Carrols Restaurant Group Inc (TAST) 2021 Q1 法說會逐字稿

Good morning. Welcome to the Carrols Restaurant Group First Quarter 2021 Earnings Conference Call. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Thursday, May 13, 2021, at 8:30 a.m. Eastern Time and will be available for replay.

I will now turn the conference over to Tony Hull, Carrol's Chief Financial Officer. Please go ahead, sir.

Thank you, Rob, and good morning, everyone. By now, you should have access to our earnings announcement released earlier this morning and an earnings review presentation that are both available on our website at www.carrols.com, under the Investor Relations section.

Before we begin our remarks, I would like to remind everyone that our discussion will include forward-looking statements, which may consist of comments regarding our strategies, intentions or plans. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We also refer you to our filings with the SEC for more details, both with respect to the forward-looking statements as well as risks that could impact our business and results, including, among other things, the impact of COVID-19.

During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with Generally Accepted Accounting Principles. A reconciliation to comparable GAAP measures is available in our earnings release.

With that, I will now turn the call over to our Chairman and CEO, Dan Accordino. Dan?

Thanks, Tony, and good morning, everyone. I will start off by providing a business update before Tony reviews our quarterly financials and outlook in greater detail. We had a very encouraging start to 2021 and delivered what we view as a strong quarter that we believe has set the stage for a great year at Carrols.

Comparable restaurant sales rose 14.7% in the first quarter at our Burger King restaurants, driven by a 49.5% increase in March same-store sales. Our strong performance in the month of March was preceded by a weak February, where we lost 682 store days between our Burger King and Popeyes restaurants due to severe winter weather, particularly in the southern geographies we serve.

We attribute our recent Burger King momentum to a successful dollar value product promotion that resonated with our customers, as well as a partial return to a pre-pandemic behaviors and activities and recent government stimulus payments. Our year-over-year comparisons were also favorable, particularly beginning mid-March as we began to lap our COVID impacted performance in 2020.

We once again outpaced the overall Burger King system during the quarter as we have done for 19 out of the past 21 quarters. Using a calendar basis rather than the fiscal period basis we report them, our first quarter 2021 comparable Burger King restaurant sales increased 12.3% compared to 6.6% for the U.S. Burger King system. And I remind everyone that we serve approximately 14% of the Burger King system.

Our latest outperformance of the Burger King -- U.S. Burger King system is by far the largest I can recall, and we believe it was due primarily to 3 factors: first, the Northeast and Midwest regions, which comprise nearly 50% of our footprint, performed better than other geographic areas during the quarter. Second, we did a relatively better job reopening our restaurants, particularly during late night hours than the rest of the system and therefore, outperformed during this daypart. And third, we sold about 30% more Bacon Cheeseburger units daily per store that were part of the dollar value promotion at Carrols than was sold nationally.

To expand on what we are currently experiencing, our April Burger King comparable sales increased 31.5%. Much of this improvement is due to lapping lower COVID impact to traffic, particularly as we begin to see our most impacted dayparts last year: breakfast, evening and late night, come back and come back strong. But the momentum we are seeing is more than that. In fact, if you compare our April 2021 results to April 2019, our comparable restaurant sales increased 10.3%, even at only approximately 90% of the traffic compared to 2019. We believe this indicates that we have more positive impacts to come for our business as the economy continues to rebound.

As a point of reference, comparable March and April sales for our Burger King restaurants in 2021 compared to 2019 showed the same improvement of just over 10% in each month.

As of quarter end, our dining rooms in most cases were open but not widely used as most activity inside our restaurants represented carryout orders. Delivery comprised 4.8% of our total Burger King restaurant sales during Q1, up from 3.5% in Q4 last year, and the average check size rose sequentially to $17.51 from $17.02 per delivery. This compares to our overall first quarter average check for Burger King of $8.81, including delivery.

Our 3 largest delivery partners, DoorDash, Uber Eats and Grubhub now provides fully integrated delivery services at approximately 90% of our Burger King restaurants. At a $17 million plus quarterly revenue run rate, we believe this convenience option will remain significant for us even in a post-pandemic environment.

Turning now to profitability. Adjusted restaurant-level EBITDA increased by 73% to $39.5 million compared to the same period in 2020 as margins improved by 360 basis points to 10.1% of restaurant sales. In terms of some of the restaurant-level drivers, cost of sales as a percentage of revenue was 29.2% this past quarter compared to 29.3% a year ago, even after the addition of delivery costs of 80 basis points.

Beef and waste costs were favorable in Q1 compared to last year, and it remains so in Q2, with their favorability partially offset by higher other commodity costs.

Labor costs as a percentage of sales were favorable versus the same period a year ago and were up only 4% year-over-year compared to nearly an 11% growth in sales.

Our current team size for Burger King restaurant averaged 21 employees during the first quarter, similar to the fourth quarter of 2020, and we continue to benefit from limited use of our dining rooms for eat in service until March 2021 when they fully reopened.

While we are working through challenging labor availability as virtually all of our quick-serve and casual dining competitors have reported, we believe that this issue could potentially be alleviated as younger people gain more access to the vaccine and the supply of potential high school- and college-aged hourly team members seasonally increases within the next 6 weeks.

We recently increased pricing by approximately 2% and, at this point, expect to carry this level of pricing throughout the year. However, should we see challenges with respect to restaurant-level input costs, we believe we have flexibility to take additional pricing as needed in this robust economic environment and will not hesitate to do so if necessary.

Turning to restaurant development. Recall that in January, we amended our area development agreement with Burger King Corporation, significantly reducing our required capital expenditure, spending on remodels and new restaurant construction while forfeiting our right of first refusal on any Burger King franchise sale and portions of our geographic footprint.

Under the new agreement, we believe we have the flexibility to grow our business organically and through acquisitions in a manner that will optimize our profit growth potential while generating consistent free cash flow and keeping our leverage in check. In fact, we are still preapproved to acquire up to 500 Burger King restaurants in territories where we currently operate and are pursuing a number of acquisition opportunities at the moment.

In March, Popeyes agreed to our request to terminate the development agreement we inherited in connection with our 2019 Cambridge acquisition. We are working with the brand to establish a new area development agreement that optimizes the growth potential of this high-growth franchise for both parties.

Over the past 12 months, we have significantly increased our available liquidity to over $200 million and reduced our leverage by more than 1.5 turns to 3.4x.

While building and acquiring restaurants in both brands remains a strategic objective of ours, if compelling returns are not available, we will instead continue to build free cash flow, further delever our balance sheet and return cash to stockholders.

Looking ahead, we are excited about the promotional calendar with its emphasis on value and several product offerings, including Burger Kings new chicken sandwich, which will be promoted with extensive national advertising in the near future. We think that the product-specific campaign will establish tremendous awareness and enthusiasm for what we view as a best-in-class chicken sandwich offering and are eager to see what uplift may come about through this support.

On a related note, we are also excited by the rollout of Burger King's new loyalty program entitled Royal Perks, that is geared towards increasing the level of one-on-one engagement Burger King has with its customers, reducing the use of paper coupons and driving traffic to weaker dayparts.

In 2020, mobile orders accounted for about 1% of our sales, and we are confident Burger King's new loyalty program will accelerate the growth of that distribution channel and drive increased traffic by improving customer engagement.

To conclude, we believe 2021 is poised to be a great year for Carrols. We have undeniable momentum coming out of Q1. We are managing our costs. We are able to execute our organic and nonorganic growth efforts in a balanced way, and we are keeping our capital expenditures and leverage in check. Above all, our goal is to generate a meaningful and healthy amount of free cash flow this year for the benefit of our shareholders.

With that, let me turn the call over to Tony to review our quarterly financials.

Thanks, Dan. Total restaurant sales for the first quarter increased 10.9% to $390 million compared to the prior year period. This increase is less than the 14.7% comparable restaurant sales increase due to the accelerated closure of 34 underperforming Burger King restaurants during the last 3 quarters of 2020, and the way the days within the fiscal calendar shifted between 2 years, particularly during the strong recovery period past March.

Average weekly sales at our Burger King restaurants were $28,094 in the first quarter of 2021. This is an improvement of 14% from 2020 levels and more importantly, exceeded 2019 levels by 6%.

Similar to what we provided last year, we believe it is helpful to offer greater visibility into our Burger King performance by region as we operated over 1,000 restaurants as of the end of Q1 across 23 states.

In the Northeast, representing 22% of our Burger King restaurants, comp sales were up 21%. In the Midwest, representing 27% of our Burger King restaurants, comp sales were up 18%. In the South Central, representing 25% of our Burger King restaurants consisting mainly of Tennessee, comp sales increased 9%. And finally, in our Southeast region, representing 26% of our Burger King restaurants, comp sales were up 10%.

With respect to our Popeyes restaurants, comparable restaurant sales increased 0.5% versus a 3.2% increase during the same period a year ago as the February storms in the South Central region had a dramatic impact on our quarterly results. Our Popeyes restaurants represented 5.5% of our first quarter revenue.

Adjusted EBITDA increased $15.9 million in the quarter to $19.9 million, which was almost 5x greater than our $4 million of adjusted EBITDA in the first quarter of 2020. Our adjusted EBITDA margin increased 400 basis points to 5.1% of restaurant sales.

Cost of sales improved 10 basis points and benefited from both less food waste as well as lower ground beef prices, which averaged $2.05 per pound during the first quarter. This marked a 7.2% decline from the same period a year ago when ground beef prices averaged $2.21 per pound.

Our food supplier has forecasted that beef costs, which are currently at $2.30 per pound, are expected to elevate slightly during the summer months and return to the current level for the remainder of 2021.

Restaurant labor expenses decreased 220 basis points as a percentage of restaurant sales compared to the prior year period, despite a 6% increase in average hourly wage rate. The improvement is a reflection of the adjustments made to our labor requirements, along with having reduced labor costs across most restaurants during the quarter.

Restaurant rent expense decreased 60 basis points as a percentage of sales compared to the prior year period, primarily due to sales leverage.

Other restaurant operating expenses decreased 20 basis points as a percentage of sales compared to the prior year period due to lower utility, repair and maintenance costs and other operating expenses that benefited from dining room closures. Operating expenses in the first quarter included $200,000 in COVID-related supplies, including face masks, thermometers, sneeze guards and sanitizers.

General and administrative expenses were $21.4 million in the first quarter of 2021, which includes $2.4 million of higher bonus accrual due to improved operational performance as compared to last year. The quarter also includes the impact of many corporate cost efficiency initiatives, such as streamlining our regional management structure and reengineering of the employee training process that were completed last year.

Our net loss was $7.2 million in the first quarter of 2021 or $0.14 per diluted share. On an adjusted basis, excluding certain nonoperating items, first quarter adjusted net loss was $6.5 million or $0.13 per diluted share. In the year ago period, adjusted net loss was $19.3 million or $0.38 per diluted share.

Our free cash flow is impacted by seasonal trends in our business as well as the timing of annual payments for insurance and bonuses. Similar to last year, we did not generate free cash flow during the first quarter. However, the $3.6 million in cash we used in the last quarter was a $22.2 million improvement to the cash used in the first quarter of 2020, reflecting, we believe, the strengthening of our business.

We ended the first quarter with cash and cash equivalents of $59.9 million and long-term debt and finance lease liabilities of $493.3 million. We did not have any outstanding revolving credit borrowings under our revolving credit facility and had $9 million of leverage credit issued under such facility.

Our adjusted leverage ratio as defined in our senior credit facility stood at 3.4x at the end of the first quarter compared to 3.8x at the end of fiscal 2020. In April, we upsized our revolving credit facility to $175 million, adding $29 million of liquidity and extended this maturity to 2026.

While we are not providing a full outlook for 2021, let me reiterate a few guidelines that we discussed on our last conference call. We indicated in March that we were expecting flat cost of sales as a percentage of revenue for 2021 compared to 2020. We now believe that there may be a modest headwind for cost of sales this year due to higher delivery activity and related costs as well as revisions to our commodity basket based on updated information from our national food supplier. On the other hand, we expect to benefit from lower promotional and discounting activity compared to last year.

We also indicated on our last call that we were expecting modest labor deleveraging in 2021, mostly as a result of higher staffing levels expected in the back half of the year. Our view has not changed. We expect labor as a percentage of sales to be higher for the balance of the year compared to 2020.

Given the current strong sales momentum, it will be important to prioritize staffing in order for us to capitalize on the favorable revenue trends we are seeing. Expectations for G&A costs are unchanged and are anticipated to increase modestly due to the lapping against short-term pay and travel reductions experienced in 2020, but are expected to remain flat as a percentage of sales.

Our net capital expenditures this year are targeted at $60 million. In addition to routine maintenance, our planned spending consisted the following: first, we are rolling out outdoor digital menu boards to 450 restaurants this year, including at our Popeyes restaurants. As of today, 550 of our restaurants have this technology in place. Second, we have installed kitchen equipment at our Burger King restaurants for sandwich preparation related to the brand's new hand-breaded chicken sandwich. Third, we are currently planning on remodeling of our 20 restaurants, of which 5 will be Popeyes. And fourth, we plan to develop and build 9 new Burger King restaurants this year, of which 2 have already opened and 1 new Popeyes restaurant. We believe all the 2 will go online during 2021.

Said another way, our CapEx this year consists of approximately $15 million for maintenance, $15 million for restaurant equipment upgrades along with corporate projects and $30 million from new builds net of sale-leasebacks and remodels.

Let me add that given the construction cost trends we are seeing, we remain flexible and can and will adjust the timing of these activities based on careful monitoring, particularly as it relates to remodels.

To conclude, we believe that there are numerous tailwinds to our business this year and have many reasons to be optimistic about the year ahead. We expect to generate strong free cash flow again this year that we will deploy in a disciplined manner, designed to enhance shareholder value.

And with that, operator, let's go ahead and open the lines for questions.

(Operator Instructions) Our first question is from the line of Jake Bartlett with Truist Securities.

My first is on the monthly trends. And I believe in the release you mentioned that both March and April were up 10% versus '19. Could you confirm that? Or was it kind of as a whole? Or just maybe to confirm that. And also just in that context, if you could remind us what the monthly comps were in March and April last year, just noting there's a slight deceleration on the -- in April versus March this year but to make sure I understand what the compares are there.

Sure. Yes, I can confirm that April and March were up 10% versus 2019 for each month. And secondly, last year, March was down for hurricane. March was down 16.8%, and April was down 21.7%.

Great. And if you can touch on -- I'm wondering about the difference between your performance in Burger King as a whole. Do you have more stores offering the chicken sandwich, the new chicken sandwich in your system versus Burger King? And could that be part of why you're outperforming by so much?

Yes. Jake, this is Dan. No, we did not have more chicken. As a matter of fact, I think we may have had fewer because we were one of the last areas to be rolled out in many of our distribution centers.

Okay. Dan, will you be able to share how many stores have it now -- chicken sandwiches?

All -- they all have it now. They all have it now, Jake. But we were -- we didn't -- some of these roll out until April.

Okay. Great. And then just moving to the cost and the inflation side. Can you quantify -- Tony, what you expect for commodity inflation? And then how much visibility you have on that? I know it's a concern that I know investors have. We've heard kind of pretty varying guidance from different companies. But what kind of inflation should we expect on the food side? And then how much risk is there to that?

Sure. Our overall commodity inflation for our full basket of commodities for 2021 is at 4% to 5%. And that's based on information we get from our national food supplier. So they track it. They are in constant communication with the manufacturers and that sort of thing. So I think they're pretty good at seeing what's going on, on the ground.

Of our 4% to 5% increase, we think beef will be about 2% and then chicken will be about 5%. Then there's some other ones, is a smaller part of our basket. Shortening is one that's up pretty significantly. It's going to be up -- forecasted to be up like 16%, but it's only like 3% of our basket. And then bacon is forecasted to be up about 14%. Again, that's a pretty small percentage of our overall basket.

So what we're seeing really on the ground for beef is, it obviously went up significantly from the low $2 per pound level to -- in the last 4 weeks it's been very steady. It grew to $2.30, but it's sort of stayed at $2.30 for the last 4 weeks. And again, as we mentioned in the remarks that Dan made earlier, we think that there might be a bit of an increase this summer, but that will go back down to this $2.30. That's what our food supplier is thinking.

The other thing, Jake, just to completely give you a long-winded answer, is that on the chicken side, our natural food supplier has hedged those costs, at least the underlying feed cost to chicken through the end of August. And we have good supply, sort of, in place to get the chicken sandwich launched. So we feel good about that. And so we think we'll get through some short-term volatility this summer and to the end of the year where things should come down.

Great. That's really helpful. And then my last one, just kind of putting that together, 4% to 5% commodity inflation. I think you mentioned 6% wage inflation that you saw in the first quarter and 2% of pricing. So is there any -- are there any offsets? Or should we expect restaurant-level margins to contract in 2021? Are there any offsets like efficiencies that you pull in the store?

As we've said in our prepared remarks, Jake, our promotional discounts are expected to be about 3% lower than they were in 2020.

Yes, that's very beneficial to the top line net sales growth, Jake, as well as it helps offset some of the cost of sales, other things that are going up in the cost of sales line. It's a pretty material change from last year.

Our next question comes from the line of James Rutherford of Stephens.

Congrats on this 10% to your comp here in March and April, I think that's really impressive. Dan, you called out differences as far as kind of what drove that. You called out differences in regional performance, better opening of late night and better performance in the dollar menu, Bacon Cheeseburger, if I got all those correct as far as what drove the outperformance versus the system.

I was curious if you could possibly quantify even just broadly the impact of those components on the outperformance? And then why do you think there is such a difference in the regional performance here in March and April? I think I have an idea, but I'm curious your take on that.

I don't have the -- I can't break out how much of the outperformance was in each of those categories, James. I actually got that response from our Burger King Corporation, RBI. I asked them why we were -- why this outperformance was the most dramatic we've ever seen?

When you consider that we're 14% of the 6.6%, the outperformance was really over 600 basis points. So why -- as far as opening restaurants, I am polled by, again, RBI, that we just did a better job in keeping our restaurants open later in the evening and also making certain that we were open for breakfast, which apparently was not the case in some part of the system.

The Northeast has historically been strong for us and has continued to be so. And as we mentioned in the script, I think some of the underperformance in the Central and Southeast area was due to losing 682 store days in February. Which was a pretty dramatic effect primarily on our Popeyes business.

As far as why we're selling more bacon cheeseburgers in the balance of the system, no one has been able to give me an answer. The only thing I can assume is that we have all of our POP up, advertising the fact that the Bacon Cheeseburger is being sold for $1. Perhaps others aren't necessarily advertising it on the windows and the drive-through, which is primarily where all the business is going through.

Dan, did that regional outperformance for the Northeast and the Midwest extend into March and April, once the weather was no longer a driver?

Yes. For us, it did. I don't know about the -- whether the outperformance relative to the balance of the system continued to be at that level. But yes, our outperformance in those markets continues. Yes.

Okay. And then flipping over to breakfast. Where was your breakfast mix before the pandemic began? Where does it stand today? And I'm just curious how that kind of compares. I think the total Burger King system was at 13%. And just your take on how that daypart is performing here in the last couple of months.

We're at 14% now, which is -- it might be a point lower than it was pre-pandemic, but it's pretty similar to what it was pre-pandemic, James.

Okay. And then last one, I'll turn it on to the queue, is on labor. You always put a lot of thought into how you manage this line. And you mentioned that your hourly labor staff remains at 21 in the quarter here. I think before COVID you were at 23. Dan, can you share what you're running quarter-to-date on labor per store? And if -- will post-COVID normal world, normal labor market, are you going to be above that 23% now that you have a new person at the chicken station or the breading station?

We will not be above 23, and I hope to get back to 21, James. April was not a good month in terms of our ability to staff the restaurant. And that is our -- a major challenge right now is once all the stimulus payments came out, which was the end of March, staffing in April is much more difficult than it was in Q1.

Are there any disruptions on your operating hours or requirements to close the stores temporarily because of that?

Sporadically. We've had some restaurants that have closed prior to the normal closing hours, it's been a handful. But it has happened sporadically, simply because you staff 4, 5, 6 people and 2 show up. And that's been the challenge is you may have enough people on your roster. The question is whether or not they're all going to show up to work.

Next question comes from the line of Brian Mullan with Deutsche Bank.

Congrats guys on the results. It was encouraging to hear about the 2-year trends in March and April above '19. Presumably from here, the impact from the stimulus should start to fade, but at the same time, you have the menu innovation coming. Hopefully, you have a tailwind from mobility. So I'm just curious, when you put it all together, do you think you can hold that level of strength or momentum versus '19 in the coming months and quarters? What's a reasonable way to think about the shape of the rest of the year?

Yes. Brian, this is Tony. I don't -- we're not giving forecast because things are moving so fast. We wanted to give you insight into what happened in March and April. Just on a 2-year stack basis, the first quarter was up 9%, so -- versus '19. So beyond that, we're not really prepared to give a finite number. But I would reinforce that there's some really good things coming on the product rollout from Burger King, the main one, obviously, being the hand-breaded chicken sandwich, and then there's some other more ancillary type products that are being rolled out over the next several months. So we feel really good about the momentum we have, and we think it's going to be a good year for the company.

Okay. Understood. And then on the sandwich, from an operations perspective, could you just speak -- I know this involves some extra equipment, perhaps some new procedures and the sales lift sounds -- I think everyone is excited for that. Can you just comment on how the operations are handling? And are you pleased with everything so far?

Yes. Brian, so far, at the current level of sales volume to the chicken sandwiches, we've been handling it without any issues whatsoever, other than the normal ongoing issue, which is making sure we have enough people in the restaurant in total, but the chicken process specifically is not a big challenge for us, no.

Okay. And then the last one for me. Just wondering if you could talk about expectations about the upcoming launch of the loyalty program. Have you tested it in any locations? And if yes, are you seeing it impact consumer behavior? And then longer term, do you think this can be a real transaction driver for the business over the long-term?

We probably don't have an update. Right now, it's only available through the mobile app. And then that's been sort of Phase 1. I mean, we've seen a lot of -- given -- we're watching it carefully. We've seen a lot of redemptions. So a lot is a relative term. I mean, compared to our tens of thousands of transactions a day, it's not a lot. But we're watching it carefully. And I think when it rolls out into the restaurants, that will be more used. And I think we're -- that 1% mobile order is really low compared to others. So I think there's a lot of upside there once this loyalty program rolls out. And we're excited.

The other big thing about it, Brian, that we talked about is the -- getting rid of paper coupons. We think having electronic coupons is going to be beneficial to promos and discounts going forward. So that's obviously going to help the bottom line on that too.

So it's being rolled out, it's early days, but we're -- like the chicken sandwich doesn't have national advertising behind it yet, but I think it's going to be a big plus. Just the same way -- maybe not to the same magnitude of delivery, but that is something that really Burger King was behind and made it easy for us to get back to 5% of our revenues. So we're hoping they repeat that success with the loyalty program.

Our next question comes from the line of Fred Wightman with Wolfe Research.

I just wanted to touch on the traffic and check commentary that was in the release. I mean, it sounds like traffic started to approach those pre-pandemic levels in April and you're holding on to a decent amount of the check that was benefiting from COVID. So could you just talk about how you think traffic and check are going to perform as we reopen over the next few months? And then just how you think Carrol's Burger King and the broader QSR burger category can participate in that reopening?

Well, in the first quarter, we had the benefit of both going up. I think the check was up 11% and traffic was up 3% in the first quarter. And then as we mentioned in the script that it kind of right now being sort of stable check at this heightened level, as you mentioned. And we're at sort of a 90% of our pre-COVID traffic. So we think there's a lot of upside there.

It's really -- some of it's from the dayparts coming back, the night and the breakfast. That's definitely helping traffic. But traffic up in all dayparts. And then, as you said, we're maintaining check. So I think the check staying at these -- the post-COVID levels has been somewhat of a reassurance to us that we're going to have strong -- we'll have a strong combination of stable check and then building out the dayparts and traffic as the year progresses. So we're pretty encouraged by what we're seeing.

This is Dan. To answer your question, from an overall standpoint how we view it, I think the issue in terms of -- first of all, the loyalty program as well as the chicken sandwich should be incremental to increase traffic. I mean, that's the whole purpose of doing it.

So we are expecting that traffic will continue to increase. We would expect that the utilization of drive-through will still be a primary focus for guests and even as other casual dining outlets reopen, I think it will be a while but they all can reopen at full capacity simply because they don't have enough servers and whatnot either. Easier for us to staff our restaurants than it is for them. So I think that we will see both -- we'll continue to see traffic increase. And as Tony said, there's no reason to believe that the check shouldn't be somewhat stable.

Perfect. Makes sense. And on the chicken sandwich, I get that it's fully rolled out now. But if you look back throughout the first quarter, is there anything you can share about the performance of restaurants that did versus didn't have the product? Understanding that marketing wasn't really turned on, but anything there would be helpful.

In terms of same-store sales lift, because of the way the rollout was handled, I really don't have any quantifiable data, because it was -- within the same DMA some restaurants had it, some restaurants didn't. And really -- we didn't have enough exposure over the entire quarter to put a number on it.

Our next question is from the line of Jeremy Hamblin with Craig Hallam Capital.

And I'll add my congratulations on the impressive performance. I do want to come back to the chicken sandwich for a second. And Dan, I would say that you haven't expressed quite the same enthusiasm that you might otherwise do around this new product. And I don't know if that's because it's a little early on. It sounds like, operationally, your team is handling it really well. But in terms of no national ad support at this point, do you have a sense of the number of units that you were selling on that? How that compares to the prior crispy chicken sandwich? Any color that you might be able to add, and whether or not -- that's part 1 of the question. Part 2 is, whether or not you think national ad support coming here in Q2. And what you think that could do in terms of potentially boosting the overall sales of the product?

I don't know why I'm showing a lack of enthusiasm compared to -- I'm not sure who you're comparing me to. But you got to remember, I had a charisma bypass a long time ago. The sandwich is outperforming the old -- or the previous crispy sandwich by roughly 10 units a day, I would guess, pre-advertising. And in markets where it has been advertising on a test basis, the outperformance of the previous chicken sandwich is doubled. And that is the expectation as the advertising will be launched in later on this summer that will double the amount of units, the number of units that we sold with the previous chicken sandwich.

Okay. That's helpful. And I wanted to just come back to the same-store sales for a second. I think what you called out was 49% comp change versus -- I think it was like a minus 16.8% last March, lapping minus almost 22% in April. Presumably, that would imply that you're probably up over 40% for the month of April. And then as we kind of look forward, obviously, the comparison get significantly tougher. I think May was down 3% or so last year, and June you were back to a positive comp. But in terms of near-term expectations, you just put up a pretty significant comp here in Q1. Presumably, you guys would expect probably a double-digit comp in Q2. Is that a fair assumption?

I think that's a good assumption, yes.

Okay. And in terms of -- are you able to call out what the April comp was? Or would you rather not?

Well, it was up 31.5%. Dan mentioned that in his prepared remarks.

Okay. I missed that. Okay. And then I actually wanted to switch gears. And Dan, you mentioned acquisitions that you were potentially or not potentially that you were working on some deals. In terms of magnitude of deals, what you're seeing out there in terms of potential sellers? Has the pipeline become more active? Obviously, stressful 18 months, I think for a lot of franchisees. Do you sense -- are there more people looking to sell? -- A. And B, in terms of the price multiples that they're looking for, and I know you guys kind of target around 4x EBITDA. What's the sense that you're getting from those franchises who are looking to sell?

I can only speak to the ones, the few that we are aware of and the multiples are tick higher than what they were pre-COVID, but still within the range of what is reasonable.

In terms of the number of potential sellers, I mean, there are always people who are looking for an opportunity if someone is willing to engage in the dialogue. I think it's about the same as what it was before, Jeremy.

Okay. Great. And then last item here for me. Your restaurant -- your other restaurant operating expenses. In terms of thinking about that particular line item, whether it's credit card fees, which I think impact that line item. How do we think about that one on a year-over-year basis? Is that something that, obviously, you leveraged it really strongly in Q1. And you continue to have a lot of momentum here on the sales front, Q2. What type of dynamics do we need to be thinking about on that particular line item as you see things like loyalty program rolling out and other dynamics -- with dayparts returning to more normalized levels, how should we be thinking about that one?

I think the other operating expenses, excluding royalties and advertising, were a little bit higher because of the February storms than we had forecast. But we think they'll be in the -- stay in sort of at the 11% type of range of sales for the rest of the year, 11% plus or minus. We don't see a big increase. It increased a little bit in the fourth quarter, probably, but it's not a material change.

We also -- Jerry, one other thing is in that other operating expense, the reason there might be a little bit of pressure that is -- we are putting in some sort of more high-tech safes in our stores that basically, they automate the process, they basically give us credit for the cash the minute it's deposited into the vault as opposed to waiting for someone to pick it up or waiting for one of our employees to bring it to the bank. So that's a bit of an investment we're making this year. But it's -- again, it's not going to move the needle that much. And we think it's really the right long term.

It allows the teams that we have in the store to spend more time in the store. So we think it's -- we're going to make it up on labor for the most part. So I think that's the only increase we're seeing, and then maybe a little bit from more usage of the dining rooms. But right now the usage is really small in dining rooms. So that could come up a little bit. But again, I don't think this is going to move any needles this year that much one way or another.

Okay. And, yes, I just want to clarify on the G&A expectations for the year, excluding, obviously, anything related to acquisitions, you expected that kind of flattish on a year-over-year basis?

Yes. As a percentage of revenue, yes. I mean it will probably on an absolute basis up a bit, because the biggest thing in there is that in the second quarter, in particular, we reduced salaries. And then we also had lower travel last year. So I think travel is coming back a bit, and then we're not doing the salary reduction per quarter. So I think that will be a bit of a headwind. But I think what you saw -- again, I think as a percentage of sales, it's going to be pretty consistent to last year.

I'm sure Dan is waiting to go on and get back out on the road.

I think he took it out on the road.

I've been on the road, Jeremy. I've been in over 200 restaurants.

Our next question is from the line of Brian Vaccaro with Raymond James.

I wanted to circle back on the new chicken sandwich, and I appreciate what you said, the 10 more units a day with no ad support and the potential to double with support. Dan, can you just help us frame what's the base there? How many units a day on average were you selling of the prior chicken sandwich?

About 28 on the prior chicken sandwich and the current volume is about 38 to 40. And the expectation will be, when it's advertised, that we'll get to about 75 units a day.

All right. Great. And I appreciate all the color on the monthly trends and the regional details as well. But just to tie the bow on sales, could you help me with where average weekly sales volumes in dollars were for Burger King in March and April? I'm just hoping that you could help us cut through your 2-year comps, seasonality, calendar shifts, et cetera, just to make sure we're on the same page.

For Burger King we were hitting like $30,000.

It was pretty stable in March and April?

We have a little bit in there too. But yes, if you average the 2, it's about $30,000.

Okay. All right. Great. And then just on the menu pricing, Tony, what was the -- I missed it, sorry, you were talking about Q1 comp components, but what was first quarter pricing in the menu? And then what's -- I think you said you took 2%. Is that how much it'll be in the menu you expect? Or is there some from prior increases we should take into account? Just trying to get a sense of effective pricing in the next couple of quarters.

I think, Dan, the 2% was late March, early April, right? So it didn't really affect the quarter. I think that from last year's price increase, it was about 50 bps in the first quarter.

Yes, that's right, Tony. We only had 0.5% essentially in the first quarter, Brian, because the 2% didn't take effect until almost the last week of March. In terms of expectations for the balance of the year, we'll see what happens in the competitive environment as well as input costs, and there's an opportunity for us to take additional pricing as we approach Q4.

All right. That's great. And then last one for me. Did you complete any sale-leaseback transactions in the first quarter?

I think so. I think there was one...

I don't believe so.

Yes, I think there was one early April, but nothing in the first quarter.

No, that's right.

Our next question comes from the line of Jim Sanderson with Northcoast Research.

I just wanted to follow-up on the discussion of breakfast. I think you mentioned that your daypart sales mix is relatively stable pre- to post-pandemic. How does the margin look for that daypart? Has it contributed to the improvement this year? Just any feedback on that margin impact for the breakfast daypart?

I mean it's a smaller part of it -- it's 13%, 14% of the mix. So I don't think it's had a big impact one way or another on the margin as of yet. It definitely helps sales.

Definitely helps sales, but the margin rate is relatively stable as far as its contribution, is that the way to look at it?

Yes.

Just a quick follow-up. The lower promotional discounts that didn't have an impact on breakfast margin. Is that also the way to look at it?

It's definitely -- it's small compared to the impact during lunch and dinner.

Our next question is from the line of Jake Bartlett with Truist.

Tony, I'm a little confused on the monthly same-store sales in the 2-year stack versus the commentary that both March and April were up 10% versus 2019. When I look at a, kind of, 2-year geometric stack, it looks like March would have been up about 24% and April up about 3%. So just because the compares get a little easier in April because the comp is lower than in March. So how do I square that?

I mean, those are the numbers. We just looked at -- we looked at compared to -- maybe one is a stack and one just comparing to '19. So the 10% is the aggregate increase from 2019.

Okay. But there was no deceleration in April that you could discern?

No. No, April was very strong.

Okay. And then if you could quantify -- I know you gave us an amount of loss operating days. But maybe just for Burger King and Popeyes separately, if you could quantify the impact of the storms in the first quarter and for (inaudible)?

I don't have the breakout by brand. Maybe Tony does. But I will tell you, it negatively impacted Popeyes much more than Burger King. Because most of the difficulties we had were in Memphis and Jackson -- Memphis, Tennessee and Jackson, Mississippi, where we've got a big penetration of our Popeyes business, and we had Popeyes restaurants that were closed for over a week because they had no water. The infrastructure there is somewhat inadequate and the pipes froze. So we didn't have any -- the city didn't have any water. So we were open -- we were closed in many Popeyes in those markets for over a week.

Got it. That's helpful. And then lastly, just to build on Brian's question about the menu pricing. You had 0.5%, then you added 2%. Should we assume that it's 2.5% pricing barring any other increases? Or do that 0.5% roll off and get replaced with -- ?

No, the 0.5% rolls off. So you've got 2% until we decide what we're going to do going forward. And in the first quarter, we only have 0.5%. That's the way to think about it.

At this time, I'll turn the floor back to management for closing remarks.

Thanks, everyone, for participating in the call, and we look forward to speaking to you one-on-one to the extent you're -- you want to speak to us one-on-one. And we'll talk to you in August for our Q2 results.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.