Good Times Restaurants Inc (GTIM) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Good Times Restaurants Inc. Fiscal 2017 Fourth Quarter Earnings Call.

By now, everyone should have access to the company's fourth quarter earnings release. If not, it can be found at www.goodtimesburgers.com in the Investors section.

As a reminder, a part of today's discussion will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are not guarantees of future performance and, therefore, you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and, therefore, investors should not place undue reliance on them, and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

The company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

Lastly, during today's call, the company will discuss non-GAAP measures, which they believe can be useful in evaluating our performance. The presentation of the additional information should not be considered in isolation or as a substitute for the results prepared in accordance with the GAAP and reconciliation to comparable GAAP measures available in our earnings release. Please note that this event is being recorded.

And I would now like to turn the call over to Boyd Hoback. Please go ahead, sir.

Thank you, William, and thanks again, everyone, for joining us this afternoon. With me today is Ryan Zink, our Chief Financial Officer. I'll cover a summary of our fourth quarter and our current developments, and Ryan will provide more details on our financial results for the quarter and the fiscal year as well as some additional color on our guidance for fiscal 2018.

We're again generally pleased with our results for the fourth quarter, particularly with our continued outpacing of our industry segments and our top line sales trends at both brands. However, we again faced continued cost of sales increases due to escalation in all of our protein costs, particularly impacting our fourth quarter operating margins. Ryan will give a little more detail in what we're expecting for fiscal 2018, but we have seen some moderation in beef and bacon costs in our first quarter 2018.

We took small increases of both brands on August -- price increases on August 1 and -- which partially offset some of the cost of sales increases in the quarter, and we plan to take another small price increase on January 1 at both brands.

Due to the disproportionate increase in labor costs in Colorado, we anticipate that our pricing in Colorado during fiscal 2018, and potentially beyond, will be more aggressive and elsewhere for our Bad Daddy's brand with our primary goal of maintaining our guest traffic.

Our total revenues increased 31% to $22,584,000 during the quarter with comp sales increasing 1.4% at Bad Daddy's, and that's 1.9% when you factor out the Cherry Creek location, they increased 33.9% at Good Times. The sales at Good Times marks the fifth straight quarter of sequential improvement in comp sales and they were slightly better than the guidance given last quarter, plus 3% for the quarter.

Sales for Bad Daddy's for the quarter increased 47% versus last year to a little over $14 million and our restaurant-level operating profit, which is one of the non-GAAP measures, increased to approximately $2.1 million or 14.8% as a percent of sales.

As we stated in our prior calls, on a current average unit volume of approximately $2.7 million, our North Carolina stores have a restaurant-level operating profit of approximately 20%, and our new store stabilized sales target is an average volume of $2.5 million, approximately a 17% to 18% restaurant operating profit margin. So we anticipate we'll see improved operating margins in fiscal 2018 as we open these next 7 stores and thereafter as we anticipate most, if not all, the new stores will be in states with a similar weight structure. That store level on Bad Daddy's continues to deliver a 40% plus cash on cash return on investment based on approximately $1 million net investment in each store, excluding preopening costs.

Good Times sales reflects the results of our $3 West Coast Burger and our $5 combo introduction that happened at the very end of our second quarter, but we round it all the way through the end of the fourth quarter, with a continued strong sales mix in that product.

We've since raised the prices to $3.49 and $5.49 on those items, but they continue to be part of our core value proposition. But as I mentioned last quarter, we rolled our new kid's menu on October 1, and that supports our core positioning of all-natural burgers and chicken offerings for kids, but it's now at a much wider product choice, including a token for a free custard cup or cone, and we introduced that at a promotional price of $3. That's helped sustain our same-store sales trend this quarter so far at over 4% on the Good Times side.

We've also more than doubled the incidence of our kid's meals with a strong average check, so it's doing what we intended on driving families in. And we plan to take the kid's meal back to our normal pricing of $3.99 at the first of the calendar year.

We're also again pleased with our continued increases in Bad Daddy's same-store sales during the quarter of 1.9%. And again, that excludes the negative impact of the Cherry Creek store. The hotel has been under construction next door there. It's scheduled to open in March of 2018, and we certainly hope to return to sales trends and profit levels that we were at prior to that construction.

We're also sustaining Bad Daddy's comp store sales increases at about that same rate so far into our first quarter this year. We're in test with a lower price point and smaller portion a la carte lunch menu. As I mentioned last quarter as well as our revised happy hour food menu, both of which have improved cost of sales margins, we expect to have both of those tests completed, refined and evaluated by the end of this first fiscal quarter, again with the goal of driving guest traffic in our off-peak dayparts and implementation into select stores.

Our class of 2017 stores that have opened so far continue to generate above-average sales. We're really happy with those, including a few with extraordinarily high initial sales volumes during their honeymoon periods. And most of those are now settling into stabilized sales trends. So we projected them to maintain a slightly above-average volume into our fiscal 2018.

And we opened 1 restaurant in Norman, Oklahoma in August, 2 restaurants in North Carolina in the first 2 weeks of October, originally slated for the last week of September, but those got pushed by a week and 2 weeks, respectively.

We plan to open 7 additional stores in fiscal 2018 funded out of cash flow from operations and some additional senior debt. We have 8 leases signed with 4 additional that we expect to be ready to sign over the next few weeks for our 2018 development as well as initial development in 2019.

We've shifted around some of our opening schedules a little bit, but we're maintaining our prior sales and adjusted EBITDA guidance for fiscal '18 that Ryan will review in a little bit more detail.

We plan to open Atlanta in the first week of January, our first store there, followed by Chattanooga and then a second Atlanta store, our second store in Greenville, South Carolina, one in Greensboro, North Carolina and then our sixth store in the Charlotte metropolitan area. And finally, there will be a third Atlanta store that comprises our 7-store development schedule.

Atlanta and Chattanooga will be 2 new markets this year, and we anticipate that Nashville, additional stores in Oklahoma City, Tulsa and South Carolina will be our initial development areas in 2019.

We expanded our development line of credit with Cadence Bank to $12 million during the quarter, and that'll provide funding for our fiscal 2018 plan.

With our current company operated stores open, 12 of those being in Colorado at the end of the quarter, again, we anticipate that our overall operating margins will continue to improve as all of the planned new stores are in those lower minimum wage states.

And in addition to continuing our positive sales trends and taking what we think is an above-average approach to pricing, we're also working hard on improving our operating margins at both brands. We estimate that we absorbed over $800,000 in unplanned commodity cost increases during the last 7 months of 2017 that we couldn't price over. We accelerated some price increases, but we still absorbed quite a hit at the cost of sales line. Again, that's begun to ease somewhat this first fiscal quarter.

Our weighted product cost index at Good Times increased over 9% during the fiscal year last year, and that's a rate of increase that we've only seen twice before in the last 15 years or so. So it was an extraordinary spike during the last 7 months.

We're entering into a new distribution agreement in lower rates in Colorado, we're refining our beer and liquor pricing at Bad Daddy's, refining our front-of-the-house labor model at Bad Daddy's, exploring further efficiencies in each of our other operating expense line items to continue to try and push improvements on the -- as we continue to grow our top line.

We anticipate our G&A expenses will continue to decline as a percentage of total revenues from about 8.8% this last year to approximately 7.9% or less in fiscal '18 as we open new Bad Daddy's and as we leverage our fixed supervision and support services costs.

Most importantly, in this competitive environment and the industry macro environment, in the most difficult labor environment I think we've ever faced, we really continue to focus on differentiating our concepts from the competitors in meaningful ways in both segments and to continue to drive a values-based culture around care and excellence as deep as we can.

Ryan is going to provide some more detail on our guidance for fiscal '18. I'd like to now turn it over to him to review more of our financial results for the quarter and fiscal year.

Thanks, Boyd.

At our Good Times brand, sales increased 11.7% from $7,500,000 last year in the fourth quarter to $8,546,000 in the current year driven by the 3.9% comps plus strong sales in our new Greeley restaurant that was opened during the year.

The 3.9% comps for the quarter was slightly better than our guidance of 3%.

For the quarter, traffic increased about 0.5% at our comparable units, and we have a year-over-year menu price increase of approximately 3.5%. For the year, sales increased $1,828,000 in the current year to $30,689,000, again driven by comparable sales of 2.1% for the year and the continued above-average performance of our Greeley restaurant.

Food and packaging costs at Good Times were 33.4% for the quarter and 32.6% for the year, an increase of 1.0% versus last year's fourth quarter and 0.2% versus fiscal 2016. This increase in the fourth quarter was driven by increased pricing in our key commodities, primarily beef and bacon, as Boyd alluded to, which is reflected in the sequential increase of 0.7%.

Total labor costs at Good Times increased to 33.4% from 32.4% for the quarter last year and 34.4% for the year versus 32.7% in fiscal 2016. Most of this relates to an increase in the average wage rate of approximately 9% to 10% for the quarter versus the last year. This was due to the extremely competitive labor market we continue to experience here in Colorado, as we've mentioned in past calls as well as a statutory increase in the Colorado minimum wage of 12% that took place at the beginning of calendar 2017.

Restaurant-level operating profit, again, a non-GAAP measure, at Good Times increased $20,000 to $1,333,000 from $1,313,000 last year during the quarter.

As a percent of sales, the restaurant-level operating margin declined by 1.6% versus the prior year.

At Bad Daddy's, sales increased 43% versus last year from $9,540,000 to $14,036,000 for the quarter, and increased 37% to $47,706,000 for the year compared with $34,855,000 for fiscal 2016. This was due to the 6 new units opened since the end of last year's fiscal fourth quarter, resulting in 78 more store weeks this quarter versus the same quarter last year and 257 more store weeks in fiscal 2017 versus 2016.

We achieved positive 1.4% and 1.6% comps for the quarter and year, respectively, exceeding our guidance from last quarter, which was flat to actually slightly negative comps.

11 Bad Daddy's restaurants were included in the comp base for the entire quarter, 3 more stores entered the comp base during the quarter. And at the beginning -- or in the first quarter of 2018, 1 additional restaurant will enter the comp base.

Cost of sales at Bad Daddy's were 32.1% for the quarter, an increase of 1.1% versus last year's fourth quarter and an increase sequentially over the previous quarter by 1.0%.

Consistent with what we've experienced in our Good Times concept, input costs, specifically our key proteins of beef and bacon, were the primary drivers of these year-over-year and sequential increases in the fourth quarter.

Also of note is that we saw a doubling of avocado costs, and that is a significant produce item that we use at Bad Daddy's.

For the year, our costs of sales was flat at 31.2%. And subsequent to year end, as Boyd just mentioned, we've seen some decrease in all 3 of those commodity costs that I mentioned.

Bad Daddy's labor costs increased to 37.2% from 36.1% last year for the quarter and 37.2% versus 36.3% for the year. These increases are due to a significantly higher mix of stores in Colorado than last year and, as Boyd and I both mentioned previously, the tight labor market and unfavorable statutory minimum wage in Colorado. This is particularly impactful at the Bad Daddy's concept as the tipped employee wage increased 19% on January 1, 2017.

And as we've mentioned previously in these calls, that's about 150 basis point accretion in hourly wages in the Colorado locations.

Overall, restaurant-level profit for Bad Daddy's was $2,081,000 for the quarter or 14.8% of sales compared with $1,631,000 or 17.1% last year, a net increase of $4,050,000 over last year.

For the year, restaurant-level profit was $7,539,000 versus $5,832,000 in fiscal 2016, an increase of just over $1.7 million or 29.3%.

General and administrative expenses increased to $1,780,000 during the quarter from $1,587,000 in the same quarter last year and to just over $7 million for the entire fiscal 2017 from $6,288,000 in fiscal 2016.

G&A expenses declined as a percent of total revenues from 9.3% in Q4 of 2016 to 7.9% in this year's fourth quarter and from 9.9% for the entire fiscal 2016 to 8.9% for fiscal 2017.

G&A for fiscal 2017 was in line with our prior guidance of $7 million, and we anticipate that G&A expenses will continue to decline as a percent of revenues in fiscal 2018 and beyond as we expand our base of restaurants even as we increase our G&A spending in key areas.

We recorded a noncash impairment charge for one of our Good Times restaurants of $219,000 in the fourth quarter of 2017. This restaurant was the only restaurant in our portfolio of company owned Good Times with negative restaurant-level cash flow, with volumes substantially below the company average. This charge represents a write-down of approximately 80% of the store's net book value of long-lived assets.

Our net loss for the quarter was $664,000 versus a net loss of $71,000 last year in the fourth quarter, mainly due to an increase in preopening costs from $267,000 last year to $851,000 this year as well as the aforementioned impairment charge.

For the year, our net loss of $2,255,000 compares with a loss of $1,321,000 in fiscal 2016. Again, this is primarily the result of nearly $900,000 of increase in preopening costs for the year and the $219,000 impairment charge.

Preopening expenses for the year were $2,588,000, slightly above our guidance of $2.5 million.

Our adjusted EBITDA for fiscal 2017 increased to $3,777,000 from $3,368,000 in 2016 and slightly exceeded our guidance of $3.5 million to $3.7 million. Our current annualized run rate revenue is approximately $92 million, and we estimate our annualized run rate EBITDA at approximately $4.8 million, increasing to an estimated $7 million at the end of 2018. That being the run rate at the end of 2018.

In the earnings release, we updated our guidance for fiscal 2018. We confirm our prior guidance of revenues in the $100 million to $102 million range with a revenue run rate at the end of fiscal 2018 of $109 million to $111 million. The revenue estimate includes same-store sales assumptions for the year of 3% to 3.5% for Good Times and between 1% and 2% for Bad Daddy's with relatively consistent same-store sales expectations in each quarter.

In addition to the 2 units opened in October, we expect to open 7 additional Bad Daddy's restaurants during fiscal 2018 with 1 of those remaining 7 restaurants being a joint venture unit.

We also confirm our prior guidance of adjusted EBITDA in the range of $5 million to $5.5 million.

We expect approximately $7.9 million to $8.1 million of G&A expenses during the year, which includes approximately $700,000 in noncash equity compensation expense.

We also expect preopening expenses between $2.2 million and $2.7 million and total capital expenditures of approximately $9.5 million.

We expect to end the year with a debt balance drawn on our senior line of credit between $10.5 million and $11 million.

We finished fiscal 2017 with $4.3 million in cash and had drawn $5.3 million of our $12 million credit line.

We believe our cash flow from existing units, coupled with our excess cash balance and our credit facility, will support our total CapEx needs related to new stores, minor remodels and recurring maintenance CapEx through the end of fiscal 2018.

As we enter into 2019 -- fiscal 2019, we will need to secure additional credit to support such development at our current pace. That being said, we don't anticipate undue challenges in obtaining such credit, whether that would be, again, through expanding our current facility or by replacing it with a larger senior debt facility.

With that, I'll turn the call back over to Boyd.

Thanks, Ryan. We believe we're on track to build some significant value for our shareholders. As you're probably aware or may be aware, 2 of our existing directors filed an amendment to their Form 13D suggesting a partial new board slate along with some strategic initiatives and a focus on improved near-term profitability with an evaluation of the productivity of all of our existing assets. We're working cooperatively with them, with them being existing board members to really fully understand their ideas and the impact of their suggested strategic initiatives, including the balancing of near-term profitability with our longer-term growth opportunity to maximize shareholder value.

We do not yet have resolution on the proposed board slate nor do we have it scheduled for our annual shareholder meeting, but we hope to have that in the very near future.

And I'd also like to again to take the opportunity to thank our management and team members for all their hard work and commitment at both Good Times and Bad Daddy's. Appreciate your time with us today. With that, operator, we'll open the call for questions.

(Operator Instructions) And the first questioner today will be Will Slabaugh with Stephens Inc.

This is actually Hugh on for Will today. My first question centers around value. And specifically, can you maybe give us some early color or any changes on what your value proposition will look like for 2018 just given it appears that the competitive dynamics and consumer preferences will continue to focus on value?

Sure. Yes, we anticipate, particularly in -- after the beginning of the calendar year that, that will probably intensify again as it tends to do every year. Our primary value propositions are really threefold. One, we have a breakfast value proposition with our $2.25 burritos. That is a really strong and competitive price point, and that's helped sustain our breakfast mix over the last couple of years. The West Coast and the West Coast Double, we had those on a promotional price of $3 and $5. They continue to sustain a really strong sales mix at $3.49 and $5.49, and we'll continue to promote those as part of our key value proposition. We also have the expanded kid's meals, again, that we've been running at $3. Even at $3.99, we think that that's a very competitive value for kid's and is drawing in quite a bit of family traffic. We plan on introducing a new spicy chicken sandwich, which we don't have on the menu currently. That's one of the highest incidence sandwiches in QSR. And while not specifically a value promotion, we think it's going to be a meaningful new product introduction. On the custard side, next spring and summer, we've done a series where we've offered free PawBenders, which is our little custard for dogs, which has resonated really strongly and driven meaningful traffic. And we'll do selective LTOs as we move into spring and summer around the custard side. We're still avoiding any permanently low price points in the $1, $2, $3 range. We haven't done any bundling in the 4 for 4 or 2 for 2 or 2 for 6 and all the things that you see competitively. And so far, we've been able to sustain our traffic and our same-store sales. So we're going to continue to bang the drum on our quality points and differences, our burger of the month program at Good Times. On the Bad Daddy's side, on the value side, we really haven't been impacted too much by the $6.99 promotions going on with both Red Robin and Chili's, but we are in test with that lunch menu that offers some lower price points and lower portion options. And so far, that's going well. We'll see if we roll that out here after the first of the year. And then the happy hour expansion, while not that meaningful for our peak periods, our happy hour runs from 3 to 6 and 8 to close, so it's a good portion of our day. We got that new happy hour menu in test with some significant low price points that, we think, again, will be a nice layered addition to price choice. On Good Times, specifically, we've always taken the tact of trying to offer good price choice along the 3 tiers of our menu at the low end with our bambinos at the mid-price, which is our West Coast, and then we have our premium sandwiches. In Bad Daddy's, we're just adding in some more price choice with the lunch menu.

That's great. And one more, if I could. You talked a little bit about this in your prepared remarks, but could you just provide a little bit more color or any updates on what you're expecting to see on the cost of goods or labor inflation outlook in 2018 as a whole?

Sure. We're expecting cost of goods from where we ran in our third and fourth quarter, we're expecting those actually to be down a little bit, particularly in our core proteins, beef and bacon being big ones, are fairly stable and are projected to, I think, to be stable and down a little bit. The pricing that we've taken in -- fairly aggressive pricing we plan to take will have, obviously, some positive effect, and our goal is to maintain traffic while we do that. So we're planning on slightly lower cost of sales in 2018 than we ran in 2017. Most of the pricing that we're taking is really to absorb the minimum wage increase in Colorado. We're planning, again, as Ryan said, I think a 3.5% price increase for the balance of 2018 and a little less than that on Bad Daddy's. So the biggest margin difference that you'll see on Bad Daddy's is we continue to open stores and the impact of the Colorado margin hit we take on labor will become less and less impactful. We're anticipating expansion of our operating margin and lower overall labor because we run about a 5.5% lower labor on the same volume in our Southeast restaurants than we do in Colorado. Labor, nevertheless, is -- obviously, we're still seeing some escalation in that. Most of those is driven by the statutory increase in Colorado but we're paying above that minimum in both brands, but it tends to affect the scale overall. We're not seeing quite as much escalation and inflation in the lower minimum wage dates, but it is still a tight labor market and we're seeing some inflation. But Colorado, it was 8% to 9% last year, which is very, very significant.

Hugh, this is Ryan. I would just add to that on the cost of goods sold. For both brands over the year, we are in our guidance. I would say we are assuming roughly the same cost of sales that we ran at both at Good Times and at Bad Daddy's for the entire fiscal 2017. I would tell you that the way that stacks up quarter by quarter is Q1 is a little bit higher and quarters 2, through 4 is much closer, if not, slightly below what we ran for the year in total.

And our next questioner today will be Jeremy Hamblin with Dougherty & Company.

This is David Burdick on for Jeremy. Just wanted to start out on the Bad Daddy's side, on specifically the new units, kind of given the 2 that shifted to Q1. Will the cadence be then 3 opening in Q1 and still 2 in the remaining quarters? Or could you maybe just walk us through the timing of the 2018 openings?

Yes, sure, David, I can walk you through that. So for the balance of this quarter, we do not expect any other openings. And so for Q1, we expect 2 to be the number that we'll open. We will open -- in our guidance we have provided, we have 1 opening in Q2, which will be near the beginning of Q2 really in the first couple of weeks of January, and then we have 3 in each of the remaining quarters.

Okay, great. And then can you maybe just talk about kind of these -- the 2007 (sic) [2017] class of openings and how they've been performing? And then I know it's still early on the 2 that opened in October, but I was hoping maybe you could provide how those 2 locations have performed as well?

Sure. Feel free to jump in, Ryan. But we've had generally really strong openings, and I think the -- one of the surprises is the honeymoon periods we've had on the initial openings on some of the stores, including the 2 that opened in October. It just opened an extraordinarily high volume, and it takes typically 4 to 6 months for them to settle into their stabilized sales trends. As I mentioned in the prepared remarks, we're anticipating for all 8 stores based on how they've opened up to be running a little higher than our average. So we're really happy with that. We've had one opening in Colorado that's just a little bit under the average, but it's growing, and we expect it to be right at about average as we move into 2018. Have anything to add on that? So generally, David, we're thrilled with 2017 openings and certainly hope we can do the same thing on these next 7 stores in '18.

And then on the Cherry Creek location, I'm not sure I caught what you said, but could you maybe update us on kind of the progress of the construction around the site and expected timeline?

Well, Boyd, I'll let you kind of handle the construction because you're a little more familiar with that schedule than I am. What I can tell you, as it relates to the Cherry Creek, is that for the quarter, I think the impact was approximately 0.5% on cost of sales. As we've entered into the new -- on same-store sales, yes. I apologize. As we've entered into the new year, the impact of that has been significantly less, both due to the number of stores and also due to the relative year-over-year performance of the Cherry Creek location. And in the first 9 weeks of the period, the impact the Cherry Creek location has had on our cost of sales is approximately 0.1% -- on our same-store sales is approximately 0.1%.

And the comments I made, David, was that the hotel that's been really the most disruptive to us because it comes right up to our -- the line of our patio and has closed the street in front of us for the last 9 months or so. That's due to be completed with their grand opening in March. We're anticipating the street to open prior to that and get back to 2-way traffic, and our pedestrian traffic hopefully back to normal and get our patio back, which has been -- which we didn't really have all of last summer, get that back by springtime as weather comes around again. So while we're lapping really poor sales from last year, so the same-store sales impact isn't quite as great, we anticipate that should turn hopefully very positive come springtime when the Jacquard Hotel opens next door to us.

Okay, great. Good to hear. And then just a follow-up on margins. I wanted to kind of see if you guys see any areas where you can maybe improve margins going forward. Is there maybe an opportunity on the operations side of the business, managing hours and kind of the efficiency? Just trying to get an idea of how to think about margins in kind of FY '18 and beyond?

Yes. So -- and it's a little bit different. We run very lean on Good Times, meaning all of our management folks are in a production position most of the time. Bad Daddy's, it's a little bit different where we have our management managing the store and out of position. We're working pretty diligently right now on refining our labor model, both front of the house and back of the house, on Bad Daddy's. We're looking at products, for example, that we do from scratch that maybe we're not getting credit for that can be outsourced. We're looking at very prep intensive items that we can ease the prep hours associated with those. Our line functions, it's tough to modify those very much in the back of the house, but we're really looking at more refining our scheduling process from a productivity standpoint on the fringe time as we come in and out of our peak times. Where we have opportunity, we believe, is in the front of the house and we're already working on that with our host hours, our server hours and our bar hours to try and lean those up a little bit. We're not a fan nor do we think it fits with our concept to go with the tablets on the table. We still run 4 table stations most of the time. We are -- now that we have more experienced servers, we are allowing them to go to 5 table stations during certain times. It allows the staff to make more money, better energy in the restaurant. So long story short is yes, we think there is some opportunity. It's not a couple of points, but we think there's maybe 1/2 point to 1 point as we continue to refine our labor model on the Bad Daddy's side. The big impact, from an overall percentage margin, will be we've been robbing our G&A about a point a year, and we certainly anticipate to continue to be able to do that. And we're going to be as efficient as we can and not add unless we really have to. We've got some new software in place that we haven't fully leveraged yet that we're figuring out how to leverage that, I think, a little bit more efficiency -- efficiently this year. And then throughout the operating statement, I mentioned the new distribution agreement we've got. That will help. We're looking in every single line item and trying to find out on the -- both on the purchasing side as well as in-store management side where we can find 0.1 here and there, and I think there is some opportunity. The Bad Daddy's, again, non-Colorado margin is very healthy, and we want to be very careful and not dumb down the concept and lose our top line momentum by squeezing labor too hard. But there's some additional management efficiencies when we run 4 and 5 salaried management at the store level. There are some efficiencies in how we use their time that I think we can impact as well.

Yes. So in terms of the guidance, I would say that at Bad Daddy's in Colorado, we've modeled between 0.5 points and a full 100 basis points of labor cost inflation, but that's offset by a significantly greater development in North Carolina. And also, we've modeled in about 20 basis points of labor cost deflation there. A combination of just being able to run more efficiently as well as the impact and leveraging of better -- higher pricing -- menu pricing. I would echo what Boyd has to say specifically about labor costs and cost of sales and the approach we're taking there. We don't want to damage the concept by trying to cheapen the concept. We are committed to a full service model. But at the same time, both from some of the specific initiatives Boyd talked about as well as just a heightened focus and focus on ops excellence, we hope that we will be able to gain some efficiencies that are not provided in the guidance.

(Operator Instructions) And our next question will be Stephen Anderson with Maxim Group.

I missed a part of the call earlier, but I wanted to look at your, first of all, what kind of rate of labor cost inflation you expect for fiscal '18 and how that compares with '17? And I have a follow-up.

Well, so -- and as I just mentioned, I think the way we've modeled it in Bad Daddy's Colorado is between 0.5%, a full percent increase in -- as a percent of sales in labor, about 0.2% improvement as a percent of sales in Bad Daddy's outside of Colorado. And then on the Good Times side, we're looking again -- it's very similar to what we've modeled for Bad Daddy's Colorado somewhere in the range of 50 to 100 basis points.

And it correlates with...

Sorry. Go ahead, Stephen.

My follow-up question. I want to address the -- some of the -- your potential opportunities in the -- in off-premise and maybe online mobile sales. Don't know if you looked at that for either for Bad Daddy's or for Good Times. I know Good Times, you already get a large portion of your sales are in the to-go business. But I want to see if there's any opportunity for you to maybe use some technology to maybe get more efficient operations in back of the house and maybe get some increased throughput.

Yes, very definitely. We're in tests right now with Door Dash in Colorado with Bad Daddy's. There are certain dynamics, I think, to make delivery really work and to really gain meaningful sales opportunities there. One is average check; two is just the nature of locations, it tends to work much better in urban locations than suburban locations. But we think that there is opportunity there. We're going to take that, as I've said in prior calls, kind of a step at a time. There's an enormous amount of change going on in that business right now. Some of it is driven by how efficient we can be. We're developing online ordering platform right now that we anticipate will be done close to the end of this month or by mid-January so that we can have full online ordering, which will give us a lot more efficiency in store. Right now, we do a fair amount of takeout business, and we don't know how much exactly of that is delivery because we're on the different provider's website that we don't know about. But we think that we have an opportunity to increase our takeout sales, not only with delivery, but simply by being more efficient in store. I would say we do an average job on takeout right now. And so we're looking at dedicated spaces in our restaurants. We're looking at moderating the number of tables for our line efficiency on how much volume the kitchen can really handle versus the number of seats we have. That may be an opportunity for us to create a section in the restaurant that's more dedicated to takeout and then leveraging that with delivery over time.

Okay. And just for my reference, what percent of sales do you get from takeout at Bad Daddy's?

Overall, we're in the kind of low- to mid-single digits. We have a couple of stores that are in the mid-teens, and not coincidentally, they happen to be real urban-type locations. And so going from 4% to 5%, there's probably a few points of opportunity there. I think over time, as that whole business model gets figured out, I think there is much larger opportunity. Our focus is still growing our sales in the 4 walls and our trade areas because we think we have still lots of opportunity there as the brand awareness builds. But incrementally, I think takeout and delivery is an opportunity.

The other thing I would say, Stephen, is we currently do not have online on our website, and that puts us at a competitive disadvantage. During the first quarter, we have signed an agreement with a leading online ordering provider. We anticipate having that completed in the next, I would say, 8 to 10 weeks, at least in test in 1 location by that point in time.

You bet.

And there are no further questions, so this will conclude the question-and-answer session. I would like to turn the conference back over to Boyd Hoback for any closing remarks.

Thanks for listening today. Thanks for your questions, and look forward to fiscal 2018. Thank you.

And the conference has now concluded. Thank you all for attending today's presentation. You may now disconnect.