Carrols Restaurant Group Inc (TAST) 2020 Q4 法說會逐字稿

Good morning. Welcome to the Carrols Restaurant Group, Inc. Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Wednesday, March 3, 2021, at 8:30 a.m. Eastern time and will be available for replay.

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

Thank you, Melissa, and good morning, everyone. By now, you should have access to our earnings announcement released earlier this morning and 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 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 with 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. Let me begin by briefly recapping the current state of our business and then briefly review our quarterly results. Tony will follow by discussing our financials in greater detail.

After enduring one of the most challenging periods in our country's history, we believe the fundamentals of our business and the health of our company are extremely strong. Our liquidity position has improved substantially. Our near-term capital requirements are very manageable. We continue to deleverage. And we have grown comparable restaurant sales for the company's Burger King restaurants for 3 consecutive months through January. We further believe that the combination of vaccinations, continued stimulus aiding our core customer base and easier year ago comparisons will add to that momentum this year.

For a long time, a recurring concern we have heard from investors regarding franchisees, including large ones like Carrols, was that we'd perpetually -- we'd be perpetually hampered by onerous capital requirements imposed by the franchisors. Any free cash flow generated by the business would be required to go towards seemingly endless new store construction, refurbishments and renovations. Additionally, some portion of those projects would inevitably have low returns on invested capital.

Over the last 3 quarters and even through a pandemic, we believe we have demonstrated that those concerns were misguided. The nature of the franchisee/franchisor relationship can, in fact, be equitable. And despite being a franchisee, our business model enables us to generate significant free cash flow and direct a thoughtful capital allocation program to benefit our shareholders.

In January, we shared that we had elected to amend our area development agreement with Burger King Corporation, forfeiting our right of first refusal on any Burger King franchise sale in portions of our geographic footprint. We felt then, as we do now, that Carrols was being given little to no value for it. We also believe strongly that our ability to opportunistically acquire stores, should that be attractive, won't suffer as a result. In fact, we are still preapproved to acquire up to 500 Burger King restaurants in territories where we currently operate.

Under our new arrangement with our franchisor, we have the flexibility to grow our business organically and through acquisitions in a manner that we believe will best optimize our profit growth potential while generating consistent and enhanced free cash flow and keeping our leverage in check.

What has permanently changed as a result of amending the area development agreement is a meaningful reduction in our multiyear capital obligations. Longtime investors and followers of the sector have to reorient their thinking to this new reality.

While acquiring restaurants in both brands seems a strategic -- remains a strategic objective, if compelling store level returns aren't there, we won't chase them. We'll simply build free cash flow, further delever our balance sheet and return cash to shareholders through the repurchase of our own shares.

We generated free cash flow of $56.1 million during the first quarter of 2020 -- during the full year of 2020 and utilized $10 million of cash to repurchase 1.5 million shares in the fourth quarter after we reinstated our repurchase program. We think growing free cash flow while permanently retiring shares on an opportunistic basis will be beneficial to shareholders over time.

Our business generated a meaningful level of free cash flow last year. And we believe that we can continue to generate strong free cash flow. While we will leave it to the analysts and investor communities to determine what the right multiple is for our business, we certainly believe that our current stock price doesn't reflect our current level of free cash flow generation.

I would also note companies can boost their free cash flow metrics for periods of time by starving their business of much needed capital. We have not done that and we will not do that in the future.

We are targeting a $60 million net capital expenditure -- spend for 2021. This is modestly higher than our earlier plan but reflects what we believe will be strong ROI initiatives, such as an acceleration of our digital menu board rollout, some new equipment at our Burger King restaurants related to preparing the brand's new chicken sandwich and remodels and new builds that will be at or slightly above our previous intentions. Still, we feel very comfortable making these investments in our brands. And they do not detract from our commitment to generate meaningful free cash flow.

Longer term, we feel good about our promotional calendar ahead of us with its emphasis on value and new product offerings and are excited by the testing of a new loyalty program. We are also pursuing a number of acquisition opportunities now that we are close to completing the integration of the large number of stores we acquired in 2019. And we see white space in our geographies for high-value, high-return new store development.

Turning to our fourth quarter results. We demonstrated our resiliency with improving trends at our Burger King restaurants in November and December compared to October despite the challenging operating environment. Our Popeyes restaurants lapped the full introduction of the well-received chicken sandwich yet still delivered positive comparable restaurant sales on a 2-year stacked basis of 8.3%.

Comparable restaurant sales in January for our Burger King restaurants improved 5.5%, which was greater than we expected. February has been another story, however, due to some unprecedented severe winter weather in all of our regions but particularly in the South Central region. Fortunately, spring is around the corner. And we expect to show renewed momentum in March as we begin to lap COVID-impacted 2020 performance in the latter part of the month and Burger King launches what we believe to be a best-in-class chicken sandwich offering.

Our geographically diverse restaurant portfolio of nearly 1,100 restaurants across 23 states has provided us somewhat of a cushion in dealing with the pandemic given the shifting rise in cases. It has also helped limit short-term staffing and supply issues across our portfolio. In the fourth quarter, we performed relatively better in the Northeast but worse in the South Central region, as Tony will elaborate in more specific terms.

As you all know, our service model is centered on convenience through drive-through, at-the-counter, takeout and small but growing delivery business. These attributes have enabled us to navigate COVID better than our whole service peers because these channels are more resilient sales platforms than depending primarily on sit-down dining, whether it's indoor or outdoor and subject to ever-changing capacity restrictions. The majority of our dining rooms remained closed in the fourth quarter based upon mandates or at our discretion. We are open for takeout only.

Delivery comprised approximately 3.5% of our Burger King restaurant sales during the fourth quarter, with an average order size of $17.02. In January, delivery accounted for 4.6% of sales. These improvements are up from 2.9% in the third quarter as more customers sought out this enhanced level of convenience, particularly in colder climates.

Our 4 delivery partners, DoorDash, Uber Eats, Postmates and Grubhub, are now providing fully integrated delivery services at approximately 889 of our Burger King restaurants, up from 870 at the end of the third quarter. Looking ahead, we believe that more of our Burger King restaurants can provide a delivery option as providers begin servicing their markets in a meaningful way.

Turning now to fourth quarter profitability, we were able to improve restaurant level EBITDA, adjusted EBITDA and adjusted net income compared to the same period a year ago. Even excluding the impact of contributions from the additional operating week, we still enhanced profitability margins and lower comparable restaurant sales. Within our 4 walls, our traction was reflected in lower food waste as we have adjusted our production requirements based on our shifts in certain day parts and even more so in labor, where we have incurred higher wage rates but have been able to modify labor hours based on day part sales trends.

Our current team size for Burger King restaurant averaged 21 employees during the fourth quarter, up from 20 in the third quarter and 19 in the second quarter. This slight increase was due to the normalization of certain labor elements depending on geography and local conditions related to the expansion of hours. We view this average as a reasonable target run rate going forward. By way of comparison, in the fourth quarter of 2019, we averaged 23 employees.

In addition to favorable expense trends at the restaurant level, we've also benefited from reduced regional and corporate overhead by having streamlined our regional management structure and our training process.

For the full year, we opened 7 new Burger King restaurants, including 1 in the fourth quarter. We also permanently closed 34 underperforming Burger King restaurants. These locations were losing money in a post-COVID environment and their closure should benefit our EBITDA in 2021.

We believe we have a stronger company as a result of the actions taken last year, particularly with the addition of meaningful and profitable delivery sales and the implementation of certain cost savings initiatives that we expect will continue to benefit us throughout the year.

Turning to our balance sheet. We remain in a strong position financially. We ended the year with $65 million in cash and $136 million available to be borrowed under our revolving credit facility. We believe we have a very manageable debt level of $494 million given the attractive current interest rate environment with no near-term maturities. And we have no outstanding borrowings under our revolving credit facility.

One recurring theme we have been asked about lately is the discussion in Washington about a federal minimum wage increase to $15 an hour. While it is unknown if and on what time frame this could become a factor in our business, we would like to point out some of our thoughts on the topic.

In New York state, where we will reach a minimum wage rate of $15 an hour this summer for fast food workers specifically, this change has not altered the fact that these are some of the best-performing restaurants in our portfolio. In fact, EBITDA of our New York restaurants has grown 10% over the past 5 years despite that increase in the minimum wage rate during the same period.

We have seen that in an environment where just a small proportion of employees are earning upwards of $15 an hour, our sales benefit even without the ability to raise prices. We believe that in a situation where all workers benefit from higher minimum wages, we will have the ability to reassess restaurant staffing levels and raise product prices more aggressively to offset rising labor costs.

In closing, we believe that we are well positioned to execute on our stated goals and can now step up our organic and nonorganic growth efforts in a balanced way while keeping our capital expenditures and leverage in check. Our game plan is to continue generating a significant level of free cash flow. And we are confident in our ability to execute on this objective.

Finally, I would like to now end my prepared remarks by welcoming 2 new individuals to the Carrols team. First, Carl Hauch recently joined us as Chief Operating Officer. Carl has proven experience managing large-scale restaurant and retail operations as well as a well-deserved reputation for growing businesses and managing costs.

Most recently, he served as the President and CEO of the Wendy's division of NPC International, the largest Wendy's franchisee in the system. During his tenure there, Mr. Hauch led that Wendy's organization to their most successful year in 2020, prior to their recently announced sale. Prior to that, Carl served as Vice President of Stores and Co-CEO for Barnes & Noble, Senior Vice President of National Operations and Customer Experience with Advance Auto Parts and worked in a variety of operational positions, including District Manager, Director of Operations and Regional Vice President at Starbucks over a 14-year time frame. He also ran national operations in Australia and became a CEO and Managing Director of Starbucks Switzerland and Austria, where he led a complete turnaround of the business in a span of 24 months.

I previously served as COO of Carrols from 1993 to 2011 before becoming CEO in 2012. While I do not have any immediate plans to retire, we do think it is crucial to build our bench, especially given our anticipated growth.

Second, Jared Landaw recently joined us as General Counsel. Prior to joining Carrols, Jared was the Chief Operating Officer and General Counsel of Barington Capital Group, a value-oriented investment firm, Vice President of Law at International Specialty Products, and an attorney at Skadden, Arps. We are confident that both Carl and Jared will be valuable members of our executive team and want to thank Bill Myers, who we cajoled out of retirement after nearly 2 decades with Carrols to serve as our Interim General Counsel this past year.

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

Thanks, Dan. Total restaurant sales for the 14-week fourth quarter of 2020 increased 5.8% to $420.5 million compared to the prior year 13-week period of $397.6 million. During the incremental 14th operating week, we generated $28.4 million in restaurant sales.

Comparable restaurant sales for our Burger King restaurants decreased 0.9% during the fourth quarter of 2020, outpacing the U.S. Burger King system by 200 basis points. You can see that our trends strengthened in November, December relative to the October results we previously reported.

Similar to what we provided in Q3, we believe it is helpful to give greater visibility to our Burger King performance by region as we operate 1,009 restaurants as of the end of Q4 across 23 states.

In the Northeast, representing 22% of our Burger King restaurants, comp sales were up 2.6%. In the Midwest, representing 27% of our Burger King restaurants, comp sales in the fourth quarter were off 1.8%. In South Central, representing 25% of our Burger King restaurants and consisting mainly of Tennessee, comp sales declined 4%. And finally, in the Southeast region, representing 26% of our Burger King restaurants, comp sales were down 0.7%.

With respect to our Popeyes restaurants, comparable restaurant sales decreased 12.9% against the 21.2% increase a year ago as we lapped the full rollout of the chicken sandwich in November 2019. Our Popeyes restaurants are located in the brand's weakest region, South Central. And this entire business represents less than 5% of our total revenues.

Adjusted EBITDA increased $9 million in the quarter to $31.8 million or just under 40% compared to $22.8 million in the fourth quarter of 2019. Adjusted EBITDA margin increased 190 basis points to 7.6% of restaurant sales. Note that the 14th week of the quarter contributed an estimated $5.3 million to this result and was responsible for about half of the margin increase. Looking more broadly, comparing 2020 on a 52-week basis to 2019, adjusted EBITDA increased 18.8% year-over-year.

Adjusted restaurant-level EBITDA also increased $9 million in the quarter to $51.9 million from $42.9 million in the fourth quarter of 2019. Restaurant level adjusted EBITDA was 12.3% of restaurant sales and increased 160 basis points compared to the prior year period. This year includes an estimated impact of $6.3 million or 70 basis points from the 14th week of the quarter.

Even without the impact of the extra week in 2020, margins improved due to the lowest cost of sales, labor costs and other operating expenses as a percentage of revenue. Cost of sales improved 20 basis points and benefit from the -- from both less food waste and lower ground beef prices, which averaged $2.04 per pound during the fourth quarter. This marked a 10% decline from the year ago period at $2.26 per pound. Greater promotional activity was offset by a favorable sales mix.

Restaurant labor expense decreased 80 basis points as a percentage of restaurant sales compared to the prior year period despite a near 6% increase in hourly wage rate and lower comparable restaurant sales. The improvement is a reflection of the adjustments made to our labor requirements and hours based upon operating day part sales trends, along with having reduced our costs across most restaurants that are not operating value ones.

Late night hours are still weaker than prior to COVID. And restaurants that were previously opened 24 hours are still closing at midnight. Restaurant rent expense decreased 30 basis points as a percentage of sales compared to the prior year period primarily due to the impact of the extra week in 2020.

Other restaurant operating expenses decreased 60 basis points as a percentage of sales compared to the prior year period due to lower utility, repair and maintenance and other operating costs that benefited from dining-in closures.

Operating expenses in the fourth quarter included $337 of COVID-related supplies, including face masks, thermometers, face guards and sanitizers. General and administrative expenses were $24.2 million in the fourth quarter of 2020, which includes $0.5 million higher bonus expense due to improved operational performance compared to last year. The quarter also includes the impact of many corporate cost efficiencies, such as streamlining our regional management structure and reengineering of the training process that were completed earlier last year. These savings are expected to carry over into 2021.

Our net loss was $18.6 million in the fourth quarter of 2020 or $0.37 per diluted share. This includes an adjustment of $12.9 million in the fourth quarter 2020 to record an incremental valuation allowance for certain income tax credits that may expire prior to their usage by the company. On an adjusted basis, excluding certain nonoperating items and the tax adjustment, fourth quarter adjusted net loss was $5,000 or $0.00 per diluted share. In the year ago period, adjusted net loss was $6.1 million or $0.12 per diluted share.

Free cash flow generation was strong in 2020. And as a result, our adjusted leverage ratio under our credit agreement stood at 3.82x at January 3 compared to 4.06x at September 27 last year.

While we are not providing a full outlook for 2021, here are a few guidelines to keep in mind. We believe that with the current outlook for lower beef costs in 2021 compared to last year, our cost of sales as a percentage of restaurant sales will remain in line with 2020 levels and such savings are likely to be largely offset by higher delivery and food distribution and other commodity cost increases.

We expect modest labor deleveraging as a result of wage increases of about 4% across our restaurants as well as higher staffing levels expected in the back half of the year. G&A costs are expected to increase modestly on an adjusted basis due to lapping and short-term pay and travel reductions experienced in 2020 but are expected to remain flat as a percentage of sales.

As Dan said, our net capital expenditure this year are targeted at $60 million. This is obviously higher than the $40 million to $50 million range we provided previously and is changed based on the following items: First, we decided to accelerate the rollout of our digital menu boards to 500 -- or outdoor digital menu boards to 500 restaurants this year, which is up from our original plan. Second, we will be installing new kitchen equipment at our Burger King restaurants for sandwich preparations in anticipation of the brand's new crispy chicken sandwich, which costs an additional $5 million and was not included in our original range. Third, we are now planning on remodeling about 30 restaurants, of which about 5 will be Popeyes. This is at the high end of our previous plan. And fourth, we now expect to develop and build 9 to 11 new restaurants this year, of which we believe all but a few will go online during 2021.

Note that in 2020, our net capital expenditure spend was about $47 million and consisted of 19 remodels and 7 new restaurants in addition to $13 million in maintenance CapEx. With a continued favorable QSR environment, the near-term launch of a loyalty program and a meaningful new food product coming in the next few months, we are optimistic about the year ahead. We expect to generate strong free cash flow again this year and plan to allocate that cash flow in a way that we believe will be beneficial to our shareholders.

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

Our first question comes from the line of Jake Bartlett with Truist Securities.

Great. My first is kind of a broad one, but it's really the impact of reopening post COVID or as COVID wanes and the impact on the QSR industry. So it was really helpful to see your same-store sales by region. But I'm also noting that there seems to be a correlation between positive same-store sales in markets where -- that are most closed from a restaurant perspective.

So broadly, do you expect the reopening -- or what impact do you expect the broad reopening and consumers getting out and about and also going and dining in to have on the QSR space and, for instance, the spike in drive-through sales that you've had?

Jake, this is Dan. Our experience has been that as states reopen in whatever fashion -- and it's difficult to define what reopen means because they'll open dining and then close dining and reduce capacity and that sort of thing. As more people are out and about and on the road, our sales benefit, whether you have more casual dining or full-service restaurants open with any seating or not.

So I would expect that fast food sales in general will still continue to be a very resilient sector as it relates to increased delivery, which is ever increasing and continual utilization at a very high level of takeout and drive-through.

Okay. Great. Helpful. And then also as we think about kind of recent trends and it was helpful to see -- and encouraging to see the spike in January, it sounds like there's been a reversal in February and understandable with weather. But could you give us a sense as to how the -- kind of the February sales have been on a regional basis? I'm up here in the Northeast and it seems pretty normal year-over-year. But any kind of comfort we can have with the trajectory of the business by looking at the regions maybe least impacted by the weather?

Yes. The Northeast is still performing at the highest level. And that's been least impacted on a year-over-year basis by the weather. The primary weather impact has been in Tennessee, Mississippi, some in the Carolinas, in that area. Tennessee was particularly hit hard. At one point in time, Memphis had more snow than Missouri and Houston.

Right. And can we -- as you look at the Northeast in February, was it similar to January? Or was there any kind of anything else impacting the trajectory of sales than weather that you can tell?

Yes. As soon as the stimulus -- we got a big impact as soon as the stimulus came out. And then as the stimulus were used, you could see a bit of a sales deterioration across the board. So the stimulus absolutely helped. And we're very much looking forward to the next round of stimulus checks.

Great. And then last question. What influenced your decision to step up capital spending and increase remodels, open a few more stores? What was the driver of that versus kind of a couple of months ago when you had a lower expectation?

Well, the number of remodels -- oh, go ahead. Go ahead, Tony.

I was just going to say that, yes, we were on the high end of remodels. And we just saw the opportunity to step up those restaurants and improve those restaurants. We had room under the -- under our dollars budget.

The biggest thing, I think, was the restaurant equipment that was -- that we didn't really foresee as much as it came to light in the fourth quarter in terms of what we had to spend both at Popeyes and at Burger King for the equipment. I think that was -- plus the outdoor digital menu boards added about $15 million.

So that's really the delta between where we were and where we are. And we -- once those are installed and once that equipment is installed, we'd expect it to be kind of a onetime initiative. But we still wanted to build the base and have the organic growth in the base that we had forecasted before and next year at the high end of those levels.

And just to understand, I'm surprised that the equipment was a surprise. I mean I understand the sandwich has been in test. Is that -- has there been a shift in or some sort of a change in how -- operationally, how this is going to be executed?

No. We only had the chicken sandwich in half a dozen restaurants. So we had only bought the equipment for that number of restaurants. So now that we're in the throes of a national rollout, we've had to buy that equipment for the whole balance of the Burger King system.

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

Sorry in advance. I've been bouncing between calls. So if you talked about this, my apologies. But I wanted to talk about that chicken sandwich. You noted that it is best-in-class in your view. Can you talk about what portion of your sales the previous chicken sandwich drove at least roughly? And then what kind of uplift you're seeing in tests? So really that uplift to help us kind of gauge that. And then if you expect you would need to modify labor hours given the additional complexity of the sandwich production?

James, this is Dan. We're just now in the very early stages of the chicken sandwich. So -- and it has not yet been advertised. So I can only respond to what's happened in the other test markets outside of Carrols where there's been more restaurants involved. And as I said in the last call, I think it's -- that was doing quite a bit better than the -- significantly better than the existing chicken sandwich. But at this point in time, I would be reluctant to put any sales lift on what we think it will do because we're just now rolling it out.

In terms of the labor impact, it will require a dedicated person if the number of sandwich units that we hope for in terms of when it's marketed, if it generates that level of revenue, it will be one more person.

Okay. Fair enough. And one more, if I may, on restaurant level margins, 12.3% in the quarter. I think I saw that 70 basis points of that came from the extra week. But even excluding that, it's still up nicely from the 10.7% year-over-year. What were the biggest pieces of that? And more importantly, how do you think about sustainability of these elevated unit margins for the full year of 2021? I heard some of the color that Tony gave on the various lines within restaurant expenses. But just in terms of sort of the overall impact as we calibrate our models to restaurant margins and how those will progress through 2021.

Yes. The other item, the biggest item was labor in Q4 that drove the improved margins. And then other operating costs were better than we had expected. So I think those 2 things were the big driver of the $2 million beat on adjusted EBITDA.

The -- going forward, for the first half of the year, there are very few costs that are coming back. There's some increment in the number of managers in the stores coming back in the first half just to relieve some of the pressure there. And then we'll see how the market opens up. But we expect that there will be some headwinds on labor in the back half of the year.

And then some of the other cost savings, particularly in the corporate overhead that we put in place for the most part, especially related to trade training and that sort of thing, we expect to stay at sort of the lower levels that we saw last year because it was effective in the way we did over last year with less travel. But there will be some travel coming back on the G&A line this year, we expect. And there's some other -- and as I mentioned, some labor -- some productive labor in the back half of the year should go up a little bit.

So those are some headwinds that will come sort of post COVID. But we expect to see things stay pretty steady state in the first half of the year.

(Operator Instructions) Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group.

I wanted to just come back to the February results just to see if we could pin it down a little bit more. So obviously, some deceleration, could you quantify the magnitude of that in more detail?

Sure. Sure. We expect it to be about a 2% to 2.5% impact on February. But again, it's weather-related. It's very unusual, what happened in February. So we really -- now that spring -- we've seen in February since the weather has sort of -- is past us that things are improving back towards what we were seeing in January and, frankly, the first week or so of February. So we're seeing those things normalize pretty quickly post storm.

So it's a onetime lift. Everyone in the industry is going to feel the pain of that. But it's a modest -- it's 2%, 2.5% of -- we lost 2%, 2.5% in February. So it's not a big thing. And overlapping -- as we start to lap the March COVID reductions last year that were 20-plus percent, we think that the comps will recover nicely for the quarter.

Got you. And in terms of thinking about that weather impact, you just pointed out in the Northeast, it's kind of been somewhat typical type of weather. Did you -- are you seeing a bigger impact in that South Central and Southeast more than that 2% and 2.5% in terms of impact on the weather versus the Northeast maybe having a very minor or no impact?

Definitely.

Okay. Fair enough. I wanted to ask about store closures for '21. You ended up with like 34 total closures in '20. In terms of thinking about a range of expectation on '21, I might have missed that. But what are you looking at?

Our current view is -- we sort of took care of business of that business in 2020. So maybe 1 or 2 in this year. So it shouldn't be -- it won't be a big factor. The growth is obviously going to outweigh the closure in 2021. That's our current expectation for sure.

Okay. And then the next question comes back to the chicken sandwich. And I think the last messaging corporate-wide was a little bit of a cryptic message in terms of wanting to get the launch right, which we assume meant that there -- it was going to be a little bit later than maybe previously had been viewed in which I would have thought the launch was happening in the first half of the year, maybe even by April time frame. Can you give us a sense for -- because this really implies a national marketing campaign and support for it. Is this something that we should now be thinking about in like the second half in '21 in terms of national...

No. The launch will be completed in May.

Okay. Great. And then just coming back to the trends on delivery. I think you quoted that the average ticket was like just over $17 in Q4. In terms of the trend on that, has that been slightly pulling back from what you had been? I think the number was maybe a little closer to $18 before. Any noticeable trends that you're seeing in terms of the size of your average ticket on delivery?

In January, it went back over $18, Jeremy. And it was -- I think it was like -- as we said in the script, it is 4.5% of sales. So it's picked up in volume and it's picked up in -- I mean I think we generated $6 million in January in delivery sales. So it's double what we were seeing when we first launched it or when we were sort of mid-launch. So it's definitely picked up. It's definitely picking up steam in January. So it was a temporary decline in that $17 number, I think, definitely saw a pickup as the weather got colder.

Got you. And then I think your -- you cited beef price, $2.04 a pound in Q4. Where is that level today? And then what are some of the other -- because you noted the cost of sales you expect to be in that kind of 29.2%, 29.3% range for the year. What are some of the other commodity pressures or benefits that you're seeing? But where is beef price today?

Beef today is $2.07. And I would say the other, I'd say, chicken is probably some short-term pressure on chicken. But as I've learned in the last year of doing this job that the chicken supply can be filled faster than the beef supply. So I think that will adjust as we go forward. But that definitely -- we're seeing some increase there. And that's about 10 -- on the Burger King level, that's about 10% pre-chicken sandwich launch. So it might go up a little bit in terms of the total commodity basket.

Tony, you can relate to the fact that we put our -- Tony, speak to the fact that we put our delivery fees and our cost of sales, not in operating expenses as well.

That's true, too.

So when you're comparing, Jeremy, our cost of sales to others, we look at the delivery fee as a cost of sales expense. And I know at least in Burger King system, the majority of the operators put us in operating expense.

That's helpful color. And what was the delivery fee as -- in terms of basis points on your COGS in 2020? Is that...

40 basis points.

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

Just wanted to circle back. I appreciate the incremental color on the February trends. Just to make sure I'm interpreting your comments correctly. I think you said you lost about 2 or 2.5 percentage points of altitude. That's versus January, so it's right to interpret that, that your Burger King system was somewhere in the 3s. I just wanted to clarify that.

No. That was calculated at -- it's really as a percent of sort of the days in February that we lost compared to the total restaurant days in February. So it would be February...

Okay. But the underlying momentum of the business somewhere was in the mid-single digits. The comparisons are pretty similar, February versus January before COVID hit. So I guess could you just help us with what -- just to make sure we're on the same page?

Well, I mean I think the important thing is that March 2020 was down 16.8% last year and January was up 5.5% and you're going to see stimulus. So again, I view the 1 week in February as, first of all, industry-wide and not that material. I think the big comp momentum is going to come as we start lapping March 2020. And even if we stayed where we were, if we stayed flat to January, obviously, we see some nice numbers in March that -- and that will really help the quarter.

So I do -- I don't pay too much attention to weather anomaly as a long-term driver of our value in our business. When March and April was down 22% last year, we're going to see some very strong comps in -- from this month on for several months. And then we have the chicken sandwich and we have stimulus. And so again, I wouldn't put too much emphasis on a strange, very anomalous winter storm that affected a week in February.

Tony, I couldn't agree with you more. I'm trying to level set expectations and models for the first quarter. It's noise that's under -- water under the bridge at this point. It's more about just setting expectations. Maybe I'll ask it this way. Could you level set where average weekly sales trends are quarter-to-date for each brand?

I don't have that quarter to date. I mean January, we were up 6.5% on AUV versus last year, I think. So...

Okay. I'll follow up offline on that. Switching to the dining room, status of the dining rooms, I think you said nearly all are still currently closed. What's the latest thinking on the potential time line for when those might reopen across your system?

Well, closed is -- this is Dan. Closed is a nebulous term. All of our dining rooms are open. We have opportunities for seating in probably 30% of our system. Whether or not they get used on a regular basis is another matter. But we've been open for takeout, every place and still are.

In terms of opening the dining rooms for a greater level of seating, it's store-specific, frankly. We've got some rural stores where the guests really want to sit there because that's a social gathering place and that sort of thing. And we have more seats available and, in some cases, the entire dining room available in those restaurants.

So we're making those decisions individually by restaurant. But all of our dining rooms are open and have been opened for takeout.

All right. And you talked about adding some hours as you move through 2021. Is part of that related to an assumption that you reopen dining rooms further or seating capacity further later in the year?

The second half of the year, we're assuming that once the vaccinations are further ahead and COVID is in a better -- in a different place, that we will have more opportunities for seating. As you have more opportunities for seating, we're going to have to add a bit of labor in order to -- from a maintenance standpoint for maintaining the restrooms and the dining rooms. So there'll be some of that.

But as I indicated around the chicken sandwich, the chicken sandwich, the expectation is that will be a dedicated person. That -- not only in terms of the amount of sandwiches that we expect to sell, but you're dealing with a raw product. And as you're dealing with a raw product, that person has to be dedicated to that station. They can't move between areas.

Yes. Understood. Understood. Last one for me. I just wanted to ask about the digital menu boards. Can you remind me how many you have installed at this point, the outdoor digital menu boards at the end of '20? And then could you expand on the benefits that you're seeing? What are you seeing in terms of average check, customer satisfaction? Any improvements in terms of throughput and the drive-through?

Yes. It's difficult to determine what the impact of digital menu boards is in a COVID environment when you've got 80-plus percent of our sales coming through the drive-through and check averages are up, whether you have a digital menu board or you don't. Customer satisfaction from an NPS standpoint seems to be a bit higher because of the visibility of the boards.

And in terms of throughput, the throughput is purely a function of whatever your staffing levels are in the restaurant and whether you have 2 windows so that you have a cash window and a pickup window and that sort of thing.

The real benefits of the digital menu board other than the existing visibility improvement will occur when Burger King gets further along with interfacing digital menu boards for the loyalty program, where they can identify guests as they go through the drive-through with artificial intelligence that we will have software implemented in the new digital menu boards. And the hope is that we'll have that in 2021 as well.

Brian -- yes, Brian, we're about up to 250. And then we'll be -- we'll add another 500 this year.

And we'll have them all in Popeyes, too, by the end of 2021.

Yes. That was another addition to CapEx for the year.

Our next question is a follow-up from the line of Jake Bartlett with Truist Securities.

Dan, I had a question about the Burger King's focus on food quality and taking preservatives out of the Whopper, et cetera. It seems to be real brand building effort. What do you see maybe in terms of surveys or customer reactions to that? Do you think that's either a long-term or a near-term needle mover for sales or for brand perceptions?

You would have to ask Burger King in terms of the brand perception because I don't see the brand perception research.

In terms of our guest satisfaction surveys, it measures food temperature, food taste, food quality, that sort of thing. It doesn't speak to whether or not you've improved the -- or eliminated any artificial ingredients.

So in terms of overall brand perception of everything being natural, I guess that's where the industry is going. So I would expect that it's very -- it will be positive for the brand. But I certainly couldn't put any sense of a sales improvement at it, no.

Okay. Great. And then Tony, you mentioned commodities being -- certainly being favorable now. And it sounded like you expect it to be favorable for the year as a whole. I have some commodity sources that think that -- or their estimates are for a spike in beef costs and beef trimming costs towards the back half of the year. How much visibility do you have on your supply? And how confident are you that you're going to see a helpful kind of commodity environment?

I mean we get our information from RSI, which is our food co-op. And based on their research, that's what their -- that's how we get our forecast, which is -- that we put in our budget.

Okay. And then, Dan, maybe just lastly on acquisitions. You talked a couple of times about some kind of bolt-on acquisitions, not very big. Can you give us just a sense for modeling purposes how many of those might be or when they might be closed? And then also, just any insight as you rebuild the acquisition pipeline, how that's coming together? Is it a good environment to acquire stores right now? How confident are you that acquisitions can really become a part of the growth story here?

Yes. We've got a few deals that we're currently working on, Jake. And I would expect that we will have 2 acquisitions with a total of 19 restaurants. I would -- we're going to go to contract on those within the next month. So I would expect that we would have those things closed in the early part of the second quarter. And beyond that, we've got a few more deals that we're taking a look at. But in the near term, I think it would be fair to model 19 restaurants.

Great. Are you feeling good about the supply of potential deals out there? I don't know what impact COVID has had on the dynamics that drive the transfers. But any insight there would be helpful.

I think, yes, I think that the -- once -- now that we have signaled to the world that we're back in an acquisitive mode, the number of inquiries certainly has increased. And I would expect that, that will continue through the balance of the year, Jake.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Hull for any final comments.

Thank you. I appreciate everyone joining us for this call. And we'll speak to you in May. Talk to you later. Bye-bye.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.