Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. fiscal Q3 2020 earnings conference call. Please note this conference is being recorded today, Monday, November 2nd, 2020. On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skipworth, Executive Vice President and Chief Financial Officer. I would like to now turn the conference over to Michael. Please go ahead.
Thank you, and welcome. Everyone should have access to our fiscal Q3 2020 earnings release. A copy is posted under the investor relations tab on our website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release.
Lastly, for the Q&A, we ask that you please each keep to one question and a follow-up question to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Charlie.
Thank you, Michael, and good morning, everyone. We appreciate you joining us for this call this morning and hope everyone is safe and well. COVID-19 continues to impact people and the economy in all markets around the world. At Wingstop, we continue to navigate these difficult times and remain humbled by our continued strong performance. We believe our ability to navigate the pandemic and related economic challenges demonstrates the resiliency of our brand and provides us with confidence in achieving our long-term strategy. The strength we have seen in our performance has enabled us to achieve some key milestones in 2020. This week, we opened our 1,500th Wingstop restaurant. Our domestic average unit volume now exceeds $1.4 million. Digital sales over the last 12 months now represent more than $1 billion. We are on pace for our 17th consecutive of positive same-store sales growth.
These results could not be accomplished without the hard work and highest level of commitment to serve our guests from the more than 25,000 team members across the world, including our franchisees, whom we affectionately refer to as our brand partners, as well as our supplier partners. I'm proud to work alongside all of you, and I am inspired by the results we have achieved together. While we recognize that we are still navigating this pandemic, we believe our results underscore the strength and resiliency of our brand and allow us to maintain our focus on our long-term outlook, our vision of building Wingstop into a top 10 global restaurant brand and executing against our strategic pillars of sustaining same-store sales growth, maintaining best-in-class unit economics, and expanding our global footprint.
These strategic investments we have made over the years and a commitment to our strategy positioned us well to navigate this difficult time, and we believe our success is a direct result of our culture and our values, which we refer to as the Wingstop Way. We remain steadfast in our service-minded attitude, maintaining our authenticity and harnessing our entrepreneurial roots, and we believe our culture and our team members are what differentiate us from every other brand. At the end of the Q2 , we shared how our brand partners quickly began to mobilize and reignite the restaurant development pipeline as the country began to reopen at that time. I am pleased to report that this momentum continued in the Q3 , during which we opened 43 net new restaurants.
The pipeline has continued to strengthen, pointing to a healthy outlook for new restaurant openings for the balance of the year, leading us to increase our estimate for net new restaurants for fiscal 2020, which we now anticipate to be between 135 and 140 net new restaurants. You may recall that consensus estimates for net new openings for the year for Wingstop was only 95 at the end of Q1. This pace of development demonstrates the strength of our model and the enthusiasm our brand partners have in growing with the brand and in operating more Wingstop restaurants. As a reminder, the average initial investment to open a Wingstop is less than $400,000, and at our current average unit volumes for second-year restaurants, our brand partners are enjoying unlevered cash-on-cash returns well above 50%. Truly best-in-class unit economics.
It is these best-in-class economics that have our existing brand partners who make up over 80% of our pipeline, expanding their own Wingstop footprint. The momentum we have seen building in our new restaurant development has been fueled by our strong top-line performance, which has increased our domestic average unit volume to more than $1.4 million. In fact, restaurants open at least three years, on average, have an average unit volume now well above $1.5 million. During the Q3 , our domestic same-store sales growth sustained at double-digit levels of 25.4%, which represents a 37.7% comp on a two-year basis. That's almost 40% growth in same-store sales over the past two years for the brand. A continuation of our streak of more than 16 years of positive same-store sales growth.
While we are extremely proud of these results, our focus is not on the quarter- to- quarter or period to date same-store sales growth numbers, but rather continuing to execute our long-term strategic growth algorithm of sustaining same-store sales growth, maintaining best-in-class unit economics, and expanding our global footprint. Two key elements of our long-term strategy to sustain industry-leading same-store sales growth have demonstrated their staying power in 2020. The continued expansion of digital sales and the introduction of a delivery channel. In Q3, digital sales were 62% of our total sales and more than double versus Q3 in 2019. As we sit here today, the digital business has now eclipsed $1 billion in sales for the Wingstop system for the trailing 12-month period.
This growth has been enabled not only by our world-class digital platform, but also by the expansion of delivery, which has doubled in sales mix compared to early 2020 and has brought more new customers to the brand. You may recall that we launched an extremely successful free delivery promotion earlier this year in the March, April timeframe, and we're excited about another free delivery promotion that just kicked off this week that will run for a three-week time period and is being funded through our strategic delivery partner, DoorDash. While we are enjoying delivery sales mix in the mid 20% range, we believe we can drive that channel mix much higher as we continue to bring new guests into the brand.
The growth in our average unit volume has created efficiencies in our restaurant P&L, including relief from the recent increases we have seen in the price of bone-in chicken wings. To provide further relief for our brand partners, we recently negotiated a pricing mechanism with our largest poultry suppliers that mitigates the impact of continued inflation in bone-in chicken wings over the near term. This, coupled with continued semiannual strategic price increases taken by our brand partners, have also helped mitigate the impact of inflation on their P&L and has helped us protect our development momentum. We will continue to find more ways to deliver against our long-term strategy to mitigate volatility in food costs, such as the introduction of a new product, bone-in thighs, which is in test in several markets today.
Bone-in thighs offer the juicy meat and crispy skin like bone-in wings, but help us leverage more parts of the bird and can be sauced and tossed in our 11 bold, distinctive flavors. Our research suggests it will be a fan favorite, and we're excited for all Wingstop fans to get to try it soon. Our domestic business is only part of the story, and I'm extremely excited to see that of the 43 net new restaurants opened in the Q3 , nine net new restaurants were opened in our international business in four different strategic markets. The U.K. is one I would like to highlight, where we opened four new restaurants in the quarter, and we are enjoying average weekly sales consistent with what we have experienced in our domestic business. We are excited to see the strong development against a challenging operating environment.
Sales trends continued to improve in the Q3 as each market reopened dining rooms and continued to leverage and grow their off-premise business, which bolsters our confidence in our long-term strategy for our international business. We continue to work alongside our international brand partners to ensure they are financially prepared to emerge stronger and better positioned for continued unit growth. The strength we are seeing in our strategic international markets reinforces our growth strategy that we introduced to you back in January. Part of that strategy included expansion into China, and in October, we kicked off an engagement with BCG to begin to lay the groundwork for our entry strategy. We believe that China represents a market with great potential for us and believe that we could operate over 1,000 restaurants over time.
We remain excited about our international potential and will continue to make the necessary strategic investments to position the brand for scale and future growth. Our brand partners across the world are trying to build new restaurants as they leverage cash from operations and continue to have access to capital from excellent banking relationships that reward our brand's strong performance. We believe this great momentum will set up a strong development year in 2021 as we continue to make progress against our goal of 6,000-plus global restaurants.
We are also using our own excess capital to drive growth in the business. As previously mentioned, we are making a strategic investment with BCG to lay the groundwork for the big opportunities we believe we have in China. We also anticipate continued investments in technology as we drive toward our goal of digitizing every transaction and expanding our technology platform globally.
We will also continue to use our excess capital to drive unit development. One form this could take is the continued acquisition of restaurants in markets with high growth potential. Our success in refranchising five restaurants in Kansas City and establishing a growth platform for an existing brand partner drove our decision to acquire five restaurants in the Denver market during the Q3 .
We are excited about the opportunity this presents as a tool to accelerate growth in key markets around the U.S. To that end, capitalized on an opportunity to refinance our debt and take advantage of the record low interest rate environment. We are extremely pleased with the outcome of the overwhelming demand from investors and the favorable terms we were able to secure. This record-setting transaction has provided us with the opportunity to return capital to our shareholders.
In addition to declaring our quarterly dividend, we are issuing a special dividend totaling approximately $150 million, all while maintaining adequate cash on our balance sheet to fuel continued investments and growth. Since our IPO, we have returned almost half a billion dollars in capital to shareholders who have enjoyed over a 600% total shareholder return. Our track record underscores the strength of our brand and the high cash flow generation of our asset-light model, and confidence in our future. At Wingstop, we recognize the responsibility we have to all of the various stakeholders we serve, including our team members, brand partners, supplier partners, shareholders, and the communities in which we operate. I would like to close by again thanking all of them and our guests for their continued support of Wingstop, and hope everyone stays safe and well during this difficult time.
With that, I'll turn the call over to Michael.
Thank you, Charlie. As Charlie mentioned, our business continues to prove its resiliency, and the Q3 saw continued strong results across the board. Domestic same-store sales grew by 25.4% in the quarter, which is a 37.7% comp on a two-year basis. We're thrilled to be able to build upon significant transaction gains during 2019, a year that ended with an 11.1% same-store sales growth. There is a lot of excitement in our brand, and despite the challenging circumstances, we opened 43 net new restaurants, resulting in 1,479 system-wide restaurants at the end of the quarter, which represents a 10.4% unit growth rate. We're proud of the hard work of our brand partners and development teams. Our openings have culminated in more than 100 net new restaurants this year, despite losing two to three months of construction time as a result of the pandemic.
Royalties, franchise fees, and other revenue increased by $6.9 million to $28.8 million for the Q3 , driven primarily by our domestic same-store sales growth and 138 net franchise openings since the year-ago comparable period. Advertising fees and related income increased $5.6 million to $19.7 million, due primarily to a 32.8% increase in system sales compared to the Q3 of 2019. Our company-owned restaurant sales increased $1.6 million to $15.5 million for the Q3 . This increase is due primarily to same-store sales growth of 15.2%. With this strong top-line growth, average unit volumes for company-owned restaurants are now approximately $2.2 million. Cost of sales as a percentage of company-owned restaurant sales increased by 180 basis points compared to the Q3 last year. This increase was driven primarily by higher labor costs from incentive pay associated with COVID-19 for our restaurant team members.
The incentive pay is a non-recurring investment to support our team members working on the front lines in this difficult environment. The increase in labor expense was partially offset by the leverage gained on operating expenses due to the substantial growth in unit volumes. Operating expenses include delivery commission, and with delivery sales more than doubling since last year, the efficiencies in our operating expenses highlights the benefits of our strategic partnership with DoorDash. As a reminder, we partner with an industry leader on strategic menu pricing in our restaurants and continue to leverage this platform to mitigate inflationary pressures on our P&L. We also now have the newly negotiated wing pricing Charlie commented on earlier.
We anticipate this will allow us to mitigate some of the rising inflation and hold restaurant level margins for the Q4 consistent to what we saw in the Q3 , which were 24% for our company-owned restaurants. While we do enjoy an average unit volume of $2.2 million in our company-owned restaurants, these margins, adjusted for royalties, are a good indication of the margins our brand partners enjoy at our system average unit volume of $1.4 million and truly demonstrate the strength of our model. In the Q3 , as Charlie mentioned, we completed an acquisition of five restaurants in the Denver market. For modeling purposes, volumes for these restaurants are slightly under our system average, and we anticipate investing in these restaurants to ready them for refranchising as we position that market for accelerated unit development.
Similar to our Kansas City market, this is a great example of how we'll use our cash to accelerate development. Advertising expenses increased $5.6 million to $18.3 million in conjunction with the increase in system sales. Also, to remind everyone, advertising expenses are recognized at the same time the related advertising revenue is recognized and does not necessarily correspond to the actual timing of the related advertising. Selling, general, and administrative expenses were $17.3 million in the quarter, which is a $3.8 million increase versus the Q3 in 2019. The increase was primarily due to approximately $3.4 million in higher variable-based compensation expense, which includes higher stock-based compensation expense associated with the company's current year performance.
$1 million driven by an investment in talent to support the growth in our business and $500,000 related to COVID-19 and support provided to our international brand partners. This increase was partially offset by a $1.2 million gain we recognized on refranchising five company-owned restaurants in the Kansas City market. Note, the $1.2 million gain on sale is excluded from adjusted EBITDA. Adjusted EBITDA, a non-GAAP measure, increased 19.5% to $18.4 million for the Q3 .
There is a reconciliation table between adjusted EBITDA and net income, its most directly comparable GAAP measure included in our earnings release. We recorded a tax benefit of approximately $200,000 in the Q3 . The decrease in the effective tax rate was driven by excess tax benefits associated with stock options exercised during the quarter and resulted in a $0.09 benefit to a diluted EPS.
Net income in the Q3 was $10.1 million or $0.34 per diluted share, an increase of 71% versus the Q3 in 2019. At the end of the Q3 , we had $280.5 million in net debt. We ended the Q3 with our net debt to trailing 12-month adjusted EBITDA at 4 times, which is a full one turn lower than at the end of the Q1 of 2020, underscoring our ability to quickly de-lever through a combination of adjusted EBITDA growth and strong free cash flow generation. Subsequent to the end of this quarter, we completed our previously announced recapitalization transaction, which included the issuance of a $480 million of senior secured notes and entered into a $50 million variable funding note facility.
Proceeds from this transaction will be used to repay our existing $317 million securitized notes issued in 2018, $16 million in borrowings from our prior variable funding note and transaction cost. Approximately $13.7 million in transaction related expenses will be recorded in the other expense line in our P&L in the Q4 . We are very pleased with the outcome of this transaction and the favorable debt terms, including an interest rate of 2.84% for a seven-year term, which translates to approximately $2 million in annual interest expense savings. The completion of this transaction puts our pro forma leverage ratio at 6.4 times, which is a level we are comfortable with given our asset light, highly franchised business model and strong cash flow generation.
Leveraging the net proceeds from our recapitalization transaction and excess cash on hand, our board of directors declared a special dividend of $5 per share of common stock, payable to stockholders of record as of November 20, 2020. This special dividend totaling approximately $150 million will be paid on December 3rd. We also remain committed to returning capital to shareholders through our regular quarterly dividend.
Our board of directors has also declared a quarterly dividend of $0.14 per share of common stock payable to stockholders of record as of November 20th, 2020. This dividend totaling approximately $4.2 million will be paid on December 10th. We are consistently evaluating the best use of capital and believe the return of capital is an important part of our commitment to our shareholders. This return of capital demonstrates our confidence in the long-term outlook for our business.
Given the ongoing uncertainty with COVID-19 and the broader impact on the U.S. economy, we are not providing fiscal 2020 guidance for same-store sales growth. However, we are increasing our guidance for net new restaurants to 135-140 as a result of our strong development pipeline and the excitement we are seeing from our brand partners to grow with the Wingstop brand. With more clarity around SG&A for the balance of the year, we are providing guidance for SG&A, which we expect to be between $63.5 million and $64.5 million for fiscal 2020.
We have included a reconciliation in our earnings release from reported SG&A to adjusted SG&A, a non-GAAP measure that excludes fees associated with our strategic investment totaling approximately $1.3 million, non-cash stock-based compensation of approximately $9 million, and expenses related to national advertising of approximately $8 million, which have equal and offsetting contributions in revenue and do not impact profitability metrics, and gain on sale due to refranchising of restaurants of $3.2 million.
Adjusting for these items, we expect adjusted SG&A for 2020 to be between $48.4 million and $49.4 million. Our Wingstop business model has demonstrated its strength and resiliency as we have navigated this pandemic and are thankful to all of the Wingstop team members and brand partners for their hard work and dedication during these challenging times. We remain focused on our vision of becoming a top 10 global restaurant brand.
As we look ahead to the balance of 2020 and beyond, we believe we are well positioned for continued growth and our long-term strategies remains unchanged, anchored by our three main growth pillars: sustaining same-store sales growth, maintaining best in class unit economics, and continuing to expand our global footprint. With that, we're happy to answer your questions. Operator, please open the line for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. As a reminder, please limit yourself to one question and one follow-up so that as many participants as possible may have a chance to ask a question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Andrew Charles with Cowen. Please go ahead.
Great. Thank you. One clarification, then my real question. Charlie, I know you're choosing not to disclose for Q quarter could be , and obviously strong momentum in the Q3 , is it fair to say that your philosophy is that there's no need to provide an update on sales trends if they're broadly in line with what you saw in 3Q?
Good morning, Andrew. Thank you for the comment. I would say this, that our philosophy centers on looking at the long-term potential of our business. If I can just cite fundamentals as it relates to running a high-growth restaurant company, our comp for the Q3 was 25.4%. That's 37.7% on a two-year basis. Our average unit volume, as we noted, has risen to $1.4 million, which drives exceptional four-wall cash flow and great cash on cash returns for our brand partners, we call our franchisees brand partners, which led to strong unit growth during this quarter and an increase in our guide to unit growth for the balance of the year, which we believe fundamentally is what is most important in navigating, not only this environment, but for the long-term outlook of our brand.
We noted we have a strong pipeline for development going into 2021, and I would reinforce our position as being in a category of one, which we believe really isolates Wingstop from all the other brands out there in terms of performance. From a sequential basis, I think that it is our focus, as it always has been, to provide proper information quarter- to- quarter, but not get hung up on the sequential nature, especially on a 25.4% comp.
Understood. My real question is that as we think about the impressive 2020 sales performance and the plan to successfully lap this in 2021, can you talk about your confidence that delivery can be a positive contributor in 2021? Assuming that we see a vaccine commercially available next year, spring fever presumably kicks in at some point next year, and that would increase mobility with folks going to the restaurant a little bit more.
Sure. I think it's important to note that the way our strategy has been built centers on making sure there are plenty of levers that we can pull in order to grow our business. You mentioned delivery, and certainly this year was our formal launch of delivery. We started that in our national advertising back in February. Well-timed of course, and you can see that the performance has more than doubled from where it was a year ago, and continues to be strong for our brand. We do expect to continue to grow the delivery business in our brand in multiple ways. One of which is investments in technology that we believe will continue to yield higher mix levels for delivery.
I'd also keep in mind that during this pandemic and through today as we sit here today, we still have our dining rooms closed in all of our restaurants. Those dining rooms represented roughly 20% of our total sales volume. Even with the extraordinary same store sales growth we've seen, that is overcoming the closure of our dining room. To your comment about the potential of a vaccine or something that would give us comfort to reopen those dining rooms, we believe we have plenty of levers in place to continue to drive sustainable comp store sales growth.
Very good. Thank you, Charlie.
Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much. One question and one follow-up. The question being on the 2021 unit growth outlook. Charlie, I know you mentioned a strong pipeline, and I know we typically wait another quarter for actual full year guidance for 2021. With that said, theoretically, is it fair to assume, it seems like through COVID-19, we're hearing about increased real estate opportunities, less independent competition. Seems like wing prices perhaps at least stabilizing, labor costs easing, comp momentum, like you said, very strong. I'm just wondering if there's any reason conceptually why 2021 wouldn't be an even larger class of new unit openings, or maybe what could offset those tailwinds or whether there's any franchise pushback or anything along those lines that at least conceptually would limit a further acceleration in the U.S. unit growth. Then I had a follow-up.
Sure. Thank you, Jeff. Good morning. I think your question is well framed in that all of the right factors are in place for us to have a very strong year next year in unit development. I did mention that our pipeline has strengthened, and of course, we will provide that information at year-end. I'll remind us that at the beginning of the year, we had 610 restaurants in our unit development pipeline to enter 2020, and we've consistently seen our brand partners reinvest, not only by adding new restaurants, but also increasing the size of their development opportunity. All of them are working in our favor. Definitely the real estate market is favorable for Wingstop, given the unfortunate circumstance of this pandemic. However, we are seeing plenty of sites available.
Our solid banking relationships, and generating cash flow from our restaurants is fueling further development, and hence why we increased our guidance for this year. Yeah, and barring any unforeseen event, which nobody predicted a pandemic and who knows what next year looks like, everything is lining up for a solid year next year.
Got it. Just my follow-up, obviously, you talked about the category and your industry leadership, when you think about wings, in the past, you've talked about how certain restaurant peers maybe jump in and out of the wing segment, depending in large part on wing prices. It seems like more recently, many of your peers seem to be jumping into the wing category and talking about a willingness to kind of stay focused on wings regardless of cost. Maybe this is more of a long-term strategic decision to be in wings, obviously, seeing the strong performance perhaps you guys are generating.
While that is flattering, I'm just wondering how you think about the potential impact on your business, whether a positive because it just draws more attention to wings, which you think you guys have the best, or whether you see it as a negative because of competitive convergence. How do you think about that as more and more of your competitors focus on the wing category? Thank you.
Sure. Well, I certainly agree with you that we believe we have the best wings, and I think it's demonstrated by the strength of our brand and our performance. I will also call attention to the fact that we use fresh, rarely frozen wings. Only during certain cyclical times of the year will we bring those in. The impact it's having on us is more about what it does to the price of chicken wings, because many of these new and/or emerging competitors or folks that have sold them before are really buying up all the frozen product that's in the market, usually at this time of year. We know that a frozen wing is inferior to a fresh, and I think we see that in the quality of the product that's out there.
We also believe that most of these are short-term because at today's current market prices for wings, it would be hard for most newer competitors to sustain. At Wingstop, we've done what Michael and I both mentioned in our commentary, is put in place with our long-term valued supplier partners, a pricing mechanism that mitigates the impact of today's spot market, which, of course, is great for our brand because it does help curb any negative impact to the unit economics and drive growth in new restaurants, which fundamentally is the right way to run the business.
Thank you very much.
Our next question comes from David Tarantino with Baird. Please go ahead.
Hi. Good morning. I have a question just on the sales that you've seen so far through the Q3 . It does look, Charlie, like some of the initial strength you saw during COVID-19 has tapered off. I was just wondering, do you have anything in your data that would help to explain that trend? Is it a circumstance where a lot of people may have tried the offering following the delivery launch, and you may not be retaining a lot of those customers, or you think that something else is going on underneath the surface? Then I have a follow-up.
Good morning, David. Thank you. I think it would be unnecessary for us to apologize for the quarter three versus quarter two comparison in comp as a slowdown when you're going from a 30 to a 25, Having in Q3 a 37.7% two-year comp. That's rolling over a more than 12% comp in the prior year. Those are phenomenal results and all happening while our dining rooms remain closed, which affects 20% of our total business.
I'll reinforce that our average unit volume has climbed to $1.4 million, which represents what we believe to be best-in-class unit economics that were above our best-in-class performance from even most recent years, which is fueling development and new restaurant growth because our franchisees, whom we call affectionately our brand partners, are recognizing the strength of this brand, its ability to navigate even a global pandemic very effectively, and therefore driving fundamentally what is most important for us to be looking at, which is new unit growth. I think that there's just a lot of commentary about sequential nature of comps, which drive short-term behavior. At Wingstop, we're going to focus on the long term and growing our brand and growing it by way of adding new restaurants to it, while also living up to our long-term algorithm of mid-single-digit comps, 10%-plus unit growth, and continued growth in EBITDA.
Yep, makes sense. My question wasn't meant to imply that your comps are anything other than spectacular, so I apologize if it came across the wrong way. I guess my follow-up question, Charlie, was related to the dining rooms being closed, and just wondering if your data would indicate how much you're leaving on the table by having the dining rooms closed. I know you might be getting some replacement transactions via off-premise, but anything in your data that would give us a sense of how much you are bypassing by not having the dining rooms open?
Well, I think from a mathematical perspective, you could certainly recognize that there would be sales opportunity by reopening the dining rooms. However, our focus, first and foremost, is the safety of our guests and the safety of our team members in our restaurants. As we've seen a recent uptick in COVID-19 infections, I think it demonstrates that our strategy we affectionately call FILO, which is first to close our dining rooms and last to open, is a demonstration that not only are we making sure that we're running great carry out and digital and off-premise business for our guests. At the same time, we're respecting the importance of safety.
It's a difficult operating environment that all of us understand, and to be able to demonstrate the kind of performance we are without having to reopen our dining rooms, I think is just another great demonstration of the resiliency of our model and the satisfaction our guests have with both delivery and carryout as their primary option for enjoying Wingstop.
Great. Thank you very much.
Our next question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you. Good morning. Turning back to development, I had a quick question on the cadence, if you could help us think that through. I've been listening to this dialogue, and it's heroic. It's heroic. I've asked in the past about getting these stores open, and it's more than we thought, yet you had commented there was a three-month lag in the system naturally with the disruption that occurred. I'm wondering if that actually slowed down something that could show up in the first part of next year where that cadence then would be higher than normal. I'm also wondering at the same time, maybe that also slowed down a little bit of the pipeline as you enter next year, so it would be more similar. If that makes sense, could you just help us think about the cadence for next year?
Yes, thank you so much for the development-related question. We believe that it would create an opportunity for a strong Q1 for us because of that lag that you mentioned. Yes, typically, we need 6-9 months for a restaurant to enter the pipeline and come out as an open restaurant. That's on our best case scenario. It follows what it takes to get a site, sign a lease, get your permits, get it built, and opened. I think the sequential strength we've seen from Q2 to Q3 , what's expected for Q4 , and definitely carrying into next year based on our commentary of an expected strong 2021. As far as the pipeline itself, it is building and growing.
While we don't have specifics for you today on our pipeline, I can confidently state that our pipeline is building nicely for a strong unit development into 2021.
Just to follow up on that exact point where you just ended, talk to us about how that pipeline is growing. Traditionally, the franchise partners come in and open a few successfully and then do a few more and a few more. Are any larger network partners coming to you with requests at this time?
Yeah. Most, if not all, usually this is at least 80%-90% of our new development is from our existing brand partners. We're seeing much the same. If anything, perhaps a little bit more. They're bullish certainly about the performance of the brand, especially those who operate other businesses beyond Wingstop in the restaurant category. They certainly see the separation of performance between Wingstop and so many others. They are making their investments clearly, with Wingstop going forward. That investment means demanding more territory and looking for opportunities to get restaurants in the ground and capitalize on this strong performance.
Thanks for taking my questions.
Our next question comes from Andy Barish with Jefferies. Please go ahead.
Hey, guys. Nice to hear from you. Just wondering, on the unit side, if we can shift, excuse me, to the international side of things, with the good quarter and the 3Q. Can you give us, I guess, a little bit more visibility on how the pipeline is shaping up there? Do you have a little bit clearer sightline? Then, I guess, when does China enter into that equation, and would you guys be willing to put capital into China initially as well?
Morning, Andy, and thank you. Yes, we are really, really impressed with the performance of our international business, given the reality of this pandemic and what we're dealing with. Like a lot of other brands, we have sustained a much bigger challenge overseas than we have in the U.S., primarily because a lot of our restaurants in the larger markets we're in rely upon dining rooms and shopping malls for their performance, which have been impacted by the pandemic due to minimum allowed seating capacities to be utilized. I think if you watch the news, you see that markets in Europe are struggling to gain control of the pandemic, and in some cases will be shutting down or implementing curfews, which could impact our business. All that said, we opened nine net new restaurants internationally. We only have four temporary closures overseas in our total pipeline of restaurants.
That's really best in class, we believe. I think it demonstrates, again, just like the U.S., the strength and resiliency of our brand and our ability to navigate these difficult times. Many of our openings happened in the U.K., which we're very excited about as it relates to a strategic market that is growing this year. In fact, we opened 4 restaurants during that timeframe. As we think about China, we mentioned that we have expanded our relationship with BCG to start working on a China entry strategy. We believe over the next two to three years, that will create opportunities for growth for us. As we noted, and I would reiterate, we believe that we can open as many as 1,000 restaurants over time in China.
It does require a very thoughtful strategy going in, which could include, as you asked, an investment by Wingstop to get there.
Thank you very much.
Our next question comes from John Glass with Morgan Stanley. Please go ahead.
Morning, guys. This is Brian Harbour for Jon. Maybe just a quick one on company store margins. Appreciate the kind of detail on what 4Q will look like there. Curious beyond that, if you think the new wing pricing mechanism, could that make the impact on margins there come down over time? On the labor side, you've obviously had more incentive compensation related to COVID. Do you think that will come down over time? Curious how you think margins can kind of trend as we look into to next year, perhaps.
Yeah. Look, there are a couple things there. Number 1, would we see cost of goods diminish because of the wing pricing mechanism? At a minimum, they will hold flat to where we are because the price of chicken wings was rising fairly rapidly during the Q3 , we did put in efforts to mitigate that, which could hold them flat. Again, that's still within what we would call our sweet spot for long-term sustainable growth. Labor, it depends. We are going to do what it takes to make sure that our team members are taken care of in our company-owned restaurants, and we believe that most, if not all of our brand partners are following suit on retentive mechanisms to keep people in our restaurants. It's been difficult.
We've hired as many as 9,000 people during this pandemic timeframe, and so it's a demonstration that with our growth, we need to make sure we retain our team, and it's a very important investment we're making to provide them with that incentive compensation, some of which would be driven by any further stimulus plans that might come forward.
Great. Okay. One more just on the investment in the Denver market. Are there a lot of other opportunities to do that around the country? Just curious on kind of the magnitude of that opportunity.
Yeah, I think given the environment we're in and the opportunity to accelerate development through these strategic investments like we demonstrated in the Kansas City market, we believe that a market like Denver presents not only the opportunity to buy restaurants, but also to add new restaurants to our portfolio. Ultimately, over time, re-franchise those if we feel that's right. It's a great way to stimulate investment amongst existing and/or net new franchisees to our system. There are other markets in the country we are looking at to do that with. From time to time, we will opportunistically invest in those markets by way of acquisition of existing restaurants and/or development of new restaurants in territories where we believe there's ample opportunity to grow quickly.
Great. Thank you.
Our next question comes from Chris O'Cull with Stifel. Please go ahead.
Yeah, thanks. Good morning, guys. Michael, you mentioned restaurant margin in the Q4 should be similar to the third, but can you explain the puts and takes that would allow that to be at a similar level?
Yeah. No, I think it's going to be the pricing mechanism that you heard us talk about earlier that's going to allow us to mitigate any sort of continued inflation in the commodity, and then all things kind of remain consistent with what we saw in Q3. Obviously, there is a little bit around the incentive pay at the restaurant level, whether or not that continues. But as of right now, we plan for it to, so I would expect to see just similar margins overall.
Is the seasonality in the business about the same in terms of sales volumes?
Yeah, there's not a lot of seasonality in our business if you look at it from quarter-t o- quarter. Nothing to call out there.
Okay. Michael, the company's clearly investing in its infrastructure to support growth, I appreciate the guidance for 2020, can you help frame up some expectations for 2021? At least provide what cost in 2020 may not reoccur in 2021?
Chris. Obviously, we're not at a spot today to give 2021 guidance. What I would say and what we tried to call out is due to the company's strong performance, particularly when you think about a same-store sales growth metric north of 20%, you think about our ability to what we believe will be to deliver a unit growth number that's still aligned with our long-term target of 10% plus. Then obviously, seeing the great leverage on our asset-light model flowing through to, as we sit here today, year to date, over 30% adjusted EBITDA growth year-over-year. So those metrics and those results have led to some additional variable incentive comp that we highlighted in the MD&A as well as the release in the Q3 .
One element of that is in stock comp expense as well, and so those are not the type of charges I would expect to model out and see recurring year-over-year.
Great. Thanks, guys.
Our next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.
Thanks, and good morning. A couple modeling questions. First up with the recapitalization, what are you guys looking for interest expense in both the 4Q 2020 and 2021 for the full year?
Yeah, I would say just to anchor you around the annual savings for 2021 and forward, Jeff, we would expect that to be about $2 million in savings on interest expense. That's obviously taken our debt up from $325 million to the $480 million. Just really highlights how strong of a deal it was we were able to execute and the record-setting rate we were able to obtain, which we're really excited about.
All right. That's helpful. I might have missed this, but you were asked about this on the last call as well, but in terms of what's driving that rather large and growing spread between company-owned and franchise restaurants same-store sales right now, any color you can provide on that?
Yeah, there's nothing I'd really call out, Jeff. We're talking about 30 restaurants, so it's a pretty small sample, but these are, on average, 15-year-old restaurants and are still comping double digits. Something we're extremely proud of. To see that AUV at $2.2 million is really strong, and it actually is similar to other restaurants of that same vintage. You can think about the great four-wall economics our brand partners are enjoying there as well.
All right. Thank you. Appreciate it.
Our next question comes from Jon Tower with Wells Fargo. Please go ahead.
Great. Thanks for taking the question. I'm just kind of curious as to get your thinking around the cash balance. I think even working through the refi and the special dividends, you're still going to be sitting on quite a bit of cash at the end of the Q4 . Can you help us try and think about your priorities for uses of cash going forward? Obviously, it sounds like there may be some investments in potentially international markets, perhaps some domestic buy-in opportunities, but we haven't seen anything that large in the past with respect to cash flow outlays. Can you talk about perhaps what we should expect for cash from this point forward?
Good morning. Thanks for the question. We do estimate over the next few years to invest quite a bit of cash in a number of things, including what we've already talked about today, which is the opportunistic acquisition and/or build-out of restaurants across the U.S. Also, an effort that we're working on currently. We've hired a group to come in and help us look at the potential for a scalable infrastructure for our global tech stack that would carry us over the next few years and include not only our U.S. digital business, but also a consistent digital presence by way of our website across the globe, which offers us global online ordering capabilities, a standard restaurant technology, and of course, a best-in-class business intelligence infrastructure that would help us with scaled data visualization as well as analytics for our business.
There is a desire for us to invest that capital now and over the next couple of years to prepare us for long-term sustainable growth globally.
Okay, thinking about that, would there be a mechanism in place such that you're paid back over time? Some of the larger global pizza players do get paid for online transactions that their franchisees do. Is that something that's contemplated today or not part of the equation?
Well, I definitely think there is a payback on that investment, and what I would do is remind you of what we've done over the past four or five years to develop what we believe is best in class in terms of a tech stack for our U.S. business. The best way to demonstrate that return on investment is our performance this year. We were very well positioned going into what we didn't expect was a pandemic. Certainly what it has done is accelerated for us two years' worth of what we anticipated in growth in our digital business, which fuels top line. That top-line growth helps support our brand partners so that they can invest in new restaurants. It also helps us in driving same-store sales and sustaining our performance.
All of that is paid back to us in the form of royalty increases in dollars, not percentages, but in dollars that help fuel growth and EBITDA. We believe that making this position and pivoting towards a global outlook for our technology platform will create long-term sustainable advantages for the brand and create growth.
Thanks. If I may, one more. Just thinking about one of your Well, there's been an introduction of a virtual brand during this summer and into the fall period, and I'm curious if perhaps you could talk about how your stores and markets where the brand overlaps with It's Just Wings, how those stores perhaps performed maybe initially, and how they're sitting today or even through the Q3 . Was there much of an impact on your business as that business ramped up?
Yeah, we don't see any impact associated with that brand, which I think you're referring to Chili's. They have locations all over the country. We know that they're leveraging their kitchens wisely during a very difficult time for their business. I applaud the fact that they're working hard to try and do everything they can to support their own locations. The only impact we're seeing it have, as I mentioned earlier, is that they are really acquiring a lot of the frozen wing stock out of the market that normally is available this time of year and utilizing that for this virtual brand. Effectively, their virtual brand is operating the same as ours is. Ours is operating virtually quite well. In fact, as we mentioned, we're already on pace to generate over $1 billion of digital sales through selling wings this year out of our total performance.
We don't see that as an impact to our business at all.
Great. Thanks for taking the question.
Our next question comes from Michael Tamas with Oppenheimer & Co. Inc. Please go ahead.
Hi. Thanks. Hope everyone's well. You mentioned a few times that your dining rooms historically were 20% of sales, and they're still closed, but your unit economics, even with them closed, are still fantastic. Is that causing you and your franchisees to think about what Wingstop looks like going forward? Could you drive even faster growth if you didn't have dining rooms, or even upside to your long-term targets? Thanks.
Yeah, we are having a lot of discussions about this. It depends market by market as to what the right answer is strategically for the brand and maybe even trade area by trade area. We have been and are investing in ghost kitchens as an opportunity we believe this brand is well positioned for. We want to understand them very carefully, the unit economics, and how they work, because it isn't always this panacea people believe in virtual brands and certainly in ghost kitchens. There is a necessity to understand how they behave in different markets, which is what we're working on right now. We believe those have application both here in the U.S. as well as overseas, and we've invested in them in both markets.
More to come on that, but there are a lot of markets where it is necessary for us to have dining rooms because that's what our guests expect of us. We aren't going to make a material pivot, but you certainly can see that the advent of these dark kitchens can help us look for ways to grow the brand in markets we may not have gone into with a traditional retail location.
Got you. Thanks. Then just a follow-up on the Denver transaction and that sort of strategy as a whole. Can you talk about maybe what are the growth prospects of Denver look like before this transaction and what it could look like coming out the other side, maybe if you were to refranchise? Just trying to understand how impactful some of these strategies can be relative to what your growth is now. Thanks.
Sure. I think Denver's been a great market for us for a long time. We have some very long-term, well-sustained brand partners in that market, but it also represents for us a market that's at about 50% or so of its capacity for growth. Our acquisition offers us an opportunity to build some restaurants, but certainly puts into play the opportunity to continue to expand that market quickly, just like we did in Kansas City, which has really taken off nicely. Where we see markets like that in the future, we'll continue to look at those. There are a few around the country, as I mentioned before, that we're interested in, and we'll look at those opportunistically as they come about.
Thank you.
Our next question comes from Brian Vaccaro with Raymond James. Please go ahead.
Thank you and good morning. Just a couple questions on the SG&A line. Just wanted to clarify the guidance of $63 and a half to $64 and a half. Just wanted to confirm that embeds reported year-to-date SG&A of around $45 million, so it implies around $19 million for the Q4 , Michael?
Yeah. No, that's exactly right. That's the reported number.
As we try to understand sort of the underlying growth in that line, could you help frame how much the variable compensation is up sort of year to date or versus a normal level?
Yeah, that's what we attempted to call out in the release. It's just north of $4 million. That's inclusive of incremental stock-based comp expense as well as the variable-based compensation.
That's in the quarter year to date. Do you have that by chance?
Yeah, that was kind of the, if you will, the year-to-date true up.
I'm sorry. Okay. Gotcha.
That was recorded in the Q3 . Yep.
Okay. At the Analyst Day, which seems like a long time ago, obviously, you had spoken to sort of a G&A algorithm, growth algorithm, maybe around half of revenue growth plus some international investments. Is that algorithm still broadly in place or are some of the investments that you had mentioned previously incremental to what you had in mind at the Analyst Day?
Yeah, I would say, Brian, we're probably not here today to kind of reiterate those targets or communicate anything about 2021. I think what's important to kind of highlight, and Charlie hit on it a little bit earlier, with where we are in the growth phase of the company, we're going to be making the right strategic investments to make sure we're positioning the brand for future growth. You could see us, similar to what you heard us talk about here today, the incremental investment with BCG as well, as an area where we could be making some investments that weren't originally contemplated in some prior guidance.
All right, that's helpful. I'll pass it along. Thank you.
Our next question comes from Andrew Strelzik with BMO Capital Markets. Please go ahead.
Hey, good morning, guys. This is actually Dan on for Andrew today. Thanks for taking the questions. I think people look at some of the pizza players and assume a large portion of those gains are temporary given the current environment, and then maybe sort of extrapolate that sentiment to you guys, given the similarities in the business model. Given where awareness started, it does feel like you've gained perhaps a larger portion of new customers during the pandemic. I guess my question is: are you starting to get a better sense for what stickiness of gains might look like as we trend back towards a more normalized environment? How would you compare and contrast the gains you've realized with some of those pizza guys?
Well, I think the comparison to a pizza chain is probably only relevant as it relates to having a strong digital presence. Which, as you know, we exited the quarter at 62% of our sales as digital, which compares right in line with where those chains were a year ago or so. They've grown because of the pandemic, as have we. Set that aside, our strategy going into 2020 was to fuel growth in delivery and continue to expand our digital business. We had invested heavily in technology to make sure that that was seamless, as well as to our partnership with DoorDash, which has worked out exceptionally well for us. Both of those were considered long-term ventures for us that would steadily grow new customers and bring them into our business.
Our job, of course, is to deliver the same high-quality product and guest experience that our guests are normally used to, which we are, and that in and of itself creates a stickiness and retention that we believe carries for a long period of time. The only nuance of time during the pandemic is we accelerated that by what we estimate to be as much as two years of performance. Which is good news, but I don't think there's any indication otherwise that would suggest these aren't sticky new guests to our business, and that's demonstrated by our guest experience metrics that tell us that they are enjoying these occasions as much as anyone did before the pandemic.
Thank you. That's helpful color. Then just one follow-up maybe related to that. I guess I'm just wondering, with a few more months of data under your belt, is there anything interesting you've noted in terms of the demographics of customers you've added? I know last quarter you indicated you were maybe adding more of those heavy QSR users, returning lapsed customers, and seeing an uptick in frequency within the core. Is that still where gains are coming from? How would you compare or contrast the demographics of the new customers you've added over the past seven or eight months with maybe your customer base prior to the pandemic?
I don't think there's a meaningful difference in the demographics of these guests. You are correct in that our goal was to target heavy QSR users that were either light or non-users of Wingstop. There isn't a real substantial demographic difference there that we've seen. The other thing I would add back to delivery is there were guests who are coming into Wingstop now that chose delivery over carryout, and they really don't cross those occasions very often. We are seeing new guests coming in that are associated with delivery that adds to that mix.
Great. Thanks for taking the questions.
Our next question comes from Jared Garber with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking the question. Many of mine have obviously been asked and answered. Wanted to focus in here on potential for menu innovation. You talked about testing some bone-in chicken thighs in certain markets. Wanted to just get a sense of any color you can share on those tests, how many markets they're in, maybe how the pricing compares to your traditional products, and what the consumer feedback has been.
Absolutely. We just started this test a little over a week ago, very early in the stage. Over time, over the past couple of years, we have started to test the concept of a thigh product. It's bone-in. It has a lot of the characteristics of our existing bone-in chicken wings in that they cook in about the same amount of time. They develop that crispy skin, but that juiciness that you want in that product that is a good comparison to chicken wings. We've said for a long time that it is our desire to use more parts of the bird in strategic ways to help mitigate the impact of bone-in wing price inflation, which we believe these have the potential to do, aside from the fact that they're just really, really good. That is in test currently.
As we look into 2021, we are in the works with some flavor innovation that we'd like to bring forward. Getting back on that rhythm of bringing a new flavor out to our existing and core guests as well as some new guests to introduce them to something unique and different. Aside from that is probably the entirety of our product development pipeline.
Thanks. As a follow-up, could you just give us a little bit of an update on the progress of the speed of service technology and where you stand today and potential timing of a further rollout? Thank you.
Yeah. Well, certainly the pandemic has changed the behavior of our guests in our restaurants. The necessity for social distancing and the assurances of a clean environment make it difficult for us to execute kiosks and the lockers that we had been working on. We've set those in pause mode for a period of time, but that doesn't preclude us from continuing to enhance the user experience from our online ordering and other investments in technology that we believe we can accelerate given our experience through this timeframe. For right now, our focus is safety, cleanliness, an environment where guests can easily get in, grab their food, and exit more so than some of the expectations we had previously.
Our next question comes from Jake Bartlett with Truist Securities. Please go ahead.
Great. Thanks for taking the question. Charlie, my question is about the performance of stores in markets where restrictions have eased. Is it correct to assume that sales would be lower in those markets? Conversely, as we've seen some restrictions come back, say in Illinois, should we expect the sales to improve in those markets? Just trying to understand the dynamic as we see sales decelerate a little bit, just trying to see whether it's really that consumers are kind of returning back to some in-store dining.
Well, there's no doubt that consumers are returning to in-store dining by nature of the fact that dining rooms are opening in other brands, and quite frankly, I'm thankful for that for them because we need our industry to continue to thrive. There is no regionality associated with our performance that I would call attention to in terms of markets that have or have not reopened. We're quite confident that reopening is not what is driving our business. We believe it has more to do with ease of access to our brand, quality of our product, and the fact that we're taking strong and very specific measures to protect our guests and our team members. If we saw any regionality, we would call that out, but quite frankly, our performance has been strongest even in emerging markets. We're excited by that.
Nothing specific to call out as it relates to dining room reopenings.
Okay. Charlie, in your comments just about the focus of your long-term focus, I'm kind of hearing loud and clear that you expect or that you're trying to maintain positive same-store sales. How confident are you that you can maintain positive same-store sales in 2021 as you lap the initial boost from the business during the COVID-19 crisis, these initial phases? Maybe in answering that, what kind of drivers would give you that positive outlook?
Sure, I'll go back to a comment I made earlier. We have over the years and continue to have a lot of opportunities to pull levers to grow our business. One of the fortunate realities of our strong top-line performance this year at over 25% same-store sales in the Q3 even, is that that is fueling a lot more dollars into our national advertising funds. Those funds are increasing at a similar rate, nearly 30% year-over-year if you include new development, which means that we're going to reinvest that money back into increasing awareness of our brand and also driving conversion of those guests by way of consideration to our brand. Those are primarily those heavy QSR users that have not or have limited occasions with Wingstop as we continue to drive awareness. That's one lever.
The second, as I mentioned before, is that we have not opened our dining rooms to this point. That represents about 20% of our total sales, and we believe that that's another great way to pull a lever. We're really thrilled with the partnership we have with DoorDash. In fact, just this last week, we introduced a free delivery promotion that was funded by DoorDash because of their confidence in our business in helping drive theirs. They're investing with us to, or investing in us, I should say, to drive the top line for both businesses. As we consider what 2021 looks like, there's no doubt we have some really high hurdles to jump. What we don't see in our business is a temporary increase here. What we see is a long-term sustainable type of algorithm, and that's been the history of Wingstop for a long time.
We're closing in on our 17th consecutive year of positive same-store sales growth. We do have the confidence to be able to lap even this performance next year.
Great. Thank you very much.
Our next question comes from Peter Saleh with BTIG. Please go ahead.
Great. Thank you. Charlie, I think you touched on this in the last response there, but on the ad fund, clearly you've had a ballooning of the dollars in the advertising fund. It does sound like you're able to defer some of the ad dollars that you earn in 2020 for 2021 spending. If that is the case, can you give us a sense of how much of the ad dollars you guys are pushing into next year versus spending them in 2020?
Yeah, I think it's important to note a couple things. Number one, we did not modify our approach to 2020, but we definitely do have increased dollars that we can defer, and in some cases have deferred into 2021. We also make our media buys strategically in the month of September usually, which means we've already made that buy. As I was mentioning levers, not only do we have the increased dollars, but we also have the benefit of being able to place those dollars at the time of year where we believe we're going to need them the most to be able to accelerate performance. As we close the year, we'll talk a little bit more about what that will look like going into 2021. It is safe to assume that we would redeploy our advertising dollars to the time frames that are most needed.
Great. Could I just ask on the decision to remove the volatility on the wings, can you just give us a little bit more detail on this? Is this a collar agreement that kind of caps the upside and the downside? Did you have to pay up front to get this? Any sort of details on that would be helpful. Thank you.
Hey, Peter. Thanks for the question. We're limited for competitive reasons as to what exactly we can share. I think the one thing I would point to is this is really more than anything, the byproduct of some really long-term strategic relationships with our supplier partners, and they know that we're buying wings year-round. We're not just jumping in and out of the market or buying frozen wings, but rewarding us for the long-term relationship we have with them. We're encouraged by their level of commitment to Wingstop to be able to offer this type of pricing arrangement for our brand partners and to minimize the impact of inflation. We're excited about it.
All right. Thank you very much.
Our next question comes from Jim Salera with Northcoast Research. Please go ahead.
Hey, thanks for the question. I just wanted to follow up on the free delivery promotion that you highlighted in the initial commentary. Could you remind us who actually pays the delivery fee that customers normally pay? If you could perhaps provide some insight on the stickiness that you experienced when you offered this free delivery promotion back in March and April, if you noticed that consumers that trialed it returned more frequently or any type of insight on how this impacted consumer behavior? Thank you.
Yeah. Good morning. Just for clarity, the guest pays for the delivery fee, typically. In this scenario with the free delivery promotion, the offsetting, the cost of that fee, if you will, is being borne by DoorDash. There's no cost to us or to our brand partners for that. That's a DoorDash-driven initiative. As it relates to stickiness, I think the consistency we've seen in holding our delivery mix since the pandemic started has been the best indicator of the stickiness of the promotion. It's still a little early. You want people to go through a few cycles to demonstrate stickiness, but all of our research would suggest that it's performing quite well.
Hey, Charlie, thank you. I've got one quick follow-up related to the bone-in chicken thigh test. You mentioned that just started recently. Could you give us an idea of the major markets that are being tested right now? We picked up menu additions in California, Colorado, and Georgia. I'm wondering if it's in every market you operate in or just a share.
What we can say is that it is in seven markets across the country.
All right. Thank you.
This concludes our question and answer session, as well as today's conference call. Thank you for attending the presentation. You may now disconnect.