Jack in the Box Inc (JACK) 2003 Q2 法說會逐字稿

Good day everyone and welcome to the Jack in the Box Incorporated Second Quarter 2003 Earnings Release Conference Call. Today's call is being recorded. A replay will be available on the Jack in the Box website starting today for those who could not attend the live event. During the question and answer period, please use your handset when asking questions. Please do not ask over a speakerphone. At this time for opening remarks and introductions, I would like to turn the call over to Mr. John Hoffner, Chief Financial Officer of Jack in the Box Incorporated. Please go ahead sir.

Thank you. Good morning and welcome to the Jack in the Box Second Quarter Conference Call. I'm John Hoffner, EVP and CFO and joining me today are Chairman and CEO, Bob Nugent and Executive Vice President of Marketing & Operations, Linda Lang. During this session, we will review the company's second quarter operating results. Let me also mention that the company's earnings guidance for the third quarter and fiscal 2003 can be found in the press release issued this morning prior to the conference call. Please be advised that our presentation contains forward-looking statements about sales, earnings, expenses, and other financial performance indicators. These statements reflect the management's expectations for the business, and are based on current information. Actual results may differ materially from these expectations based on risks to the business. Safe Harbor statement in our earnings release outlines some of these risks and uncertainties and is considered a part of this conference call. Other material risk factors, as well as information relating to company operations are detailed in public documents filed with the SEC. Now, Bob Nugent will open our conference call. Following today's presentation, we will take questions from the financial community. Bob.

Thanks John. Good morning everybody. As we noted in this morning's news release, Jack in the Box met its second quarter estimates with net earnings of $16.3m and $0.44 per diluted share. Economic weakness in some of our key markets and competitor discounting continued to impact our core business. The same-store sales at Jack in the Box restaurant decreasing 4.3% in the second quarter compared with a three-tenths of a percent decrease last year. Unusually high fuel costs also contributed to this decline as did soft sales in markets that are near military bases and border crossings.

Year-to-date same-store sales were down 3.3% from the first half of fiscal 2002 compared with a three-tenths of a percent increase last year. For the full year, we estimate that same-store sales will decrease approximately 2.5%, as new product introductions should help offset continued economic weakness and competitive promotional activity. Despite the disappointing sales comparisons year-over-year, we are pleased with the progress made by our quality and innovation team, which is adding exciting new products to our menu. Linda Lang will provide more details on those new products during her remarks.

In addition to focusing on improving sales and profitability in our restaurants through menu innovation and enhanced guest service, another important element of our strategic plan is to increase franchising at Jack in the Box. Last month, we announced the hiring of a restaurant industry veteran, John Ramsay to facilitate our franchise sales and development programs.

Our two other business concepts continued to perform very well. Qdoba Mexican Grill produced a double-digit increase in same-store sales for the second quarter; that's on top of a double-digit increase last year. And they added seven new restaurants to bring a system wide total to 92. And Quick Stuff, our proprietary branded convenient stores also achieved a double-digit same-store sales increase in the second quarter; that's excluding fuel sales. A key growth element of our strategic plan, Quick Stuff stores are part of a co-branded concept that combines a full service convenient store with a full size Jack in the Box restaurant, and a major branded fuel station. Same-store sales at these Jack in the Box restaurants were above system average for the second quarter. We have tenured team leading our Quick Stuff operations with extensive field experience in the gasoline and convenient store business, as well as fuel pricing experience at the wholesale level.

Overall, we are very pleased with our differentiated concept and its strong unit economics. With the continued success of Qdoba and Quick Stuff, along with the progress that we are making in attracting a broader audience of consumers to our core business, we are optimistic about the direction the company is heading. And now, for some additional detail on our increased product development efforts, I will turn the call over to Linda Lang.

Thanks Bob. Good morning. When the second quarter began, Jack in the Box was rolling out a new premium sandwich; Philly Cheesesteak. That sandwich is now on our menu at all Jack in the Box restaurants and is performing well for us. Although the product is particularly appealing to the core fast-food consumer, young men 18 to 34 years old, Jack in the Box is also making significant progress in developing a pipeline of new products that are relevant to a broader audience of customers.

During the second quarter, for example, we tested three new premium salads; the Asian Chicken, Southwest Chicken, and Chicken Club Salad. The results of this test were very positive and on April 14th we introduced Jack's Ultimate Salads at most of our restaurants with system wide availability achieved last week.

Consistent with our goals to offer more distinctive and higher quality products, our new salads feature unique and flavor co-ingredients like smokehouse-roasted sweet corn, black beans, grape tomatoes, and shredded pepper-jack cheese. And offered on this pile as a topping for two of the salads with a serving of sliced Blue Diamond almonds, yet another indication of our salad's superior quality. The early response to Jack's Ultimate Salads has been extremely positive. The sales of the salads have exceeded our expectations.

The Philly Cheesesteak and new salads provide a glimpse of what our customers can expect from Jack in the Box in the future. We have several other innovative products in various stages of development, including a new premium sandwich that will be introduced late in the current quarter.

Further on the subject of product development and innovation, construction is now underway on our new 70,000-square-foot innovation center, which is being developed just north of our corporate headquarters here in San Diego. When completed during this summer of next year the new innovation center will not only help us develop more compelling new products, but also the equipment and processes to more quickly deliver those products to our guests.

We believe that lasting customer loyalty is achieved by consistently providing a positive guest experience every time, with our great food, fast and friendly service, and a clean and comfortable environment. And we are moving quickly yet prudently to deliver on these expectations. This is imperative if we are to keep pace with the ever-increasing demands [unintelligible] our customers. Now I would like to turn the call over to John Hoffner, who will review our second quarter financial results.

Thank you Linda and good morning again. As a reminder this is the first quarter that our consolidated financial results now include Qdoba. In the second quarter Jack in the Box opened 20 new company restaurants. We ended the quarter with the total of 1527 company restaurants, 1897 restaurants system wide, an increase of 4.4% from a year ago. We opened one company and six franchise Qdoba restaurants ending the quarter with 29 company operated and 92 restaurants system wide.

As Bob mentioned, same-store sales at Jack in the Box company restaurants decreased 4.3% in the second quarter, versus three-tenth of a percent decrease last year. Year-to-date, same-store sales decreased 3.3% compared to three-tenth of a percent increase a year ago. Qdoba produced a double-digit increase in system wide same-store sales on top of a double-digit increase in the second quarter of 2002.

Consolidated company restaurant sales were $418m same as a year ago. Year-to-date company restaurant sales were $978m compared with $971m last year. System wide sales during the quarter grew to $531m and grew to $1.2b year-to-date. Other revenues in the quarter were $10.3m as forecast and were $4.3m last year, primarily related to our objective of increasing the use of franchising in our business model as we grow. We had five conversions during this quarter compared with six last year.

Year-to-date other revenues were $18.6m primarily related to 14 conversions versus $8.2m from nine conversions in 2002. Total revenues during the quarter increased 3.5% to $463m compared with last year's second quarter and increased 3.3% year-to-date to $1.08b. Restaurant operating margin was 16.4% of sales versus 18.1% in the second quarter of 2002, which was primarily due to higher insurance, occupancy, and new POS-system upgrade cost as well as reduced leverage on fixed expenses from lower same-store sales.

Year-to-date restaurant operating margin was 16.6% of sales compared with 18.2% last year. Second quarter gross profit rate was 18.1% of revenues as forecast compared with 18.7% a year ago for the same reasons just mentioned. But were partially offset by higher gains on restaurant sales to franchisees.

Year-to-date gross profit rate was 18.3% of revenues compared with 19.1% in 2002. SG&A rates -- SG&A expense rate for the quarter was a 11.2% of revenues as forecast, it was slightly higher than last years rate of 11.1% due to higher pension cost and the absorption of Qdoba. Our profit improvement program continues to help offset the deleveraging impact of lower sales on our SG&A expenses.

Year-to-date SG&A expense rate was 11.4% of revenues compared with the 11.1% last year. Second quarter earnings before interest and taxes or operating income was $32.1m compared with $33.8m in 2002 and included $6m in additional other revenues primarily related to gains and fees on restaurant sales to franchisees.

Year-to-date operating income was $74.5m versus $83.1m last year and included $10.4m in additional other revenues. Operating income plus depreciation and amortization was $48.2m during the quarter compared with $50m a year ago. Year-to-date was $111.7m versus $120.4m last year. Interest expense for the quarter increased to $5.8m versus $5.2m in the second quarter of fiscal 2002 primarily due to the cost associated with the acquisition of Qdoba and additional share repurchases.

Our projected annual income tax rate for fiscal 2003 is 38% compared to 33.9% in fiscal 2002, 36.5% in the second quarter of 2002. The lower rate last year resulted from the favorable resolution of two long-standing tax matters.

Net earnings were $16.3m in the quarter versus $18.2m last year. Year-to-date, net earnings were $37.5m versus $44.9m in 2002. Diluted earnings per share were $0.44 in the quarter compared with $0.45 in 2002 and were $1 year-to-date versus $1.12 last year. Capital expenditures were $26.9m versus $23.5m in last year's second quarter and were lower than original 2003 guidance as the company is now leasing a greater portion of its new stores rather than purchasing them because of changes in financing market terms. Year-to-date, capital expenditures were $49.2m versus $53.5m.

Now lets us look at the balance sheet and cash flow highlights. At the end of the first quarter, our current ratio was 0.5 to 1, the same as last year. The debt-to-equity ratio at quarter end was 0.7 to 1 compared with 0.6 to 1 in 2002. Total debt was $302m versus $255m at the same time last year primarily related to our $45m acquisition of Qdoba. Our quarter end revolver balance was $7m versus $39m in 2002. In January, the company replaced its $175m revolving credit facility with a new facility comprised of $150m four-and-a-half year term loan and a $200m three-year revolver.

Other current assets were $51m less than last year primarily because the company has decreased assets held for sale and lease back. In the latter half of 2002 and the early part of 2003, we had purchased more of our new restaurants instead of leasing them. Other assets were up $50m from 2002 primarily due to the establishment of intangible assets related to the Qdoba acquisition, approximately $9m of which is amortizable.

The company used approximately $14m of its cash to repurchase shares of its stock during the quarter and completed its $80m additional repurchase authorization obtained from the Board of Directors in 2002. Year-over-year, these repurchases reduced stockholder's equity by $83.4m. Finally, the company's year-to-date net income plus depreciation and amortization minus capital expenditures was $25.5m versus $28.6m last year primarily due to the decrease in earnings. Now let me turn the call back over to Bob and we will take your questions.

Dana, we are ready.

Thank you sir. Today's question and answer session will be conducted electronically. If you’d like to ask a question, please do so by pressing the star key, followed by the digit one on your touch-tone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, it's star one for questions. And we will pause for just a moment to assemble our roster. And we will take our first question from Mark Kalinowski of Smith Barney.

Hi, I wanted to ask about the salads, initially. I fully understand that they haven't been in the restaurants all that long, but any color you could give would be appreciated. First, is just more or less a ballpark figure for what you think the incrementality of salad sales is and second, just curious about how salads plays into the stated goal of same-store sales for the fiscal third quarter. If we assume, perhaps, that competitive activity is getting a little bit more favorable within the burger segment and that wartime activity is going to be slowed down, why would the introduction of salads not lead to a little bit of a higher same-store sales goal? Thanks.

This is Linda. I'll take that Mark. In terms of the salads, we are only in the fourth week of advertising support of the salad. So, it's really too early right now to assess exactly what the incremental sales are. Although, I can tell you that sales of the units of the salads themselves are exceeding our expectations and we've gotten a great deal of trials, salads. In terms of our forecast, we forecasted a -- we forecast with certain sales, incremental sales for each of the products that we have lined up in our marketing calendar. That was the basis of our forecast for third quarter and the balance of the year. In terms of predicting or forecasting what's going to happen with the economy, that's extremely difficult to do. And it does appear that there is some easing of the discounting by the major competitors, although, in some of our major markets, there are still aggressive discountings going on.

Mark, this is John. We are basically forecasting third quarter same-store sales for Jack in the Box to be down approximately 2.5%. That's little better than the run rate we experienced in the second quarter. Part of that easing is due to the fact that the war in Iraq is over and we don't expect quite the pressures that we had on the business that we experienced in the last month of the second quarter. And we are expecting some improved performance from the salads and the new premium sandwich that we are introducing in the third quarter.

If you look at the sales result on a year-over-year basis, I think we are forecasting a negative 2.5% sales decrease for the second quarter on top of, I think it's a negative 1.5% last year -- third quarter, I apologize. So, if you look at that on a two-year basis, it's a negative 2.5% on top of the negative 1.5%. It's not too dissimilar to the negative 4.3% on top of the negative three tenths that we experienced in Q2 last year. So, while we are optimistic about what we think is going to happen, it's too early to give you really good visibility on incremental sales.

Okay, thanks and I look forward to trying the new sandwich.

Great.

Thanks Mark.

We'll take our next question from Jeff Omohundro with Wachovia Securities.

Thanks. Couple of questions. First, on the new salads, I wonder if you could talk a little bit about the impact on the speed of service, any measurable change there? And then the second question would be related to this new premium sandwich you are rolling. I wonder if we could get some more details on that? You know, you are coming off this Philly Cheese sandwich introduction with another premium product in the face of a still pretty competitive price environment. Just want to think about your -- get a little thoughts on your, on where you are going in terms of product positioning. And then finally, if you could explain the increase in your accounts receivable.

I'll take the first two. In terms of the speed of service, there is an improvement, a pick up in speed of service, an improvement in speed of service as a result of the salads. Salads are pressed twice a day. So they are fully assembled when a person orders some at the drive-through or at the counters. So there is really a very positive impact in terms of our speed of service; very easy to execute at the restaurant level. In terms of the new products that will be introduced late this quarter, I'm really not in a position to give you a lot of details on what that product is. You'll be hearing about it in a few weeks.

Jeff, this John. On the accounts receivable, it's really two things. First of all, it's an increase in short-term loans to franchisees made until they can obtain permanent financing on the restaurants. Some of the restaurants are purchasing from the company. The other piece is an increase in receivables due from landlords on built-to-suit restaurant.

Great, thank you.

Welcome.

Once again, if you like to signal to ask a question, please press star one on your touch-tone telephone. We do have a question from Joe Buckley of Bear Stearns.

Thank you. Just have a couple of questions. Going back to the salads again, could you talk about the effect it's had on check average? What kind of price points you are featuring for the salad?

The price of the salads varies from $4.49 to $4.89 depending on the location of the market and of course franchises are free to set their own pricing. But we are seeing a pickup in the average check and our indications from our research shows that tickets or transactions that include the salad do have a significantly higher check than our average actions.

Okay. And then question on the beef costs. Just what you experienced this quarter and what your outlook is for the second half of the year?

Well, on a year-over-year basis, this is John, Joe. On a year-over-year basis, it looks to me like our beef costs were a little bit higher and we are expecting it to be just a little bit higher year-over-year as the supplies of beef appear to us to be decreasing, but not much of a change. Food costs year-over-year, as you can tell from the financial statements, were very positive and most of that was driven by lower ingredient cost on poultry, dairy, cheese, and produce.

Okay. And with the addition of John Ramsay, any new thoughts or time frame for the franchising program?

No, Joe. John just came on board. He is a great guy with a good experience and he is just getting his program up and running. I have no different expectations than we had before.

Okay. And one last one for John. John, the other line in the revenues, the $10.3m for the quarter, should we assume basically that's all gains or the vast majority of it is gains on the sale of the units?

You should assume, Joe, that the majority of it is gains and fees. As you know, we obtain a $50,000 fee from each franchise restaurant that we sell and so you can multiply the number of units in the quarter times the $50,000. But the remainder of that is really gains. So, the answer is yes, it's both gains and fees.

Okay. Thank you.

You bet.

And we'll take our next question from Dean Haskell of JMP Securities.

Good morning John and the team.

Hi Dean.

Check average in the second quarter of this year versus check average last year, what were those?

Dean, we don't really give those out, but what we can tell you is the check average for Jack in the Box has been right around $5.

Okay. And a question on salads. You have said that they exceeded your percentage of sales expectations. What were your expectations?

We also don't share our menu bets.

Okay. Thank you.

We are tough Dean. [Laughter]

And as a final reminder, if you would like to signal to ask a question, please press star one on your touch-tone phone. And we have a follow up from Mark Kalinowski of Smith Barney.

Hi. First, on the share repurchases, any chance of a reauthorization any time soon and second just on Qdoba, the sense that we are getting is that both Qdoba and Chipotle continue to do very well in generating same-store sales but Baja Fresh, which I would consider a fairly close competitor, seems to be struggling. What's your take on why there might be a difference between what is going on with Qdoba and Chipotle and Baja Fresh? Thanks.

Okay. First question -- share repurchase, yes. I'm getting old. We just had a Board meeting, Mark, and we have not asked the Board to reauthorize additional purchase. So, at this point, we will not be back in the market purchasing additional shares.

Does that mean that paydown is becoming a higher priority?

Pay down of debt is becoming a higher priority.

Yes. I think for right now, it would be, Mark - I mean, we continue to examine that and it's something that we would consider from time to time. So I don’t want to say we would never do it, but we just bought back a total of somewhere around, cumulatively, $90m of our shares and I think we may have better uses of our capital.

Okay.

Yes. With regards to Qdoba, you have information about Chipotle that I don't have. I do not know that they are doing well or not. I can only speak to Qdoba. We do a lot of research and have just completed some research studies and I can tell you very simply that the consumer really likes the concept and it is driven primarily by the fact that the flavor profiles that we are offering is much bolder than what you'll find in their competition. And two, the fact that people love the fact that they can customize their food, which is something that is not offered in all the competition. I think those are the keys that are driving that business.

Thank you.

You are welcome.

We'll take our next question from Peter Oakes with Merrill Lynch.

Hi, good morning.

Hi Peter.

Hi guys. You have mentioned that the salads are definitely performing quite well right out the box here. Can you kind of put into perspective on how the product tested and what have you really learned as far as consumer demand and what kind of void is out there in the marketplace for that kind of product when you were able to raise the awareness and what you have with the kind of the advertising you put out with it?

In terms of our research, we did find that there was a need for something a little bit healthier and something that appealed to a different demographic. And in our research, we are finding that it does appeal more to females and slightly older females. So, very good response from our research and from our consumers and when we developed the salads, we wanted to develop a salad that was far superior to anything that was available in QSR and we really achieved that.

Do you have a sense that, if indeed you actually are seeing a different customer response to the salad offering, do you have a sense as to possibly where you are pulling that customer from and how is this impacting your way of thinking about new products down the road?

Well, some of that is coming from fast-casual, some of that could be coming even from casual dining, but certainly also from our competitors.

And Linda maybe just a little, kind of, flavor as to what this does to your approach when you think about new product offerings going forward?

Well that's a good question. We are developing products that are truly innovative and are superior quality. So, we are looking to target a consumer that is, maybe, tends to be a little bit lighter or moderate, fast-food consumer that are now going to your fast-casual and casual dining, but are looking for the convenience of that QSR or drive-thru.

Okay, good, and just lastly, given your price point, you are a tad higher than where some of the competition is with your upgraded salad offerings? Are you sensing any kind of push back or is the consumer basically telling you it's worth it?

They are telling us it's worth it. So the value is there.

Terrific. Thanks a lot.

We will go next to Joe Buckley of Bear Stearns.

Thank you. One, just to get an update on the point of sale systems, just where you are in terms of installing the new system, and whether there's been a speed of service benefits from the system?

Joe, this is John, we are now on accelerated rollout of our upgraded POS systems and we are basically putting in NCR hardware and we are upgrading the software from what was predominantly an in-house package to a progressive package. The results today, in terms what the software has done to help our restaurant operations has been significant. It has not only improved speed of service, but it's allowed us to train our employees much more efficiently, quickly, and with less cost than we did in the past as well. It's also improved our order accuracy. We are very high on it. We probably will complete this roll out some time at the end of the calendar year.

Okay and then, just a question on the same-store sales guidance again for the third quarter, the down 2.5% of guidance. Is it reasonable to assume that's what you are earning roughly quarter to-date?

[Laughter] Joe, we are not going to tell you where we are quarter to-date. What we will say is we have enough confidence in what we have seen so far to believe in that number.

Okay, thank you.

You are welcome.

And we have a follow up from Jeff Omohundro of Wachovia Securities.

Yeah thanks. I am interested maybe in a little more discussion on the franchise conversions. You booked a, what looks like a fairly significant receivable. I am just curious, what your sense is regarding availability of funds to the franchise community to further purchase units in the outgoing quarters and how that -- what implications that might have for your goals to achieve a slightly different mix of company versus franchise owned stores?

Right now, Jeff, as you know, the financing world for franchisees is very, very tight. So, the company carefully evaluates a perspective sale of a restaurant to see if we can, what we think, provide credit on a very short-term basis and we are talking notes that average between six to nine months and what gives us a lot of comfort about this right now is essentially all the restaurants we are selling are to Jack in the Box franchises that have been in our system a long time.

All these people, they are very good operators, have a lot of confidence in their ability to run our restaurant, and they have been thus far pretty successful, I'd say very successful in arranging permanent financing. So that has been our strategy to help them along. It's taking longer to put deals together in the marketplace today and we will probably continue this practice until the financing markets ease up and don't forget again that our relationship with these conversions have been with Jack in the Box franchisees that have been with us for a long time and we understand how they run their restaurant.

So, how big a number do you expect that you might see or we might see in terms of your funding level?

Well, we are only going to do somewhere in the neighborhood of 35 conversions this year and I think that - and that's up from I think 22 last year. So, I don't think that our receivables line is going to go up significantly because these notes will turnover as the existing franchisees put their permanent financing in place.

So, you think the accounts receivable level at around the current number is run rate then or is it going to go up more in the out quarters?

I think it will go up a little bit more, but not materially.

Okay. Thank you.

You are welcome.

And we will go next to Paul Westra with SG Cowen.

Hi. Good afternoon everyone. Two follow up questions. One is on Qdoba. Obviously, 10% comp was pretty strong. Any -- but asking with you that a change or development outlook or if it's so, will it lead to a development change potentially or and if so when will we hear maybe when you review the development plan if it continues to be so strong.

Good morning, Paul. With regards to the Qdoba comp, you used the number 10%. We used the number double-digit.

Right.

All I can say is it's above 9.9%. With regards to the development agreements, we are moving along at the pace that we had planned. We have approximately 300 units in the development pipeline and we are adding development agreements every week. So, we will give you more color on that as we move forward. I know, we only opened seven restaurants in the quarter, but we are just gearing this thing up.

Paul, I would say that at this point, we are pretty comfortable with the growth plans that were originally projected for Qdoba when we bought the company and right now we don't have any plans to accelerate that -- that growth rate.

Okay. And then just one other follow up question on these franchise sales. It sort of falls out to be a $2m sort of gain per store. What was the asset cost on the stores? The question is, was there any territory or other large item in there to maybe skew that calculation?

No, it really just depends. If you take look -- what I encourage you to do Paul is take a look at the year-to-date results and then take a look at the full year results. We are essentially going to generate somewhere in the neighborhood of $31m in other revenues on 35 conversions. Last year, we generated $20m on 22 conversions. So, right now in Q2, we just happen to have a very opportunistic mix of restaurants that were sold and we shouldn't be using that as a barometer to establish a bead on average gain for the company.

These things peak in valley and if you look at it as I said on a full year basis, year-over-year, you get back to some very normalized levels. I will also point out that even on a go-forward basis, I don't want people to be making predictions of that magnitude. We have to evaluate these on a case-by-case basis. Some will be higher and some will be lower.

Great.

And then in the second quarter, we happen to have a group of restaurants that were higher.

Okay. And then lastly, the cash receivable went up with roughly the gain in the revenue line. I assume there was little cash in the transaction and then once they get their full funding that obviously the receivables come back?

What I mentioned on the increase in accounts receivable was there were two factors. One was the increase in short-term notes to franchisees and the other component was an increase in receivables from landlords on construction allowances for build-to-suit transaction.

Right. Okay. And then last question, on the '04, how many asset sales would you be projecting in '04?

We have not yet given out guidance for '04.

Got it. Great, thank you.

You bet.

And again that's star one for questions. And we will take another follow up from Joe Buckley of Bear Stearns.

Hi, thank you. I had two actually. Just on the franchise financing that you are providing John, what kind of interest rate are you charging?

I think, it's about 15%. Just kidding, Joe, just kidding. We don't really disclose that, I mean that wouldn't be fair to our franchisees. I think it's very competitive and it's certainly lower than what they could obtain in the commercial markets.

Okay. Less than 15%, we'll put.

Okay.

Just question on Qdoba, talking about the development pipeline, would you walk us through the unit economics, sort of what it costs to get one open and what you are thinking in terms of averaging the volumes and so forth?

Yeah. In general terms, what we would say is Qdoba will produce somewhere around $850,000 in sales. It will cost somewhere around $400,000 in cash to invest in it and it will produce somewhere around north of a 25% pre-tax cash flow return. And usually the stores are established in [end] cap locations and strip centers with very good leases that are highly flexible.

Okay. Okay, thank you.

You bet.

And once again star one for questions. Mr. Nugent, I would like to turn the call back over to you for any additional or closing remarks sir.

Thank you Diana. Well, thank you everybody for joining us. I appreciate it, I appreciate your support and we look forward to talking with you at the end of the third quarter. Good bye.

And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.