FWRG - NASDAQ

Hello, and welcome to the First Watch Restaurant Group First Quarter 2023 Conference. All participants will be in listen-only mode. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Steve Marotta. Ms. Marotta. Please go ahead.

Good morning, everyone, and welcome. I'm joined here today by First Watch's Chief Executive Officer and President, Chris Tomasso; and Chief Financial Officer, Mel Hope. This morning, First Watch issued its earnings release for the first quarter of 2023 on Globe Newswire and filed its quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com. Let me first cover a few housekeeping issues before introducing Chris. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements. Such statements include, without limitation, statements concerning the conditions of the company's industry and its operations, performance and financial condition, growth strategies and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in our filings with the SEC, including quarterly report on Form 10-Q. First Watch assumes no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit, restaurant-level operating profit margin, adjusted EBITDA and adjusted EBITDA margin. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in the company's earnings release filed this morning. And with that, I would like to turn it over to Chris.

Thanks, Steve. Good morning, everyone. I'd like to start by addressing yesterday's announcement that we acquired 6 franchised restaurants in the Omaha market. As we speak, we have a team of First Watch leaders on the ground, ensuring a seamless transition as we onboard more than 200 new team members. We previously shared our interest in and intent to acquire franchise-owned restaurants as an element of our long-term growth strategy. As of today, we have 14 franchisees who operate 109 restaurants. And of those 60 are subject to purchase options. Our franchise-operated restaurants performed in line with our company-owned units and these 6 are no exception. We expect this accretive acquisition to deliver roughly $1 million in adjusted EBITDA for the balance of the year. Now I'd like to shift to our great first quarter results, which reflect our focus on serving more demand. To start, in the first quarter, we opened 10 new First Watch restaurants in 7 states from Florida to Arizona. System-wide sales were $264.7 million, up 24% versus prior year, and total revenues were $211.4 million, up 22% versus prior year. Our restaurant level operating profit was $44.1 million, resulting in a margin of 21.2% and adjusted EBITDA was $27.4 million, up 42% versus last year. I could not be prouder of our teams and their delivery of one of the best quarters I remember over my time here at First Watch. We achieved same-restaurant traffic growth of 5.1%, which once again outpaced our competitive set. This traffic growth helped drive same-restaurant sales growth of 12.9%. As a reminder, our same-restaurant traffic growth in Q1 2022 was a strong 21.9%. We delivered an exceptional quarter despite the difficult March comparison we alluded to on our previous call. When we look at March and that tougher comps, I think it's important to note that we did not see a deceleration and our average weekly traffic count actually held steady throughout the quarter. Compared to pandemic highs, we did experience a softening of off-prem, similar to others in the industry. However, this was offset by growing dining room traffic as more and more people see us as a place to gather and connect with others. You've heard us talk often about our focus on growing traffic share, which has been a hallmark of our growth for decades. Our teams across the system are continually focused on strengthening our operational acumen to help serve our consumer-led demand. Their focus on controllable and predictable restaurant-level operations helps us leverage increased sales. And while the macro backdrop may be changing and potentially become more challenging, we continue to be highly confident in our long-term outlook based upon steps we've taken and decisions we've made leading up to this point. As a reminder, while others were aggressively taking price in 2021, we maintained our pricing structure through the entire year with a focus on increasing customer count, which resulted in us earning incremental market share. Our development pipeline is robust with high-quality sites in new, emerging and mature markets. Our customer satisfaction scores remained strong, and our value scores continue to show that the customer is recognizing our outstanding dining experience. In short, the future is bright. And finally, I'd like to end by proudly sharing 2 impressive recognitions from independent third parties that we recently received related to the First Watch experience and brand. In March, we were named by Forbes as one of its 2023 customer experience All-Stars, joining some remarkable brands that were highly ranked by consumers for loyalty and customer experience. What made me proud is that First Watch was chosen completely unaided from more than 2,000 unique brands, making the recognition that much more special. Then in April, we were also recognized by Yelp and its inaugural most loved brands in the U.S., coming in as the number 1 restaurant brand and the number 4 overall brand. After 4 decades of being the best kept secret in the restaurant industry, it's exciting for me to see others begin to take notice of the experience that our teams are delivering every day. And now I'll turn it over to Mel to discuss our first quarter financial performance in greater detail.

Thanks, Chris. Good morning. As Chris mentioned, our first quarter was strong. Our comps benefited early in the quarter from the holiday calendar shift and the fact that we were rolling over periods impacted by the Omicron variant in 2022. And as we shared on our last call, March was a more formidable comparison though average traffic levels stayed consistent throughout each month of the quarter. Same-restaurant sales growth was 12.9% for the quarter, driven by same-restaurant traffic growth of 5.1%, which exceeded our own expectations. Total revenues were $211.4 million, which represents a 22.1% increase over the first quarter of 2022. Our food and beverage costs were 22.4% of sales in the first quarter compared to 23.1% in the similar period last year. We experienced inflation of about 3% across our market basket, which was lower than we anticipated and driven mostly by decreases in our avocado and port costs. Labor and other related expenses were 33% of sales in the first quarter. That's down from 34.5% in the fourth quarter of 2022. I'm pleased with the progress that our operators are making here as our labor expenses as a percent of sales improved throughout the quarter. Labor remains an area of great attention as our teams adjust to sales volumes and wage increases, while embracing new tools and processes to optimize these costs. Restaurant level operating profit was $44.1 million for the quarter with a margin of 21.2% and compares favorably to the 19.6% restaurant-level operating profit margin in Q1 of 2022. The improvements reflect both labor efficiencies as well as leverage due to the increased sales. General and administrative expenses were $22.7 million, approximately $3.1 million higher than in the first quarter of 2022, primarily due to the increase in head count to support our growth. Adjusted EBITDA was $27.4 million, with a margin of 13%, exceeding our own expectations for the first quarter. The better-than-expected results were split evenly into 3 categories. First was discretionary G&A spending that was delayed until later this year. Secondly, was the combination of favorable commodity costs and our operators' success with improving the labor efficiencies. And third was our built-in caution about the formidable March comparison. We opened 10 new system-wide restaurants during the quarter, 4 of which were company-owned and 6 of which were opened by our franchise partners. As a reminder, our company-owned restaurant development schedule is heavily weighted toward the end of the year, the fourth quarter in particular. As our second quarter has begun, the month of April has been noisy with shifts in the Easter and spring break timing. Based on what we've seen internally and across the industry, we believe customers have shown signs of being under pressure. And as such, we've marginally tempered traffic expectations for the balance of the year. So here's the update for our full year outlook as follows. We're reiterating same-restaurant sales growth of 6% to 8% in 2023 with positive traffic growth for the full year. We're reiterating our expectations of openings between 38 and 42 company-owned restaurants and 10 to 12 franchise-owned restaurants. And we plan to close 3 company-owned restaurants, resulting in a total of 45 to 51 net new system-wide restaurants. We now expect commodity inflation to be in the range of 2% to 4%, which is lower than our original expectation of 4% to 6%. We continue to expect hourly labor inflation to be in the range of 9% to 11% with an overall restaurant level labor inflation in the range of 8% to 10%. And we now expect a blended tax rate in the range of 33% to 36%. We continue to estimate capital expenditures totaling between $100 million and $110 million, not including the capital outlay associated with yesterday's acquisition of franchise-owned restaurants. And then at this point, given our strong first quarter performance and the acquisition of 6 franchises and restaurants, we're increasing certain elements of our full year outlook as follows. We now expect total revenue growth in the range of 16% to 20%. That's up from our original outlook of 15% to 19%. And adjusted EBITDA, we expect a range of $80 million to $85 million, which is up from the original range of $76 million to $81 million. The franchise acquisition favorably impacts 2023 total revenue growth by approximately 1% and adjusted EBITDA by approximately $1 million. While we don't guide to quarterly results, we believe it could be helpful to share some of our planning considerations for the balance of 2023. As we mentioned on our last conference call, we expect adjusted EBITDA to be weighted toward the first half of the year. More explicitly, we expect over 55% of our adjusted EBITDA will be earned in the first half of the year. And given our planned ramp of both pre-opening expenses and G&A investment in the third quarter, third quarter adjusted EBITDA is expected to be about the same as it was in the third quarter last year. As a reminder, 2023 is a 53-week fiscal year for us. Our fourth quarter will be a 14-week quarter, and we expect the impact of that extra holiday week to be roughly $10.5 million in sales and $2.5 million in adjusted EBITDA. For further detail on the first quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast. And with that, we'll be happy to open the lines for questions.

[Operator Instructions] The first question comes from Jeffrey Bernstein with Barclays.

Great. Two questions. The first one on your comments about April we've heard from a number of others that has been noisy. But stripping out the shifts, it sounds like you mentioned that you're seeing some signs of pressure on the consumer. I'm wondering where perhaps you're seeing that. I mean, obviously, the first quarter results were very strong and ahead of expectations. Just wondering maybe you can share some April specific comp commentary or maybe where directionally you're seeing somewhat of the pressure. How you recognize that there is some pressure coming down? And then I had one follow-up.

Most of the transaction pressure seems to be in the off-prem business.

Are there any metrics in terms of maybe where off-prem was at its peak or trough or what's gone on at least over the past few months?

I don't have a long history of where it is in front of me, but the decline has been pretty sequential for since about the middle of the quarter. But at the same time, our dining room traffic has continued to be recovering from the pre-pandemic levels. So there's a little bit of an offset going on there.

And Jeff, it's Chris. To be clear, we're not seeing anything from a consumer behavior inside our restaurants that you would typically see in -- with check management. Our beverage attachment is actually up and our shareables have remained steady. So as Mel said, the only -- we're really responding more to commentary about the macro environment in general. And that, coupled with the choppiness that we saw in April that we believe was mostly attributable to the shift in calendars is really what we were referring to.

Understood. And then my follow-up was just on the outlook. Well, it seems like inflation concerns, at least around the commodity side, are easing a little bit based on your guidance. Just wondering if you can maybe share from a pricing perspective, what you were running in the first quarter, whether you think you're seeing any resistance? And maybe what your outlook is for the rest of the year, whether you plan on taking more or what pricing would be if you didn't take any more?

For the first quarter, we were carrying just under 7% price, like 6.9%. And I think for the second quarter, we'll be carrying almost 8% in price in the second quarter.

Understood. Is there any sign of pushback from that elevated level of price? I know there's been some concern that food at home is now being reined in and maybe restaurants are considering being a little bit more cautious just to not be glaringly above food at home?

Yes. If you remember, we've been pretty conservative on our pricing. So from an absolute standpoint, we don't consider where we are to be in an aggressive position. We still feel like we're lagging when you look at what everybody has taken over the past 18 months to 2 years. So we still believe we have pricing power. It's not contemplated in any of the guidance that we put out today, but we feel really good about where we are from a relative value standpoint and also from just an overall environment standpoint. So we're just -- we're following through on what we said about people looking for experiences, people looking for consistency and value and our pricing is a big part of that.

And the next question comes from Sara Senatore with Bank of America.

I wanted to ask about the off-prem business and just sort of see if I understand. Is that because the pricing differential you think that that is perhaps weighing on that? And I'm wondering if there's a way to shift those consumers. I know off-prem has been viewed as incremental, but some way to sort of shift channels. Perhaps you keep the customers with First Watch, whether it's designing room or some kind of carryout option. So I'm trying to understand kind of the dynamic that would affect off-prem more than on-premise. And then, in terms of the outlook for commodities, that was actually -- the inflation rate was probably half, I guess, what we had expected. So I know you mentioned avocados in pork, but is that something where you could see continued benefits just because I don't think either one of those are in your Top 2, but it seemed like a pretty meaningful divergence from at least what we had anticipated.

Yes. Thanks, Sarah. This is Chris. I'll take the first one. I'll let Mel take the second one. So my opinion is that the off-prem business is, frankly, the new check management kind of bellwether. So for years, our industry focused on check management as signs of the consumer perhaps feeling some pressure. And let's just be honest, the delivery, third-party delivery occasion is very expensive. And it doesn't surprise me that that's where we see -- and not just with us, by the way, as you've seen with almost everybody in the industry where the consumer is starting to pull back. It's a discretionary occasion. And I think that's where you're starting to see it. So not a surprise to us. We're happy to have more people in our dining room, frankly. And we've been accommodating and leading into the third party as the consumer has kind of gone that way, but not a surprise that that's the first place that would feel some pressure in an environment where there's pressure on the consumer in general.

And in terms of commodity, yes, we did enjoy some better costing, and we adjusted downward our expectations in terms of the full year inflation. I guess I would say that it's still -- we're still paying more dollars than we were last year. It's just that the pace at which the inflation has grown, has -- seems to be slowing down rapidly. So I do think we expect that there's going to be some continuation during the year.

Understood. And then just, Chris, on the off-prem pressure that makes sense as check management. But I know 3P doesn't give you a ton of information about those consumers, but like are you able to talk to them directly again? Are there ways for you to sort of bring them into the restaurant or continue as First Watch even as they try to escape some of the really high fees associated with delivery?

Yes. I think we believe the same thing we believe when the off-prem was growing, and that is that it's an incremental occasion for us, a unique customer. Again, I think it's an actual occasion that is falling by the wayside. If over the last 2 years, third-party or off-prem was a way to introduce First Watch food at least to a new consumer and then perhaps as they become a little more discretionary and not doing those third-party occasions, if we wow them with the food like we believe we did, hopefully, they will come in and give us a try in the restaurants where we can really turn them into a raving fan. But for right now, we still think that's an incremental visit as our dining room traffic grew alongside the third party. So as always, we're focused on our in-restaurant dining experience now more than ever.

And the next question comes from Brian Vaccaro with Raymond James.

I just wanted to circle back a little more and make sure I understood what you're saying on recent trends. And the year-on-year comparisons can be confusing and a bit disorienting. So I guess I was hoping to look through kind of a sequential lens and it sounds like your sequential transactions remain strong through April. But then you noted some fraying, if you will, or drifting on the off-premise side. So did dine-in transactions, are they still holding up well in April? And are there any changes also worth noting in terms of day of the week or time of day trends that might offer any insights?

Yes. I don't know about daypart kind of data. I don't think we've spoken much publicly about that. But with regard to the trend in April, the dining rooms, I mean, even going back to Sara's question a moment ago, I think we are already converting a number of customers to dining in our restaurants with the off-premises business because the dining room has continued to be fairly stable in terms of traffic. April was, as I mentioned, choppy. It was choppy in all the channels, but the dining rooms held up pretty well, but it's just the April traffic seemed to just kind of bounce around a little bit. And we often see that in our April as we come off the first quarter.

Okay, that's helpful. And I wanted to ask about mix also. It seemed like mix returned to some pretty healthy levels in the first quarter numbers. And I'm curious how your alcohol sales mix performed in the quarter after -- I think you recently expanded the offering for the first time on the alcohol side. And then any comments on how the latest seasonal LTOs performed versus sort of a typical performance?

Alcohol has been pretty consistent. It's now in 87% of our restaurants, which is up slightly from Q4. It's still sitting around 6% of mix in the restaurants that have the program. So really not a big shift there. And the second part of your question about the LTOs, I think it's been fairly consistent year-over-year and quarter-to-quarter, although Q1 is usually a good one for us because it's our jump start and people have their New Year's resolution. So not a big shift there. I think the upside really came from the increased traffic and then getting the full effect of our price increase.

Okay. And then just last one on me. Sorry, if I missed it, but what was the -- just some more background on the transaction? I know it's been your intent over time. It's always been something you've talked to us about as a potential. But how did the transaction come together? Does this franchisee have other stores that they could potentially sell? And what were the proceeds or what was the transaction? What did you pay for the stores?

This franchisee, we purchased the 6 stores that this franchisee had -- the 6 First Watch restaurants the franchisee had. And we repurchased development rights and other intangibles along with the restaurants and the total proceeds we paid were a little over $8 million.

And the next question comes from Jon Tower with Citigroup.

Just in terms of thinking about a franchisee acquisition, I don't know how many you've done in the past, but I'm curious to know how these stores typically progress. Obviously, you gave us the accretion numbers, but you did just mention the idea of repurchasing the development, right? So how many more stores could we see from this market coming into your store set? And how -- when you open these stores, are these stores generally in line with your existing system right now with respect to profitability and sales?

So first of all, we've got a history of doing a lot of these over the years. So we've brought in franchise restaurants into the system for decades. And that's been part of the way the company has grown. In terms of the size of the market, what do you -- you were signaling something to me.

Yes. I mean it can probably hold another 5% to 8% in that market as we sit here today.

And they typically perform very similar to our legacy comp restaurants in terms of sales and in terms of overall restaurant level operating profit.

Great. So no incremental reinvestment that you need to make to kind of clean up the system at all?

There's no cleanup. There's -- we do have to shift over. Oftentimes, they'll have different technology than we do. And so to completely integrate them, we'll add some of our technology or our controls, our protective items in the restaurant. But for the most part beyond the purchase, we don't have to invest a great deal.

And John, in general, our franchisees have done an incredible job of introducing the First Watch brands to markets that we probably wouldn't have gotten to as quickly as doing it with them. The restaurants look and feel exactly like a company-owned restaurant. And the primary motive for this purchase in particular, is just it's an efficient use of capital. We don't see operational enhancement opportunities there per se. So kind of just bringing them into the mothership, if you will, and having more company-owned restaurants because we're predominantly company-owned and want to move that way.

Makes sense. And then just shifting to the sales piece, and I know we've hit on this quite a bit so far in the call, but I'm curious, you had mentioned that in-store dining traffic at least continues to hold up relatively well. I'm just curious, thinking about going forward to the extent this choppiness persists into May, June and for the balance of the year. I know historically, as a brand, you don't do any discounting or significant promotions. So can you kind of help us think through what you might do as a response to a potential slowdown on the traffic side in the business?

So one of the things Chris says that I like the phrase that we won't do anything unnatural. The brand. Our focus is on being successful over the long term. We'll continue to focus on quality products and service and entrees. We've always been very careful about pricing. And so I think given our history of being attentive to our customer with regard to pricing, I think we're already well positioned if there is inflation or a recession that causes people to be more discriminating. But I do think that when people become more discriminating about where they're going to use their dollars that they are typically choosing restaurant brands that they trust. And I think we're well trusted, which puts us in a good position to face that if we were to experience a deep inflation, or excuse me, recession.

And the next question comes from Andrew Barish with Jefferies.

Can you hear me? Yes. Just a couple of expense questions. Yes, I mean, labor made good progress sequentially but was still up year-over-year. I mean, I know staffing is better and you've made some changes in some of the in-store labor allocation and positions. Is this kind of a good rate to think about on a go-forward basis in terms of percentage of sales?

Yes, that's a good question and we get it pretty often. I think when we are able to manage labor in the restaurants at 33% and below, that's a pretty good target for us. And so I think we still have some work to do on the full year, but we don't want to do anything that, in any way, degrades what we know to be a gracious experience that the customer enjoys in the restaurants. And so we're careful not to try and drive out too much there. So pushing it towards 33% and below is kind of where we target. I think that's where our best restaurants tend to run.

Got you. And then anything on the occupancy line, I mean, that clicked down pretty noticeably below 8% of sales other than the leverage and the flow-through from the strong sales?

It's mostly that. I mean it's mostly just the leverage on sales.

And the next question comes from Chris O'Cull with Stifel.

I had a follow-up question around the acquisitions. Chris, and I understand the company has a lot of experience acquiring franchisees. But it does sound like this is becoming a higher priority than maybe it was a year ago. I'm just curious if there's been any changes to kind of drive that decision?

There's no real -- I mean, I would say the timing is this. We've been public now for 1.5 years and in our first year after we did the IPO, we focused entirely on building back the company operations to pre-pandemic type performance. And we wanted to be exactly who we were. I mean, frankly, we wanted to focus on our own company growth. We knew the acquisition opportunities relative to the options weren't going to go away. And so we thought being predictable during the time that we were a new public company and recovering from the pandemic that being heads down on our own company operations was the first and most important priority. And so now I would just say in the fullness of time, this one acquisition was a good opportunity for us, and we're delighted to have brought it off.

That's a good explanation. Does this change, Mel, the time line of when you expect the company to be generating free cash flow?

I mean, look, not materially. I mean you're talking about an $8 million purchase here and the rest of the -- so this transaction on its own doesn't shift anyway.

I was thinking more around being opportunistic acquiring franchisees just going forward, do you think -- is the time line around generating free cash flow, is that influencing the decision on whether to acquire franchisees?

I think we view them as a good investment for the near term and the long term. So it doesn't -- I mean our free cash flow timing isn't really influencing that. We just see them as a great 30-year investment and an efficient use of the company's capital.

Fair enough. And then I had one other question around menu mix. Chris, I was just wondering how you're thinking about managing the menu mix this year with the seasonal menus and the alcohol program. Are you seeing more -- do you think you need to be more cautious around trying to drive favorable menu mix in the current environment?

Are we being more cautious? Is that what you said?

Do you think you need to be more cautious around trying to increase the check average with the seasonal menu and with the alcohol program this year, given what you've seen recently?

No, I think our focus is more on the value versus the actual price. So we'll continue -- look, menu innovation has been the hallmark of our success for so many years. We're actually going to lean into it, to be honest with you. So you'll see us innovating around the alcohol program. You'll see us innovating around the shareables even more. And that doesn't necessarily mean higher price. A lot of times, we'll introduce items that may be at the same or lower price but deliver higher margin, and that works really well also. So yes, we're not being cautious around that at all. We haven't changed our strategy or our philosophy. Our biggest challenge, frankly, is how to outdo ourselves. When we look year-over-year with the success that we see in those seasonal menus is what are we going to do to top that. So our team is challenged, but they're up for the challenge, and we've been doing it for a long time.

And the next question comes from Gregory Francfort with Guggenheim Securities.

The first one I had was just on labor. And you guys I think are one of the few that are guiding up kind of closer to 10% labor inflation. And are you -- we're hearing from others that turnover seems to be starting to break a little bit. Are you seeing that as well in your restaurants? And is that having any impact on entry-level wages. I'm just curious what the dynamic is out there.

Our turnover has been in descent. I think we still view it as an opportunity for the last year or so. We've seen some of the turnover metrics for our hourly employees begin to improve over time. But we still have work to do there. Most of the wage inflation that we see is where we have regulatory increases in minimum wage that are due in some of the states we operate in, Florida being notable.

Okay, understood. And then, can you just provide an update on new store volumes and returns and maybe investment costs? It seems like it keeps running ahead of your existing volumes. Curious if that's the dynamic that you're seeing and kind of any update on what the return profile of new restaurants look like.

Truthfully, the return profiles haven't changed. In fact, if you look at our investor deck on the website, Greg, we have a unit economic page that shows generally the range that we are investing in the restaurants now with larger footprints and more of the elements that provide for our alcohol program and larger patios and that sort of thing. So generally speaking, I think the range starts at the low end now at about a $1.4 million net of allowances, but the returns are roughly the same that they've been since you and I began to start talking years ago. The 3-year restaurant-level operating profit is still targeted at that 18% to 20%.

Got it. And then, just maybe a last one for me is a lot of the commentary on the call has been about off-prem generally. I'm curious, are you seeing a different dynamic within delivery and takeout. I think this quarter takeout slowed pretty similarly. But as you look to 2Q and your expectation for the rest of the year, are the comments more around delivery? I would think takeout would hold up if the consumer were pressured, but just curious any thoughts on that. I would say a lot of our -- this may be a little bit of an anecdotal answer to this, but I think a lot of our takeout customers are also our dining room customers. So as we've seen our dining rooms increase, even our takeout business has declined in terms of those volumes.

And the next question is a follow-up from Brian Vaccaro with Raymond James.

Just a quick one on the commodity outlook if I could. Mel, could you remind us what percent of the basket is contracted for the rest of the year? And then we've noticed the recent crack in egg prices. I think you're contracted, but could you just level set what type of year-on-year inflation you expect on eggs specifically?

So the portion that is under a full year contract is about 15% of the market basket, and that includes eggs and potatoes. We are also -- we have pretty clear line of sight on pricing for a lot of the rest of the market basket for about, I don't know, call it, 45 to 60 days forward is probably a good analysis. But for the full year, it's just the eggs and the potatoes. The eggs specifically you asked about, I think we're probably favorable to spot rate now and as the flocks repopulate, and we understand that that should be targeting kind of middle of the year, so we should be within 45 or 60 days of those being repopulated. Our back half of the year, we may be a little bit unfavorable to the spot rate, but we're still -- overall, we've got secure supply, and we've got a fairly good pricing on our eggs.

I think that's the end of our questions. So, thanks for your time today. I appreciate it. We're proud of our continued excellent performance and our ongoing operational enhancements that are positioning our restaurants to serve more demand. We're optimistic about the potential afforded to us by the acquisition of certain franchise restaurants, and we look forward to sharing further news on that front. Thank you for joining us this morning.