Denny's (DENN) CEO John Miller on Q4 2015 Results - Earnings Call Transcript

| About: Denny's Corporation (DENN)

Denny's Corporation. (NASDAQ:DENN)

Q4 2015 Earnings Conference Call

February 17, 2016 04:30 PM ET

Executives

Whit Kincaid - Senior Director of IR

John Miller - President and CEO

Mark Wolfinger - EVP, CAO and CFO

Analysts

Mark Smith - Feltl and Company

Nick Setyan - Wedbush Securities

Michael Gallo - CL King Associates

Alton Stump - Longbow Research

Operator

Good day, ladies and gentlemen, welcome to the Denny's Corporation Fourth Quarter and Full Year 2015 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Whit Kincaid, Senior Director of Investor Relations. Please go ahead, sir.

Whit Kincaid

Thank you, Kathryn. Good afternoon. Thank you for joining us for Denny's fourth quarter and full year 2015 earnings conference call. With me today from management are John Miller, Denny's President and Chief Executive Officer and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer.

Please refer to our website at investor.dennys.com to find our fourth quarter earnings press release along with any reconciliation of non-GAAP financial measures mentioned on the call.

This call is being webcast and an archive of the webcast will be available on our website later today. John will begin today's call with his introductory comments. Mark will then provide a recap of our fourth quarter results along with brief commentary on our annual guidance for 2016. After that, we will open it up for questions.

Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided on this call.

Such statements are subject to risks, uncertainties and other factor that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 31, 2014 and in any subsequent quarterly reports on Form 10-Q.

With that, I will now turn the call over to John Miller, Denny's President and Chief Executive Officer.

John Miller

Thank you, Whit and good afternoon, everybody. 2015 was another great year for the Denny's brand. Our strong performance reflects the momentum generated by the brand revitalization initiatives that we launched in 2011. We achieved the highest same store sales in traffic growth in over a decade with gains in both remodeled and non-remodeled restaurants. The outperformance of our sales growth versus the family dining benchmarks demonstrates that we have the right strategies in place.

We grew our revenues and margins despite lapping at 53rd week and making significant investments in our brand support functions. As a result, we grew our key profitability metrics, adjusted EBITDA and adjusted debt net income per share 7.5% and 16.4% respectively. We are still in the early stages of our brand revitalization with about a third of our system currently reflecting our successful heritage remodeling program.

Despite what has become an increasingly choppier consumer and economic environment, we believe that we can continue to grow sales and profits as we seek to become a $3 billion brand before the end of the decade. We continue to return value to our shareholders through our ongoing share repurchase program as we increased our leverage target and accelerated share repurchases at the end of the year.

Our success depends on the execution of key initiatives in four key strategic areas which I want to now touch on. The first is to deliver a differentiated and relevant brand in order to achieve consistent same store sales growth supported by profitable gains in guest traffic. The success of our initiatives to enhance our food, service and atmosphere is evidenced by the system same store sales growth in 18 of the last 19 quarters.

We continue to evolve our menus to match our guest needs by responding to their desire for better quality of more favorable products. Since 2013, more than 50% of the core menu items have been improved through a combination of additions, deletions and revisions. And over half the Entrées we sell are breakfast Entrées regardless of the time of the day.

An advantage of our breakfast centered menu is the breadth, the value options for our guest. With operational complexities that make it difficult to replicate in other brands. We will continue to drive new offering food innovation and enhance our product quality while improving speed and consistency with an eye towards even bolder and more flavorful product enhancements.

Our limited time only menu strategy will continue to focus on a barbell news core strategy showcasing fewer; harder working premium products while also highlighting products on our core menu and 2-4-6-8 Everyday value menu.

Our latest menu called Extreme Skillets features fresh ingredients and bold flavors like the crazy, spicy and supreme green skillets. These are higher quality, more premium Entrées for all day parts providing perceived value as the starting price for the supreme green skillet is less than $8 in many markets. We continue to leverage our 2-4-6-8 value menu by highlighting a variety of 16 products on the menu.

Over the past 18 months we have changed 50% of the 2-4-6-8 menu providing more percent margin friendly products. Local and national media showcase popular products like the $4 Everyday Value Slam, the $6 Blueberry Muffin Pancake breakfast and the $8 Grand Slam Slugger. We are currently featuring the $8 Grand Slam Slugger on the menu and in commercials which provides a balance to our limited time only premium Skillet offering.

Our heritage remodel program further reinforces the improvements we have made today in our food and service. It is critical to our revitalization strategy and offers updated atmosphere with attractive return on investment for our franchisees. The program was launched at the start of 2014 after extensive testing with our franchisees and continues to get very positive consumer reviews and generate middle single digit range of same stores sales lifts.

While we completed over 200 remodels this past year, the fact remains that only 32% of the system has the enhanced atmosphere. This includes nearly 80% of the company restaurants as we have been accelerating remodels at company locations. But there were 200 more to be done in 2016 but we’ll end up this year with about 45% of the system and the updated image which includes completing almost all of the company restaurants.

Remodels will continue to be a significant tailwind for the brand over the next few years as we expect over 70% of the system to have a new image by the end of 2018. Our second key strategic area is to consistently operate great restaurants with a primary goal of being in the upper quartile of satisfaction scores of all four service brands.

Although significant improvements have been made today, many opportunities remain to realize these goals. Our overall guest satisfaction scores ended the year in the mid 70% top box overall satisfaction range. This is the highest point since we first started measuring in the system in 2011. Although we are encouraged by the results we have realized thus far, we recognize the need to continue to invest in our strategies to further evaluate the Denny’s experience.

Our investments in restaurant operations and training talent and systems to support our strategies will drive further improvements in the coming years. This includes our pride review program which allows us to measure and coach restaurant managers and their execution of our operating standards. Not surprisingly, we see better sales in operational metrics at restaurants with higher pride reviewed scores. After a year we are seeing steady improvements in scores and we’ll be conducting at least two visits each year with a goal of additional self evaluations and targeting coaching opportunities.

In addition to enhancing our training efforts, we are working to improve our speed of service especially during our peak periods. This includes our ongoing menu and service optimization work which supports our product development efforts. With each and every quarter we are getting better at delivering higher quality products, with more consistent service standards supported by our field training and coaching initiatives.

The foundation to these efforts is our mission to be a model franchise or in support in coaching towards running great restaurants and collaboration towards the achievement of franchise goals. This focus drives us to partner, listen, and share, refine and invite participation from our franchisees and virtually all brand strategies and initiatives. We accomplish this through Denny’s franchisee association and brand advisory councils which are led by Denny’s executives with leadership participation from Denny’s franchise association board members and at large member volunteers.

Our third key strategic area is to grow the global franchise in order to expand Denny’s geographic reach of domestic and international locations. Our growth initiatives have led to 366 New Year restaurants opening since 2009. This includes 40 international locations and represents nearly 20% of the system and makes Denny’s one of the top full service brands when looking at the number of gross openings.

We recently opened our first two restaurants in Dubai and signed new development agreements for Indonesia, the Philippines and Turkey. This brings our international pipeline to nearly 100 new restaurants. In the U.S. we have nearly 1,600 restaurants including 164 company operated locations with geographic concentration in the west coast, south west Texas in Florida.

In 2015, our strongest markets for new development were Arizona, Georgia and Wisconsin. We were pleased o open three new company restaurants in Wisconsin in partnership with Kwik Trip convenience stores, at the end of the year we look forward to opening our fourth location this week. Our strong performance continues to drive new interest in the brand as we have approved new franchisees entering the brand either through acquisition but there is gifting franchise through restaurants or new development.

Our four key strategic areas is to drive profitable growth for all stakeholders with the goal to grow margins and profits with a disciplined focus on cost and capital allocation, benefitting franchisees, employees and shareholders.

Consistent profit growth will be driven by growing our highly franchise business which provides a lower risk profile with upside from operating a meaningful base of high volume company restaurants.

Since completing our refranchising program in 2012 we have grown adjusted EBITDA of nearly 15% and adjusted net income per share over 60%. This leads to strong free cash flow generated with significant flexibility to support brand initiatives. Over the last five years we have generated $232 million in free cash flow after capital expenditures, cash interest and cash taxes.

Our continued growth and profitability will be driven by a combination of investments in our brand, in our company restaurants along with shareholder friendly allocation of free cash flow. We believe the acquisition of franchise restaurants is one way to enhance our company restaurant portfolio. So far, we have acquired six franchise restaurants including three this past year and we will continue to review opportunities as they come available. We take a long term view towards capital allocate ion, supported by our growing profitability and desire to return access cash to our shareholders.

Our share repurchase program began in late 2010 and since then we have allocated $240 million to repurchase shares. In closing, we remain focused on continuing the transformation of the Denny’s brand, the improvements we have achieved to date give us the confidence that we can continue to grow the Denny’s brand benefitting franchisees, employees and shareholders.

Our commitment is to execute and build a sustainable foundation to build a global brand. While consistently growing same store sales and expanding our global reach we will continue to grow the Denny’s brand while returning cash to shareholders through our ongoing share repurchase program.

With that, I will turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer.

Mark Wolfinger

Thank you, John and good afternoon, everyone. Our fourth quarter results were highlighted by growing domestic system wide same-store sales by 2.9%, growing adjusted EBITDA by 4.8% excluding the impact of the additional operating week in 2014 and generating $7.1 million of free cash flow.

During the quarter, franchisees opened 11 restaurants including three international locations. In addition, we opened three company restaurants in partnership with Kwik Trip convenience stores, acquired one franchise restaurant and refranchised one company restaurant.

Our system restaurant count increased by ten as four franchise restaurants were closed during the quarter. As a result, we ended the quarter with 1,710 total restaurants, including 164 company restaurants.

Denny's total operating revenue including company restaurant sales and franchise and licensing revenue decreased by 3.7% to $124 million, primarily due to the impact of the additional operating week in 2014.

Excluding this impact total operating revenue increased by 5.1% or $6 million. Domestic system wide same-store sales increased 2.9%, primarily due to an increase in same-store guest check. The increase in guest check average was driven by both favorable product mix and higher menu pricing.

Franchise and licensing revenue decreased by $2.5 million to $34.8 million primarily due to the impact of the additional operating week in 2014 and lower occupancy revenue.

Excluding the additional operating week, franchise and licensing revenue decreased by $100,000 as higher royalties were offset by lower occupancy revenue due to lease terminations.

Franchise operating margin of 69.9% of franchise and license revenue increased by 2.4 percentage points, primarily due to lower franchise general and administrative expenses.

Excluding the additional operating week in 2014, franchise and operating margin improved by four percentage points or $1.3 million.

Moving to our company restaurant. Sales decreased by 2.4% to $89.2 million, due to the impact of the additional operating week in the prior year. Excluding this impact, sales increased by 7.3% or $6.1 million primarily due to growth in same store sales, the opening of a new company restaurants including the full year impact of the Las Vegas Casino Royale restaurant, which re-opened in late 2014 and the acquisition of three franchise restaurants.

Company restaurant operating margin of 15.2% of company restaurant sales declined by 0.4 percentage points. Excluding the additional operating week in 2014, company margin improved by 0.5 percentage points or $1.3 million as higher sales and favorable workers compensation cost were partially offset by higher incentive compensation and commodity cost.

Total general and administrative expenses of $16.8 million improved by $500,000 compared to the prior year quarter, primarily due to lower share-based compensation. Excluding share-based compensation, total general and administrative expenses increased by $1.3 million due to additional payroll and benefits expenses and incentive with deferred compensation.

Adjusted EBITDA decreased by $2.6 million to $21.9 million. Excluding the additional operating week in 2014, adjusted EBITDA increased by $1 million or 4.8% compared to the prior year quarter.

Free cash flow after capital expenditures, cash taxes and cash interest was $7.1 million compared to $17.5 million in the prior-year quarter, due to higher capital expenditures. Capital expenditures of $12 million include the remodeling 14 company restaurants, the acquisition of one franchise restaurant and the purchase of a parcel of real estate.

During the quarter, we allocated $66.8 million towards share repurchases including the previously announced $50 million accelerated share repurchase agreement. And during the year we allocated $105.8 million towards share repurchases and returned a total of 8.5 million shares.

We ended the year with approximately $38 million and remaining share repurchase authorization. We ended the quarter with $215.7 million of total debt outstanding including $195 million under our revolving credit facility resulting in a leverage ratio of 2.45 times adjusted EBITDA.

And finally as stated in our earnings release we expect to liquidate our closed pension plan in the second quarter of 2016. As a result, we expect to record a onetime operating loss of approximately $24 million and to make a required contribution of approximately $9.4 million.

Let me take now a few minutes to expand on the business outlook section of our earnings release, which excludes and impact from the pension plan liquidation. Our annual guidance for 2016 anticipates growing same store sales at company and franchise restaurants while leveraging investments in the brand and our company restaurants.

We anticipate same-store sales growth between 1.5% and 2.5% at company restaurants and between 1% and 2% at domestic franchise restaurants. We anticipate that our first quarter same store sales will benefit by approximately 80 basis points due to holiday mismatches from the timing of New Years Eve and Easter falling at the end of March. In addition, we anticipate that our same store guest check will be higher in the first half of the year compared to the second half of the year due to rollover pricing and a higher product mix benefit.

We expect to open between 44 and 48 new restaurants including one company location in partnership with Kwik Trip convenient stores which is scheduled to open this week.

We also expect to close approximately 2% of system restaurants. We need to net unit growth of 5 to 10 restaurants. We anticipate commodity cost inflation this year to be slightly negative. We are currently locked in to approximately 60% of our needs for the year.

Same-store sales growth along with new company restaurants and lower commodity cost should drive the company margin to between 16%and 17% for the year. Likewise same-store sales growth in new franchise restaurants along with our higher percentage of restaurants contributing at a 4.5% royalty rate should lead to a franchise margin between 68.5% and 69%.

We expect general and administrative expenses to range from $64 million to $67 million which is similar to our 2015 level as a lower incentive compensation accrual will be offset by further investments in our brand support, personnel and systems.

Adjusted EBITDA expected increase between 4% and 7% excluding the impact of the pension plan liquidation, which will be recorded as an operating loss on our income statement. Adjusted EBITDA gross is expected to be partially offset by higher interest and depreciation expenses.

Our effective income tax rate is expected to be between 33% and 37% with cash taxes between $3 million and $5 million. Cash capital expenditures are expected to be between $18 million to $20 million as we complete approximately 25 company remodels, open one new company restaurant and scrape and rebuild another.

We expect to generate free cash flow between $59 million and $62 million and we will continue to allocate cash towards investments in our brand and company restaurants, but also returning cash for our shareholders through ongoing share repurchase program.

That wraps up our guidance commentary and I’ll turn the call over to the operator to begin the Q&A portion of our call. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We’ll go to Mark Smith with Feltl and Company.

Mark Smith

Hey, guys. First off, I just want to look at restaurant level margins. What’s your outlook for commodity basket in 2016 and I guess that was surprise, we didn’t see, maybe little more impact from commodities coming lower here in this quarter?

Mark Wolfinger

Hi, Mark. It’s Mark Wolfinger. So, a little bit on 2016, I mean, we – our guidance -- so we finish the year, let me go back 2015, we finished the year with 16.6% full year margin on the company restaurants. And again the first half of the year stronger than the second half of the year and as a reminder second half of the year obviously included impact on cost of goods because of egg prices.

The current guidance for 2016 for the new fiscal year is between 16% and 17% and we’re expecting the commodities we’re actually seeing a slight deflation effect in commodities. Again primarily due to the egg price change, but just as a reminder there, by the way we’re about 60% locked in on those commodities. At this point in time at 60%, but as a reminder we’ll probably see I would say a little bit of inflation coming about in the first of the year and probably the opposite direction with the second half for the years. But overall all we’re expecting the commodities would be slight negative or slight deflation effect in commodities this year.

Mark Smith

Initially, we expect you to say a kind of this roughly 2% kind of annual pricing.

Mark Wolfinger

When will we say it was that a question.

Mark Smith

You guys are been taken about 2% price increases, I think….

Mark Wolfinger

Right. So, we’re carrying some price inform from midsummer last year and we’re also carrying pricing from January of this year. So, I think we’re talking about around 2% in total annualized at this point in time. And maybe a little bit of positive mix benefit and that’s how we got to our comp sales guidance for both the company side and the franchise side.

And again I think what we’re seeing overall is well is in fact that the company stores obviously almost fully remodeled, so we’re continue to get that I’d say positive tailwind from the remodel effect. The franchise base continues to build, but as a percentage of total franchises clearly they are not even at 50% yet, the out years starting this year of 2017 and 2018 as far as fiscal years has been a lot of those franchise remodels we take in place.

Mark Smith

And then looking at the company base of restaurants it sounds like you’ve just got the one Kwik Trip, expected to do this year and one scrape and rebuild. Is there any reason maybe you don’t see any more maximum growth in the company side?

Mark Wolfinger

I think on the company side it’s interesting because obviously one the scrape and rebuild it’s a replace from an existing facility. We anticipate it will be a brand new prototype company operated. The Kwik Trip relationship, as we talked about that last fiscal year and having those four opportunities on the company side, we certainly excited about that new relationship. And as a reminder the first three opened in Wisconsin. Fourth is scheduled to open I think this week in Iowa. And those investments were sort of in that $600,000 to $700,000 range, so for a new store opening obviously that’s on the lower end, pretty similar to what the Flying J capital cost were.

On the company side the other thing that we’ve done that we, John and I both mentioned in our comment is that we continue to look at the acquisition of franchise restaurants. We’ve done a few those. Those have to fit strategically and geographically to where we have an existing company base and we’d got that span and control, but I think back to the base of your question. Again, a majority of new store development is going to obviously be on the franchise side of the business.

Mark Smith

Great. Thank you.

Operator

Thank you. Our next question will come from Nick Setyan with Wedbush Securities.

Nick Setyan

Thanks, guys. Can you maybe talk about what your thinking is on the labor line, because if we are going to see slight deflation there for the year, maybe even, maybe try to quantify the labor kind of get to those margins. And can you just also specify what the price versus mix was in Q4 and I guess you said, we expect 2% going forward, is that correct in terms of menu price increases?

Mark Wolfinger

Okay. So let me separate your questions in there, Nick, if I can. I think the first question was on labor cost and obviously pointed specifically towards our company portfolio.

Nick Setyan

Correct.

Mark Wolfinger

Out your way obviously we’ve had the minimum wage change in the state of California January 16, going from $9 to $10 an hour. And approximately I want to say a little bit less than 40% of our company’s store base that’s 40% to slightly under that is in California. So clearly we’re going to see wage inflation in the state of California in our company base. We’re also seeing other minimum wage changes but ultimately we’re going to see probably a little bit of pressure on the labor side of our business primarily led by the California minimal wage change.

And obviously it can flow back in a positive direction, obviously as wages increases that provide more spending in people pockets, so we’re certainly hoping for that as well. Can you come back to me and mentioned your second and third question?

Nick Setyan

Sure. Just on the menu and mixed in Q4 and what your thoughts on, I guess, menu you said, menu price we expect about 2% in Q1 and going for the full year we should think about 2% type of a run rate would impact?

Mark Wolfinger

Right, we’re seeing overall you’re probably going to have about 2%, I would say 2% GCA pricing exclude any favorable mix. In the fourth quarter you’ve got GCA increase the company restaurants which include about 2.1% of pricing, and we’ve got about 200 basis points of benefit from product mix in the quarter as well.

Nick Setyan

Got it. Thank you.

Operator

Thank you. We’ll go to Michael Gallo with CL King Associates.

Michael Gallo

Hi. Good afternoon and again congratulations on a good year. I have a couple of questions if I may. First I was wondering if you can give us any color as to what you saw in day parts outside of breakfast in the fourth quarter. Would you saw any change of kinds of items people are ordering or whether the remodels just kind of overcoming some of the general I would category malaise and discounting. And then also if you can update us on what you’re seeing in terms of 2-4-6-8 mix and we saw in terms of that go down as we went through 2015, I was wondering if you think it will be stable in that range in 2016 or whether you would expect 2-4-5-8 the mix a little bit higher this year. Thanks.

John Miller

Yes. This is John. Great questions. I’ll start with the mix, last we had about a 400 basis point mix change overall for 2015 that started in late 2014 which created a really good setup for the year. And so it resulted in full year of about little over sort of mid range 5.4% total. Guest check average change for the year, so it’s fairly significant, about 2.5% pricing, 400 basis points from 2-4-6-8 mix, strong premium LTO offers, so overall, a strong check building here we can see about 9.70 or somewhere in that change total check for the year.

So, daypart, it moves around a little basically with remodel this year, a little bit of a different thing going in the company stores we’ll now call it 80% remodeled by the end of the year. You’re getting nice traffic lift primary a dinner from those remodels. But on the full brand performance, fourth quarter is kind of the story of the year; our strongest performing daypart was breakfast, followed by lunch, and the softest daypart overall is late [ph] night at present time.

We like the fact that we have a 2-4-6-8 value menu that we can lever when we need it because we’ve finished a strong one year and two year traffic trend in the brand with a little deceleration in the fourth quarter, again going over the big mix change from fourth quarter 2014. We sort of kicked off this year with our scale promotion and as mentioned in my comments, a little less emphasis on 2-4-7-8 value menu in the early part of the year, and in spite of that this is kind of value season, so you’re starting to see customers automatically sort of come back to that value menu post holiday.

But that’s with a skillet promotion the customer is all with a high awareness sort of chasing the value menu. So it looks like the leverage we had before we are working, we don’t want to drive, check too hard at the moment. Again, we have the higher price going into first half of the year. We think 2% is about right for the full year, and as Mark mentioned a little while ago, our guidance for 2016 is about 2%, a little higher pricing front half of the year, but the mix story for 2016, I think this is the final part of your question, what happens to 2-4-6-8, we think it’s going to be a little more flattish and stable and that 15% to 16% range, but we still expect mix benefit for 2016 just through premium LTOs call it maybe 50 basis point to make some LTOs on a full year.

Michael Gallo

Great. And then just a follow-up question from Mark. I was wondering how much of the cash CapEx this year do you expect related to the remodels and should we assume that that CapEx as you complete the company store remodels just kind of rolls off as we get to 2017 or is it too early to make that conclusion?

Mark Wolfinger

Well its -- we usually speak the guidance for 2016, so I won’t say it’s too early but specifically to your question for 2016 I think we built in around 25 remodels to be sort of pretty much wrap up the company base Mike, we’ve got a few company stores that we’re want for make sure, we understand the property control challenges there, but let’s call it around 25 remodels that wrap that up. Another stores have been running mid 250, 260, 275,000 per, so call it 6 million to 7 million range maybe for CapEx on those remodels. And then clearly that numbers drop off each for the last few years, obviously this number is lower than the previous year.

On 2017, we really haven’t spoken to that. The only thing I can say to that is obviously as we wrap up heritage and we bring that to conclusion, we’ll continue to test the next remodel phase that albeit from a company store base standpoint, our remodels we virtually complete by the end of 2016.

Michael Gallo

Any sense whether it’s just a tail on the overall maintenance CapEx spend as you’ll have obviously just remodel the whole system over the last few years?

Mark Wolfinger

Well, that’s a really good point and I think as we look at it still, I mean we continue to sort of model internally and we’ve talked about this external number that maintenance capital tends to run, call it around $25,000 to $30,000 per unit excluding a pro rata approach on remodels, clearly our CapEx is down significantly in 2016 as far as guidance versus what 2015 was.

One of those pieces that tends to float in and out is whether we go out and acquire a parcel of real estate, or we require franchise store that still is out there and obviously that needs to make sense for us. But ultimately as we go through and remodel these company’s stores we are doing the front of the house, we’re completely remodeling the restaurants, so really down to the studs, redoing the rest rooms and in some cases obviously going into back of the house as well, so we’re making sure that these facilities really do look great by the time we’re done.

Michael Gallo

Thank you.

Operator

Thank you. [Operator Instructions] We’ll go to Alton Stump with Longbow Research.

Alton Stump

Thank you. Good afternoon. Sorry if I missed it -- actually a few minutes late to the call this afternoon, but I’m sure buybacks for now obviously you guys stepped up your buyback pretty meaningfully in 2015 versus prior years, maybe color guidance you could give me as to how you expect that’s a trend, let’s say in 2016, 2017 versus what you bought back last year?

Mark Wolfinger

Alton, it’s Mark. I’ll tell you, we obviously that number that sort of sticks out big time for this year is almost a $106 million of buyback in the current year 2015. Again that ASR agreement is not finalized. We anticipate that that will finalize I’ll say towards mid year timeframe. Beyond that, I think is both John and I said in our comments we are certainly committed from the standpoint of use of free cash flow. In addition to investing in our brand and our company stores as well is we are certainly continue to be committed to the share buyback and returning value to stakeholders. So we haven’t given specific information about the second half for the year beyond the ASR. But we’ll certainly give more light to that as we go through the first and second quarter.

Alton Stump

Excellent. Thanks Mark. And then I guess just more from a fundamental standpoint, obviously you guys have made a lot of great changes to your menu, updated a lot of new products over the last four or five years. Any color inside as to sort of what major categories, actually don’t want to tell us what is coming, but as what major categories that’s maybe looking at your product innovation over the next say, 6, 12 months?

John Miller

I think it’s fairly boring to talk about, but exciting from an internal perspective when you go to the product cuttings you see people excited about taking same or like products and upgrading them, but to an external message it sounds rather plain, it’s really more of the same. We look at breakfast, lunch, dinner and late night appeal. Then we look at our seniors, juniors, kid’s appeal, then we look at beverage appeal and we make quarterly adjustments to each that’s founded by fairly extensive consumer intercept research and competitive comparison data.

So, we continue to strengthen our overall taste quality and overall satisfaction scores for speed, variety, breath [Indiscernible] taste and preference, all of the above brand management tools you can deploy and we are really excited about our lineup for 2016.

Alton Stump

Got it. Thanks John.

Operator

Thank you. We’ll go to Will Slabaugh with Stephens.

Unidentified Analyst

Hey, thanks guys. It’s actually Billy [ph] on for Will. John, you had mentioned earlier that on the fourth quarter the breakfast daypart was actually the strongest daypart and I just wondered -- could you remind us what the breakfast food mix is? I mean by that I mean necessarily breakfast food consumed in the morning hours, but in total and whether or not you’ve seen any significant change over the last couple of years, maybe more specifically over the last few months or so as we’ve seen one of the major quick service players shed a lot of light on all day breakfast offerings?

Mark Wolfinger

Yes. We like the advertising. The breakfast is about the daypart which is not your question about 25% of the sales, 24% of the sale, but breakfast items as they mix all day are sort of in the mid 50s. So at breakfast it might be 82% or 85% or any given day what we say and dinner items maybe low at breakfast daypart but all long it’s a little over 50% of our sales.

So it’s a significant part of our business. On the other hand, call it 45% or higher of our customers come in at all dayparts and don’t want breakfast items, so we get it both that’s why we really like the Americas dinner positioning and the ability to give creditability to the uses of our brand beyond breakfast, and the two are dancing together really well with the additions of whole grain rice, 7-grain bread, fresh vegetables, salmon, additional steaks, diner items like pot roasts and other items that are in test. So they are playing a role.

So while they don’t move the mix from breakfast, they improve the overall appeal of the brand by having more credibility for non-breakfast items. This was noticeably absent a few years ago, where we come for breakfast and then stomach the rest of your menu and now people are saying you are really good all way around. So that’s really the change. So I wouldn’t expect, nor would we want to see the breakfast mix percent change but rather a satisfied customer for all menu items.

Unidentified Analyst

Right. Thank you. That’s helpful. And just real quick if I could. With regards to the comp in the fourth quarter, would you be willing to give any insight into the cadence of how that progressed throughout the quarter and maybe along with that whether or not there are any notable geographic callouts in your opinion.

John Miller

Yes the geography is really more notable than the cadence, October was the softest of the three, but November, December played out pretty level. They weren’t materially different, so it’s the normal retail pattern of ascending towards the holiday, so nothing surprising there. The geography you really had California, Hawaii, Washington, Oregon where people felt a little more prosperous I think. There is higher job growth, maybe a little bit more growth in disposable income over the last 15, 18 months. And little to no threat of the sort of near term decline and it is softer where people feel as prosperous in the mid-west and parts of the east coast and parts of New England.

So there was and then parts of Texas, the small markets in Texas in particular had some material declines in traffic, so overall Texas was still a positive state for us, we have quite a number of restaurants there but it was about 250 basis points behind the brand average. So, still positive but softer as a result of the economy there.

Unidentified Analyst

Great. Thank you, that’s very helpful and congrats on a good year.

Operator

Thank you. And with no additional questions, I’d like to go ahead and turn the floor back over to management for any additional or closing remarks.

John Miller

Thank you, Kathryn. I’d like to thank everyone for joining us on today’s call. We look forward to our next earnings conference call in early May to discuss our first quarter 2016 results. Thank you and have a great evening.

Operator

Thank you. And again ladies and gentlemen, that does conclude today’s conference. Thank you all again for your participation.

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