Boyd Hoback - CEO and President Ryan Zink - CFO.

Hugh Gooding - Stephens, Inc. David Burdick - Dougherty & Company Steven Anderson - Maxim Group.

Good afternoon ladies and gentlemen. And welcome to the Good Times Restaurants, Inc. Fiscal 2017 Fourth Quarter Earnings Call. By now, everyone should have access to the company's fourth quarter earnings release. If not, it can be found at www.goodtimesburgers.com, in the Investors section.

As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and, therefore, investors should not place undue reliance on them. And the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

The company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. Lastly, during today's call, the company will discuss non-GAAP measures, which they believe can be useful in evaluating our performance.

The presentation of the additional information should not be considered in isolation or as a substitute for the results prepared in accordance with the GAAP and reconciliation to comparable GAAP measures available in our earnings release. Please note that this event is being recorded. And I would now, like to turn the call over to Boyd Hoback.

Please go ahead, sir..

Thank you, William and thanks again everyone for joining us again this afternoon. With me today is, Ryan Zink, our Chief Financial Officer.

I'll cover a summary of our fourth quarter and our current developments and Ryan will provide more details on our financial results for the quarter and the fiscal year as well as some additional color on our guidance for fiscal 2018.

We're again generally pleased with our results for the fourth quarter particularly with our continued outpacing of our industry segment and our top-line sales trends at both brands. However, we again faced continued cost of sales increases due to escalation in all of our protein costs particularly impacting our fourth quarter operating margins.

Ryan will give a little more detail and what we are expecting for fiscal 2018. But we have seen some moderation in beef and baking costs in our first quarter 2018.

We took small increases of both brands on August -- price increases on August 1 and which partially offset some of the cost of sales increases in the quarter and we plan to take another small price increase on January 1st of both brands.

Due to the disproportionate increase in labor costs in Colorado, we anticipate that our pricing in Colorado during fiscal 2018 and potentially beyond will be more aggressive than elsewhere for our Bad Daddy’s brand, with our primary goal of maintaining our guests’ traffic.

Our total revenues increased 31% to $22.584 million during the quarter with comp sales increasing 1.4% of Bad Daddy’s and that’s 1.9% when we factor out the Cherry Creek location increased 33.9% at Good Times.

The sales at Good Times marks the fifth straight quarter of sequential improvement in comp sales, and they were slightly better than the guidance given last quarter of plus 3% for the quarter.

Sales for Bad Daddy's for the quarter increased 47% versus last year to a little over $14 million, and our restaurant level operating profit, which is one of the non-GAAP measures increased to approximately $2.1 million or 14.8% as a percent of sales.

As we stated in our prior calls, on a current average unit volume of approximately $2.7 million, our North Carolina stores have a restaurant level operating profit of approximately 20% and our new stores stabilized sales target is an average volume of $2.5 million, approximately a 17% to 18% restaurant operating profit margin.

So we anticipate we will see improved operating margins in fiscal 2018, as we open these next seven stores and thereafter as we anticipate most if not all the new stores will be in states with the similar wage structure.

That store level on Bad Daddy’s continues to deliver a 40% plus cash on cash return on investment based on approximately $1 million net investment in each store excluding pre-open costs.

Good Times sales reflects the results of our $3 West Coast Burger and our $5 combo introduction that happened at the very end of our second quarter, but we ran it all the way through the end of the fourth quarter with a continued strong sales mix in that product.

We’ve since raised the prices to $3.49 and $5.49 on those items, but they continue to be part of our core value preposition.

But as I mentioned last quarter, we rolled out our new kids menu on October 1 and that supports our core positioning of all natural burgers and chicken offerings for kids, but it’s now are the much wider product choice including a token for a free custard cup or cone.

And we introduced that at a promotional price of $3, that helps sustain our same-store sales trends this quarter so far at over 4% on the Good Times side.

We have also more than doubled the incidence of our kids meals with the strong average checks so it’s doing what we intended on driving families in and we plan to take the kids meal back to our normal pricing of $3.99 at the first of the calendar year.

We are also again pleased with our continued increases in Bad Daddy’s same-store sales during the quarter of 1.9% and again that excludes the negative impact of the Cherry Creek store. The hotel has been under construction next over there is scheduled to open in March of 2018.

And we certainly hope to return to sales trends and profit levels that we were at prior to that construction. We are also sustaining Bad Daddy’s comp store sales increases at about that same rate so far into our first quarter of this year. We are in test with the lower price point in smaller portion al carte lunch menu.

And I mentioned last quarter as well as our revised happy hour food menu both of which have improved cost of sales margins. We expect to have both of those tests completed refined and evaluated by the end of this first fiscal quarter. Again with a goal of driving guests traffic in our up peak day parts and implementation into select stores.

Our class of eight 2017 stores that have opened so far continue to generate above average sales, we are really happy with those, including a few with extraordinarily high initial sales volume during their honeymoon periods and most of those were now settling into stabilize sales trends.

So we projected them to maintain a slightly above average volume into our fiscal 2018. We opened one restaurant in Norman Oklahoma in August, two stores in North Carolina in the first two weeks of October originally slated for the last week of September, but those got pushed by a week and two weeks respectively.

We plan to open seven additional stores in fiscal 2018 funded out of cash flow from operations and some additional senior debt. We have eight leases signed with four additional that we expect to be ready to sign over the next few weeks for our 2018 development as well as initial development in 2019.

We've shifted around some of our opening schedules a little bit, but we're maintaining our prior sales and adjusted EBITDA guidance for fiscal '18 that Ryan will review in a little bit more detail.

We plan to Atlanta the first week of January our first store there, followed by Chattanooga, and then a second Atlanta store our second store in Greenville, South Carolina, one in Greenville, North Carolina and then our sixth store in the Charlotte metropolitan area and finally will be a third Atlanta stores that comprises our seven store development schedule.

Atlanta and Chattanooga will be two new markets this year, and we anticipate that Nashville additional stores in Oklahoma City, Tulsa, and South Carolina will be our initial development areas in 2019. We expanded our development line of credit with the Cadence Bank to $12 million during the quarter and that will funding for our fiscal 2018 plan.

With our current company operated stores opened, 12 of those being in Colorado at the end of the quarter again we anticipate that our overall operating margins will continue to improve as all of the planned new stores are in those lower minimum wage states.

In addition to continuing our positive sales trends and taking what we think is an above average approach to pricing, we're also working hard on improving our operating margins at both brands. We estimate that we absorbed over $800,000 in unplanned commodity cost increases during the last seven months of 2017 that we couldn't price over.

We accelerated some price increases, but we still absorbed quite a hit at the cost of sales line. Again that's begun to ease somewhat this first fiscal quarter. Our weighted product cost index at Good Times increased over 9% during the fiscal year last year, and that's a rate of increase that we've only seen twice before in the last 15 years or so.

So it's an extraordinary spike during the last seven months.

We're entering into a new distribution agreement in lower rates in Colorado, we're refining our beer and liquor pricing at Bad Daddy's, refining our front of the house labor model at Bad Daddy's, exploiting further efficiencies in each of our other operating expense line items to continue to try and push improvements on the -- as we continue to grow our top-line.

And we anticipate our G&A expenses will continue to decline as a percentage of total revenues from about 8.8% this last year to approximately 7.9% or less in fiscal '18 as we open new Bad Daddy's and as we leverage our fixed supervision and support services cost.

Most importantly in this competitive environment and the industry macro environment and the most difficult labor environment I think we've ever faced, we really continue to focus on differentiating our concepts from the competitors in meaningful ways in both segments and to continue to drive values based culture around carrying excellence as deep as we can.

Ryan is going to provide some more details on our guidance for fiscal 2018, I'd like to now turn it over to him to review more of our financial results for the quarter and fiscal year..

Thanks, Boyd. At our Good Times brand sales increased 11.7% from $7,500,000 last year in the fourth quarter to $8,546,000 in the current year, driven by the 3.9% comps plus strong sales in our new Greeley restaurants those opened during the year. The 3.9% comps for the quarter were slightly better than our guidance of 3%.

For the quarter, traffic increased about 0.5% at our comparable units and we have a year-over-year menu price increase of approximately 3.5%. For the year sales increased $1,828,000 in the current year to $30,689,000 again driven by comparable sales of 2.1% for the year and the continued above average performance of our Greeley restaurant.

Food and packaging cost at Good Times were 33.4% for the quarter and 32.6% for the year, an increase of 1.0% versus last year's fourth quarter and 0.2% versus fiscal 2016.

This increase in the fourth quarter was driven by increased pricing in our key commodities, primarily beef and baking and as Boyd alluded to, which is reflected in the sequential increase of 0.7%. Total labor cost at Good Times increased to 33.4% from 32.4% for the quarter last year and 34.4% for the year versus 32.7% in fiscal 2016.

Most of this relates to an increase in the average wage rate of approximately 9% to 10% for the quarter versus the last year. This was due to the extremely competitive labor market we continue to experience here in Colorado.

As we've mentioned in past calls, as well as the statutory increase in the Colorado minimum wage of 12% that took place at the beginning of calendar 2017. Restaurant level operating profit, again a non-GAAP measures at Good Times increased $20,000 to $1,333,000 from $1,313,000 last year during the quarter.

As a percent of sales, the restaurant level operating margin declined by 1.6% versus the prior year. At Bad Daddy's, sales increased 43% versus last year from $9.540 million to $14.036 million for the quarter, and increased 37% to $47.706 million for the year, compared with $34.855 million for fiscal 2016.

This was due to the six new units opened since the end of last year's fiscal fourth quarter, resulting in 78 more store weeks this quarter versus the same quarter last year. And 257 more store weeks in fiscal 2017 versus 2016.

We achieved positive 1.4% and 1.6% comps for the quarter and year respectively, excluding our guidance from last quarter, which was flat to actually slightly negative comps. 11 Bad Daddy's restaurants were included in the comp base for the entire quarter, three more stores entered the comp base during the quarter.

And at the beginning or in the first quarter of 2018 one additional restaurant will enter the comp base. Costs of sales at Bad Daddy's were 32.1% for the quarter, an increase of 1.1% versus last year's fourth quarter and an increase sequentially over the previous quarter by 1.0%.

Consistent with what we've experienced in our Good Times concept, input cost specifically our key proteins of beef and bacon were the primary drivers of these year-over-year and sequential increases in the fourth quarter. Also of notice that we saw a doubling of avocado cost and that is a significant produced item that we use at Bad Daddy's.

For the year our cost of sales was flat at 31.2% and subsequent to year-end as Boyd has mentioned, we have seen some decrease in all three of those commodity cost that I mentioned. Bad Daddy's labor cost increased to 37.2% from 36.1% last year for the quarter, and 37.2% versus 36.3% for the year.

These increases were due to a significantly higher mix of stores in Colorado than last year, and as Boyd and I both mentioned previously, the tight labor market and unfavorable statutory minimum wage in Colorado. This was particularly impactful at the Bad Daddy's concept as the tipped employee wage increased 19% on January 1 of 2017.

And as we've mentioned previously in these calls that's about 150 basis point accretion in hourly wages in the Colorado locations. Overall, restaurant level profit for Bad Daddy's was $2,081,000 for the quarter or 14.8% of sales compared with $1,631,000 or 17.1% last year, a net increase of $450,000 over last year.

For the year restaurant level profit was $7,539,000 versus $5,832,000 in fiscal 2016, an increase of just over $1.7 million or 29.3%. General and administrative expenses increased to $1,780,000 during the quarter from $1,587,000 in the same quarter last year, and to just over $7 million for the entire fiscal 2017 from $6,288,000 in fiscal 2016.

G&A expenses declined as a percent total revenue from 9.3% in Q4 of 2016 to 7.9% in this year's fourth quarter and from 9.9% for the entire fiscal 2016 to 8.9% for fiscal 2017.

G&A for fiscal 2017 was in line with our prior guidance of $7 million and we anticipate the G&A expenses will continue to decline as a percent of revenue in fiscal 2018 and beyond as we expand or based of restaurants, even as we increased our G&A spending in key areas.

We recorded a non-cash impairment charge for one of our Good Times Restaurants of $219,000 in the fourth quarter of 2017. This restaurant was the only restaurant in our portfolio of company owned Good Times with negative restaurant level cash flow with volumes substantially below the company average.

This charge represents a write down of approximately 80% of the store’s net book value of long lived assets.

Our net loss for the quarter was $664,000 versus a net loss of $71,000 last year in the fourth quarter, mainly due to an increase in preopening costs from $267,000 last year to $851,000 this year, as well as the aforementioned impairment charge. For the year our net loss of $2,255,000 compares with a loss of $1,321,000 in fiscal 2016.

Again this is primarily the result of nearly $900,000 of increase in preopening costs for the year and the $219,000 impairment charge. Preopening expenses for the year were $2,588,000 slightly above our guidance of $2.5 million.

Our adjusted EBITDA for fiscal 2017 increased to $3,777,000 from $3,368,000 in 2016 and slightly exceeded our guidance of $3.5 million to $3.7 million.

Our current annualized run rate revenue is approximately $92 million and we estimate our annualized run rate EBITDA at approximately $4.8 million, increasing to an estimated $7 million at the end of 2018. That being the run rate at the end of 2018. In the earnings release, we updated our guidance for fiscal 2018.

We confirm our prior guidance of revenues in the $100 million to $102 million range with a revenue run rate at the end of fiscal 2018 of $109 million to $111 million.

The revenue estimate include same-store sales assumptions for the year of 3% to 3.5% for Good Times and between 1% and 2% for Bad Daddy’s, with relatively consistent same-store sales expectations in each quarter.

In addition to the two units opened in October we expect to open seven additional Bad Daddy’s restaurants during fiscal 2018, with one of those remaining seven restaurants being a joint venture unit. We also confirm our prior guidance of adjusted EBITDA in the range of $5 million to $5.5 million.

We expect approximately $7.9 million to $8.1 million of G&A expenses during the year, which includes approximately $700,000 in non-cash equity compensation expense. We also expect preopening expenses between $2.2 million and $2.7 million and total capital expenditures of approximately $9.5 million.

We expect to end the year with a debt balance drawn on our senior line of credit of between $10.5 million and $11 million. We have finished fiscal 2017 with $4.3 million in cash and drawn $5.3 million of our $12 million credit line.

We believe our cash flow from existing units coupled with our excess cash balance and our credit facility will support our total CapEx needs related to new stores, minor remodels and recurring maintenance CapEx through the end of fiscal 2018.

As we enter into fiscal 2019, we will need to secure additional credits to support such development at our current pace. That being said we don’t anticipate undue challenges in obtaining such credit, whether that would be again through expanding our current facility or by replacing it with a larger senior debt facility.

With that I’ll turn the call back over to Boyd. .

Thanks, Ryan. We believe we are on track to build some significant value for our shareholders.

A measure probably aware or maybe aware two of our existing directors filed an amendment to their Form 13D suggesting a partial new board slate along with some strategic initiatives and a focus on improved near-term profitability with an evaluation of the productivity of all of our existing assets.

We are working cooperatively with them with them being existing Board members, to really fully understand their ideas and the impact of their suggested strategic initiatives including the balancing of near-term profitability with our longer term growth opportunity to maximize shareholder value.

We do not yet have resolution on the proposed Board slate, nor do we have schedule for our annual shareholder meeting, but we hope to have that in the very near future. I’d also like to again to take the opportunity to thank our management and team members for all their hard work and commitment at both Good Times and Bad Daddy's.

Appreciate your time with us today. With that, operator we'll open the call for questions. .

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question today will be Will Slabaugh with Stephens Inc. Please go ahead. .

Good afternoon, guys and thanks for taking my question. This is actually Hugh on for Will today.

And my first question centers around value and specifically can you maybe give some early color any changes on what your value proposition will look like for 2018? Just given it appears that the competitive dynamics and consumer preferences will continue to focus on value?.

Sure, yes we anticipate particularly after the beginning of the calendar year that that will probably intensify again as it tends to do every year. Our primary value propositions are really three fold.

One we have a breakfast value proposition with our 225 Burritos, that is a really strong and competitive price points and that's help sustain our breakfast mix over the last couple of years. The West Coast and the West Coast Double, we had those on a promotional price of $3 and $5.

They continue to sustain a really strong sales mix at $3.49 and $5.49, and we'll continue to promote those as part of our key value proposition. We also have the expanded kids meals, again that we've been running at $3 even at $3.99, we think that that's a very competitive value for kids and is drawing in quite a bit of family traffic.

We plan on introducing a new spicy chicken sandwich, which we don't have on the menu currently, and that's one of the highest incidents. Sandwiches in QSR and while not specifically a value promotion we think it's going to be a meaningful new product introduction.

On the clustered side, next spring and summer, we've done a series where we've offered a little free pod benders, which is our little custard for dogs, which is resonated really strongly and driven meaningful traffic. And we'll do selective LTOs as we move into spring and summer around the custard side.

We're still avoiding any permanently low price points in the $1, $2, $3 range. We haven't done any bundling in the 4 for 4 or 2 for 2 or 2 for 6 and all the things that you see competitively. And so far we've been able to sustain our traffic in our same-store sales. So we're going to continue to bang the drum on our quality points of differences.

Our burger of the month program at Good Times. On the Bad Daddy’s side on the value side, we really haven't been impacted too much by the $6.99 promotions going on with both Red Robin and Chilies. But we are in test with that lunch menu that offers some lower price points and lower portion options.

And so far that's going well we'll see if we roll that out here after the first of the year. And then the Happy Hour expansion while not that meaningful for our peak periods. Our Happy Hour runs from 3 to 6 and 8 to close, so it's a good portion of our day.

We've got that new Happy Hour menu in test with some significant low price points that we think again will be a nice layered addition to price choice.

On Good Times specifically we've always taken the attack of trying to offer good price choice along the three tiers of our menu at the low end with our bambinos at the mid-price, which is our West Coast. And then we have our premium sandwiches, in Bad Daddy's we're just adding in some more price choice with the lunch menu. .

Thanks, great. Thank you. And one more if I could, you talked a little bit about this in your prepared remarks.

But could you just provide a little bit more color on any updates of what you're expecting to see on the cost of goods or labor inflation outlook in 2018 as a whole?.

Sure. We're expecting cost of goods from where we ran in our third and fourth quarter are expecting those actually to be down a little bit, particularly in our core proteins beef and bacon being the big ones are fairly stable and are projected I think to be stable and down a little bit.

The pricing that we've taken and fairly aggressive pricing we plan to take will have obviously some positive effect and our goal is to maintain traffic while we do that. So we're planning on slightly lower cost to sales in 2018 than we ran in 2017. Most of the pricing that we're taking is really to absorb the minimum wage increase in Colorado.

We are planning again as Ryan said, I think a 3.5% price increase for the balance of 2018 and a little less than on Bad Daddy’s. So the biggest margin difference that you will see on Bad Daddy’s as we continue to open stores and the impact of the Colorado margin hit we take on labor will become less and less impactful.

We are anticipating expansion of our operating margin and lower overall labor because we run about a 5.5% lower labor on the same volume in our Southeast restaurants that we do in Colorado.

Labor never the less is obviously we are still seeing some escalation in that, most of that is driven by the statutory increase in Colorado, but we’re paying above that minimum in both brands, but it tends to effect the scale overall.

We are not seeing quite as much escalation and inflation in the lower minimum wage states, but it is still a tight labor market and we are seeing some inflation. But in Colorado was 8% to 9% last year, which is very, very significant..

Hey, Hugh, this is Ryan. I would just add to that on the costs of goods sold. For both brands over the year, we are in our guidance; I would say we are assuming roughly the same cost of sales that we ran at both at Good Times and at Bad Daddy’s for the entire fiscal 2017.

I would tell you that the way that stacks up quarter by quarter is Q1 is a little bit higher and quarters two through four is much closer if not slightly below what we ran for the year in total..

Great, thanks so much for that color. .

And our next question comes from Jeremy Hamblin with Dougherty & Company. Please go ahead..

Hi, this is David Burdick on for Jeremy. Thanks for taking my question and congrats on the nice quarter.

Just wanted to start out on the Bad Daddy’s side and specifically the new units, kind of given the two that shifted to Q1 with the cadence view then three opening in Q1 and still two in the remaining quarters or could you maybe just walk us through the timing of the 2018 openings?.

Yes, sure David, I can walk you through that. So for the balance of this quarter, we do not expect any other openings. And so for Q1 we expect two to be the number that we will open.

We will open -- in our guidance we have provided, we have one opening in Q2, which will be near the beginning of Q2 really in the first couple of weeks of January and then we have three in each of the remaining quarters..

Okay, great thank you. And then maybe could you maybe just talk about kind of these the 2007 class of openings and how they have been performing.

And then I know it’s still early on the two that opened on October but was hoping maybe you could provide how those two locations have performed as well?.

Sure, feel free to jump in Ryan. But we have had generally really strong opening and I think the one of the surprises is the honeymoon periods we have had on the initial openings on some of the stores including the two that opened in October have just opened at extraordinarily high volume.

And it takes typically four to six months for them to settle into their stabilized sales trends. As I mentioned in the prepared remarks, we’re anticipating for all eight stores based on how they have opened up to be running a little higher than our average. So we are really happy with that.

We have had one opening in Colorado that’s just a little bit under the average, but it’s growing and we expect it to be right at about average as we move into 2018. You want to add on that. But generally David we’re throughout 2017 openings and certainly hope we can do that same thing on these next seven stores in ‘18..

Okay.

And then on the Cherry Creek location, not sure I caught what you said, but could you maybe update us on the kind of the progress of the construction around the site and expected timeline?.

Well, Boyd I’ll let you kind of handle the construction, because you are little more familiar with that schedule than I am. What I could tell you as it relates to Cherry Creek for the quarter, I think the impact was approximately five-tenth of 1% on cost to sales. As we have entered into the New Year -- on same store sales, yes I apologize.

As we've entered into the New Year the impact of that has been significantly less both due to the number of stores and also due to the relative year-over-year performance of the Cherry Creek location.

And in the first nine weeks of the period, the impact of Cherry Creek location has had our cost of sales is approximately one-tenth of 1% -- on same-store sales is approximately one-tenth of 1%..

And the comments I made were that the hotel that's been really the most disruptive to is because it comes right up to our -- the line of our patio and is closed the street in front of those for the last nine months or so.

That's due to be completed with our grand opening in March we're anticipating this street to open prior to that and get back to two way traffic and our pedestrian traffic hopefully back to normal. And get our patio back which has been -- which we didn't have really all of last summer get that backed by spring time as weather comes around again.

So, while we're lapping really pure sales from last year so the same-store sales impact isn't quite as great. We anticipate that should turn hopefully very positive come spring time when the Jacquard Hotel opens next door to us..

Okay, great. Good to hear. And then just a follow-up on margins and wanted to kind to see if you guys see any areas where you can maybe improve margins going forward, is there may be an opportunity on operation side of the business managing hours and kind of the efficiency.

Just trying to get an idea of how to think about margins in kind of FY18 and beyond?.

Yes, so and it's a little bit different. We run very lean on good times meaning all of our management folks are in production position most of the time. Bad Daddy's it's a little bit different where we have our management managing the store and outer of position.

We're working pretty diligently right now on refining our labor model both front of the house and back of house on Bad Daddy’s. We’re looking at products for example that we do from scratch that maybe we're not getting credit for, that can be outsourced we're looking at very prep intensive items and we can ease the prep hours associated with those.

Our line functions, it's tough to modify those very much on the back of the house, but we're really looking at more refining our scheduling process from a productivity standpoint on the fringe times as we come in and out of our peak times.

Where we have opportunity, we believe is in the front of the house and we're already working on that with our host hours, our server hour and our bar hours to try and lean those up a little bit, we're not a fan nor do we think it fits our concept to go with the tablets on the table. We still run four table stations most of the time.

We are -- now that we have more experienced servers we are allowing them to go to five table stations during certain times that allows to staff to make more money, better energy in the restaurant. So, long story short is yes, we think there is some opportunity.

It's not a couple points, but we think there is maybe a half to a full point as we continue to refine our labor model on the Bad Daddy’s side. The big impact from an overall percentage margin will be -- we've been dropping our G&A about a point a year and we certainly anticipate to continue to be able to do that.

And we're going to be as efficient as we can and not add unless we really have to. We’ve got some new software in place that we haven't fully leveraged yet that we're figuring out how to leverage that I think a little bit more efficiently this year.

And then throughout the operating statement, I mentioned the new distribution agreement we've got that will help. We're looking at every single line item and trying to find out on the -- both on the purchasing side as well as in-store management side where we can find a tenth of a point here and there and I think there is some opportunity.

The Bad Daddy’s again non-Colorado margin is very healthy and we want to be very careful on not dump down the concept and those are top-line momentum by squeezing labor too hard, but there is some additional management efficiencies when we run four and five salary management at the store level there is an efficiencies in how we use their time that I think we can impact as well..

So, in terms of the guidance I would say that at Bad Daddy’s of Colorado, we've modeled between half a point and 400 basis points of labor cost inflation, but that’s offset by significantly greater development in North Carolina. And also we've modeled in about 20 basis points of labor cost deflation there.

A combination of just being able to run more efficiently as well as the impact leveraging of better higher pricing menu pricing. I would echo what Boyd had us to say specifically about labor costs and cost of sales and the approach we're taking there.

We don't want to damage the concept by try and too cheap in the concept, we are committed to a full service model. But at the same time, both from some of the specific initiatives Boyd talked about as well as just a heightened focus and focus on ops excellence.

We hope that we will be able to gain some efficiencies that are not provided in the guidance..

Great guys, thanks for taking my questions and good luck in 2018. .

Thanks, David. .

[Operator Instructions]. And our next questioner will be Steven Anderson with Maxim Group. Please go ahead. .

Yes, good afternoon. I missed part of the call earlier, but I wanted to look at your first of all what kind of rate of labor cost inflation you expect for fiscal '18 how that compared with '17? And I have a follow-up. .

Well so. and as I just mentioned, I think the way we've modeled it in Bad Daddy's Colorado is between five-tenth of a percent, a full percent increase in as a percent of sales in labor about two-tenth improvement as a percent of sales in Bad Daddy's outside of Colorado.

And then on the Good Times side, we're looking at again it's very similar to what we've modeled for Bad Daddy's Colorado somewhere in the range of 50 to 100 basis points..

Okay, that makes sense. And my follow-up question wanted to just the some of your potential opportunities in off-premise and maybe online mobile sales. Don't know if you looked at that for either for Bad Daddy's or for Good Times.

I know Good Times you already have large portion of your sales are in -- to go business, but wanted to see if there is any opportunity for you to maybe use of a technology to maybe get more efficient operations in the back of the house that maybe you get some increased throughput..

Yes, very definitely. We're in test right now with DoorDash here in Colorado with Bad Daddy's. There is certain dynamics I think to make delivery really work and to really gain meaningful sales opportunities there. One is average check, two is just the nature of locations. It tends to work much better in urban locations than suburban locations.

But we think that there is opportunity there. We're going to take that as I've said in prior calls kind of a step at a time there is an enormous amount of change going on in that business right now. Some of it is driven by how efficient we can be.

We're developing online ordering platform right now that we anticipate will be done close to the end of this month or by mid-January so that we can have full online ordering, which will give us a lot more efficiency in store.

Right now, we do a fair amount of takeout business, and we don't know how much exactly of that is delivery, because we're on the different providers websites that we don't know about. But we think that we have an opportunity to increase our takeout sales not only with delivery, but simply by being more efficient in store.

I would say we do an average job on takeout right now.

And so we're looking at dedicated spaces in our restaurants, we're looking at moderating the number of tables for our line efficiency on how much volume the kitchen can really handle versus the number of seats we have and maybe an opportunity for us to create a section in the restaurant that's more dedicated to takeout and then leveraging that with delivery overtime..

Okay.

And just for my reference, what percentage of sales do you get from takeout at Bad Daddy's?.

Overall, we're in the kind of low-to-mid single-digits. We have a couple of stores that are in the mid-teens and not coincidentally that happen to be real urban type locations. And so going from 4% to 5% there is probably a few points of opportunity there.

I think overtime, as that whole business model gets figured out, I think there is much larger opportunity. Our focus is still growing our sales in the four walls in our trade areas because we think we have still lots of opportunity there as the brand awareness built. But incrementally I think takeout and delivery is an opportunity. .

The other thing I would say Steven is we currently do not have online order on our website and that puts us at a competitive disadvantage. During the first quarter we have signed an agreement with a leading online ordering provider, we anticipate having that completed in the next I would say 8 to 10 weeks.

At least in test in one location by that point in time..

Great, thanks. .

And there are no further questions, so this will conclude the question-and-answer session. I would like to turn the conference back over to Boyd Hoback for any closing remarks..

Thanks for listening today, thanks for your questions and look forward to fiscal 2018. Thank you..

And the conference is now concluded. Thank you all for attending today's presentation. You may now disconnect..