Bojangles' (BOJA) CEO James Kibler on Q4 2017 Results - Earnings Call Transcript

Bojangles' (NASDAQ:BOJA) Q4 2017 Results Earnings Conference Call March 6, 2018 5:00 PM ET

Executives

John Jordan - Chief Financial Officer, Senior Vice President of Finance and Treasurer

James Kibler - Interim Chief Executive Officer, Interim President and Director

Analysts

Jake Bartlett - SunTrust Robinson Humphrey

David Palmer - RBC Capital Markets

Gregory Francfort - Bank of America

Jeffrey Bernstein - Barclays

Jon Tower - Wells Fargo

Karen Holthouse - Goldman Sachs

Joshua Long - Piper Jaffray

Andrew Charles - Cowen & Company

Operator

Thank you for standing by and welcome to the Bojangles' Incorporated Fourth Fiscal Quarter and Fiscal Year 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, March 6, 2018.

I would now like to turn the conference over to your host, Mr. John Jordan. Please go ahead, sir.

John Jordan

Good evening and welcome to the Bojangles' Inc. quarterly conference call. I'm John Jordan, Chief Financial Officer, Senior Vice President of Finance and Treasurer and with me today is Randy Kibler, our board member and Interim Chief Executive Officer and Interim President. By now, everyone should have access to our earnings release for the 14 and 53 week period ended December 31, 2017. It may also be found on our Web site at www.bojangles.com under the Investors section.

Let me begin by covering a few regulatory matters. During our formal remarks and in our responses to your questions, certain items may be discussed which are not based on historical or current facts. Such items, including statements indicating our beliefs, trends, plans, expectations, assumptions, anticipations, guidance, projections, estimates and the like should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are inherently subject to risk, uncertainties and assumptions are not guarantees of performance and are expressly qualified in their entirety by cautionary statements.

In addition, all forward-looking statements speak only as of the date of this conference call. We undertake no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise, other than as required under the federal securities laws. For more details, please refer to our earnings release and to the risk factors in our SEC filings.

Our remarks today will also include references to restaurant contribution and restaurant contribution margin, EBITDA and adjusted EBITDA, adjusted net income, and adjusted diluted net income per share, which are all financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.

And now, I will turn the call over to Randy for some introductory remarks.

James Kibler

Thank you, John, and thank you all for being on the call with us today. I want to briefly introduce myself and say it's an honor to accept this opportunity on an interim basis while the board searches for a permanent president and CEO. On their behalf, we would also like to publicly thank Clifton for his leadership and contributions. He has been a tireless advocate for our brand over the last four years and we wish him the great best.

While as background I have been blessed to be part of the Bojangles' family for more than ten years serving in a variety of capacities. I have been directors since August 2011 and served as Non-Executive Chairman from February 2014 to June 2016, and from September 2007 to January 2014 I was Bojangles' CEO and President. Starting at 15 years old I have been working in this industry for almost 50 years so I guess you can say it is my passion.

The board has appointed a search committee to evaluate potential qualified candidates to lead Bojangles' on a long term basis. As you would imagine, the board will be focused on finding a right person so we are not in a position to put a timeframe on the process. Meanwhile, I will be working closely with the leadership team to help shape our direction while managing the day to day business. I share the board's confidence in our brand and together we will be working to grow Bojangles' in a strategic and sustainable way by adapting and keeping the organization moving forward. And moving forward is exactly what Bojangles' is doing.

We will continue doing the hard work, doing those things that make the Bojangles' brand one of the most recognized and popular brands in our industry. Being in the restaurants every day, preparing high quality products, and providing great customer service takes perseverance and experience and those traits we have in abundance. So at the beginning of a the new year, full of possibility and opportunity, our dedicated Bojangles' franchisees and team members remain committed to preparing freshly made one of a kind products, serving breakfast all day, every day, and giving our loyal fans the best Bojangles' experience possible.

In closing, on behalf of our board of directors let me thank our franchisees and the thousands of team members across more than 760 restaurants who make the Bojangles' experience happen day in and day out, for the legions of Bojangles' across the country. Our board wants you to know that we appreciate your commitment to the Bojangles' brand and the wonderful communities we serve every day. We are confident in your ability to serve our guests the highest quality, credible food in an environment that makes everyone feel like family.

Now we will turn the call back over to John.

John Jordan

Thank you, Randy. Let me begin by saying that I look forward to working with you again. I would also like to express my best wishes to Clifton. It has been my pleasure working with him these past few years. We have been focusing on four main areas and we would like to address them each one by one.

First, our growth strategy. We continue to believe that we have long-term growth opportunities through strategic franchise development and reorganizing underperforming markets through strategic refranchising, closings or relocations. Second, operational excellence. We are committed to operating top notch restaurants by eliminating operational complexity, improving four wall profitability, utilizing technology and hiring best in class team members, who can connect with consumers and encourage repeat business.

Third, effective marketing programs. Our dedicated marketing efforts continue to highlight our unique attributes and also leverage the right value promotions for Bojangles' which are based on a barbell menu strategy. For example, our recent successful two for $5 BojAngler fish fillet sandwich LTO promotion that features a flaky, wild-caught Alaskan Pollock filet that is different from anything else in the market because it is generously dusted with our one of a kind proprietary fry seasoning. We also believe breakfast served all day everyday is a key differentiator for our brand and we will continue to emphasize it in our marketing programs along with other initiatives that drive home on our unique high quality flavors.

Four, technology integration. Our technology efforts are still on track and we are exploring ways to effectively drive sales and improve the customer experience through the use of technology while maintaining high food quality standards. In late 2017, we launched our new loyalty and payment app called BoRewards in all of our company operated restaurants and we are excited about the feedback we have gotten from our fans. Currently the BoRewards app is only accepted at our company operated restaurants. However, we continue to work with our franchisees to expand availability of the app to their restaurant PoS systems. Also, we anticipate launching phase 2 of our test in 2018 that would include large menu ordering such as Big Bo Boxes and ultimately the addition of full menu ordering capabilities at sometime in the future.

Though we still have some work to do, our reviewed delivery service options in the marketplace continues as we consider how delivery could drive sales without risking restaurant profitability and most significantly the quality of our food. However, we do believe we will close to a final decision regarding a delivery test that will meet the unique requirements of a Bojangles' restaurant. We know that it's important for us to keep pace with the changing needs of today's sophisticated consumers. However, we also know our food is the star of our brand and we will never sacrifice quality. Our store operations teams are striving day in and day out to retain loyal consumers and attract new ones with an exceptional dining experience in an environment that complements the quality and uniqueness of our food.

As you know, in 2017 we hired a new Vice President of Operations with more than 30 years of restaurant experience, Frank Rodriguez, who now has a full team of experienced restaurant leaders in place that are prepared to continue improving our company-operated restaurants and taking them to the next level. Additionally, we have amplified our service training efforts and refocused our teams on execution inside the four wall, listening to what our customers are telling us, consistency of service in serving high quality food and all times, are the keys to retaining customers.

Now I want to talk a little bit about our market optimization plans. As we shared with you before, Bojangles' will continue to maintain a company-operated and franchise mixed model with franchising leading expansion efforts going forward. The Bojangles' franchise proposition remains very attractive to qualified owner-operators and we are consistently approached by potential franchisees. Currently we are actively seeking qualified owner-operators in North Florida, Memphis, Tennessee, and South Georgia.

In 2017 we experienced some strategic consolidation among our franchisees and we also refranchised six company operated restaurants. As we have stated previously, we hope to refranchise more company operated restaurants over time and as part of that process we expect there will be some store closures as well.

Now let's review our quarterly results for the 14-week period ended December 31, 2017 and then introduce our fiscal year 2018 guidance. Please remember the fourth quarter fiscal quarter of 2016 included 13-weeks. Let's begin with our recent development activities. There were 15 system-wide restaurant openings during the fourth fiscal quarter of 2017 consistent with 9 company-operated and 6 franchised stores. The system wide restaurant count as of December 31, 2017 consisted of 325 company operated restaurants and 439 franchised restaurants to a total of 764 locations. This reflects a net increase of 48 restaurants or 6.7% from the end of fiscal 2016.

For the fourth fiscal quarter of 2017, system wide comparable restaurant sales decreased 3.1% while company-operated comparable restaurant sales decreased 4.4% and franchise compared restaurant sales decreased 2.2%. The comparable restaurant sales decreased at company-operated restaurants reflected decreases in transactions partially offset by increases in price and mix. For the fourth fiscal quarter of 2017, total revenues were $148.1 million representing an increase of 6.2% compared to $139.4 million in the same period last year. The increase reflects a net additional 48 system wide restaurants on a year-over-year basis along with contributions from the incremental 14^th operating week during the fourth fiscal quarter of 2017.

These were partially offset by the decline in system wide comparable restaurant sales previously mentioned. Company-operated restaurant revenues in the fourth fiscal quarter of 2017 were $140.3 million representing an increase of 6.1% compared to $132.2 million in the same period last year. The increase reflects the net additional 16 company-operated restaurants on a year-over-year basis along with contributions from the incremental 14^th operating week during the fourth fiscal quarter of 2017. These were partially offset by the decrease in company comparable restaurant sales previously mentioned.

Franchise royalty revenues in the fourth fiscal quarter of 2017 were $7.6 million, representing an increase of 11.3% compared to $6.8 million in the same period last year. The increase reflects a net additional 32 franchised restaurants on a year-over-year basis along with contributions from the incremental 14^th operating week during the fourth fiscal quarter of 2017. These were partially offset by the decrease in franchised comparable restaurant sales previously mentioned.

Moving on to our four walls operations. Beginning with company-operated store level profitability. Restaurant contribution was $22.5 million representing a decrease of 13.2% compared to $26 million in the same period last year. Our restaurant contribution margin decreased to 16.1% in the fourth fiscal quarter of 2017 from 19.6% in the fourth fiscal quarter of 2016. Food and supplies cost as a percentage of company-operated restaurant revenues increased to 32.4% in the fourth fiscal quarter of 2017 compared to 31.6% in the same period last year primarily due to commodity inflation and the heightened use of value messages partially offset by menu price increased and menu mix changes.

Company-operated restaurant labor cost as percentage of company-operated restaurant revenues increased to 29.1% in the fourth fiscal quarter of 2017 from 27.1% in the same period last year. We delevered on the declining comparable restaurant sales but also incurred higher direct labor cost and medical cost, partially offset by lower incentive compensation. We expect our restaurant labor cost will continue to increase due to the tight labor market which results in higher wage inflation and employee turnover.

In addition, we expect increased cost due to higher medical cost as well as certain labor initiatives across company-operated restaurants including service initiatives and increasing the number of full time versus part time team members. Operating cost as a percentage of company-operated restaurant revenues increased to 22.4% in the fourth fiscal quarter of 2017 compared to 21.6% in the same period last year due to higher occupancy utilities and repairs and maintenance cost, partially offset by a decrease in marketing cost. General and administrative expenses decreased 9.6% to $9.8 million in the fourth fiscal quarter of 2017 from $10.9 million in last year's fourth fiscal quarter.

The decrease was due primarily to lower incentive compensation in the fourth fiscal quarter of 2017 and public offering expenses and the vesting of performance based stock options during the fourth fiscal quarter of 2016, partially offset by additional cost related to a 14^th operating week in the fourth fiscal quarter of 2017. As a percentage of total revenues, general and administrative expenses decreased to 6.6% in the fourth fiscal quarter of 2017 compared to 7.8% in the same period last year.

Adjusted EBITDA which excludes the impact of certain items we do not consider representative of our ongoing operating performance and certain non-cash items, decreased 10.8% to $21.9 million in the fourth fiscal quarter of 2017 from $24.6 million in the fourth fiscal quarter of 2016. Attached to our earnings release, a reconciliations of our GAAP net income to our adjusted EBITDA. Interest expense was $1.7 million in both the fourth fiscal quarter of 2017 and the prior year fourth fiscal quarter. We made principal payments of $32.4 million on our current debt from December 26, 2016 through December 31, 2017 and also benefitted from lower interest expense associated with interest rate swaps.

These benefits were primarily offset by an increase in the LIBOR rate and an additional week in the fourth fiscal quarter of 2017 compared with the fourth fiscal quarter of 2016. We recognized a $40.1 million benefit as a result of a revaluation of our deferred tax assets and liabilities associated with the enactment of the Tax Cuts and Jobs Act which resulted in a net income tax benefit of $35.2 million in the fourth fiscal quarter of 2017 compared to an income tax expense of $5.6 million in the prior year fourth fiscal quarter. On a GAAP basis, net income increased to $48.8 million in the fourth fiscal quarter of 2017 from $9.8 million in the fourth fiscal quarter of 2016.

On a non-GAAP basis, adjusted net income declined 17.9% to $8.7 million in the fourth fiscal quarter of 2017 compared to $10.6 million in the fourth fiscal quarter of 2016. Diluted net income per share increased to $1.27 in the fourth fiscal quarter of 2017 compared to $0.26 in the fourth fiscal quarter of 2016, while on a non-GAAP basis, adjusted diluted net income per share declined 17.9% to $0.23 in the fourth fiscal quarter of 2017 from $0.28 in the fourth fiscal quarter of 2016. Attached to our earnings release is a reconciliation of our GAAP results to our adjusted results.

Now for our fiscal year 2018 outlook, which is a 52-week period that ends on December 30, 2018. We expect total revenues of $550 million to $560 million. This includes approximately $11 million of franchise marketing and co-op advertising contributions that are required to be recognized as revenue beginning in fiscal year 2018 due to a change in the revenue recognition rules. We expect system wide comparable restaurant sales of negative low single digits to flat. At company-operated restaurants, preliminary compared restaurant sales for the first nine weeks of the first fiscal quarter of 2018 were down approximately 2.4%.

In terms of development, we plan to open 30 to 40 system wide restaurants of which six to ten are company-operated restaurants and 24 to 30 are franchised restaurants. These ranges excludes restaurants that we or our franchisees may close this year due to underperformance, relocation or lease exploration. While we only had four system wide closings in fiscal 2017, three of which were relocations, so far in fiscal year 2018 seven franchised restaurants have closed. Closures of underperforming company-operated and franchised restaurants during fiscal 2018 and potentially subsequent years could exceed those of recent years.

Restaurant contribution margin is projected between 14% and 14.5%. Total general and administrative expenses are projected between $43 million and $43.5 million. Cash capital expenditures are projected between $11.5 million and $12.5 million. Adjusted diluted net income per share is expected between $0.64 to $0.72 and finally, adjusted EBITDA is projected between $64 million to $68 million. Note that we have a share repurchase program already in place under which we may purchase up to $50 million of our outstanding common stock through April 30, 2019.

Through March 1, 2018 under our stock repurchase program, we have acquired approximately 400,000 shares at a total cost of $4.9 million and therefore have up to $45.1 million available for future purchases under that program. In the interest of time we request that you limit yourself to one question so that everyone has an opportunity to ask, and we should primarily focus on fiscal year 2017 results and 2018 guidance.

Operator, you can now open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Jake Bartlett, SunTrust Robinson Humphrey. Please proceed with your question.

Jake Bartlett

My question has to do around the findings. I think as of the last call you had mentioned that you were engaging some third parties to look into your promotional balance on the barbell strategy that hadn't been effective to really drive profitable traffic in the third quarter. I am curious as to what they found, what your plan is going forward or even in the first quarter here with those learnings?

John Jordan

Thank you. So as we said previously, we have three different research projects that we have been working on. The first was the brand tracker and that was trying to understand our consumer better. We actually have received the results from that study but just recently received that and so we are still in the process of digesting that information and working on what those findings might be that we would implement in the business. The second analysis that we did was with our third party pricing firm. And we had completed that analysis and we took an approximate price increase of about 1.3% in late February. We expect our pricing for the full year to be below historical levels and we will probably be in that 1.4% to 1.5% for the full year.

And then finally we are doing a research project on marketing spend analysis and that research is in process and we have not received the report yet.

Jake Bartlett

Okay. As you are getting that report, is that you have spent less, I guess in the fourth quarter on the marketing year-over-year.

John Jordan

Not really. There has been about, if you look at on a fourth quarter over fourth quarter, it's about 20 basis points less than the prior year. So it's a timing of how the calendar fell. So in 2018 we are going to expect to spend relatively a similar amount as a percent of sales as we have in recent years. Full year, we are relatively in line with '17. It just happened that the fourth quarter was just a little bit less.

Operator

Our next question comes from Will Slabaugh, Stephens, Inc. Please proceed with your questions.

Unidentified Analyst

This is [Hugh] [ph] on for Will this afternoon. Just given the increasingly competitive QSR environment, just a high level, has your attitude around value changed for 2018 and what do you expect the Bojangles' value strategy to look like in 2018. Do you expect to get more aggressive?

John Jordan

Great question. So if you remember in fiscal 2017, we sort of started the year with premium products which really didn’t quite resonate with our consumers. And then we got into the August, September, October timeframe with a broad discounting strategy. I think what you are going to see, and again we are still learning from our research and of course Randy is in right now, listening and learning from the team. I think what you will see is we will have some value messages but we are going to focus on things that are profitable to the company and you may see some more emphasis on our core products.

Operator

Our next question comes from David Palmer, RBC Capital Markets. Please proceed with your question.

David Palmer

Just if I could squeeze in two, which is a follow up to Jake's about pricing. In that study you have said that you are going to be limiting your pricing, it sounds like, in the ones. But aside from that, is there any sort of insight into the opportunities for your menu price architecture that you can share with us at this time. And then with regard to the company unit growth slowdown, could you give us a sense of what impact to CapEx as well as your expense line that is going to have in 2018. Thank you.

John Jordan

Thank you. So first on the pricing. You know obviously we are still -- we are obviously going to evaluate pricing again as probably maybe in another -- towards the end of fiscal 2018. Part of the reason pricing is going to be lower this year is we did not pricing in late 2017 that we historically do each year. So we are going to be in that 1.4% to 1.5%. Certainly we will be studying how consumers react to this price increase and that will sort of give us information in the future for what opportunities we might have. When you look at the CapEx, we are looking at -- since we did the build-to-suit leases, primarily our CapEx has went up to less than $100,000 per restaurant. And so when we look through our cash needs in external CapEx, it's going to be in that $11.5 million to $12.5 million. What you will probably see though is our non-cash CapEx which is the equipment leases, those are going to be less.

David Palmer

And the margin impact from that? Any sort of -- what you have baked into that EBITDA guidance. Any impact from the pace of new unit development?

John Jordan

So I think what you will see is over time that should help margin. We still obviously have a lot of stores that we opened in fiscal 2017, some of them later in the year. And so those will have to cycle through their honeymoons and so forth and as we know when we opened stores in the newer markets, they have lower average unit volumes and that’s higher cost and that’s a drag on margin. So I think what you will see is when we look out a little further than 2018 into '19 and '20, there will be some possibilities to improve the restaurant contribution because we will be, a, not having as many of those stores in the adjacent markets opening. And then, b, the stores that we will be opening will be more focused on our core and probably Georgia where we have a lot more brand recognition.

Operator

Our next question comes from Gregory Francfort, Bank of America. Please proceed with your question.

Gregory Francfort

Just only go back to maybe the market optimization model. You talked about three markets that you are looking to refranchise. Can you talk about how you chose those markets and sort of some of the characteristics, what you are seeing -- kind of what the performance has been like in those three markets.

John Jordan

So when you look at -- I don’t know that we see anything other than in the adjacent markets. But certainly we are open to refranchising stores in our adjacent markets, and as we talked about it previously our last couple of classes while system wide 2016 came in about $1.5, which is what our year one target is. So 2017 was the first full year that we open. What we are seeing is on the company side we are coming in a little lower than that, at about $1.4 million, and of course in the adjacent markets lower than that. And we are seeing year two performance in the last few classes dropping off more than we have seen historically. So a lot of what we are focusing on right now is trying to slow down the company growth, which we think will help us eliminate some of the cannibalization.

It will eliminate some of the drain on our operational talent having to go and [look] [ph] people to different restaurants. We have a new, full new team of directors of operations that are in the field that we hope are going to help improve operations and we will see a lift there. And then at some point in time then we expect to be able to hopefully build and re-franchise some of these stores. We have received interest from some franchisees already on that but we also may end up closing some stores as well as part of that process.

Gregory Francfort

Maybe just to follow up. I think I have seen recently that you guys are sort of accepting interest for stores in Texas. Are you guys starting to push out into that state or was that the wrong information that I am seeing out there.

John Jordan

Yes. Right now, I think what we are still looking at primarily markets that are adjacent to where we are. You know some day we might be in Texas, but we get calls from that state all of the time. Right now, obviously, we are looking at Tennessee, we are looking at Georgia, we are looking at some areas in Florida, we are looking at Southern Ohio and places of that nature. But I still think it's going to be awhile before we are in Texas.

Operator

Our next question comes from Jeffrey Bernstein, Barclays. Please proceed with your question.

Jeffrey Bernstein

One, just following up on that re-franchising and the franchise demand is general. Just wondering as you talk to those franchisees, their interest for potential re-franchising of the units versus new store openings. How do you see the pipeline playing out and maybe if you can just talk more broadly about the health of those franchisees seemingly with the comp challenges and the margin pressures large? I am just wondering how they think about unit growth and whether there is any kind of corporate support from you guys in terms of helping to mitigate some of those pressures.

John Jordan

So one of the things, when you look at right now and you know the one positive things is, our franchisees same stores sales have actually performed better than our company-operated same store sales. And so I think that’s a big positive for the brand. And we believe the franchisees still feel great. There continue to open more restaurants, so most of our growth still comes from existing franchisees. We have a handful that are first year stores. And I think it's important to note that the franchisees have higher average unit volumes both in the core and the adjacent markets within the company. Right now if you include the stores that have opened since the beginning of this year, we have 36 approved locations that have been approved for the franchise community. Certainly that doesn’t mean all those will open because they still have to go through diligence and things can, maybe fall off but there might be some more to come on that list.

So we feel good about that. Certainly, we need same store sales to improve and that will help things even more.

Jeffrey Bernstein

Just in terms of -- you mentioned tax reform necessarily but presumably, well, any color you can provide on the expected rate in '18 and beyond and whether you would those savings to maybe reinvest in the business versus returns to shareholders or somehow or other maybe providing some support to franchisees. Just wondering kind of your outlook on that. How much the cash proceeds will be or how much the benefit will be and what you might do with those proceeds?

John Jordan

Sure. So I think right now for fiscal 2018, we currently expect an effective income tax rate between 24.5% and 25%. Less tax credits that you see for thing like the work opportunity tax credit and any excess tax benefits from stock based compensation that we might have. We certainly are going to invest some of those into the business, some of that is going to be factored in to 2018 but some of it maybe even longer term. So for example, investing in more full time versus part time member. While that may not cost us more in necessarily direct salary, it will cost us in benefits that we will be investing in medical insurance and things of that nature.

The second thing is we are investing right now into higher wage inflation and that’s going to continue into 2018 and I think as we go into 2019, depending on how our remodels go, we are actually doing a test on six remodels in the first and second quarter that are spending more on that $200,000 to $250,000 range. And if that goes as planned, then we might accelerate some remodels in 2019 and forward in some of the tax reforms to be able to do that. So some of that is going to go to employees, some of that is going to go maybe into some growth initiatives like the remodels and then we will go from there.

Operator

Our next question comes from Chris O'Cull, Stifel. Please proceed with your question.

Unidentified Analyst

This is actually [Mitch] [ph] in for Chris today. First, and sorry if I missed this earlier, but curious on the comp performance between your core and expansion markets in the quarter.

John Jordan

Sure. And I think what we will do, typically we don’t break it out but I will break it out for us here for the full year. And so when you go in and look at the same store -- be with me just one second here -- let's go and take the next question and I will come back right to that question here in one second.

Unidentified Analyst

Okay. And then just following up on that, kind of what the expansion figure is. I am curious, is there a plan to improve or stabilize that going forward. Kind of above and beyond the benefits of new store openings.

John Jordan

To try to improve the same store sales in the adjacent markets, is that what you are indicating?

Unidentified Analyst

Correct.

John Jordan

Yes. So I think the thing that we are trying to do there, the number one thing, is slowing down the new company openings which we think will actually label our operations to be able to really focus on the business and be able to stop sort of draining our talent. And I do have the number here now, so in fiscal 2017 our same store sales, this is system wide, decreased 1.5% in the core and it decreased 3.6% in the adjacent markets. For company-operated restaurants, we decreased 3% in the core and we decreased 6.7% in the adjacent markets. And then our franchise restaurants only decreased 0.2% in the core and only decreased 2.6% in the adjacent markets.

So there has obviously been an impact on the company restaurants due to a couple of things. Number one is the accelerated growth we did and some cannibalization along with some drain on operations. But number two is also some of the focus on non-core menu items I think affected to company but not all franchisees participated in those non-core promotions. And so I think it's a very positive things to see that franchise performance and I think we have opportunity to close that gap now that we are going to sort of slow the growth down a little bit and we are going to take a look a little bit more at our full menu.

Operator

Our next question comes from Sharon Zackfia, William Blair. Please proceed with your question.

Unidentified Analyst

Its' [Matt Curtis] [ph] on for Sharon. Just two quick expense related questions, if I can, related to the fourth quarter. On dollar G&A, it was relatively flat in the fourth quarter. You mentioned lower incentive comp as being a factor. Could you quantify the amount of that lower incentive comp?

John Jordan

So if you look at it for the full fiscal year, incentive compensation I believe is about $2.8 million less than the prior year. And I think in the fourth quarter is about $800,000 less than the fourth quarter of the prior year.

Unidentified Analyst

Okay. Great. And then also in the fourth quarter, other operating expenses seem to deleverage less than they did in the second and third quarters. Now you mentioned that lower marketing was a factor, if I heard that correctly, but is this less deleverage on that line item expected to continue throughout 2018.

John Jordan

Well, I also think probably there was also a benefit of probably having an additional operating week related to the 53^rd week following in the fourth fiscal quarter. I think that when you go into 2018, the operating expense line is going to be, it's effected by, if you have negative same store sales that’s going to be -- that’s going to cause that percentage to go up. And then we are still going to have to cycle through the opening of the stores that we did in 2017, which will have a lower average unit volume than our overall average unit volumes and higher rents in utilities which will result in that still having some pressures. I think there is still going to be pressure on that one.

Operator

Our next question comes from Jon Tower, Wells Fargo. Please proceed with your question.

Jon Tower

Just a couple. Just a clarification on the same store sales in the fourth quarter. Can you break down between the -- quantify that the traffic versus price versus mix. Then talk about perhaps where you saw the greatest traffic lost. Whether across the menu, if it was breakfast, or perhaps maybe break it down value versus LTO. Then lastly just taking a look at the G&A growth expectations for '18. I think you are calling for roughly 12% to 13.5% growth. I am assuming a lot of that is tied to incentive comp reset but if you could just maybe outline what that growth is tied to that will be great.

John Jordan

Yes. So starting with the breakdown of tickets. So for the full year, our pricing was about 2%, which is sort of below normal. We had about three-tenths positive mix and our transactions were about 6% negative. When you look at the fourth fiscal quarter, our price is only 0.9%. Our mix was 0.9% and our transactions were negative 6.2%. Now what's interesting is when you look at it be day part, if you look at the fourth fiscal quarter, breakfast was our best performing day part. All the day parts were negative but breakfast was our best and after dinner was our worst.

If you look at it on a full fiscal year basis, again they were all negative. Snack was our, which is 2% to 5%, was our best, and after dinner was our worst. And that’s on same store sales for that metric. When you look at the G&A, there was a couple of things that resulting in that. So based on the guidance that we are providing, it really isn't triggering incentive compensation but we have several things which result in the G&A going up. So number one is, we have some open positions in 2017 and we sort of managed our G&A pretty tight and so those open positions were filled in the latter part of '17. So that’s having some impact.

We also, as we continue to open stores and continue to invest in things like technology, we still have some additional positions we are having to add and that adds to it. We also have -- when you look at it, incentive based stock compensation. We have not been a public company for full four years and so we have some stair stepping on that that’s causing part of that. And then we have some healthcare and some wage inflation and then we have some investments in [active] [ph] in May. And then the final thing is that there will be some severance expenses that will also be in that numbers. So it's a combination of all of those items and sort of getting you to that number.

Jon Tower

Okay. And then just lastly on the adjusted EPS guidance for the year, the $0.64 to $0.72. Is that inclusive of the tax rate, the 24.5% to 25% that you had talked about earlier in the call.

John Jordan

It is.

Operator

Our next question comes from Karen Holthouse, Goldman Sachs. Please proceed with your question.

Karen Holthouse

One quick clarification. The tax rate guidance of 24.5% to 25%, is that before or after work opportunity tax credits. I had trouble hearing you.

John Jordan

That would be before. So before the work opportunity tax credits and any excess tax benefits on stock-based comp.

Karen Holthouse

Okay. Great. Thank you. And then, your taper of conversation has clearly been whether at the end of the fourth quarter and sort of quarter to date this quarter. Are you willing to give sort of any color on whether that’s been a factor in your sales and to help quantify it.

John Jordan

You know, when you look at it in the course of [effects] [ph], some of our franchisees maybe are affected differently than the company-operated restaurants. But when you look at the first nine weeks of this year, when we talk about the negative 2.4, we don’t think weather was a significant factor in that. We had one week of bad weather, really bad weather in fiscal 2016 that we got to comp over and that was nice. But then we had a really bad week a few weeks after that in 2018 -- 2017, I am sorry, and then in '18. And it sort of washed itself out. So for the overall company, we are not seeing it had a big impact on us.

Operator

Our next question comes from Joshua Long, Piper Jaffray. Please proceed with your question.

Joshua Long

John, I was curious on what you have been learning from your work with Bojangles' of the future prototype. You got a lot of different initiatives to focus on this year and you did talk about testing some remodels here in the first part of the year. So curious kind of where we are with the Bojangles' of the future prototype. What you have learned in terms of what's working or not and kind of how that’s informing your test that you are going to be doing for the first half of this year.

John Jordan

So when you look at it on Bojangles' of the future, and not just Bojangles' of the future but our restaurants in general, what we have learned is our costs have gone up a lot relative to get the building constructed and opened. And so one of the things we are going to really have to home in and focus on is bring those costs down, whether it be the Bojangles' of the future or whether it be our existing, our previous prototype. When you look at it right now, we have not made the Bojangles' of the future sort of the system standard at this point in time but there is certainly a lot of pain for their being incorporated. So, for example, in company-operated restaurants the interior we are putting in the new buildings, in the new stores. You know they will be Bojangles' of the future is obviously opened in '18 but there may be some smaller stores that we build, smaller square feet. I think when you look at the remodels, what we learned is the three that we did, significant ones in 2017 that cost way too much and we did not get the return that we would have expected on those.

And so that’s why we are going with a sort of smaller scale remodel package that we think we can get a return on and that’s what we are going to focus on here in these first two quarters, getting six of those finished. So we could see how they perform and then see if we can move from there.

Joshua Long

Great. Thank you. And then more from a house keeping perspective. As we bring on the franchise revenues or rather the marketing revenues to that revenue line item, should we expect that those will offset more or less on a quarterly basis or is there kind of a catch up that may take a quarter or two from the expense side.

John Jordan

Yes. I think that you should -- they were primarily offset. So you are going to basically have about $11 million of revenue and roughly about $11 million of expense. And they are relatively going to incur in the same time. Now the other thing that we did not mention is, our franchise fees which are the fees that we collect, under old GAAP we recognize when the store opened, those will now have to be deferred and then they will be recognized over the life of the franchise agreement which is typically 20 years. So as a result of that, our other franchise fees, when you look at 2017, under the new GAAP, they would have been about $650,000 less than what we recorded in 2017. And when we issue our 10-K, which will be before the deadline, there will be a footnote that will actually walk you through 2017 and '16 and show line by line what's impacted on the income statement, and line by line what's impacted on the balance sheet.

Operator

Our next question comes from Jake Bartlett, SunTrust Robinson Humphrey. Please proceed with your question.

Jake Bartlett

John, if you can give us a little help around what we should expect from the net unit openings. Seems like a pretty wide range from the gross but then we are looking at some -- it sounds like some potentially significant closings. So any help you can give us would be helpful.

John Jordan

So I think when you look at right now. We already had 7 franchise restaurants closed to date this year. We haven't had any company restaurants close yet and we are really not a position to give a number at this point in time. I mean I think our focus at this point in time is for Frank and his team to get in there and operate the restaurants. To see how much we can improve them. They are being more focused on operations. What we can do by giving a marketing message in, to get brand awareness in some of these newer markets. And then once we see how some of that works, then I think it will give us a better feel for, okay, what stores can we group together to refranchise and what stores would be potentially closed. And we are going to likely close some stores but those have not been identified yet. So we are going to just have to continue to work through that and we will keep you posted as we go.

The guidance does not include anything for like a closed door reserve or anything of that nature. Of course, if we took a closed door reserve, we would adjust that to adjusted EBITDA and adjusted net income and adjusted deleted net income per share.

Jake Bartlett

Is it possible that process could last through 2018 so maybe it's more of a 2019 story of closures and refranchising or is that something that you would expect could really be more near-term?

John Jordan

It’s a great question. I think it's going to take us a while but there could be some in '18 and '19 because one of the things that we have and we have even gotten interest from others is that there could be some grouping of some stores. Some stores that are EBITDA positive with stores that are EBITDA negative and that a franchisee could take those stores and then have some bunch of upside about getting in there and putting there [indiscernible] equity in. So we are going to take our time. I mean we got to pay the rent payments no matter what. It's already factored into our numbers. And we are going to take our time and make the right decision for the brand for the long term.

Jake Bartlett

Great. And then following up on the, you are mentioning the operations and what the team is doing. Can you just give us a -- remind us what has happened. What changes have been made operationally at the field level? And maybe see if you can lay some concerns that Clifton's departure might impact some of the progress that was made on that front.

John Jordan

So in the past we had a COO and we had regional vice presidents. And at various points in 2017, our COO left and our three regional vice presidents. So we organized and we hired a VP of Operations and we then implemented a position called Director of Operations, which we had some of those in place already. But we now have nine directors of operations. So they have a fewer number of stores under their control. That last director of operations didn’t get totally in place until late 2017. So Frank has just built his team out at the end of last year and now they are hitting the ground ready to run. And they have got game plans, playbooks. Looking at opportunity stores they can work with and then the great thing is that they are not going to get diluted as much in 2018 as they have in prior years by having more of the stores opening.

Now we will say, we have been impacted in that turnover. So our crew turnover in 2017 was in excess of 200% and our management turnover was almost 50%. And while we have been at those numbers before, it's been a long-time. And for Bojangles', I think it has a bigger impact because we actually cook in our restaurants. So it's a harder operation than some of our competitors because we are marinating chicken for 12 hours. We are making iced tea, we are steeping it the old fashioned way. We are making biscuits from scratch all day, every day. And so as a result of that, turnover has a bigger impact on us. That’s one of the reasons that we are focused on maybe doing more full time employees. We think that will reduce some of that turnover and we will have these directors of operations in Frank's team working and being very proactive in their individual markets to kind of put things and to be able to grow. You know have better operations and then marketing the supplement bought over time with various programs.

Operator

Our next question comes from Andrew Charles, Cowen & Company. Please proceed with your question.

Andrew Charles

You mentioned a 20 bps decline in 4Q marketing cost but I remember we previously discussed a desire to increase the local store marketing to help sales in your adjacent markets. So in the context of your expectations for similar level of marketing in '18 versus '17, can you talk about your plans for helping improve the volumes in adjacent markets beside the re-franchising activity?

John Jordan

Yes. So when you look at it, again on a full year in 2017 we have spent more in marketing dollars than we did in 2016. Okay. So for the full year it's just some timing between the quarters. And so if our sales grow, overall revenues, we have some stores so that weren't open yet and weren't in the same store sales base, there will be some more dollars. And we may from time to time invest in some markets but that is going to come out of our study that we are doing on our marketing media mix. It maybe that we simply need to reshuffle how we are spending some of our dollars. So the way that we are spending our dollars and we need to maybe point them in a different direction than we are pointing them right now to be able to do that. But certainly that is part of the overall plan.

The things that are going to drive our business are going to be operations and marketing. Those are the two things. And so we got to be able to serve our customers friendly and fast service and high quality food. But we have to be able to talk to them and connect with them as well through our food but also occasionally through a price point and about our core items that they know us about, and then get that brand awareness. So I think that’s going to be part of the overall strategy that we are looking at as we are going forward.

Andrew Charles

Okay. And then rest of the margin guidance looks pretty favorable within the contest of low [indiscernible] decline to flat same store sales. So beyond the new store and efficiencies and that you are slow giving the slowing pace of openings. Are there any other cost savings that are mitigated into the -- that will be mitigated into the P&L for next year.

John Jordan

Well, there is a couple of things in the restaurant contribution margin. So, a, first of all we are assuming about a 2% commodity inflation. And when you look at labor, we are assuming a mid-single digit labor inflation. Having said that, if you will recall back in the third fiscal quarter, our margin suffered pretty significantly from the welcome home campaign that we did and the [540 mills] [ph]. And so we think that there are going to be some opportunities as we just cycle over that. Even with doing some promotions this year, we are certainly not going to promote against that wide of a range of items on our menu. In essence just discounted the entire menu. And so we are going to try to figure out what we can do to be able to show some value but also on select items that -- or for the value in a consumer, but those who want the regular items at full price will pay for those.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session and this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.