BBQ Holdings, Inc.
Q1 2015 Earnings Call Transcript

Published: 6 May 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Famous Dave’s First Quarter 2015 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Richard Pawlowski. Sir, the floor is yours.

[Richard Pawlowski:]

Thank you, Willy. Good morning and thank you for joining us for the Famous Dave’s fiscal 2015 first quarter conference call. I am Richard Pawlowski, Chief Financial Officer and with me today is Ed Rensi, Famous Dave’s CEO. Before we begin, we would like to inform those listening that certain matters discussed during this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Famous Dave’s believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that could cause actual results to differ materially from Famous Dave’s expectations include the company’s financial performance, changes in local or national economic conditions, restaurant industry conditions, the execution of our restaurant development programs, franchisee performance, and the ability of our franchisees to meet their development commitments, the availability of financing and other risks detailed from time-to-time in the company’s SEC reports. Our earnings release, which contains the financial and other statistical information being discussed was issued this morning and can be accessed by clicking the link, the Investor Relations link on our website at famousdaves.com. This call is being recorded and will be available for replay for 7 days. Now, I will turn the call over to Famous Dave’s CEO, Ed Rensi. Ed?

[Ed Rensi:]

Good morning, everybody and thanks for joining the call. The quarter’s comparable sales continued to be negatively impacted by the elimination of the discounting strategy that was in place in late 2013 through all of 2014. And like many of our peers, our sales were also negatively impacted by the unusual weather patterns and the early start to Lent compared to 2014. Weekly sales in each of our major company-owned markets mirrored the corresponding Knapp Track report for those markets throughout the quarter. Our performance is more encouraging when we evaluated on a region-by-region basis. Our Minneapolis and Chicago markets outperformed the company on both an absolute and weighted comparable sales basis. We attribute this outperformance through a number of factors, not the least of which is the regular presence and visibility of our senior management team in those two markets. We intend to apply the same approach as it appears to be working in Chicago and Minneapolis to the East Coast. Although some of our East Coast restaurants have specific competitive challenges, we believe that over time we will be able to positively impact the performance. Our restaurant level operating cash flow margins declined by 220 basis points and approximately half of this decline came from anticipated increases in our contracted food costs and the balance was the result of sales deleverage. We are very pleased with the progress that we have made in reducing our core, recurring general and administrative expenses. For this quarter, G&A administrative expenses included investments made to develop our new brand strategy and position. We are using Prophet out of New York, FRCH out of Cincinnati and Mark Zeff out of New York to aid us in this strategy. Strategic investments, such as these, will continue to impact general and administrative expenses through 2015. We are embarking on two major research projects immediately. We haven’t had the best-in-class proprietary customer research and we are starting these two major projects to fix that. We will continue to actively and prudently manage our expenses to target increasing restaurant and company level operating margins. Driving top line sales growth is our highest priority. Although it’s important to note that we will continue to face sales headwinds from the discounting strategy until we anniversary at the end of the program late in the second quarter. We have made substantial progress on refranchising some of our company-owned restaurants. And we hope to be in a position to make announcements soon on this subject perhaps later this quarter. Finally, we have also made substantial progress on revising our current credit agreement and hope to be in a position to make an announcement on this subject very soon. Richard?

[Richard Pawlowski:]

Thanks Ed. For those on the call, please refer to our press release issued earlier this morning as I summarize our results. Famous Dave’s reported revenue of $32.6 million and net income of $197,000 or $0.03 per diluted share in the first quarter of fiscal 2015. This compared to revenue of $35.7 million and net income of $516,000 or $0.07 per diluted share for the comparable period of fiscal ‘l4. Results of the first quarter were impacted by operating deleverage important investments in brand development or invested approximately $635,000 or $0.06 per diluted share as well as the year-over-year increase in stock-based compensation which are both reflected in G&A expenses. The first quarter of fiscal 2014 included approximately $894,000 or $0.08 per diluted share to account for a net lease termination costs related to the Salisbury, Maryland restaurant which closed at the end of March plus an impairment charge and loss on disposable décor in our company-owned restaurants and at décor warehouse. In addition, Q1 2014 included approximately $518,000 or $0.05 per diluted share of severance costs. In ’14, these costs were partially offset by approximately $878,000 or $0.08 per diluted share of stock-based compensation recapture. Adjusted EBITDA for the first quarter of fiscal 2015 was $2 million compared to an adjusted EBITDA of $3.2 million for the first quarter of fiscal 2014. Approximately half of the year-over-year dollar sales decrease was a result of the closure of four company-owned restaurants during 2014. Further, sales were adversely impacted by 4.9% comparable sales decline as a combined result the winter weather in the second half of the quarter, the earlier start of lent as well as the discontinuation of the heavy discontinuation of the heavy discounting strategy. As we further breakdown the comparable sales decline on a weighted basis, we saw a 3.4% decline in dine-in sales, a 1.3% decline in to-go sales and 0.2% decline in catering sales. Our dine-in and to-go per person average for the first quarter of fiscal ’15 was $17.22 compared to $17.08 for the first quarter of fiscal 2014. The breakdown by day part, the dine-in sales was $16.23 for lunch and $19.91 for dinner. As of today, we have no plans to increase menu prices this year. And as a remainder, the company-owned restaurants have not seen a formal menu wide price increase since October 2013. Turning to our franchise business, royalties grew 3% to $4.3 million for the quarter. At the end of the quarter and as of today, we had 50 company-owned restaurants and 134 franchise operated restaurants for a system wide total of 184 restaurants in 34 states, the Common Wealth of Puerto Rico and Canada. We will not provide any forward-looking guidance for fiscal ’15 as we continue to make progress on our refranchising strategy. We will however discuss the performance for our most recent quarter. As Ed mentioned, overall we saw 220 basis point decline in restaurant level cash flow margins on a year-over-year basis, this was largely a result of an increase in contracted food costs as well as sales deleverage as a result of the decline in the net restaurant sales. Food and beverage costs increased to 30.3% of net restaurant sales compared to 29.2% for the first quarter of ’14. Labor and benefits as a percent of net restaurant sales were 33.4%, 10 basis points unfavorable to the comparable period in fiscal ’14. This small increase was primarily due to sales deleverage on fixed and management labor costs. Operating expenses for the first quarter as a percent of net sales were 27.9% or 100 basis points unfavorable to the comparable period in fiscal ’14. This increase was primarily related to sales deleverage on fixed operating costs and occupancy costs, partially offset by lower utility and supply costs. Advertising as a percentage of net sales was 1.7%, essentially flat in terms of dollar spent for the comparable period in ‘14. In fiscal 2015, the marketing ad fund contribution is 1% and it was 0.75% in fiscal ‘14. D&A expenses for the first quarter of fiscal ‘14 as a percent of total revenue were 15% or $4.9 million, which was 310 basis points unfavorable, for the full period for fiscal ‘14. Our core recurring cash G&A expense decreased, but this was offset by expenses incurred for brand development and a year-over-year increase of stock-based compensation. Our effective tax rate for the first three months of fiscal 2015 was 35.6%, reflecting the results of the first three months of the year. This compares to 33.7% during the first three months of 2014. With regard to our balance sheet, our unrestricted cash and cash equivalents balance at the end of the first quarter was approximately $2 million. We ended the first quarter with about $11 million on our revolving line of credit and we were in compliance with all of our debt covenants. As of today, we have about some $10.8 million on our line of credit. We used approximately $428,000 of cash for CapEx, capital expenditures, primarily reflecting continued investments in our existing restaurants and investments in corporate infrastructure systems. Lastly, during the quarter, we used about $3.6 million to repurchase approximately 118,000 shares at an average price of $30.67 excluding commissions. We have approximately 50,000 shares left on our current 1 million share repurchase authorization. At this point, we would like to take your questions. Willy?

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Alex [indiscernible]. Alex, state your question.

[Unidentified Analyst:]

Great, thanks very much. Would love to talk a little bit more about what specifically has been going right in Chicago and Minneapolis and can you talk about some of those learnings that will be rolled out to the rest of the organization? And specifically, I am curious how the launch of Buffalo Bones was received when that was rolled out, curious if we are to see more new menu items rolled out across the chain over the next couple of quarters?

[Ed Rensi:]

When we review what we have done in Chicago, we are very pleased and excited about the future, because we see things that are developing very nicely. You mentioned the new products. We introduced tacos and flatbreads and the new Buffalo Bones to those stores largely as bar food starting in Bolingbrook and then rolling it out to some of the other stores. And we pretty quickly found during our analysis that our customers were really anxious to have those products as part of our mainline menu. So, we are beginning a further test in the Chicago metropolitan area, which we are calling menu optimization 2.0, where we are taking our flatbreads, tacos and bones, and a few other things, which are pretty minor actually and adding them to our full day menu. We put a Southwest salad on the menu with a new lettuce mix, which frankly I am not satisfied with you that we need to keep working on the lettuce mix that I think we will get that right pretty quickly. We have also had four of our franchisees, put this menu into four of their stores one each and we are going to encourage them to give us their feedback. In fact, I talked to Ron Helms yesterday by e-mailing some suggestions he had for his store and he is going to be making those changes to the menu in the next couple of days. So, some of the menu changes are very positive. Additionally, the introduction of craft beer into our restaurants into our bars has been important, because great handcrafted barbecue goes well with handcrafted beer. And our customers really like bones and beer if you will. And so that’s been a real plus as well increasing the amount of entertainment in our stores by putting more TVs in the bar, getting them focused on sports and that kind of thing has been important. Additionally in Chicago we hired a company called Blast! Marketing which is really focused on local store marketing community outreach and things of that nature and they are going to be rolling their work products into Minneapolis as well. Additionally, we have hired a similar type firm in Baltimore called Maroon Marketing is putting together an 18 months local store marketing plan that will be for all of our DC, Maryland, New York and New Jersey stores and that calendar is being formulated right now because we are going to become far more aggressive with local store marketing that we have in the past. So all-in-all some things are working, some things aren’t working so well and we are going to continue to test, we are going to be aggressive in exploring what it is our customers want that we are going to tie some of the developments that we have exercised in Chicago and to some extent in Minneapolis and supplement that with some very rigorous proprietary consumer research. We have engaged SMG Corporation on our Lincoln, Nebraska to do a companion study the one they did in 2012 on brand tracking. We have commissioned Strop Research out at Texas to do a AA study which is attitude and awareness. They are going to start their study soon by interviewing upwards of 4,000 people users of Famous Dave’s, non-users, people that have tried us and have lapsed or people that have rejected us. They will start to learn and discover what it is our customers want going forward.

[Unidentified Analyst:]

That’s really helpful. Thank you. I am looking forward to seeing some of these new changes rolled out.

[Operator:]

Thank you. And our next question comes from Mark Smith. Mark, state your question.

[Mark Smith:]

Good morning guys. First off, just housekeeping can you give us open and closures for franchisees in the quarter?

[Richard Pawlowski:]

We had five closures during the quarter. Dave Anderson’s restaurant in Hayward, Wisconsin unfortunately going down, this was publicly recorded. But that doesn’t contribute any franchise fees although includes – it’s included in our store count. We had a couple of stores in Minneapolis closed down and then three other – two other low volume stores on the country.

[Mark Smith:]

And then you had just a little bit of pre-openings, do you guys have any leases signed for company-operated restaurants?

[Richard Pawlowski:]

We have a lease in the relocation in North Riverside Chicago and that was very small amount of cost associated with the development of our location.

[Mark Smith:]

And then can you quantify or talk at all about same store sales in Chicago and Minneapolis and kind of the delta from the total comp?

[Richard Pawlowski:]

We haven’t historically broken out market by market performance. But as talked about in the release there was substantial improvement or a substantial gap between the overall company performance on both an absolutely and weighted basis on – in terms of comparable sales. So, for competitive reasons we are not going to break out how each and individual market does, but we can tell you that was a big gap.

[Ed Rensi:]

Just as a little bit more texture to that, we have an office in Lombard, Illinois which is in Chicago and we also have an office obviously here in Minnesota. Richard, myself and some of our key leadership basically split our time between the offices. And we are doing a lot of experimentation in Chicago, Minneapolis and there is been a lot of executive attention on these markets and its time for us to go forward and start devoting equally as much time to the other markets where we have company stores. I think the local store marketing activity we are ramping up is going to be very beneficial to us and comparable store sales. We spent last year really trying to get ourselves reorganized. As a corporation I think we are prepared now to devote a lot of time to field operations and what’s going on in our stores, particularly the company stores. This is one of the reasons why we want to refranchise company stores never run and operate in the same level of intensity as do franchise stores, because general mangers is wonderful as they are don’t have skin in the game like our franchisees do. And I think having a preponderance upwards of 90% of the stores franchise will bode well for the company going forward.

[Mark Smith:]

Okay. Can you guys say if any market or even if we look at some of the remodeled stores if they were comping positive during the quarter?

[Richard Pawlowski:]

Again, we don’t for competitive reasons talk about the specific stores in terms of that comp performance. We had a number of stores comp positive for the quarter, specific number of stores, that’s an improvement over the prior quarter. And we are happy with the way that those stores are tracking.

[Mark Smith:]

That’s fair. Looking at G&A, I don’t know if you can give us any insight or guidance on maybe where G&A will run or maybe what incremental spend we will see on professional fees as you continue to do some research to try to boost sales?

[Richard Pawlowski:]

Yes. So, we are not going to give any forward-looking guidance. What we have talked about before is that we are going to prudently manage those expenses. And if you dig into our G&A spend and look at our actual cash core recurring G&A cost, that has gone down and we will continue to work hard to get that down further. The investments we made with profit and others on the brand development side are very, very important for the business going forward. That type of work has not been done at any real debt for a number of years. So, what you are seeing is an – I probably characterize this as an abnormally high spend in terms of investment in brand development, but on an ongoing basis, we expect to continue to invest in the brand to maintain its integrity going forward.

[Mark Smith:]

Yes. And then last question, Ed, can you talk at all or give us feedback on your meeting with franchisees, which add back in February, how that went, what kind of participation you had from franchisees, any other kind of insights from that maybe?

[Ed Rensi:]

Well, we have had two major meetings. We had one in February 26. We had one previous October as well. We generally have two meetings with our franchisees a year that are pretty significant. We have another one coming up this October. We just recently had one in Austin, Texas. We had a phone call the second Tuesday of every month with our franchisees to answer their questions and help them understand better what we are doing. And we have focused on similar things we are talking about right now. Obviously, they have got a lot at risk and a lot of investment in the business. They are very curious about what we are doing, why we are doing it. We have made some major testing initiatives in company stores. We continue to monitor that. They want to watch it. They want to see two quarters of data before they start thinking about what they might want to do different. We have shown them all the work that we have had done by the design companies. So, they have an opportunity to input. We have had a webinar, where Peter Dixon of Prophet went through for about an hour. Some of the key ingredients in our design and brand positioning work. That’s probably another 2, 3 months from being 80% complete. So, we keep them engaged on that. Several of our franchisees have participated in meetings on a regular basis. Allan Gantes in California has been virtually attending every one of our meetings and we have given us great input. Change is always stressful. So, we have a number of franchisees that are scared to death that we are going to do something to get brand. It’s going to be irreparable. We have to honor that. They are smart people. They know what they are talking about and we have got to be cautious about some of those things. So, all-in-all, there is always dynamic tension. When you make change, there is always going to be that kind of concern, but I think it’s properly proportioned. They don’t hesitate to tell us what they think and we need to be transparent. We need to keep an open dialog or we need to listen very carefully what they have to say. We are going to be largely a franchise organization and they are key to our future success.

[Mark Smith:]

Helpful. Thanks guys.

[Operator:]

And our next question comes from Greg McKinley. Greg, state your question.

[Greg McKinley:]

Yes, thank you. So, I believe there was in the last week or two a new menu rollout. First of all, can you confirm whether I am correct in saying that? And then maybe just help us understand how broadly that rolled out? What’s different? How does it look different or feel different to the consumer?

[Ed Rensi:]

Well, we, starting at the end of November, put in an optimized menu in our company stores. This is not a rollout. This is – yes, it’s an experiment, it’s a look at product mix, it’s a look at consumer acceptance, this involved lots of different changes to the menu. We did a review of what we call stars and dogs [ph] what’s contributing the most margin was contributing the most sales, where does that fit into our menu, because we are an 86% scratch kitchen and we got to be on top of that kitchen at all times and the menu had to perform for us. So we put that menu into the company stores. In November we have been watching it. Since then we made some mistakes in some of the things we did, we have corrected those. We continue to correct those. Recently we started to expand the optimized Menu 2.0, which I commented on just a little bit earlier that that menu reflects some of the learnings and some of the changes we have made. We changed the plateware in our restaurants. We have got to revise that because some of the plates are too small. They need to be larger because we have very large portions of our restaurants, so we need to get it right sized. We are looking at some of our legacy plating and trying to decide what we should bring back, what we can manage from a health and safety standpoint as well as portion control. So there are a lot of moving parts in this. In February – in December we have to post all of our calorie counts on our calendars for – on menus for our consumers. We want to make sure we get those calorie counts exactly right, get the portion size right, so we can totally in compliant with federal regulations and satisfy the needs of our customers. So, it’s a lot of moving parts on this menu development. We have not molded out to this system. We will not roll it out to this system. We are not going to force our franchisees to put this menu in their stores, because we are not ready for that yet, we are only experimenting the company stores refine, improve and then move forward as we see necessary.

[Greg McKinley:]

Okay, thank you. And then regarding your marketing, so you highlighted that you have hired two agencies to help you with local store marketing, so maybe if you could just help us understand what all is in fault in an effective local store marketing campaign versus the marketing that these regions or districts have had in the past?

[Ed Rensi:]

This is only in the company store operations. For years the franchisees have managed their own local store marketing. This is really a new approach for company stores by and large. Historically, we have taken all the money out of it restaurants for marketing and spent it nationally. But marketing today is radically different. The way people pursue communication today over smart devices, word of mouth, Twitter, Instagram, Flipagram and all these different social media opportunities are changing and changing rapidly. But there are some key elements that we know. You have to have community outreach. You need a point of view for your brand to say to the community that we care about the community. We are going to give back to the community a large. And when you do at a concentrated national basis you can’t be respectable – respectful of local community needs. By hiring these local agencies and focusing on local communities, we think on to our customers in a much different way than we ever had in the past.

[Greg McKinley:]

Okay, alright. Thank you. And then regarding refranchising, so you just got through talking about the dialogue you had with franchisees at this last meeting, at what point in time, is there the changes that you are testing on a company-owned basis or the new restaurant designs that your partners are drawing up. What are sort of the key points that need to occur before franchisee or two says yes I believe in the direction that these are going and I want to take on a new market by buying your stores?

[Richard Pawlowski:]

So, I don’t think they are sequential Greg. We have active discussions with a number of existing franchisees and potential new partners who are very interested in refranchising our existing company-owned operations. They are not waiting for the results of the work or the results of the research that we are undertaking to get on board.

[Greg McKinley:]

Okay.

[Richard Pawlowski:]

And the friction point as we talked about previously, when you come to refranchising around lease negotiations with the landlords and around liquor licenses, largely the ability to agree on price and other terms is fairly straightforward. For us, the important thing is to have the right partners to grow with going forward. And from Famous Dave’s corporation perspective, we want to be released from liability on the leases. So, those are the two things that generally slow down the pace at which we can get this done, but it’s not a function of profit or anyone else completing their work before we can get these things across the finish line.

[Greg McKinley:]

Okay.

[Ed Rensi:]

If I can add a little texture to the Richard’s answer, this is not a targets you hit, it’s a path you walk. Restaurants need to be relevant to the consumers on an ongoing basis. That means there has to be a natural continual gradual evolution of the brand to make sure that you stay relevant to your customers over a long period of time. When you get into a situation where you think you got all the answers and you stop evolving, your customers will leave you behind, because there is always new competition, new concepts, new ideas, new places to dime, new ways to dime, and if you don’t keep pace with the changing generations and the changing morays and values, it’s hard to keep up. And the work that the design firms are doing on brand positioning and this goes all the way down to the plate where the uniforms, business cards, all those kinds of things will evolve over time and not every franchisee will adopt every idea that they come up. Certainly, the needs the [indiscernible] has in California are different than what a franchisee may need in North Carolina. So, we have to be flexible. We have to take the core iconic brand items of Famous Dave’s to make sure we never lose them. For example, our handcrafted, authentic, barbecueing process, we must hold that sacrosanct. What the supporting cast is may vary over time. Building design will differ community to community, because there is owning laws and things like that. It’s the core brand positioning. In the core brand, it’s important and how it evolves over time. So, at the appropriate moment, I think franchisees will pick the parts they need to satisfy local requirements and it will be a continual process.

[Greg McKinley:]

Thank you. And then last question we are wrapping our discounting late in the second quarter, I don’t know is there any metric you can provide on, I don’t know, if it’s percentage of sales sold on discount change year-over-year or how would you help us understand the impact that, that has had and what will change when we lap it?

[Richard Pawlowski:]

It’s great question, Greg. We talked in the previous couple of calls about our comps with and without discounts.

[Greg McKinley:]

Yes.

[Richard Pawlowski:]

The challenge we have in providing that type of analysis publicly today is that with the weather there is so much noise in the change in daily sales or weekly sales that although internally we have a quantification, I don’t think it would be prudent to go on the right one, Dave. This is what we think it is, just because of the ups and downs from the weather.

[Greg McKinley:]

Okay. Alright, thank you.

[Operator:]

Thank you. And our last question comes from Craig [indiscernible]. Craig, state your question.

[Unidentified Analyst:]

Hi. Could you give us stock comp in the quarter?

[Richard Pawlowski:]

Stock comp in the quarter, yes, let me just pull the exact number up for you, $215,000.

[Unidentified Analyst:]

Okay. So, didn’t the run-rate SG&A was kind of $4 millionish of the cash SG&A?

[Richard Pawlowski:]

The cash SG&A run-rate was about $4 million, yes.

[Unidentified Analyst:]

Okay. And then the brand strategy investments are about 635 and it sounds like that’s going to continue through the remainder of the year or does that roll off?

[Richard Pawlowski:]

We are going to continue investing in our brand strategy and brand position…

[Ed Rensi:]

And research.

[Richard Pawlowski:]

And research associated with it. I don’t think it’s going to 635 it’s going to be – state it’s not going to be 635 a quarter. So, as I said, the bulk of this is hitting right now and it will taper through the year.

[Unidentified Analyst:]

Okay. And then as it tapers through the year, is there going to be an offset as the increase for local marketing?

[Richard Pawlowski:]

Is that going to – no, I mean, it’s – the local store marketing hits the restaurant level P&L.

[Unidentified Analyst:]

Okay.

[Richard Pawlowski:]

This is G&A expense.

[Unidentified Analyst:]

Okay. And then your restaurant level expense control continues to be spectacular and your labor cost control not as much as last year, I would assume you are getting hit by ACA and higher minimum wages in Minnesota is just kind of a reasonable run-rate also for the rest of the year not as a percentage of sales, but on a operating week basis?

[Richard Pawlowski:]

The first quarter is a lower quarter sales – as lower sales quarter. We were very pleased to be able to maintain our labor percent as a percent of net sales despite the operating leverage that comes with a 4.9 comp decline.

[Unidentified Analyst:]

Yes, that’s spectacular.

[Richard Pawlowski:]

Thank you. But the credit really goes to our operators who are deploying labor where they need to. But you are right we are being impacted by labor cost pressures as everyone else in the industry has and we are doing very best to mitigate those.

[Ed Rensi:]

We may in order to improve our overall operations we may add some management staffing in selected markets, so we can upgrade the quality of our staffs, do a little bit more training we are going to have to depending on what happens with menu optimization. Two, we may need to add some resources in the store, but I think they will be nominal and they should be offset by other controls that we would put in place like utility controls, waste management things of that nature.

[Unidentified Analyst:]

Okay. And are there any ACA or minimum wage bumps coming down the pipe that you guys can see or kind of that’s all…?

[Ed Rensi:]

Well, we don’t see any right at the moment. But I have to tell you communities across United States are becoming very ad-hoc about the way they are managing minimum wage community by community by community. I don’t know if you read recently that Oakland, California took their minimum wage way up. And it’s closing down small businesses all over that city and it’s very problematic. And we are fortunate that we are not in those city limits right at the moment. But who knows what communities may do that something we are going to have to keep our eye and be vigilant about.

[Richard Pawlowski:]

Just to add some color to that, in Minneapolis I mean the way will increase in August. And we have already accounted for that in our budget and our thinking and how we are going to deploy labor in the restaurants. So, given our concentration towards Minneapolis it is important for us to watch.

[Unidentified Analyst:]

Okay. And can you give us an order of magnitude on refranchising it sounds like you are getting closer to moving forward there?

[Ed Rensi:]

Order of magnitude in terms of number of stores…?

[Unidentified Analyst:]

Number of stores this year?

[Ed Rensi:]

Yes. I mean we said it’s going to take 2 years to 3 years. We have made some really good progress. The – we are talking to a number of groups about multi-unit transactions. Singles – small single-digit multi-unit transactions or some single unit transactions as well. And we have discussions on larger blocks of stores at the same time. So, our goal was to get to 10% to 15% of the system is being company-owned in a 2-year to 3-year timeframe. We are still on track to meet that and expect to be able to talk about specific transactions hopefully later this quarter.

[Unidentified Analyst:]

Okay. So, it’s kind of steady of progress towards your goal is that the way look at it?

[Ed Rensi:]

We are pleased with the progress and like as I mentioned to Greg the friction points are our lease assignments, liquor licenses that negotiations with our partners and identifying the right partners has been swifter than we had anticipated, but this just [indiscernible].

[Unidentified Analyst:]

Okay. And then the franchise closings in the quarter, could you – is there a way to generalize about why they were closed or the Richmond closings were within the franchise closings?

[Richard Pawlowski:]

The Richmond closings were our company-owned closings at the end of last year. The market was not performing for us. The company owned the real estate underlying those three locations and that is not being classified as assets held for sale on our balance sheet. That also plays into why our operating expenses as a percent of sales went up because those three restaurants weren’t burdened with rent. So that plays into part of that 100 basis point gap. In terms of the franchisees, the stores that closed in general, four of them were low volume stores. But let me refresh that, three of them were low volume stores. One was the original store owned by our company’s founder included in our store count, but doesn’t contribute to our royalty stream.

[Ed Rensi:]

Okay. And then one was a closure at the North America franchisee closure at North America.

[Unidentified Analyst:]

Okay. And then the franchisees outperformed the company stores, did they do a less of a level – less discounting a year ago or what would you – how would you account for the gap in same-store sales?

[Richard Pawlowski:]

It’s a great question and we were thrilled to see that performance through the quarter. I think it’s a real testament to the hard work they put in on the ground. They in general participate at a significantly lower level in the program that we call yield management, which was the heavy discounting program last year. Secondly, they have in general followed a fairly regular pattern of evaluating their menu prices. And in February, a number of them took modest price increases. So, that certainly helped. So, the fact that they weren’t comping against heavy discounting took some prices, which we didn’t do in the company stores certainly helped them, but I don’t want to underestimate the impact that they have on a daily basis in their local communities in driving their own business.

[Unidentified Analyst:]

Okay. And I know you don’t want to talk about specific stores, but can you give us maybe just a glimpse of how the average weekly sales at Bolingbrook versus the rest of the Chicago market or maybe in average company store?

[Ed Rensi:]

That’s just for competitive reasons. We are just not going to give that information out.

[Unidentified Analyst:]

Okay, alright. Thanks a lot guys.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Greg McKinley. Greg, state your question.

[Greg McKinley:]

Yes, thanks. Just two quick follow-ups. First of all, what are you hoping to accomplish with your line of credit renegotiation? And then secondly, core G&A, can we determine that simply by pulling out the $665,000 of cost there or would there be other elements there to get to what you are looking at core G&A being?

[Richard Pawlowski:]

So, okay, in terms of core G&A, one of the metrics we are looking at internally is what’s our cash G&A cost, what was already our shareholders pay for in terms of G&A? So, you want to strip out the investments in design and then you want to take a look at the impact of stock comp severance year-over-year, the impact that 2014 had from recapture versus the cost that is charged against our P&L this year. So, you really want to try and unpick those and all the information to be able to do that in our financials.

[Greg McKinley:]

Okay.

[Richard Pawlowski:]

Can you repeat the first question please?

[Greg McKinley:]

Yes, just what you are hoping to accomplish with your line of credit negotiation?

[Richard Pawlowski:]

So, we have had a fantastic working relationship with Wells Fargo over the past 5 plus years and we are deep into negotiations with them in terms of extending the credit facility and adding some flexibility to make different capital allocation decisions.

[Greg McKinley:]

Okay, thank you.

[Richard Pawlowski:]

Thanks, Greg.

[Operator:]

At this time, there are no further questions.

[Richard Pawlowski:]

Thanks very much, Willy. So, we will call this call to a close.

[Ed Rensi:]

Thank you all very much for joining us.

[Operator:]

Thanks to our speakers. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.