Wingstop Inc (WING) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Wingstop Incorporated Fiscal First Quarter 2017 Earnings Conference Call. Please note that this conference call is being recorded today, May 4, 2017. On the call, we have Charlie Morrison, Chairman, President and Chief Executive Officer; and Mike Mravle, Chief Financial Officer. I would now like to turn the conference over to Mike. Please go ahead.

Thank you, operator, and good afternoon. By now everyone should have access to our fiscal first quarter 2017 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 on them. The statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer you to our recent SEC filings for a more detailed discussions of risks that could impact our future operating results and financial conditions. Lastly, during today's call, we'll discuss certain 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, and hello, everyone. We appreciate your interest in Wingstop. Thank you for taking time to join our call this afternoon. I'd like to begin with a recap of the first quarter and then provide an update on our progress on key initiatives. After that, Mike will review the first quarter financial results and provide an update to our 2017 annual guidance, and then we will open the lines for questions. We're pleased with the productivity of our development pipeline and improvements in sales trends in the first quarter against a tough industry backdrop. Our same-store sales were down 2.6% at the time of our March 2 earnings call. So we finished the quarter with domestic same-store sales improving to negative 1.1. Trends improved at the end of February and into March, as we launched our national advertising campaign and our customers received their delayed tax refund. Our momentum has continued into the second quarter with same-store sales positive 2.3%, excluding the negative overlap of Easter.

Early data shows that our national TV campaign is fostering greater brand awareness for our unique and differentiated brand. We are encouraged by the recent sales trends across all markets, but particularly in markets where we have not historically leveraged TV or radio. We expect the sustained TV and digital presence to continue to build on the momentum established in the first quarter. During the first quarter, the message of our national commercial focused on our one-of-a-kind brand, singularly focused on our craveable, cook-to-order hand-sauced and tossed wings. The second TV commercial titled No Shortcuts, began airing in early April and reinforces 2 of our core strategies: one, we don't take shortcuts with our products and also they are made fresh to order, but you can shortcut the wait, by ordering online. Encouraging viewers to order online or through the app will help further drive the conversion to our digital channels. Online orders command a $4 higher average check than other orders.

During the first quarter, digital sales comprised 20% of total sales, which is up from 15.8% in the fiscal quarter last year. Almost half or 49% of our domestic restaurants had an online sales mix in excess of 20% of total sales, which is up from 20% in the year-ago comparable period. Considering that almost half of our orders come in over the phone and approximately 75% of our orders are takeout, our digital ordering mix is poised to continue growing for a long time to come. We opened 33 net new restaurants in the first quarter compared to 28 net new restaurants in Q1 of last year, ending the quarter with 1,031 Wingstop restaurants worldwide. Including in our openings were 7 international restaurants, and we recently announced an international expansion agreement for 30 restaurants in Malaysia over the next 6 years. Malaysia represents our 9th international market and follows other recent announcements, including Saudi Arabia, Columbia and Panama. Unit development is one of our key strategic priorities, and the productivity of our pipeline during the first quarter provides us confidence in our ability to achieve both our short-term development targets for 2017 and our long-term potential. We believe that our domestic pipeline and our progress in international markets demonstrates that we are well on our way to delivering our -- on our vision of becoming a top 10 restaurant brand worldwide.

Finally, as announced a few weeks ago, we are testing delivery in the Las Vegas market. Las Vegas is a market that has both company-owned and franchise locations, and we feel is an excellent market for us to test the effectiveness of third-party delivery in our restaurants. While we have seen a growing demand for delivery from our fans, preserving the quality and integrity of our product and ultimately the guest experience remains our #1 priority. In addition to assessing the impact to the guest experience, our test will also focus on understanding the impact to the value equation as well as the economic impact of the business. The test will run through July 1, at which point we will be able to determine what role delivery could play in our already highly successful business model. With the progress we have made in the first quarter, we believe we are well positioned to achieve our 2017 annual targets and continue delivering industry-leading results well into the future. Before I turn it over to Mike, I want to mention that we had our annual shareholder meeting yesterday, and we officially welcomed our newest board member, Kay Madati. Kay currently serves as Executive Vice President and Chief Digital Officer of BET Network and was recently Head of Entertainment and Media and Global Marketing Solutions for Facebook. I'm very excited to have Kay join our board.

With that, I'll turn it over to Mike.

Thanks, Charlie. For the first quarter, total revenues increased 20.4% to $26.6 million, with the majority of this increase coming from royalties and franchise fees, which increased 33.5% to $18 million from $13.5 million in the first fiscal quarter last year. Other revenue, which is included in royalties and franchise fees, increased approximately $3 million, primarily due to a one-time payment that was received related to a new vendor agreement executed during the quarter. This new agreement has resulted in additional rebates to both us and our franchisees. The increase in rebates for our franchisees will further enhance our already industry-leading unit-level economics. Substantially, all of this incremental rebate the company is receiving is being passed on to franchisees in the form of a contribution to our advertising fund. This incremental revenue is partially offset by an increase in SG&A, where we record the contribution to the advertising fund. Our updated guidance reflects these adjustments to our P&L.

There were 33 net restaurant openings during the first quarter, reflecting a unit growth rate of 18.1% year-over-year. The revenue growth, related to restaurant development, was partially offset by a 1.1% decline in domestic same-store sales. Included in this number is a 70 basis point benefit from the Easter calendar shift, which we will get back in the second quarter. Company-owned restaurant revenue was basically unchanged at $8.5 million, as sales contributions from 2 restaurants opened last year in the Dallas market, were offset by a 5.1% decline in same-store sales. This was against a very strong 9% comp in the prior year. The decline in same-store sales was primarily driven by 2 factors: first, one of our company-owned restaurants was temporarily closed due to unexpected structural repairs for approximately 6 weeks during the quarter, which has a 120 basis point impact to the comp. This restaurant reopened the second week of April. Second, we have 6 company-owned restaurants that are being impacted by cannibalization [because] we have further penetrated the market that we operate company stores. We estimate that the impact of this cannibalization to be 340 basis points on the Q1 company-owned restaurant same-store sales comp.

Our company-owned restaurant AUVs are $1.7 million versus the domestic system average of $1.1 million, and we identified opportunities to further penetrate these markets while delivering great returns to both our shareholders and our franchisees. We should begin to lap the impact of the cannibalization ratably through the third and fourth quarters. Our company-owned restaurant comp is in a small-store base and is not indicative of the overall comp in the markets where we have company-owned restaurants or more broadly the state of Texas. Trends in Texas for the first quarter remain similar to 2016, slightly below the system average. Cost of sales increased as a percentage of company-owned restaurant sales by 640 basis points to 77.2%. The increase was driven primarily by an 11% increase in commodity rates for bone-in chicken wings, as compared to the prior year period; an increase in wage rates and labor, due to the investments and roster sizes and staffing we made in the third quarter of fiscal year 2016; and deleveraging associated with a decline in company store same-store sales. In Q2, we expect year-over-year inflation on bone-in chicken wings to be similar to Q1. Selling, general and administrative expenses increased 34.1% to $10.3 million, up from $7.7 million in the prior year first quarter. This increase is attributable to the contribution we made to our advertising fund associated with the one-time payment recorded in royalty revenue and franchise fees, in conjunction with a vendor agreement executed during the quarter. As I previously stated, this contribution is intended to provide support for the company's national advertising campaign.

Adjusted EBITDA on non-GAAP measure increased 11.7% to $10 million. Please review the reconciliation table provided in our earnings release between adjusted EBITDA and net income, its most directly comparable GAAP measure. Interest expense rose to $1.3 million compared to $0.8 million in the prior year first quarter, reflecting the refinancing of our credit agreement that was completed at the beginning of the third quarter last year. Our effective tax rate was 14.7% for the quarter, which compares to a 37.3% rate in the first quarter last year. This lower tax rate is driven by a change in GAAP presentation requirements, related to equity-based compensation. We now record the tax benefit associated with equity-based compensation in tax expense, where previously this was recorded in equity. As a reminder, this GAAP presentation change has no impact to cash flows or the amount of taxes we ultimately end up paying. This new standard will create volatility and tax rates and earnings over time. Net income increased 52.2% to $6.5 million, while EPS increased 46.7% to $0.22. The tax benefit associated with the new GAAP presentation related stock option exercises improved EPS by $0.06. As of April 1, we had cash and cash equivalents of approximately $3.4 million and $144.9 million in debt, which reflects $5 million in debt payments against a revolving debt facility, made during the first quarter. Note that our net debt to trailing 12-month adjusted EBITDA was approximately 3.9x, down from 5x at the beginning of the third quarter of 2016.

Turning to our 2017 guidance. We are reaffirming our prior guidance with the exception of updates associated with a one-time vendor rebate, the corresponding contribution to our advertising fund and a tax benefit associated with the first quarter stock option exercises. Our outlook for the fiscal year ending on December 30, 2017, is systemwide unit growth of 13% to 15%; domestic same-store sales of low single digits; SG&A expenses between $36.5 million and $37.5 million, reflecting the impact of our new vendor agreement; adjusted EBITDA growth of 13% to 15%; net income of $20.2 million to $20.5 million; fully diluted EPS growth of 19% to 21%. And finally, fully diluted share count should be approximately 29.3 million shares. There are 2 items I would like to highlight for modeling purposes. Due to the unpredictable nature of the timing around stock option exercises, net income guidance provided for 2017 reflects an effective tax rate for the balance of the year at our normalized rate of 37% to 38%. Second, our franchisee convention occurred in the second quarter of 2016 and will take place in the fourth quarter of 2017. As a reminder, there's a net 0 impact to profit dollars from this event, but we'll have expenses associated with the convention of approximately $0.9 million and SG&A in the fourth quarter, with offsetting revenue from support we received to fund the convention.

Thanks, again, for joining us this afternoon. We appreciate your interest in Wingstop. We'll be happy to answer any questions you may have.

Operator, please open the lines for questions.

(Operator Instructions) Our first question comes from John Glass with Morgan Stanley.

This is Courtney on for John. Can you guys please just quantify the sales lift that you've got from national advertising on the 40% of stores that didn't have advertising previously? And then what benefit you saw to overall comp from that?

Yes. We don't have any specifics as it relates to the benefit to comp. But I can tell you that the developing market certainly, what we call our developing markets outside of our core co-op markets have seen a stronger rebound, certainly, than our existing core market associated with the national advertising or since the national advertising hit. I will call attention to the fact that we've seen just in the short period of time that we were on air with our national advertising that our developing markets saw a marked increase in brand awareness, which we expected, in addition to very strong ad awareness and very positive results on those ads. And then what we call consideration our folks that would be interested in actually trying Wingstop and trying our product jumped considerably as well. So we're very excited about the strong performance that we had out of those developing markets in addition to improvements across all of those metrics in our core markets as well.

Okay. Got you. And then I think you mentioned that you are trending up 2.3% [after] Easter. Do you have -- is your company stores still performing with the same GAAP that they did for the system?

Yes. So to clarify the statement, in the second quarter to date, net of the impact of Easter, because Easter, for us, created a negative result because most of our restaurants are closed or not operating much on those days, we did experience across the U.S. side of the brand, a 2.3% increase in same-store sales. The company stores have also followed suit with that since the beginning of the second quarter as well returning to a positive comp during that same time frame.

Okay. And then just lastly on your delivery test, obviously, you have previously been pretty reluctant to try delivery. Just curious why now, is it just a response to the competitive environment? Or did some franchisees come to you asking for it? I just want to understand why you made that decision. And then also I think one of the concerns you cited was food quality. And have you changed your recipe at all?

Excellent question. I think as we mentioned in our comments after -- during the call that we have seen an increased level of demand from our customers regarding delivery. And we knew that, at some point, there would be an opportunity for us to deliver. The question was where and when, and certainly, as you noted, product quality was very, very important to us to ensure especially that our french fries, which are hand cut and fried daily and to order in every restaurant, were taking care during that process. And so we have made some modifications to the product. I won't disclose the details of that other than to tell you that we still do hand cut all of our fries in our restaurants every single day. But we feel that we have addressed the quality issue, and part of this test will be to assure ourselves that the guest satisfaction is where it was, even prior to delivery. To answer your question on franchisees, yes, our franchisees have, in many cases, requested delivery, and for the same reasons we've been hesitant. But we're very excited about the early indications of this test. We know that our brand is well positioned for delivery, and I think guests are responding quite well to our approach, but it is very early in the process.

Our next question comes from David Tarantino with Baird.

Just my first question is on sort of the unit development side. And I was wondering if you could give an update on how the new units in some of your newer markets are performing? And I guess, as a secondary question, are you starting to see the newer units, the ones that aren't in the comp base, benefit from the national ad?

I'll lead, and I'll let Mike jump in on this as well.

Good Afternoon, David. We have seen very consistent performance out of our new restaurants. I think in some of the emerging markets, the performance improvement we've seen in existing restaurants does translate a little bit into some of these new stores. I don't know that -- I think it's a little early to be able to say that the new units are performing dramatically better. There just isn't -- there aren't a lot of data points. But I think overall the -- the overall tide is lifting in those markets as we would have expected with the national advertising.

Okay. So we're aligned on that?

Fair enough. Yes. Okay, great. And then, I guess, I'm not sure you've given this yet or -- I was wondering how many units are embedded in your guidance in international markets, in terms of your net opening guidance for this year? And I have a follow-up to that.

We didn't break that out, David, in the guidance. We opened around 20-or-so last year on a net basis. And so I think baked in our initial guidance this is a number that's not dissimilar from prior year, but we haven't specified that.

Got it. And then the follow-up to that is, of course, you signed a bunch of agreements over the last year, and I was just wondering if you could talk about how you think that number might ramp up, as you look at the next, I don't know, 3 to 5 years? And should we expect also to hear about more deals on the comp?

I think we noted a while back that our strategy when Larry Krueger arrived at the company, right around the time of our IPO, was that we were going to first fortify our model and make sure that it met the expectations that we had for future growth. He has done a great job of that. And we feel confident that all markets where we developed in overseas have been very stable. And therefore, we felt it was the right time to start to bring on some new markets. But we want to take a very careful approach to that. I've seen a number of brands get out, if you will, ahead of their skis and open up too many international markets too quickly. And so I think the demonstration of the new markets that have come on board: Malaysia, Saudi Arabia as well as Panama and Columbia, together under 1 deal, are a good representation of a slow but steady approach that we like. We may see 1 or 2 more markets maybe this year. But then each year, subsequently, we wouldn't want to get much beyond that level of development.

Our next question comes from Jeff Farmer with Wells Fargo.

Can you guys provide some additional color on that Vegas test? Is this exclusively with some of the third-party delivery companies? Or are you looking at in-house delivery models as well?

Hi Jeff, it is exclusively with third-party delivery companies. We have a handful of different parties that we're working with, including one of which is OLO, who handles all of our online ordering as well.

Sort of, further down the road, is there any consideration of potentially bringing this in-house?

It is not something we're working on right now. As you know, our restaurants are nice and efficient. They are not built to handle all of the details of the logistics of delivery, and having dedicated employees in there. So it's not our first approach here. Certainly, it's something we could contemplate, we've talked about. But as of right now, we feel pretty good about the approach that we've seen with the third parties that we are working with.

Okay. And then on a different topic, so in March, you did note that some of your customers have become increasingly cautious with disposable income, especially in those months following the election. So clearly, the same-store sales have gotten better, but in terms of your sense of that headwind for that certain segment of your demographic, your customer demographic, has that eased up as we've moved past the election?

I think it's hard to say there's not a real clear measurement to it. Certainly, as we noted before, when we saw our comps really taper off quickly, it happened right around that time of the election and then further was exacerbated by the tax refund delay. We certainly have seen a rebound since that, and if you couple that really with the momentum in our first and our second wave of national advertising and the messaging strategy that we've employed, we are starting to see the momentum kick back in. I always felt as if that loss of momentum from the late fourth quarter into the early first quarter would be a temporary issue as it has shown itself to be during past election cycles, the tax refunds were a challenge. But right now, we really do like the momentum that we're seeing in the performance of the brand across all of our markets.

I appreciate that. Just one last one, if I could sneak it in, which is just -- I don't think the system has taken menu pricing in quite a while. Any ideas to how the franchise group is addressing what could be mid-single digit wage rate inflation, any commentary, any discussions with the franchise group?

Yes. We certainly keep an open dialogue with our franchisees about wage inflation, whether it be from demands from employees or that associated with any sort of legislation in addition to commodity prices. In our test that we are doing in Las Vegas, we've also started working on some ideas on how we can position ourselves for improved value, driving perhaps more boneless product through our mix as well as looking at ways to optimize labor equation to support the business. So we're testing some ideas with them, more to come on that down the road. But we feel pretty good about ways that we can address that without having to resort necessarily to menu pricing as a means to offset this.

Our next question comes from Andrew Charles with Cowen & Company.

This is the first quarter where you didn't seem like you guys got a sequential increase. The mix of digital sale is 20% in 4Q and 20% again in 1Q. I'm just curious, with the digital campaign launched in January and then national TV advertising in February where you tagged online ordering. Were you surprised by the kind of the similar sequential trends to the 4Q?

Actually, no. If you were to map a bar chart or a line chart, each and every year, year-over-year and look at our online sales, because of the Super Bowl, we actually see a reduction in online orders as a percentage of sales, because we actually turn that mechanism off on a very, very busy full capacity day. So usually, the first quarter against the fourth quarter tends to be pretty flat, which is what we saw. We then start to gain some momentum as we exit the first quarter, and into the second quarter, we're starting to see some momentum build associated with our advertising that we just started, which is specifically focused on online ordering and skipping the wait, if you will, by coming to Wingstop. So we're encouraged. If you look year-over-year, the rate of change year-over-year has been very consistent quarter-in and quarter-out.

Very good. And then we saw that you recently launched boneless wing promotions on Mondays and Tuesdays. Maybe these were used in the past as well but brought back just given the bone-in wing cost pressures. Could you talk about the success of just driving incremental traffic during traditionally slow days for you guys as well as the mix shift to boneless wings away from bone-in?

Yes. That promotion has actually been a part of the brand and on our -- it's not on our menu per se, but it is merchandised in all the restaurants and has been for many years in a row. And that will continue to be the case, probably for a period of time to come. The only thing I would say on boneless wings versus bone-in, I think consumers value both products equally. They are all sauced and tossed in our 11 unique flavors. And there is a disparity in the price of bone-in wings to boneless. So -- usually, we work with our franchisees. And any time we see that kind of price disparity, we try to encourage the sale of boneless wings.

Our next question comes from Karen Holthouse with Goldman Sachs.

Looking at the quarter to date number you gave, I know last year there was a bit of a headwind in April because you were wrapping the Floyd Mayweather pack, something, I'm not into boxing, sorry, from the prior year. Just how does that look on a 2-year [stack]? Like, how much was just because there was an easy compare in '16, and I'm sorry to be a little nitpicky there?

Yes. I don't think anything has to do with the 2-year [stack] that's going on right now, Karen. That was actually an event that was back in 2015. And so the one-year comp has nothing to do with anything that happened back in 2015.

Okay. And then quick clarification, the change in french fries, is that for all orders or just delivery orders that you are slightly changing the preparation?

Yes, that was a procedure change on all fries.

Okay. And has there been any reaction to that, in terms of a change in customer comments or anything?

No. It's -- what it does is actually -- the only change we made was to ensure that it remained crispy and held longer and hotter, all of which we tested thoroughly and feel like there is very little change to taste, flavor or anything else that would be noticeable by the guest. So far, all the consumer response we've seen in this test has been very positive.

And one final one for you. I know with the launch of national advertising, there is a benefit to consumer awareness, but it will also hopefully benefit to potential franchisee awareness. Are you seeing any early signs of greater interest on that end as well?

A little. It's early. I think we already had a lot of interest in our brand already, Karen. And I would demonstrate that through the fact that we continue to open a lot of restaurants, continued strong openings. Franchisees that we have in our system are still really the key to our long-term success, in terms of opening more restaurants and they continue to do so. So it's not as if we need a large pipeline of net new franchisees for us to be able to continue our growth. But certainly, as the national advertising helps raise brand awareness, those restaurants tend to open stronger, faster, especially in newer or emerging market.

Our next question comes from Matthew DiFrisco with Guggenheim Securities.

Just have two questions actually. Can you describe a little bit of the competitive environment? I'd presume that you're not seeing as much discounting, given the rise in the commodity cost? Or are you -- how would you describe the year-over-year competitive environment, promotional activity from your peers?

It kind of depends. I don't know that we have, what I would call, a true peer, and that we don't really fight a burger war or a pizza war or anything like that, that others have, sandwiches included. So we see maybe some discounting by casual dining chains that might sell wings. But I don't think any of that is having an impact necessarily on our business. In fact, I think we've been able to demonstrate that we can separate ourselves from the rest, and we've done that through our national advertising and maintaining a good value equation without having to deep discount in any way.

Excellent. And then just to follow up a little bit on marketing side a bit. I guess, so you've gotten this rebate now and you're starting to spend more on the national side, how should we think of a cadence of marketing dollars throughout the quarter and throughout the year? Are you at a run rate now and what you've sort of fueled the 2.3% quarter-to-date ex-Easter? That comp is reflective of a going forward pace of marketing? Or I guess, with the dollars now coming in from the rebate and plus gaining some momentum behind advertising, are you going to see a larger spend as the quarter and year progresses, so in theory, more support towards the comp from marketing?

Well, the spend, as planned, is to be fairly evenly spread across at least 22 weeks of the year. We might expand the number of weeks against our initial target. But the TRPs and/or the dollars, if you will, quarter-to-quarter will be very smooth and consistent. We did that deliberately, because we did not want to come out with a big heavy push and then back it off. We see this as a long-term play, so we've approached it that way.

Yes, Matt, so one other thing to clarify. The incremental dollars that came, that we contributed, was already contemplated in our original budget. So that's not incremental to our original plan for the year. It just got reported here in the first quarter.

And then is there anything abnormal digging into that 2.3% quarter-to-date as far as year-over-year comparisons on TRPs and amount of support?

No.

Our next question comes from Will Slabaugh with Stephens Inc.

I wanted to ask another one about national media, and just your assessment of that impact versus your initial expectation before the launch? And you feel like that momentum is building as we go along, and I know you said you got the second launch happening now, or if that bump in sales growth isn't somewhat stable as we've moved along?

Well, we -- I think we've noted a couple of things. That one, it reversed the negative trend that we had experienced in the early part of the first quarter and that we had started to build momentum into the back half of the quarter, and I think that was demonstrated by the improvement in our comp from the last time we spoke. And then, certainly, going into Q2, in the first 4 to 6 weeks, I guess, of the quarter, excluding the Easter impact, we've seen that momentum continue. Again, I would reinforce, we didn't design this to have a big pop at the beginning and then settle down. We had designed it such that we could create good solid momentum this year -- well into the back half of this year and into the future years. We didn't want anything that we'd have to necessarily rollover, if you will.

Understood. And wondered if you could quantify the calendar shifts that we saw in the quarter and then the quarter-to-date period? You mentioned that 2.3% I think was net of Easter in the quarter-to-date period. I'm curious if you would be able to quantify what we saw in the quarter, and then what that Easter impact was?

Yes, Easter is about a 70 basis point headwind to the second quarter, for the whole quarter, and it was a benefit to Q1 on the reverse.

Our next question comes from David Carlson with KeyBanc Capital Markets.

Mike, you mentioned your expectation for 2Q wing inflation persisted at a similar level as what you experienced in the first quarter. As you kind of think a little bit further out, what are your thoughts on second half wing inflation, just given the suddenly high prices we've seen off late? And I do have a follow-up.

Yes. Sure. It's a pretty volatile commodity, as you guys know. It typically would have started its seasonal decline by now, and it obviously hasn't done that. It's actually gone up a bit, although it has been stable more recently. And it's hard to say what's going to happen in the second half of the year. So I wouldn't particularly speculate on that right now.

Okay. Fair. And also I appreciate the commentary you guys provided on the performance in the state of Texas. Given the large percentage of stores in California, can you maybe give us a little bit of a glimpse as to how that geography is performing relative to the system?

We don't want to get into breaking down the comps by geography. We know Texas has been important, particularly given our company store commentary. And so I think similar to the momentum we've seen across the system with the positive momentum recently, we're happy with performance in California.

Our next question comes from Jeffrey Bernstein with Barclays.

So couple of follow-ups, one on the delivery. I'm just wondering, how would do actually define success? I'm wondering if there's certain hurdles you've set on, whether it's sales or guest satisfaction? And if you're achieving those, I'm just wondering, how long -- I know, you've said you'll look at these results over the next couple of months, but how long do you think it would take if you decide to roll it out nationally? Or would you do it more in phases over multiple years?

Jeffrey, it's a great question, and we're really just getting going, so it's a little early to kind of tell you what we think a rollout strategy would look like. We're obviously being very careful and cautious to ensure that we can actually get the product to the guests within a reasonable period of time that they would expect and that also would maintain the quality of the food. The only other thing I would add to that is, we have set some internal benchmarks in terms of what we think successes is. Without quoting specific numbers, the one thing I would say is, we certainly want it to be incremental to the business, not just cannibalizing existing revenue that we have as carry-out, We also have to make sure that the value equation for the consumer is right. In some cases, these delivery fees can be very high to the guest, but for the most part, we want to make sure that the guest is willing to pay that fee and not have it erode the value equation for them. So there is a lot to learn in the early stage. Like I said, we're very excited about some of the results we've seen. But again, it's been -- it's a very short period, only a few weeks, and so we want to make sure that we're very thoughtful about this. What we did mention was that in the summertime this year, we would probably be at a position where we felt like this was ready for an advanced rollout, whether that be in a few markets or more broadly across The United States, but time will tell.

Got it. And then just -- I think you made mention talking about balance sheet and leverage, I think you announced sub-4 turns. I'm just wondering, as a rule of thumb, you'd delever at what rate based on EBITDA growth? And are you considering options -- I know in the past, you'd paid a one-time dividend. But when might we see something like that? And what options would you consider? Or is it a one-time dividend, something you guys have set would be your priority?

Yes, Jeff, it's Mike. Great question. Historically, every 5 to 6 quarters, we've been in a position because of the deleveraging to recapitalize the company. And as you pointed out, we have paid special dividends. So on that cadence that would put us Q4 to Q1 as you look forward. So we're starting to work on that, now and contemplate that, now that we've dropped below 4x. And as we go through that process, we'll also be reviewing other options for possibly more regular return to shareholders, but we don't have anything specific to discuss at this time.

There are no further requests for questions at this time. This concludes today's Wingstop First Quarter 2017 Earnings Call. All parties may disconnect. Have a good day.