Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note that this conference is being recorded today, Wednesday, February 27, 2019. On the call, we have Charlie Morrison, Chairman and Chief Executive Officer and Michael Skipworth, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Michael. Please go ahead.

Thank you and welcome. Everyone should have access to our fiscal fourth quarter and fiscal year 2018 earnings release. A copy is posted under the Investor Relations tab on our website at wingstop.com. Our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and, therefore, you should not place undue reliance on them. These statements are also subject to numerous risk and uncertainties that could cause our actual results to differ materially from what we expect. Our recent SEC filings contain a detailed discussion of the risks that could affect our future operating results and financial condition. We also use certain non-GAAP financial measures that 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. Reconciliations to comparable GAAP measures are contained in our earnings release. With that, I would like to turn the call over to Charlie.

Thank you, Michael, and thank you all for joining us today. In short, Wingstop had another outstanding year. I want to list some of the highlights that we achieved in 2018 and tie them back to our ongoing strategic growth initiatives with which you are all familiar. We finished up 2018 with system-wide sales of $1.3 billion, a 16% increase; 1,252 Wingstop restaurants worldwide, a 10.5% growth rate; same-store sales growth of 6.5%, marking our 15th consecutive year of same-store sales growth; nearly 30% of our sales coming through digital channels; delivery rolled out to 30% of our system; and returned $192 million in capital to shareholders, which includes our regular quarterly dividends and an unprecedented two special dividends of $3.17 per share in February and $3.05 per share in November. I want to congratulate our franchisees and team members for making another industry-leading year possible at Wingstop. The team's hard work and dedication to our mission to serve the world flavor, both figuratively and literally, paid big dividends to Wingstop's shareholders in 2018. The 2018 results were driven by our continued focus against our strategic pillars of sustaining our same-store sales growth through increased brand awareness and innovation, maintaining and continuing to enhance our best-in-class unit economics and expanding our global footprint. We believe that continued focus on these strategic pillars will enable us to achieve our vision of becoming a top 10 global restaurant brand. To that end, we have enhanced our ability to go after the first strategic pillar, brand awareness and innovation. As of January 1, 2019, we increased the national advertising fund contribution rate from our franchise brand partners and company-owned restaurants from 3% to 4% of top-line sales. A combination of system-wide sales growth and the additional 1% to the contribution rate translates to…

Thank you, Charlie. Before I review the numbers, I would like to remind everyone that our financial results reflect the new accounting rules around revenue recognition that became effective at the beginning of 2018. Our prior year results have been adjusted to reflect this change so that you can compare apples-to-apples. Our execution against our strategic priorities in 2018 was evidenced by both our domestic same-store sales growth and expansion of our global footprint. In the fourth quarter, we expanded our system-wide restaurant count by 10.5%, reflecting 51 gross openings in the fourth quarter, ending the year with 1,252 global locations. Domestic same-store sales grew by 6% in the fourth quarter and 6.5% for the full year. Our global restaurant expansion and 15th consecutive year of positive same-store sales growth resulted in system-wide sales growth of 15% to $328 million in the fourth quarter and 16% to $1.3 billion for the full year. This topline growth translated to total revenue of $40.5 million for the quarter, an increase of 15.1% over the prior year quarter. Royalties, franchise fees and other increased $1.7 million, driven by 113 net franchise restaurant openings into Q4 of last year and our 6% domestic same-store sales growth. Our company-owned restaurants continue to perform well. Sales grew 25% to $12.5 million in Q4. $1.9 million of the increase is associated with opportunistic acquisitions we made in the Dallas market earlier in 2018. The remaining increase is driven by same-store sales growth of 4.6% in the fourth quarter. This same-store sales growth was driven by both an increase in transactions and an increase in average transaction size. Cost of sales decreased as a percentage of company-owned restaurant sales by 350 basis points. The decrease was driven by a reduction in food, beverage and packaging costs due primarily…

[Operator Instructions] Our first question comes from the line of David Tarantino with Baird. Please proceed with your question.

My first question, Charlie, is about the comment that you entered the year with strong momentum. And I know you're cycling a very big comparison in the first quarter, so I don't know if you would be willing to elaborate on what strong momentum means in terms of what you're running so far in Q1?

Hello, David. And yes, we do feel very good about the strong start we had to the year. I don't have specific numbers to share, but wanted to make sure that you are all aware that the strong momentum that we carried not only from the promotion we did late Q3 into Q4 of last year plus the roll-out of delivery in very key markets both maintained great momentum in Q4, did enable us to have a strong start, and that strong start is reflective of the large comp that we were going over from last year, which, if you recall, was up 9.5% for Q1 in 2018. So nothing more to share, but we do feel very good about how we are coming out of the gate.

On the guidance, I just wanted to clarify, there are some, I guess, moving parts with the SG&A line. So is this year, a year, given the cost structure, where I think your long-term target for EBITDA growth had been 13% to 15%. I just, one, want to confirm that is still your long-term target? And then if you were to do kind of low-single-digit comp that you are embedded in that long-run algorithm, would that be an outcome you would expect for 2019, given the costs that you have given us?

Yes, David, I'll start and I'll let Michael jump in. One thing, we didn't reinforce the 13 to 15, but instead chose to provide some clarity into some of the SG&A calculations because we certainly heard some feedback that we anchor on 13 to 15, but if you do the revenue metrics, you may not fall into that particular range. And so what we've offered here is the opportunity to identify what we think are the adjusting items and let your models reflect what we believe will still be either at or above our long-term targets for that adjusted EBITDA growth. You want to add anything?

And then on the G&A piece, there are a lot of moving parts. And so we tried to highlight what -- those items that might look like an increase, but really are not impacting adjusted EBITDA because there's revenue offset. So I think when you adjust for those as well as the increase in non-cash stock-based compensation, you get to a G&A, kind of base G&A number that reflects about an 8% increase off of the 2018 number.

And then lastly, Michael, on the interest expense line, just a minor modeling question. That looks a little higher than I guess the implied rate or the rate would imply. So can you talk about why that's, I guess, implying a rate on an upper 5% range?

Yes, David. The delta between just the pure rate on the debt balance of $320 million is the amortization of deferred financing costs that were about $8 million -- a little bit north of that deferred financing cost -- that get amortized into interest expense over the expected term, which is five years.

Our next question is from the line of Jeffrey Bernstein from Barclays. Please proceed with your question.

A couple of questions as well. From the franchisee perspective, thinking about pricing it now looks like labor cost pressures, I'm assuming, remain a challenge for you. And it seems like wing inflation is rearing its head again up mid-single to high-single digits. Just wondering how the franchises are thinking about their restaurant [indiscernible] margins or perhaps from a company operating how you're thinking about it. Whether that impacts your frequency of promotions or what you're suggesting in terms of menu pricing? Or whether you'd prefer to kind of absorb the pressure since there's presumably profitability in '18 was quite good?

I'll start and I'll let Michael jump in if he would like. But a couple of things to think about. First, yes, wing prices were elevated up to Super Bowl, but since then have receded very quickly. In fact, we are now in the $1.67 today from a peak only a few weeks ago of $1.87 a pound. As we have expected, they have fallen back down and the market would suggest that there is product available and that the more traditional economics will play out. So I don't think franchisees are concerned in that regard. As it relates to other pressures on the P&L, certainly, as you know, there was quite a bit of price taken last year to offset some of those wage pressures. We argued that it was a little higher than we would have expected. We navigated that very, very well. So as we look to this year, aside from some isolated, thoughtful, very strategic increases in various markets that would be considered long-term in nature, we would revert back to what our typical thesis has been, which is two points of price-related benefit to the comp. So from here then, all growth would be expected to be transaction growth in the business. Aside from that then, we noted some of the efficiencies we created by making some product mix changes. We will continue to invest, as demonstrated in some of our G&A investments, in new technologies and innovations that we believe will continue to take pressure off the front counter and make the transaction more efficient. I will note that we, in January, exceeded 30% of our sales as digital sales for the business for the first time in a particular period. We're very excited about that and that in-and-of-itself not only drives a higher ticket but also take some pressure off phone calls and other means by which people approach us. So all of those things are still part of our long-term strategic outlook. I don't foresee this year being a year where there are any real inflationary headwinds that we would have to tackle like we have in 2017 or years past.

And then just on the comp looking back to last year. We entered 2018, I guess, talking about low-single digit and I think you kind of framed it as that would seem quite conservative to start the year based on the momentum you had so you kind of gave some parameters around them. I'm just wondering as we think about '19, again, you reiterated the long-term guide of low-single-digit, but the initiatives you got into 2019 and the current momentum you mentioned would seem to imply the low-single-digit might be conservative. I'm just wondering whether you would frame it similar to last year that, that might very well be the case, but you're just starting with low single-digit guide as you would every year or whether there is some reason to believe that low-single-digit is probably more appropriate in '19?

Yes, I think we will always anchor on the idea that a low-single-digit comp with 10%-plus unit growth will deliver fantastic returns for our shareholders and that will always be our approach. Going into this year -- and I think we talked a little bit about this earlier in the quarter when we were all together -- that what we do expect is that other drivers will be there this year inclusive of delivery, inclusive of the incremental spin that we are putting in place for national advertising, the tightening up of our media windows and the strengthening of the TRPs all are excellent drivers, some of which have been proven drivers of our business. So it's reasonable to expect that -- and if you look at the 2-year comp coming out of 2018, you'll see that there's some really solid momentum building in the business, and we would expect to carry that through 2019.

And just lastly, any color on the recent management announced turnover? It seems like you have confidence in your team today when you're talking about top 10 restaurant company, but I'm just wondering if there's any thoughts as to your confidence in the team as it is today and any other changes we should expect?

Sure. And I appreciate the question. To echo your sentiment, I have extraordinary confidence in our management team. And certainly, we definitely appreciate what Stacy has done for Wingstop in really establishing this brand as a digitally savvy and digitally leading brand in the space. She is going to be missed, but at the same time, we have a fantastic team of very skilled and strategic individuals that are going to carry us well into the future. And I think just like any organization should be, we are well built for the future. So over the course of the next few weeks, we'll be working through the transition on that. We'll provide a little bit more information about how things will shake out given her departure, but we feel very confident that we are going to be mission-focused and strategically focused on the same initiatives that she's been leading over her nearly six years of tenure with Wingstop.

Our next question is from the line of John Glass of Morgan Stanley. Please proceed with your question.

I wanted to, Charlie, want to drill down a little bit more on the notion of fortressing markets. First, maybe if you could just remind us what the key study was for Dallas or other markets you fortress kind of what the benefit was AUVs or comps over time? Can you talk about how long you think this fortressing strategy is going to be in effect? Is it sort of going to be the next several years that you are doing it? And then finally, you mentioned it won't impact same-store sales or it's not intended to. I think other concepts, typically those that have a lot of delivery, admit that there has to be some level of cannibalization, but that, that's appropriate, given what they're doing. As you move to more of a delivery model, why would this not prevent or cause a little bit of cannibalization? Or how do you think about that trade-off?

Good afternoon, John, and thanks for the questions. I'll address fortressing first, and I want to reinforce that other brands have noted as fortressing being something that would cause cannibalization in their brand. That is not the case at Wingstop. The Dallas model that we reflect upon kind of reverts back to we went public just in 2015. We talked about it at the time that we had roughly 80 restaurants in the Dallas-Fort Worth area. And at that time, we believed that we still had opportunity to grow and, in fact, we do -- 109 today and still growing in this Metroplex. But what we really have noticed is with Wingstop, something that perhaps is very unique as compared to other brands, we have our newest markets come out with a good solid base as it relates to their first year, second year AUV, which we've talked about as what anchors our model. And then over time, they continue to comp positive. That phenomenon can be seen in all of our more mature markets. In the Dallas market, for example, enjoys about 1.4 million average unit volume, I'll even highlight our company-owned restaurants. The majority of those are in Dallas, enjoy a $1.8 million AUV. Those restaurants tend to be very much the older restaurants in our portfolio as many as 12 to 13 years old on average. So that helps support this idea or thesis that as we continue to attack these top 25 markets and aggressively penetrate those with our existing franchisees and grow them out, we will see increased levels of brand awareness, which we enjoy in a market like Dallas, our brand awareness levels are as much as 88% to 90% in terms of aided awareness, where as some of these emerging markets only have…

And just to be clear, you don't have to answer this now, Charlie, I've already taken enough of your time, I was talking about delivery -- fortressing has hurt delivery-centric concepts because you've got to split territories. My only point or question was if you move towards fortressing it and delivery at the same time, do you not net get some cannibalization just because delivery does draw from -- that was part of my question.

Yes, I just want to clarify that. Thank you. No, I don't believe that has any impact whatsoever by fortressing because there's so much white space available in those markets we're working in.

Our next question is from the line of Andrew Charles with Cowen. Please proceed with your question.

One quick clarification, my question, Michael, in the G&A guidance, is the $2.2 million in additional payroll-related expense, is that fully offset by the advertising revenue?

That's correct, Andrew.

Okay, that's helpful. And then my other question is on the comment on delivery margins are accretive to store level. Can you talk us through how you're thinking about that when you embed the delivery commission? I would imagine that you'll probably pay a lower commission if the delivery transaction's placed through one of your own channels. I know it's a high mix of delivery orders, around 2/3. But maybe you can walk us through how you guys are thinking about the margins at the store levels from delivery?

Well, we definitely believe that we enjoy very competitive margin on delivery. Well, commission, I should say, let me be clear, which makes it easier at the low levels of cannibalization we have seen at the high degree of incrementality to be able to have a margin-accretive business from delivery. You make a good point that the majority of our orders do come in from our own channel at wingstop.com instead of through the marketplaces. And because of that, we do enjoy a better margin on those transactions or a better lower commission for that. And so our focus, and will continue to be our focus well into the future, is to continue to drive as many transactions through our channel as possible. And with that, we continue to enjoy the ownership of the customer information that goes with that. So I believe Wingstop is very, very well-positioned to have a strong margin benefit from delivery in addition to the incremental top-line sales.

And just a second one for me. Last month, you called out, obviously, the new agreement with Performance Food Groups that, that helped mitigate the volatility of wing prices. Could we just dive into that. I'm curious if there is a collar in place or just this simply leads to lower wing price, in general, this taking advantage of the scale of that system. But if we were to see wing prices kind of at the high end of your guidance, mid- to high-single-digits this year, what reinforcement will you put in place to help you mitigate that impact?

Yes, we don't have a collar or any sort of hedging strategy in place because of that agreement and we haven't had one in the past. Those can be temporarily great and long-term very detrimental if we are not careful, so we tend to follow the spot market here. The really -- real advantage there are buying synergies not only in chicken wings but lots of products that Performance offers to their own customers as well. They tend to buy and aggregate food products and then sell them to a more mom-and-pop type of concept, whereas specialized distributors or customized distributors will buy what you need and distribute that back to you. Our belief is that we can leverage our collective buying power across a number of items to mitigate the impact of wing inflation should it exist. But the one thing specific to wings is we buy a whole lot of wings and they buy a whole lot of wings. And so we put ourselves in the position to ensure that our stock is available to us as needed if there was pressure on the supply of the product, which obviously tends to drive the prices up, so that's really the strategic premise of that agreement.

Just last one. Can you remind us of when that agreement went live?

September of last year, 2018.

Our next question is from the line of Karen Holthouse with Goldman Sachs. Please proceed with your question.

One really just quick modeling one for me. The stack-on timing was a bump up next year. Should we also expect that to be fourth quarter weighted or more evenly spaced through the year?

There is obviously, if you look at 2018 and you apply that same weighting that you saw, it would be pretty fair to apply that to the increase. Nothing detrimental.

Your next question is from the line of Peter Saleh with BTIG. Please proceed with your question.

I want to come back on the delivery discussion. Can you talk about the performance of delivery units or your expectations of the delivery units once they're lapped and in the market for a full year? How do they perform in year 2?

Yes, I'll answer the question based on the test markets first that we have done and then point towards what our strategy is in the future. So in the test markets we've had delivery in, we've been able to sustain our delivery volumes in the second year of the test. We haven't really seen much in the way of an increase across the board. That is driven by the fact that when we launched delivery, we put just a little bit of radio and some digital advertising behind it in those test markets for about a couple of months maybe and then left them alone. So much of their business has been sourced organically. As we look beyond on a national scale, we mentioned that by the end of the year, we expect to be in at least 80% of our restaurants by the end of the year with delivery. And our expectation is that in 2020, we would then use our national advertising power to promote delivery. So that means that in 2019, we do not expect to use our national advertising weight to promote delivery. So we believe that, that can have a very nice year two impact by gaining awareness for delivery for Wingstop.

That's very helpful. It sounds like your mix, your digital mix continues to climb. I think you said about 30% in the month of January. Do you guys anticipate any sort of cost savings within the four walls that you may see this year versus last year as your digital mix continues to rise?

I don't think we'll have anything that I would consider meaningful this year. Most of our cost savings initiatives inside the 4 walls went into place last year, mostly with our reduction in true hours associated with some of our side item replacements that we did. What we believe is that the incremental digital will drive this $5 on average higher average ticket, and that certainly creates some margin benefit through the P&L as we continue to grow the check that way.

The next question is from the line of Chris O'Cull with Stifel. Please proceed with your question.

Charlie, I have a follow-up regarding the relationship with Performance Food. Do you believe there is an opportunity to convert the company's fresh wing purchasing program. I guess it's probably based on more of a fee-based agreement?

I do not, no.

And then do you can you talk a little bit about changes and whether you have seen any changes in the customer satisfaction toward the food quality value or overall, I guess, satisfaction of the stores that have been offering delivery?

One of the things we made sure to do in developing our playbook for delivery as we went through the test was to ensure that we executed the transaction at, at least the same level of service as measured by our consumer feedback that we get. We get a digital and a walk-in, in-store customer satisfaction measurement on every transaction. So as we do that, we want to make sure that our digital customers and delivery customers have an equal experience. We have been able to do that in our testing processes. And even in the early roll-out of our new markets, we've experienced very similar levels of quality as measured by our guests in these delivery transactions.

Great. And then my last one, Michael, how should we think about the use of excess cash, given a new debt facility doesn't really lend itself to debt repayment beyond scheduled amortization?

Yes, it's a good question and definitely something we are continuing to look at and think about. Obviously, we can't, as you noted, prepay without incurring a penalty on any of the bonds that we have issued. So you will see cash build over time and I don't think at any point this year would I expect to see a deviation from our current return of capital policy, which is targeting roughly 40% of free cash flow to return to shareholders.

This just in. The [Indiscernible] went down another penny today, so wing prices are even lower than we talked about earlier.

[Operator Instructions] Our next question is from the line of Jon Tower with Wells Fargo.

So first, I just want to clarify the quarter-to-date comments with respect to the momentum you are seeing in the business. Were you describing that on a 1-year or a 2-year basis? If you wouldn't mind clarifying your comments on same-store sales. And secondly, the question is on the unit growth side of the equation. So I know at ICR you discussed the idea that the commitment pipeline was roughly 523 stores at the year-end of 2018 versus 450 at the end of 2017. And today, you're backing the guidance, the long-term guidance, of 10% plus unit growth. But we're also going over a year where you saw your lowest unit growth in at least 4 years at 10.5% for a system. So should we focus more on the plus side of that unit growth? Or is this going to be another year where unit growth kind of settles closer to that 10% number?

Thanks, John. The first comment was it the 1-year comp or 2-year comp in the momentum comment? It was effectively both, I guess, is best way to answer that. We're comfortable with the strong start we've had, so that's probably the best answer I can give you. As it relates to the second question...

Yes, no. I think on your second question. I'm sorry, Jon, what was your second question again?

Just had to do with the unit growth in 2019 -- 2018 down 10.5%, which way are we going? Are we going to be closer to that 10%or are we going to be closer to the plus side of the equation?

Yes, Jon, I think as we talked about earlier this year when we were together, we have seen some nice momentum in the development pipeline. As you noted, ended the year up quite a bit from where we were a year ago. And then also as we looked at the development that started to flow in, in Q1, 51 gross, obviously, demonstrates some great momentum, which I think would probably be inclined to be more on the plus than the 10%.

Just lastly. I know it's one of the topics down at ICR, that was discussed was the idea of consolidation of the domestic store base. You've got roughly 250 franchisees. I think 120 of them are single unit operators. So where are you in that process of trying to get consolidation or essentially a concentration of these franchisees in the U.S. going? And with agreements where you've got consolidation going on, will there be development agreements tied to store X getting bought by a franchisee and five more stores on top of that to grow down the line? How should we think about development there?

Well, I don't think it's going to change the rate of new store development to factor in consolidation. What we've said there is, is that from time-to-time, franchisees will decide to sell their restaurants and our goal would be to continue to encourage existing franchisees to acquire those, such that we end up with a tighter group of franchises. We will from time-to-time bring on a new franchisee to the system if we believe it strategically makes sense in a particular market. So the timeframe for consolidation will take quite a bit of time. Some of that is dependent upon the valuation of the restaurants, what people are enjoying and margin strength in the brand. All of those things really factor in. So we haven't put a specific time line to it other than what we do expect to see as over time that the number of net total franchisees will probably reduce.

Our next question is from the line of Jake Bartlett with SunTrust. Please proceed with your question.

And Charlie, I hate to harp on it, but now I'm compelled to kind of clarify, make sure I understand what the definition of momentum is. When I think of momentum, I think of a comp increasing. So that was what I thought you meant on the two year basis. Are you saying that even on a one year basis that it's increased -- momentum has increased in the quarter-to-date from the fourth quarter?

Yes, I don't want to get into the nuances to try and angle to where the number is. I'd stick firm to the fact that we have had the strong start to the year. We exited 2018 with great momentum, both in the one and two-year comp. And, therefore, that same momentum has fueled that strong start to this year, but I don't want that to cause us to get too in the weeds or try to decide whether or not this is meaningfully different from where we have been.

And then if you could remind me, I know that your change of strategy of marketing in 2019, I believe that's meant that you've really held off on your marketing quarter-to-date until the after the Super Bowl. And so what I'm asking or what I'm wondering is on a year-over-year basis, did you advertise much less? Or was there much less impression, fewer impressions, quarter-to-date versus last year?

Well, I think in general, we've always held off marketing until after the Super Bowl. The difference with this year is that we actually started our media campaign about a week or almost 2 weeks later than we did a year ago. So to answer that specifically, yes we've had fewer impressions through the first, call it, 7 weeks of the year. But the level of impressions will jump rather dramatically now that we are on-air and will be on-air for about a 12-week cycle now. So which is different than our cadence. Previously, we were on for 2, off for 2. In this case, we will be on for the better part of the remainder of this quarter and the early part of Q2.

And then just to clarify the comment on the G&A. The portion that's being reflected -- I guess, there's an expense in G&A and then you are getting the revenue in advertising revenue. But just want to make sure I understand how that works. In this last quarter, revenue was higher than the related expense. Is that what we're talking about here in, for instance, I think by about $400,000. So was G&A higher by about $400,000 because of that? Is that kind of neutralizes the ad fund impact?

Yes, that's some of it in Q4. I think there is some other G&A spend in addition to the investments we have made in our marketing team to fund our national advertising efforts. Some of those are related to initiatives we've talked about before, specifically as it relates to supporting the national rollout of delivery. Some of the investments we're making to -- made to launch our new custom developed app, that's a couple of examples. So a little bit of both there.

Okay. But in 2018, the advertising revenue is about $800,000 more than the related expense. Actually, there is not a benefit. Was that $800,000 in G&A?

Yes, that's the 1 for 1. You are right. That's 1 for 1, so that would be in G&A. Correct.

Thank you. Our next question is from the line of Matt DiFrisco with Guggenheim Securities. Please proceed with your question.

Hi, this is Matt Kirschner on for Matt. Just a follow-up on quarter-to-date same-store sales. Should we expect the New Year's Eve benefit or a weather benefit in the first quarter? And then on the restaurant margin, we saw an increase in the other operating expense line during the fourth quarter. I was wondering if -- which was actually a reversal from the last three quarters -- was that related to the delivery roll-out ramping? And could that continue in 2019 or more of a one-time thing that we missed?

So on the first question, no, there is no specific one-time event that I would call out as it relates to weather or New Year's Eve on the comp. On company restaurant margins, no. I think the one thing we would call attention to -- a couple of things I suppose. One, we acquired 3 restaurants from a franchisee in the Kansas City area that we are working to reinvest in and prepare them ultimately back for sale, most likely to another franchisee in that market. So we saw a little bit of margin dilution, erosion from that in the quarter. And then delivery was not a factor here as the company-owned restaurants have not experienced delivery other than the five Vegas markets that was back in 2017, so that would have been in the full year.

And the timing of the KC stores if you were to sell those back, where would you reflect the gain? Without income statement or just cash flows?

I don't know if I would anticipate any sort of material gain associated with that. It's more of us just getting them into a strategic brand partner's hand and can continue to grow and develop that market. So I wouldn't really anticipate modeling anything significant there.

And it goes back to our consolidation discussion. This is a good example of market we want to consolidate, and we are using our own resources to prepare these restaurants for a more strategic franchisee, as Michael mentioned.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.