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Carrols Restaurant Group Inc  (NASDAQ:TAST)
Q4 2018 Earnings Conference Call
Feb. 27, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the Carrols Restaurant Group Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be given at that time.

I would like to remind everyone that this conference call is being recorded today, Wednesday, February 27, 2019 at 8:30 a.m. Eastern Time and will be available for replay.

I will now turn the conference over to Mr. Paul Flanders, Chief Financial Officer. Please go ahead, sir.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Good morning. By now you should have access to our earnings announcement released earlier this morning, which is available on our website at www.carrols.com under the Investor Relations section.

Before we begin our remarks, I would like to remind everyone that our discussion will include forward-looking statements, which may consist of comments regarding our strategies, intentions, guidance or plans. These statements are not guarantees of future performance and therefore undue reliance should not be placed on them. We also refer you to our filings with the SEC for more details, especially the risks that could impact our business and results.

During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. A reconciliation to comparable GAAP measures is available with our earnings release.

With that, I will now turn the call over to the President and CEO of Carrols Restaurant Group, Dan Accordino.

Daniel T. Accordino -- President and Chief Executive Officer

Thanks, Paul, and good morning, everyone. Before I discuss our 2018 financial results, I want to briefly cover the transaction that we announced last week. As we reported last Wednesday, we have entered into a definitive agreement to merge with Cambridge Franchise Holdings and to acquire 166 Burger King and 55 Popeyes restaurants across 10 Southeastern and Southern states. We are very excited about this transaction, which we hope to be complete in the late April time frame. We believe that the merger will strengthen our position in the Burger King system, while enabling us to continue executing our acquisition and expansion strategy, that also brings to us a strong growing second brand in Popeyes that will broaden our longer-term growth opportunities.

We currently control Burger King's Right Of First Refusal or ROFR in 20 states and are pre-approved to grow to 1,000 Burger King restaurants. Conditioned on completing the merger, we have negotiated a new area development and remodel agreement with Burger King that expands our pre-approval for the acquisition of up to 500 additional Burger King restaurants, not including the Cambridge restaurants. This gives us substantially greater runway to expand within the Burger King system and to continue executing our consolidation strategy as we move forward.

The new agreement expands our Burger King ROFR territory to include four new states, Arkansas, Louisiana, Mississippi, and Tennessee, while we have agreed to relinquish our ROFR rights in seven states where we are not currently expanding. We have also agreed to develop 200 Burger King restaurants over the next six years and to remodel or upgrade a number of our existing restaurants or restaurants to be acquired to the Burger King of Tomorrow image.

The Popeyes brand also adds a complementary platform to our core Burger King business and we can expand and leverages another avenue for growth. We will be assuming Cambridge's existing development agreement with Popeyes, which includes an acquisition ROFR in Tennessee and Kentucky and the development of approximately 70 new Popeyes restaurants over the next six years.

I'll now turn to our financial results. In 2018, we grew restaurant sales 8.3% to $1.18 billion and increased adjusted EBITDA 12% to $102.3 million. Sales at our comparable restaurant increased 3.8% in 2018 for a solid two-year trend of 9%. We finished the year operating 849 restaurants in 18 states, with net restaurant growth of 42 restaurants in 2018, including the acquisition of 44 restaurants and the opening of eight new restaurants.

We were also pleased with our sales performance in the fourth quarter. Our comparable restaurant sales increased 2.7%, which outpaced the Burger King system by almost 200 basis points, while lapping our strong 8.9% increase in the fourth quarter of the prior year or 11.6% two-year increase. We improved adjusted EBITDA margin modestly in 2018, however, the impact from the heightened promotional environment was evident in our fourth quarter results. Although, we expect margin pressures to persist early in the first quarter of 2019, we do however anticipate some relief in 2019 as Burger King has more recently made a number of changes to modify or reduce the impact of the more aggressive promotional offerings.

In the fourth quarter, promotions included the new Crispy Chicken Tenders, which are now included as an option for our 2 for $6 Mix & Match, the $3.49 King Deal, 2 for $10 Mix & Match, the $6 King Box, Cheesy Bacon Crispy Chicken and Philly Cheese King and the $1 10-piece chicken nugget promotion.

In concluding, I would like to reiterate that we had a solid year in 2018 and are eagerly looking ahead to completing and moving forward with the Cambridge transaction. We believe that the additional diversified alternatives for future growth inherent in this transaction, combined with the significant expansion of our ability to acquire Burger King restaurants provides a strategic path for effectively allocating capital and building shareholder value into the future.

Paul will now go into greater detail with our fourth quarter financial review.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Thanks, Dan. The restaurant sales for the fourth quarter increased 8.4% over the prior year period to $307.8 million. Comparable restaurant sales increased 2.7%, consisting of 3.3% increase in customer traffic, partially offset by a 0.6% decrease in average check. The change in average check included 1.7% in effective menu price.

As Dan indicated, our fourth quarter comparable results outpaced U.S. Burger King system by about 200 basis points and was very solid in light of the tough 8.9% comparison in the fourth quarter of last year. However, both adjusted EBITDA at $24.3 million and restaurant level EBITDA at $39.4 million were down slightly compared to the fourth quarter of last year. Adjusted EBITDA margin decreased 120 basis points to 7.9% of restaurant sales, due mostly to deleveraging cost of sales and labor. As a percentage of restaurant sales, cost of sales increased 92 basis points compared to the prior year period, reflecting higher promotional levels, offset somewhat by favorable commodity cost. Beef cost averaged $1.87 per pound in the fourth quarter or about 7% below the fourth quarter of the prior year.

Restaurant labor expense increased 76 basis points to 32.3% of restaurant sales compared to the prior year quarter, reflecting a 4.7% increase in our hourly wage rate, our lowest quarterly increase in about three years. As a percentage of sales, other restaurant operating expenses decreased 20 basis points, while general and administrative expenses held steady at 5.5%.

Net income in the fourth quarter of 2018 was $1.8 million or $0.04 per diluted share, compared to $3.9 million, or $0.09 per diluted share in the prior year period. Net income included $0.3 million of impairment and other lease charges as well as $0.4 million of acquisition expenses. For the same period last year, net income included $0.8 million in impairment and $0.1 million of acquisition expenses, and also included a $0.8 million tax benefit from remeasuring net deferred taxes, when the federal income tax rate was lower 21% in late 2017.

Excluding these items, adjusted net income was $2.4 million or $0.05 per diluted share compared to adjusted net income of $3.8 million or $0.08 per diluted share in the prior year period. Reconciliation of net income under GAAP to adjusted net income, which is a non-GAAP measures provided in the supplemental tables included with today's release.

Total capital expenditures were $21.5 million in the fourth quarter of 2018 and $75.7 million for the full year. On December 30, our cash balances were $4 million and total outstanding debt was $280.1 million. At year-end, debt to adjusted EBITDA was about 2.6 times and lease-adjusted leverage was around 4.9 times.

With that, I'll guide -- review our guidance for 2019. Note that this does not include the impact of Cambridge merger that we anticipate closing in late April, or other acquisitions that we may complete in 2019. We expect total restaurant sales of $1.25 billion to $1.28 billion, including comparable restaurant sales growth of 2% to 3.5%. Commodity costs are expected to increase 1% to 2%, including an increase in beef costs of 2% to 3%.

General and administrative expenses are expected to be $62 million to $64 million, excluding stock compensation expense in the acquisition related costs. Adjusted EBITDA is expected to be $100 million to $110 million. Total capital expenditures are expected to be $75 million to $95 million, including $25 million to $35 million for construction of 15 to 20 new restaurants. Proceeds from sale leasebacks are expected to be $10 million to $15 million. And lastly, we expect to close 10 to 15 restaurants.

That concludes our prepared remarks. So with that, operator, lets go ahead, we will open the line for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question will come from Jake Bartlett with SunTrust.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the question. First, I had a question, Dan, about your comments on the functional (ph) strategy and the changes that Burger King is making. I can tell just by the website that for instance you -- they've moved to $1.49 10-piece nuggets, may be taken away the 2 for $4. Are we seeing those changes now and it's just a matter of lapping more intense promotions from the back half of '18? Or is there a plan to get significantly less promotional than what we're seeing now by the back half of the year?

Daniel T. Accordino -- President and Chief Executive Officer

I think that what we will see is a moderating of the level of promotional activity as the year goes on. And as I think Paul indicated, in the first quarter of 2019, we still had many of those same promotional activity was continuing. But beginning in the middle of February into March, we're seeing a moderating in the level of promotional activity.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Got it. And then that should continue to get even more moderate going forward from me current state?

Daniel T. Accordino -- President and Chief Executive Officer

I would expect that it certainly will not be at the same level as last year.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Okay. And then for modeling purposes, I just kind of trying to back into the restaurant-level margin expectations for '19 and I got some about 40 basis points of contraction, maybe if you can confirm that? And should we -- how should we think about the cadence on a quarterly basis? Should we think about kind of similar levels from that we saw in the fourth quarter in the first -- in the kind of first half of the year and then better year-over-year going forward? Or how do you think about the cadence of the margin expansion or contraction?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah. This is Paul. I think, the follow-up on Dan's comment, I think it's going to progressively -- margins going to progressively get under less compression as we've moved through the year as promotions lengthen up. I mean, I think clearly, as Dan indicated in the first quarter, still we're in a pretty intense level of promotions at least through February. So there has been a -- I think that we see probably the most pressure during the year and then getting better as we get further out.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Got it. And then in the context of the (inaudible) promotional environment, which I think would be welcome by many, but it's also help you drive your traffic. So how do you kind of think about your ability to sustain positive traffic as that promotional cadence is decreasing?

Daniel T. Accordino -- President and Chief Executive Officer

This is Dan. From what I see on the Burger King marketing calendar without getting into specifics, given the calendar, we're quite confident in the sales forecast that we have laid out for 2019.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the questions.

Operator

Thank you. Our next question comes from Jeremy Hamblin with Dougherty & Company.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Thank you. I wanted to kind of move forward a little with that, that second part of the question on the forecast, very strong forecast for the year on same-store sales. And I wanted to get a sense of the progression on menu pricing that's being implied within that, are we -- where do we stand on menu pricing today? How do you expect that, Paul, to progress throughout 2019?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

We had 1.7% pricing in the fourth quarter as I indicated. We've got about 1.3% carrying into the first quarter and the carryover from 2018 through full year is about 0.6%. And I think as the year goes along, we would anticipate as we have in the past, taking some small price increases probably a couple times during the year. And with the attention of getting the price up probably 2% to 2.5% for the full year.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

2% to 2.5% for the full year?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay. So would that imply back half of the year of something maybe 3% or over?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

I think most of these take something before the mid-year -- mid-part of the year and something a little bit later.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay, understood. And then the guidance on top of almost 4% comp from last year, 2% to 3.5% same-store sales guidance for ' 19, you can give us some color, I mean, that's a pretty impressive results on top of the 2017 strong results. Can you give us a sense of how quarter-to-date trends are tracking?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah, just to put a reference point, I mean, the first quarter of 2018 were up 6.2%. So comparison was difficult certainly in the first quarter of last year, and we're running low-single digit positive against that.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay, great. And then just on the commodity pricing, a lot of puts and takes on that, beef prices certainly were favorable last year, you're I think implying 2% to 3% in your guidance on the beef prices this year. Where your current trend rate, are they kind of around $2 a pound. What are you seeing currently on the beef pricing?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

We've been running, I would say, sort of in the mid-$1.90s early in the year. We've creeped up, it just crossed $2 here in the last week or so.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay. And the implication for the year is what about $2.05 to $2.10 a pound.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

No, $2.10 is too far out. $2.04, $2.05, in that range, so -- 2% to 3%.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay. And then, thinking about the transaction and adding that there will be about 20% of your stores after the deal has done. As we think about that transaction and the impact that it might have on your labor cost. You know that on the last call that their system, I think it's about a $1 an hour lower on the wage scale. Have you had a chance to kind of flow through your model in terms of how would that labor as a percent of restaurant sales likely change over 2019 as you fold in those a couple of 100 restaurants that you're acquiring?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah. I mean, we've obviously modeled this somewhat. I mean, we -- we will not going to have full year benefit of the acquisition or the merger obviously in '19 anyways. But in terms of wages, I think in '18 where would we end up 32.5% and their pro forma is 200 or 300 basis points lower than that. So the greatest impact is going to be pretty significant.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay. So is that something -- that's actually really helpful color. In terms of thinking about that, so I think probably most of us model labor as a percent of sales up in 2019. Is that something that on a full year basis where you could see that's off of an impact to outweigh the wage pressure that you're getting in your current geography.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

I don't know, we need to spend a little bit more time. I mean, the question as you know we oftentimes we had labor when we go into these restaurants. So to some degree that number maybe a little low, just simply because the hours are not as high as we would putting in relative to our formulas.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Okay.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

We'll provide more guidance, thus if we're getting a more insight. (multiple speakers)

Jeremy Hamblin -- Dougherty & Co. -- Analyst

One last one in terms of thinking about the Popeyes opportunity, it sounds like it's a much more fragmented system and what that probably means lots of opportunity for you. Have you been able to spend a little more time with that brand and concept and get a sense of what that would mean in terms of kind of future growth opportunities? Is this something where you're going to take it on a more cautious approach and add more slowly. Or would you -- if there just more opportunity in that, where you would expect to get aggressive in that concept maybe sooner than later?

Daniel T. Accordino -- President and Chief Executive Officer

This is Dan. As we've reported, we have a 70 store obligation that we have to build over the next six years. But I would also say that as acquisition opportunities become available, particularly in areas where we already operate Burger King restaurants that will be looking at those opportunities in the near term.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

And would you expect the multiples to pay on an acquisition basis to be similar to that historical kind of 4 times EBITDA that you've been able to get in the BK system?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

I don't think we know at this point.

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Thanks so much guys. Good luck this year.

Operator

Thank you. Our next question comes from Will Slabaugh with Stephens Incorporated.

Will Slabaugh -- Stephens -- Analyst

Yeah, thanks guys, and congrats on the acceleration in the fourth quarter. As you mentioned, it seems like the layering of aggressive discount to set to slow at least somewhat in the coming quarters. So I'm sure that's a welcome change. And my question is more on the cost side around that, that your cost of goods obviously ticked up a little bit to 29% this quarter, the highest level we've seen in a little while. I'm curious how you think about what that means from a value perspective to the consumer versus what they expect. I know you -- to the point earlier as the discount slow, I would expect maybe that come back down a little bit. But I'm curious as you weigh sort of that discount environment versus the slightly higher inflation that you mentioned a minute ago, how we should think about cost of goods as 2019 rose through?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah. I mean, the discounting has had an enormous effect on margins. And that's been in the face of beef costs being actually lower in 2018. I mean just to put it in perspective, I mean, year-over-year, the impact of the promotional schedule in the fourth quarter alone was about 200 basis points on cost of sales. So I think, as you think about that promotional cadence lightening up moving forward, I think you can similarly anticipate some reasonable leverage on the cost of sales line, irrespective of some amount of clarity.

Will Slabaugh -- Stephens -- Analyst

Got it. Okay. And kind of getting back to the deal, I realize there's a lot of work to do here that not only get this deal finished, but with the integration as well. Should we expect a few quarters of focus on the execution within those stores before you begin looking for additional acquisition opportunities on either the Burger King or Popeyes side, and would you consider Carrols fairly open to looking at additional deals, while this closing process is still ongoing?

Daniel T. Accordino -- President and Chief Executive Officer

The latter -- this is Dan. The latter, where we are actively looking at a Burger King acquisition as we speak, and there may be a Popeyes acquisition also in 2019 in the next couple of quarters.

Will Slabaugh -- Stephens -- Analyst

Great. And last thing, I don't recall if we talk about this last caller or not. Is there any real estate associated with the Cambridge deal?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yes. They've been -- they're very active in developing new units as we said, and we expect that there's going to be at least $25 million or $30 million of real estate from Dow effect. We pointed that out in the last week's release that we expect to have about $25 billion sale leaseback that we complete shortly after the acquisition.

Will Slabaugh -- Stephens -- Analyst

Okay. You expect that to be -- the timing to be fairly quickly after that deal is closed?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

I think so, yeah.

This is Dan. In addition to that, I mean one of the things that was appealing about this transaction is that there is the opportunity in those markets, the markets that Cambridge currently operates for us to buy land, and therefore be able to own more real estate, which will be subject to sale leaseback. So there's more land available and it's less expensive than the building that we've been doing in more Northeast markets.

Will Slabaugh -- Stephens -- Analyst

Makes sense. Thank you.

Operator

(Operator Instructions) Our next question comes from Brian Vaccaro with Raymond James.

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Thank you, and good morning. I just wanted to circle back on the labor line and it's encouraging to see the wage inflation moderating a bit here. Can you impact what's driving that moderation maybe what you're seeing in terms of turnover and staffing levels? And then what are your expectations on wage inflation as you look into 2019?

Daniel T. Accordino -- President and Chief Executive Officer

The reason that you saw some moderation in the increase -- this is Dan. The reason that you saw some moderation in the wage rate increase in 2000 -- in the fourth quarter was because the turnover has gotten lower -- somebody's got a lot of reverberation here -- the turnover was lower in the fourth quarter, we've done a much better job introducing our team member turnover. And we've -- by virtue of that, we've also been able to reduce some of our overtime expense, which also was a factor in the wage rate increase previously.

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Okay, that's helpful. And if we could just shift to the CapEx guidance for a second to $75 million to $95 million. Paul, I know it's $25 million to $35 million of that is on new units, but could you breakdown sort of what you expect from a maintenance and remodel perspective as well?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah, I mean this guidance excludes the Cambridge deal, obviously, but we have begun to shift some of the projects in anticipation of that. In terms of some of the breakdown maintenance is about $12 million, which is pretty typical for us. Then excludes any additional investments in restaurant equipment we may make (inaudible) assuming another $4 million or $5 million for investments at the restaurant level. Namely, we will start rolling out the digital menu boards and the outside of the restaurants beginning in 2019. We anticipate to probably get about 25% of those installed through the course -- probably later in the year, so that's a big piece of what's in there. And we provided guidance on new stores as you said, the balance is largely some of the remodeling activity (inaudible) $30 million or $35 million for remodel.

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Okay. So $30 million to $35 million for remodels, and how many units does that include?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Well, it's a series of -- we've got full remodels related to franchise renewals. We're anticipating to be $20 million to $25 million. We've got a handful of scrapes and rebuilds that we are doing. And then as I said, we are starting to shift toward some of these upgrade projects as well. So there is another call 60 or so upgrades built into this, including about 40 stores that we are doing on Burger King field property, where we also get a contribution from Burger King as the landlord, which is not netted against the CapEx level.

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Okay. All right. That's helpful. And then last one for me. Thinking about the Cambridge acquisition and just wanted to ask about how you're approaching capital allocation, given the new ROFR terms and your commitment to build a few hundred restaurants over the next several years, and maybe it would be helpful if you could walk through the ROI you expect to achieve on organic unit growth and how that compares to your opportunity to acquire additional restaurants? Thank you.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah, I think what's happened is, as Burger King or 3G has improved the average unit volumes in the brand over the last two years, the fact is the new economics and new construction look much better than they did, obviously, four, five years ago. And in terms of capital allocation becomes another good alternative fruit through capital in addition to, as you know, the acquisition strategy that we've had, and we'll continue to have moving forward.

But just to throw a few numbers out, I mean, if you assume that you got a new unit that's doing about $1.05 million and we -- couple of different scenarios, it's cost us about $1.5 million to build this with equipment in building excluding land. And so, on a ground lease, the cash on cash return is in the high-teens on the investment. If you buy the land for, say, another $600,000 or $700,000 (inaudible) with a sale leaseback levered return jumps to 50%-plus, so the -- to the extent that these new markets with Cambridge offer us opportunities to buy land in more instances and assuming we can -- we do buy land and then do sell leaseback to levered returns on these investments a pretty attractive as you can tell. So we see that as a good alternative, more of a supplement to our acquisition strategy. We will -- as you know, we're getting 20%-plus return s (inaudible).

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Very helpful. Thank you.

Operator

Thank you. Our next question comes from Jack Bartlett with SunTrust.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the follow-up. I think the question on the impact of the acquisition on restaurant margins. I think many of us are going to try to take a whack and putting this in the model, but what does it do to I mean without any kind of cost savings that you typically would get? Would the acquisition make the restaurant level margins go up or down or have a neutral impact, how should we think about that?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

It's going to evolve over time obviously. I think the way to think about it initially -- there probably will be some negative impact initially as we invest in labor, which down the road, we would expect to see sales increases. And over time, obviously, we anticipate improving margins and lowering cost of sales. But I think initially, probably the way to think about it is sort of neutral, because the Cambridge units are a little bit lower volume in our system to begin with, and they're coupled with somewhat lower cost structure. So there is an offset to the guidance.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

So the margins are roughly the same kind of this as a starting point?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Yeah, the restaurant level.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Okay. And then, Paul, you've talked about the ability to kind of acquire stores I think at a rate of $50 (ph) million to $70 (ph) million kind of loosely a year. As we think about 2019, are there any kind of factors we should think about when we consider whether it would diverged from that rate? And I'm wondering whether some of the margin pressure over the last year to two from the promotional environment has caused your pipeline that kind of potentially increases franchisees, or are under more pressure and committed may be wanting to sell. Maybe anything that kind of would impact the rate of acquisitions in '19 versus your typical rate?

Daniel T. Accordino -- President and Chief Executive Officer

This is Dan. In 2019, the only thing that's going to affect our rate of acquisition is the fact that we have to absorb the Cambridge restaurants, which as Paul indicated is something that we're very mindful going as quickly as we can, so that we can generate a sales increase as well as improve the cost of sales margins. So I think that in 2019, that will be our primary focus, other than the couple of Burger King acquisitions that we have been working on and will close in 2019.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Got it. And is there any sense you can give us as to how large those acquisitions are? Or are those kind of the smaller variety?

Daniel T. Accordino -- President and Chief Executive Officer

Smaller variety.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Bryan Hunt with Wells Fargo.

Dave Cook -- Wells Fargo -- Analyst

Good morning. It's Dave Cook on for Bryan. Wanted to touch on the acquisition real quick. Obviously, it gives you another way to stand on, I'm just curious if you have a preference to develop or grow one concept over the other, Burger King or Popeyes, or its -- if its just really based on where you have the highest return opportunities?

Daniel T. Accordino -- President and Chief Executive Officer

We have a 200 store obligation in the Burger King world over the next six years, so that's baked into the development strategy. In addition to that, we certainly will look at Popeyes new build opportunities on a regular basis as part of our overall development strategy.

Dave Cook -- Wells Fargo -- Analyst

And then to finance the deal, are you all led to go on the term loan route, or would you consider doing bonds alternatively?

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

I think our preference given how the term B market is about, try to go -- to go to the term B market.

Dave Cook -- Wells Fargo -- Analyst

Okay. It's helpful. Thanks.

Operator

Thank you. Ladies and gentlemen, that's our last question. And now I'd like to pass it back to management for closing comments.

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

We appreciate your attention today. It was nice to speak with you so often in the last couple of weeks and we'll report back after the first quarter. Thanks for your time.

Operator

Ladies and gentlemen, that concludes our conference today. You may disconnect your phone lines and thank you for joining us this morning.

Duration: 37 minutes

Call participants:

Paul R. Flanders -- Vice President, Chief Financial Officer and Treasurer

Daniel T. Accordino -- President and Chief Executive Officer

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Jeremy Hamblin -- Dougherty & Co. -- Analyst

Will Slabaugh -- Stephens -- Analyst

Brian Vaccaro -- Raymond James & Associates, Inc. -- Analyst

Dave Cook -- Wells Fargo -- Analyst

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