Denny's Corp (DENN) 2016 Q1 法說會逐字稿

Good day and welcome to the Denny's Corporation first-quarter 2016 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Whit Kincaid, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Camille. Good afternoon. Thank you for joining us for Denny's first-quarter 2016 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.denny's.com to find our first-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 first-quarter results along with brief commentary on our annual guidance for 2016. After that we will 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 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 most recent annual report on Form 10-K for the year ended December 30, 2015 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. We are pleased to start off this year with another quarter of same-store sales growth as our domestic system-side same-store sales increased 2.5%. When you take into account we were lapping one of our strongest quarters, our two-year same-store sales growth was 9.7%. Our revenue growth, coupled with a disciplined focus on cost, resulted in margin improvement and led to approximately 20% growth in adjusted EBITDA and 21% growth in adjusted net income per share.

Our consistent performance reflects the momentum generated by the brand revitalization initiatives launched in 2011. Our vision is to become the worlds largest most admired and beloved family of local restaurants serving classic American comfort food at a good price around the clock. With less than 40% of our system currently reflecting our successful Heritage remodeling program, we are still in the early stages of our brand revitalization.

We remain focused on executing against four key strategic years to drive our future success. The first is to deliver a differentiated and relevant brand, achieving consistent same-store sales growth supported by profitable gains in guest traffic. Delivering same-store sales growth in 19 of the last 20 quarters is evidence that our initiatives to enhance our food service and atmosphere are working. Our consistent strong performance against other full-service and family dining bench marks also demonstrates the success of current strategies.

We will continue to optimize our menus to match our guests' needs by responding to their desire for better quality and more craveable products. Our latest limited-time-only menu called Red, White and Bacon features six breakfast, lunch and dinner entrees. We are adding variety to our side items with our new Bacon Cheddar Tots, and of course we had to bring back the Maple Bacon Sundae.

We have an exclusive partnership with 20th Century Fox to promote the upcoming Independence Day Resurgence movie which would hit the theaters on June 24. We will continue to derive food innovation and enhance our product quality while improving speed and consistency with an eye towards even bolder and more flavorful product enhancements, as we work to update our core menu. Our product enhancements will be supported by strong brand engagement initiatives and improving guest experience and enhanced atmosphere.

Our Heritage program continues to perform well. Each quarter takes us closer to our goal, as 57 remodels were completed in the first quarter, bringing the Heritage image to approximately 36% of the system. This year over 200 remodels will be completed, including 28 Company restaurants. As reminder, 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 a new image by the end 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. With each and every quarter we are getting better at delivering higher-quality products with more consistent service standards. Our new field training and coaching initiatives are critical to delivering our mission and to be a model franchisor, which includes assessment and coaching to run great restaurants. We have completed over 3,600 pride reviews and are observing steady improvement in the scores. Although we continue to be encouraged by our improvement, we recognize the need to continue to invest in strategies to further elevate the Denny's experience.

In addition to enhancing our training efforts, we are working to improve our speed of service, especially during our peak periods. All of our Company restaurants now have kitchen video systems to improve back of the house efficiencies. We have seen improvement in table turn times which are key during the busy holiday and weekend periods. With less than 25% of franchise restaurants utilizing this technology, we are working to build the investment case for our franchisees. In summary, we believe our investments in training, talent and systems to support our strategies will derive future sales growth over the coming years.

Our third key strategic area is to grow the global franchise, expanding Denny's geographic reach of domestic and international locations. We opened 12 restaurants during the quarter, including our fourth new Company restaurant in partnership with Kwik Trip convenience stores. We continue to gain momentum with our international development as we followed a successful year with six openings in the first quarter. The locations included our first in Trinidad, one in Mexico and Honduras and three in Canada. With a pipeline of approximately 90 new international restaurants, we look forward to gaining further momentum outside of North America. Our strong performance continues to drive interest in the brand, attracting new franchisees, building the real estate pipeline and adding new development commitments.

Our fourth strategic area is to drive profitable growth for all stakeholders with the goal of growing margins and profits. Supporting these efforts is a disciplined focus on cost and capital allocation, benefiting franchisees, employees and shareholders. Our first-quarter results demonstrate our ability to increase margins and grow key profitability metrics as we coupled revenue growth with a disciplined focus on cost. We generated $14.4 million of free cash flow in the quarter after interest, taxes and capital expenditures. We will drive consistent profit growth by continuing to expand our highly franchised business which provides a lower-risk profile with upside from operating a meaningful base of high-volume Company restaurants. Most importantly, we have significant flexibility to support investments in the brand and our Company restaurants while returning value to our shareholders.

In closing, we remain focused on our brand transformation and building a sustainable foundation to grow around the world. 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 on-going share repurchase program. With that I'll turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer. Mark?

Thank you, John, and good afternoon, everyone. Our first-quarter highlights include growing domestic system-wide same-store sales by 2.5%, adjusted EBITDA by 19.7% and adjusted net income per share by 21%, while generating $14.4 million of free cash flow.

During the quarter franchisees opened 11 restaurants, including 6 international locations. In addition, we opened one Company restaurant in partnership with Kwik Trip convenience stores, acquired one franchised restaurant and refranchised four Company restaurants.

Our system restaurant count increased by 3 to 1,713 restaurants as 9 franchise restaurants were closed during the quarter. Denny's total operating revenue, which includes Company restaurant sales and franchise and licensing revenue, increased by 3.7% to $124.6 million, primarily due to higher Company restaurant sales.

Our domestic system-wide same-store sales increase of 2.5% was primarily due to an increase in same-store guest checks. The increase in guest check average was driven by both favorable product mix and higher menu pricing. Franchise operating margin of [70.8%] increased by 290 basis points, primarily due to $1 million in additional royalty revenue resulting from a 2.3% increase in same-store sales at domestic restaurants, a higher average royalty rate and an increase in the number of franchise restaurants over the past 12 months.

Moving to our Company restaurants, sales increased by 5.1% to $90.4 million due to growth in same-store sales of 3.5% and an increase in Company restaurants over the past 12 months. Company restaurant operating margin of 18.0% improved by 90 basis points, primarily due to higher sales, lower workers compensation costs and lower incentive compensation, partially offset by higher wage rates and group insurance expense. Total general and administrative expenses of $16.9 million were flat compared to the prior-year quarter as lower incentive and deferred compensation costs offset higher share-based compensation and payroll and benefits expenses.

Adjusted EBITDA increased by $3.7 million, or 19.7%, to $22.5 million. Depreciation and amortization expense of $5.5 million increased by $500,000, primarily due to higher capital spending for remodels and new Company restaurants. Interest expense increased by $700,000 to $2.8 million due to additional outstanding debt.

The provision for income taxes was $5.5 million, reflecting an effective tax rate of 35.5%. Due to the use of net operating loss and tax credit carry-forwards, the Company paid approximately $300,000 in cash taxes during the quarter.

Adjusted net income per share, which excludes gains on the sale of assets, grew 21% to $0.12 per share. Free cash flow after capital expenditures, cash taxes and cash interest was $14.4 million compared to $13.2 million in the prior-year quarter. Higher adjusted EBITDA was partially offset by higher capital expenditures and cash interest.

Capital expenditures of $5.3 million included the remodel of five Company restaurants and the acquisition of one franchise restaurant. During the quarter we allocated $3.9 million towards share repurchases, excluding the previously-announced $50 million accelerated share repurchase agreement. We ended the quarter with approximately $34 million in remaining share repurchase authorization. We expect the accelerated share repurchase program to be completed and to receive the remaining shares no later than July.

We ended the quarter with $221.5 million of total debt outstanding, including $201 million under our revolving credit facility, resulting in a leverage ratio of 2.4 times. In April, following the quarter close, we liquidated our pension plan which was closed two new participants at the end of 1999. We made a required contribution of $9.5 million and expect to report an operating loss of approximately $24 million during the second quarter.

Let me now take a few minutes to expand on the business outlook section of our earnings release which excludes any impact on the pension plan liquidation. Based on our first-quarter results and management's current expectations for the remainder of the year, we are raising certain annual guidance parameters as follows: We expect total operating revenue of $500 million to $505 million including franchise and licensing revenue of $139 million to $140 million.

Due in part to more favorable commodities costs, we anticipate our Company margin will range from 16.5% to 17.5%. Our franchise margin is anticipated to be between 68.5% and 69%. Adjusted EBITDA is now estimated to be between $94 million and $96 million, excluding the impact of the pension plan liquidation, while free cash flow is anticipated to be $60 million to $62 million.

Cash capital expenditures have been increased to between $19 million and $21 million, primarily due to the acquisition of one franchise restaurant. 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'll now turn the call over to the operator to begin the Q&A portion of the call.

(Operator Instructions)

Will Slabaugh, Stephens, Inc.

I wonder if you could talk a little bit more about the sales trends you saw during the quarter. We've heard a lot of your peers reference softness toward the end of the period and generally increased volatility. I'm curious if you saw any of that and if you felt like you did what you needed to do in terms of making any changes in the period, or if you're simply just pleased with how your everyday value in the menu performed in the current environment.

Will, this is John, great questions. The softest was the middle of the quarter. Remember, January benefited from the New Year's flip and then the last month of the quarter benefited from the Easter flip. So that would have made February the softest of the three. It would have been not a deceleration but maybe an artificial buoyancy because of the Easter flip. But all in all, I'd say a pretty good quarter on a relative basis.

There have been questions about weather because of our overweight southwest and western exposure, I'd say that weather was some. There's also stores that benefited from weather, so you can pretty much dial that out of the recap of the quarter as well.

We did see a little bit of a tick-up in our $2 $4 $6 $8 Value Menu during the quarter. There was a lot of dealing going on with QSR sandwich and the like. We finished 15%, somewhere in that 16% incidence range, down from 19% Q1 of the year before in 2014. Then we started out Q1 of 2016 strategically getting behind our $8 Slugger breakfast which includes a beverage but it moves a few people off the $2 $4 $6 $8 items. But it raised the incidence rate up to about 17% on the value menu.

It does seem there is more noise on value than anything else in the quarter. I think all in all, we came in about where we would have guided. I will leave you to the follow-up question if that didn't answer your full question.

That's great, I appreciate it. One more thing I was curious about on sales. I didn't know if you wanted to speak to how things played out geographically. I assume California remains strong and the Texas weakness commentary probably continues, but I just wanted to verify that.

That's correct. California was one of the best states, 14 consecutive positive quarters in traffic out there. But it was a little bit more choppy across the country.

Our 10 most populated states were some of the best-performing states overall, so our geographical footprint certainly does favor us. About a quarter of our restaurants are in California.

System, California, Nevada, Indiana were some of the best traffic states. Then for Company, New York, Virginia, Hawaii, Florida, California also performed well.

Then the Texas story is one of -- it depends on how you read it. We remained positive there during the quarter but about 200 basis points behind the rest of the system. It did improve Q4 to Q1 in traffic trends, but negative in the State of Texas.

We're having high single-digit to low double-digit declines in some of the outer markets. And then the big cities, that represent about two-thirds of our total Texas footprint, Houston with 61 stores, Dallas with 51 and San Antonio with 18, they tended to fare much better.

Texas represents about 11% of our total system, Will, but it was still positive. But even with a soft Texas we had, I'd say, a fairly good quarter. We are bullish on the state long-term but as the oil economy transforms itself over time to be less and less oil dependent. But for now you still feel it when there is an oil recession.

Understood. Thanks and congrats on the quarter.

Thank you.

Michael Gallo, CL King.

Hi, good afternoon and, again, congratulations on another good quarter. My question, John, is on the labor line. You were able to actually bring labor payroll and benefits down by 50 basis points year over year. That was despite having the $1 increase in minimum wage in the state of California.

I was wondering if you can speak to whether that was a function of some of those initiatives or other initiatives on labor. Because that was, I thought, quite a strong performance given what we've seen from peers and others. Thanks.

Mike, it's Mark Wolfinger, how are you? I thought I'd take the labor question from you. We were down about 50 basis points year over year when you look at the line item in labor. That was really a combination of sales leverage, so certainly the comp sales that we saw on the Company side, the 3.5% that we mentioned. We also got a benefit from workers comp.

Actually we've continued to see, I would say, some pretty decent benefits over the last 12 months on workers comp, part of the programs that we put in place at the store level. Additionally some of our field bonus accruals are down as well.

Really all of those items fed through that and fortunately, as really what your question points out, Mike, fortunately offset wage inflation. Obviously we are seeing it around the country, certainly specifically in California with the latest minimum wage increase. Really a combination of all those events went through the labor line.

Okay, great. And then a follow-up on kitchen display. I think you talked about it in the Company stores. I was wondering, as franchisees roll that out, whether that may ultimately become part of the remodel package. Or how you plan to move that more aggressively into franchise stores, as obviously it seems you're getting a pretty big benefit of it. Thanks.

That's right, we are. For our franchise community there's three different ways to look at it. One is whenever there's new store development it's a little bit easier install and a little more economical. When you come in post, it creates a little bit of a headwind with the higher average unit volumes at the Company stores. It is easier for us to tackle this and then commit to it and move through our entire Company system.

Now I think what you'll see is the higher volume franchisees benefit and/or the whole system benefiting from the learning even without the install. So there are some benefits that we can extrapolate even without the installation of equipment at every single Denny's unit. It is proving to be a benefit to the system regardless of those categories that you fall in.

Thank you.

Alton Stump, Longbow Research.

Good afternoon and great job from me as well on the quarter. Two quick questions. First off, and I think you touched on this in some of the comments earlier, John, with the whole volume message, obviously a lot of your peers, particularly in the casual space, have not done as well recently as you guys have, and are probably going to focus more on value in coming quarters. Is there any plans, as with the $2 $4 $6 $8 Menu and/or otherwise to push value more aggressively at Denny's over the next three to six months here?

That's a great question. Our $2 $4 $6 $8 Value Menu of course is ever present. We spent a lot of time, starting in the fourth quarter of 2014, to re-engineer that which propelled a fairly substantial guest check average increase throughout most of 2015. We will be lapping those throughout Q2, Q3 and the balance of this year and then we have a little more favorable comparisons toward the end of the year.

For us, having a high awareness of that and one in five consumers using it, roughly, I think we've learned how to, within each module with each quarter's strategy to have prepared -- we are always prepared to push that lever if we need it. But we seem to be getting our initiatives lined up for 2016, tend to be a little bit more investments in quality. You might have heard us share in recent quarterly discussions about how over half of the menu has been touched or changed in one form or another over just the last few years. We are pleased with the consumers response to that.

You might also take note of the fact that throughout all of last year, while we were growing traffic and with a fairly substantial growth in check, the mix was trading toward more of the premium offers available in the menu. And in $2 $4 $6 $8 was actually going down a little bit.

We think it's always important to have a value strategy but value as defined by cleanliness or better environments or better investments in taste or ethnic foods or different kinds of directions that are available to the Denny's brand now as we continue to build credibility throughout the entire menu.

That's very helpful, thanks, John for that. Secondly -- and if I missed this, I apologize -- did you break out the Company upfront ticket versus traffic? And also if you guys included leap day, if that was any benefit in the quarter?

I have to think about how to answer that. Are you talking about total pricing traffic or -- you really just asking a traffic question from Q1?

Right, yes. If traffic was high enough in that 3.5 (multiple speakers)

The Company traffic was positive slightly, about 0.3% which represents a two-year increase of better than 2% overall. The guest check grew about 3.2%, franchise about 3.5%. We had a little positive mix benefit in Q1 and I would guide for the full year roughly flat and no problem mix benefit, as we're lapping some big mix changes from 2015.

Makes sense. And then any benefit from lead day on the comp front?

I don't think so, no.

Okay, great, thank you.

(Operator Instructions)

Tony Brenner, ROTH Capital Partners.

Thank you very much. I'd like to get back to the labor issue for a moment, if I could. A large portion of your Company stores are in California and over the next five years, wages in California are mandated to increase by 50%. I wonder if you could talk about how you plan to offset that cost?

Tony, this is John. That is well-stated, your question. We currently have 400 restaurants there, 59 Company stores, nearly a quarter of the system. It is one of eight non-tip wage states first to pass the $15 minimum wage. That minimum wage goes to $15 by 2022.

For all of those that have not paid close attention to this, the first $1 took place in 2014 when it went from $8 to $9 -- or January 2015 -- so this year it goes up another $1. The next increment goes from $10 to $10.50 in 2017 then $11 in 2018 and then $1 increase a year, all the way to 2022 which gets you to $15.

It does create a headwind in percent margin, there's no question about that. You will see both an exuberant consumer that eats out at Denny's, we believe, based on what's happened so far. We believe it is one of those states that has more tolerance for the wage inflation than the average of the whole country, but it does create a headwind.

If you look at where we were first quarter of this year, it's about a little greater than 2% wage growth for the Company restaurants, and for the full Company fleet, about 50 to 70 basis points inside the quarter. It creates a little headwind but it creates a benefit to sales and then you are usually able to price around it through time. It's going to be interesting to watch. I think a lot of other states will be paying close attention.

With our modest check, we believe we have the room for guest check expansion, that people will not convert all meals to a drive-through because of wage inflation associated with full-service restaurants. We do think it stresses the percent margin but on the pennies per guest, we think we can hold the line fairly consistently through the course of time.

Are you doing anything in other areas, such as the kitchen for example, to reduce labor?

Sure, I wouldn't say to reduce -- I think what happens is you want to build profitable transactions. We think we have a lot of room to continue to build momentum. A lot of people are talking about how you run the line with fewer people or robots or manufactured food, that is QSR efficiency. This is full-service cooked to order. There are some efficiencies, there are some pieces of equipment that are being investigated.

There is also front of the house devices, tabletop devices that help with payment and self ordering for desserts and beverages and some simple menu operations, full self-service, which sort of nullifies the server to some degree. But then all you've done is replicate a counter-service restaurant at each table. We're going to be careful to commit to how this might evolve, read the customer very carefully and run as tight a shop as we can. Tony, we believe we're going to be just fine.

Thank you.

Nick Setyan, Wedbush Securities.

Thank you and congrats on another great quarter, guys. To me, the labor was as big of a positive surprise as the commodities. Going forward on both lines, how should we think about it? Are there any moving parts, especially with the workers comp and health care? Are there any kind bulkier quarters perhaps we should watch out for?

And then on the commodity side, what do you guys now think commodity inflation is going to be for the year? Is there any marketing modules where the mix should be a bit more beneficial versus some other lines in terms of quarter to quarter? How should we think of both of those lines going forward?

Hi, Nick, it is Mark, how are you?

Good.

First on the commodity side, you are right, I think when we did our year-end call in mid-February we talked about flat to slightly negative inflation that we thought we'd have in 2016. We've continue to see improvement from the standpoint of more of a deflationary environment. We're thinking right now for the full-year that commodity deflation, annual deflation, will probably be somewhere between 2% and 3%.

We look at that as it is today, we are probably about 70% committed for the year, for 2016. Obviously what we're seeing here is significant deflation in the areas of both beef and eggs because when you look at it, it's really beef, pork and eggs that are, call it, nearly 40% of our basket. But that deflationary environment is really being led by both beef and eggs.

In the first quarter you didn't see that kind of deflationary impact yet. Really if you think about the issue with egg inflation -- egg price inflation last year, it really started towards late spring last year, early summer. So that deflationary impact overall is going to come into play, we think, towards -- I will say the back half of the year. Certainly the final two quarters, if not this quarter coming up. Again, overall deflation in that 2% to 3% range right now for commodities.

On the labor side we've continued to see, as I've mentioned, we've seen significant benefits rolling through workers comp over the last 12 months. We continue to put a lot of, I would say, the right focus on the right kind of programs inside the four walls. At this point in time we think that piece for us is something that at least the pattern is, and the first quarter was, it was certainly a benefit to the P&L.

On the labor side, John talked about cost of labor and wage inflation. We have almost 60 of our 160 some-odd Company restaurants in the state of California. Obviously minimum-wage just went up by a $1 an hour there. So we are feeling that reverse inflation in labor. And then the other side is obviously sales leverage.

It gives you the general rule with how we're looking at it. I think the other piece obviously is in our latest guidance element for Company margins. We tweaked those Company margins up slightly, I think it was 50 basis points versus what our original annual guidance was in February. Again, a strong reflection, obviously, of what's going on in the commodity basket for us, in our food basket.

Great. I didn't catch whether you broke out the mix versus menu price for Company-owned.

Price is, call it, a little over 2% Company, franchise just slightly higher, around 2%, 3%, so system just a little north of 2%. Mix about 1% or slightly above 1% positive benefit Q1 and full-year guidance, pretty flat.

And that mix to me is also pretty surprising, given the fact that it was such a huge contributor last year. Going forward, is that going to continue to be that kind of a benefit? Or should we start seeing that wane a little bit as the year progresses?

No, I think full-year guidance of flat would be waning as the year progresses. Because we are lapping such a big mix benefit from last year, we would caution the -- this is really going to be more of a comp from pricing story this year. The first quarter, however, still had some carry-over benefit from that mix and we had $2 $4 $6 $8 pop up, but on the $8 side with a strong value promotion for the $8 into the menu.

Then in a value season Q1, some of our $2 strategies on the $2 $4 $6 $8 menu became add-ons more than orders by themselves. So there is a little bit of a benefit to the quarter. But full-year, again, I think your instincts are right.

Okay, lastly, are the remodels still driving a bigger comp during your dinner day-parts?

They are. Dinner is still benefiting the most. System-wide, our initiatives seem to be driving breakfast as the strongest day-part right now. We might be benefiting from a 14,000-unit chain talking about it quite a bit. But breakfast has been strong for us, followed closely by lunch. And then in the remodeled stores we are getting a nice dinner trial and retention from that effort.

Perfect, thank you.

(Operator Instructions)

Mark Smith, Feltl and Company.

Good afternoon, guys. Can you guys walk us through your thoughts on acquiring franchisees, what type of return thresholds you look for on that and how many opportunities there you look for in the next 12 to 24 months?

Hi, Mark, it's Mark Wolfinger. I'll answer the last part of your question first as far as how many opportunities. Obviously, as the franchisor, we have the right of first refusal on every franchise to franchise transaction. These occur relatively frequently. We take a hard look at each transaction and decide.

Our parameters obviously are not just financially driven, but certainly from a multiple standpoint it has to make sense. But also for us it's very important that location or locations be in a market where we already have significant field management presence to be able to operate those restaurants.

And we tend to focus on, I would say, stronger trade areas. If you recall, that's really what our Company base is made up of. That's why there's a significant difference in average unit volume between the franchise and the Company base. So that criteria also has to fit for us.

We view it as a good use of our cash. We did one acquisition in the first quarter that I think I mentioned in my comments up front. And we continue to see opportunities out there that, again, with the right parameters we believe that's a good way to grow earnings and make investments in the brand. Does that hopefully answer your question?

Yes, it does. One more thing on there. Will you be looking at ones that most likely have not been remodeled and being able to do that remodeling and get that sales bump? Or will you be looking for cleaner units?

I would say, Mark, we have actually done both historically. Again, we obviously factor if the store has a remodel that's coming up relatively soon, say in the next 12 to 18 months, we obviously factor that capital cost into the overall equation. At the same time, we have also purchased stores that have been recently remodeled.

Again, the numbers have to make sense to us but we will go in either direction there. A large part of the proposition is to make sure geographically it fits into where we have Company operation structure already.

Then looking at travel center locations, I know it's early, but can you give us any update on how the Kwik Trip ones went? We were able to visit a few of those, impressed with those, during the quarter. Any update there would be great. And then maybe potential future opportunities you have in any of the companies that you have dealt with in travel centers?

Sure Mark. On the Kwik Trip piece, we did three of those conversions in Wisconsin in FY15, in the latter part of 2015. Then we did one here most recently in the first quarter which was in Iowa. The four conversions we've done. I think as we mentioned in the past, those capital costs were $500,000 to $600,000 range. Not that different, actually, very similar to what a Flying J conversion was when we did the Flying J program back in 2010 and 2011.

I think early results, I think certainly we were pretty satisfied with them. We have seen a range of volumes but I would say in general we're getting a pretty good return on capital given the investment there.

We know that there is a ramp-up time involved so clearly the fact that we had four new store openings, there's a normal ramp-up time. I think out of the gate we are reasonably satisfied at this point in time.

As far as the partnership, we continue certainly to work positively along those lines with Kwik Trip. Without knowing what those long-term opportunities might be, that partnership could very well result in future openings. But at this point, don't have anything that we can quantify.

Excellent, thank you.

That does conclude our question-and-answer session. I would like to turn the call over to Whit Kincaid for closing remarks.

Thank you, Camille. I'd like to thank everyone for joining us on today's call. We look forward to our next earnings call in early August to discuss our second-quarter results. Thank you and have a great evening.

Once again, that does conclude our call. We appreciate your participation.