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Habit Restaurants (HABT) Q2 2019 Earnings Call Transcript

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Update time : 2019-11-04 10:28:20

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Habit Restaurants (NASDAQ: HABT)
Q2 2019 revenue Call
Jul 31, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. Thank you although standing by. address to The habit Restaurants Inc. second-quarter 2019 revenue council call.

Please letter that this council is being recorded today July 31, 2019. above this summon today, we dine Russ Bendel, principal and main executive officer; and Ira Fils, main economical officer; Iwona Alter, main brand officer, is although well joining Russ and Ira although the Q&A section of the call. By now, everyone to dine access to the company's second-quarter 2019 revenue release. if not, it can exist upright at www.habitburger.com at the Investor Relations section.

Before the company begins their formal remarks, I want to remember everyone that the discussion today will include forward-looking statements. These forward-looking statements are no a oath of future operation and so you to no attitude undue reliance above them. These statements are although well apt to numerous risks and uncertainties that could effect authentic results to disagree materially from what the company expects. The company refers you to the tendency SEC filings although a more detailed discussion of the risks that could shock their future operating results and economical conditions.

Lastly, during today's call, the company will conflict non-GAAP measures, which they confide can exist useful at evaluating the company's performance. The presentation of this additional information to no exist considered at isolation or although delegate although results prepared at accordance with GAAP and reconciliations to alike GAAP measures are available at the company's revenue release. With that, I used to although to grow the council above to Russ Bendel. Please, face at ahead.

Russ Bendel -- President and main Executive Officer

Thank you, and good afternoon, everyone. I'll commence the summon with a concise overview of the second quarter, update you above our face at of becoming a total access brand, and part some thoughts almost 2019. although usual, Ira will then review our second-quarter economical results at more detail, too although review our 2019 guidance ago we blank the summon although your questions. With that out of the way, let's dive into our second-quarter results.

Total revenue increased 14.7% year above year, and our company operated alike restaurant sales increased 3.9% at the second quarter. Adjusted EBITDA increased 13% to $11.9 million, compared to $10.5 million at Q2 of 2018. Adjusted fully distributed pro forma net allowance was $2.4 million, or $0.9 per share, compared to an adjusted fully distributed pro forma net allowance of $2.2 million, or $0.08 per part although the second area of 2018. We're same pleased with our results although this area marked our fifth consecutive area of comp department sales increases and at 3.9% was our largest enlarge although mid-2016.

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In addition, we are level more pleased with how aggressively and efficiently we dine moved to supply total access to our customers at this ever-changing consumer environment. We made this pivot about 18 months ago. And although then, we've first -- from the beginning of 2018 along the goal of July 2019, we dine opened a total of 28 drive-thru restaurants, systemwide, which brings the total amount of drive-thrus at action today to 50, giving our customers the alternative to direction our great-tasting food without leaving their car. still our drive-thrus supply additional convenience to our guests, they although well broaden our space although latent sites.

Second, we've partnered with two different third-party delivery providers allowing our customers the capability to understand our great-tasting food without level leaving their house. so far, we've been getting large reviews from our guests and we've -- and we're seeing a higher refrain although delivery compared to our scan at or carryout business. although our off-premise business continues to grow, we confide offering our guests total access to our brand is simply an extension of our concentrate above providing large service and hospitality. Third, installed self-order kiosks into 14 of our restaurants allowing our customers a different and faster fashion to direction in-store.

On average, we're finding that about 8% of sales comes along the kiosk at our examination locations and we're although well experiencing a higher refrain medium although those orders placed along the kiosk. though it's still early, guests and team member feedback has been same definite and we are planning above expanding this examination to additional locations. Fourth, see sales along our recent online ordering platform and or mobile optimized Website undergo important -- experienced important growth with same department sales along this channel up 16.8% during Q2. Our customers clearly appraise the convenience of being capable to quickly direction their favorite dinner and dine it waiting although them at the pickup when they come at the restaurant.

And finally, above July 17th, we did a tender launch of our new customized mobile ordering app to total locations. We've been testing the app at three markets during the final six months and dine had large feedback from our guests and appearance dispatch to the nationwide launch aided by marketing aid during Q4 of this year. The mobile app will exist a large supplement to our growing online ordering sales channel. still we confide the best marketing is a large passenger undergo at a beautiful charge that compels nation to festival aid more often, this and total new digital channels will confer us a new platform to communicate with our guests regularly.

While we dine made large strides to invent The habit more convenient and accessible to our guests above the final 18 months, we still dine lots of upside to our business although we last above our digital transformation. Now moving above to one of my favorite topics, our food. at the second area of 2019, we continued to showcase our capability and appraise of our menu offerings. Our customers belief that we will supply a broad menu and are looking although more differentiated bolder flavors and items that they can no find at a traditional limited service restaurant.

Early at the second quarter, we featured our Guacamole Crunch Char Burger. This limited-time offer featured a chargrilled beef patty, crispy tostada shell, guacamole, pico de gallo, melted cheese, zesty ancho chili lime sauce, lettuce, tomato, pickles above a toasted sesame seed bun. More recently, we featured a Fresh Berry and Chargrilled Chicken Salad, which is a perfectly seasoned chargrilled chicken breast, fresh strawberries and blueberries atop of garden greens. This gaze summer salad is topped with toasted almonds, feta cheese and tossed at our house-made strawberry balsamic dressing.

In addition, we brought aid our Spicy Green Beans, which are gold crisp tempura battered green beans drizzled with house-made creamy sriracha lime aioli, then seasoned with a influence of seven-spice pepper blend. We've although well featured a delicious Oreo Cookie tremble and a Blueberry Citrus Mint Agua Fresca although a new crafted beverage although the summer. We confide we dine a large opportunity to farther innovate our drink menu and appearance dispatch to launch more seasonal drinks and shakes at the months to come. These different LTOs showcase the species of our menu, various menu tactic and the broad opportunities although food innovation.

We dine a healthy lineup of LTOs although the surplus of this year. And we confide that our innovation really drives differentiation being from The habit and our peers. We dine seen these items hold our menu fresh and last to acquire traction with our guests. Speaking of our menu, two of the restaurants we opened this area dine our new digital menus.

These new digital boards are a large fashion to highlight our seasonal LTOs, too although work above optimizing menu board traffic along design, manufacture positioning or menu mix to motivate profitability. Moving above to marketing, final week, we announced that we selected Innocean USA although our first agency of record to manage original and media. We're excited to work closely with the Innocean team, and we confide that together, we can mix the brand with our guests at new and meaningful ways. We invested at marketing ability by creating a new position, that of vice principal of digital marketing, and announced the supplement of Brandon LaChance although that role.

Brandon has deep restaurant industry and digital marketing undergo and will guide our digital marketing communications tactic including media and creative, too although oversee the digital passenger experience. We dine been implementing our digital-first strategy, and we'll last to concentrate above creating brand awareness. We certainly dine a fate to part when it comes to our manufacture innovation and brand that complements, such although being recognized although the best regional hasty food fasten at USA Today's 2019 Readers' option Awards. although we're evolving our brand tone at social and digital, we're although well working above targeting strategies.

We impartial completed a segmentation learn defining our heart passenger segment. Next, we're almost to dive into more qualitative research, which will allow us to sharpen the brand positioning and brand fiction we expectation to communicate to our guests. Switching now to development, during the second quarter, we opened four new company-operated restaurants. One of the four restaurants we -- one of the four restaurants we opened, two were -- of the four restaurants we opened, two were drive-thrus of which one was above the East shore and the other at California.

Of the two traditional stores we opened during the quarter, one was above the East shore and the other was above -- it was at California. Our franchisees although well opened three franchised licensed restaurants during the second area of 2019, including two at China and one at the Seattle market. The Seattle opening was the first drive-thru setting at that area. Speaking of franchise development, we're pleased to broadcast that we've signed two new franchise agreements.

One agreement calls although 25 units at Cambodia to exist developed above the next five years. The second agreement includes seven units at New Hampshire and Massachusetts above the next five years. We expectation both of these partners to blank their first locations at 2020. Currently, about 10% of our stores are franchised or licensed and we could look that amount enlarge above the next link of years to about 20% of our department foundation if we find the accurate partners.

We last to accept important advantage at the brand, besides during we'll last to exist selective and strategic at our future comrade selection. still we are excited almost the long-term opportunity to franchise, we are lowering our 2019 expectations although franchise development to seven to nine locations, down from 10 to 12, which we originally outlined late final year. This is due to delays at the Chicago market, although same sadly, the CEO of this franchise orchestra passed away. at addition, to our tiny franchisee at the Spokane, Idaho impartial terminated their agreement.

For 2019, we last to expectation to blank 21 to 23 company-operated locations. about 30% of those locations will exist above the East shore and almost two-thirds of those stores will exist drive-thrus. at the third quarter, we've already opened five stores, which brings our total to 16 locations so distant this year. With that, I'd although to grow the summon above to Ira to conflict our economical results at more detail.

Ira Fils -- Chief economical Officer

Thanks, Russ. Now turning to the results of our 13-week second area ended June 25, 2019. total revenue increased 14.7% to $117.9 million although the second area of 2019, compared to $102.9 million at the alike area final year. Our four new company-operated restaurants were blank at the -- we opened at the quarter, were opened although a combined 28 sales weeks.

Our other 230 company-operated locations were opened although a combined 2,990 weeks although the quarter. at total, the 234 company-operated locations were blank a combined 3,018 weeks at the quarter. although Russ mentioned, we are pleased with our sales trends during the quarter, although alike company-operated restaurant sales increased 3.9%. at breaking down the comp department sales increase, traffic decreased 2.5% offset by a 6.4% enlarge at the medium transaction amount.

As was the example at Q1, transactions at Q2 were negatively impacted by no repeating the liberate char burger promotion we ran at 2018. We appraise that transactions were negatively impacted by almost 50 foundation points. And excluding the shock of the prior-year liberate char burger promo, we appraise transactions used to dine been down almost 2%. during the quarter, we were carrying accumulative pricing of about 4.3%.

As planned, at the goal of can we took an medium 5.3% charge enlarge to assist offset the minimum revenue enlarge introduced above July 1 at the city of Los Angeles, too although to campaign the continued revenue strain we are seeing although a arise of a tight labor impartial along the country. The charge enlarge was higher at our California markets, which has been impacted the most by revenue strain and is less aggressive at our non-California markets. Now turning to expenses, although a percent of company revenue, food and article costs were 29.9%, essentially level compared to final year. although we face toward the goal of Q2, although we moved toward the goal of Q2 and so distant into Q3, we dine experienced some important strain although we confide to exist relatively short vocabulary at temper related to produce.

In addition, beef costs dine been slightly higher than we had anticipated although this time of the year. Labor-related expenses although a percent of company revenue were 33.2%, a 20-basis point lessen from the second area of 2018. The lessen was greatly driven by lower payroll taxes resulting from the California food attacks -- tax elimination at the goal of 2019 -- 2018. although the second quarter, our medium hourly appraise increased about 5%.

The enlarge at medium revenue was offset by charge increases and good labor productivity. The tight labor impartial combined with government mandated revenue increases although hourly employees continues to attitude upward strain above our labor costs. Occupancy and other related expenses although a percent of company revenue, increased about 160 foundation points to 19.1%. almost 140 foundation of this enlarge was due to higher third-party delivery costs, too although online and summon heart costs.

We although well experienced higher hire expend resulting from the let accounting measure ASC 842, which we adopted at the beginning of 2018. although a reminder, we began lapping the introduction of third-party delivery to our locations at the goal of the second area at 2018. Additionally, we scheme to enlarge marketing expend by about 25 foundation points at 2019 compared to final year. Our joint and administrative expenses increased about 775,000 or 7.9% to $10.6 million during the second quarter.

As a percent of total revenue, G&A expend decreased 60 foundation points to 9% although we were capable to leverage our 14.7% sales increase. Preopening costs were about 670,000 at the second area of 2019, compared to 646,000 at the prior-year quarter. although Russ mentioned, we opened four company-operated restaurants at the second area of 2019, compared to seven openings at the second area of 2018. We last to expectation pre-opening costs to mount among $100,000 and $105,000 per restaurant although 2019.

Net allowance although the second area of 2019 was $2 million or $0.09 per diluted share, compared to net allowance of $2.1 million or $0.10 per diluted part at the foregoing year. above an adjusted fully distributed pro forma basis, net allowance although the second area was $2.4 million or $0.09 per diluted fully distributed weighted medium share, compared to net allowance of $2.2 million or $0.08 per fully distributed weighted medium part at the second area of 2018. at condition of our liquidity and surplus part although of June 25, 2019, we had money and money equivalence of about $40 million and no debt. We expectation chief expenditures to exist among $35 million and $38 million ago the landlord contributions although the fiscal-year 2018.

Based above our growth plans, we confide money flow from operations and recent money above hand will exist sufficient to fund our chief needs although the next link of years. With regards to fiscal 2019, we are updating our full-year guidance although follows. We expectation total revenue to now exist among $462 million and $465 million, which is an enlarge from our foregoing guidance of $460.5 million to $464.5 million. We last to expectation alike restaurant growth of about 2.5% to 3.5% although the total year of 2019.

We now expectation our restaurant contribution edge to exist among 16.25% and 16.75%, a slender lessen from our foregoing guidance of 16.25% and 17% due to an enlarge at freight inflation pressure, which we expectation to exist up 3% to 3.5% although the total year. We last to expectation our medium revenue appraise enlarge will exist about 5.5% although the year. joint and administrative expenses are now expected to exist among $44 million and $45 million, which is down from our foregoing guidance of $44.5 million to $45.5 million. And although Russ mentioned earlier, we linger above explore to blank among 21 and 23 company-operated locations although the total year, and the franchisees are now expected to blank among seven and nine locations although the total year.

We last to expectation our depreciation and amortization expend to exist about $28.5 million although the year and we expectation advantage allowance to exist about $175,000 at 2019 although opposed to the $1 million of expend we saw at 2018. The distinction reflects the reform at let accounting which previously resulted at $1.1 million of advantage expend related to financing at 2019, which is now recorded at occupancy at 20 -- sorry, at 2018, which is now recorded at occupancy at 2019. And eventually our pro forma tax appraise we now expectation to exist among 28.5% and 29.5%. Additionally, I used to although to remember everyone that 2019 will include 53 weeks with the additional week at Q4 of 2019.

With that, I'd although to grow the summon aid above to Russ although some final remarks.

Russ Bendel -- President and main Executive Officer

Thanks, Ira. at conclusion, we confide that the initiatives that we attitude at attitude above the final 18 months are beginning to dine authentic traction, and we expectation to fetch this momentum dispatch throughout this year and beyond. We feel good almost where we situate and are excited almost the opportunities at front of us. Finally, I used to although to dine a few shout-outs.

First, to our inner I team -- IT team and the developers that dine worked so difficult at this transition to being a much more total access brand and thank the 6000 amazing teammates who worked extremely difficult each and each day. I used to although well although a especial thank you to the team members at Southern California that were using our fleet of ten habit catering trucks and served above 23,000 Disney throw members a delicious dinner at the Disneyland Resort at the Anaheim a few weeks ago. It was a same arrogant minute although us. With that, operator, we'd although to grow the summon above although questions.

Questions & Answers:


Operator

Thank you. We will now commence the riddle and respond session. [Operator instructions] The first riddle comes from Will Slabaugh of Stephens Inc. Please, face at ahead.

Will Slabaugh -- Stephens Inc. -- Analyst

Yeah. Thanks, guys. Wanted to beg first almost digital and then increased digital presence that you've made an pains to upright at the past three quarters. What dine you seen there at condition of passenger direct although they responded to your digital marketing, if it exist along ticket or transaction or impartial joint direct inner the restaurant, if there's anything to really say to there?

Russ Bendel -- President and main Executive Officer

Yeah. I'll allow Iwona confess that one.

Iwona Alter -- Chief brand Officer

Yeah. so two parts to the answer. when we appearance at the direct at our restaurants, specially those that dine the self-order kiosks, we definitely look that although a fashion that the guests fly standing at queue and address that additional convenience and their medium check, their purchasing direct points to them adding more items to their orders, sometimes upgrading the size, so we are definitely seeing a definite at condition of the medium check. although distant although our mobile app is concerned, somewhat of a although dynamic.

We feel that although much although the guests dine the time to appearance at the menu to follow it, they add things that they normally used to no fancy of although they impartial appearance at the menu board. so at both of those platforms, we are seeing higher medium checks, too although additional items being added that normally are no although frequent with over-the-counter orders.

Russ Bendel -- President and main Executive Officer

We although well think, Will, you know, still it's early stage with these new convenient tools although guests, we fancy it, desire term, certainly helps with queue abandonment potential.

Will Slabaugh -- Stephens Inc. -- Analyst

Makes sense. Thanks although that. And I had a riddle above trends although well. Obviously, you had a merry amount although the area at condition of same-store sales growth.

I was odd if you could address impartial a tiny sheet more almost trends you saw throughout the quarter, if there were things that caused things that -- caused your trends to spring up or aid down or if it was fairly stable at that relatively high-level throughout?

Ira Fils -- Chief economical Officer

Yeah. No. so although us, we had a same good quarter. You know, the first two months, definitely April and May, were a tiny stronger than June.

But I fancy that's really more a duty of final year. June was our best month of the year. And so impartial -- you know, the two-year stack above that was obviously a tiny tougher, so we did look -- we did see, relative to April and May, June did soften a tiny bit. We did look some volatility almost the fourth of July week, which the timing of the festival did no assist us.

And, you know, we're fortunate -- you know, if you exclude that week, we're fortunate with what we're seeing although we face into Q2.

Russ Bendel -- President and main Executive Officer

Yeah. We really feel, Will, that, you know, these initiatives that the team has worked tirelessly above above the final 12 to 18 months are really starting to appear results.

Will Slabaugh -- Stephens Inc. -- Analyst

Great. That's helpful. Thanks, guys.

Operator

The next riddle comes from Nicole Miller of Piper Jaffray. Please, face at ahead.

Nicole Miller -- Piper Jaffray -- Analyst

Thank you. Good afternoon. You talked almost your digital efforts and the consumer now being capable to face at control to you or more easily going control to you. so what carry out you fancy you country carry out a tiny differently to a passenger that comes control to you versus a digital or delivery passenger that goes indirectly along the marketplace to obtain to you?

Iwona Alter -- Chief brand Officer

Well, one of the main benefits that we are getting along having those digital platforms within our brand is that of communicating direct with the consumers and being capable to commence getting customized offers, messaging, being sent to them. so there's definitely the appraise of leveraging the existing consumer behaviors and getting them to festival more always and hold them engaged with the brand messaging.

Nicole Miller -- Piper Jaffray -- Analyst

Do you fancy that will exist more of -- clearly the most loyal guests I'd imagine. besides during carry out you fancy that country exist a consumer that's more value-oriented?

Iwona Alter -- Chief brand Officer

I really confide that it -- from what we look at our initial findings from the app engagement, these are our more loyal consumers and we dine no seen that appraise behavior. so at this point, it's really almost the more loyal ones that expectation to use with us at more ways than impartial coming to the restaurants.

Nicole Miller -- Piper Jaffray -- Analyst

That's same helpful. Thank you. The final question, you know, we're still fairly early, besides during getting into revenue season here and we've had a few of peers, and I used to say both at limited service and total service address almost volatility if not, you know, flat-out weakness at California and that used to exist friendly of periods along Q2 besides during although well area to date. What could you part with us, although well historically or currently, please, at condition of California?

Ira Fils -- Chief economical Officer

You know, I fancy -- you know, California although us is, you know, holding up relatively well, consistently with -- you know, really a tiny improve than -- a tiny improve than we were at June. Remember, June was softer than the total -- than the quarter. so it did festival down a tiny sheet at June and we definitely dine volatility almost the fourth of July holiday. besides during we're -- you know, we're pleased with where we're at.

I intend -- and when you confess a larger step back, Q3 we were rolling above our toughest comp area of final year and we're pleased with our commence so distant at Q3.

Nicole Miller -- Piper Jaffray -- Analyst

Thank you.

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