Papa John's International Inc (PZZA) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Papa John's fourth quarter and full year 2014 conference call and webcast. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session and instructions will follow at that time. (Operator Instructions)

As a reminder, today's call is being recorded. I would now like to turn the conference over to Lance Tucker, Chief Financial Officer. Sir, you may begin.

Thank you, Shannon. Good morning. Joining me on the call today are our Founder, Chairman, President and CEO, John Schnatter; COO Steve Ritchie; CMO Bob Kraut, and other members of our senior management team. After the financial update, John and Steve will have comments about our business and the management team will then be available for Q&A.

Our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings press release and the risk factors included in our SEC filings and all statements made on this call are as of today. Please refer to our earnings press release and the Investor Relations section of our website for a reconciliation and other disclosures related to our discussion of non-GAAP financial measures on this call. Unless otherwise noted, all comparisons are versus the comparable periods from a year ago.

This call is being taped and the replay will be available for a limited time on our website and in a downloadable podcast format. Now, on to a discussion of our fourth quarter and full year operating results.

EPS in the fourth quarter was $0.52, up 27%. For the full year, EPS was $1.75, up 13%. Our fourth quarter revenues increased 10% versus the prior year, and our full-year revenues were up 11%. We continue to see strong comp sales driving the revenue growth, with fourth quarter increases of 4.1% for North America, and 8.9% for international, and full year comp sales increases of 6.7% for North America and 7.4% for international.

Revenues also increased due to a 5.3% increase in the number of units operating globally on a year-over-year basis, and higher commodity prices drove increased PJ food service revenues. We opened 126 net global units in the fourth quarter, with 99 net that international openings and 27 net North America openings. For the year, we opened 235 net global units, with 181 net international openings and 54 net North America openings.

On a business segment basis, operating income for domestic Company-owned restaurants declined $1 million in the fourth quarter and was up $6.4 million for the full year. In Q4, incremental profits from our 5.9% comp sales were offset by the impact of continued high commodity prices and a significant increase of $3.5 million in auto insurance claim costs.

Operating income for the North America franchising segment increased approximately $2.6 million in the fourth quarter due primarily to the increase in comparable sales of 3.4% and reduced performance-based royalty incentives. For the full year, segment income was up $6.8 million, primarily due to 6.2% comp sales.

Operating income for our domestic commissary segment increased by approximately $1.6 million in the fourth quarter, due primarily to higher margins, partially offset by higher insurance costs of approximately $1.5 million. For the full year, segment profits were up $1.5 million, due primarily to higher margins, partially offset by higher insurance costs of approximately $2.6 million. Operating results for our international segment increased approximately $2.5 million in the fourth quarter, due primarily to 8.9% comps and a higher number of units opened on a year-over-year basis. For the year, international segment income was up $4.4 million, more than doubling that of 2013. Again, this was largely driven by 7.4% comps and was despite a lack of improvement in our China market, which speaks to the overall health of our international portfolio.

John and Steve will speak more to China in their remarks, but as we communicated earlier this year, our financial results in corporate owned North China market did not improve at the pace we had projected earlier in the year. For 2014, our losses increased by $700,000, due primarily to restaurant disposition costs for 11 restaurants, which hit in Q3 and was indicated at that time. Operating results were largely flat with the prior year. Our effective tax rate was 31% in the fourth quarter, up 1.6% from 2013, and was 32% for the full year, up 80 basis points versus the prior year.

We repurchased approximately $23 million of stock in the fourth quarter and $117 million for the year. the Company has approximately $116 million of remaining share repurchase authorizations. Our free cash flow, a non-GAAP measure we define as cash flow from operations, less capital expenditures, was approximately $74 million in 2014, up over $23 million versus the prior year.

Our net debt position defined as total debt, less cash and cash equivalents was approximately $210 million at the end of the fourth quarter. We have now rolled out FOCUS, our new POS system, to over 80% of our domestic restaurants and we expect substantial completion of the rollout by the end of the first quarter. From a financial statement perspective, FOCUS costs reduced EPS versus the prior year by $0.02 in the fourth quarter and $0.06 for the year. As a reminder, about one-third of the FOCUS costs are one time and the remaining two-thirds will be recurring as they are depreciation expenses.

You will notice that the press release contains our 2015 guidance. A few highlights of the guidance include; EPS to increase to a range of $1.98 to $2.06, up 13% to 18%, North America comps increase of 2% to 4%, international comp increase of 5% to 7%, revenues growth of 3% to 5%, which has been somewhat constrained by the decline in cheese prices, on which we received a fixed markup at our food service business, 220 to 250 global net units of which about 75% will be international, and there are other guidance items please see the press release for those.

And now I would like to turn the call over to our Founder, Chairman, President and CEO, John Schnatter, John.

Thanks, Lance, and good morning to everyone. We're glad you are able to be with us today on the call to discuss our fourth quarter and full year 2014 results. Our momentum continued in the fourth quarter and I'm happy to report that 2014 was an excellent year for Papa John's. I'm so proud of our operators and team members, as they continue to steadily drive the Papa John's brand forward.

In the fourth quarter, our North America system-wide comp sales were 4.1%, but more impressively, our two-year comps were over 13% likewise our full-year comps were 6.7% and nearly 12% on the two-year basis. These results are clear indication that consumers continue to prefer a better quality Papa John's pizza.

Now, as we have spoken to you for several quarters, there's not just one individual factor that is driving our results. We simply continue to make strides in all areas of our Company, including pizza quality, service levels, marketing, IS, and our digital platform. Clearly, our digital leadership position is integral to the Papa John's growth. We continue to set the pace in the digital arena and we ended the year with over 50% of our domestic system-wide sales from this channel, and our Papa John's Reward Program continues to go strong.

Now, in the fourth quarter, we had three compelling limited time offers and they performed very well. Combined with a strong creative that our marketing team and new agency Grey have developed, we continue to attract new customers and create real excitement around the Papa John's brand.

Now, I would like to talk about our international business, which continues overall to perform very well. Similar to North America, we continued to see strong comp sales with 8.9% comps for the fourth quarter and 7.4% comps for the year. On a two-year basis, comps are up nearly 16% for the quarter, and 15% for the year. As Lance noted, operating income for the international business more than doubled, from $2.8 million in 2013 to $7.3 million in 2014. Like many brands, the strengthening of the dollar will be a bit of a headwind in 2015, but we expect continued excellent growth in sales, units, and profits.

As Lance alluded to, Beijing continues to be an opportunity and as you may recall, several of us did the third quarter call from China when we were there evaluating the market, looking at menu, marketing, and restaurant design elements, as well as the delivery model versus the casual dining model. We'll keep you up to date as we make improvements in this market. The rest of the international portfolio continues to perform very well, with especially strong results in UK, South America, and Middle East. We're very proud of international and we've got great momentum. With that, I'll turn it over to Steve Ritchie, Steve.

Thanks, John and I'll add my congratulations to all our franchisees and operators around the world for continuing to deliver on our brand promise. We closed the fourth quarter on a high note, delivering outstanding full-year results, in spite of the significant commodity headwinds. We turned the corner into 2015 with a tailwind of strong sales momentum and more favorable commodity pricing. The fourth quarter competitive environment remains aggressive, with numerous promotional value offers, including a rebranding effort by the largest chain in the category.

As John noted, our system once again responded well, with excellent comps driven by strong operational execution, robust digital advantages, and increasing brand strength. 2014 was a milestone year for domestic company-owned restaurants. Our VP of Corporate Operations, Edmond Heelan and his team of talented operators, achieved an impressive average unit volume of over $1 million. This is an exciting stat, as our corporate team continues to pave the path for our franchise system to follow.

In addition, our full-year North America comps of 6.7% were our best in the last 15 years, and were also our 11th consecutive year of flat or positive comps. Continuing our track record of consistently delivering solid results in a variety of competitive environments. Our two and three-year comps are nothing short of excellent and we believe the pieces are in place for us to see more of the same in 2015.

As John noted, technology continues to be an area that is a prime factor in growing our sales and market share. Our ongoing digital innovation investments will continue to be focused on enhancing the customer experience. Of note, we were recently rated as having the best mobile experience in new search agency report, which aligns with our robust digital growth from our mobile channel. On the digital initiatives front, we most recently added Google Wallet as an online payment method and will continue to explore further alternative payment solutions we'll also be releasing more upgrades to our apps and an overhaul to our current website, introducing responsive web design to enhance usability on all devices.

Also on the technology front, we continue the rollout of our new point of sale system that began in early 2014. We expect the new system, which we call FOCUS, to have a positive impact on the customer experience, store level operations, and over time, to improve labor costs. As Lance mentioned, we are now over 80% complete with the rollout and on track to substantially complete it by the end of Q1.

On the development front, we had a great fourth quarter, with 126 net opens, including 99 on the international side. As we continue to drive sales and improve our already strong unit economics, we expect to continue to receiving strong interest from prospective franchisees around the world.

Turning to our international business, our strong Q4 comps also represent our 20th consecutive quarter of positive comp sales. In addition, the record unit openings in Q4 are indicative of the success we're having throughout most of our global markets. Notably, we continue to be very pleased with our strong sales and unit growth in the UK, the Middle East, and throughout Latin America.

As in the US, quality pizza at a good value resonates with consumers. However, as John mentioned, Beijing does remain a work in progress. On our recent trip, we conducted assessment of our current strategy and operations model and we'll keep you updated on any significant changes we decide to implement. We've not yet put a timetable on turning this market around, as we completed extensive market research and are testing a number of different adjustments to the operation. Allow me to reemphasize that we believe this will become a strong market for Papa John's.

In closing, we're very proud of our strong finish to 2014. Now we're putting that in the rear view mirror and focusing efforts on delivering a 2015 to rival last year's results. Our passion and commitment to delivering on our brand promise has never been stronger. And we will continue to leverage our leadership position and product quality, technology, and branding, as we continue to build out Papa John's restaurants around the world. At the end of the day, better ingredients make a better pizza and we believe customers can taste the difference. And with that, I'll turn it back over to Lance for questions, Lance.

Shannon, I think we're ready for questions.

Thank you.

(Operator Instructions)

Our first question is from Chris O'Cull of KeyBanc. You may begin.

Good morning, guys.

Hi, Chris.

Good morning.

Lance, let me start with the guidance. I'm struggling to see how you can expect only 13% to 18% earnings growth given the strong comp trends, the international margins expected to improve, commodity deflation, benefit from the shares you bought last year. Help me understand, how do you get to this type of growth this year?

Well, Chris, you know, I think I would agree in that certainly we have good, good strong momentum on the sales front and we will get some help from commodities in 2015, there's no question. Couple things that I would tell you, though, that are headwinds that we are going over, I want to remind you of, we're going over ACA costs will be new, full-year depreciation on the POS system with FOCUS.

We do have a strengthening dollar, which could impact us $0.02 or $0.03 on the international side, higher interest costs, and then the last thing would be on the commodity front, although there is a significant decline in cheese, remember that we do forward contract for some of our cheese. So we don't pay quite up to the $2.12 you saw on the block last year. Nor will we pay all the way down in all likelihood to the $1.65 to $1.70 you're seeing this year on the block.

The intent of that hedging program really is to smooth out the costs and that's what it's doing. So we think we have a good midpoint of our guidance as 15%, 16% earnings growth. I think we've got some potential there. And as results warrant, you know, we'll update that guidance, but we feel pretty good about where we are to start the year.

Yes, Chris, this is John. I never thought that the street would be unhappy with 13% to 18% growth, but I'll take that as a challenge and as a compliment.

Fair enough and just to be clear, Lance, your guidance does assume mid to high $1.60s for the cheese price. Is that correct?

That's the cheese block price that is built in. We don't share the details, though, around the contracting.

Okay. So that's not the price that you're all assuming to get to your earnings guidance?

That is the price that is block and that lines right up with the futures price, which we've talked about is what we use to gauge our cheese pricing.

Okay, okay. And then just could you give us a little more color on the $3.5 million insurance claim costs? Was that -- or what was it? And will it continue to increase at this rate?

Sure. I'll give you some color around that. So basically what happened, we had worse than projected claims experience on auto insurance, both at the corporate restaurants and the QCCs. I don't want to get real deep into the details, but the claims and the unfavorable trends we're seeing resulted in a fairly significant increase in our reserves that we had to take in 2014.

To your point, $3.5 million in the fourth quarter on the restaurant side, $1.5 million on the commissary side. We do expect insurance costs will remain elevated because the trends have turned against us a little bit.

With that said, we do expect much less than the $5 million you saw in the fourth quarter or the $6 million it was for the year in 2015. So you'll see the costs remain elevated, Chris, but you will not see them in that $5 million or $6 million level, we don't believe.

Okay, okay. Are you guys doing anything to improve the claims incidences?

We are, we are there's a number of things we're doing. Again, I don't want to get into a lot of operational details, but certainly from an operations standpoint we are and both on the QCC side and on the restaurant side, we're taking steps to address it. I'm not going to go into exactly what the steps are. We're also taking steps to make sure that we see these trends coming and that we don't have a big hit like that all in one quarter.

So we won't see that kind of basis point pressure on that line item in the first or in 2015 from that item?

No, I would not -- go ahead, John.

Chris, this is John. I would be very disappointed if we didn't get very -- a lot better at knowing what our actuarials are going to be. The problem is not the cost. The problem was we didn't see it coming, so we've had to put processes in place to make sure that we are a little bit more keen on what these actuarials are going to come in at. With that being said, we did put processes in place in 2014 that we didn't have in place in 2013, they just let us down.

Okay. Fair enough. Thanks, guys.

Thank you. Our next question is from Alton Stump of Longbow Research. You may begin.

Thank you, and good morning.

Good morning.

Good job on the 4Q result, I got the harp on guidance, certainly I think that was definitely more conservative than what the street was looking for. I think about fuel costs could you help me understand, you know, how it works with driver reimbursement, if there's any potential benefit for the company-owned stores anyway, you know, fuel costs being down so much year-over-year?

Alton, its Steve. I'll start on that and Lance might want to chime in as well. We do have a mileage reimbursement program at the restaurant level that does fluctuate based on the monthly pricing of fuel. I'll tell you just in terms of the overall impact to the results for 2015, going to be pretty immaterial. As we continue to look at the crude oil prices looking like there's probably going to start moving back upward in the back half of 2015, I think that you look at our guidance and we've incorporated that in.

Makes sense and then just one quick question on the cost front, is there any assumption for pricing coming down at the store level, you know, because cheese is coming down? Or would you expect that we'll see by and large pricing hold safe even with cheese coming down this year?

Alton, Steve again. I'll jump on that first. I think if you think about our pricing strategy for 2015 versus 2014, you're going to see much of the same from a national to a local pricing strategy. Obviously getting some benefit, as I spoke to the tail winds of commodities, but there is going to be some labor pressure on the P&L. As far as our strategy and our brand, you're going to see much more consistency from 2014 to 2015 on the pricing side.

Thanks, Steve and one last question and then I'll hop back in the queue. With the FOCUS rollout obviously isn't even done yet, so I'm sure you're probably still getting data back. But for what you've seen so far, are you seeing any more efficiencies from this system, whether from a route delivery standpoint and/or a labor cost standpoint? Or is it just too early to tell?

Alton it's Steve again. It is still early. I will say that. We do have it rolled out into all of our corporate restaurants, so like everything that we do around here, we learn because we got over 600 corporate restaurants. We learn a lot from those folks on really what the future looks like.

Our primary focus, as you heard me speaking to, is going to continue to remain to be enhancing the customer experience. I think that will always be the priority, enhancing the customer experience.

What we've seen has turned into higher sales. You can see our history and our track record on the sales side, more focused on the labor leverage.

With that being said, we are seeing better speed and accuracy in the restaurants from the POS platform. That driver dispatching system that we use in GPS is also driving efficiency.

I think the key thing for us to learn is the balance on how much that we want to reinvest into service for the customer experience versus what long-term we expect to see in labor efficiencies. With that said, as I had spoken to, I do think that we're going to see some labor efficiencies long-term with this system.

And Alton, this is John. On your question on the fuel, everything we do runs on fuel. From harvesting our tomatoes to the trucks on our milk, our distribution to our drivers, everything we do runs on fuel. So the cheaper the fuel, the easier it is to run Papa John's. No doubt about it.

On your question on the ingredients, when commodities are high, our competition tend to let quality go down, by buying cheaper ingredients and putting lesser amounts on. This disappoints the customer, which we don't believe in. You can't reduce your quality without disappointing your loyal customer base.

So when commodities are high, we just -- we take it on the chin and we continue to drive that top line. And so as you built that top line up, commodities go down like they have now, it gets to be a really good situation and that's what's happening in 2015.

As far as your FOCUS question, the kids in the stores love the computer system. It is an asset, it's more efficient, it's very user-friendly, and it's got a lot of intangible benefits just outside of costs that we're real excited about. So we're delighted with the IS team and the job they did on FOCUS.

That's great. Thanks so much, guys.

Thank you. Our next question is from Alex Slagle of Jefferies. You may begin.

Thanks. Just wanted to get some additional perspective on how much conservatism you baked into the US same-store sales outlook, and is there anything other than just difficult comparisons and it still being only February, or is there some choppiness in your January, February comps that you feel warrant more conservative outlook?

Alex, this is Lance. I'll start with that and then Steve or John can jump in. As you're probably aware, we don't speak to current quarter results. With that said, it's awfully early in the year.

The same drivers that were in place the last 18 months or so that have driven the excellent comps you've seen remain in place. But for now, we've got some tough comparisons and what not, till we get a little further down, down the year, we think this is a good place to start.

Alex, this is John. I'm delighted that you feel that 2% to 4% is conservative. I can tell you the momentum that we had in 2014 is continued we do have good momentum, but I would rather under promise and over deliver. I would hate this early in the game to go out at a 6% to 8% or 5% to 7% comp number and let the street down.

That makes sense. Thank you. And then I don't know if you're prepared to say anything else, but any additional comments on the trends you're seeing in China? I know a competitor discussed seeing some level of improvement in the underlying pizza and delivery business in recent quarter or so, and just want to see if that reconciled with what you've seen in your business.

Steve, why don't you take that one?

Yes, Alex, I'll speak to that. I'll tell you that if you think back to the third quarter, the impact from the OSI incident, you can look at not just our brand, but certainly impact across western brands in China. There was certainly some negative pressure coming on the sales front.

We've seen some improvements in the trends from Q3 to Q4. I don't want to jump too much into a current quarter results. But I think we certainly have some optimism in improving the overall performance.

We've just got so many things that are on the table right now in terms of talking about the research that we're currently conducting, the testing. As John had alluded to, some restaurant design changes.

So a number of things that will holistically really push the business forward for us in China. But have seen improvements of recent time bridging back to the initial really double-digit kind of declines that were experienced across all western brands in the third quarter.

Great. Thank you very much.

Thank you. Our next question is from Peter Saleh of Telsey Advisory Group. You may begin.

Great, thanks and congrats on the year. I just wanted to go back to the automobile insurance claims. I'm just trying to understand what you have embedded in the guidance going forward for 2015. Is what's embedded a moderation from the $3.5 million and moderation to a higher level in terms of versus historical, or is this -- or are you assuming that the claims will return to historical levels in 2015?

Peter, this is Lance. What's really embedded here in the guidance is it should come down from where you saw it in 2014, but will not be all the way down to the levels you saw in 2013. So I guess the other way to say that, it was a $6 million problem for the entire year, about $5 million of which hit in the fourth quarter.

Without giving an exact number, what I'm telling you is the impacts won't be as big in 2015 as it was in 2014. But it will not go all the way back to 2013 levels.

Can you remind us what the level was in 2013?

Well, the numbers I'm giving you are the increment from 2013 to 2014.

Okay.

So you should base it off of some part of the $5 million to $6 million increase you saw this year.

Got it. On the revenue side, the 3% to 5% total revenue growth, can you just talk a little bit about what that implies for the commissary sales and what are you assuming on your commodity basket in general in terms of deflation for this year?

Sure. Peter, this is Lance. I'll start with that one and let somebody else jump in if they would like to. So the first part of that question on the commissary, one of the things we're expecting to see is lower cheese prices, as I think everybody is seeing right now.

When cheese prices are elevated, the way they were in 2014, that drives literally tens of millions of dollars of revenues on the food service side because we get a fixed penny markup on that. So with cheese moderating and coming back to more historical levels, you will see commissary revenues not grow at the rate you've been used to seeing them grow because the moderation in cheese prices is going to be a damper on the growth. From an overall commodity basket standpoint, I would expect that we would see the overall basket come down several percent, 2% to 4%, something in that range.

Okay, and then just lastly, it seems like in January you had maybe reinvested some of the cheese savings back into promotions, buy one, get one free-type promotions. Can you talk about the appetite to continue to do that throughout the year and what kind of impact you think that might have on the margins?

Peter, I'll start and then I'll let Steve jump in here. But we want to stay away from talking too much about first quarter sales. John spoke and then Steve has spoken to our consistency the momentum we have under the current structure we're in. So Steve, I'll let you jump in from here.

Peter, its Steve. What I kind of said before on consistency, if you look at what we did in period one, it's very much consistent what we did last year. We like to look at a strong kickoff with slightly more aggressive promotional activity as we kick off the year. So you saw that in 2014, saw it again in 2015.

As I have spoken to you, you're going to see very consistent kind of promotional strategy in terms of pricing in 2015 versus 2014. Obviously, market conditions could change an overall approach to that, but at this time our strategy does remain very, very consistent.

Peter, this is John. We feel, we feel very good about the margins in the first quarter and we've hedged a lot of commodities through Q3 and Q4. So you never know what the commodity basket's going to do, but I don't want to tell you things are great because you just don't know what's going to happen with commodities. But margins are as good as they have ever been.

Great. Thank you very much.

Thank you our next question is from Mark Smith of Feltl and Company.

Hi, guys. I wanted to look at the company operated restaurants in China you talked about the opportunities there; we did see more closures and a divestiture there. Can you walk through your thoughts on continuing to run restaurants in China?

Mark, its Steve. I'll start on that. I think I'll bridge back to what we did in third quarter. We did have a disposition of 11 units, 7 of those were closures, 8 of those were the impairment. We also did have a refranchising of four restaurants.

So we do think that we tackled some of the challenges on the bottom side of it, using the old 80/20 rule. The bottom 20% of some of our performing restaurants and making some decisions to really pave the path for the future there.

It's still relatively early on some of the things that we're doing on the strategy and the research and the testing, so I don't want to get too far out in front of it, but certainly we've got some things that we need to work through. I think we've talked about in the past that in order to consider a refranchising effort for the entire Beijing business, what we want to do is ensure that we put them on the right path from a profitability standpoint and we've got the right strategy moving forward.

We've made a number of changes over the last several years, as we've talked about this casual dining versus a delivery-carry-out model. So really still refining some of that and that will depict what we do long-term in the future here.

Mark, this is John. I think it's fair to Steve's point that the low-hanging fruit, we attack that pretty quickly and that's showing -- that's showing some progress. But China is a different market than any market in the world and you just have to approach it with a little bit more sophistication than other markets.

And what works in South America or the United Kingdom doesn't necessarily work in China. And that's what we're trying to get our arms around.

For modeling purposes to not put in much for expansion from you guys in China here over the next year or so?

Mark, its Steve. I think -- you think about China in two different ways because we certainly have 50 stores that are corporate restaurants. But the lion's share of our business is franchise in China.

We do still expect strong unit growth coming out of the franchise side of China. We're still refining some of the development plans in the corporate side. It will be modest in 2015 on the corporate side.

Maybe for Lance, I don't know if there's anything else you can do to quantify impact from focus into Q1 as we kind of finish up this rollout.

Sure, Mark. Couple things I would say there. So we are at the tail end. We were at about 75% at the end of the year, so I think the best way to think about that is the number ought to be relatively small in Q1. Certainly you can look at the first three quarters of the rollout that hit in 2014 and, you know, on the one-time stuff you only saw a $0.01 or $0.02 of impact. So it will be one third of the impact we saw in 2014. So a $0.01 or less on the one-time costs. And then the remainder will be depreciation.

All the corporate restaurants are rolled out; all the development is already reflected on the balance sheet. So the depreciation you saw on the Q4 financials ought to be a very good run rate on a go-forward basis relative to FOCUS.

Okay, okay. And then last question, just to hit on guidance a little bit more on the top line, just looking at the comp guidance certainly makes sense and the net unit growth makes sense. But with cheese prices being kind of down where they are and commissary maybe not, and as I think you said growing at the rate that it has in the past and then some headwinds from FX, how do you get to that 3% to 5% total revenue growth if we've got commissary flat?

So Mark, I'll give you some of that and you're going -- you can do some modeling. But obviously between the units we're adding on the franchise side and the comps we expect there, the corporate comps, the increases on the international side; those are going to all look pretty strong, as we've talked about given our guidance. Commissary, without giving you the exact numbers, I don't expect it necessarily to be flat, but I do expect some of the revenue growth that you've seen in the past to come down a little bit just because of that impact on cheese. The way you get to the 3% is really build in a little less than usually for commissary and then build in your, whatever your model's going to spit you out when you run 2% to 4% comps and unit growth on the domestic side and then the international growth as well.

On the commissary, is that really a function of your contracts on cheese that's not going to give us that I think it's a 20% kind of decline year-over-year for block prices and expectation now, but your contract really keeps it from being a decline like that for what you will see?

It's not so much the contracts, Mark. What it really is, is we charged a fixed markup on cheese and we don't disclose the actual markup. But if your pennies of cheese are down by $0.30 a pound or $0.40 a pound, whatever it is, those are revenues to the commissary when they are present that aren't going to be there this year.

Doesn't have anything to do with the contracts. It does in fact have to do with the block price of cheese falling.

Instead of getting -- just look at the block without the markup. Instead of getting $2.12 on the block, we'll now be getting $1.67 on the block, so you've got -- and that is a fairly decent piece. It's under half, but still a decent piece of commissary revenues that's going to constrain that revenue growth a little bit.

And volume will make up for that to get you, to get you to that 3% to 5% kind of total revenue growth?

Volume will certainly make up for some of it. And then again, you have all the other, all the other pieces of the business. I mean, the commissary line is 35% to 40% of our total revenues. So the rest of revenues are going to look like what you would expect, given the rest of the guidance.

That's helpful. Thank you.

You're welcome.

Thank you.

(Operator Instructions)

Our next question is from Chris O'Cull of KeyBanc. You may begin.

Thanks. Just had a couple follow-ups. One just on that last question regarding the commissary, Lance, just to be clear, the profit dollars though that the store, the company receives, those will still be growing at the commissary to reflect the volume increases you expect. You're just talking about the revenue not growing as fast because the price of cheese is falling.

Yes, Chris. That's 100% right. We're not changing the fixed markup, --

Right.

If the volumes increase, you'll see profitability go up, which means you'll see gross margins look better.

Okay. That's perfect and then also, do you expect G&A leverage in 2015?

We would expect a little bit of G&A leverage in 2015. We didn't guide specifically to that, so I'm not going to give a lot of guidance around that.

But certainly we'll make the infrastructure additions we need to make between G&A and IS to continue to drive the business. But you should see some, a little bit of leverage in 2015.

Great. Thanks, guys.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Lance Tucker for closing remarks.

Alright. Thank you, Shannon. Thanks to everybody for being on the call, and we'll talk to you at the end of the first quarter.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.