available. We take a long-term view toward capital allocation, supported by our growing profitability and desire to return excess cash to our shareholders. Our share repurchase program began in late 2010 and since then we have allocated $214 million to repurchase shares.

In closing we remain focused on continuing the transformation of the Denny's brand. The improvements we have achieved to date give us the confidence that we can continue to grow the Denny's brand benefiting franchisees, employees and shareholders. Our commitment is to execute and build a sustainable foundation to build a global brand. By consistently growing same-store sales and expanding our global reach, we will continue to grow the Denny's brand while returning cash to shareholders through our ongoing share repurchase program.

With that I'll 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 results were highlighted by growing domestic system wide same-store sales by 2.9%, growing adjusted EBITDA by 4.8% excluding the impact of the additional operating week in 2014, and generating $7.1 million of free cash flow. During the quarter franchisees opened 11 restaurants including three international locations. In addition we opened three Company restaurants in partnership with Kwik Trip convenience stores, acquired one franchised restaurant and re-franchised one company restaurant.

Our system restaurant count increased by 10 as four franchise restaurants were closed during the quarter. As a result we ended the quarter with 1,710 total restaurants including 164 Company restaurants. Denny's total operating revenue including company restaurant sales and franchise and licensing revenue decreased by 3.7% to $124 million primarily due to the impact of the additional operating week in 2014. Excluding this impact total operating revenue increased by 5.1% or $6 million.

Domestic system-wide same-store sales increased by 2.9% primarily due to an increase in same-store guest check. The increase in guest check average was driven by both favorable product mix and higher menu pricing. Franchise and licensing revenue decreased by $2.5 million to $34.8 million primarily due to the impact of the additional operating week in 2014 and lower occupancy revenue.

Excluding the additional operating week, franchise and licensing revenue decreased by $100,000 as higher royalties were offset by lower occupancy revenue due to lease terminations. Franchise operating margin of 69.9% of franchise and licensing revenue increased by 2.4 percentage points primarily due to lower franchise, general and administrative expenses. Excluding the additional operating week in 2014, franchise operating margin improved by 4 percentage points or $1.3 million.

Moving to our Company restaurants, sales decreased by 2.4% to $89.2 million due to the impact of the additional operating week in the prior year. Excluding this impact, sales increased by 7.3% or $6.1 million primarily due to growth in same-store sales, the opening of new company restaurants including the full-year impact of the Las Vegas Casino Royale restaurant which reopened in late 2014 and the acquisition of three franchise restaurants.

Company restaurant operating margin of 15.2% of company restaurant sales declined by 0.4 percentage points. Excluding the additional operating week in 2014, company margin improved by 0.5 percentage points or $1.3 million as higher sales and favorable Workers Compensation costs were partially offset by higher incentive compensation and commodity costs. Total general and administrative expenses of $16.8 million improved by $500,000 compared to the prior year quarter primarily due to lower share-based compensation.

Excluding share-based compensation, total general and administrative expenses increased by $1.3 million due to additional payroll and benefits expenses and incentive and deferred compensation. Adjusted EBITDA decreased by $2.6 million to $21.9 million. Excluding the additional operating week in 2014, adjusted EBITDA increased by $1 million or 4.8% compared to the prior year quarter. Free cash flow after capital expenditures, cash taxes and cash interest was $7.1 million compared to $17.5 million in the prior year quarter due to higher capital expenditures.

Capital expenditures of $12 million included the remodel of 14 Company restaurants, the acquisition of one franchise restaurant and the purchase of a parcel of real estate. During the quarter we allocated $66.8 million towards share repurchases including the previously announced $50 million accelerated share repurchase agreement. During the year we allocated $105.8 million towards share repurchases and retired a total of 8.5 million shares. We ended the year with approximately $38 million in remaining share repurchase authorization.

We ended the quarter with $215.7 million of total debt outstanding including $195 million under our revolving credit facility, resulting in a leverage ratio of 2.45 times adjusted EBITDA. Finally, as stated in our earnings release, we expect to liquidate our closed pension plan in the second quarter of 2016. As a result we expect to record a one-time operating loss of approximately $24 million and to make a required contribution of approximately $9.4 million.

Let me take now a few minutes to expand on the business outlook section of our earnings release which excludes any impact from the pension plan liquidation. Our annual guidance for 2016 anticipates growing same-store sales at Company and franchise restaurants while leveraging investments in the brand and our Company restaurants. We anticipate same-store sales growth between 1.5% and 2.5% at Company restaurants and between 1% and 2% at domestic franchise restaurants.

We anticipate that our first quarter same-store sales will benefit by approximately 80 basis points due to holiday mismatches from the timing of New Year's Eve and Easter falling at the end of March. In addition we anticipate that our same-store guest check will be higher in the first half of the year compared to the second half of the year due to rollover pricing and a higher product mix benefit.

We expect to open between 44 and 48 new restaurants including one Company location in partnership with Kwik Trip convenience stores which is scheduled to open this week. We also expect to close approximately 2% of system restaurants leading to net unit growth of five to 10 restaurants.

We anticipate commodity cost inflation this year to be slightly negative. We are currently locked into approximately 60% of our needs for the year. Same-store sales growth along with new Company restaurants and lower commodity costs should drive the Company margin to between 16% and 17% for the year. Likewise, same-store sales growth in new franchise restaurants along with a higher percentage of restaurants contributing at a 4.5% royalty rate should lead to a franchise margin between 68.5% and 69%.

We expect general and administrative expenses to range from $64 million to $67 million which is similar to our 2015 level as a lower incentive compensation accrual will be offset by further investments in our brand support, personnel and systems. Adjusted EBITDA is expected to increase between 4% and 7% excluding the impact of the pension plan liquidation, which will be recorded as an operating loss on our income statement. Adjusted EBITDA growth is expected to be partially offset by higher interest and depreciation expenses.

Our effective income tax rate is expected to be between 33% and 37%, with cash taxes between $3 million and $5 million. Cash capital expenditures are expected to be between $18 million to $20 million as we complete approximately 25 Company remodels, open one new Company restaurant, and scrape and rebuild another. We expect to generate free cash flow between $59 million and $62 million and we will continue to allocate cash towards investments in our brand and Company restaurants, while also returning cash to our shareholders through our ongoing share repurchase program.

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'll go to Mark Smith with Feltl and Company.

Hi, guys. First off I just want to look at the restaurant level margins. What's your outlook for commodity baskets in 2016. And I was surprised we didn't see maybe a little more impact from commodities coming lower here in the quarter.

Hi, Mark. It's Mark Wolfinger. So a little bit on 2016. Our guidance -- so we finished the year -- let me go back to 2015. We finished the year with 16.6% full year margin on the Company restaurants. And again the first half of the year stronger than the second half of the year. And as a reminder, the second half of the year obviously included impact on cost of goods because of egg prices. The current guidance for 2016 for the new fiscal year is between 16% and 17%. And we're expecting that commodities will actually -- we'll actually see a slight deflation effect in commodities.

Again, primarily -- I want to say primarily due to the egg price change. But just as a reminder there, and by the way, we're about 60% locked in on those commodities at this point in time. That's 60%. But as a reminder we will probably see, I would say, a little bit of inflation coming about in the first half of the year and probably the opposite direction in the second half of the year. But overall we're expecting that commodities will be slightly negative or there will be a slight deflation effect in commodities this year.

Should we expect you to stay at roughly the 2% kind of annual pricing?

When will we see it? Is that the question?

You guys have been thinking about a 2% price increase I think (multiple speakers) right now.

Right, so we're carrying some pricing from mid-summer last year. And we're also carrying pricing from January of this year. So I think we're talking about around 2% in total, annualized at this point in time. And maybe a little bit of positive mix benefit. That's how we got to our comp guidance for both the Company side and the franchise side.

And again I think what we are seeing overall as well is the fact that the Company stores are obviously almost fully remodeled so we continue to get that, I would say, positive tailwind from the remodel effect. The franchise base continues to build. But as a percentage of total franchise base, clearly they're not even at 50% yet. The out years, starting this year, 2017 and 2018 as far as fiscal years is when a lot of those franchise remodels will be taking place.

And then looking at the company base of restaurants, it sounds like you've just got the one Kwik Trip expected to do this year and one scrape and build. Is there any reason maybe we don't see any more net unit growth from the company side?

I think on the Company side, it's interesting because the -- obviously the one -- the scrape and rebuild is a replacement of an existing facility. We anticipate it will be a brand new prototype, Company-operated. The Kwik Trip relationship, as we talked about that last fiscal year, and having those four opportunities on the Company side, we're certainly excited about that new relationship and as a reminder the first three opened in Wisconsin. The fourth is scheduled to open I think this week in Iowa. And those investments were sort of in that $600,000 to $700,000 range. So for a new store opening obviously that's on the lower end.

Pretty similar to what the Flying J capital costs were. On the Company side, the other thing that we have done that John and I both mentioned in our comments, is that we continue to look at on the acquisition of franchise restaurants, we've done a few of those. Those have to fit strategically and geographically to where we have an existing company base and we have got that kind of span and control. But I think back to the base of your question, again a majority of the new store development is going to obviously be on the franchise side of the business.

Great. Thank you.

Thank you. Our next question will come from Nick Setyan with Wedbush Securities.

Thanks, guys. Can you maybe talk about what your thinking is on the labor line? Because if we are going to see slight deflation there for the year, maybe try to quantify the labor, just to kind of get to those margins. And then could you just also specify what the price versus mix was in Q4? And I guess you said we expect 2% going forward. Is that correct? In terms of menu price increases?

Okay, so let me separate your questions in there, Nick, if I can. I think the first question was on labor costs? And obviously pointed specifically towards our company portfolio. Out your way, obviously we have had the minimum wage change in the state of California in January of 2016, going from $9 to $10 an hour. And approximately -- I want to say a little bit less than 40% of our company store base -- that's 4O%, just slightly under that is in California. So clearly we're going to see wage inflation in the state of California in our company base.

We're also seeing other minimum wage changes but ultimately we're going to see probably a little bit of pressure on the labor side of our business, primarily led by the California minimum wage change. And it obviously can flow back in a positive direction obviously as wages increase. That provides more spending in people's pockets. We're certainly hoping for that as well. Can you come back to me and mention your second and third question?

Sure. So just on the menu and mix in Q4 and what are your thoughts on I guess menu. you said menu price, we expect about 2% in Q1 and then going forward for the full year we should think about 2% type of a run-rate (multiple speakers)?

Right. We are saying overall you're probably going to have about 2%, I would say 2% GCA pricing excluding any favorable mix. In the fourth quarter, you've got a GCA increase at Company restaurants which includes about 2.1% of pricing. And we've got about 200 basis points of benefit from product mix in the quarter as well.

Got it. Thank you.

Thank you. We'll go to Michael Gallo with CL King & Associates.

Good afternoon. And again congratulations on a good year. I have a couple of questions, if I may. First I was wondering if you can give us any color as to what you saw in day part outside of breakfast in the fourth quarter, whether you saw any change of kinds of items people are ordering, or whether the remodels just kind of overcoming some of the general, I would say, category malaise and discounting? And then also if you could update us on what you're seeing in terms of 2-4-6-8 mix, I know you saw incidence of that go down as we went through 2015. I was wondering if you think it would be stable in that range in 2016 or whether you would expect 2-4-6-8 to mix a little bit higher this year? Thanks.

Yes, this is John. Great questions. I'll start with the mix. Last year you had about a 400 basis point mix change overall for 2015 that started in late 2014 which created a really good set-up for the year. And so it resulted in full year of about a little over mid-range 5%, 5.4% total guest check average change for the year. So it was fairly significant. About 2.5% pricing, 400 basis points from 2-4-6-8 mix. Strong premium LTO offers.

So overall, a strong check-building year. We finished the year about $9.70 or somewhere in that range total check for the year. So day part, it moves around a little bit basically with remodels you see a little bit of a different thing going on at the company stores. We're now calling it 80% remodeled by the end of the year. And you're getting nice traffic lift primarily at dinner from those remodels. But on the full brand performance, fourth quarter is kind of the story of the year.

Our strongest performing day part was breakfast followed by lunch and the softest day part overall is late night at the present time. We like the fact that we have a 2-4-6-8 Value Menu that we can lever when we need it. Because we finished a strong one-year and two-year traffic trend in the brand with a little deceleration in the fourth quarter, again going over the big mix change from fourth quarter 2014, we sort of kicked off this year with our skillet promotion.

And as I mentioned in my comments, a little less emphasis on 2-4-6-8 Value Menu in the early part of the year, and then in spite of that, this is kind of value season so you're starting to see customers automatically sort of come back to that value menu post holiday. But that's with a skillet promotion. But customers with a high awareness, sort of chasing the value menu. So it looks like the levers we have to pull are working. We don't want to drive check too hard at the moment. Again, we have the higher price going into the first half of the year.

We think 2% is about right for the full year. And as Mark mentioned a little while ago, our guidance for 2016 is about 2%. A little higher pricing front half of the year. But the mix story for 2016, I think this is the final part of your question, what happens to 2-4-6-8, we think it's going to be a little more flattish and stable, in that 15% to 16% range. But we still expect mixed benefit for 2016 just through premium LTOs, call it. Maybe 50 basis points of mix from LTOs on the full year.

Great. And then just a follow-up question for Mark. I was wondering, how much of the cash CapEx this year do you expect related to the remodels? And can we assume that that CapEx as you complete the company store remodels just kind of rolls off as we get to 2017? Or is it too early to make that conclusion?

Well, it's -- we usually speak to guidance for 2016 so I won't say it's too early. But specifically to your question for 2016, I think we built kind of around 25 remodels to pretty much wrap up the company base, Mike. We've got a few company stores that we want to make sure we understand the property control challenges there. But let's call it around 25 remodels to wrap that up. Those stores have been running mid-two's, $250,000, $260,000, $275,000 per.

So call it $6 million to $7 million range maybe for CapEx on those remodels. And then clearly that number has dropped off each of the last few years. Obviously this number is lower than the previous year. On 2017 we really haven't spoken to that. The only thing I can say to that is obviously as we wrap up Heritage and we bring that to a conclusion we'll continue to test the next remodel phase. But albeit it from a company store base standpoint, our remodels will be virtually complete by the end of 2016.

Any sense of whether it's just a tail on the overall maintenance CapEx, then, as you'll have obviously just remodeled the whole system over the last few years?

Well, that's a really good point. And I think as we look at it still, we continue to sort of model internally and we've talked about this external number. Maintenance capital tends to run call it $25,000 to $30,000 per unit excluding a pro-rata approach on remodels. Clearly our CapEx is down significantly in 2016 as far as guidance versus what 2015 was. And one of those pieces that tends to float in and out is whether we go out and acquire a parcel of real estate or we acquire a franchise store.

That still is out there and obviously that needs to make sense for us. But ultimately as we go through and remodel these company stores we are doing the front of the house. We're completely remodeling the rest rooms. So really down to the studs, redoing the rest rooms. And in some cases obviously going into the back of the house as well. So we're making sure that these facilities really do look great by the time we're done.

Thank you.

Thank you. (Operator Instructions). We'll go to Alton Stump with Longbow Research.

Thank you. Good afternoon. Sorry if I missed this, I was actually a few minutes late to the call this afternoon but I'm sure buyback for now, obviously you guys stepped up your buyback pretty meaningfully in 2015 versus prior years. Maybe color guidance you could give me as to how you expect that to trend, let's say in 2016 and 2017 versus what you bought back last year?

Alton this is Mark. I tell you, we obviously -- that number that sort of sticks out big time for this year is almost $106 million of buyback in the current year 2015. Again, that ASR agreement is not finalized. We anticipate that that will finalize I'll say towards mid-year time frame. Beyond that, I think as both John and I said in our comments, we are certainly committed from the standpoint of use of free cash flow.

In addition to investing in our brand and our company stores as well as we are certainly continuing to be committed to share buyback and returning value statement. So we haven't given specific information about the second half of the year beyond the ASR but we'll certainly give more light to that as we go through the first and second quarter.

Thanks, Mark. And then I guess just more from a fundamental standpoint. Obviously you guys have made a lot of great changes to your menu, updated a lot of new products over the last four or five years. Any color insight as to what major categories -- I'm sure you don't want to tell us what is coming -- but as to what major categories that you may be looking at for product innovation over the next, say, six to 12 months?

I think it's fairly boring to talk about, but exciting from an internal perspective. When you go to the product cuttings you see people excited about taking same or like products and upgrading them. But to an external message it sounds rather plain. It's really more of the same. We look at breakfast, lunch, dinner and late night appeal. Then we look at seniors, juniors, kids appeal.

Then we look at beverage appeal and we make quarterly adjustments to each that's founded by fairly extensive consumer intercept research and competitive comparison data. So we continue to strengthen our overall taste quality and overall satisfaction scores for speed, variety, breadth, anti-veto votes, taste and preference, all of the above brand management tools we can deploy and we are really excited about our lineup for 2016.

Got it. Thanks, John.

Thank you. We'll go to Will Slabaugh with Stephens.

Hey, thanks, guys. It's actually Billy on for Will. John, you had mentioned earlier that in the fourth quarter the breakfast day part was actually the strongest day part. And I was just wondering. Could you remind us what the breakfast food mix is? And by that I mean not necessarily breakfast food consumed in the morning hours but in total and whether or not you've seen any significant change over the last couple of years. Maybe more specifically over the last few months or so as we've seen one of the major quick service players shed a lot of light on all-day breakfast offerings.

Yes, we like the advertising. Breakfast is about the day part, which is not your question, about 25% of the sales, 24% of the sales. But breakfast items as they mix all day are sort of in the mid-50s%. So at breakfast it might be 82% or 85% or any given day of what we sell. And dinner items may be lower than the breakfast day part. But all day long it's a little over 50% of our sales. So it's a significant part of our business.

On the other hand, call it 45% or higher of our customers come in at all day parts and don't want breakfast items. So we have to be good at both. That's why we really like the America's Diner positioning and the ability to give credibility to the uses of our brand beyond breakfast. And the two are dancing together really well, with the additions of whole grain rice, 7-grain bread, fresh vegetables, salmon, additional steaks, diner items like pot roasts and other items that are in test. So they are playing a role.

So while they don't move the mix from breakfast, they improve the overall appeal of the brand by having more credibility for non-breakfast items. This was noticeably absent a few years ago where we would come for breakfast and then stomach the rest of your menu and now people are saying you're really good all the way around. So that's really the change. So I wouldn't expect nor would we want to see the breakfast mix percent change. But rather, a satisfied customer for all menu items.

Right. Thank you. That's helpful. And just real quick if I could. With regards to the comp in the fourth quarter, would you be willing to give any insight into the cadence of how that progressed throughout the quarter, and maybe along with that whether or not there were any notable geographical call-outs in your opinion?

Yes, the geography is really more notable than the cadence. October was the softest of the three. But November, December played out pretty level. They weren't materially different. So it was the normal retail pattern of ascending towards the holidays. So nothing surprising there. The geography, you really had California, Hawaii, Washington, Oregon, where people felt a little more prosperous, I think. There's higher job growth. Maybe a little bit more growth in disposable income over the last 15, 18 months.

And little to no threat of sort of near term decline and it's softer where people don't feel as prosperous in the Midwest and parts of the East Coast and parts of New England. So there was -- and then parts of Texas, the small markets in Texas in particular had some material declines in traffic. So overall, Texas was still a positive state for us. We have quite a number of restaurants there. But it was about 250 basis points behind the brand average. So still positive but softer as a result of the economy there.

Great. Thank you. That's very helpful. And congrats on a good year.

Thank you. And with no additional questions I would like to go ahead and turn the floor back over to management for any additional or closing remarks.

Thank you, Katherine. I would like to thank everyone for joining us on today's call. We look forward to our next earnings conference call in early May to discuss our first quarter 2016 results. Thank you and have a great evening.

Thank you. And again, ladies and gentlemen, that does conclude today's conference. Thank you all again for your participation.