Sonic Corporation F2Q08 (Qtr End 2/29/08) Earnings Call Transcript

| About: Sonic Corp. (SONC)

Sonic Corporation (NASDAQ:SONC)

F2Q08 Earnings Call

March 25, 2008 10:00 am ET

Executives

W. Scott McLain – President

J. Clifford Hudson – Chief Executive Officer

Stephen C. Vaughan – Chief Financial Officer

Pat Watson – Corporate Communications

Analysts

Joe Buckley – Bear Stearns

Howard Penney – Friedman, Billings, Ramsey & Co.

Steven Rees – J. P. Morgan

Adam Beading – Merrill Lynch

Dean Haskell – Morgan Joseph & Co. Inc.

Nicole Miller-Regan – Piper Jaffray

Larry Miller – RBC Capital Markets

Chris Donaghey – Suntrust Robinson Humphrey

Mitch Slicer – Buckingham Research

Operator

Good day and welcome to the Sonic second quarter conference call. Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Pat Watson. Please go ahead, sir.

Pat Watson

Good morning, everyone. This is Pat Watson with Corporate Communications. Sonic is pleased to host this conference call regarding results for the second quarter of the company’s fiscal year 2008 ended February 29, 2008. These results were issued yesterday afternoon. Today’s audio and video presentation may be accessed at the investor section of the company’s website, www.sonicdrivein.com.

Before we begin I would like to remind everyone that management’s comments in this conference call that are not based on historical facts are forward-looking statements. These statements are made in reliance on the safe harbour provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risk. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statement. Some of the factors that could cause or contribute to such differences have been described in the news release issued yesterday afternoon and the company’s annual report on Form 10K, quarterly reports on Form 10Q, and with other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

Lastly, I would like to point out that management’s remarks during this conference call are based on time-sensitive information which is accurate only as of today’s date, March 25th, 2008. For this reason, and as a matter of policy, Sonic limits the archive replay of this conference call webcast to a period of 30 days. This call is the property of Sonic Corp. Any distribution, transmission, broadcast, or re-broadcast of this call in any form without the express written consent of the company is prohibited.

With those announcements I’ll turn the call over to Cliff Hudson, the company’s chairman, chief executive officer, and president. Good morning, Cliff.

J. Clifford Hudson

Good morning, Pat. Good morning to all of you on line. We appreciate you being with us this morning. We’re very pleased to report to you our second fiscal quarter ended February and the positive results there, the positive indications of our ongoing performance of our business. As you know now, the earnings per share for the second quarter improved 15% versus same quarter a year ago and at six months 13% EPS growth versus six months a year ago. So we’re pleased with that performance.

Also as you know, the second quarter restaurant level operating margins improved 57 basis points. We’ll talk more about that a little later in our presentation.

Good transition in the business, 12% increase in operating income for the second quarter and 11% for the six months. Good momentum for the business from our standpoint. And ninth foundation as we move into the stronger half of our fiscal year.

When we look at the things that have driven that historically and continue to do so, our view of our business is that it really is driven by multi-layered growth strategy. This is something we’ve communicated for years and it continues to evolve the nature of it does. And in spite of a number of industry challenges that we’re seeing – higher commodity costs, increasing minimum wage rates, and frankly a tougher consumer environment than we’ve seen for years – in spite of those industry challenges and in that context we continue to provide solid same-store sales and earnings growth rate in our system. We’re pleased to report that today.

With the multi-layered growth strategy we’ve talked historically about the method in which we drive sales method which will improve operations, but I think also it becomes apparent that the use of our capital or efficient use of our capital is playing a stronger role than it has historically. The combination of these strategies will continue to drive solid earnings per share growth and in addition, from our view point, strengthen our brand for years to come.

So let’s talk a little bit about some of these initiatives and what makes up this multi-layered growth strategy. As it relates to the past quarter, the sales driving initiatives that we have in place continue to focus on differentiated service and products. I think they are each, the service and products, well differentiated versus our competition.

The recent launch of our new coffee program, this is something that we’ve been rolling out summer into fall and at this point have it, in the month of February, had it rolled out for the entire system. In March we came on with system wide, or I should say national cable support of it. So it’s a fully launched program that includes hot and ice lattes. And the most popular of the elements of the coffee menu are the job of chiller. That is the one that is fortunately our most highly prized of the group and our biggest seller. As I mentioned, March is the first month where we have an actual cable backing this.

We also have rolled out with some date part initiatives Cinnasnacks that should compliment, have complimented the coffee very well, but again a product that is differentiated versus what our competition have, but one that compliments these other initiatives like coffee. The coffee products, combined with our Happy Hour promotion, really should put us in the position, put Sonic in the position where we continue our attempt to become the ultimate drink stop for our customers and should just continue to build that versus where we’ve been historically.

The higher, the good thing about this multi-layered growth strategy that we have as a company is that these higher sales that we continue to achieve also yield higher royalties, which for us as a franchisor in a way exceeds what our peer franchisors would be experiencing because of our unique ascending royalty rate. So another element of our multi-layered growth strategy that’s a really nice picture for us.

In addition to that, another layer of our growth that continues nicely is the investment by our operators, our partnership drive-ins as well as franchisees, in retrofits, investment in rebuilding or relocating drive-ins that may be older and need to be relocated, and then new drive-ins, existing as well as new franchisees investing in the new drive-ins. So this aspect of our business continues to grow as well.

In addition, the improved processes and tools that we’re putting place for our operators to better manage food and labour costs have helped mitigate some of the cost pressures that we have been seeing and result in improved restaurant and operating margins. So this again, another part of our multi-layered growth strategy and continued moving the business forward.

I would say in terms of those layers, and finally the tender offer that we completed last year in which we purchased then and since then about a third of the company, or repurchased about a third of the company, this was very creative to earnings and will continue to create shareholder value for a number of years to come. So this is also something that in this multi-layered strategy that we have we’ll continue to have a very positive impact for our shareholders. A combination of them will provide positive benefits in the near term, but also in the long run.

So with the combination of a number of the initiatives that drive same-store sales you see that we’ve reported for the second quarter, second fiscal quarter, same-store sales of 3.2%. So as we’ve communicated historically aiming to a 2% to 4% comp store sales range, obviously we fell well within that at 3.2%. And it’s included prior to track a 2.6%, something we’re very proud of and very pleased with to have traffic growing in the manner it did through the quarter and continues for our business.

Despite a slow start in December, which was really largely the result of adverse weather conditions in a number of our markets, so despite that slow start in December the sales and traffic really rebounded nicely during the remainder of the quarter so that we did have this positive traffic and positive sales for the quarter.

Our partner drive-ins had a solid same-store sales increase as well. It was 2.3%. Still within that 2% to 4% range.

The franchise drive-ins did outperform the partner drive-ins. The franchise drive-ins had 3.4% same-store sales increase for the quarter. So it does reflect a number of things, not the least of which is the franchise drive-ins getting on many of the initiatives that our partner drive-ins have had for a couple years or more. Things like the retrofit, in particular, but also other initiatives being implemented at our franchise drive-ins. So franchise drive-ins now picking up from a comp-store sales standpoint.

I should also say that with the implementation of Happy Hour last November, so coming into full effect in the quarter we finished February, that the discounting that we have experienced with the Happy Hour program has had a disproportionate impact on partner drive-ins. The reason for that is 45% of the system had Happy Hour before we implemented it system-wide. Forty-five percent was already utilizing it. But that 45% was all franchise drive-ins. So it means more than half of our franchisees were already using Happy Hour and it was already implicit within their costs. But our partnership drive-ins only picked that up in November and moving forward, so the discounting results from that had a disproportionate impact on our partner drive-ins. So that also having impacted in this quarter.

Traffic, as I mentioned, has continued to grow nicely. I mentioned a moment ago that the growth in traffic for the quarter 2.6%. The Happy Hour really is a continuing, is a strong driver of that and continued to drive both sales and traffic, particularly during the afternoon. Happy Hour only during the afternoon. Our breakfast program also is a big contributor to net growth being our fastest growing day part for our brand. You could also say that with a lower than average check during those non-traditional day parts that sales from growth in check grew at a smaller rate with those day parts being larger contributors to our growth in sales and traffic.

Last quarter we talked more explicitly about menu price analysis than we have historically because of the impact of several of our increasing costs, particularly labour and the menu price increase we had taken. So I think it makes sense, this quarter we wanted to provide some similar information to the degree that we would not have historically and may not going forward depending upon what those pressures are.

Going into the second quarter our gross menu price increase averaged 6% at partner drive-ins. So clearly we have a level of detail and data about our partner drive-ins that we don’t have in the same degree for franchise. But going into second quarter our gross menu price increase averaged 6% at our partner drive-ins.

Our Happy Hour promotion and our emphasis on sales during non-traditional day parts results in lower than average checks when compared to lunch and dinner. The discounting from Happy Hour initiatives and the change in the mix associated with the Happy Hour initiatives reduced the net effect of pricing by approximately 3.5%. So in January we also then rolled over 1% of the pricing resulting in a year-over-year net increase in pricing with approximately 1.5% for the quarter finished February.

Looking to the third quarter, we have now rolled over the 1% price increase implemented last March. So as a result, the net impact of pricing for the third quarter would really be kind of flat to 1%. And then looking forward we’ll evaluate what we need to be doing from a pricing standpoint because in July we’ll have the next round of the federal minimum wage and as that takes effect we’ll be giving guidance to our operators across the system and how they ought to be thinking about that.

So this is something we’ll continue to manage, I think, effectively in our business. We’ll communicate with you as appropriate, but we think that additional level of detail perhaps warranted in the circumstance because of the unusual challenges will be on a broad basis, not just Sonic, but confronting as it relates to labour and commodities.

Now looking forward also was the sales driving initiatives. We continue to focus on driving same-store sales and driving level profits. This has been a focus of ours for years and continues to be for the benefit of our operators across the system.

We’ll continue to focus on alternative day parts with new products like the Cinnasnacks, coffee, etcetera, that we have recently been promoting. We’ll also be continuing to focus on media expenditures, this year spending roughly $190 million with almost $100 million of that going to national cable advertising. The increase is roughly 9% increase over fiscal 2007. So continuing elements to drive our business looking forward.

The national cable strategy that we’ve had for several years continues to be beneficial for our brand and raising overall brand awareness, particularly as we develop new markets, but also in attracting new franchisees to the brand. This consistent increased media support helps list sales really in all day parts, but particularly morning, afternoon, and evening. The initiatives that we have there should continue to pay off for the non-traditional day parts as they move to make up roughly half of our business.

In addition, there are several other sales drivers that continue to show good results in many of our markets and I think will continue to as we roll these out across the system. Like the retrofit. Scott’s going to talk more about that in a few minutes, but that is clearly having a positive impact on sales growth as well as some more qualitative things about the consumer’s view of our brand.

In addition to that, the electronic signs that we have been implementing in many of our drive-ins across the system, multi-message capacity by day parts throughout the day, we now have that in almost 800 drive-ins, somewhere between 20% and 25% of our system at this point. So the flexibility that gives us for promotion at site by day part is really very helpful.

The addition of drive-thrus to many of our drive-ins and the refinement of our drive-in business is a really serious contributor to sales growth, so these are also initiatives that will continue to help our business. And for the drive-ins in our system, they are implementing a number of these initiatives. Sales and traffic continue to be very strong, so this is something we obviously continue to sell and assist. Our operators across the system will continue to expect more drive-ins and more markets will reap the benefit of them as we roll these out in the coming months and, certainly in the case like the retrofit, over the coming years.

So if you think about our business going forward, we’re mainly focused on driving sales and development, both new stores and re-investment of existing stores. Both for this fiscal year and also for the long run. We really have confidence in this multi-layered growth strategy that we’ve had in place for a number of years and continue to divine, or refine, I should say, and we are confident we will continue to produce good, consistent results for our business and in turn then for our shareholders.

Some of the factors of the macro-economic environment which we’re operating, increasing commodity costs and so on, will have impact on us. There is no way to avoid that. But we also feel like our multi-layered growth strategy is designed to grow sales stores earnings over the next several years and should put us in a better position than many of our competitors for dealing with these macro-economic issues.

With 21 years of positive same-store sales growth our view is that we now remain on track to complete another, so 22nd year, of solid growth and we look forward to sharing that with you as the year progresses.

I’d now like to turn it over to the president of our franchising operations, Scott McLain.

W. Scott McLain

Thank you, Cliff. We did have another active quarter on the development front that included not only an increase in new drive-in openings, but also continued momentum in both retrofits as well as the relocation and complete scrape and rebuild of existing drive-ins.

Our franchisees opened 29 new drive-ins during the second quarter versus 22 a year ago. They also completed 14 relocations and rebuilds versus nine a year ago and 200 additional retrofits.

For the first six months of the fiscal year 70 new drive-ins opened compared to 66 in the prior year with 60 of those franchise and 10 partner owned. We also completed almost double the number of rebuilds and relocations during the first six months with 31 this year versus 16 a year ago. We expect to complete a total of between 60 and 70 rebuilds and/or relocations this year, up significantly from last year’s record 43 locations and rebuilds, which itself was more than double the average of the previous few years.

Now we don’t count relocations or rebuilds as new store openings, but they do require a new drive-in to be built and they’re probably our highest ROI activity routinely generating sales increases of greater that 25%. Were we to count these as new stores it would add roughly 2% to our overall system growth rate.

During the first six months of this year we completed 479 retrofits, including 402 by franchisees, which puts us somewhat ahead of our expected pace of 750 to 850 for the year. Over 35% of our system now has the new look and we should be close to 50% by the end of the fiscal year.

Now the fact that many of our existing franchisees are devoting a considerable amount of their resources to retrofits and relocations does tend to constrain new store openings a bit the short term. However, prospects for increased new drive-in openings going forward continue to be strong as evidenced by our growing pipeline.

Our ADA commitment stood at 939 at the end of the second quarter; a 60% increase from the beginning of fiscal 2007 and a 41% increase from the same period a year ago. Typically it takes three to five years for all drive-ins under an ADA commitment to open as new stores. A large portion of the growth in ADAs came from new franchisees and with continued strong interest in new markets we expect our ADA commitments to grow to over 1,000 at some point in the next several months.

You all will also recall that we sold 481 development options last summer, which gave our existing franchisees the right to open under the more favourable number six licence agreement any time in the next five years. So when you consider the development options on top of record ADA commitments the committed portion of our pipeline is significantly stronger than at any time in our history.

Now the increase in ADA commitments is all well and good, but we don’t start recording revenue until the drive-in actually opens. What was encouraging in the first half of this year was we began to see the increase in ADA commitments move further down the pipeline towards increased new drive-in openings.

As of the end of February we had 207 projects under contract; a 22% increase over the same period a year ago. Typically it takes 10 to 12 months to go from under contract to a new drive-in opening. We also began the third quarter with 43 new drive-ins under construction, which puts us in position for solid openings this quarter and with strong forecasted fourth quarter openings we believe we’re on track to open 155 to 165 new franchise drive-ins this fiscal year.

The performance of new drive-ins overall continues to be strong with average opening volumes now approaching $1.3 million; roughly 30% greater than what we were seeing just three to four years ago. Volumes in the six new states and many new markets that we’ve opened over the last 18 months have been even stronger, averaging roughly $2 million in sales. Our new drive-in in Waretown, New Jersey, for example, which opened in November, has already surpassed $1 million in sales.

In several cases we’ve also begun opening additional drive-ins in these markets with no significant impact in performance from either the initial stores or the newer drive-ins. We ended the second quarter with just under 3,400 total drive-ins in 35 states from coast to coast. As we’ve mentioned in our last call, we’ve also sold territory in five additional states and we’re well on our way to becoming a truly national brand.

It’s now my pleasure to turn the call over to Steve Vaughan, our chief financial officer, for his remarks on our financial performance in the second quarter.

Stephen C. Vaughan

Thank you, Scott. We’re very pleased our multi-layered growth strategy continues to drive consistent earnings growth. As Cliff mentioned earlier, the corner stones for this strategy are billed around low single-digit same-store sales growth, our unique ascending royalty rate, additional operating leverage at both the store level and from the bottom part of our income statement, and strategic use of our balance sheet and strong cash flow for share repurchases and franchise acquisitions. We believe the combination of these elements can consistently produce earnings per share growth in the mid to high teens over the long term.

Despite the challenges of cost pressures and weakened consumer sentiment in some markets, during the second quarter these elements combined to produce earnings per share of $0.15, an increase of 15% over the comparable quarter last year excluding special items.

Same-store sales at our partner drive-ins were solid during the quarter increasing 2.3%. Partner drive-ins have a large percentage of our package of sales driving initiatives such as the retrofit, electronic message signs, and the implementation of extended hours. While these initiatives have produced strong results we have seen the more challenging consumer environment, particularly in our Florida market, impact our same-store sales at partner drive-ins disproportionately.

During the quarter same-store sales at partner drive-ins would have been about one percentage point higher excluding the 30 comparable drive-ins in Florida. We are continuing to work on various initiatives to boost sales in these more challenged markets. Looking forward we continue to expect that we can achieve same-store sales growth in the range of 2% to 4% during the second half of the year.

New drive-in openings continue to perform well, evidenced by our average unit volumes for partner drive-ins increasing 3.2% for the quarter. I would also add that effective March 1st we acquired 11 drive-ins from a franchisee. These drive-ins have average unit volumes slightly higher than our partner drive-in average and we expect they will add roughly one percentage point to our overall revenue growth over the second half of the fiscal year.

Our franchising income, including franchise fees and royalties, increased $3.5 million during the quarter. This increase reflected accelerated new store development, solid growth in same-store sales, as well as the positive impact of our ascending royalty rate. Our royalty rate increased by approximately 21 basis points during the quarter. This increase was driven by a unique ascending royalty rate, as well as almost $1 million in incremental franchising income from the licence conversion which we implemented last April. Since incremental franchising income has relatively less associated cost it was a major factor in our earnings growth for the quarter.

Franchising income is expected to grow in future quarters and we continue to anticipate $13 million to $15 million in incremental franchising income this year.

Despite higher prices for several commodity items as well as higher labour costs resulting from the July increase in the federal minimum wage, drive-in level margins improved by 57 basis points during the second quarter. This improvement came from the combination of the benefit of price increases taken during the last year and leverage from higher sales offset somewhat by the increased discounting associated with Happy Hour.

Persistent increases in commodity costs coupled with the discounting impact of Happy Hour will continue to result in higher food impacts and costs as a percentage of sales. While we will continue to receive the benefit of the summer price increase it will be largely mitigated by discounting associated with our Happy Hour program. This lower rate of growth in pricing should be partially offset by leverage from higher sales volumes, but will likely constrain our ability to continue to improve margins at the restaurant level over the second half of the year.

Our overhead costs, including both SG&A and depreciation and amortization, increased approximately 11% during the quarter. Our depreciation grew at a slightly higher than anticipated rate due to the additional shortening of lives related to our retrofit. We anticipate these line items will continue to grow in the 10% to 12% range during the second half of the fiscal year.

There were a couple of other items in our second quarter results that I would like to bring to your attention. First, you will note that we had a $4.8 million debt extinguishment charge last year in the second quarter related to our tender offer and debt financing. There was no similar charge this year.

Also, our income tax rate was 36.5%, considerably higher than the 29% rate from the second quarter of last year. The lower rate last year was the result of the retroactive reinstatement of the worker opportunity tax credit program. Over the second half of the year we expect the tax rate will be in the range of 37.5% to 38.5%, but will continue to vary from quarter to quarter as individual tax matters change.

Our earnings per share continue to benefit from our tender offer last fall as well as our subsequent share repurchases, including $12.2 million in the first quarter and $20 million in the second quarter. We have now repurchased over $610 million of stock or almost 32% of our company over the last six quarters.

During the first half of the year the accretion from our share repurchases added roughly $0.01 to our earnings per share growth and should continue to be accredited particularly in the latter part of the year.

For the year we expect our share repurchase activity to add $0.04 to $0.05 per share to our earnings, which will increase our earnings per share growth rate to four to five percentage points. As of the end of the quarter we had $25 million available in our revolving credit facility and expect our positive cash flow in the second half of the year will provide additional available capital. We would expect to continue to use these funds opportunistically, including acquisitions of additional franchise drive-ins or further share repurchases under our remaining share repurchase authorization of approximately $10.4 million.

Looking forward we remain confident that our multi-layered growth strategy should allow us to achieve earnings in the range of $1.10 to $1.12 per share in fiscal year 2008 and we continue to expect that pursuing this strategy can produce earnings growth in the 18% range over the longer term.

Looking to the third quarter I would remind you that we benefitted from a large gain which resulted from a franchisee purchasing the real estate underlying some drive-ins on which we had previously sold the operations. However, we should still be able to show solid growth from our performance of a year ago, which was $0.31 per share.

With that we’ll conclude our prepared remarks and be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. The question and answer session will be conducted electronically. (Operator Instructions). We’ll go first with Nicole Miller from Piper Jaffray.

Ms. Miller, your line’s open, please check your mute button on your phone.

Nicole Miller-Regan – Piper Jaffray

Okay. Can you hear me okay now?

W. Scott McLain

Yes, Ma’am.

Nicole Miller-Regan – Piper Jaffray

Okay. Great. Thank you. Sorry about that. I’m travelling today.

Two quick questions. First on Happy Hour initiatives. If we were to think about a group of franchisees, I know a number of them if not all of them had Happy Hour for a number of years. If we were to think about that versus a company store or the company stores that haven’t had it what would be the percentage of mix, (inaudible) mix in Happy Hour sales? And then, what would be a normal AUB gap that we could think about between the two based on Happy Hour?

Stephen C. Vaughan

Nicole, we don’t, I don’t have those numbers in front of me. I will tell you that when we looked at that several months ago there was a fairly significant overall gap in sales. I don’t have the exact number, but it was not just a few thousand dollars. It was in the range of I think $50,000 plus.

W. Scott McLain

And as part of the ongoing process it analyses different as partnership drive-ins versus franchise and what are franchisees doing that as things that our partnership drive-ins could mimic and pick up fairly quickly. So there are other things that we have pursued in addition to Happy Hour, but clearly that’s one of the reasons we did pursue it.

J. Clifford Hudson

The other thing that I would point out is that while many franchisees already had Happy Hour what they didn’t have was they didn’t have significant marketing behind happy hour. So even franchisees who have executed Happy Hour for a number of years are seeing a benefit from the system-wide marketing of Happy Hour over the last several months and we would expect that really to accelerate through the warmer months during which we sell a lot more drinks.

Nicole Miller-Regan – Piper Jaffray

That’s very helpful. Thank you. And then if I have this right, I think the incremental price increases rolls off in July. What do you plan to do at that point in time with prices?

J. Clifford Hudson

Well, the earlier statement that I had offered was that we’re continuing to assess the impact of the July minimum wage increase and communicate with operators across the system, I think as we have done in the past. We would communicate to the market what we have done as we have done that rather than in anticipation of it. But I think that when you look at the impact of the increased operating costs from the labour, we will have no choice but to look at what flexibility we have from a pricing standpoint.

Nicole Miller-Regan – Piper Jaffray

Okay. That’s all I had this morning. Thank you very much.

Operator

We’ll go next to Steven Rees with J. P. Morgan.

Steven Rees – J. P. Morgan

Hi. Thank you. So I think your old restaurant level margin guidance for the year was flattish, just slightly down. If you look at the performance over the last two quarters that would mean (inaudible) I just wanted to know, does that assume some lower level pricing that you embedded in your model or is there something specific else that’s specific on the cost side that’s driving that.

W. Scott McLain

You faded out at the end, Steven. Could you repeat that?

Steven Rees – J. P. Morgan

Yeah, I guess, just, what’s baked into your model in the second half? I mean, have you assumed a lower level of pricing based on your comments about restaurant level margins being (inaudible)?

W. Scott McLain

Yes, we have assumed the, as Cliff walked through, the pricing will be between flat and 1%. That’s through June. And then at that point we’ll revisit our pricing. But we have assumed that we will not take an additional price increase before July.

Steven Rees – J. P. Morgan

Okay. And then just on a commodity side, can you talk about what’s locked in, what you’ve done with dairy as you move into the summer months?

W. Scott McLain

Sure. As you know, our largest single item is our syrups. They go into our fountain drinks. That’s on a long-term contract, so those continue to be locked in with kind of inflation-level increases. Our next largest item is beef, which we’re on a month-to-month contract there. That makes up about 12% of our food and packaging costs. Dairy costs, which really have two components: cheese and ice cream mix. We have locked in a portion of our cheese through, I think it’s through the month of June. It is up pretty significantly year over year. However, there’s been some recent movement in the cheese market. We do anticipate it will continue to be up year over year until July. And then once we’ve laughed over the large increase we took last July we actually should be slightly favourable with cheese. Ice cream mix has actually moved and is now favourable year over year. So that’s been somewhat more favourable. You drop down to chicken, I think it’s about 10% and it’s locked in through 2009, flat year over year. There are a couple of smaller items that actually are having a bigger impact on us right now. Soybean oil and then our bread. Costs are going up. So we still continue to face some pretty significant commodity cost pressures. But I think as you look towards the fourth quarter we’ll be laughing over where some of those pressures started kicking in next year. But really it will be next year before we probably see some pretty significant relief.

Steven Rees – J. P. Morgan

Okay. And then just finally on the coffee, can you talk about where that is today as a percentage of sales and where you saw that go in test markets where you tested the program and if you saw any subsidiary effects on your breakfast sales when you promoted coffee.

W. Scott McLain

We haven’t discussed that information publicly and don’t plan to at this point.

Steven Rees – J. P. Morgan

Okay. Great. Thank you very much.

Operator

We’ll take our next question from Chris Donaghey with Suntrust Robinson Humphrey.

Chris Donaghey – Suntrust Robinson Humphrey

Good morning, guys. Scott, first question, just as a follow up on the price increase. Are you all testing a price increase right now?

W. Scott McLain

No, not at our partner drive-ins. Our franchisees obviously have the flexibility to price as they choose, so we do have a number of drive-ins at different prices. But we don't have a “test” under way in terms of pricing.

Chris Donaghey – Suntrust Robinson Humphrey

Do you typically test price increases before you roll them out to the partner drive-ins?

W. Scott McLain

Well, we asses what’s going on in a market place in terms of our competition. So from that standpoint we see what you might say the market will bear. But it’s not in a process that let’s put this price out there and see what happens and then pull back with a plan to pull back based on consumer reaction.

Chris Donaghey – Suntrust Robinson Humphrey

Okay. Okay. That’s fair. Steve, my next question relates to the restaurant level margin as well. I can’t find a time during the past several quarters when the restaurant margin, excluding minority interest, was up and minority interest as a percentage of sales was down. Is this, was there something unusual going on this quarter or should we consider modelling this a different way going forward?

Stephen C. Vaughan

No. I don’t think there’s anything necessarily unusual. It had more to do with the mix of partners that come in and out of the drive-ins from time to time. But generally speaking, the minority interest does move in the opposite direction. So it would go down if margins in the other three line items went the opposite direction. But this quarter you’re right, it was a little bit of an anomaly.

Chris Donaghey – Suntrust Robinson Humphrey

Okay. Okay. That’s fair. And Scott, how many of the partner drive-ins are using the ideal food cost system?

W. Scott McLain

All of them.

Chris Donaghey – Suntrust Robinson Humphrey

Okay. On average, how large is the gap between the theoretical and actual?

W. Scott McLain

That’s not something that we really talk about publicly. But it is, what I will say is that it is a tool that is helping us manage our food costs. And we are, Mike Perry and his team are working aggressively to make better use of that tool and we’re also working to expand that to our franchisees, as well. So it’s one of the ways that we have available to us to help deal with higher commodity costs.

Chris Donaghey – Suntrust Robinson Humphrey

Was there a meaningful benefit, thought, this quarter?

W. Scott McLain

Yeah. I mean, I think it was meaningful. It’s hard to quantify exactly what it was, Chris, but we definitely have seen drive-ins that are utilizing it have had better results than drive-ins that are not utilizing the program.

Chris Donaghey – Suntrust Robinson Humphrey

Okay. And then last question. Scott, during the quarter I think labour costs were down for the first time in over a year. Did you make any adjustments to the way that you’re scheduling or any of the deploying labour?

Stephen C. Vaughan

You know, I think we have been, this is probably an area, and this is Steve, by the way. This is an area where the partnership program has been a big benefit to us. Our partners, if they see some of the other cost pressures that we’re facing, have adjusted their labour accordingly and we’ve been working to give them additional tools to manage that. But it is something that we’ve focused on very aggressively over the last several months.

Chris Donaghey – Suntrust Robinson Humphrey

Do you expect a roll out of a system, I know at one time you guys were talking about some sort of theoretical labour system. Is that something you could potentially roll out in fiscal 2009?

Stephen C. Vaughan

Well, the company stores actually have a labour system which they utilize and it has, like the ideal food costs systems, been very beneficial to them. As with the ideal food costs, we’ll look to expand that throughout our system.

I think we are taking steps to try to manage labour, but at the same time the hallmark of who we are as a brand is our customer service. So we want to make sure that we’re giving good service and not just cutting back on labour at the expense of the customer.

Chris Donaghey – Suntrust Robinson Humphrey

Okay. Great. Thanks, guys.

Operator

And we’ll take our next question from Joe Buckley with Bear Stearns.

Joe Buckley – Bear Stearns

Thank you. I have a couple of questions. First on the differential on the partner driving same-store sales and the franchisee’s same store sales. Talk about the impact of the retrofits. I would have guessed with the partner drive-ins more than 50% done and the franchisees just a little more than 25% done we would have seen those numbers the other way with the partner kind of stronger.

W. Scott McLain

Joe, one thing to keep in mind is that a number of those partner drive-ins have lapsed their first 12 months of having the retrofit. So really you get that bump in sales the first 12 months. So we’re starting to get to the point where I think you have about the same percentage of franchise drive-ins that are benefitting from the retrofit on both the franchise and the partner side.

The other thing I would point out is, in my commentary I alluded to the fact that in some of our markets we have seen a little more challenging consumer environment and our franchise drive-ins, we have a lower percentage of those that are in markets like Florida where our partner drive-ins have a higher percentage of drive-ins and it does, we do seem to be seeing a little more impact in some of those more challenged markets.

Joe Buckley – Bear Stearns

Okay. And then a question on the developing versus core. I realize you’ve partially answered my second question at the same time, but there’s a disparity between the core comps and the developing market comps has widened considerably over the last couple of quarters, particularly this quarter. Could you just talk a little bit about that? You talk about the new unit drive-ins being so strong, in particularly some of the newer states. How does all that reconcile with the developing market comp being down four-four?

J. Clifford Hudson

Well, Joe, this is Cliff. In addition to the point that Steve made a moment ago with impact of a state like Florida on our partnership drive-ins, the differential that’s there. In addition to that, newer markets are less likely to be getting the benefit of some of the initiatives that we’re rolling out, at least getting the benefit right now. Specifically, when you look to the retrofit the retrofit begins, we begin the roll out of that more in core markets. Those are older markets and markets that are more in need of the retrofit from a physical standpoint in terms of a face lift. So the earlier roll out there occurs. In some ways on the surface you can look at that and say that’s a, you might say a negative story or a downside. In fact, what I think it is is a positive statement about the effects of these various initiatives like the retrofit. Another initiative like that, the coffee roll out program. Where do we start with the roll out of the coffee program? We started with core markets. We’ve got to stage it over time because of the equipment. What else does that mean? Well, you put the equipment in and then you back it with local marketing. What else does that mean? Well, it means core markets are getting the benefit of it and new markets are not getting the benefit of it until when? Until March. We roll it out in January-February. Does a new market have the local dollars for marketing? Probably not. Particularly not in the winter. So what do they wait for? They wait for March when we have system advertising of coffee.

So this whole series of initiatives that we have in this point of time have been more impactful on core markets because the opportunity for the roll out of those in new markets will occur over time as well. That should give you the confidence though that as we roll out that it has a very positive impact on sales and profitability.

Joe Buckley – Bear Stearns

Okay. And just one last one. With the coffee program have you seen the specialty coffees purchased more in the morning day part or the afternoon day part or some combination thereof?

J. Clifford Hudson

We have the sale of the coffee items throughout the day, all day parts. We have seen in terms of some disproportionate impact, it’s not that we sell more coffee at breakfast, believe it or not, but it does seem to augment the breakfast hours in an indirect sort of way more positively. But we are selling those items all day, of course, with the things like the Java Chiller that adds the soft serve whipped in with the espresso. That’s a little less of a morning drink and folks are more likely to participate from Noon on with that one. But it helps all day parts.

Joe Buckley – Bear Stearns

Okay. Thank you.

Operator

We’ll take our next question from Rachael Rothman with Merrill Lynch.

Adam Beading – Merrill Lynch

Good morning. This is Adam Beading (sp) in for Rachael. Just a quick follow up on developing markets. Maybe looking forward a little bit more. What are your expectations maybe for the first fiscal quarter of 2009 as developing markets start to lapse some of the recent negative comps? And more broadly, could you address any possible implications of these results for further growth? Thank you.

J. Clifford Hudson

Well, as we go forward there are some things that are working you might say at odds from that standpoint. Those that have had negative comps will be going over clearly different numbers than there were the year before. At the same time the newer markets, the newest markets that have opened with colossal, wonderful, colossal meaning fantastic, new market, new store openings will also be looking at a disproportionate right down 12 to 24 months after their opening. That’s inevitable and it’s historical and predictable. So some of this as you look to new markets it’s going to be a potentially, because you have a larger base there and because they’re more impacted by openings and new store openings, etcetera, it’ll be a little more bumpy ride along the way when you look at this in the aggregate than when you look at our core markets, which will be much more predictable and steady.

So the shift will continue to, the mix, rather, the mix will continue to shift. And so it’s not going to be as predictable as simply looking at a single new market that’s now laughing a negative comp.

Adam Beading – Merrill Lynch

Right. What’s your sense as we go into 2009 for maybe the blended impact of that? Kind of net up or net down?

W. Scott McLain

Well, I think one of the things that we have consistently seen, although I acknowledge the second quarter was a little bit of an aberration, but we’ve consistently seen average unit volumes grow in developing markets. And sometimes if you look at average unit volume it can take away some of the swings that come from the factors that Cliff was talking about. But while we do have a couple markets that seem to be more challenged than others because of economic conditions in general, as we roll out the initiatives to these new markets we fully expect to see the same benefit in those as we’ve seen in the existing markets where we’ve already rolled them out. So I think overall the prospects for developing markets from our standpoint continues to be quite strong.

J. Clifford Hudson

Yeah. I didn’t touch on that a minute ago in terms of I think you asked about impact on development. If you think about a new store or new market where costs are somewhat consistent with the system, costs of a new store development, if that store opens at $2 million or more there’s a lot of flexibility in how far that store can ride down in the second year in terms of decrease versus first year level sale. How far it can ride down and yet still have a very good return to that operator and perhaps be in line with a one-to-one sales to capitalization ratio, even with a decline in the second year. So this is not a circumstance where the return goes negative and the operator says I don’t want to open a new drive-in. Or rather follow up with a second or third drive-in.

Adam Beading – Merrill Lynch

So it sounds like with the various initiatives may be renewed AUV growth and sensular (sic) sales is still a bit of a wildcard still.

J. Clifford Hudson

Well, it’s a little bit, in terms of the picture that is going to present there’s not as much historical precedence, I don’t know if that’s the right word or not, historical framework for us to look to and say, gee, look back here, it’s going to look like that two years from now. It’s a different picture for our system because of the number of new markets into which we’re going now. But that issue about new franchisees moving to second and third store openings, it’s a different picture from seven or eight years ago, six or eight years ago. With a national cable, this is why when you talk about the past, about the, several years of sustained national cable being a game changer, the first pitch is it opens up a lot of new development. The second pitch is that development now is very different because the new markets and new stores are on television 12 months out of the year. That wasn’t true six year ago.

W. Scott McLain

No, and they certainly didn’t open at $3.6 million in sales, which is what we had in Oregon.

J. Clifford Hudson

As a matter of fact it was the reverse six years ago where when a new store opened a new market it was below system volume. Now it’s well above it.

Adam Beading – Merrill Lynch

So kind of a shift in the way the new store runway works.

J. Clifford Hudson

Yes. It is a, I’ve used the term before, it is real game changer for our brand on a national basis and what the potential is.

Adam Beading – Merrill Lynch

Great. Thanks very much. That’s very helpful.

Operator

And we’ll take our next question from Mitch Slicer (sp) with Buckingham Research.

Mitch Slicer – Buckingham Research

Thanks very much. A few questions. One more question on the developing markets. What percent of these stores have the retrofit package? Given I would think it would be a high percentage. Do you have that number handy?

W. Scott McLain

That would be minimal. A minimum number of stores in developing markets would have the retrofit.

J. Clifford Hudson

Well, most of them now are, I mean, anything opening in the last 18 to 24 months has that new look anyway. So it’s not a retrofit candidate from that standpoint. Now, stores open two to 10 years ago in new markets will be retrofit candidates, but as Scott says, it’s a very small percentage having adopted it at this point, utilized and implemented it.

Mitch Slicer – Buckingham Research

Okay. So when they’re built though they always incorporate, because they are in emerging markets where there are probably more new stores, are they built with the retrofit implementation or look?

W. Scott McLain

Look. Yes.

J. Clifford Hudson

And that started some time ago. Probably about –

W. Scott McLain

Calendar 2007?

J. Clifford Hudson

Calendar 2007. Yeah.

Mitch Slicer – Buckingham Research

Okay. Thanks. And I did notice on developing markets that there’s 10 less stores in developing markets, I believe, versus the fiscal first quarter. So you do shift markets from developing to core. Did that perhaps maybe boost the core market comp versus the developing market comp? Was there anything to read into that aspect?

J. Clifford Hudson

I don’t have that specific for you, but we do revisit that from time to time as markets become more billed out and moved into core markets.

W. Scott McLain

Yeah, the irony of that is though it has that potential effect. And that is as the market gets more developed, more brand awareness, more local advertising, it shifts from developing to core. So as a result of that process the developing market always is the more challenged market by definition.

Mitch Slicer – Buckingham Research

Understood. Thanks. Another topic. Could you update us on the credit card mix? What level it’s at and the year over year or sequential change?

Stephen C. Vaughan

Mitch, it’s still running a little over 30%. It continues to creep up slightly, but it is still on an upward trend.

Mitch Slicer – Buckingham Research

Got it. Thanks. And what was your wage rate increase in the quarter?

Stephen C. Vaughan

I don’t have that number off the top of my head. On a year-over-year basis, you know, we didn’t have minimum wage last year or the increase in the minimum wage last year, so it was probably mid-single digits increased year over year. It’s been staying relatively flat on a sequential quarter basis, but it’s definitely up year over year.

Mitch Slicer – Buckingham Research

Got it. Can you give us an example of what, because your relative labour was down pretty sharply, perhaps an example of how you were able, and you did touch on it, but maybe a more specific example of how you were able to leverage that?

Stephen C. Vaughan

Well, I think it was a combination of higher sales, so we did get some leverage from the higher sales at partner drive-ins. And also it’s really just about the focus at the store level and using some of the tools that Scott talked about for scheduling. Making sure you’ve got the right number of people at the right time. We have gotten feedback from our operators that the Happy Hour program actually makes it easier to schedule because you don’t have the peaks and valleys in your business. So we feel like longer term that will be a nice benefit as well.

Mitch Slicer – Buckingham Research

Great. Thanks. And just lastly, just so that I understand the comps results that you reported, there was an extra day in the quarter. Is that extra day in the comp that you reported of 3.2 for the system and the other numbers?

Stephen C. Vaughan

Yes, it is.

Mitch Slicer – Buckingham Research

Okay. I mean, did that, I mean, just, you know, back-of-the-envelope math, that is about a percentage point of comp. Is that the way to look at it?

Stephen C. Vaughan

That is correct, yes.

Mitch Slicer – Buckingham Research

Okay. Thank you very much.

Operator

We’ll go next to Dean Haskell with Morgan Joseph.

Dean Haskell – Morgan Joseph & Co. Inc.

Thank you very much. My question centres on G&A. You had a pretty big jump in G&A in the quarter about a million to one. Can you explain some of that increase and where you expect to leverage that increase over the next few quarters?

Stephen C. Vaughan

Dean, I think that increase in SG&A was in line with what we had expected. When you look at that on a percentage growth basis that’s really in line with what we’ve guided to grow the business.

Dean Haskell – Morgan Joseph & Co. Inc.

But where did those costs come from? What are those costs that are going up?

W. Scott McLain

Well, I think it’s a matter of us continuing to invest in resources to drive our business and drive the initiatives. A lot of them are human resources which we’ve added here so that we can continue to provide better service to our franchisees and continue to drive our business.

Dean Haskell – Morgan Joseph & Co. Inc.

Okay. So most of the increase is overhead body count?

W. Scott McLain

That’s correct, yes.

J. Clifford Hudson

We don’t think of it as body count.

W. Scott McLain

No, we don’t usually use that term.

Dean Haskell – Morgan Joseph & Co. Inc.

Okay. Thank you very much.

Operator

And we’ll take our next question from Larry Miller with RBC Capital Markets.

Larry Miller – RBC Capital Markets

Yeah, hi. If I could first follow up on some of the labour question. The better management, aside from the sales leverage that you hope to get back after the year, but the better management and the sales leverage, yet it doesn’t seem to be in your guidance for (inaudible), but should we expect that this is not going to continue for the rest of the back half of the year? Is that what you guys are telling us?

W. Scott McLain

Yes, I would tell you that we are not running as much pricing, which Cliff’s done a walk through the pricing analysis or partner drive-ins. So as we look to the second half of the year we feel like the flat to slightly unfavourable margin guidance is reasonable.

Larry Miller – RBC Capital Markets

Okay. But I was just more or less you focusing on the labour side, how sustainable is that decrease and extra pricing?

W. Scott McLain

Well, we will be expecting to continue to have improvement in labour to offset the commodity costs.

Larry Miller – RBC Capital Markets

Okay. That makes sense. And then you have the minimum wage increase and (inaudible). And then can you guys help me understand the comment that you made about Happy Hour having a greater negative impact on the partner stores? And I would have thought that there’s a greater negative mix impact and you guys talked about a much greater traffic impact last quarter. Don’t those two roughly offset each other? What am I missing about how that mechanics works?

W. Scott McLain

Well, right now if you look at the partner drive-ins we have about a 3% discounting impact from Happy Hour which with our franchise drive-ins they’re not seeing the pick-up in the traffic. They were already doing Happy Hour previously. They’ve seen it slide pick-up in their discounting, but if you look at that on a sales basis they’re still getting the benefit of the national advertising without as much increased discounting. So I think that’s really where the comment came from that the Happy Hour discounting is disproportionately impacting partner drive-ins.

Larry Miller – RBC Capital Markets

Okay, but they’re mixed impact for the stores that are now running it run into roughly half the system that isn’t the same, though. Correct?

J. Clifford Hudson

I’m not sure I followed that.

W. Scott McLain

Yeah, say that again, if you would.

Larry Miller – RBC Capital Markets

Well, you said about 50% of the stores in the franchise system already had the program. So clearly they’ve already lapsed the negative mix. They’re getting the benefit of national advertising and having the negative mix. But the other half that would have that negative mix are seeing a similar mix trend towards what you see in a partner store, I would imagine. Is that correct?

W. Scott McLain

We think that’s correct. We don’t actually have the day part polling data where we can actually break it down into time and date for franchise drive-ins. But anecdotally, that’s correct.

Larry Miller – RBC Capital Markets

I guess what I’m getting at is that it looks to me like traffic might have been somewhat worse at the franchise doors.

J. Clifford Hudson

I don’t think that’s accurate. For a couple reasons. Number one, they had very strong sales. Number two, when you talk to them even the ones who have done Happy Hour in the past are getting the benefit from the national advertising of Happy Hour. So I think they’re business is somewhat similar to the company business in the sense that they’re getting a nice increase in traffic as well as the benefit of (inaudible).

Larry Miller – RBC Capital Markets

Well, maybe we can follow up on some the mechanics of that. But I understand what you’re saying. And then, if you can just update me on the variable rate that you’re paying on your debt now. I think you have $200 million that’s variable. What is the effective interest rate on that?

Stephen C. Vaughan

It’s in the neighbourhood of 5%. It’s been coming down recently, but right around 5%.

Larry Miller – RBC Capital Markets

And maybe you’re didn’t see that benefit in this current quarter (inaudible) didn’t come down fast enough, but going forward we might see some of that?

Stephen C. Vaughan

We should see more benefit going forward, absolutely.

Larry Miller – RBC Capital Markets

Okay. Thanks, guys.

Operator

(Operator Instructions). We’ll go at this time to Howard Penney with FBR Capital Markets.

Mr. Penney, your line is open. Please check your mute button on your phone.

Howard Penney – Friedman, Billings, Ramsey & Co.

Sorry. Can you hear me okay?

W. Scott McLain

Yes, we can hear you.

Howard Penney – Friedman, Billings, Ramsey & Co.

Sorry about that. In response to Joe’s question, you alluded to some of the partner markets that weren’t well or were challenged economically. I was wondering which markets were they.

And then secondly, and it’s a little difficult question to answer because I’m not really quite sure how to phrase it, but if I could just turn around your multi-layer strategy on end for a second and our aspects of the multi-layer strategy in the sense that when you throw a lot of things at the system, whether it’s coffee, Happy Hour, new products, new initiatives, it tends to throw the system into a state of flux where you either lose focus on certain initiatives and other initiatives fall by the wayside. And if I remember correctly way back when you first early, early on (inaudible) did hurt other day parts just because of the increased emphasis on the breakfast. Is there some way that you can measure that or guard against some of those issues as doing too much to the system at one time?

W. Scott McLain

Well, I could deal with those questions in the order in which you raised them. There’s specific reference that Steve made earlier for our partnership drive-ins was the disproportionate impact that our partnership drive-ins versus franchise drive-ins has to Florida. So that was the specific example both in his earlier prepared comments as well as response to the question. So it’s, I wouldn’t look at it, I think it would be inaccurate to look at it as a troubled partnership market, but rather an area of the country that is confronting some unusual challenges and the fact that we have a disproportionate number or portion of our partnership drive-ins there.

Moving to the other issue about initiatives, I mean, you could go to the approach to say the stability of the system would be greater if we didn’t have new initiatives and while that might be correct in terms of the dynamics of implementation, the consequence for the business would be significantly negative. Your comment about when we rolled out breakfast having a negative impact on other day parts, frankly I don’t recall that occurring. We rolled out breakfast from 2000 to 2003 and 2003 was a tough spot, but I don’t think it was because of losing focus on other initiatives. It had to do with a whole variety of other issues.

But our approach to our business is that the momentum of the business, you’re not going to stand still. You’re going to move forward or you’re going to fall back. So the new product awareness, the promotion of new products, things like the retrofit of the buildings or the fresh, new look, etcetera, these things move a business forward. When we look at the markets, individual stores and markets in our system that are embracing those initiatives, and it doesn’t mean that some are refusing to, it means that you roll them out in a progressive fashion. So we look at those that have already embraced those initiatives. We see stronger, positive same-store sales and in turn growing profits. So I think it would be inaccurate to get a picture that says by rolling out a number of initiatives it stresses our system in a way that’s negative. In fact, quite the opposite. Where we’re not implementing those the business goes negative. So in fact I think the result is quite the opposite of what the question would imply.

J. Clifford Hudson

The other thing I would say is that when our sales haven’t been as strong in the past it’s generally been because we haven’t had a good strong initiative that we can roll out. At this point we have a number of very strong initiatives which are working in many markets and it becomes a challenge of us getting those out to the rest of the system.

Howard Penney – Friedman, Billings, Ramsey & Co.

Thank you for that. I wasn’t trying to imply anything. I was just sort of curious as to if there is any stress on the system. Not trying to imply one way or the other.

My first question was, what is the – I’m sorry if I confused that question with the first one I asked. Where is in particular in the country is that market that you were alluding to?

W. Scott McLain

Florida.

Howard Penney – Friedman, Billings, Ramsey & Co.

Thank you.

Operator

And we do have a follow-up question from Joe Buckley with Bear Stearns.

Joe Buckley – Bear Stearns

Thank you. Just going back to the Florida response. Steve, did you say you have 30 partner drive-ins in Florida? Is that about 25% of your Florida exposure in total?

Stephen C. Vaughan

We have about 30 of our comp drive-ins. I think we actually have about 36 or so in Florida. But it makes up about 5.5% of our comp drive-ins.

Joe Buckley – Bear Stearns

Okay. Okay. And the other major sub-prime markets, I mean, I realize you don’t have a big presence in California, but like Arizona and Nevada, are they soft as well?

Stephen C. Vaughan

We are seeing some challenges in those markets as well.

Joe Buckley – Bear Stearns

Okay. Thank you.

Operator

And that’s the last question that we have in the cue today. Mr. Hudson, I’ll turn the call back over to you for closing remarks.

J. Clifford Hudson

Okay. We appreciate your participation in our conference call today and appreciate your continuing interest in our company. We hope one of the things you can see from this winter quarter, which is always our most dicey quarter, is that our business continues to remain very healthy and the initiatives that we have place continue to drive the sales and profitability of our business at the (inaudible) level and for our company. So we will continue to focus on that and we look forward to visiting with you about the results of our operations going forward.

Take care and have a good week.

Operator

This does conclude today’s conference call. We appreciate your participation. You may disconnect at this time.

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