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Executives

Rebecca Gardy - Director of Finance & Investor Relations

Cheryl A. Bachelder - Chief Executive Officer, President, Director, Member of Executive Committee and President of Popeyes (NYSE:R) Chicken & Biscuits' Brand

H. Melville Hope - Chief Financial Officer

Ralph W. Bower - President of U.S. of Popeyes(R) Louisiana Kitchen

Analysts

Michael W. Gallo - CL King & Associates, Inc., Research Division

Michael Halen - Sidoti & Company, LLC

Mark E. Smith - Feltl and Company, Inc., Research Division

Kenneth Smith - Lenox Equity Research, LLC

Joshua C. Long - Piper Jaffray Companies, Research Division

AFC Enterprises (AFCE) Q2 2013 Earnings Call August 22, 2013 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the AFC Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Rebecca Gardy. You may begin.

Rebecca Gardy

Thank you, and good morning. This is Rebecca Gardy, Director of Finance and Investor Relations. AFC Enterprises is pleased to host this conference call regarding results issued yesterday after the market closed for second quarter 2013, which ended July 14, 2013. Today's audio presentation will be available on the company's website at www.afce.com. To listen to it, please go to the Investor Relations section and follow the links to Webcasts & Presentations. A copy of our press release and all filings with the Securities and Exchange Commission are also available on the website.

Before we begin, I would like to read the following forward-looking statements. Certain statements made on this call by AFC Enterprises' officers and employees regarding future events and developments and our future performance, as well as management's expectations, beliefs or projections relating to the future, are forward-looking statements within the meaning of the federal securities laws. We wish to caution investors to not place undue reliance on any forward-looking statements since these statements speak only to the date they are made. By their nature, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. These risks and uncertainties have been described in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

During this call, references may be made to the non-GAAP terms of company-operated restaurant operating profit, operating EBITDA, free cash flow and adjusted earnings per share. The company defines these terms as follows: company-operated restaurant operating profit is defined as sales by company-operated restaurants minus restaurant food, beverages and packaging, minus restaurant employee, occupancy and other expenses; operating EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization and other expenses or income net; free cash flow is defined as net income plus depreciation and amortization, plus stock compensation expense, minus maintenance capital expenses; adjusted EPS for the period presented is defined as reported net income after adjusting for certain nonoperating items consisting of: one, other income net; and two, the tax effect of these adjustments.

The company's full definitions, computations and reconciliations to GAAP measures of these numbers referenced for these terms are contained in our earnings press release that can be found on the company's website at www.afce.com.

Presenting on today's call will be our Chief Executive Officer, Cheryl Bachelder; and our Chief Financial Officer, Mel Hope. Cheryl is calling in from New York today. Here in Atlanta with me is Mel Hope, and we are also joined by Ralph Bower, President, U.S.

I would now like to turn the call over to Cheryl. Cheryl?

Cheryl A. Bachelder

Thank you, Rebecca, and good morning, everyone. As we reported in last night's earnings release, our momentum continued into the second quarter. Popeyes delivered another solid quarter of earnings per share growth, positive same-store sales and strong unit opening. Our adjusted earnings per diluted share were $0.35, a 30% increase over last year. Our system-wide sales increased by 11.6%, rolling over 11.5% in the second quarter last year for a 2-year growth rate of 23.1%. Our global same-store sales increased 4.4% compared to 7.5% last year for a 2-year second quarter same-store sales growth of 11.9%. We opened 44 new restaurants, adding a net of 28 to our overall footprint. At the end of the second quarter, we had 2,153 restaurants worldwide versus 2,049 last year. Operating EBITDA through the end of the second quarter increased 19% to $34.1 million from $28.6 million in 2012.

For the last 5 years, we've discussed the outcomes and activities associated with each pillar of our strategic roadmap. These pillars described the planned goals which are essential to sustaining the growth that we've set out to create for Popeyes.

Let me begin by addressing our first roadmap pillar building a distinctive brand. Strong marketing is critical to capitalizing on the distinctive culinary heritage of Popeyes. We have a vibrant pipeline of innovative new menu items, a compelling advertising message and continued strong media presence. We began the second quarter by promoting 3 of a Kind, which featured 3 different configurations of our Bonafide bone-in chicken and our Handcrafted Tenders, each for $3.99. We then offered Garlic Pepper Wicked Chicken and repriced our Popeyes Zatarain's Butterfly Shrimp. These promotions, supported by national media, led to domestic same-store sales growth of 4.3.% in the second quarter, marking our 13th consecutive quarter of positive results. On a 2-year basis, our domestic second quarter same-store sales growth was 12.7%.

In the second quarter, Popeyes' same-store sales growth outperformed the domestic Chicken-QSR segment for the 21st consecutive quarter. Our same-store sales growth also surpassed the QSR category by 3.7 percentage points for the comparable period, according to NPD Sales Track Weekly data. This represents the seventh consecutive quarter that we have outperformed the overall QSR category. The Popeyes brand is gaining market share. According to independent industry research, our share of the Chicken QSR category climbed to 20.5%, up 5.7 percentage points since 2008. In similar fashion, our brand-building efforts abroad resulted in Popeyes' international restaurants delivering positive same-store sales of 5.8% in the second quarter, marking the 14th consecutive quarter of growth.

Our second roadmap pillar, Run Great Restaurants, focuses on our goal of providing a restaurant experience that delights our guests. Over the last several years, we've reported 2 key metrics in this pillar: speed of the service at the drive-thru and our Guest Experience Monitor that we refer to as GEM. At the end of the second quarter, approximately 70% of Popeyes' restaurants were consistently achieving service times below 180 seconds at the drive-thru. Our GEM, which is our guest survey program, has been in place now for 5 years and has been a key driver of our operational improvement. GEM Delighted scores were approximately 61% at the end of the second quarter. Our guest experience is also being enhanced by the ongoing remodeling of our restaurant. The Popeyes Louisiana Kitchen image communicates our culinary heritage and keeps our brand fresh and relevant for our guests. At the end of the second quarter, approximately 40% of our domestic system was in the new image. We expect that approximately 60% of our domestic system will be in the new image by year end. On average, remodeled restaurants are enjoying a 3% to 4% sales lift.

The third pillar of our roadmap, Grow Restaurant Profits, reflects our vigilance in steadily enhancing the profitability of our franchise restaurant. As a result of Popeyes' strong sales performance and cost savings initiatives, franchisees reported average restaurant operating profit before rent of nearly $80,000 or 22% of sales in the first quarter of 2013.

As we indicated in our earnings release, commodity prices were flat for the second quarter versus year ago. For the full year 2013, we expect commodity costs to be down slightly versus the prior year.

The compilation of our second quarter restaurant P&L result will not be completed for another few weeks, but indications are that the trend in increasing profit dollars will continue due to our strong sales and moderating commodity inflation versus a year ago. We believe that delivering more profit dollars to our franchisees fuels their ambition to build more Popeyes restaurants.

So that brings me to the fourth pillar of our strategic roadmap, Accelerate Quality Restaurant Openings. Under this pillar, our development team's goals and tactics to support the Popeyes system in the selection of higher-quality real estate and to increase the pace of opening new restaurants. In the second quarter, we opened 29 domestic restaurants compared to a total of 13 the prior year. Internationally, we opened 15 new restaurants, up from 12 the prior year. The domestic freestanding restaurants built in 2012 are averaging annualized volumes of approximately $1.6 million compared to the domestic system average of approximately $1.2 million. This continuing trend reflects our selection of superior sites and the extent to which our brand-building efforts have created pent-up demand for Popeyes in new and under-penetrated markets.

In the second quarter, we opened 2 new company-operated restaurants, both located in Indianapolis, and we closed a company-operated restaurant in New Orleans. At the end of the second quarter, we had 47 company restaurants. We now expect to open between 8 and -- 8 to 10 new company restaurants this year.

Also included in second quarter openings were the conversion of 8 restaurants acquired in 2012 in Minnesota and California. Onetime fees associated with the conversion and franchising of these restaurants were approximately $1.8 million. Three acquired restaurants were converted and franchised in the first quarter and 2 restaurants were converted in 2012. We expect that the conversion and franchising of the remaining 13 acquired restaurants will occur fairly evenly over the balance of the year.

Let me take just a moment to comment further on our new restaurant openings in Minnesota. This was an area of the country where Popeyes had historically little presence. Our national advertising created pent-up demand for the brand, and the sites we were -- we acquired were in superior trade areas. We could not be more pleased with the customer response to our expanded presence in Minneapolis. While it's still early and often we see some leveling out of sales over time, our restaurants in that market are trending well above the national average sales volume and are exceeding our return expectation.

Moving now to international operations. We opened 15 restaurants in the second quarter, including 3 each in Turkey and Canada and 2 in Peru. The initial sales results of new international restaurants continue to trend higher than their respective market averages as a result of improved site selections and brand support.

Finally, our pillar of Creating a Culture of Servant Leader, this is all about growing our leadership capabilities so that we can deliver a legacy of consistent, superior performance. As we've indicated, we believe that Popeyes' greatest opportunity lies in creating a guest experience that is as distinctive as our food. In 2013, we're defining the critical elements that will become Popeyes' distinctive employee and guest experience. We're building the discipline, the tools and the processes needed for in-market testing, which will then be followed by a system launch.

With that, I'll now turn the call over to our CFO, Mel Hope, to discuss the financial highlights of our second quarter. Mel?

H. Melville Hope

Thank you. Good morning, everybody. It was a good quarter. Cheryl mentioned our team and our franchise operators continue to focus on our strategic plan and to deliver solid growth. In the second quarter, our adjusted earnings were $8.5 million or $0.35 per diluted share compared to $0.27 last year, that's an increase of 30%. Total revenues in the second quarter were $47.9 million versus $39.6 million in the prior year. Of these revenues, franchise revenues were $29.1 million, up nearly 20% over the prior year. This increase is the result of our same-store sales of 4.3%, plus revenue from newly -- new franchised restaurants and the franchise fees Cheryl mentioned, which are associated with the conversion of the restaurant properties we acquired in Minnesota and California. Our investment in our new company restaurants continues. We built 7 net new restaurants within the last 12 months and you can see their impact in our sales by company-operated restaurants, which rose to $17.5 million in the second quarter compared to $14.3 million in 2012. Additionally, company restaurant operating profit increased to $3.2 million from $2.5 million last year. The operating profit margins of our company restaurants were 18.3% in the second quarter compared to 17.5% last year. The improvement in the operating profit is in part due to the above-average sales volumes and profitability of our new company restaurants. Our guests are welcoming each new Popeyes in these market and their response is energizing all of our teams. Our second quarter G&A expenses were $16.8 million compared to $14.6 million last year. This increase was primarily due to increased investment and marketing support, new restaurant development and performance-based stock compensation. Note that in the last 2 quarters of this year, we expect to see our run rate on G&A increase as we continue to invest in the growth strategies of the company. In a moment, I'm going to touch on our revised full year guidance there.

Year-to-date, operating EBITDA grew to $34.1 million compared to $28.6 million in 2012. Operating EBITDA margin was 31.5% in 2013 compared to 31% last year. The 50 basis point increase was primarily a result of our same-store sales, the franchise fees associated with the conversion of the restaurants in Minnesota and California and our higher restaurant operating profit at company restaurants. Through the end of the second quarter, we generated free cash flow of $21.8 million compared to $18.2 million in the prior year. At 20.1% of total revenue, the company's free cash flow provides for strategic investment in our growth initiatives. Through the end of the second quarter, we've invested $15.8 million in various capital projects, including $6.1 million for the conversion of restaurants in Minnesota and California, $7.2 million for the construction of new company restaurants and $1.2 million invested primarily in reimaging of other company-operated restaurants. In the second quarter, the company also used $3.4 million to retire approximately 96,000 shares of its common stock. Through the end of the second quarter, the company has retired $8.4 million of common stock under the board's authorized plan of share repurchase.

I'm now going to wrap up our call with a little bit of a look ahead. First of all, with regard to depreciation and amortization, I want to emphasize again, as I did last quarter, that our depreciation and amortization expense will total between $6 million and $7 million in 2013, which reflects the acquisition and conversion of restaurants in Minnesota and California and the investment in company-operated restaurants.

On the topic of our credit facility, we're meeting with lenders with the intention of refinancing the company's credit facility. Our plan is to close on the facility no later than the fourth quarter to take advantage of low interest rates and a flexible lending environment.

With respect to our guidance metrics, given the strong sales performance in the first and second quarter, we are increasing our expectation of global same-store sales growth to 3.5% to 4.5%. As we continue on our strategies to deliver on long-term growth, we are also increasing our expectation of full year G&A expenses to a range of $73 million to $75 million. As a percentage of system-wide sales, our G&A expenses remain at approximately 3%, which is among the lowest and most efficient in the industry. As a result of new company restaurant development in the first half of 2013 and our pipeline, we now expect to open between 8 and 10 total new company restaurants this year.

We also want to reiterate the following guidance for 2013. New restaurant openings will be in the range of 175 to 195 new restaurants, and net restaurant openings will be in the range of 85 to 115. Included in the 2013 total openings are approximately 60 international restaurants. Our capital expenditures will be in the range of $24 million to $28 million, including the conversion of restaurants acquired in 2012 in Minnesota and California. We have an expected effective income tax rate of 37% this year compared to 36.3% last year. The company plans to repurchase approximately $15 million to $20 million in outstanding shares compared to $15.2 million of share repurchases in 2012. The company also reiterates adjusted earnings per diluted share guidance to be at the upper end of a range of $1.37 to $1.42 for fiscal 2013. Long term, the company believes the execution of its strategic plan will deliver on the following results: same-store sales growth of 1% to 3% annually; cumulative average growth in net new units of 4% to 6%; and cumulative average growth in earnings per diluted share of 13% to 15%.

So that concludes our prepared comments. Ralph Bower is here with me in Atlanta, and Cheryl remains on the line from New York. So I'll turn the call back over to Michelle to open the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mike Gallo of CL King.

Michael W. Gallo - CL King & Associates, Inc., Research Division

I have a couple of questions on international. Obviously, we've seen improved same-store sales. You've got GEM in place now. You've obviously been spending some G&A. How close are we getting to the point where we should start to see some pretty meaningful acceleration in the unit growth there? Do you feel more comfortable with the consistency of the operations and comps? Or are we still a couple of quarters away from that? Or help us with that -- with what you're seeing there.

Cheryl A. Bachelder

Mike, I think it's still very early in our international development story. To your point, we're definitely seeing the stronger sales as we get our brand well positioned in the markets where we compete. We're seeing improvement in operations. And just like we did in the U.S., we're kind of working across the pillars of our strategy, the most important being unit economics in international just as it is domestically. So we're seeing steady improvement, but I think it'll still be some time before we see rapid acceleration of new units because we really need those unit economics to work hard for the franchisees. So steady improvement and I think a good part of our long-term plan.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay, great. Then I just had one other question. The new unit openings, obviously, have been extraordinarily strong, particularly relative, not only at system average but even to what we saw a couple of years ago. I was wondering -- as you look at your box in terms of number of seats and kitchen equipment and all those things, whether you think you might have to rethink the sizes and the equipment package and all those other things, certainly with volumes opening 50% above what you've seen historically, I was wondering whether you think about whether the box is optimized or whether it's too small for a lot of the markets you're opening in.

Ralph W. Bower

Yes, I'll take that Cheryl. Mike, I think that that's a good question, and we have increased the size of our box in the last 12 months. We've gone from a 48-C prototype to a 60-C prototype and we're looking at a prototype that's even larger than that. We're also looking at back-of-house capabilities and expanding our capacity in back of house as well. Like you, we are very pleased with the success of our new restaurants, and we, too, think that we need to look to make sure that our box is maximizing our opportunity for sales.

Operator

Our next question comes from Michael Halen of Sidoti.

Michael Halen - Sidoti & Company, LLC

In terms of -- Mel mentioned -- you mentioned that you're looking to refinance by the fourth quarter of this year. Will you look to increase leverage at all?

H. Melville Hope

Mike, it -- for us, it depends on investment and growth initiatives, okay? So we'll have a facility that gives us that flexibility. And as we lever, it'll be for opportunities to grow the company. So that's -- that will be opportunistic.

Michael Halen - Sidoti & Company, LLC

All right. That's helpful. So in terms of the Charlotte and Indianapolis markets are being bought out. I know it's really early on here, but do you expect to eventually refranchise these markets? And would you be able to give any color on expected time frame?

H. Melville Hope

There's -- we go into these markets, Michael, with the plan to operate them as company restaurants and maximize the return as company restaurants. There's no going in exit strategy for those stores. That's certainly something that the company could do. But if and when we ever make the decision to do that, we want them operating so well that it's very -- that we get a premium price and that we -- and it's very hard for us to part with them, but there is no strategy to refranchise those markets.

Michael Halen - Sidoti & Company, LLC

All right, great. And you had mentioned, I guess, going back to my first question, that you're looking to maybe grow more rapidly? Are there any DMAs that you're looking -- additional DMAs in the U.S. that you're looking to grow out with company-owned stores?

Ralph W. Bower

I would say right now, there are not any additional markets that we targeted for company-owned stores. We think that there's a lot of opportunity still left in Charlotte and Indianapolis, but that opportunity is always there. One of the exciting things about our brand is the opportunity for growth domestically. We think that we have the opportunity to at least double in size. We're under-penetrated in almost every market in the country, so there are plenty of opportunities out there.

H. Melville Hope

In terms of the 2 company markets that we're building out now, there is a lot of opportunity in front of us to expand the number of stores. So I can tell you that right now, our heads are down and our hands are full with expanding those markets.

Cheryl A. Bachelder

Mike, the one other thing I'd add to your question about Charlotte and Indy is these markets are serving exactly the purpose we intended, which is we're proving out the high potential of the brand. We're building on great real estate. We're hiring great people. So these markets are really developing the story to encourage our franchisees to more rapidly build out the other priority markets in the country, and that's exactly what's happening today.

Michael Halen - Sidoti & Company, LLC

Great. And one last one. How is the Louisiana Kitchen brand being accepted internationally?

Cheryl A. Bachelder

The Louisiana Kitchen has to be explained internationally but so does the word, Popeyes. So the way we've launched it internationally is to create really great branding at the restaurant and in our marketing materials that explains why Louisiana matters. It explains all the incredible flavors and recipes that come from that region of the U.S. So there's an education attached to it, but no different than there would be the education of a new brand in any market. So it's off to a wonderful start, and we're creating very innovative and market-specific campaigns to tell that story in country.

Operator

[Operator Instructions] Our next question comes from Mark Smith of Feltl and Company.

Mark E. Smith - Feltl and Company, Inc., Research Division

First off, can you talk a bit about your commodity outlook, what you guys have locked on any contracts now and when those expire and what your kind of expectations are for bone-in chicken?

Cheryl A. Bachelder

We're expecting a good second half in bone-in chicken. I'll remind you they're very dependent on the corn market, which is still early in the season. But all indications are that it's moving very favorable for the second half, particularly compared to a year ago, which was the 100-year drought condition. So we think very good for the second half.

Mark E. Smith - Feltl and Company, Inc., Research Division

Okay. And then second, just can you guys quantify or discuss any more on new store metrics, what you're seeing on revenue, restaurant operating profit in the comp base?

H. Melville Hope

Are you talking about our company stores or the franchisee community?

Mark E. Smith - Feltl and Company, Inc., Research Division

No, really across the board, both company and franchisees.

H. Melville Hope

It's specific to site selection, but most of our -- Ralph, correct me on this if I get it wrong, but most of our new freestanding units opening throughout the system at least are opening on an annualized basis, that's about $1.5 million, $1.6 million in AUV. And when you are running those types of AUVs, your restaurant operating profits before rent are well over 20%, 22%, 23%.

Mark E. Smith - Feltl and Company, Inc., Research Division

Okay. You guys -- I think Cheryl had called out Minnesota with these new restaurants as being really spectacular. Are there other opportunities out there similar to what we've seen in that Minneapolis market?

Cheryl A. Bachelder

Absolutely. One of the reasons I called it out is because that's a market where we haven't been, so it tells you that our brand in its current healthy condition had huge pent-up demand. As we've mentioned in prior calls, we have 11 priority markets across the United States with very low penetration, if any, at Popeyes. And I think the Minnesota entry tells you the horsepower we have going into those markets.

H. Melville Hope

I think Cheryl is speaking to the pent-up demand in that market and it is -- I mean, well, Mark, you are there, so you know that it's exciting. In terms of the opportunity to duplicate that sort of transaction, I would tell you that's a -- that was a pretty unique transaction.

Ralph W. Bower

I think that what we see in Indianapolis and Minnesota though, does show the strength of our brand and how our customer demographics have expanded across the past 5 years. Indianapolis and Minnesota are areas of the country where, historically, Popeyes has had very little presence, and entering those markets for the first time and seeing the customer response that we've had where our average volumes far exceed our national averages really helps to show the potential of our brand domestically.

Operator

Our next question comes from Kenneth Smith of Lenox Equity Research.

Kenneth Smith - Lenox Equity Research, LLC

I wanted to ask you on those 2 markets you're talking about, Minneapolis, Minnesota and Indianapolis. About how many stores do you have in each? I'm just curious what kind of potential is there really just to get an idea of how far the -- how long that runway is just in those 2 markets.

Ralph W. Bower

Today, we have 6 restaurants in Indianapolis, and we think that there's an opportunity to have a lot more than that, probably like 3 or more times that many restaurants. In Minneapolis, we'll have 13 restaurants built before the end of the year and that market can probably be twice that size.

Kenneth Smith - Lenox Equity Research, LLC

Right. Okay. And then on the company expansion, I guess you've got 3 of those done now with the 8 to 10 you now indicating. So of the 5 to 7 that are remaining, are those going to be more in the fourth quarter than in the third? And are they far enough along that even if there's some slippage, will they actually get done then? The ones that don't occur this year, will they get done in early 2014? Or is there some -- are they not even that far along if there could be further slippage?

H. Melville Hope

They should be pretty spaced out through the balance of the year. And you're right, if there is slippage, and that's always something you think about, that they would open early enough next year that they contribute pretty much a full year.

Ralph W. Bower

Yes, I think the answer to your question is they are far enough along. We feel good about getting them open this year. Anything that did slip would be very early next year.

Kenneth Smith - Lenox Equity Research, LLC

Okay. And then one follow-up. The 2 that opened in the second quarter, were they open most of the quarter or just towards the end of the quarter? Just a little more color.

Ralph W. Bower

They were open at the end of the quarter. I think one had 1 week of sales in the second quarter and the other one had 5 weeks of sales in the second quarter.

Cheryl A. Bachelder

Operator, are there other questions on the line? It sounds like we're having a technical problem.

Ralph W. Bower

It doesn't look like there are any further questions, Cheryl.

Cheryl A. Bachelder

Okay. Thanks. As always, we thank you for joining us this morning and for your questions. We appreciate your continued support for our growing brand. We're going to be presenting at the CL King Best Ideas Conference on September 11. On September 17, we'll once again host an Analyst and Investor Day at our global support center in Atlanta. If you're interested in receiving information on this event, please send an email to investor.relations@afce.com. Our next call will be in November when we announce our third quarter results. We look forward to speaking with you then. In the meantime, this is our last call for Popeyes current promotion, Chicken Waffle Tenders served with Honey Maple Dipping Sauce. If you haven't tasted this unique combination, I encourage you to hurry in. It won't be there much longer. Thank you, and have a great day.

Operator

We do have question from Nicole Miller Regan of Piper Jaffray.

Joshua C. Long - Piper Jaffray Companies, Research Division

This is Josh on for Nicole. Definitely going out to get those Chicken Waffles right now. My question was on the cadence of sales through the quarter. Any sort of commentary there? And then, as we go through the back half of the year, you've had a very successful series of promotions. Anything in particular we should keep in mind as we go over from last year?

Cheryl A. Bachelder

Well, Josh, you're right. We have some strong comps we're lapping in the second quarter. Last year's third quarter was 6.8 up and fourth quarter was up 6.2. So we think our guidance to be ahead of that by 3.5% to 4.5% its strong performance, and that's what we're predicting.

Joshua C. Long - Piper Jaffray Companies, Research Division

Great. And then on the new unit guidance for the year, does that include opportunities to relocate units within a trade area? Or would those opportunities be incremental to the guidance? And then, any sort of commentary on the success or operations of units that have been relocated within a trade area?

Cheryl A. Bachelder

Our new unit guidance is only truly new units. We do selectively relocate units, and we've had some good success there but that has not been a primary driver.

Joshua C. Long - Piper Jaffray Companies, Research Division

Okay. And then on the investment and support services for -- on the G&A side, is that -- as we think about the incremental dollars spent there, is that going to be more people oriented? Is it going to be kind of split between that and say, incremental marketing? Just some more clarity on that, if possible.

H. Melville Hope

It's -- Josh, it's really across the board. It would be a blend of both people and project cost.

Cheryl A. Bachelder

Just to clarify, it does not include marketing expense, in terms of media and that type of thing, which is handled by our advertising fund. So to Mel's point, it would be investing in the people or project resources to continue our rapid expansion of brand and new units.

Joshua C. Long - Piper Jaffray Companies, Research Division

You're right. And I didn't mean marketing dollars but I was thinking about incremental people on the creative side or on the internal side, so I appreciate that color.

H. Melville Hope

All right. Well, thank you, everybody.

Cheryl A. Bachelder

Bye-bye.

Operator

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

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