Restaurant Brands International Inc. (QSR) Q4 2014 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Popeyes Louisiana Kitchen Incorporated Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Tony Woodard, VP of Finance. Sir, you may begin.

Thank you and good morning. Popeyes is pleased to host this conference call regarding results issued yesterday after market closed for the fourth quarter and fiscal year 2014, which ended December 28, 2014. Today's audio presentation will be available on the company's website at www.plki.com. To listen please follow the link to Webcasts & Presentations. A copy of our Press Release and all filings with the Securities and Exchange Commission are also available on the website. Before we begin I would like to read the following forward-looking statements. Certain statements made on this call by Popeyes Louisina Kitchen, Inc. officers and employees regarding future events and developments, and our future performance, as well as management's expectations, beliefs or projections related to the future are forward-looking statements within the meaning of the federal securities laws. We wish to caution investors to not place undue reliance on any forward-looking statements since those statements speak only to the date they are made. By their nature forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. These risks and uncertainties have been described in the company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information. During this call references maybe made to the non-GAAP terms of company-operated restaurant operating profit, operating EBITDA, free cash flow, adjusted earnings per share and consolidated total leverage ratio. The company defines these terms as follows: company-operated restaurant operating profit is defined as sales by company-operated restaurants, minus restaurant food, beverages and packaging, minus restaurant employee, occupancy and other expenses. Operating EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization and other expense or income net. Free cash flow is defined as net income plus depreciation and amortization, plus stock-based compensation expense, minus maintenance capital expenditures. Adjusted earnings per share for these periods presented is defined as reported net income after adjusting for certain non-operating items consisting of other expense or income net, interest expense associated with credit facility retirement, deferred tax liability adjustment and the tax effect of these adjustments. Consolidated total leverage ratio is calculated as the ratio of consolidated total indebtedness including current and long term debt maturities, plus outstanding letters of credit, divided by consolidated earnings before interest expense, taxes, depreciation and amortization and other expense and income net and stock-based compensation expense for the four legally preceding fiscal quarters. The company's full definitions, computations and reconciliations to GAAP measures of the numbers referenced for these items are contained in our Annual Report on Form 10-K and in our earnings press release that can be found on the company's website at www.plki.com. Presenting on today’s call we have Chief Executive Officer, Cheryl Bachelder; and our Chief Financial Officer, Will Matt. I will now turn the call over to Cheryl. Cheryl.

Good morning. Thank you for joining the Popeyes fiscal earnings call this morning. We are very proud to report our 2014 results and excited to share our plans and expectations for 2015 and beyond. Will Matt and I will recap our 2014 and then we’ll look forward. Our team and our franchise owners delivered impressive results in 2014. Yesterday after market closed we reported fourth quarter adjusted earnings per share of $0.38 and full year adjusted earnings per share of $1.65, representing a 15% increase from fiscal 2013. Global same-store sales increased 6.2% for two year growth of 9.9%. Domestic same-store sales grew for the sixth consecutive year and international same-store sales grew for the eighth consecutive year. Our global system opened 201 new restaurants, adding 148 net restaurants to our footprint for a system growth rate of over 6%. We generated free cash flow of $48 million as a result of our strong sales and new restaurant opening. We repurchased approximately 892,000 shares of our stock for approximately $40 million. We expanded our development of company restaurants by adding 13 new restaurants, eight in Indianapolis, four in Charlotte and one in Memphis and then our second quarter of 2014, as we reported we repurchased the recipes and formulas used in our core menu items for $43 million. The consistent execution against our roadmap strategies continues to deliver strong, sustainable results. Let me provide a brief review of our core roadmap strategies, with the first roadmap pillar, Build a Distinctive Brand. Our combination of menu innovation, messaging and media continued to build top-line momentum in 2014, delivering 6.3% domestic same-store sales growth. Popeyes domestic same-store sales out-paced the Chicken QSR category by more than 5 percentage points and the entire QSR segment by approximately 8 percentage points according to independent data. This is the sixth consecutive year our domestic same-store sales have outpaced the QSR category. From 2008 to 2014 Popeyes market share of the Chicken QSR segment has increased over 8 full points from 14.8% to 23.2%. Fourth quarter domestic same-store sales were strong at 10.7%, benefiting from our compelling limited time offers supported by national media, lower gas prices for our guests and the rolling over of a soft fourth quarter in 2013. During the quarter we promoted three back-to-back new products. In October we introduced our new Southern Inspired Beer Can Chicken, followed by our Buttermilk Biscuit Butterfly Shrimp in November and our new Spice Box Chicken in December. For the first time all three promotions in the fourth quarter were supported by national media. Our domestic marketing calendar continues to drive sales with new product innovation and a growing media presents. Popeyes sponsored the inaugural Bahamas Bowl played on December 24. If you weren’t watching, a last second touchdown which included four laterals was nominated for an SP award and the game has been listed by sports illustrated as one of the top 25 games of 2014. The excitement around the Popeyes Bahamas Bowl created billions of positive impressions for our brand. We are pleased to have been in the part of this exciting sporting event. International same-store sales were positive for the eighth consecutive year at 5.1% for a two year combined growth of 9.8%. Our menu innovation adapts to local taste with items such as our Cajun and Creole sandwiches launched internationally during 2014. Our message is also highly effective when tailored to local culture and when we supplement our international franchise markets with incremental flights of television; we are able to grow awareness and trial leading to higher AUV growth in such diverse places as Turkey and Latin America. We are pursuing opportunities in other markets to replicate the success. The combination of menu, messaging and media is working in our international markets just as it has domestically. Our second roadmap pillar is Create Memorable Experiences. This pillar reflects our ambition to delight our guests. As a remainder, our new guests experience survey program called the Voice of the Guest was launched in May of 2014. This new resource helps our restaurant managers to focus on action planning that will further improve the guest experience. In 2014 we gathered baseline data and we’ll begin reporting trends during the second half of 2015. The guests experience is also positively impacted by the system wide remodeling of our restaurants, with over 80% of our domestic system now in the new Popeyes Louisiana Kitchen image. The third pillar of our roadmap, Grow Restaurant Profits, reflects our commitment to the profitability of our franchisees. Recall that we report franchise operating profit one quarter in arrears. Through the end of the third quarter our franchisees reported 22.5% average restaurant operating profit margin compared to 21.7% in 2013. This represents the margins of our domestic free standing franchise restaurant before rent. On a dollar basis this increase in profitability represents a gain of approximately $19,000 per restaurant on average. Fourth quarter P&L’s are being collected now and based on our strong sales performance and results through the third quarter, we are confident that restaurant operating profits of our domestic franchisees will increase for the sixth consecutive year in 2014. Based on data from our purchasing co-op total food beverage and packaging costs declined in 2014 by approximately one half of a percentage point. In 2015 we do expect to see an increase in food costs, led by an increase in the cost of bone in chicken, as suppliers improve their margins and move to larger bird sizes. As a result, our system will see increases in the cost per pound and in the average weights of chicken being provided by our suppliers. We work closely with our franchise owners to recommend conservative pricing actions to minimize the impact of these cost increases on maintaining guest traffic. Our fourth pillar, Accelerated Quality Restaurant Opening. It’s focused on developing new Popeyes restaurants located on superior real-estate. In 2014 we opened 201 restaurants globally representing the highest total in over 15 years. We had another strong year domestically with top tier openings of 121 new Popeyes restaurants, including 13 new company operated restaurants. Over 85% of our openings were freestanding restaurants, opening new and expanding markets across all regions of the country. We opened 85% of these restaurants with our existing franchisees, demonstrating their confidence in our brand’s future. Our new domestic freestanding restaurants continue to open at higher AUV’s in our system average. First year sales of our freestanding restaurants opened in 2013 are averaging slightly above $1.6 million compared to the system average of all domestic freestanding restaurants at approximately $1.3 million. We opened 80 new restaurants internationally, bringing our international restaurant count to 509. Our food travels well, chicken and seafood are the world’s favorite proteins, rice is the world’s favorite starch and our spicy taste profile is consistent with international trends. In fact, I just returned from Santiago, Chile where our franchise has done a fantastic job of opening a new Popeyes market, launching our brand with six great looking new restaurants on high quality real-estate and they have an incredible passion for our Louisiana roots. We are excited about the continued momentum and strength of both our domestic and international development pipeline. I’d now like to turn the call over to Will Matt to walk you through our 2014 fiscal year results. Will.

Thank you, Cheryl. I am going to review our financial performance for 2014. I will then turn it back over to Cheryl to frame up our guidance and strategies for 2015 and beyond. In 2014 Popeyes system wide sales increased 12.3%, driven by global same-store sales performance of 6.2% and our global new unit growth at 6%. Total revenues were $235.6 million versus $206 million in the prior year. Of these revenues franchise royalties and fees were $131.3 million, up $9.4 million over the prior year. The result of a 6.4% growth in same-store sales in our domestic franchise restaurants and sales from our new franchise restaurants, partially offset by a decrease in franchise fees. Please recall that in 2013 franchise revenues included approximately $5.5 million in one-time non-recurring franchise fees, associated with the conversion and franchising of restaurant we acquired in Minnesota and California. Sales by company operated restaurants were $97.2 million compared to $78.7 million in 2013. The increase was primarily due to nine new restaurants opening in 2013 and 13 opened during 2014 and a 5.7% same-store sales increase during 2014. Restaurants in our heritage markets, New Orleans and Memphis, had same-store sales growth of approximately10%. As we indicated on prior calls, we expect same-store sales in our restaurants in Indianapolis and Charlotte, our two newer markets to trend negative as they rollover high opening volumes and due to the transfer of sales as we continue to open new restaurants in these two markets. Rents from franchise restaurants were $7.1 million in 2014, a $1.7 million increase from 2013. The increase was primarily due to $0.9 million in lease termination fees from four properties sold to franchise operators and a $0.7 million from percentage rent arrangements related to the restaurant properties converted and leased in Minnesota and California. Restaurant operating profit in our company restaurants was $18.4 million in 2014 compared to $14.7 million in 2013. The $3.7 million increase was primarily driven by our rapid growth in new company operated restaurants. The operating profit margin of our company restaurants was 18.9% in 2014 compared to 18.7% in 2013. For the full year our G&A expenses were $78.9 million compared to $73.4 million in the prior year. The $5.5 million increase in 2014 primarily reflects an acceleration of our strategic investment in human capital and resources to fuel global sales and restaurant development. General and administrative expenses remain among the most efficient in the restaurant industry at a 2.9% of system wide sales, particularly when compared to other restaurant concepts investing in future growth. Depreciation and amortization increased to $8.7 million in 2014 from $6.7 million in 2013, primarily due to depreciation associated with new company operated restaurants, restaurant reimages, the acquired restaurant properties converted and leased to franchisees in Minnesota and California and Information Technology assets in our corporate support set up. Our effective tax rate was 38.5% compared to an effective tax rate of 37.4% in the prior year. All these resulted in adjusted earnings of $39.2 million or $1.65 per diluted share compared to $1.43 in 2013. This is a growth rate of approximately 15% year-over-year. Free cash flow continues to be a strength of our highly franchise business model. In 2014, we generated free cash flow of $48 million compared to $42.5 million in the prior year. The company invested $27.8 million in capital projects, including construction of new company restaurants and repurchased approximately 892,000 shares of its common stock for approximately $40 million. Our average purchase price during 2014 was $44.82 and our stock closed yesterday at $66.23. I would like to close with a few points about our capital structure review conducted over the last few months. We would use our capital flexibility to first fund organic growth from free cash flow. We are growth company with a proven track record of execution and bright prospects for domestic and international growth to generate long term share holder value. We intend to make strategic G&A investments to accelerate franchise unit growth and to fund employee and guest experience initiatives, which we believe will accelerate AUV growth in restaurant operating profit. Internationally we intend to invest in media to build brand awareness and will potentially make direct capital investments to accelerate new unit growth in high potential new markets. We intend to continue to make select strategic investments in U.S. company operated restaurant development. In 2015 we planned to slow our pace of company developments to three to five new units in order to focus on ongoing operating performance and opening execution in our two newer company markets, as well as replenish our real estate pipeline for 2016. We intend to utilize remaining excess operating cash to repurchase shares to return value to our share holders. We also see the opportunity to prudently take on additional debt increasing our leverage ratio to 2.5 times to 3.5 times over the next two to three years. We will utilize this leverage to opportunistically repurchase incremental shares, while maintaining borrowing capacity to fund organic growth projects. With that, I’m now going to turn the call back over to Cheryl for a discussion of guidance. Cheryl.

Thank you. Let’s now look ahead to our 2015 and long term guidance, followed by some additional discussion of our long term business strategy. As I said earlier, the steady execution against our roadmap strategies has been the catalyst for consistent strong result that we have delivered to our shareholders over the last seven years. With that as a foundation, we are pleased to present the following guidance for 2015. Globally the company expects same-store sales growth in the range of 3.5% to 4.5%. New restaurant openings in the range of 200 to 225, including 85 to 95 internationally. Net restaurant openings are expected to be in the range of 115 to 150 for a net unit growth rate of approximately 5% to 6%. During 2015 the company expects to open three to five new company operated restaurants. General and administrative expenses are expected to be approximately 2.9% of system-wide sales, maintaining a rate that supports long term growth. Capital expenditures for the year are expected to be $15 million to $20 million, including approximately $12.5 million for company operated restaurant development and relocations. Adjusted earnings per diluted share are expected to be in the range of $1.83 to $1.88. This guidance reflects growth of approximately 11% to 14%. In 2015 the company expects to repurchase $40 million to $50 million of its outstanding shares. The company’s effective income tax rate is expected to be approximately 38% compared to 38.5% in 2014. Over the course of the upcoming five years, the company believes the execution of its strategic plan will deliver on an average annualized basis the following results: Same-store sales growth of 2% to 4%, an increase from previous guidance of 1% to 3%. Net unit growth of 5% to 7%, an increase from previous guidance of 4% to 5%; earnings per share growth of 13% to 15%. Let me now elaborate on the strategies that Will mentioned that we think will merit investment to accelerate our brands long term growth. As we look out over the next seven to ten year horizon, we will continue to execute against the core roadmap strategy that has driven our performance, but we believe we also have strategic investment opportunities ahead that can accelerate our brands long term growth. For a perspective, many of you may remember when we invested about $6 million in national media in 2008 and 2009, during a time when others in the industry were retrenching. We believe this investment was a catalyst for elevating our brand. It resulted in higher unit volumes, stronger unit economics and accelerated our unit growth. The health of our company today reflects this willingness to invest for the future. Similarly there are two future investment areas that we believe can fuel top line and bottom line performance of Popeyes restaurants in the years ahead, human capital and international expansion. We believe these future investments can drive sustained revenue and earnings growth, both for our franchise owners and our share holders. Let me expand on both of these topics. Human capital investments will reside in a new fifth pillar that we have added to our roadmap called Develop Servant Leaders. This pillar focuses on providing top tier support to our restaurants, while growing the capabilities of our restaurant leaders throughout our global system. Our goal is to create a culture of servant leaders who provide an employee and guest experience that is as legendary as our food. High employee engagement has a measurable impact on the guest experience and delighted guests are the most frequent, loyal and profitable customers. As such we believe these investments will accelerate unit volume growth and restaurant profitability over the long term. Restaurant general managers will be our primary focus, as they are the key to delivering the employee and guest experience. We are transforming their role through leadership development, new people management routines and service basic training to help our teams deliver that better guest experience. We believe that the restaurant chains with the best food, best employees and best guest experience will be the marker leaders. We planned to be a chain of leads on all three measures, setting ourselves apart from the rest of the competition. We will also evaluate investment opportunities that we believe can accelerate unit growth internationally. Our primary focus will be the traditional franchisee model, supported with an investment in brand building media to create strong Popeyes brand awareness and trial. We’ve seen these media investments deliver strong results and return. We will also consider direct capital investments where opportunities exist, to jump start new international markets to unlock growth potential, just as we’ve done domestically in Indianapolis and Charlotte. When these investments are thoroughly planned and validated, we will share them with you and provide updated long term guidance to reflect their positive impact on growth and shareholder return. As Will said a moment ago, we will utilize our operating cash flow and our borrowing capacity to fund our strategic growth opportunities and then to opportunistically repurchase share to return value to our share holders, with an eye towards increasing our leverage ratio to 2.5 times to 3.5 times over the next two to three years. We will continue to invest in the long term vitality of our brand. As you know, we are a franchise business model and we consider franchisees our first priority customer. Our franchisees commit to 20 year franchise agreement and invest in the people and assets that create our long term success. As such we believe we must continue to invest in the success of our franchise owners. As we demonstrated over the years, our investments that serve franchisees will also provide consistent long term returns for our share holders. Just a couple of additional updates before we open this up for Q&A. Regarding the COO search process we’ve been actively interviewing high quality candidates and we expect to name a new U.S. COO in the second quarter. As you may have seen, last week Popeyes Louisiana Kitchen Inc. became one of the stocks included in the S&P SmallCap 600 index. We are pleased with this positive recognition by the market place. With that, I’ll wrap up today’s conference call. I thank you and I’ll turn the call back over to Crystal for Q&A.

Thank you. [Operator Instructions] And our first question comes from Michael Gallo from C.L. King. Your line is open.

Hi, good morning and congratulations.

Good morning, Mike.

Good morning.

A couple of questions; the company’s store margin in the fourth quarter looked like there was about 150 basis points of pressure year-on-year on the labor occupancy and other lines. I was wondering if you can give some clarity on that given that you obviously had a strong comp in the quarter.

Yes, keep in mind we opened up a number of new restaurants right at the end of the fourth quarter and whenever we opened up new restaurants there is additional labor associated with the training and getting the teams up to speed, and one of the things we found a little bit more difficult as we’ve opened up both the Indianapolis and the Charlotte markets is that we didn’t have a number of Popeyes restaurants in place and so we were - normally when you open up new restaurants you are going to be leveraging team members from other stores in that market and we had less flexibility with that. So you are seeing some of that additional costs as we started up.

So, that was the only real factor there. It was just new unit and efficiency.

Yes, that’s right.

Great, okay. And then just to follow-up on the brand building internationally, how much do you expect to invest incrementally and also if you have a number for the human capital area and my recollection on the human capital area was you were funding that with the savings of the spice royalty, which I think is an incremental $1.4 million that you’ll have less to pay this year than you did last year. So if you could just put some numbers around what the incremental spending is in those two areas that will be helpful.

Taking first the international marketing investment, Mike it actually differs quite significantly by market based on size of our footprint and the cost of media in that market. But our going principle is very similar to what did in the U.S. some years ago, where we said we wanted to start by getting on TV three, four times a year, build our brand awareness and our trial and add sales and units gross and the market continued to grow our media expense. So we used the similar planning parameter. What we are investing is we are partnering with our franchisees, we are co-investing in media. Again, just like we did in the U.S. we founded a great catalyst to get our franchisees in these markets, to put more money upfront in the brand awareness building, which obviously drives stronger AUV’s and profitability. So we’ve done that selectively last year. We have new markets that we will do it again this year and those dollars are included in the G&A guidance that we gave. The second piece about human capital; in 2014 you are correct, we said that we would re-invest in the second half, those monies that have previously been royalty state diversified and we did investing in infrastructure, primarily the staffing support to build the HR capability that we’ve never had, and so think about it in terms of building training, building talent management systems, buying applicant tracking software, some of the bricks-and-mortar if you will of human capital. So when I talk about going forward, I’m talking about true investments beyond that infrastructure, in two areas. One, in providing strongest support to our restaurant and the second is in providing more training and development to our restaurant leaders. Historically we primarily trained our restaurants and our leaders and making fabulous food and we are now teaching them how to lead high engagement work environment, where people on our crews accrued are well trained, well coached, well prepared to give good service to the guest. So those are the two areas we see going forward, some of which is in 2015 guidance and some might in the future require additional investment.

Alright, let me ask the question in a slightly different way for Will. How much do you have incrementally baked into the guidance or is that a number you don’t want to give clarity on?

You mean specifically on…

Specifically for the income rental investments in those two areas.

Yes, the investments in 2015 are within guidance and they are modest because we are in the early stages of piloting this work.

Right, okay, thank you.

So our intention is to have an early adopters program with our franchisees and work through the mechanics and find the most efficient way to do this. The cost to do that we believe are in our 2015 guidance, but we’re going to learn a lot in 2015 and realistically that will affect our future, but we will give you an update on that when we have it.

Thanks a lot.

Thank you, Mike.

Thank you. Our next question comes from Nicole Miller from Piper Jaffrey. Your line is open.

Thanks, good morning, and thank you for the update. A couple of questions; can you talk about the marketing spend this year, thinking specifically about ad impressions. Will you be adding a slide or doing anything different and could you also put that in a context of, I believe in the fourth quarter you ran three new product promotions in each of the three months. Thank you.

Yes Nicole, in ’14 in the fourth quarter we ran three slides and three new products and one of those three was a new slide against the year ago period without national media and we think that contributed obviously both in new product needs and the media spend to a strong fourth quarter. We don’t announce media spend in the go forward years for competitive reasons, but as I’ve explained before, the beauty of growing sales, growing new units is that it automatically grows media spend, because media spend is a percent of system wide sales funded by our franchisees and so we are excited about the momentum in our business and the additional media that it will fund and fuel in 2015.

Okay, thank you. On the leverage target, I’m not sure if I missed it, but do you get there linearly or do you get there over a certain number of years or do you get there kind of overnight or is it more opportunistic?

We’re definitely thinking more opportunistic to give ourselves flexibility with this. First and foremost, in our minds we have very terrific organic growth opportunities and we want to be sure to fund those both domestically and internationally and then at the same time we will be buying back shares with our excess cash, but we want to do that on a much more opportunistic basis. So we will be adjusting our capital structure, but we’ll also be doing it over the two to three years.

Okay, and just a last question on the fifth pillar, it’s very, very interesting. It sounds to me like you’re saying it’s going to be like many of your other pillars, the balance, the art and science of developing servant leaders. So I think there is no debating. You absolutely have the art down and lead by example. On the science side, can you talk about how much of that is technology driven and what kind of technology exists today and what do you need to implement. Thanks.

Nicole, that’s a great question. The first thing I’d say about the art and science part of the pillar is that we really believe human capital is a measurable investment and the way we will measure, each one of our pillars has a measure. Build a Brand has a measure about guest traffic and AUVs; and our first pillar Develop Servant Leadership will have a measure about engagement of our team members in our restaurant and that will be the first time that we developed that measure as the baseline and then one day we’ll be reporting that out to you as well as the science behind measuring engagement. All the research suggests that increasing your employee engagement will yield increased engagement and satisfaction of your guests. So there will be science and there will be measurement. The second part of your question around technology is we’re very much a developing area for Popeye. A critical part of setting your restaurant team up for success is making the restaurant operate as effectively as possible. We have implemented new technology into our restaurants in the last couple of years and our digital menu boards and our Syrus back of house systems and we see a significant opportunity in the future to bring our systems together in an integrated fashion and make them more efficient for our restaurant leaders. As you might expect, restaurant leaders today have suddenly become technology gurus, because it’s no longer show off and make the chicken and take care of the people. It’s also taking care of all the systems that support your ordering, your inventory, your financial tracking, your credit card tracking and all the many, many technologies that connect into a restaurant. So Nicole, you’ll hear us talking more and more about technology over the next few years as we provide better support to our restaurant.

Thanks. Have a great day. Thank you.

Thank you.

Thank you. And our next question comes from Alex Slagle from Jefferies. Your line is open.

Hey, thanks.

Good morning.

Good morning. I just wanted to follow up on your earlier questions on the international media investments and I realize it’s still early, but do you have a very rough idea. Potentially how many of the 509 stores you have internationally could be impacted over the next couple of years let’s say. Just trying to get an idea of basically how many countries do you feel like you have enough or close to enough scale and see the near term opportunity for development to really ramp and a ready demand from the franchisees.

Sure. We have been investing in media over the last two years within the G&A in our plan and see really strong double digit performance of the average unit volumes of our restaurants. So we’ve keyed up several markets this year to continue moving that forward. I don’t want to name those markets or the number of stores, but our intent is to steadily move the strategy across all of our international countries.

Okay. And I guess you sort of answered my next question with regards to this historical perspective on the magnitude of same store sales lift and the time lag experienced between turning on the media and seeing that sales lift. So I guess the double digit sort of gives you an idea of the comp, but what’s the normal time lag once you start turning on media.

We think it’s really important that the media be sustained and I talked earlier about three to four slides initially, just like we did when we took Popeyes in the U.S. to national media, because we’re building awareness and if you only did one slide right, the people would forget. So that’s what we’re insisting on, is the commitment, a long term commitment to media spend, so that we’re going on once and firmly for the future. The market response has been remarkably quick.

Okay, and just one on the decreasing company earned development, maybe if you could provide some more context around the decrease in the company owned growth outlook. I realize the returns on the new company stores are pretty strong, but I mean this suggests you see a notably bigger return in the proposed international investments, the people investments, at least over the long term and presumably the opportunity for more of those potential domestic acquisitions. Is that the right way to think about it?

Well, a couple of things. The decision to open three to five in 2015 is simply to give ourselves a little breathing room. We opened up a lot of restaurants at the end of last year and when you do that you got to get your staffing stable and hold onto those customers from your opening and work to get your profitability where it is in your business plan. So we are just giving ourselves some breathing room and that does two things. It will allow the restaurants we’ve opened to quickly get on track to the expected business performance and it will also allow our development team to go back in and start building a deeper pipeline, so that we can resume the same clip of billing we had last year. So I’d call it a breather and not a change in our strategy.

Okay, thank you very much.

Thank you so much for your questions.

Thank you. And our next question comes from Nick Setyan from Wedbush Securities. Your line is open.

Hi, good morning, thanks. So just to clarify, it sounds like we do plan on reaccelerating the company on unit growth again in 2016.

Actually that’s a reasonably assumption.

Okay. And to what extent the new COO coming in Q2 kind of play into that and are you guys kind of looking at some other perhaps markets outside of Charlotte and Indianapolis as you get to more closer to saturation, perhaps some franchise buyback.

At this point we are primarily looking to expand from the footprint we have. Some of the markets have lots more runway to continue to grow, but if in fact we reach, we talk about 20 restaurants available in each of the two recently opened markets, Indi and Charlotte, when we reach that full build out, it is possible that we would look beyond those markets. We do not currently anticipate any franchise acquisitions.

Got it. In terms of promotions in 2015, are there more promotions slated versus 2014 and perhaps the timing in terms of quarters of those incremental promotions.

So what I can tell you about that, we don’t forward discuss our marketing plans for competitive reasons, but our product pipeline is very full and robust to keep those promotions just as exciting and interesting as they were last year. And also because our sales are growing nicely and our new unit openings are contributing new volumes, our media budget is going up very nicely and as you’ve seen, it’s having a very high impact on our traffic and our sales. So you can expect a very robust marketing plan this year as well.

And we also have the concept in our local markets of sometimes the local markets franchisees will decide to kick in more money to the local fund and so as they feel good about the brand and our success, that’s more likely to happen. So we feel like we’ve got a lot of ad fund dollars to drive 2015.

Okay. And just lastly on some of the new HR initiatives. When you guys talk about improved guest experience, can you maybe give us some specific examples of what exactly you mean?

Sure. It’s very straight forward. Our guests expect the food to be hot, the service to be fab, someone to be friendly and say thank you, someone to repeat the order at the drive thru, you know there’s about 10 things that a quick service restaurant guest cares very much about and it impacts their loyalty, their intent to revisit. These are measured things. We have our voice survey which we think they haven’t reported for a while because we changed vendors and that changed the baseline and the reference point, but it’s a very robust tool and what it gives the restaurant operator is it gives them specific feedback. They can pick it up every day on what happened in their guest experience and they can quickly correct and quickly coach their team to address any feedback from their guests and so we’re very much measured about our guest experience and we said that its one of our core deliverables for the restaurant, our manager to show improvement.

Thank you so much.

Thank you. We appreciate it.

Thank you. And our next question comes from Michael Halen from Bloomberg Intelligence. Your line is open.

Good morning and congrats on another impressive year. First off, my question is about 2015 EPS guidance. So based on the low end of your guidance assumptions, I’m kind of having a little trouble getting to that 183 to 188 range in my model without a decrease in the restaurant operating margin. Is this something we should expect or can more efficiently run the newer company stores and maybe offset the higher chicken costs.

I’ll respond to the chicken costs and then Will, you can jump in. We are right now watching and evaluating the impact of higher chicken prices on our restaurant margins. We are really pleased with the disciplines that our franchisees use to look at their menu pricing and to cautiously adjust in a way that we do not expect a decrease in traffic momentum. But I think it’s important that we’ll watch the first quarter and see how that turns out. It’s just the significant of the change in our bone in chicken price has required us to take that action. But I’m really encouraged by how wisely our franchisees have steward those pricing changes and I’m optimistic that the margin impact will be minimal on restaurant operating profit. But that’s the one to watch. Now in our company restaurants I think definitely it will be about bringing those new reassurances that we brought on at the end of last year to growing [ph] concern profitability and that’s just part of good stewardship of bringing the team and that up to margin that we forecast, so on the company side you will see an improvement.

Absolutely, and again it’s the idea that as we’ve opened up these new restaurants, we’ve had a greater investment in the upfront labor, both the labor running the restaurant, the training associated with it. But we have in place a very deep held period-by-period plan where we are going to get them up to what we consider best-in-class operating efficiencies very rapidly. And then Michael what I would suggest is it was a specific bottling issue, maybe we’ll cover that offline.

Okay, thanks. And just one more if you don’t mind. In terms of your buyback, I understand that you want to be opportunistic, but you expect CapEx to drop $10 million this year and you are planning to add about a turn and a half leverage in the next two to three years. So with the stock buyback guidance only increasing by $10 million, it’s possible that your leverage ratio could actually fall in 2015. So are your plans to increase debt and the buybacks really a 2016 and 2017 phenomenon? How should we kind of think about that?

Yes, I mean the thing that there is a number of different opportunities that we are seeing around the world and the other thoughts we have is there will be certain international opportunities where we may want to peruse putting in some of our own capital to essentially jump-start that effort. And it could be in the form of a joint venture agreement, it could be in the form of actually starting with a full equity of stores. So the way we think about it is first and foremost we want to support what we think are pretty wonderful further growth prospects that we have, and then think of these stock buyback as the, what we do with our excess cash after that. But first we want to fund the opportunity that we see in front of us, and some of those are little bit lumpy investments. We are working a number of different things, and when they come, they come and the sizes can vary depending on the geographies that you’re…

So I think Mike it’s about flexibility. Your right, 40 to 50 was being along the lines of what we have been doing. But we were clear that we are willing to increase leverage and we also gained approval from our broad of $100 million share repurchase authorization. So what you are seeing in our conversation today is the flexibility to act as the opportunities present themselves.

Great. That’s very helpful, thank you very much.

Thank you, Mike.

Thank you. [Operator Instructions]. And our next question comes from Mark Smith from Feltl and Company. Your line is open.

Hi guys. Will you might have – I think I missed this, but can you just talk about the bump in rent from franchise restraints.

So if you think about ’13 versus ’14 we had certain restaurants that where coming in that Minnesota and California purchase and so that’s the increase in rent that you are seeing year-over-year, because you had partial years in’13 that then because full years in 2014.

For me it’s more so just that the incremental I guess from Q3 to Q4, almost $1 million there.

And so I’m sorry and so your question is why did it go up from Q2 to Q4?

Q3 to Q4.

Q3 to Q4. Well on the other thing it’s remember that we have percentage rent arrangement and so as these properties do better, we’ve got more percentage rent that’s coming in.

And Mark we are happy to spend more time with you on that if you want to have a call later today.

Okay. Well that sounds great, thank you.

Thank you. And our next question comes from Michael Gallo from C.L. King. Your line is open.

Hi, just a follow-up question for Will. I know you contemplated the increase in the overall leverage. I was wondering whether you view your current debt structure as what you need to get there or whether you look at alternative structures such as securitization or other vehicles. Thanks.

Yes, for the moment we are going to work with our current revolver capacity and we think that will be sufficient. But we’ve also looked at Term B and we are also taking a look at securing royalties, but that would be something that would be further down the line and let say not in our neat term scope.

Yes, I think Mike we always look at all the range of options available to us, and look for the one that’s optimal. But we feel very good about our current position and the relationships behind it and don’t see a need to change that at this point.

Okay and then just a follow-up on the company store margin expectations for 2015. It would seem that with the slowdown of company store openings, as you take a breather, that you should work out some of the labor and efficiencies which should be good for company store margins. So I was wondering, what we should contemplate in terms of company store margins in ’15 versus ’14.

You know we don’t guide to that. But I think your instincts are right, that they should steady improve.

Right, okay. So there is nothing on the headwind front that you think would offset that, I guess that’s the question.

Well, our company restaurants will have the same pricing and commodity issues that all our restaurants have this year, so we will be managing though that. But I think the primary benefit in company ops will be the steady improvement of these new opening restaurants.

Alright. Okay, thanks very much.

Thank you.

Thank you. And I’m showing no further questions from our phone lines. I’d now like to turn the call back over to Cheryl Bachelder for any closing remarks.

As always we thank you for joining us this morning and for all your questions. We appreciate your support for our growing brand and look forward to another successful year. We are headed soon to our International Franchisee Conference to celebrate ’14 and plan the action steps for ’15. Right now I want you to get out and have some Cajun Surf & Turf or Butterfly Shrimp and two Tenders with one of our great dipping sauces and I’m sure that you are going to be hungry soon. Our next call will be in May when we report our first quarter results. We thank you. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.