Wingstop Inc (WING) 2015 Q4 法說會逐字稿

Welcome to the Wingstop, Inc. fiscal fourth-quarter and FY15 earnings conference call.

(Operator Instructions)

Please Note this conference is being recorded today, March 3, 2016. On the call we have Charlie Morrison, President and Chief Executive Officer, and Mike Mravle, Chief Financial Officer. I will now turn the conference over to Mike.

Please go ahead.

Thank you, operator, and good afternoon. By now, everyone should have access to our fiscal fourth-quarter and FY15 earnings release. If not, it can be found at www.wingstop.com under the Investor Relations section.

Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance upon them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Lastly, during today's call, we will discuss non-GAAP financial measures, which 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 GAAP, and reconciliations to comparable GAAP measures are available in our earnings release.

With that, I would like to turn the call over to Charlie.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us for our quarterly earnings conference call.

Let me start things off with a brief overview of our annual and fourth-quarter results for 2015. Afterward, I will update you on three key initiatives: unit development, technology strategy and our marketing strategy. And then Mike will review our fourth quarter financial results, reiterate our long-term targets and provide annual guidance for 2016. Finally, I will wrap up our formal remarks with a few closing comments before we open the lines for questions.

2015 was another strong year at Wingstop. We delivered robust unit growth and exceeded our previously communicated guidance across all metrics. On an annual basis, we are pleased with the 15% -- 15.6% increase in our top line, which we then leveraged into 18.5% growth in adjusted EBITDA and 29.4% growth in adjusted net income.

We delivered our 12th consecutive year of positive same-store sales with a 7.9% increase in domestic same-store sales. Over the past four years, cumulative domestic same-store sales growth was 44.1%. We believe this industry-leading sales growth demonstrates the strength of the Wingstop brand.

Our average unit volumes are now over $1.1 million, increasing even as store growth has accelerated. Regarding the fourth quarter, compared to the year-ago period, revenue grew 14%, while adjusted EBITDA grew 36% and adjusted net income grew 65%.

On the unit development front, we had 38 net new openings during the fourth quarter. That brought us to 133 net new restaurants in 2015, representing a unit growth rate of 19%. This was a record for us and reflects a sequential improvement from the 16% growth delivered in 2014. The 13% growth generated in 2013, and the 9% growth realized in 2012.

Our industry-leading growth is largely fueled by the strong unit economic model that we offer to our franchisees. We ended 2015 with 845 system-wide restaurants in 39 states and in seven countries, continuing to demonstrate the portability of this concept.

There were also only three domestic units closed in 2015 or less than 0.5% of the domestic restaurants, one of the lowest closure rates in the industry. We remain confident in Wingstop's opportunity for system unit growth. Ultimately, we see our domestic potential as 2,500 locations and are tracking towards that goal by expanding at a 19% annual rate in 2015.

The successful franchisees are the key driver behind our unit growth. At year end, we had a pipeline of 530 sold commitments. 78% of those commitments stem from the existing franchisees, partners that we know and work with successfully on an ongoing basis. This gives us confidence in our continued pace of development and validates the unit economic model that we offer.

And yet, with only about half of our potential footprint sold, we still have a significant amount of growth ahead of us. As I mentioned a moment ago, accompanying the expansion of our domestic footprint, our domestic average unit volume has grown considerably, exceeding $1.1 million in 2015. On an approximately 1,700 square foot store, this resulted in average sales per square foot of $662. Our high sales per square foot is made possible by our 75% carry-out mix.

At an average investment cost of $370,000, our model yields best-in-class sales to investment ratio of 3 times. This generates an unlevered cash on cash return of between 35% and 40% in the second year of operation, based on our 2013 class of restaurants. The combination of low entry costs and high returns provide a compelling investment opportunity for our franchisees that has helped drive the continued growth of our system.

While our domestic growth is driving our near-term results, we are excited about the early stages of our international business. We opened 24 international locations during 2015, ending the year with 59 international restaurants.

Our restaurant operating model translates well internationally and we will continue developing the markets we have already entered, which include Central America, the Middle East and Southeast Asia. As we consider additional international opportunities, we will prioritize densely populated areas that have western brand appeal, as well as high per capita consumption rate of chicken. Finally, in Q1 2016, we closed our three restaurants in Russia and at this time, we have no intention of further developing that market.

In addition to our unit development plan, we are also working on two other initiatives to continue to grow our average unit volumes. One of our key strategies is to utilize technology to drive growth from online channels. As you know, we have implemented our new online ordering platform and app in September of 2014 and have increased our percent of online sales to 15% during the fourth quarter 2015, more than doubling the mix from the prior year.

Our app has been rated best-in-class in terms of ease of use and functionality by our customers, with an industry-leading 29% conversion rate. Additionally, the average transaction size for online orders is approximately $4 higher than the average for other orders. We believe there is significant opportunity for further growth, with the use of online ordering as we still take approximately 60% of our orders via the phone.

Converting more fans to online ordering will not only speed up the ordering process. It will also enable franchisees to take better care of our guests who choose to come into our restaurants to place their orders or sit down and eat on premise, thereby improving overall efficiency and the overall guest experience.

This digital strategy is being supported by a change in our advertising strategy in 2016. As you know, we manage a national ad fund that has historically collected 2% of sales from the restaurants. In addition to the national ad fund contribution, franchisees also spend 1% to 2% locally, either through co-ops or local store marketing.

In 2016, we have put a plan in place with our franchisees to consolidate the digital advertising across the system to manage it on a national basis. While this is only a reallocation of funds, not incremental funds, this consolidation will allow for additional economies of scale in purchasing and provide great returns on our investment. We believe this focus on digital advertising will not only pay dividends in terms of driving our same-store sales, but will also support additional conversion of guests to the online channel.

From a new product standpoint, we have two great flavor events to discuss. In the fourth quarter,, we rolled out our Spicy Korean Q flavor event to a great customer feedback. Our guests love the unique profile of this proprietary sauce. It was one of our best flavor events to date, accounting for approximately 5% of our flavor mix.

Our newest flavor, named Smoke 9, just rolled out this week. This limited time flavor is a smoky dry rub with sweet garlic and spices that come together for a bold barbecue flavor. It will run through the end of May. Our mission is to serve the world flavor and we think our flavor events are a great way to continue to bringing that mission to life for our guests. In short, we enjoyed a great year in 2015 and have the strategies in place to continue to move the Wingstop brand forward.

With that, let me turn the call over to Mike for a more detailed review of the financials.

Thanks, Charlie.

Turning to our quarterly results for the 13-week period ended December 26, 2015. Total revenues increased 14% to $20.6 million for the fourth quarter of 2015 from $18.1 million in the comparable prior-year period. Recall that the majority of our revenues are made up of royalties and franchise fees and they increased 16.7 % to $12.5 million for the fourth quarter, compared to $10.7 million in last year's fourth quarter.

As Charlie mentioned, we opened 38 net new restaurants in the fourth quarter, bringing our annual total to a record 133 net new openings. We ended the fourth quarter with 845 total system-wide openings, or total system-wide restaurant, representing a unit growth rate of approximately 19%. Note that all of our 2015 development was franchise development.

In addition to restaurant development, revenue growth was also driven by domestic same-store sales growth of 5.9% in the fourth quarter. Our Company-owned restaurant revenue increased to $8 million from $7.3 million in the prior year, driven entirely by 9.9% growth in same-store sales.

Cost of sales increased 6.2% to $5.6 million from $5.3 million in the prior fiscal year's fourth quarter. As a percentage of Company-owned restaurant sales, cost of sales decreased 240 basis points to 70.2% from 72.6%. The decrease was primarily driven by a 7% decrease in the commodity cost of bone and chicken wings, along with sales leverage and operational efficiencies in both food and labor costs. Our back office tools, including actual versus theoretical food costs and labor management are continuing to have a positive impact on our corporate restaurants.

Selling, general and administrative expenses decreased to $7.7 million from $8.9 million in the prior year. The decrease in SG&A was primarily due to $1.2 million of expenses incurred in the prior fiscal year's fourth quarter associated with our preparation to be a public company.

Adjusted EBITDA, a non-GAAP measure, increased 35.8% to $7.9 million from $5.8 million last year. Please review the reconciliation table provided in our earnings release between adjusted EBITDA net income to the most directly comparable GAAP measure.

For the quarter, income tax expense was $2 million. Our annual effective tax rate was 36.2%, compared to 37.2% in the prior year. Going forward, we would expect our effective tax rate to be between 37% and 38%. Net income increased to $3.8 million, or $0.13 per diluted share, compared to net income of $1.5 million, or $0.06 per diluted share in the same quarter last year.

Weighted average diluted shares outstanding were approximately 29 million for the fourth quarter 2015 and approximately 26.4 million for the prior-year period. Adjusted net income, a non-GAAP measure, increased 65.3% to $3.8 million, or $0.13 per pro forma diluted share compared to $2.3 million, or $0.08 pro forma diluted share last year.

We used the pro forma diluted -- weighted average share count of 29 million shares for the fourth quarter of 2015 and 28.6 million shares for the fourth quarter of 2014. Pro forma diluted share count gives historical effect to the additional 2.15 million shares of our common stock issued in the IPO as if all shares had been outstanding as of the beginning of 2014. Please review the reconciliation table provided in our earnings release, between adjusted net income and net income, a most directly comparable GAAP measure.

In terms of our liquidity and balance sheet, as of December 26, 2015, we had cash and cash equivalents of approximately $10.7 million and outstanding debt of $95.5 million. Note that we do not have a required principal payment on our current term loan until 2019. Our net debt to FY15 adjusted EBITDA was approximately 2.9 times. For the fiscal year, CapEx was $1. 9 million.

Before we get into our annual guidance for 2016, I would like to reiterate how we view our business over the long term. We have a strong and predictable earnings model due to our franchisor positioning and strong unit economics that continue to drive the franchise development.

Commensurate with this, our long-term targets are annual unit growth of 10%-plus, near-term guidance will be above this rate due to the strength of our pipeline and the continued reinvestment in the business by our franchisees, same-store sales growth in the low single digit, have a strong track record of achievement in increasing our sales volume, with 2015 being the 12th consecutive year of positive growth.

This has, in turn, driven our domestic average unit volume above $1.1 million. Adjusted EBITDA growth of 13% to 15%, driven by franchisee unit expansion and improving margins through SG&A leverage. Net income and EPS growth of 18% to 20%. In addition to the strong growth prospects for our brand, we also have significant free cash flow that will allow us to reinvest in the business and also return cash to shareholders over time.

With regards to FY16, we are providing the following outlook, which is in line with our long-term targets: total revenue between $88 million and $89 million, representing 13% to 14% growth over 2015; 125 to 135 net new system-wide store openings, representing approximately 15% annual unit growth. Including in this range is one additional corporate restaurant that is expected to open in the second or third F quarter.

Domestic same-store sales growth in the low single digits; SG&A expenses between $33 million and $34 million, inclusive of approximately $1.3 million of stock-based compensation expense; $0.9 million of expenses associated with our franchisee convention; $0.8 million of expenses associated with the 53rd week; and $0.8 million of incremental ongoing public company costs. Adjusted EBITDA of approximately $33 million, representing 14% growth over 2015; pro forma adjusted fully diluted EPS of approximately $0.55 per share; and fully diluted share count of approximately 29 million shares.

A few other items to note. FY16 includes a 53rd week and all of the guidance just provided includes the 53rd week impact. For context, the impact of the 53rd week is estimated to contribute approximately $1.4 million of revenue and $0.3 million of adjusted EBITDA.

Secondly, we host a franchisee convention every 18 months and it will take place in the second quarter of this year. There is a net zero impact of profit balance from this event, but we will have expenses associated with the convention approximately $0.8 million in SG&A in the second quarter, with offsetting revenue from support we received to fund the convention.

Now I will turn the call back over to Charlie for closing remarks before we begin Q&A.

Thank you, Mike.

As we look to 2016 and beyond, we intend to continued fulfilling our mission of serving the world flavor by taking care of our commitments to our franchisees, our guests, our team members and our shareholders. And while we're thankful for what we have accomplished in 2015, we are excited about what lies ahead for the Company.

Wingstop is fortunate to have a strong foundation firmly in place along with financial flexibility. We are therefore going to continue doing what we have been doing because it is working so well for us, executing our disciplined growth strategy.

And as I said before, we have significant wide space to grow our store base in both existing and new markets. We are partnering with new franchisees and deepening and extending our relationships with existing franchisees who are reinvesting in the brand. Our long-term is to reach 2,500 units domestically, based upon 10%-plus annual unit growth. Once again this year, we expect to be above that target as we close in on nearly 1,000 restaurants.

Thanks again for joining us this afternoon. We appreciate your interest in Wingstop and would be happy to answer any questions that you may have.

Operator, please open the line for questions.

(Operator Instructions)

John Glass, Morgan Stanley.

Thanks. Good afternoon, everyone. First, could you comment about the class of 2015 unit economics, the average new store productivity. Obviously, it was good, given your comps, given the development. Would you put any context around how new stores opened in 2015 versus prior years?

Hi, John, this is Mike.

I would tell you that the economic targets that we have for new restaurants are, in average unit volume, their first year of operation of approximately $820,000. We don't have a full year of sales results for the 2015 openings, but I would tell you we're on track to achieve the targets we've set out.

You talked about a couple of things about -- around comps. First of all, maybe these are related to each other. How do you think about, or how do your franchisees think about pricing in 2016? And maybe related to that, how do you think about wing prices in 2016, that may be a driver of that?

Hi, John. This is Charlie.

I think historically, we've talked about 2016 as being a year where we expect wing prices to be flat to where they were last year. And that would be a key driver as to any pricing decisions or franchisees might make at this point. At this point, we don't expect any broad-based price changes or price increases that would be made during this time based on the commodity market primarily.

Okay. And then lastly, you know, we went through this last couple of months of really unprecedented QSR discounting among your more traditional fast food peers. Can you comment about how that may impact your business now? And if you're not willing to do that, maybe talk about historically, when there's been a lot more value promotions in the market, is that something that influences your business or are you really -- are you not part of that business and that doesn't influence your business?

Yes, I would not suggest that we have seen a particular time or event where aggressive discounting has impacted our business, and I think that's demonstrated by our consistent sales growth and delivering 44.1% four-year stack comp growth that some of these activities may tend to impact other businesses. But I'd like to think of Wingstop as existing in a category of one and all by ourself.

We don't have, as we mentioned, a true direct competitor that we fight against, so to speak. So much of this activity probably has a limited effect on Wingstop overall.

Okay. Thanks very much.

You're welcome.

Andy Barish, Jefferies.

Hello. Two things. On the -- maybe on the flip side of that question with the low gas prices out there, I think a pretty decent size swath of your customers set probably would respond to that dividend or tax cut, so to speak. Did -- have you seen that historically in your results?

Yes, I think it's safe to say that our guests, which is typically more middle income customer, is going to benefit by having more money in their wallet associated with lower gas prices, which means, hopefully for us, more occasions to Wingstop. We don't have any specific data to validate that, that's the case, but certainly, it should be considered to be something that is beneficial to this brand.

Okay. And then secondly, can you just remind us a year ago in the Spring, in this March, April, May time frame promotionally, what were you doing? Were you -- did you have a flavor event going on at that point as well, or is Smoke 9 going up against something that was more branding oriented?

Yes, I think, definitely we had a flavor event during that time frame. It was our Serrano Pepper Glaze event that occurred during that time frame. Aside from that, one other major event that affected us during that time frame was the Pacquiao Fight. Aside from that, those were pretty consistent markets, or time frames, in terms of what we're looking at this year in terms of our marketing calendar to last year.

Thank you.

You're welcome.

David Tarantino, Robert W. Baird. David Tarantino, your line is live on conference. Are you perhaps on mute? Please proceed. Thank you. Our next question comes from the line of Jeffrey Bernstein, Barclays.

Great. Thank you very much. Couple of questions.

Just one on the -- looking out to 2016, from a guidance perspective, I can appreciate you mentioned that the unit growth should be above the long term, based on the momentum you're seeing. But on the comp side, you mentioned, still sinking low single digit, which relative to the outside strength you had this year and obviously, over the past few years, would imply -- or seems to imply a pretty large two-year deceleration. I was wondering whether there's any -- whether you see any indicators pointing to a slow down or perhaps you start he year, just conservatively guiding in line with your long-term targets and see where it plays out from here?

Hi, Jeffrey. Yes, I think certainly going into the year, we are going to guide around our long-term targets because, as you know, we believe strongly that our 10%-plus unit growth, coupled with low single digit comps delivers very strong EBITDA and net income growth for the brand. And we haven't provided and usually don't provide any guidance in the quarter, but we feel that a low single digit comp growth, again, is consistent with our long-term guidance.

Got it. So there is no indication like you would think start every year kind of thinking that low single digit would achieve your targets when, in fact, you might be running above that at any point in time?

I -- look, yes, I don't think that is something we would necessarily do. I think it really just is reinforcing the strength of the model by having a low single digit comp guide, as well as this strong unit growth in a very unit growth-oriented concept.

Yes. Right. And then just on that unit growth you mentioned, I think you said like 15% growth in 2016 which, at the midpoint, is like 130 units. I know in 2015, you did 133. Now clearly, it's above the 10% long-term target, but I'm just wondering whether we should be thinking about the potential to have openings, absolute number of openings accelerating each year?

I know there is very strong outside demand. So what would keep -- what would limit you from even a faster growth relative to, for example, 2016 over 2015 on an absolute basis?

I think absolute basis, we're very consistent with where we were in last year. We've been able to fill our pipeline back up, if you will, by ending the year at 530 total commitments in the pipeline for development that happens this year and the years forward.

Certainly the brand has increased our rate of growth over the past four years rather aggressively. We feel comfortable between 125 and 135 units for this year, net, being our target for the year; certainly, it delivers against the growth objectives. And we'll see how things play out throughout the year. If we can, obviously, accelerate the topline, we would do that.

Got it. And then just lastly, any color in terms of the comps? I know you pre-announced these results already, but sequential trends, or regional trends, or the components perhaps? Just trying to get some color in terms of how the comps played out through the fourth quarter and if you were willing to offer anything now that we're two-months plus into the first quarter?

We don't have any specific discussion around Q1. I think Q4 was indicative of the continuous strong performance of the brand. A 5.9% comp in the fourth quarter for our domestic business was excellent for us. In fact, we had some Christmas holiday shift during the quarter that impacted that slightly, and so like we had a great quarter. Our Company stores did very well at a 9.9% comp growth rate during that same quarter alone.

So I think it is just indicative of, look, we've had a great run of 12 consecutive years, four years stacked to 44.1% growth. We don't break out typically any traffic or ticket growth metrics as a franchisor. We really focus ourselves on delivering solid comps, as well as the unit growth story that we have.

Understood. Thank you very much.

Jeff Farmer, Wells Fargo.

Thank you. You did touch on it, but beyond the increased use of digital media, what levers can you pull to accelerate the adoption of the online ordering?

Well, I think that is one of the biggest opportunities, simply because we have a very high conversion rate of our digital advertising converting into actual orders at the restaurant. So we believe that's a great opportunity for us. And in this consolidation we did this year by moving these dollars to a national spend, we're very -- we're excited about the potential that has for our online ordering.

Separately, a lot of that happens in the restaurant, still today, 60% of our orders come in over the phone, and that's a great opportunity to convert our guests into online users instead of calling in over the phone; it's easier for both sides of that transaction. And then in store, interacting with our guests. So if they do still use the phone when they get to the restaurant, we have another opportunity to have that dialogue with them about the efficiencies of online.

Just following up on John's questions, I believe the system lap something close to 3% menu pricing early in Q4. So I think I heard you loud and clear, but is it accurate to assume that the system is currently running with little to no menu pricing right now?

I don't think it is accurate to say it is little to no, necessarily. But we've always had some pricing here and there and ticket lift that can be associated, for instance, with online orders because they do carry a $4 higher average check than any other transactions in the business. So I wouldn't specifically state that is the case, but we did roll over approximately 3 points of price during that fourth quarter that rolled off.

Okay. And then again, you discussed -- you briefly mentioned that the opportunity to potentially get to national media scale. I think it was maybe by as soon as 2017. What do you need to see in terms of either unit development or systems sales targets? What bogeys are you looking before you get to a level where you think those efficiencies are there and you can pursue national media?

We've noted before when our domestic footprint hits either 1,000 locations or a time-based hurdle, if you will, that our franchise agreement gives us the opportunity to actually increase the contribution to a national spend. As I mentioned in my comments, we are quickly getting close to 1,000 restaurants in the US through 2016. And so I think that time frame is coming soon. And our goal, our hope, would be that when we hit that type of threshold, we would be able to migrate much of our advertising to a national plan.

Okay. Thank you.

You're welcome.

Karen Holthouse, Goldman Sachs.

Hi, thank you for taking the question. One quick housekeeping question. Should we be thinking about any Easter shift with Easter shifting from the second quarter into the -- second quarter into the first quarter this year? I can't imagine that chicken wings are a very common Easter dinner, and are stores even open on Easter?

Yes, hi, Karen. This is Mike. The stores are open on Easter and actually flips a little bit. Easter Sunday is actually in our second quarter; it's the first day of our second quarter. Our first quarter ends that Saturday before Easter so it bifurcates it a bit. There might be a small noise in the comp, but as we're looking at the long term and looking at the full year, the shift isn't that material.

All right. And then a question about the online ordering. Can you just remind us when folks are ordering online, is it something where you're collecting information and storing information, or so it's easier to re-order and then you can have that customer tracking set up? Or is it just that you order effectively anonymously and have to go through the process every time?

No, it is a system that captures your information and allows you to re-order a previous favorite, if you will, and just use that order, modify it if you choose, and then send that back down to the restaurant. So it does have that capability, yes.

Well, and then on the back end, where you're then presumably collecting all that data, is it something where you're even starting to use some of the direct marketing or one-to-one marketing opportunities that gives you, or is that in the future? And if so, any sort of timeline around that?

I don't have a specific timeline but we do have an initiative that our marketing team and technology teams are working around a CRM application or platform that allows us to better engage and connect with our guests because we do have much more of this information available to us. Don't have a specific timeline, but it is something we're working on. So hopefully in the near future, we'll be much more engaged than we even are today.

Great. Thank you.

You're welcome.

Matthew DiFrisco, Guggenheim Securities.

Thank you. I was wondering if you could also just help us a little bit understand the -- on the progression of the development. Is there anything unique to this year as far as the opening schedule, or will it be similar to the cadence of 2015's openings, when you look at the complexion of the stores and where they are probably going to open?

Yes, I would say that coming from a material standpoint, there is not a whole lot of seasonality the way the stores are going to open this calendar year. Things could flip around a little bit to the opening timelines. But if you look across the quarters, it should be pretty steady.

And then international, similar percentage of the openings, how should we think about that or think about it in absolute terms, similar number of openings?

Yes, similar number and cadence, I think, for what Mike just commented on.

So about 25 or without the closings?

Correct, correct.

Okay. And then just a question as far as you -- you've obviously had some rapid growth in the last two years or so. The rough math looks like you have 230 or odd stores outside of your comp base, comp base of about 650. I would think that you would -- you might get a little bit of a tailwind on the comp also as these younger stores start to migrate into the comp base over the next 18 months.

Can you talk about that $820,000 opening, growing to the $1.1 million, is that a two-year progression? A three-to five-year progression? Because you've got 30%, more than 30% of your stores sitting out of your comp base, potentially having 30% capacity utilization improvements in theory over the next -- if they just get to the average, let's say.

Yes, Matt, I think your estimate of the stores that are not in the comp base is a bit high. It is not that many stores. We do enter the stores into the comp base at week 52. So we don't have this -- an 18-month convention or two-year convention like some other companies do have. So the number of stores that's in the comp base is a bit higher than what you're estimating.

But besides that, historically, we have seen stores open in that $820,000 range and then we have seen year two, three, four, growth in new stores. And we don't have a specific metric on how long it takes them to get to the $1.1 million AUV. But our story, from an individual restaurant basis and then from a brand standpoint is one of brand awareness.

And as customers continue to become more aware of Wingstop and what we have to offer and the flavors that we have, they do tend to grow in volumes over time. So we would anticipate that to happen now. The -- it's not as if the older, more mature restaurants don't continue to grow, as well. We have a pretty consistent growth pattern across the different vintages and so the restaurants -- the newer restaurants just partake in that same growth.

Excellent. And then last question, did you get a benefit, or have you seen a benefit in 1Q as far as with relation to having the extra NFL week or the extra week of regular season in the NFL this year.

Yes, so we're going to stick to the annual guidance. The one thing I would say about that specific question, Matt, is we did have an extra week of football. There was also some flip with the composition of the teams that were in the playoffs. Unfortunately, the Cowboys didn't make the playoffs this year and they had two playoff games last year. So once again, those types of things generally offset for us, and so I wouldn't expect a huge windfall from the extra week in the first quarter.

That's helpful. Us New Yorkers don't consider that as much, so (laughter) take care.

Yes, thanks.

Jake Bartlett, SunTrust.

Great. Thanks for taking the question. First, just a clarification on closings. You emphasized earlier on net openings but with guidance. But what kind of closings should we expect? And just to clarify, were the three units in Russia closed in the first quarter here?

Yes, they were closed in the first quarter of 2016. And in terms of closures we've had, last year we had nine, three of those were domestic. If that gives you an indication and we had on average about three closures per year in the domestic business. So that's kind of how it has been historically. That is not necessarily how we might budget, but I would say that gives you some guidance on what closures might look like.

Okay. And then a question on your -- you made a comment about returning cash to shareholders, certainly developing enough, or generating enough free cash flow to do so. Maybe first off, on that front, what is your target or how do you view your debt levels? You've worked it down pretty quickly to about 3 times by my estimate. What is your ultimate target for leverage and could it be possibly above where you are right now?

Yes, so I think -- great question and thanks for the question. Because this is one of the benefits that we think we offer in our model, the ability to deleverage quickly through EBITDA growth and through use of our free cash flow, which we've done since the IPO. Historically, we've been comfortable, particularly, when we recapitalized the business at being in the 5 times range. We think that is appropriate, and as a franchisor, it is not too much leverage for the business.

So we're net debt to EBITDA about 2.9 times at the end of 2015. So we are getting to the point where we would be reviewing what our options are. We do think about shareholder returns and utilizing our balance sheet to return cash to shareholders, so it is something we're considering. We don't have any timing or specifics to announce at this point in time. We think there's an appropriate cadence of events that would take place and we'll update you as we make progress on that.

Okay, is there any -- I mean, maybe you can't comment. But is there any thing you're looking for to -- it's -- to be a catalyst for doing something more in terms of returning cash to shareholders?

No, it's just the right timing, and the markets being the right way, and the preparedness and, like I said, the right cadence of events to get that executed internally.

Got it. And then one question on the digital orders. You're going -- maybe just describe how much you think the effort to kind of migrate people over to digital, how fast you think that is going to be or how effective you think that will be in 2016? It seems like it's slowed to the pace of conversion. It has slowed a little bit in the last couple of quarters. What is your expectations for 2016?

Yes, I'm not sure it is necessarily slowed all that much. I think we've had a nice consistent organic lift as we've added more advertising to it and also converted more of our restaurants to our new point of sales system. I think that's been an appropriate catalyst for the continued growth. And as of the end of the year, we were about 50% implement on our point-of-sales platform at the restaurant level.

So the more and more of those we put in place, the more the orders that come in over the internet become integrated into the operation. Much more -- much easier to execute for our team members and much more consistent for our customers. So I would say that we're just going to continue to see a very consistent pace of growth long-term as we -- as I mentioned before, as we continue to increase our advertising presence, and also make the appropriate adjustments and enhancements to our platform.

Great. Now would you be able to share what the digital order rate is in the stores that have a new POS versus the ones that don't?

Yes, I don't think it's necessarily substantially different from one of the POS systems to the other. It is an ease of implementation and execution at the store level. A lot of any of the differences have more to do with some market dynamics and the income levels in a particular trade area than anything else.

Got it. Thank you very much.

You're welcome.

Matt DiFrisco, Guggenheim Securities.

Thanks. I just had a follow-up.

On the regional disparity within the same-store sales, I know you don't like to give too much granularity into the comp, but is there anything that we should be mindful of? I know a lot of Californian fast food companies have been dealing with taking a lot of price, and seeing a little bit of a slowdown. A lot of people are concerned about your Texas exposure. Have you seen anything that is something that would be called out between the differences, between your two largest markets.

We've -- I know we've talked about this many times over the past few months, six months, anyway, that our Texas market has been performing consistent with the pace of the brand overall, and one highlight we typically mention is the performance of our company stores, of which the majority of those are in the Texas market itself.

As it relates to California, I would just note that in anticipation of some of the wage inflation back in 2014, our franchisees did take price to offset some of that expected wage inflation and some of that is the price that Mike has talked about, that rolled off in Q4. So aside from that, I just rely on the consistent performance that we've had over the past few years in terms of our overall comp growth.

Okay. That's helpful. Thank you.

David Tarantino, Robert W. Baird.

Hi, good afternoon. Thanks for coming back to me. Sorry about the technical glitch earlier.

No problem.

I had a couple questions. First, on the marketing side, Charlie. I was wondering if you could maybe give some dimensions through the change on this digital strategy by going to national versus local approach there.

I know it allows you to spend the dollars more efficiently so there's not more dollars. But can you give us an idea of whether it is impressions or in terms offer what the horsepower might be with the new strategy. And then secondly, maybe elaborate on what you plan to do specifically with the extra horsepower there?

Sure, and some of which we have implemented already. So we're -- we started the year with this new approach to digital by consolidating nationally and I think your point is proper, which is we do get much, much greater efficiencies by executing this on a national basis than in the local markets. One of the key additions to the mix of type of advertising that we have been able to do now with this change is digital video, where we were not necessarily providing much digital video content prior; we are now through this national buy.

And then that incorporates paid search and paid social and everything else we've historically done. I think the big benefit is it's across all markets now, not specifically isolated perhaps to our co-ops or certain isolated markets that are not. So I think it certainly delivers more impressions and hopefully, the horsepower that you mention to continue to fuel more growth both in just this core of our business as well as the online.

Great. So just to clarify, as you think about 2016 versus 2015, is there more of a step-change in the number of impressions coming up just with by nature of the efficiencies you get as the revenue base increases, or is there -- or should we not think about it that way?

David, let me get back to you on that question. I don't have that specific perspective on whether it would be step-function or not in that regard, but I can get back to you on that.

Great. Thank you. And then the last question I had, I know it's only one unit, but this is the first time we're hearing about a Company-operated units being open. So could you talk about maybe the strategy there, is this a change in mindset, and are we going to see more Company-operated development going forward?

Yes, I think we have stated fairly consistently that we may open and/or acquire a few restaurants each and ever year. But yet maintain a mix of substantially franchised restaurants in the 2% to 3% Company-owned mix. We found a great site here in the Dallas/Fort Worth area that we felt would make a great Company-owned restaurant, and so we've -- we are in the process of finishing up permitting and getting into construction with this restaurant shortly.

And as we've talked about, we love our unit economics as well as our franchisees, and in the right markets where we can leverage existing infrastructure and team members to operate these, we will. So, we're very excited about this new store. I will say it will also be in our new look and feel that we've talked about in our redesign and our remodel strategies. So we would be excited to show it to you soon.

Sounds great. Thank you very much.

You bet.

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