Carrols Restaurant Group, Inc.
Q2 2008 Earnings Call Transcript

Published: 5 Aug 2008

[Operator:]

Welcome to the Carrols Restaurant 2Q08 earnings conference call. (Operator Instructions) I will now hand the conference over to Paul Flanders.

[Paul R. Flanders:]

By now everyone should have access to the announcement released this morning, which may also be found on our website at www.carrols.com under the investor relations section. Before we begin the formal remarks I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance and therefore undo reliance should not be placed on them. We refer you to our recent filings with the SEC for more detailed discussions of the risks that could impact our operating results. On the call with me today is Alan Vituli, our Chairman and CEO. Alan will provide some commentary on the business. I will then walk through our financial results for the quarter and then finally we will open up the call for questions at the end. I’d like to now turn the call over to Alan.

[Alan Vituli:]

Our second quarter performance is a reflection of the challenges we’re contending with in this very chaotic business environment, namely a reduction in consumer spending and a substantial increase in the cost to operate our business. Similar to trends we’ve been experienced since the last year, comp sales at our Hispanic Brands have been more affected by the downturn while sales at our Burger King business have proven to be resilient. That being said higher commodity, utility and other operating costs and expenses impact all three concepts and we have experienced margin erosion. We don’t believe that the economy is likely to improve in the second half of 2008. Consequently, our current expectations of being below our previously guided 2008 outlook reflects this kind of view. Given the continuing cost challenges that we face, we have become more aggressive with regards to menu pricing. Although our concepts are well positioned as value oriented in this high inflationary environment, we find it necessary to take more menu pricing than we have in the past in order to cover some of these spiraling cost increase. Paul will discuss this in greater detail in a moment. Getting back to the second quarter we opened a total of six new restaurants including two Pollo Tropicals, one in Orlando and the second in Naples, Florida; and four Taco Cabana units, including two in Dallas, one in Houston, and one outside of Austin. We also closed three Burger King restaurants and as of June 30 our restaurant count totaled 557 units including 319 Burger King restaurants, 88 Pollo Tropical restaurants, and 150 Taco Cabana restaurants. In terms of comparable unit sales we reported positive 5.9% at Burger King, positive 0.1% at Pollo Tropical and a negative 0.6% at Taco Cabana. Burger King results were good considering the 5.3% comparison to the second quarter last year. The product pipeline and promotional tie ins from Burger King continued to be strong and the barbell strategy of balancing value and full margin products is working well from the sales standpoint. However, as consumers gravitate to the value menu and our commodity costs continue to increase, it has certainly become more challenging to our overall profitability. Our Pollo Tropical results reflect a difficult economic environment that exists in Florida. While our comparable restaurant sales were flattish on an overall basis they masked a distinct variance between Central and South Florida. We were softish in Orlando where we have 11 comp restaurants and a total of 15 restaurants. Comp unit sales in the Orlando market fell 9.1% for the quarter. South Florida fared better with comp sales of 3.3% in Broward, up 3.3% percent in Broward, up 1.8% in Dade County and flat in the Palm Beach County area. During the second quarter we continued to promote our new fajita line at Pollo with the addition of steak fajitas. Both our chicken and steak fajitas are resonating well with our guests and compliment a variety in popularity of our other menu items. We continue to develop and test additional products using the tortilla to further extend the line of products. We’re in the process of adding flat clamshell grills to all of our restaurants and at rolling out a new line of portable wrap products, which are well suited for the on-the-go customer as well as providing alternatives to our platter focused menu. We believe that these products should help us better compete with QSR, help us grow to drive thru sales and increase customer frequency. So far we’ve rolled the new clamshell grills in our expansion markets on the West Coast of Florida and in the Northeast and we will be completing the rollout in our South and Central Florida markets this month. We have been testing four varieties of wraps

[Paul R. Flanders:]

Total revenues for the second quarter of 2008 increased 5.1% to $210.7 million. Revenue growth was mostly driven by a strong performance from our Burger King restaurants and the addition of 23 new restaurants that are Hispanic Brands since the beginning of the second quarter last year. Revenues of our Hispanic Brands restaurants increased 5.1% in the quarter and totaled $108.8 million. Our Pollo Tropical top line increased 6.2% to $45.4 million, reflecting the opening of 12 new Pollo restaurants since the beginning of the second quarter last year, including two new restaurants opened during the second quarter of 08. Comparable restaurant sales in the second quarter increased 0.1% Pollo Tropical inclusive of 5.3% in cumulative menu price increases and against a positive 1.2% comparison from the prior year. Sequentially, comp store sales improved relative to the first quarter. However, traffic remains negative and our trends worsened in Orlando, which is way down overall results. Taco Cabana revenues increased 4.4% to $63.4 million in the quarter due primarily to the opening of 11 new Taco restaurants since the beginning of the second quarter last year. Comparable restaurant sales in the second quarter fell 0.6% at Taco Cabana and included about a 3% effect from price increases. Taco Cabana sales did vary quite a bit by market. As Alan said, Dallas and Houston have performed better. Comparable sales in Dallas, which is a 32 unit market, were up 2.2% while Houston, a 39 store market, increased 0.6%. Austin with 20 units was down 2.3% and San Antonio with about 40 restaurants was down 3.5%. Our Burger King restaurants had another strong quarter as overall sales increased 5.1% to $101.8 million despite the net closing of eight restaurants since the beginning of the second quarter last year. Comparable sales increased 5.9% against a 5.3% increase in the second quarter last year. Our effective price increase for our Burger Kings was 3.3%. However, after mix shifts including those to the value menu, average check increased about 2.3%. So as you can see, traffic remain fairly strong at about plus 3% and represented a large part of the overall sales increase. Despite a 5.1% increase in overall top line, bottom line results were down reflecting the inflationary pressures particularly on commodity and utility cost. Net income was $3.3 million or $0.15 per share in the quarter compared to net income of $5.1 million or $0.24 per share in the second quarter last year. Pretax margins declined 143 basis points, the direct result of higher cost of sales which increased 173 basis points and higher utility costs which were up 27 basis points. Loss of sales as a percentage of restaurant sales was 30.4% during the second quarter compared to 28.7% last year, an increase sequentially of about 90 basis points from the first quarter, which was somewhat higher than we anticipated. While many of the commodities are Hispanic Brands are in fact under contract, we did experience increases in a number of items not covered

[Operator:]

(Operator Instructions) The first question comes from Steven Rees from J.P. Morgan.

[Steven Rees:]

Just on your comments about the negative mix you’ve seen in Burger King this quarter, can you just talk about, is that a new trend you saw this quarter relative to prior quarters and then what you plan to do to address that? Can you change the value menu at all or change the pricing structure of it?

[Alan Vituli:]

Well, look, the value menu issue is getting to be a more controversial issue in the, there’s no question that by virtue of price increases and pressure on the consumer that the shift to the value menu is a trend of great concern to us, because the value menu margins themselves have eroded with the increased commodity prices. It’s very hard to suggest to you that we, Carrols, are going to change the value menu strategy. There are movements in the industry within brands like McDonalds to start to consider changes in what’s on the value menu and to consider changes in terms of pricing certain popular items in prices that are above $1.00. With all of that said, the answer is there’s enormous pressure on Burger King and other QSR companies to essentially re-engineer and to consider increased prices in the value menu line. The trend has been gradual but it is a concern of ours but we can’t really affect it.

[Steven Rees:]

Just on the pricing at some of the Hispanic Brands, 7.5% at Pollo and I guess about 4% at Taco with the potential for more in the fourth quarter. How are you confident that this won’t lead to further traffic erosion? Have you tested this level of pricing before and how are you thinking about that?

[Alan Vituli:]

We obviously are constantly taking the consumers’ temperature with respect to whether we’re a value proposition and price increases are not to be measured in absolute terms but in relevant terms. We’re looking at both QSR and casual dining, both of whom have been very aggressive in their discounting and taking our consumers’ temperature all the time with respect to whether the perception is that there’s great value at Pollo. And our value scores continue to be very high. These price increases they’re seeing at the supermarkets concurrent with what they’re seeing in the restaurants, so I don’t really believe that we’re going to get negative reactions from the price increases. I think our challenge is just simply to deal with the fact that the consumer has infinitely less to spend on food but we’re still a great value proposition.

[Steven Rees:]

My last question was just on development and how we should be thinking about that for 2009, with the Hispanic top line under pressure and what I think is a still fairly robust commercial real estate market in Florida. Shouldn’t we expect development to be stabler or perhaps slow down in 2009?

[Alan Vituli:]

Had this not all been upon us I would have hoped that we were in the high 20s in terms of new unit growth at our Hispanic Brands. I think the best you can do with, in terms of your projection and though our plans for 09 have just begun to be formulated with respect to our capital expenditures and availability for growth, you can think of us as pretty much consistent with 08, that being in the 15 to 20 restaurant range.

[Operator:]

The next question comes from Brian Hunt from Wachovia.

[Brian Hunt:]

Alan, I was wondering if you can address the cap rates on sale leasebacks. What of those are changing at all in the current environment given what’s going on with the capital markets?

[Alan Vituli:]

There’s no question that the institutional sale leaseback market is a recipient of lots of people running as the bank markets close. We’ve probably moved up our rates, cap rates, at just a tick or two. Our traditional cap rate on a sale leaseback has been the 7.3% range with bumps that are very gradual and don’t begin until the 10th year and that’s basically because we do our sale leasebacks in our institutional market but in the individual 1031 market for the most part. So the typical 1031 investor, that is the investor who sold a piece of property and is trying to defer his gain by buying another piece of property, hasn’t really had this level of awareness that we see in the institutional market. So they’ve gone up very very modestly and we expect them to continue to go up but not really dramatically unless there would be some significant change in the tax laws. If rates go up then we believe that would contribute significantly to maintaining the lower cap rates, so we look forward to the sale leaseback market continue to be a stable market. It’s not closing down and the rates are not going through the roof.

[Brian Hunt:]

And my next question is on pricing, you explored that with our last questioner and in your comments but do your current pricing levels reflect

[Alan Vituli:]

Yes. Our guidance certainly, those costs are pretty much baked in to our assumptions but where we don’t cover with forward contracts, it’s the beef prices have been pure speculation for us. Might we find a great benefit and flow through from the price increases because commodity prices come down? That is a possibility, certainly, but we’ve anticipated lofty prices for the balance of the year.

[Brian Hunt:]

And then lastly, Burger King purchased a 72 unit franchise a couple weeks ago. Does that come as a surprise to you and if a healthy offer were to come from Burger King for your locations, would you analyze that with great focus?

[Alan Vituli:]

I think the best way to think of our Burger King restaurants, although it’s still a very significant part of our business, is it represents a potential liquidity on the shelf for us and the purchase bite of Burger King of restaurants in Nebraska were in part a desire on their part to move their markets further west. Did it come as surprise? No. I believe Burger King has shown confidence in the brand. This is the second significant purchase they’ve made in 08. If the right offer came along, would we sell to Burger King? Probably yes. If Burger King made no offer, would we consider liquidity? Would we consider our Burger Kings to be a liquefiable asset? As a gradual part of the strategy of transitioning from what was solely a Burger King business to what might be a solely Hispanic Brand business and we said that, yes, in the past and we probably are more proactive now than we were a couple of years ago in liquefying some of our Burger King assets.

[Operator:]

The next question comes from Reza Vahabzadeh from Lehman Brothers.

[Reza Vahabzadeh:]

So, the net of your cost outlook on commodity cost and your price increases, would that suggest that the cost of sales for you going forward is going to rise year-over-year the same rate as in the second quarter or at a more moderate pace?

[Alan Vituli:]

Paul, you want to deal with that?

[Paul R. Flanders:]

I think given the price increases we’re talking about, clearly the increases would be at a more moderate rate. And I see the cost of sales ticking down actually a little bit in the back half given this level of price. We’re trying to restore, I think we’re trying to restore some margin albeit now back to the levels we were at last year.

[Reza Vahabzadeh:]

You know your cost on the Hispanic food side but on the Burger King side, do you have much visibility as to what your cost will be going forward, especially as it relates to beef, cheese and bread?

[Alan Vituli:]

I think the simple answer is no. In addition, there are some commodities within the Hispanic Brands that we have been surprised. We don’t have forward contracts for all of the commodities that we use in the Hispanic Brands, just generally the protein items and some of the more relevant items. But some of these lesser commodities that we never thought would have such an impact had a huge impact. But we don’t have good visibility on the Burger King side of the business, specifically with beef which is today at astronomical levels relative to anybody’s anticipation.

[Reza Vahabzadeh:]

On the operating expenses side, it was a meaningful increase this quarter on a year-over-year basis. Is that driven by some one time items, including advertising, or should we expect more deleveraging on that expense item going forward?

[Paul R. Flanders:]

As I said, advertising was, as a percentage basis, was off mostly due to the timing of the Taco advertising from the first to second quarter this year. That’s part of it. The utility cost increase was close to 30 basis points of that increase. And the balance is really more a function of the fact that the sales have been soft while we’ve had some just normal cost increases in those line items. We’ve seen some deleveraging as a consequence.

[Reza Vahabzadeh:]

Speaking of deleveraging, it’s not the best environment by far in restaurant margin universe. Have you given any thought to eventually moderating your cap ex and new store development? I know you just reaffirmed your cap ex guidance for this year but when I look at your increased store count on Taco and the EBITDA performance, at least in the short term, the numbers don’t seem to reconcile.

[Alan Vituli:]

The new markets that we typically enter grow over time, or at least that’s our expectation. In terms of moderating our capital expenditures we certainly have effected them in terms of store growth. But we probably have diminished our open to build by about 20% or 25% in 09 relative to what our anticipations were so in terms of deleveraging financially, I think we look at our free cash flow, we do a lot of sensitivity analyses and have concluded that we should be able to, and it’s wise for us to be building about 15 to 20 new Hispanic restaurants. We do expect as we grow in the market and the brand becomes more known, we increase penetration in the market, we’ll start to see increases in same store sales for the stores that were in the initial thrust of stores.

[Reza Vahabzadeh:]

Paul, what was the cash on hand balance sheet as of the end of the quarter?

[Paul R. Flanders:]

We had about $4.5 million.

[Alan Vituli:]

That was before the company party right, Paul?

[Operator:]

The next question comes from Jeff Omohundro from Wachovia.

[Jeff Omohundro:]

I guess first, on a housekeeping note, could you update us on the tax rate guidance for the second half?

[Paul R. Flanders:]

We’re at 38.

[Jeff Omohundro:]

On the clamshell rollout at Pollo, what’s the cost around that unit and what kind of lift are you looking for from these wraps?

[Paul R. Flanders:]

The per unit cost on these grills is about $2,000.

[Alan Vituli:]

The clamshell, it puts us into a whole new range of hand held products that basically replaces our sandwich line. I can’t suggest to you that we, we’ve been doing about 60 or 70 units a day in the restaurants that have them and that’s considerably higher than the number of sandwiches that we were selling as a mix. In and of itself it may be 1% to 2% of same store sales increases for the wraps but we’re also looking at kids’ quesadillas and other things that basically can be run off of that without undermining the identity of the brand. So I guess the simplest way I can say to you is 1% to 2% of sales from the wrap line based upon what we’re seeing in the test stores.

[Jeff Omohundro:]

That’s very helpful. Any thoughts at BK on the lunch wrapper that’s in the pipeline?

[Paul R. Flanders:]

Yes, we’ve actually had that in test in a couple of our markets, within the test markets. It seems to be selling pretty well. We’ve had it in Syracuse and Louisville and we’re selling about, I don’t know, 15 to 20 a day right now.

[Operator:]

The next question comes from Karen Eltrich from Goldman Sachs.

[Karen Eltrich:]

First off, on Burger King, I know they’ve made a big push for franchisees to extend the hours, particularly in the morning. Have you guys followed suit in that and if so are you finding it to be worthwhile/possible?

[Alan Vituli:]

This is a question that was asked at the last quarterly conference. The answer is that from a franchisee perspective, they certainly tend to try to use a plan as efficiently as they can which says you’re open every hour that’s profitable, and I think that had been our philosophy. The 2

[Karen Eltrich:]

Second question is, as you mentioned, you would consider selling the Burger King franchise. How would you balance debt reduction versus extension cap ex without if you did alter your business model that way. Is there a target leverage ratio that you have?

[Alan Vituli:]

I can’t tell you that we’ve gotten to that point. We certainly would reduce our leverage ratios but how much of a sale would go toward debt reduction and how much would sit there in our coffers to do what might be alternatives with the dollars is a continuing dialogue. But I think it, Karen, it’s probably best for you not to think about us as selling all of our Burger Kings in one fell swoop in terms of your planning. So the dollars would flow in and based upon what our plans were over the next 12 months to two years, we’d look at what those cash balances would be best spent on. I can’t tell you that it all would go toward debt reduction or it would all go to cap ex. It would just be a source of funds based and would go into our financial plan, long term.

[Karen Eltrich:]

I know in the past when Florida tourism has slowed you guys have felt it not so much by tourists as much as by employees of tourism. As summer is roughly three quarters over, what are you seeing in terms of the tourism industry in Florida? Are you seeing a slowdown by employment at all or is it kind of held steady?

[Alan Vituli:]

I think there’s two things that have hurt us enormously in Florida is growth tourism and we’re not seeing domestic tourism picking up. We’re seeing some foreign tourists coming in but mostly in places like Orlando, they make a beeline to the attractions and usually stay on campus for the most part, unlike the American tourists who may have gotten there by automobile and is more likely living or staying in some hotel that’s not necessarily at Disney or similar parks. So we’re seeing that tourism by far and tourists, especially in the Orlando market, have less tourism by U.S. I think the real factor that is impacting us significantly is that the huge number of construction workers, who now find themselves either having to return to the country of origin or having no work and thus migrating to some other place, is probably a significant contributor. There’s far fewer laborers, construction trades people in our restaurants and my guess is that they’re probably no longer even in the state at this point in time, and we’ve got to make our adjustments to that.

[Operator:]

The next question comes from Mitch Speiser from Buckingham Research.

[Mitch Speiser:]

A couple of questions on Burger King. First, have you seen any, or the breakfast/lunch/dinner sales trends on anything out-of-trend versus the previous quarter, if you can just comment on the day parts?

[Paul R. Flanders:]

No, we’ve been, you can tell by the numbers Burger King has been strong in general. We’re seeing strength in all the day parts. As has been the case, breakfast and late night have been up a little bit more than some of the other day parts but late night’s probably been up the most on a percentage basis but it’s the smallest part of the day so it’s not that consequential. But, no, we’ve been strong across the day.

[Mitch Speiser:]

Just in terms of geography, any differences in Burger King’s comps by your geographical distribution?

[Paul R. Flanders:]

Not really. Earlier, late last year, earlier this year we saw more weaknesses in places like Michigan and/or certain towns in Ohio where there might be a plant that’s tied into the auto industry. But in general, we’re up about 4% or 5% in most all of our key markets.

[Mitch Speiser:]

Who do you think you’re taking market share from with those very solid traffic gains?

[Paul R. Flanders:]

I think there’s clearly been some trade off. You look at what’s happening in casual dining, casual’s been very soft and I think people are trading down which I think we’re certainly seeing the benefit of that. Wendy’s has struggled a little bit, certainly, here for some time. I think that’s probably the bulk of it.

[Mitch Speiser:]

If I can ask just a couple more quick ones. Just on pricing, I think at Burger King about 5% which includes that 2% in August, where are you taking the pricing? Can you comment on what products you’re taking pricing on?

[Alan Vituli:]

It’s pretty much across the board with, the menu’s a relatively narrow menu and thus to get effective price increase you’ve got to look at what products sell. So we’re moving up the Whopper, for example, and all of the bundled meals that we’ve moved up a few pennies including the side items.

[Mitch Speiser:]

Are drinks included too as part of the price increase?

[Alan Vituli:]

I’m not sure. Paul didn’t…

[Paul R. Flanders:]

Yes, we’ve been moving up drinks.

[Mitch Speiser:]

Just wondering just on the batch broiler that Burger King would like the system to implement, have you done any of that and is there a mandate to do that?

[Paul R. Flanders:]

We’ve had a couple of the units in test. There is a mandate that they be done, I think it’s by 2010 so it’s not on our short term radar but we’ll probably start focusing on that in 09 and 10.

[Mitch Speiser:]

Lastly, I think you touched on it but any thoughts about 09 food costs? Is it just probably a good thing to expect further cost pressures in 09?

[Alan Vituli:]

I think the answer’s yes except we started to see corn prices come down. The best indicators for us are things like corn and soy meal prices is the lead indicators. They started to come down but if you dealt with the stock market for chicken it’s probably a few pennies higher than our contracted price. So I guess the best thing I can give you is we really don’t have great visibility for 09 in commodity prices except that the expectations for most seem to be that they’ll be higher, but the underlying trends seem to point to maybe there’s some relief but we really don’t know here.

[Operator:]

The next question comes from Carla Casella from J.P. Morgan.

[Carla Casella:]

All my questions have been answered, thanks.

[Operator:]

And the next questions comes from Greg Ruedy from Stephens Inc.

[Greg Ruedy:]

I wanted to switch gears to Taco Cabana. It looks like you’ve got some strength in a couple markets where you’re focused on growth. What kind of concerns do you have on cannibalization as you add units in this markets?

[Alan Vituli:]

We’re very sensitive to cannibalization but nonetheless our economic models say that end of the store has to absorb cannibalization as part of the approval process. With that said, it still does knock down same store sales a tick or two. We’re not really concerned with cannibalization as we’re basically think market strategy and we look at long term trends. And if it means that there’s a little bit of cannibalization but there’s logic in opening the stores then we proceed to open it if it meets our hurdle rate including the initial cannibalization. And as we grow in both Houston and Dallas, there’s no question that we’re putting the stores in areas that may be the extended part of the trade area for another store but it’s always been modest, two points or three points; nothing significant.

[Greg Ruedy:]

I apologize if I missed this but can you provide us an update on technology initiatives at Taco Cabana?

[Paul R. Flanders:]

Yes, this year we’ve been rolling out new point-of-sale systems as you know. We started at Taco Cabana and we’re well into that roll out. We should be done this quarter and then we’re going to move on to Pollo.

[Operator:]

Your next question comes from Ken Byrne from Jefferies & Company.

[Kenneth Byrne:]

A couple things, you said that comps sort of improved as the quarter went along. Can you comment on July same store sales?

[Paul R. Flanders:]

In July we continued positive at Burger King as you would expect albeit a little bit lower rate. We’re about 3.5% positive at Burger King in July. Pollo there really hasn’t been a big change. We’ve been flat to slightly negative at Pollo. And Taco, as we said, June term but 2% positive at Taco and while it hasn’t continued quite as strong we’re still running north of 1.5% in July.

[Kenneth Byrne:]

The segment earnings at Taco were down more than the other units, although from your earlier comments it didn’t seem like the commodity costs were up that much more. Are there other cost items at Taco that were up more than at your other operations?

[Paul R. Flanders:]

I touched on the fact that advertising was skewed to the second quarter than it was in the first quarter. Though on a year-over-year basis I think the advertising number is up probably $600,000. Utilities probably are affecting Taco a little bit more because we’re less able to lock in utility rates in Texas so I would, those are probably the two major drivers.

[Kenneth Byrne:]

Just finally, again touching on that cap ex for 09, when you look at your cap ex such it is, is the thought in mind to keep leverage about where it is rather than increasing leverage if you wanted to keep a cap ex program at a very high level?

[Paul R. Flanders:]

I think as we look at 09, and Alan touched on it a little bit, we’re going to get a little bit further into this year, maybe get out to near the fourth quarter when we start to have a little bit better feel for what the commodity environment looks like next year, where the economy and the consumer trends seem to be to size up, what those kind of factors are going to, how those bills may impact us in 09. And I think cap ex is really going to be a result of how we view 09 and how we want to manage leverage but clearly in this environment, as I said, we’re very focused on our leverage. We do have covenants, we have room within those covenants given that we just did the refinancing last year but no less we’re very focused on trying to maintain leverage where we are or in fact decrease it.

[Alan Vituli:]

But let me just add to that. When you’ve got a fair amount of debt on your balance sheet in an uncertain environment you tend to think first about not being bucked off the horse by virtue of your debt load. And then you look at the critical components of your long term strategy. That’s essentially the process as we go through. It’s certain that our orientation is to not be so cavalier as to believe that we can figure out when this economy is going to turn. And so we do but we are very, very focused on our financial leverage. We’re not concerned but we are focused and that’s the sale leasebacks, potential sale of some of the restaurants that are not part of our long term business strategy, that being the Burger Kings, our mechanisms that are available. And we moderated our capital new constructions in the Hispanic Brands and we’d like not to moderate it much more but if the environment suggests that there’s simply too much uncertainty, we’ll simply roll back our capital expenditures. We’ve seen cycles before; we do believe this’ll end and we do believe that we’ve got horses in the Hispanic Brands that are very capable of winning the race.

[Paul R. Flanders:]

The other thing I’d like to add is when we focus on our 08 cap ex, I know it’s a big number. Let’s not lose sight of the fact that we, as we’ve said before, we have a lot of Burger King franchise renewals that came up in 08 so our modeling and costs have been higher than normal this year. We’ve had probably 25 to 30 restaurants that we had to remodel. That number in 09, which is really a non-discretionary number as a practical matter, is going to probably be half of the level it is this year. We’ve also been rolling out the point-of-sale systems as I said so that’s really a one time capital item that will not recur in 09 so I think, although the numbers in 08 is large, there’s some of those items that will come down as we look forward.

[Kenneth Byrne:]

Could you just tell us what it was or what is the remodeling expenditure this year? How much of the cap ex is that?

[Paul R. Flanders:]

Well, in total, if we go across all three brands it’s probably in the $20 million to $25 million range.

[Alan Vituli:]

What is it specifically for, Burger King, is that your question?

[Kenneth Byrne:]

Yes, if you have that. That’ll be great.

[Paul R. Flanders:]

About $19 million just for Burger King.

[Alan Vituli:]

And that’s anomalous for us.

[Paul R. Flanders:]

Yes, that number normally would run $6 million to $8 million.

[Operator:]

There appears to be no further questions.

[Paul R. Flanders:]

We appreciate your attention and of course look forward to speaking with you next quarter.