Charles Morrison - CEO Mike Mravle - CFO.

David Tarantino - Robert W. Baird Jake Bartlett - SunTrust Karen Holthouse - Goldman Sachs Matthew Difrisco - Guggenheim Securities David Carlson - KeyBanc Capital Markets Nick Setyan - Wedbush Securities Jeffery Bernstein - Barclays.

Greetings and welcome to the Wingstop Fourth Quarter 2016 Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions]. As a reminder this conference is being recorded. I would now like to turn the conference over to Your Host Mr. Mike Mravle, Chief Financial Officer. Thank you, you may begin. .

Thank you, operator, and good afternoon. By now everyone should have access to our fiscal fourth and fiscal year 2016 earnings release. If not, it can be found at www.wingstop.com under the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and, therefore, one 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.

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

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that I'd like to turn the call over to Charlie..

Thank you, Mike. Good afternoon everyone and thank you for listing to our call. I'd like to begin the day with a recap of a very successful 2016 both in terms of profitability and progress on key initiatives. After that Mike will review our fourth quarter financial results and provide annual guidance for 2017.

Finally, I'll rap up with formal remarks and a few closing comments before we open the line for questions. 2016 was a year of record financial and operational achievements for Wingstop. We open 153 net new restraints and grew adjusted EBITDA by 23% and adjusted net income by 24% both to record levels.

We achieved our 13th consecutive year of positive same-store sales growth 3.2% for 2016. We also completed a recapitalization of the business in 2016 and rewarded shareholders with the special dividend that equaled 10% of our market cap.

We are very proud of the profitability that we delivered for the year and the fourth quarter in particular despite consumer uneasiness about discretionary spending. Our focus in 2016 was executed against our three strategic priorities, the first of which is unit development.

We delivered a record 153 net new openings in 2016 across 30 different states and five international markets. We believe this demonstrates the broad opportunities ahead of us. We ended the year with a total of 998 restaurants across 40 states and 6 countries.

We also ended the year with a pipeline of 518 domestic franchise commitments of which 80% are from our existing franchises base, showcasing their support to continue investment in our brand. In January, we proudly opened our 1,000th restaurant in Decatur, Georgia with one of our most successful long-term franchises Rick Ross.

We believe that only 40 or so restaurant brands have achieved the 1,000 restaurant mark and only a handful have reached it faster than Wingstop. We also ended the year with 76 international Wingstop restaurants in five countries including Mexico, Singapore, Philippines, Indonesia and the United Arab Emirates.

In 2016, we announced the international development deals that will add 100 restaurants in Saudi Arabia over the next 10 years, and 30 restaurants across Colombia and Panama over the next five years. Our total pipeline for international development commitments stood at 349 restaurants at the end of 2016.

We're very pleased with our progress across all our international markets to develop a scalable business model that can be leveraged as a growth vehicle for the brand well into the future.

Hitting the 1,000th restaurant milestone and our progress in international markets demonstrates the opportunity for us to grow into what we believe is our ultimate potential to become a Top 10 global restaurant brand. Our second core-strategy is growing orders through the digital-channel.

Online orders have a $4 higher average check than all other orders and this variance continues to have a positive impact on sales growth as we sequentially growth the digital-channel.

In the fourth quarter digital sales made up 19.7% of total sales up from 17.7% in the third quarter and the 480 basis points increase over the prior year fourth quarter. 46% of our domestic restaurants have online sales mix in excess of 20% of total sales during the fourth quarter.

This is up from 32% in the third quarter, 27% in the second quarter and 20% in the first quarter. About half of all orders still come in over the phone and with approximately 75% of our mix is takeout we are well positioned to continue to grow our digital ordering mix overtime. We are also leading in technological advance on a phone line ordering.

Wingstop was the first restaurant to successfully launched dynamic social ordering on Facebook messenger and Twitter last June. And the first to launch voice activated ordering with menu customization on Amazon's Echo platform in January. One of the key enablers of digital order growth is the rollout of the fully integrated point-of-sales system.

At the end of 2016 I'm pleased to announce that we're substantially complete with our domestic system wide rollout of our point-of-sales system which we accomplished in roughly two years. Finally, I'd like to provide a brief update on our national advertising campaign.

In January we launched our national digital campaign and just after the Super Bowl we launched our first national TV campaign.

This transition to national advertising from locally driven Co-op advertising was designed to and is already providing us with more region frequency in existing media markets in addition to coverage for smaller and newer markets where we did not previously leveraged TV or radio.

This shift in advertising dollars does not change the total amount a franchise spends on marketing rather the allocation of that's been shifted to national from local. For greater context, last year just over half of our domestic restaurants were supported by varying levels of TV advertising in 10 BMAs across the U.S.

This year we'll be on TV for at least 22 weeks covering 100% of our domestic restaurant base. Hopefully you've already seen our first national commercial which is focused on our key brand attributes of fresh, made-to-order Wing that only the Wing experts at Wingstop can deliver.

We're very excited about the expected increase in brand awareness that will come from this campaign. As you know the restaurant industry was soft at the end of 2016 and we were not immune from that. Our same-store sales in Q4 were below our expectations at 1% position growth.

There was a noticeable change in our growth trend immediately after the election which continued through the end of the year and into the start of 2017. There are many factors contributing to this trend, but the most material to our business are the impact of the Presidential Election and the delay in income tax refunds to our core customers.

Our research indicates that while our guests are still passionate about the Wingstop brand frequency has been reduced as they've been more cautious with their disposable income.

We'll discuss guidance shortly, but for 2017 we're still optimistic that the launch of national advertising and continued progress on our technology initiatives will allow us to deliver our 14th consecutive year of positive same-store sales growth. Despite the fact that we've started the year with domestic same-store sales down 2.6% today.

Our well timed national advertising campaign launched immediately after Super Bowl and we're seeing an improvement in our trend as brand awareness grow. In summary 2016 was in incredibly productive year as we executed on our key strategic and financial objectives and delivered exceptionally strong results for our shareholder.

We believe that our core strategies will continue to yield industry leading growth well into the future. With that I will turn the call over to Mike..

Thanks, Charlie. I'd like to begin by reviewing our quarterly results for the 14 week period ended December 31, 2016 before turning your attention to our annual guidance for fiscal 2017. Recall that the year ago period included 13 weeks, so the year-over-year comparisons are not strictly apples-to-apples unless specifically identified.

Total revenues for the fourth quarter 2016 increased 20.3% to $24.8 million from $20.6 million in the prior year. The majority of these revenues are royalties and franchise fees, because our system is 98% franchise. Together they increased 24.4% to $15.6 million for the fourth quarter compared to $12.5 million in the previous year quarter.

Excluding the 53rd week in the fourth quarter of 2016, total revenues grew 13.2%. We opened a record 49 net new restaurants during the fourth quarter. We ended the quarter with 998 system wide restaurants which represents a unit growth rate of 18.1% compared to the year ago period.

In addition to restaurant development in the incremental operating week, revenue growth was also driven domestic same store sales growth of 1%, which included 80 basis points benefit from an extra operating day associated with the shift of the charismas holiday into the 53rd week.

Our Q4 and full year same store sales calculation excludes the 53rd week. Company owned restaurant revenue increased to $9.1 million from $8 million from the prior year, driven by contributions from two company operated restaurants that opened between the second and fourth quarters. 1% growth in same store sales and one additional operating week.

Excluding the impact of the 53rd week in the fourth quarter of 2016 company owned revenue grew 6.3%. In 2017, our corporate owned restaurants, same store sales to date are trending slightly behind the overall system. Cost of sales increased to $7 million from $5.6 million in the prior year of fourth quarter.

As a percentage of company owned restaurant sales, cost of sales increased 590 basis points to 76.1% from 70.2%. The increase was driven by two primarily by 13.1% inflation from bone-in-chicken wings of 4% in the average size of the Chicken Wings and continued labor investments in roster sizes and staffing.

Margins were impacted by about a 100 basis points versus the prior year from the two new stores that were opened in the year. These stores were performing well relative to our new store targets, but are operating at average unit volumes below our strong company stores average.

Lastly, I would like to highlight that in Q1, 2017 we expect about 10% inflation in our bone-in-chicken wings over the prior year quarter. Selling, general and administrative expenses increased 13.4% to $8.7 million as compared to $7.7 million in the prior year period.

The increase in SG&A expense is primarily due to head counts additions to support our continued growth, non-recurring costs of $0.1 million related to our secondary offering and incremental cost of $0.6 million related to the 53rd week.

Adjusted EBITDA a non-GAAP measure increased 27.1% to $10 million from $7.9 million in the fourth quarter last year. Please review the reconciliation table provided in our earnings release between adjusted EBITDA and net income its most directly comparable GAAP measure.

We estimate the incrementally week contributed approximately $0.5 million for adjusted EBITDA so on a comparable basis adjusted EBITDA increased approximately 23%.

Interest expense rose the $1.5 million from $0.7 million in the fourth quarter last year reflecting the refinancing of our credit agreement that was completed at the beginning of the third quarter. Income tax expenses was $2.4 million, our effective tax rate was 35.8% compared to 34.4% in the comparable period in the prior year.

For the full year our tax rate for 2016 was 37.2% compared to 36.2% in 2015. Net income increased to $4.3 million or $0.15 per diluted share compared to net income of $3.8 million or $0.13 per diluted share in the same quarter last year.

Weighted average diluted shares outstanding were approximately $29.1 million for fourth quarter 2016 and approximately $29 million for the prior year period. EPS grew by 15.4% in Q4 and would have grown by 23% excluding the impact of Q3 recap. The impact of the 53rd week on adjusted net income was $0.2 million.

In terms of our liquidity and balance sheet, as if December 31, 2016, we had cash and cash equivalents of approximately $3.8 million and $150.7 million in debt. Our net debt to trailing 12 month adjusted EBITDA was approximately 4.1 times, which is down almost a full term from our post-recap leverage in just two quarters.

We made $5 million in debt payments against our revolving debt facility during the fourth quarter. Annual CapEx was $2 million. Our annual guidance for 2017 is consistent with our long-term targets. Please note that 2017 is a 52 week period ending December 30, 2017. Our development forecast is 13% to 15% annual unit growth.

We expect domestic same-store sales of low-single digits, SG&A expenses are projected between $34 million and $35 million, adjusted EBITDA growth is anticipated between 13% and 15%, we expect net income between $18.5 million to $18.8 million and fully diluted EPS growth between 8% and 10%.

The impact of the 2016 recap on EPS growth is approximately 500 basis points. And finally, fully diluted share count should be approximately 29.3 million shares.

I would like to highlight that we expect a favorable impact on our tax rate in 2017 with the new GAAP presentation requirements related to equity based compensation that will begin in the first quarter of 2017.

Outside of the impact of this new GAAP requirement, we expect our effective tax rate to be between 37% to 38% which is the rate assumed in our guidance. And now I'll turn the call back over to Charlie for closing remarks, before we begin Q&A. .

Thank you, Mike. We put another great year in the record books and wish to thank all of our key stakeholders including our world class team and value franchises for their contributions to our success. Despite early headwinds we believe that our asset light model positions us well to continue delivering industry leading results into the future.

Thanks again for joining us this afternoon, we appreciate your interest in Wingstop and would be happy to answer any questions that you may have. Operator please open the line for questions..

Thank you. At this time we'll be conducting a Question-and-Answer Session. [Operator Instructions]. Our first question comes from John Glass from Morgan Stanley. Please go ahead. .

Hi guys this is Courtney on for John. Just wanted to follow up and I appreciate you giving us the quarter-to-date comps.

But did you -- how does that compare to how you exited fourth quarter, did it worsen in January and February and then have you seen any pick up as we've seen this recent start to come back to the consumer?.

Hey Courtney, this is Mike, good question. I think exiting the quarter we saw a bit of rebound in January, but similar to many others the tax fund delays impacted our February results.

And just referencing Charlie's notes on the call, with the advent of national advertising coming out and also the tax refund delays, we have seen momentum come back to the business..

And then just on unit development, I think for '17 it's a little bit lower than we would have expected given the openings that you have this year.

So can you just give us a sense of why we should expect unit only to just take a step down a little bit, was there a shift from the first quarter this year into the fourth quarter of last year or is it something else?.

I don't think it's necessarily a shift as much as it is just the reconnection as it relates to our long-term guidance for the brand.

Certainly, it's still well above 10% growth and then at the same time I don't think anything that's happening in the business as it relates to this recent impact on same-store sales is going to impact our development pipeline at all.

I'll reinforce that at the end of the year our development pipeline included 518 restaurants still comprised primarily of restaurants commitments from our existing franchises as well..

And then just lastly, I think in the past you've given us revenue guidance can you just -- did I miss that? And secondly, can you just give us a sense of how new stores are opening relative to history I think they were usually around the 800 to 1k [ph] opening?.

We may have -- I don't recall --..

Yes, I think [Multiple Speakers], as Charlie mentioned we're sticking consistent with our long-term guidance. As we said annual guidance for the year and obviously we've given openings and we've given comps which would allow you to get there, there's no change in the expectation that we have on performance of the new stores..

Our next question comes from David Tarantino from Robert W. Baird. Please go ahead..

Just far as to understand a bit more about the recent comp trends, I think Charlie said that you saw a slowdown after the election and I guess that might have started earlier than what we started seeing in the industry, but can you talk about sort of the step down you saw after the election, whether you think a lot of that could carryover here as we move into the rest of this year really because of the political environment hasn't really settled down? And so I guess if you could give a little bit more color on how you're thinking about the impact on your consumer and how that might play out here in the next quarter or two?.

I think we noted that we saw a noticeable change in the comp momentum that we had immediately following the election and you can clearly see the change that happened from one week to the next. I will say that, up to that point we were tracking nicely against our targeted and guided results for the quarter, but the impact it had was noticed then.

As it relates to where we stand today, Mike commented on and off, I'll also did in my notes where we are year-to-date.

I'll say that in the last week prior and then this week today, we've returned to positive, which is indicative of what Mike noted earlier, which is with the return of the refunds and then our third effective week of national advertising on TV starting to take effect, we believe that that impact was relatively short term if you think about it that way and expect that these levels that we have put in place national advertising and the like will help us get back to our guided low-single-digit comp for the year..

Right. That’s very helpful. And then just one clarification on the quarter to-date. I think Mike you mentioned that January was better and then February was soft.

Was January positive and February just dragged down the number into negative territory?.

I don’t think we want to get into the monthly numbers, David, I think that’s the general trend. Obviously, there was a noticeable slowdown in February, I know as you’ve noted in some of your notes relative to the timing of the tax refund delays. So that’s about all we have to say..

Great. Thank you very much. .

Our next question comes from Jake Bartlett from SunTrust. Please go ahead. .

In terms of the national TV advertising.

Have you really noticed much larger impact in the stores that never had in TV advertising? How has your experience been so far, maybe a little color on the results early reads of financial advertising?.

Hi Jake. It’s an excellent question. It’s early in the game, but we do have data that would support that statement, that in the recent weeks, when we finally did start on national advertising, those markets that did not have to support previously have seen a stronger performance, not a lot, but it is stronger than the other markets.

And that’s during that short period I mentioned earlier, where we’ve return to positive..

Got it. And then trying to pick apart the impact of the election.

Do you think it has anything to do with your large Hispanic customer base and concern over immigration? Is that a concern, if that is true, it could have been more prolonged, is that concern for you?.

I don’t think it should be prolonged, I think it probably was indicative of just the nature of the change, if you will overnight in people’s minds. But I think our recent moment is indicative that, A, they are still fans of our brands, all of our core customers are.

Their frequency had slowed during this timeframe, but we believe that frequency is returning to us and it's showcasing itself. I think the other big piece that Mike talked about is the delay in the refunds.

Because our consumer base is generally a lower middle income consumer, that does have more meaningful effect on that consumer and so that did help contribute to some of the negative performance in the quarter..

Great. And lastly on the impact of the commodity inflation that you are see. One, do you expect wing prices to be -- continue this trend to be up maturely year-over-year for the whole of 2017.

And then in that context, would you expect in the past you’ve had more of a just some wide pricing increase? Is that something that you’d be pushing on your side or just kind of letting up to the franchisees to do what they're going to do there?.

Hi Jake. No. We don’t have an anticipation wings for the balance of the year or going to be significantly higher than the prior year. There was some build in inflation headed into the year based on where prices peaked in December versus last year. But at this point we're running -- wings have come down pre-significantly over the past couple of weeks.

And we anticipate -- we're running right about in line with last year at this point in time and there is no reason for us to think that there is going to be significant inflation..

Great. Thank you very much. .

Our next question comes from Karen Holthouse from Goldman Sachs. Please go ahead. .

So on the first floor absolute unit growth than we've seen last couple of years going back to that. Is there anything you'd call out in terms of regions or types of markets that strive in that sort of specifically core versus emerging? And then I have a follow up..

Hi Karen, can you clarify your comment on slower unit growth?.

So if I'd use 13% to 15% growth on the system [Multiple Speakers], yeah in 2016 I get to like 130 to 150 units for net unit versus 153 in 2016..

Yeah I think we always when we start the year and we did this as well last year and in prior year stride to establish what we think is an appropriate range of outcomes for the year as it relates to the development pipeline. So I would guide you towards the 13 to 15 range as been consistent with what our pace and pattern have been.

On a percentage basis that might be lower, but then the base of restaurants has grown by 18% last year. And as we noted we've eclipsed 1,000 restaurants. So the pace of development remains consistent and that's both U.S. and international currently.

But as we've also noted the pipeline is strong pretty much the same number of restaurants in the pipeline at the end of the year that we started the year with. So we replenishing it well and we're replenishing it more so with existing franchises than with net new franchises. So we're very pleased and proud of that.

And I think there is nothing other than making sure that we reinforce our long-term guidance that at the pace of growth that we're expediting today we'll be able to achieve the profit levels that we've guided for long-term as well. .

And then you've also mentioned there are AUVs for any unit are holding pretty steady to the targets.

Is there any update to the build cost piece of it? I know a number just sort of broader economics, the number other restaurant companies have talked about pretty meaningful build cost inflation and particularly in some geographies and then also competition for rent and real estate becoming a bit -- competitions in real-estate and bidding on rents becoming bigger challenges..

Neither of those have been areas that are been at any concern to us. Our restaurant cost has been fairly consistent, and for a number of years now. And we don't expect that to change much at all.

The access to real-estate remains quite strong, we don't have a challenge because we're not always looking in the same markets that a lot of the other companies that you may speak with are accessing. So we're in the urban core markets looking for those as we've talked about before kind a B and C sites in the centers.

And we're not fighting for the same real-estate, so it still is plentiful for us..

Great thank you..

Our next question comes from Matthew Difrisco from Guggenheim Securities. Please go ahead. .

Gentlemen, I know you've been asked this question a couple of time before about delivery and you really haven't really gone down that path.

But just in the last 24 hours a lot of us came back from McDonalds which is testing -- they were talking about testing delivery and talked about that as an opportunity, I wondered is there something that also as far as your view that your demographic and your locations might not be that consumer -- that over index is necessarily towards delivery, or if that were the case or if that were to change would that be something that you would consider, I guess the pack seems to be moving towards delivery, yet you guys have been somewhat reluctant.

I wonder what it would take to change that philosophy or what's been the impediment in the past?.

I think the only thing that holds us back at the end of the day has been the idea of product quality and making sure that our guests do have been historically very comfortable taking the product with them and certainly that drives great unit economics and great value is maintained.

I did see the article about the test, we hand-cut our potatoes in our restaurants every single day to make our fresh cut seasoned fries and so we want to be very diligent about who controls that product and not every delivery company -- third party delivery company allows for such control.

So, that's been, if you will our stubbornness, we do know that in certain markets our guests look for that, we know that as we move into the upper Midwest and the Northeast it's going to be a stronger demand, and so we understand the market, but I think step one for us is, let's make sure we can stand behind the product, ensure the same kind of experience that the Wingstop consumer is used to, and then from there make our decisions about how we would, if we would, and how we would implement that into the business..

And then it's pretty impressive the 80% of the existing franchise is supporting or 80% of your future commitments being supported by existing franchises, I wonder are you at a point though where now with1,000 stores and you just mentioned a couple of new regions also like the Midwest building out into or fulfilling them in the Northeast as well, would you look towards expanding maybe at a faster pace, the bench of new franchises to bring in?.

Yes, I think the pace is relative. We have just under 300 franchisees in our system; I think what's most important is to partner with the right group of franchisees in markets where we're developing new restaurants which we do every day.

I don't know if that'll material accelerate the number of new franchisees but it's certainly will make -- we will make sure to bring on high quality franchisees that are well capitalized, that are experienced developers that can develop the brand very quickly.

So, I just want to call out that little nuance, but certainly that's our goal and objective to do that..

And just a follow-up question I just want to make sure I heard it correctly.

I appreciate all the granularity you gave on the quarter to-date same store sales, it was down 2.6 year-to-date yet you're back to being positive in the last week or couple of weeks you said, was the term you used?.

Yes, last week, as a -- if you consider full weeks for us was positive, this week to-date is also positive so far..

And there nothing that --..

So, and we -- go ahead..

There was nothing you'd call out as a year ago comparison, that's an anomaly, or something like that that would be -- that would cause an impact to make it -- on a two year basis not as much of a change, but that is just -- that is momentum and improving in your eyes?.

That is momentum and improving and we align it with two key factors, the tax refunds coming through and our third week of national advertising as awareness built which we expected it to do very quickly, that awareness is translated into much improved performance..

Excellent. Thank you so much..

Our next question is from [indiscernible] from Stephen. Please go ahead..

Thanks guys. Just had a couple of follow-ups. Regarding the performance you saw on 4Q and then if it also applies to the quarter to-date period.

Was there anything geographically that changed for you or was it fairly consistent across the Board?.

Not a lot, I don’t think, I’d say any one specific geography that was substantially different than the others, if anything maybe the upper mid-West was an area where we saw some impact, but aside from that. I think the rest of the markets were fairly consistent. If one market might be Texas it would come below the system average during that timeframe.

But again, I think I reinforce that all markets are working their way back over the last -- in the momentum, we just talk about over the last couple of weeks..

Got you. And then also I was curious given, we heard a lot about wage inflation, you guys talk about double-digit wage inflation. So I just release the franchisee profitability.

Can you talk about what’s that looks like versus maybe the way looked a year ago? And then what you’re hearing from franchisees in terms of sort of their happiness from a profitability standpoint?.

I think we have two things impacting the Wings. One the chicken itself was rather large during this timeframe in the fourth quarter, in particular. And I think you may that from other brands, I believe one other brand noted desiring to reduce size of even chicken breasts. So chickens got bigger and also the price was high.

As Mike noted, since the peak on pricing of Wings, over the past few weeks Wings have come down as much as $0.18 a pound. So it has a significant impact on the P&L. And then from a wage inflation perspective, I think a lot of those are factored into some of the price discussion that we’ve talk about in the past.

Where we’ve tried to get ahead of those and I think that’s coming into play now for our franchisees in certain markets where they are seeing the wage inflate. But there is more obviously coming in the future. So I think, we’re going to, we hope to see the Wings relax a little bit more, that would be a benefit to the business.

At least follow what’s under more normal seasonal pattern, which we did not see in the third and fourth quarter of last year and then that would help stabilize the P&L, if there is any stress there..

Great. Thank you..

Our next question is from David Carlson from KeyBanc Capital Markets. Please go ahead..

Couple of questions.

Mike, what sale book [ph] do you need in the first year of the advertising to determine whether the national media's on track to provide a sufficient return?.

Yes. I don’t think, it’s a question of the return, because we’re just shifting dollars from franchisees and Co-ops to the national fund, and so it’s not like there is a significant incremental spend. We will still spend the same amount of money, it’s just being spent more widely from our standpoint.

So I really don’t look at it from that standpoint, I think it’s growing brand awareness particularly in these newer markets where brand awareness is relatively low, while sustaining momentum in our core markets, that’s the way we look at success..

That’s fair. And just a real quick, since you were just talking about Wing prices in store and some of the cost of the company on stores. Given some of the new store inefficiencies that you guys had from I think it was two company openings in the last three quarters or so.

But the guidance implies that restaurant margin improved to the company owned store base in 2017?.

I don't think we would show an improvement in the company store margins particularly since we're starting out the year with Wings which is the main driver of movement outside of the two new stores you've mentioned. The main driver of movement on the margin is going to be really what happens with the size and the price per pound of Wings.

And so as you guys know there is a bit of volatility on food cost per us that comes from year-to-year and quarter-to-quarter. and that's going to be the main driver of what happens with margins at company stores and franchise stores..

And how about this, would you expect labor to stabilize and that was one of the big items that really kind a moved the needle here over the last couple of quarters outside of Chicken Wings?.

Yeah I think obviously we made the investments in the back half of the year that we've talked about. Those investments will continue, so we'll have a little headwind in the first part of the year, but we're at a steady run right now..

Okay thanks for your time. .

[Operator Instructions]. And the next question comes from Nick Setyan from Wedbush Securities. Please go ahead. .

You guys didn't call out weather in California at all. I mean you guys do have a lot of stores in California.

Was there any impact at all that you would call out at least in the quarter-to-date period?.

No, Nick I don't think that's a major driver of what's going on with comps. We've looked and it, we've got a lot of stores in L.A. and that was one of the areas that got the least amount of impact actually, as we looked at rainfall. So it's not something that we would call out specifically as a driver. .

So there were no there is no visible differences in trends in con-trends. .

No I think that's material. .

Do you planned to open any company owned stores in 2017?.

At this point in time we don't have any in the pipeline. .

Okay.

is there any changes to the international unit growth rate expected in 2017?.

No, I think we've brought the new countries onboard, each of those countries should produce at least a restaurant in the first year that's pretty typical of a new deal. But then the rest would be just run-rate from our existing markets and continuing to grow those at a similar pace of what we've seen before.

As these new markets come onboard and start to ramp up then they'll gain momentum in usually their second and third year of operation overall..

The cadence of the TV advertising, does it end at some point and then restart, or is that going to be continuous?.

It's typically a three week on, two week off cadence, something like that throughout the year. It's been scheduled that way, and so there is not a big heavy push for eight weeks and then off for four or five. So it's fairly consistent throughout the year. .

Thank you very much. .

Our next question come from Jeffery Bernstein from Barclays. Please go ahead. .

Two questions just one on the following up on the unit growth question for '17. And I think as you addressed the percentage unit growth is slowing from the '18 to maybe '13 to '15 not doubt about that, but pressure about the lower large numbers and perhaps as little conservatism in there.

but for the absolute number of openings to perhaps start the year expected to be lower than where they were in '16.

Just wondering as you talk to franchisees again some of the pipelines pretty similar, but I would think that the franchisees look at the systems and comps have gone from 10% growth plus over the past few years I mean now we're running in the 1% range just wondering do you get a sense of any change and tone or any reason to believe, I think you mentioned that you really don't think that the comps are having any impact, but it just seemed like going from a 10 to 1, you get some franchisees that might show some hesitance, so I was wondering if you got that sense in talking to franchisees lately?.

I think it's a great question and the answer is, I don't think it has any impact at this point whatsoever.

If you think about going from 10 to 1, keep in mind that over the last five years our aggregate comp growth during that time is almost 45%, so what's fueled our growth and will continue to fuel our growth is our exceptional unit economic model, it still has a three to one sales investment ratio and second year cash-on-cash return between 35% and 40%.

And our franchisees value that, that's why they continue to help replenish the pipeline and continue to grow. So, even in choppy waters, temporarily, that's not going to cause them to change their overall perspective on the business as well. So, I really don't see that being a driver of change.

And I think the '13 to '15, I think you said it well, look we're at the beginning of the year, we establish that pipeline, we've great momentum, we carried excellent momentum into Q4, Q4 did not pull any restaurants forward into the pipeline, it was part of our normal cadence of openings and so we've always expected that the percentage might drop as we get bigger and opening a 153 net new restaurants is the size of some small chains in one year.

And we're very proud of that and think that that's really the key driver of our growth for the long term..

And then in the press release you talked about the national advertising and the growth in the online channels, positioning them well.

So you've talked about the national advertising, I'm just wondering the online channels, I know you said trying to turn the sales mix, but I think in the past year total you've got a handful of stores that are sitting at north of 40%, so I'm wondering that just seems like a huge on opportunities, especially with the average check being, I think you said $4 higher.

So what are some of the incentives you are using to accelerate that? I'm assuming that's taglines within your national advertising, but are there other ways to kind of accelerate that acceptance of online to really drive what is a big comp driver?.

Yes, I mean we continuously increase our rate by about a point, a quarter sequentially and we've done that for three consecutive years, this natural evolution is nice in that we don't have to provide an incentive to continue to see the kind of growth that we're getting.

The risk is putting incentives in place is that you start to raise the value proposition a little bit, and that might take some margin away to give something away to get to growth..

So, we like the approach we're taking, you do see it in our national advertising and you'll see it more in our national advertising and our hope is that through national advertising bringing awareness to that channel and continuing to drive it is going to be the benefit to the company.

We did say previously that before we had our point of sales system rolled out, we were a little more hesitant to advertise aggressively. So, you can expect that our ads in the future will be much more pointed towards online advertising as a way to drive the business..

And just lastly Mike I'm not a tax expert, but you did mention at the end of your prepared remarks, that the effective tax rate is 37 to 38, but that you though with the new GAAP rulings and what not that you're going to get a tax benefit, but that's not in your guidance.

So does that imply that you think we should all be assuming 37 to 38 or is it very realistic that we're talking about the rate that could be significantly below that as we look through '17?.

Yes. I think there is a reasonable chance it’s going to be below in 2017. The factors that go in the forecasting that are unpredictable, which is why we didn’t build it in, it basically has to predict when people exercise stock options and what prices they exercise that.

That gap, particularly since we do have a lot of options in the money, the gap between the strike and the exercise price, will create a tax deduction. We currently get that on our tax returns, so this is not really an economic benefit. It used to go through equity on the balance sheet and now it's just going to run through the tax expense on the P&L.

So it’s not really going to provide economic benefit to the company. So we thought it best to just start with the normalized rate and we’ll report back when we report our quarters on what the difference is..

Make sense. Thank you very much..

Thank you. This does conclude the question-and-answer session. I’d like to turn the floor back over to management for any closing comments..

No closing comments. So I think we’re fine, I know we have a number of people that we’re going to chat with this evening. So we appreciate everybody’s time for joining the call today. Thank you..

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