Greetings, and welcome to Potbelly Corporation's Fourth Quarter and Full-Year 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Matt Revord, Potbelly's Chief Legal Officer. Please go ahead..

Good afternoon, everyone, and welcome to our fourth quarter earnings call. Before we get started, I'd like to note that certain comments made on this call will contain forward-looking statements regarding future events or the future financial performance of the company.

Any such statements, including our outlook for 2018 or any other future periods, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and events or results could differ materially from those presented due to a number of risks and uncertainties.

Additional detailed information concerning these risks regarding our business and the factors that could cause actual results to differ materially from these forward-looking statements and other information we'll be giving today can be found in our most recent Annual Report on Form 10-K under the headings Risk Factors and MD&A and in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov.

Our presenters today are Alan Johnson, our Chief Executive Officer; and Tom Fitzgerald, our Chief Financial Officer. After our prepared remarks, we'll open up the call for your question. I'll now turn the call over to Alan..

Thanks, Matt. Good afternoon, everyone, and thank you for joining the call. Almost a year to the day I delivered my first earnings call as CEO of Potbelly, where I outlined my key priorities to significantly improve our performance and what I consider to be a transitional year for Potbelly.

Our goals for 2018 were to learn what it takes to positively impact same-store sales, learn how to positively impact traffic, and learn how to drive industry-beating traffic trends.

To get there, we needed to challenge ourselves to innovate, act with urgency, execute flawlessly, but also be willing to take thoughtful risk, and if necessary, fail fast.

With the support of the senior leadership team, the Board, the dedicated professionals at the support center, and most importantly our shop associates, who were open and hungry for change, I believe we accomplished these goals.

It is clear that there is too much work ahead, but we are pleased with our performance in 2018 as we took significant steps forward and made solid progress towards the execution of a turnaround plan to reposition the company to return to profitable growth.

Our financial results for the year came in modestly ahead of our expectations as we delivered same-store sales of negative 1.4%, which reflects a significant 380 basis points improvement in traffic trends year-over-year, and adjusted earnings per diluted share of $0.29, both of which were ahead of our revised guidance.

For the fourth quarter, we delivered adjusted earnings per share of $0.05 and same-store sales of negative 1.7%, which reflects a significant 270 basis points improvement in traffic trends year-over-year. The two-year same-store sales stack of negative 4.1 was the best quarter of the year.

Furthermore, we outperformed industry traffic trends for the second consecutive quarter. When we contrast our performance against Black Box fast casual industry trends for just our markets. This is particularly notable when you consider that we achieved this result despite a deliberate reduction in our marketing spend in the fourth quarter.

Particularly during turnarounds going through a transition, I believe there are times where it is essential to have the discipline to slow down in order to speed up, and we took a bit of a pause in the fourth quarter to evaluate the significant traffic building initiatives we tested and deployed in the second and third quarters as we focused on striking the right balance to drive profitable growth.

Tom will walk you through our financial results in greater detail later in the call. As this is our year-end earnings call, I would like to spend a few minutes to review our key business learnings for 2018, which has built the foundation for our disciplined growth strategy in 2019.

First, we focused on hiring the right team with the skill set and experience required to successfully execute our turnaround strategy. We also took the opportunity to examine how we were organized, and in a number of cases, restructured to ensure we got closer to our customer.

Since I joined Potbelly in December of 2017, we have bolstered our senior leadership team with the addition of Brandon Rhoten, our Chief Marketing Officer, who has done a great job leveraging digital media to tell the Potbelly story in a way that differentiates the brand.

Jeff Welch, who was brought in to lead our Franchise Development and Strategy and has expanded his role to oversee the development of both our franchise and company-owned shop growth.

Chef Ryan LaRoche, who joined to become Potbelly's first head of Culinary Innovation to lead our product innovation and menu optimization; in addition, Matt Revord, our Chief Legal Officer was also promoted to Chief People Officer. Julie Younglove-Webb, who leads our shop operations, was promoted to Chief Restaurant Operations Officer.

Maryann Byrdak, who manages our investment in technology, was promoted to SVP of Information Technology. And finally, I want to formally welcome Tom Fitzgerald as the CFO. Tom joined Potbelly in December and brings over 30 years of significant turnaround experience across a number of highly competitive consumer retail industries.

He is a valuable addition to our leadership team, especially as we continue to execute on our strategy to reposition Potbelly for future growth. I'm very pleased with the roster of talented executives that we have assembled over the past year.

With the right team in place, I believe we are well-positioned to execute on our turnaround strategy to position Potbelly for sustained traffic and same-store sales growth over time.

As I had indicated in our prior calls, the foundation of a turnaround strategy starts with one key priority, and that's reversing the same-store sales and traffic trends. The path to driving sustainable same-store sales growth is predicated on our ability to attract and retain new customers and earn repeat visits from our loyal fans.

Let me spend a few minutes to highlight several of the key traffic building initiatives that we focused on over the past year. We have become a more sales-focused organization.

We saw tremendous traction with our OneMore initiative, which encourages our shop associates to prioritize suggestive selling to get our existing customers to buy one more item to spend one more dollar, and to visit one more time. This initiative resulted in a measurable increase in our average check.

We have enhanced our in-shop experience to drive incremental sales through menu engineering, product innovation and enhancements we have made to the functionality of our digital app and Web site. We believe our menu optimization initiative is an excellent example of how design can assist in suggestive selling and improve the customer experience.

We focused on making our menus much more shoppable by vastly reducing the number of price points and improving the layout, which will make it much easier for our customers to find what they want, as well as encourage bundling and combos, which will drive incremental lift in throughput, sales, and margins.

Much of 2018 was spent testing a number of initiatives with the sole intent to roll out only those that showed significant promise. To be transparent, not everything we tried worked, but I never expected a 100% success rate.

However, as a result of the team's relentless passion and commitment to learning, I would like to highlight those initiatives that have already or will be rolled out system-wide in 2019. Last fall, we launched our first test series of concept menu boards in 58 select locations.

We also tested for the first time in our history the inclusion of combos and bundle offers on our menu boards.

We offered a Pick-Your-Pair option that bundles a half sandwich with your choice of half a salad, a cup of soup, or a cup of mac and cheese, and make a meal option that combines your choice of chips and a fountain drink or chips and a shake for one great value. The early results were encouraging.

And we initially planned to roll out the new menu in the second-half of 2019. However, as the test progressed and we continue to see positive traction, we accelerated our plans. I'm pleased to announce that on February the 12th, the new enhanced menu boards were rolled out system wide.

We continue to test and learn by using our menu as a platform for innovation and growth. As I had mentioned earlier, we brought on a shift Ryan LaRoche to lead our product innovation and menu design.

In 2018, we turned up the dial-on product innovation and we saw positive customer feedback and results from our robust slate of LTOs, which featured seven premium sandwiches, two cookies and one shake. In addition, we added one new soup and made all of soups available every day of the week.

We were excited by our pipeline of menu innovation, which we believe will continue to be a driver for sales going forward. We also remain focused on growing our off-premise business to leverage the catering and delivery potential of the brand. Our off-premise business has grown from 15.3% last year to over 17.5% of comparable sales in 2018.

While we are trending in the right direction, we do recognize that this channel offers a significant opportunity for incremental growth going forward. Last year, we tested a number of ways to unlock the off-premise potential, which has increased our confidence to now expand these initiatives to system-wide rollouts.

I'm pleased to announce we now offer delivery and catering in all of our shops. I'm also excited to tell you we now offer all-day delivery in all of our shops.

In addition, during the year, we tested a variety of third-party last mile delivery providers to complement our Potbelly team delivery and to better understand how they could potentially help drive incremental off-premise growth.

I'm pleased to announce last month we rolled out DoorDash nationally, and we're excited to offer enhanced delivery service to our customers in all of our shops. To ensure the best customer experience, our Potbelly drivers delivered the bulk of the orders during peak lunch hours.

However, we supplement our drivers with DoorDash to flex with demand during peak hours and to provide delivery during our expanded off-premise delivery window. Think of it as a variable labor model where you only pay for it when you need it.

The system-wide rollout coupled with the significant improvements we have made to the functionality of the online digital app and Web site have greatly increased Potbelly's competitive positioning in a very crowded marketplace. Anytime we make Potbelly experience easier and more convenient, we believe our customers appreciate it and we win.

Finally, we continue to invest in digital marketing, which provides a cost effective and targeted channel to tell the Potbelly story in a way that really differentiates the brand.

Potbelly has historically underinvested in marketing, it's inhibited our ability to maintain our share of voice and drive unaided awareness in a very competitive marketplace.

The creative digital marketing driven by Brandon's team combined with our investment in customer facing technology such as our mobile app and Potbelly Perks have helped to drive targeted customer engagement and loyalty.

Perks, in particular, have allowed us to capture critical insights about what motivates our existing customers, and how to attract and retain new customers. We will continue to make further investments in marketing and build on the features and functionality to drive greater productivity and customer convenience.

Pickup and shop is a very good example of something we currently have in test which we fully expect to be rolled out in the second-half of this year. In summary, as we look back at 2018 we achieved what we set out to do. We put in place the right team. We learned how to positively impact same-store sales.

We learned how to positively impact traffic and notably we learned how to drive industry beating traffic trends. There's still a lot of work to be done, but we have made significant progress. As we look out to 2019, we have two main priorities that support our conviction to achieve our goals.

First, we will maintain our relentless focus on executing our strategic initiatives to generate positive same-store sales comps, which build on the menu optimization marketing and commitment to invest in off-premise channel that I discussed in a fair amount of detail earlier in this presentation.

Our second priority is to maximize profitability by striking the right balance in our traffic building initiatives plus driving productivity initiatives and continuing with our effort to build an appropriate framework to accelerate sharp growth in a strategic and disciplined manner.

With a solid foundation that we built last year, the positive momentum in our business and our disciplined and focused growth strategy for 2019, we believe we will achieve positive company operated same-store sales growth for the year in the range of 0.5% to 1.5%, the first time since 2016.

I will now turn it over to Tom, who will go through the details of the P&L in the fourth quarter and the full-year as well as outline our expectations for 2019..

Thanks, Alan, and good afternoon, everyone. As Alan mentioned, I'll review the P&L and give you some highlights associated with our fourth quarter and full-year results. I'll also provide a summary of our outlook for 2019.

Starting with the top line, total revenues decreased 8.7% percent to $102 million in the fourth quarter, driven predominantly by overlapping the impact of the 53rd week last year, which contributed approximately $6 million of revenue. The balance was due to a 1.7% same-store sales decrease for our company-operated shops.

Breaking down the same-store sales, our average check grew approximately 1.9% driven by a combination of price and mix. We opened seven new shops including four new company-operated and three franchised.

For the full-year, total revenue decreased by 1.3% to $423 million, driven by our same-store sales decrease of 1.4% and the impact of the 53rd week last year. We opened 17 new shops including 10 new company-operated and seven franchised.

Our shop level margin for the fourth quarter was 15.7% of company-operated sales as compared to 17.9% in the prior year period. Shop level margin for the year was 16.7% as compared to 18.2% in the prior year period.

Cost of goods sold as a percentage of company-operated sales was 26.9% in the fourth quarter, an increase of 20 basis points to the prior year driven by our traffic driving investments and the impact of the romaine lettuce recall.

For the year cost of goods sold was 26.5% an improvement of 20 basis points to the prior year and consistent with our prior guidance. For the quarter, labor was 31.1%, which was an increase of about a 140 basis points from the prior year.

For the full-year labor was 30.5% which was an increase of 80 basis points compared to last year and near prior guidance. Increases were primarily driven by wage inflation and sales de-leverage.

Occupancy expense was 14.8% in the quarter, an increase of 60 basis points as compared to the prior year period due to sales de-leverage and inflation and certain occupancy related costs including lease renewals, real estate taxes and common area maintenance.

For the year, occupancy expense was 14.3% of sales which was an increase of 50 basis points compared to the prior year. Other operating expenses were 11.5% in the fourth quarter and flat to the prior year.

For the year, other operating expenses as a percent of sales were 12.0%, an increase of 40 basis points compared to last year due largely to sales de-leverage in items such as repairs, utilities and other expenses not directly variable with sales.

Our general administrative expenses were approximately $11.1 million in the fourth quarter or 10.9% of total revenue, which is an increase of 90 basis points as compared to the prior year period.

For the year, G&A expenses were $46.9 million or 11.1% of total revenue, an increase of 70 basis points compared to the prior year driven primarily by our store closures, CEO transition costs, and restructuring costs.

Adjusted G&A, which excludes store closure costs, CEO transition costs, restructuring costs and proxy-related expenses, and which we believe is the best indication of our core G&A in our business was $9.6 million for the fourth quarter 2018 or 9.4% of total revenue, an increase of 10 basis points as compared to the prior year period.

For the full-year 2018, adjusted G&A was $40.5 million or 9.6% of revenue as compared to $41.0 million or 9.6% of revenue in the prior year. Our adjusted EBITDA was $7.2 million for the quarter as compared to $11.1 million in the prior year period.

For the year, adjusted EBITDA was $35 million as compared to $41.7 million in the prior year period, mostly driven from our decline in same-store sales as well as labor and occupancy inflation. During the fourth quarter, we had an income tax benefit of $1.1 million and an income tax benefit of $2.2 million for the year.

Our adjusted net income for the fourth quarter was $1.2 million or $0.05 per diluted share as compared to adjusted net income of $2.2 million or $0.08 per diluted share in the prior year period.

For the year, our adjusted net income was $7.5 million or $0.29 per diluted share as compared to adjusted net income of $8.0 million or $0.31 per diluted share in the prior year period, and previous guidance of $0.26 to $0.27.

Regarding our share repurchase program, in the fourth quarter we repurchased approximately 989,000 shares of Potbelly common stock in the open market for a total of approximately $10.5 million. During the fiscal year 2018, we purchase 2 million shares of for approximately $22.9 million.

At the end of the fourth quarter, we had $42.2 million available from our board authorized program for repurchases, which will continue as we move forward. Our capital expenditures came in at approximately $21.4 million for the full-year which was at the low-end of our guidance for the year.

Our balance sheet remains very strong with the cash balance at the end of the fourth quarter of $19.8 million and we have zero debt. Now I would like to briefly comment on the adoption of the new lease accounting standard ASC 842 effective December 31, 2018.

We expect that this standard will have a material impact on our consolidated balance sheet, as we expect to record operating lease liabilities in a range of approximately $235 million to $255 million and corresponding right of use assets in a range of approximately $185 million to $205 million.

We expect an impact of approximately $4.5 million to $6.5 million in reduction of occupancy expense associated with the shops, which have impaired right of use assets and our consolidated statements of income. We expect no immaterial impact on our consolidated statement of cash flows.

Please note that prior results have not been restated for the impact of this accounting change and therefore comparative periods remain as reported historically. Turning now to our outlook for the full fiscal year 2019, as Alan had mentioned earlier we expect to deliver 0.5% to 1.5% company-operated same-store sales growth for the full-year of 2019.

We anticipate cost of goods sold in the range of @25.5ty five point five percent to twenty six point five percent for 2019 and our food basket is approximately 54% lot.

We expect labor as a percentage of sales to trend between 30.5% and 31.5% percent as we expect wage pressures from minimum wage increases implemented last year, as well as expected minimum wage increases and inflationary pressures this year to outpace our full-year same-store sales.

We will continue to manage our labor expenses through our continued investments to improve our labor productivity.

For the year we expect our adjusted G&A expense to be in the range of $46 million to $48 million, reflecting increased investment in advertising, increasing our performance-based compensation to target payout levels and technology investments to support our future growth.

Our G&A outlook does not include store closure costs, which are expected to occur again during 2019 as we remain focused on opportunistically optimizing our existing company-owned portfolio.

Given the continued slowing pace of our company-owned unit growth in 2019 and our anticipated shop closures as we continue to optimize our portfolio coupled with inflationary pressures, our ongoing strategic growth investments to drive traffic and increasing our performance-based compensation to target levels, we expect adjusted EBITDA in the range of $30 million to $33 million.

We expect an effective tax rate between 22% and 24% for next year. We expect to open 6 to 10 new company-operated shops in 2019 and 6 to 10 new franchised shops. The new company-operated shops will be backend weighted. In addition, we remain focused on optimizing our existing company-owned portfolio.

As such, we will continue to explore opportunities to exit less profitable shops. We expect to close between 6 and 10 shops in 2019 with the majority closing in Q1. In terms of capital investments, we expect to spend between $21 million and $24 million in 2019.

Finally, while we do not provide guidance on a quarterly basis, I want to spend a moment to discuss our comp results through the first-half of the first quarter. As many of you are aware, our current business is weighted toward the upper Midwest and the Mid-Atlantic including the Washington D.C. region.

As such, our business results were negatively influenced by the shutdown of the federal government as well as the frigid polar vortex that swept across our key markets. In addition to prepare the business for the launch of our menu changes, we did not renew pricing at the start of the fiscal year as has been our normal cadence.

However, we did accelerate the rollout of our menu optimization from later in 2019 to as soon as physically possible, which was mid-February. This created a short-term lapse in pricing until the middle of the first quarter.

As a result of these items although our underlying same-store sales trend has remained similar to Q4, our quarter to date nominal same-store sales trend has worsened and we anticipate Q1 comp growth to be lower than Q4 results.

These factors are contemplated in our outlook for full-year 2019, company operated same-store sales growth in the range of 0.5% to 1.5%. I'll now turn the call back over to Alan for his summary remarks..

Thanks, Tom. In closing, we are proud of our meaningful progress we achieved last year, where we demonstrated that we can improve our same-store sales and traffic trends. However, we recognize there is still much work to be done to turn the business around.

As we look ahead to 2019, our main priorities are to generate positive same-store sales and to drive profitability. We are optimistic about our ability to continue to improve our same-store sales trajectory and now planning for a positive same-store sales comp growth for the first time since 2016.

I'm energized by our progress so far, and I truly believe the Potbelly's best days are ahead of us. Thank you all for your time today. We appreciate you being on the call and the support of our business. I look forward to providing you with an update on our progress on our next earnings call.

I'll now turn it over to the operator and then open up for questions..

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Karen Holthouse with Goldman Sachs. Please proceed with your question..

Hi. Thanks for taking the question. This is actually Alex on for Karen.

Something you've given in the past, but could you tell us what the number of rewards members signed up for loyalty program once as of this quarter?.

Yes. Sure, Alex. Hi. This is Alan. Yes, as of the end of 2018 we have just a smidge under 1.2 million registrants..

Thank you. And then one more if I may.

You gave the breakdown of sales, by what percent is off-premise, but could you tell us also what percentage is just delivery?.

So, off-premise is a touch of a 17% of the mix of sales and that's of comp 2018 sales. Looking at the split between catering and delivery, the delivery is about three quarters what -- so catering is about double what delivery is..

Okay. Thank you..

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

Hey, guys, I just had a couple.

The first was maybe trying to understand your confidence in getting to the comps, the 0.5% to 1.5%, I think you gave some disclosure on where you're running so far this quarter, and I think you may have mentioned it, but what was the sort of underlying rate if you back out some of the impacts that are weighing down in your business, do you have a sense for where you think that's running? And then I guess the follow on question to that is, clearly you've seen something in the new menu test that has you excited about where sales are going to go? Can you maybe talk about what you've seen when you've tested the menu and why that has you confident that you're going to get a couple points pickup in comps?.

Why not take the menu optimization test question first, or do it in reverse order. So, just as a reminder, there were two important goals here; the number one goal was to improve the experience through simplification, and the second one was to maximize check traffic and profitability.

We tested it in 58 shops, we actually tested it -- tested three different versions, and interestingly enough, we took the best of the best. So the version that was deployed on the 12th of February is a hybrid of the three versions that we tested. So therefore, there are some unknowns, but we cherry pick the best of the best.

Obviously with the test that we had in place, we saw sufficient lift in average transaction the check to believe this was a good solution to simplifying our menu and trying to maximize the average transaction.

The biggest changes that we made if you look at the center panel of the menu we've taken that from 55 price points down to 18, and interestingly enough, about nine of them are the cost of avocado and cucumber and the various different add-ons.

The other, the major change which is really the -- I think the crux of the change is the addition of the co-pay, which is your choice of half a sandwich, half a salad, a cup of soup or mac and cheese, and then two meal deal options, which is sort of chips and a fountain, chips and a short shake.

Now, I should remind you the 12th of February was less than two weeks ago. So I'm not ready to sort of give you hard numbers that I've seen in less than two weeks, but I will tell you that from the tests that we did to the full national roll out there were no unforeseen surprises.

I think the only thing that most people under estimated and that's why fiction of you referred to this internally as Mission Impossible is this is one heck of a complicated thing that we haven't done in 41 years. I mean we'll give you a sense of how complicated this is. We have 486 shops, yet we have 680 unique menu boards in terms of size.

We had to reprogram the PRS, we had to redo the app, we had to redo the Web site, we had to change the loyalty program. We had to update the catering and delivery functionality and how you pay. Other than that we didn't have to change too much more. So I mean you can see this was complicated.

So when, you know initially the plan was, well, let's roll it out in the second-half of the year when I saw the potential and I challenged the team, let's launch it as early in 2019 and use that as a platform to learn. So that's what we did.

And so far, if you try to, I think one of the things that you'll see is that there is a very nice surprise you actually get half of the big, not half of an original and it's a lot of food for a fair amount of great value..

Yes. I think the second question related to Q1 and some of the softness we talked about in the script. And yes, I think coming out of Q4 was sort of on trend with where we were before that until we saw the effects of the first week of the federal government shutdown there which is given we have a lot of shops in the D.C.

area and other markets affected, starting to affect our business. So as we look at Q1 while we were sort of weaker than we like we understand the drivers, which principally are as we mentioned the polar vortex that affected about 50% of our shops mostly located in the upper Midwest and mid-Atlantic.

And just for comparative purposes about 35% of our business days in the first month experienced negative volume weather related influences. And that's as we measured up against 14% last year, so quite a significant increase in the number of days.

And we also, as I mentioned the federal government shutdown impacted the last week of 2018 and then certainly into 2019 until it ended January 25. The third headwind that we knew about was the pricing, which we were up against pricing week one of last year in January.

And we knew the menu optimization despite all efforts to bring it forward as early as possible. We knew it wouldn't roll until mid-February.

Having said that, we're very excited about the launch that that's happened thus far still early days but and also as we think about where we are in the middle of the quarter so far generally our traffic trends as we measure them against the weighted average Black Box are sort of in line.

So we're moving in a similar way to where we were with the industry as we came out of Q4. Now as we think about these early Q1 trends, which has -- as I said on the call -- in the earlier remarks, we expect to be below our Q4 results. They are reflected in our full-year outlook as it relates to same-store sales..

Understood, and then maybe if I wanted to somewhat of a separate topic, but Tom just as you've thought about or gotten a look at the business, any thoughts on balance sheet and leverage and kind of where you are in any sort of goals or plans that might have been different than that Mike was thinking about the business?.

Yes, sure, I think from what I understand the business has always discussed with the board, whether its overall capital structure and we'll continue to do that at this point. We see no need to take on any debt, the business generates enough cash flow for us to make the investments we want to make and do the repurchases that the board had authorized.

Now, we'll continue to fund the buyback through into 2019 and for the foreseeable future, but at this point we don't see any reason to take on debt and that's something we'll continue to come back to as a management team and as a board, but at that at this point that's how we see it..

Understood. Thank you, guys. Appreciate it..

[Operator Instructions] Our next question comes from the line of Stephen Anderson with the Maxim Group. Please proceed with your question..

Good afternoon. I'm calling to ask about your store fleet and whether you've been able to -- if you're still looking through your fleet for a potential sale of the company-owned stores to the franchisees.

I know something that you are touched upon in our recent quarters and I think now I saw your management team now complete whether you are able to maybe spend more time in terms of where you or how you wish to proceed?.

Yes. Thank you, Stephen. This is Alan. The gyp's making solid progress in on this front and -- but now our primary focus is creating the right set of conditions for the franchise model so getting positive comps that are predictable and consistent reducing the cost of the box making sure that the margins are strong and stable.

Making sure that we have a quality pipeline of sites and very importantly a highly qualified group of franchise partners and I personally attended six discovery days.

I think I'm very encouraged by the reception but we're looking for a higher quality standard here and it's important to make sure that if we don't have those right conditions, then I don't think we'll be maximizing shareholders value and it's important to be patient here, but getting everything aligned around making sure that we create the right set of circumstances..

Yes. Thank you..

Our next question is a follow-up from Gregory Francfort with Bank of America. Please proceed with your question..

Hey, guys. I just had a couple more. The first is, on other operating expense during the quarter, I think that's been a little bit of a pressure, but you were able to manage that pretty well.

Is there anything specific to the quarter that you want to call out or anything that may be of change in terms of one-time items or anything like that?.

Yes, I think the team did a good job pulling back on non-essential spending things that the customer doesn't see that we could either do without or do far less of.

We also had some upsides in repair and maintenance and some of the bigger items there as we looked at that year-on-year, but I think overall between belt tightening and just really trying to make sure we spent what was necessary, so that we could at a minimum meet and preferably exceed the guidance that we had given..

Understood.

And then just on the franchise closures, I guess for 2018 and for this quarter and then also for 2019, are those calling mostly in the domestic side or the international side and maybe if you thought about using the cash that you've got on the balance sheet and the cash flow you're generating to buy some of those stores?.

They're all coming from international..

Okay..

They were not reacquired by the company..

Do you know where that will put you at the end of '19 on the international unit count if you go through that closure rate and where those stores will remain?.

We're still working through it. We have a handful across the different regions, but it will be single-digits for sure..

Got it. Okay.

Then maybe the last one for me is just getting back to the new menu, as you put that in place, the pricing on that versus your existing pricing, maybe what that will do is that do you take a couple of percent on that or is it mostly just mix shift that's going to happen? I don't even know if it's comparable or how are you thinking about that?.

Yes. It's really hard to compare. There is a little bit of pricing but it depends -- if you're taking the meal deals, obviously you can't hide value in a meal deal. In fact, you don't want to. And so, it very much depends on whether they're taking the Pick-Your-Pair or the menu option. What I do know is you get a lot of food for a little money.

So, we wanted to make sure that anyone taking the Pick-Your-Pair option could see the fact that, even though this is a selection in a variety play, but it's also a great value..

Got it, understood. Thank you very much. Appreciate it..

Yes. Thank you..

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Alan Johnson for closing remarks..

Thank you for your time today. We appreciate your interest in the business and the support of our business. I look forward to providing you with an update on our next Q1 earnings call. Thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..