Q1 2024 Denny's Corp Earnings Call

Participants

Kayla Money; Senior Director of IR; Denny's Corp.

Kelli Valade; President and CFO; Denny's Corp.

Robert Verostek; VP and CFO; Denny's Corp.

Michael Tamas; Analyst; Oppenheimer & Co., Inc.

Jake Barlett; Analyst; Truist Financial Corp.

Todd Brooks; Analyst; The Benchmark Company, LLC

Nick Setyan; Analyst; Wedbush Securities, Inc.

Ashwin Grand Enger; Analyst; Piper Sandler Companies

Presentation

Operator

Greetings and welcome to Denny's Corporation first-quarter 2024 earnings conference call. At this time, all participants are on 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, Kayla Money, Senior Director of Investor Relations. Thank you. You may begin.

Kayla Money

Good afternoon. Thank you for joining us for Denny's first-quarter 2024 earnings conference call. With me today from management are Kelli Valade, Denny's President and Chief Executive Officer; and Robert Verostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website at investor dot Denny's.com to find our first quarter earnings press release, along with the reconciliation of any non-GAAP financial measures mentioned on the call today, this call is being webcast and an archive of the webcast will be available on our website later today. Kelly will begin today's call with a business update. Then Robert will provide a recap of our first quarter financial results and a development update before commenting on guidance. After that, we will open it up for questions.
Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the Company's most recent annual report on Form 10 K for the year ended December 27th, 2023, and in any subsequent Forms eight K and quarterly reports on Form 10 Q. With that, I will now turn the call over to Kelli Valade, Denny's President and Chief Executive Officer.

Kelli Valade

Thank you, Kayla, and good afternoon, everyone, and thank you for joining us I'm excited to share our first quarter results with you today and provide highlights for the quarter. I'll do that in the context of our unique playbook, which includes our creative strategies and our specific areas of focus for both the Denny's brand and keys breakfast Cafe, Denny's Q1 domestic system-wide same-restaurant sales were negative 1.3 this quarter with both sales and traffic outperforming both the family and casual dining segments. I'm incredibly proud of our teams and our franchise owners and operators who demonstrated incredible resilience and focus even in the midst of a tough operating environment. Denny's dine-in business showed progress this quarter with a breakfast daypart showing strength continuing to strengthen and grow dine-in traffic throughout all dayparts as a primary focus and we believe we have a great approach in line up to do this and for those guests seeking alternative dining experiences.
Our digital and off-premise strategies are strong and deliver for many guests who want convenience. In fact, while off-premise sales as a percentage of total sales had been at 19% or greater since Q1 2020, this first quarter, we delivered 21% stealing share from others that have scaled down in off-premise channels. The proof points for us are clear. Dine-in and off-premise guests skew younger than dine-in, approximately 70% of our Gen Z and millennial guests utilize our off-premise channels compared to the same groups utilizing dine-in at approximately 40%. This simply means that this part of our business, though, yes, lower margin is highly incremental and delighting a different for that reason.
Off-premise channels continue to be a strategic opportunity for us to grow new guests and transactions through our unique virtual brands and their Denny's on-demand. In addition to capturing share with our off-premise business, our current areas of focus for Denny's are clear. We will continue to innovate and dominate breakfast and do that with a focus on unparalleled value this past quarter, we delivered on both our most recent spring menu launch just a few short weeks ago, but is already delivering for us through both pricing and positive product mix changes on this menu, we added to our signature slam platform with the introduction of our new Berry waffle slam featuring the new highly craveable lease waffle. We are thrilled with the performance of these new levels as they are outperforming sales expectations and getting fantastic feedback from operators and guests.
We also have several other new menu items beyond breakfast that are really resonating with our guests, including our new barbecue bacon chicken sandwich and the new Oreo brownie sundae and our approach to simplify and minimize customizations on the menu is also making a difference with the Create Your Own categories down as a percentage of mix on the menu and signature curated plates increasing as we have mentioned, and this helps us with order accuracy makes service lives easier and speeds up ticket times without any impact to the guest as they are always welcome to customize any order we've also continue to highlight our most popular and most profitable items on the menu, delivering improved margins. Delivering compelling value leadership is also critical for our guests to Denny's because we offer an incredible experience at a great price for the foods.
They love from familiar breakfast favorites to late-night cravings with approximately 70% of our guests at household income levels at or below $75,000. Price and value remain front and center for many guests as they think about where they want to spend their dollars. This quarter, we responded to that by offering our original Grand Slam at the incredible starting price of five 99, guests responded favorably with traffic and sales coming out strong into the new year, total value mix in the first quarter was approximately 19%, up from the 17% mix we saw last quarter. Additionally, our year-over-year share of wallet increased against family dining and casual dining from Q4 to Q1 across all income cohorts, proving our value messaging is resonating with all of our guests. And for this quarter, we are again leaning into value now featuring our reprised all-day diner deals, menu, which is a lineup of six countries, also with an impressive starting at price of five 99. We are pleased with the results we are seeing in the first few days and optimistic about the potential impact for the quarter.
And because we know that guests also crave our many premium items, we continue to elevate our barbell strategy by merchandising dishes like the Barry Stuffed French Toast in restaurants, even more the price-conscious consumer, our check has remain hold with minimal to no check erosion. We consider this a success, and we'll continue to leverage our effective barbell strategy to offset costs and improve the model for our franchisees. The third area of focus is convenience. I've mentioned a few of the stats related to our off-premise business already, but I'll dig in a bit more here, sharing what you'll see us do next. We've known that convenience is important to many of our guests. And since the onset of the pandemic, there has been a growing preference for off-premise dining. We continue to believe that our guests want convenience and that off-premise channels will continue to see growth despite a shift by many companies to deleverage this part of the business.
This belief was supported recently with data shared from store Cana, formerly NPD that show that while off-premise channels were slightly down in the first half of 23, they spiked in the back half of 23 and will continue to increase, we believe, by leveraging our operating capacity at dinner and late night, we are positioned incredibly well to capture the share and leverage this strength as others focus only on their dine-in business. The growth is also meaningful, both in terms of sales and the ability to attract new guests at different dayparts as our virtual brand sales. And these later dayparts are nearly three times that of our breakfast and lunch dayparts, delivering a highly incremental 2% to 3% and sales transactions from those incremental costs. Because of these results, we are bullish in this area and plan to expand beyond the burrito, our third virtual brand concept to an additional 200 plus locations over the next couple of months.
These will be in California because it has the unique potential of offsetting the impact of maybe 1228 when we offered this option or California. Franchisees were quick to sign up given the perfect timing and the fit of the bond offerings once we expand fully into the California market will likely roll nationally most likely starting in early Q4. Finally, and importantly, starting this quarter, we're adding significant media to the market by reestablishing our brand co-ops and providing a match for all dollars from our ad fund because match was halted during the pandemic, but is critical to our go-forward plans to get our message to Morgus. The matching funds provide greater incentive for co-ops to step up their media investment, which we leverage locally to add an impressive 12 million on an annualized basis to the ad budget.
Now I'll switch gears and provide updates to a few of our priorities captured in our claim strategic framework. For reference, Creyf's stands for creating leading tech solutions, robust new restaurant growth, assembling best-in-class teams, validating and optimizing the business model and elevating profitable traffic. Our first focus on creating leading tech solutions. We've made significant progress during the beta testing phase of our new cloud-based POS platform. We can now say we'll be partnering with Xenial enterprise solutions for this launch. We now have over 110 restaurants complete with the installation with plans to move into general lease for the system in Q3. Even more exciting are the recent results we've been seeing and what this platform will enable the key components of the platform for us are enhanced kitchen video display systems, or KBS. new beverage monitors, server handhelds and QR pay.
Our franchisees have been with us from the very beginning on this test, and they are now weighing in with their results reporting average check increases, given the ease of adding beverages and add-ons faster table turns reduced waste and reductions in labor, given lesser hours needed in peak periods. We are encouraged by these results as they not only optimize the model, but they demonstrate a significant opportunity to show a strong return on the investment of this new system in the kitchen. We're also focusing on menu items that allow us to utilize existing equipment from our kitchen modernization rollout and extend the use of ingredients featured on the menu. In fact, our culinary team created the new lease style waffle After exploring additional items that could be prepared in our ovens.
This created efficiency for the restaurant while providing new menu options for our guests. The R. and increase stands for robust restaurant growth. That growth will come from new units and strategic investments in our physical assets through an ongoing accretive remodel program. This quarter was a big one and that we finalized our research and now know with certainty that we have a home run or even a grand slam with our latest remodel package in this package, we leverage the learnings from our last remodel program called Heritage 2.0 and combine that with research and new design elements that lean into our unique diner positions, we now have a winning solution, delivering mid-single digit percentage traffic. These impressive results, along with our ability to incentivize and support our franchisees with financing through our loan pool will help them finance these remodels and improve sales and traffic for the entire brand.
This will also get us back to a remodel pace consistent with what we had prior to the pandemic, expect us talk more soon about the way we'll support our franchisees and work to improve our fleet with a strong focus to gear up in this area in short and to summarize what you'll see from the Denny's brand, continued new menu innovation, bringing craveable items to our guests continued strength and providing unparalleled value offerings, tech advancements with our Xenial rollout and a remodel program set to deliver fantastic traffic results and a great ROI for our franchisees. Finally, we'll reinvest in our co-ops, adding roughly $12 million to our overall marketing spend, capturing the attention of even more guests and driving traffic. Turning now to the momentum of Key's breakfast cafe We noted on our last earnings call that we received a warm welcome in the Nashville market as we opened our first location outside of Florida.
The local community continues to embrace keys as evidenced by sales volumes that are ahead of our expectations and on pace to deliver approximately $2 million in sales annualized. We believe this pace, which is also ahead of the average sales volumes we see in Florida cafés validates our optimism for this brand and for the keys team. It also shows that our discipline and determination making sure we had the right recipe to begin expanding this concept into new markets was spot on the refreshed interior prominent mornings from scratch tag line and refreshed menu deliver on our core differentiators of an elevated culinary experience featuring delicious, abundant Andres prepared from scratch daily and using the highest quality ingredients and kicking, you'll see that delivered an energetic, fun atmosphere with the customer experience is best in class.
We now measure kicking guest satisfaction through guest exam and are blown away by the continued stellar results, specifically a global rating of 4.7 and overall net sentiment and intent to return scores that far exceed other family dining or full-service benchmarks following the opening in the national market to additional keys opened in Jacksonville, Florida with a new design and another Cafe is expected to open in the national market in the next couple of weeks. The team is working feverishly to identify sites for future cafes, help secure property control, navigate permitting and begin construction efforts against a strong development pipeline. We simply can't wait to introduce new guests in new markets to this fantastic brand to close out our thoughtful strategies are driving our actions and our areas of focus are well-timed, given the environment and the expectations of our guests and our franchisees, the solutions and the promise of new innovation on the menu with technology and the right investments give us reason to be optimistic about what's ahead this quarter and beyond. I'll now turn the call over to our CFO, Robert Verostek.

Robert Verostek

Thank you, Kelly, and good afternoon, everyone. Given the strong prior year numbers and the highly competitive value environment during the quarter, we view Denny's Q1 domestic system-wide same restaurant sales of negative 1.3% favorably, resulting in a two year comp of positive 7.1%. Denny's domestic system-wide same restaurant sales were comprised of approximately 5.5% in pricing, partially offset by approximately 0.5% of product mix related to higher value incidents. All pricing for the quarter was a carryover from fiscal 2023. However, in mid-April, we took approximately 3% in pricing with the Denny's spring core menu launch. April's pricing included approximately 5% in California to offset the anticipated impact of AB 1228. This was more heavily weighted towards franchised restaurants with Company restaurants averaging approximately 4%. Denny's domestic average weekly sales for the first quarter were approximately $37,000, including off-premises sales of approximately $8,000 or approximately 21% of total sales.
Ttm delivered system-wide same cafe sales of negative 3.6% for the quarter. Approximately 40% of our keys cafes are located in Orlando, which has consistently trailed both Florida and the national average. However, we have been very pleased with the progress made in this small, but mighty brand 2023 was a year of building out the right team to lead key keys, and they are already making meaningful impacts. In fact, over the last year, they have closed the traffic gap to family dining significantly, and we still have more traffic and check driving initiatives in the works keys plans to roll out a selection of alcoholic beverages system-wide during Q2, which delivered instance of approximately 4% in test, most of which was incremental. Additionally, we are encouraged by the early test results of our new interior design in our latest Florida openings and are optimistic about what a future remodel program could deliver to the brand, including the addition of patios.
Before I begin discussing the quarterly financial results. I want to take a moment and describe the changes to our non-GAAP financial measures that we believe will provide more clarity to investors and analysts and greater comparability to peers. Beginning this quarter, we adjusted our non-GAAP financial measures for items such as legal, settlement expenses, preopening expenses, and other items. We do not consider in the evaluation of our ongoing core operating performance. In addition, cash payments for restructuring and exit costs and cash payments for share-based compensation will no longer be a component of our adjusted EBITDA definition. We have also sunset our adjusted free cash flow, non-GAAP measure, and we are now referencing the GAAP cash flow statement presented in our quarterly SEC filing. Please see the analyst center on our Investor Relations website or our current investor presentation for a recasting of historical non-GAAP financials.
Turning to our first quarter financial details. Total operating revenue was $110 million compared to $117.5 million in the prior year quarter. Franchise and license revenue was 57.6 million compared to $64 million in the prior year quarter. This change was driven by a $2.1 million decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter. And a $1.5 million decrease in advertising revenue, primarily related to temporarily lower local advertising co-op contributions in the current quarter prior to the pandemic. These co-op contributions represented approximately 0.4% of system sales. However, they have averaged about half of that over the past several years. Beginning in Q2, the Denny's system has fully reestablished local advertising co-op contributions, and we look forward to these investments driving incremental guests into our restaurant.
Adjusted Franchise operating margin was $30.1 million or 52.2% of franchise and license revenue compared to $31.6 million or 49.4% in the prior year quarter. This margin change was primarily due to lower sales and lease terminations. Company restaurant sales were $52.3 million compared to $53.5 million in the prior year quarter. This was primarily driven by a decrease of 3% in Denny's same restaurant sales, partially offset by one additional keys equivalent units. Adjusted Company restaurant operating margin was $6 million or 11.5% of company restaurant sales compared to $7.1 million or 13.2% in the prior year quarter. This margin change was primarily due to higher workers' compensation and general liability expenses in the current quarter of approximately $1 million or 1.9 percentage points of company restaurant sales. Commodity inflation was approximately 2% for the quarter, similar to what we experienced in Q4 2023. Additionally, team labor inflation remained unchanged in Q1 at approximately 3%.
I want to take a moment to provide insights on the impact of B. 1228 on our 22 California company restaurant since AB. 1228 was signed in September 2023. While there were industry fears of full service employees, rushing to secure fast-food jobs. We have been very pleased to actually see improvements in both management and crew turnover in our Company restaurants. We believe this is a true testament to investments made in our teams, such as our game program, allowing team members to obtain their GED. college credits, life skills and career path. Additionally, we have not experienced a material increase in team wages thus far in April, which is in part due to our service earning well above the AB. 1228 minimum wage. When factoring in tip income general and administrative expenses for Q1 totaled $21.2 million compared to $20.1 million in the prior year quarter.
These results collectively contributed to adjusted EBITDA of $18.4 million and the effective income tax rate was 24.6% compared to 61.5% in the prior year quarter. This change was primarily due to discrete items relating to share-based compensation in the prior year quarter. Adjusted net income per share was $0.11 in the current year quarter compared to $0.13 in the prior year. This change was primarily due to higher workers' compensation and general liability expenses, which weighed on adjusted EPS by approximately $0.02. Our quarter end total debt leverage ratio was 3.5 times. We had approximately $271 million of total debt outstanding, including $261 million borrowed under our credit facility during the quarter, we allocated $4.8 million to share repurchases, continuing our commitment of returning capital to our shareholders while also balancing investing in key keys growth at the end of the quarter, we had approximately 96 million remaining under our existing repurchase authorization.
Next to recap, our first quarter development highlights. Our brands opened eight combined restaurants during the quarter. Denny's franchisees opened five new restaurants, including three international locations. These openings were offset by 24 franchise closures and one company restaurant closure. These franchise closures averaged less than $1 million in their average unit volumes and were opened on average for 32 years over that timeframe. Trade areas have shifted and as was the trend prior to the pandemic, franchisees stayed open through the holidays to enjoy one last season with their long-time loyal guests. Despite these closures, we remain encouraged by the overall health of the broader franchise portfolio. In fact, despite domestic franchise same-restaurant sales decreasing 1.2% during the quarter. The average unit volumes have actually increased by approximately 1.1% compared to the prior year.
Moving Dickies we opened three Company cafes during the quarter, two in Jacksonville, Florida, in addition to the first Café outside of Florida in Henderson, Bill Tennessee. We are very encouraged that our first cafe outside of Florida is currently on track to deliver sales of approximately $2 million. And as Kelly noted, our second company location in Tennessee will open in the next couple of weeks in Gallatin just in time for Mother's Day. In addition, there are currently four cafes under construction with several others in permitting and site approval phases. Lastly, let me now take a few minutes to expand on the business outlook section of our earnings release with many sales driving initiatives such as the expansion of banded burrito, which has consistently rivaled the meltdown performance as well as the testing with Franklin junction and reigniting our remodel program and local co-op advertising funds.
We remain optimistic on our domestic system wide same restaurant sales guidance of between 0% and 3% compared to 2023. We anticipate opening 40 to 50 restaurants on a consolidated basis, inclusive of 12 to 16 keys openings and a consolidated net decline of 10 to 20 restaurants. We are projecting 2020 for commodity inflation to be between 0% and 2% and for labor inflation to be between 4% and 5% the labor inflation guidance takes into account the anticipated impact from a B. 1228 in California. Our expectations for consolidated total general and administrative expenses are between $83 million and $86 million, including $12 million related to share-based compensation expense, which does not impact adjusted EBITDA.
And lastly, as a result of evolving our non-GAAP financial measure, definitions and factoring in Q1 results, we now anticipate consolidated adjusted EBITDA of between 87 and 91 million compared to the previous guidance of between 85 and 89 million. Finally, I would like to thank our supportive franchisees and result-driven brand teams who've remained focused on serving our guests while continuing to drive our strategic priorities. That wraps up our prepared remarks. I will now turn the call over to the operator to begin the Q&A portion of our call.

Question and Answer Session

Operator

(Operator Instructions) Michael Tamas, Oppenheimer.

Michael Tamas

Thank you. Your guidance for flat. Sorry, And I see, Charles. Yes, you want to to achieve that for your guidance? And can you maybe talk about what?

Robert Verostek

Yes, hey, Michael, good to hear. Your voice is Robert. With regard to the sales, specifically QQ. one, particularly about mid-March to about mid April, saw some pretty significant volatility related to spring break. But as we exited April, the trends really started to improve, particularly just within our own results and the comparisons again against casual and family dining. So what we experienced on the quarter, we changed that trend now as we head out of April, I do also would like to say that our value initiatives have really been performing quite well.
And we've just launched into our latest version of that, again, are all day diner deals. They have a five, 99 price point inclusive in that. So despite the general macro economic environment and I agree with you, there is an overhang there. We are, I think, very well positioned with that value messaging to drive to drive same-store sales. And I'll pass it to Kelly for for the initiatives.

Kelli Valade

We are absolutely. And thank you, Michael, for the question yes, I'll say we've noticed and we've continued to watch not only throughout the quarter, gives us a bit of confidence. Confidence in April and for the quarter is the fact that the trade than we really do see what appears to be trade down given our boots to casual dining. And that has been pretty consistent, right? So So while yes, cautious consumers looking for value, we feel like, again on those works for us and have been working for us. We also launched a new menu, and it's really early, but from what we can tell there was some pricing in that menu, but also positive mix. And the barbell strategy continues to work for us with people really are adding in our new dessert is doing well, things adding to the check.
So that gives us some some governance. And then the if the things we're most excited about, I think, look, the dollars and cents I would say the increase in marketing spend with the simple matches the match that's going to happen again, gives us a lot of confidence, $12 million, as mentioned in the script So and that, along with the things that we see in potentially a remodel program that will gear up as strong as it was pre pandemic, those results are in and could have the potential to really show some effect the back half of the year. I mentioned another virtual brand that's not insignificant in terms of the sales that we see in that virtual brand and in the tests that we already have close to 100 restaurants. So California, first and then nationally the back half of the year, those are probably the ones I'd put at the top of the list starting with the co-op match, adding leading into the mix.

Michael Tamas

Thanks. And then I'm just are you we've heard a lot of restaurants talking about stepping up their value offer. Yes, obviously, Denny's is known for value in you you have to how does that shape the way you're thinking about and is there a value mix level that like you or your franchisees would like to stay below?

Kelli Valade

Yes. Yes, I think especially what you see happening in fast food, I would just say, you know, again, we're watching the price increases. There were knowing what we know what our guest count on on on us for and know that that value leadership is something we can offer. I think at 19, we're not surprised by that at all. It's been 17 for quite some time, and we've been at those levels before. So for us, you know, I don't think we worry enough, it gets above probably 25%, again, mid 20s, not to probably go higher than that on our two four, six eight platform that launched years ago. But was one of our most successful platforms got as high as 24%. And so, you know, that's that's probably an area we feel I feel safe in the way we've orchestrated and architected that not on that menu in the past and what we would we'd be okay with going forward.

Robert Verostek

Thanks, Michael.

Operator

Jake Bartlett, Truist Securities.

Jake Barlett

Great. Thanks for taking the question. On my first one was a follow up on the value discussion on the All Day of diner deals on large centers, what about a year and a half ago. I'm wondering how that has performed versus just doing the Grand Slam, trying to understand how whether the relaunch here will know how impactful it could be versus launching the five 99 grand slams?

Kelli Valade

Yes. Thank you, Jay. Great to hear from you. I think we're actually pretty confident that we did a lot of testing to go back and look at reprising that versus staying on there for quite a bit with their original Grand Slam and it performed well for us. And it really hung in there for us. And so we do what we do.
Great. When we talk about our plans, that's the signature platform, obviously. So what you see in all-day diner deals and what the research really pointed to for us, we went and revamped the commercial we went and really amped up the variety play.
So it's six on-trade. We lead with the Everyday Value Slam a great, Matthew, but we lead with that. But you're also we can also see in just a really short amount of time since it's launched. And we can see burger sales and incidences are up. So the things that are featured in that spot actually are performing pretty well. So we like the variety we like on that there are options for the guests. And it's not just one single breakfast item, although we lead with breakfast because that's the best we have the best potential when we do that. So we're encouraged and we've got great, great plans in the mix for the rest of the quarter in the back half of the year.

Jake Barlett

Great. And just to confirm this is you mentioned the last call you were testing some various levels of value. This is what you are testing or are there other platforms that you're currently still looking at?

Kelli Valade

We absolutely are still there are other platforms we are still looking at. And again, this one, given a We revised the commercial, given some new testing that we did it surface to the top so a good one now to lead into this quarter with on. But where we are, we are not done and we have a few more tricks up our sleeve in terms of great everyday value offers on that can be really compelling for us given the environment.

Jake Barlett

Okay. And then this next question might be, might you wonder, I should know the answer of and so I apologize ahead of time, but I wanted to make sure I understood the implications of the local co-op matching in the $12 million and increased spend that you talked about where does that money come from? Is this and help me understand exactly who's matching what and where is there any contribution from from Denny's itself that that's going out the door?

Robert Verostek

Yes, Jake, that's an excellent question. So the mechanics of that are there. So all of our restaurants, all of the Denny's restaurants contribute 3% to our brand building Fund IE. This co-op then suggest if the franchisees spend an incremental half a percentage point within their market, we will take a half a point out of that brand-building fund to match into that local co-op, giving that coal up approximately 1% of their sales to spend, leaving the remaining 2.5% in the brand building fund. So that, that's the mechanics of how that works. So overall, again, the overall spend is lifted a 0.5% in this environment, shifting the national spend to from 3 to 2.5 illustratively and the local then goes from 0.5 point to a point and a great.

Jake Barlett

And then the last question is just on California. You had there's been a month now the implementation of the fast recovery act, and you mentioned that it's not so far impacting your labor costs. Have it does sound like the labor cost increase is still built into the guidance. But anything you're seeing, I think there was an idea that this could drive traffic to move to family dining and full-service and any impact on your activity or any actions by consumers or changes in behaviors you can share at this point?

Robert Verostek

Yes, Jacques, this is Robert again. With regard to that little early, frankly, to see changes in traffic patterns resulting from that the potential of incremental fund going into the pockets of our consumers, those paychecks, it may just be getting into their pocket at this point so can a consumer behavior as a result of increased income from increased wages is likely too early to see, but we were a hedge within our prepared remarks. We're really at this point, pretty I'm pretty bullish at least in the near term that management turnover and crew turnover has not taken a significant change in California.
Again, watching it just as I described, the wages may be early, the impacts of how that all evolves with regard to turnover or labor inflation. We're still watching that very closely week, but early on those two points that have have performed better than we are. Our guidance, as you point out, does contemplate increased labor inflation. That may be something that we could revisit later in the year. But right now, just a little cautious to do so.

Jake Barlett

Great. I appreciate it. Thank you.

Robert Verostek

Thanks, Jake

Operator

Todd Brooks, The Benchmark Company.

Todd Brooks

Hey, thanks for taking my question. One drilling on Keith, a little bit. First, Kelly, just it sounds like the Henderson bill openings gone better than you expected, but what kind of learnings out of the response maybe potential in the non-Florida markets? I know it's one data point, but any read through or excitement around this opening that and other changes the growth trajectory going forward? Or Tom, if you could possibly update us? I know there were a lot of franchisees that were waiting to see that unit and the performance outside of Florida. Is there any way to give us an update on where the franchisee pipeline last? I think the last update was 100 plus.

Kelli Valade

Yes. So great question, Todd. We are absolutely excited about. The opening has done well, as you said, and Arthur already mentioned, so above expectations. And I think we mentioned on the last call didn't get into it in as much detail this time on. But we didn't open with patio or our liquor license yet. We've got those things and they've been fully vetted and tested now in the rest of the system. So those other levers to pull that haven't yet even begun to be in the mix in Henderson known in the Tennessee market.
Next one coming up in 10 feet. So we're really bullish about that market and the response we've gotten so far on beautiful design to the net settlement scores I mentioned in my comments, but they are they're absolutely phenomenal. And the team is working through a lot of different things in terms of ways to look at the existing fleet and in the way of a remodel package where we could take the learnings and the things that we've seen that have been really positive from, I guess, really new positive aspects in the design and pull those into the Florida market. Those franchisees are incredibly excited to be the first time there would ever be a remodel program for the small but mighty brand at Kincaid.
So there's a lot of excitement about that as well as excitement for the work that is being done around the alcohol that has been testing in our patios. Gallatin will open with a full patio and it's just a beautiful, absolutely beautiful building. So the learnings are absolutely there. We've got lots of people talking to us about it now that we've got these kind of learnings from Sanofi. So the interest is still there. The conversations are there, and we expect to be continue talking about the pipeline strengthening.

Todd Brooks

Okay, great. And then just a follow up about the potential to remodel the fleet in Florida. Do you have a rough idea on what the remodel cost might run to get those units to have at least the elements that you could work into those older boxes from the newer design?

Kelli Valade

We're Yes, great questions that we're pretty early at this point. And again, pulling the most, you know, the most appropriate elements to bring into a lot of in-line locations as well. So we're kind of wrestling with what does it look like inside? How do you bring?
It's really going to be paid and new colors and brightening it up and then still having some of those same things that are signature for TK. So we're still early in designing that and we'll test that at our Dr. Phillips location on pretty soon, but not quite there on just having that full package for you now.

Todd Brooks

Okay, great. And then my second question, and I'll hop back in queue on menu innovation pipeline. And you've talked about levering the new kitchen equipment more and more going forward. What does that look like? It doesn't go item by item or do you see new platforms that you're experimenting with that lever, the new kitchen equipment? Is there anything we should be watching for, I guess, from the menu standpoint that could be another incremental driver too, and list of same-store sales drivers that you laid out earlier? Thanks.

Kelli Valade

Shawn, are I mean that's what I can tell you is that what we are doing is looking at the menu holistically, looking at the obviously always being mindful of the equipment on the simplicity and the consistency that that equipment offers. But there are a couple of things that you will see us do that kind of look at the menu and our strengths and things that are signature for us while balancing that with things that we can use our menu, our kitchen monitorization equipment for one thing that I probably would want to add just yet in terms of what the pipeline looks, but there's some there's some pretty exciting things that we've got for the back half of the year.

Robert Verostek

Okay. Thanks, both.

Operator

(Operator Instructions) Nick Setyan, Wedbush Securities.

Nick Setyan

Thank you. And just a follow-up on the co-op. And just to understand correctly, is it an actual increase in marketing spend overall? Or do you shift 50 bit from national marketing to local marketing?

Kelli Valade

Yes, for clarity Nick gave is an actual increase of 50 basis points. By a again, we are shifting a half-point out of national to get to boost the total local spend to a point, but it is an is an actual increase in total spend from 3% to 3.5%.

Nick Setyan

Okay. I guess we'll just take it offline to understand where that happened point comes from exactly on. And then just around sort of some of the add-backs in the Company online or maybe just kind of step back and just thinking about EBITDA like if we were to keep it apples to apples to how we talk about how we how we talk about it, what would the new EBITDA guide equate to?

Kelli Valade

Yes. So Nick, we tried to take that into account I into the new range there. So it is now for 23. This new definition would have led to approximately $89 million the current definition now is 87 to 91. So that new midpoint is about $89 million. And we adjusted our guidance range upwards to account for the changes that we that I described in our prepared remarks.
So just taking somewhat of a step back, the reason for this is we had many conversations, particularly post our earnings releases. We were running into too many conversations in which analysts and investors were going, you're not is comparable as we would like to see to two others of your peers. And it's somewhat difficult for us to understand your definition in comparison to your peers. So we were really trying to take into account both of those making this easier and more comparable to our peers. With in our investor presentation, Nick, we do have a reconciliation of dating before this new definition all the way back to 2018.

Nick Setyan

Okay. And just last question, it does sound like you're already seeing an acceleration in comp trends versus the Q1 comp. Any way too, maybe bracket what you're seeing in April quarter to date?

Kelli Valade

That's a tough one to make because the reality is it's a again that choppiness and we have seen really kind of extended through the mid April timeframe. So to give you a number, I don't think that would be representative of the month would be representative of the new trends that we are now seeing in the back half of the month with the with the new menu with the incremental pricing with the new all-day diner out there, that new value commercial we have out there so that the month wouldn't necessarily be representative of the trend that we've seen kind of the back half of the month.

Nick Setyan

Got it. Fair enough. Thank you very much.

Kelli Valade

Thanks, Nick.

Operator

[Ashwin grand Enger], Piper Sandler.

Ashwin Grand Enger

Good afternoon, guys. I know you mentioned on the last call as well as in the prepared remarks that Florida was the weakest state in your geography. I was just wondering if the Florida market is improving any since first? And just how much it, how much has it been impacting traffic and sales at Key, please?

Kelli Valade

Yes. So good to speak. With you with regard to the with the traffic, the sales with in Florida, there has been some improvement over the course of the quarter. But with regard to relative positioning to the balance of the US, it would still fall in the bottom, the bottom quintile of our sales performance. I do believe that we will see that we begin to roll over the depth of this in about a month or so that happened in this really outsized relative underperformance in Florida really started in about May of last year. So I do have some hope that as we roll over this, it will begin to normalize our eight. But right now it would be still in the bottom quintile of our state's performance, although it did improve across Q1.

Ashwin Grand Enger

Great. Thanks. I'll pass it back.

Kelli Valade

Thanks.

Operator

We have reached the end of the question and answer session. I'd now like to turn the call back over to Kayla Money for closing comments.

Kayla Money

I'd like to thank everyone for joining us on the call today, and we look forward to our next earnings conference call in late July when we will discuss our second quarter 2024 results. Thank you and have a great evening.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.