Logo of jester cap with thought bubble.

Image source: The Motley Fool.

The Habit Restaurants Inc  (NASDAQ:HABT)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to The Habit Restaurants Inc Fourth Quarter 2018 Earnings Conference Call. Please note that this conference is being recorded today February 28th, 2019.

On this call today, we have Russ Bendel, President and Chief Executive Officer; and Ira Fils, Chief Financial Officer; Iwona Alter, Chief Brand Officer is also joining Russ and Ira for the Q&A portion of the call. By now everyone should have access to the company's fourth quarter 2018 earnings release. If not, it can be found at www.habitburger.com in the Investor Relations section.

Before the company begins their formal remarks, I need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what the company expects. The company refers you to the recent SEC filings for a more detailed discussion of the risks that could impact their future operating results and financial conditions.

Lastly, during today's call the company will discuss non-GAAP measures which they believe can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in the company's earnings release.

With that, I would like to turn the conference over to Russ Bendel. Please go ahead.

Russell Bendel -- President and Chief Executive Officer

Thank you, and good afternoon everyone. As usual I'll start the call with a brief overview of the fourth quarter and share some thoughts about 2019. Ira will then review our fourth quarter financial results in more detail, as well as review our 2019 guidance before we open the call for your questions.

We're pleased to report solid results for the fourth quarter of 2018. Total revenue increased 21% year-over-year, while our company-operated comparable restaurant sales increased 2.4%. Adjusted EBITDA increased 26% to $8.9 million, and pro forma adjusted earnings per share were $0.03 for the quarter. The solid Q4 results capped off a very good 2018, in which total revenue for the full year also increased over 21% with company-operated comparable restaurant sales increasing 1.5%, and adjusted EBITDA growing to $37.4 million up 16.7% for the full year. In early 2018, we laid out our strategic initiatives focused on quality and value convenience and innovation. We believe, we made considerable progress in each of these areas during the past year and we're excited to build upon them in 2019 and beyond.

I'd like to provide a detailed update on each of our strategic areas of focus. Let's start with quality and value. We believe the food we offer at The Habit truly sets us apart from our peers. Our entrees, salads and sides all use the freshest ingredients, and our all items -- and all items are made to order.

In the fourth quarter, we featured a French onion Charburger, which is a chargrilled beef patty with melted cheese, caramelized onions and two golden brown onion rings, topped with a house made French onion sauce. Also during the fourth quarter, we brought back one of our most popular items, the sriracha lime spicy green beans, which are tempore green beans with a kick. They're drizzled with the house made spicy Sriracha, lime aioli and a 7-spice pepper blend. We began 2019 promoting our popular superfood salad. It's been a permanent menu item and is well positioned to fit lifestyle needs of eating healthier to meet New Year's resolutions.

More recently, we rolled out a Southwest barbecue chicken salad which, is a chargrilled chicken breast a top fresh, hand cut garden greens, fire roasted corn, hickory slough bacon, pickled red onions, diced tomatoes, red cabbage, cilantro and crumbled feta, all plus in our house-made cilantro, lime, ranch dressing and topped with a smoky rancho chilli barbeque sauce. This new Southwest salad will stay on the menu and replace our current barbecue chicken salad.

As we move into 2019, we remain committed to our culinary driven menu innovation strategy focused on developing unique LTOs, which we can use as effective promotional drivers. These new items are built around flavor and quality, emphasizing seasonal ingredients. They're all cooked to order, resulting in craveable and unique flavors. We have seen these items keep our menu fresh and continue to gain traction with our guests. We had a lot of great innovative menu items in 2018 and we will continue to build on that throughout 2019.

We also continue to invest in the personal and professional development of our people. We added resources both on the human side and continued investments in technology. These investments will allow us to continue to have a workforce that executes at a very high level, which ultimately results in an elevated guest experience. We have always believed our people are the secret sauce in everything we do.

Now turning to convenience and innovation. It truly go hand-in-hand these days, first, we continue to focus our development efforts toward drive-thru locations. During 2018 14% or 47% of our new company operated units were drive-thru locations. Bringing the total drive-thru count to 35 at the end of the year. We continue to like the added convenience drive-thrus provide our guests, as well as have the service format adds to our universe of potential locations.

As I shared previously, we continue to test new store layouts for drive-thru locations. We have nine different locations in test with an enhanced layout. And while we still have a lot to learn, we are pleased with the results so far. This exercise is also giving us the opportunity to test efficiencies within our store level workflow an important factor when considering the labor pressures, the industry currently faces. Second we are focused on supporting our guest that are embracing the on-demand economy by implementing new channels of convenience, wherever there may be.

During the fourth quarter, we did a limited user test of our mobile app, which allows our guest to engage with our brand whenever, however, and wherever they choose. Most importantly, we believe we can eliminate any friction in the ordering and pick-up process for our most frequent customers. The launch of the mobile app will be a great addition to our growing online ordering sales channel. During the quarter, same-store sales through our online and mobile-optimized website were up 20.8%, which demonstrate our brand's ability to meet the ever-changing needs of today's consumer.

We recently expanded our mobile app test to our restaurants in the San Diego, Sacramento and Utah markets. We expect a full rollout by the end of the third quarter. Following closely behind our new mobile app is the testing of our self-ordering kiosk. Our first location went live with two kiosks at the end of December and we plan on expanding the test to seven more locations at the end of Q1, while it is still early, guest feedback has been positive.

And finally, delivery. Our nationwide program with DoorDash is going very well, and we expect our systemwide rollout with Postmates to be completed by the end of this first quarter. We continue to see good results with our average delivery time, as well as order accuracy and we are getting great reviews from our guests. We are also seeing a higher check for delivery compared to dine-in or carryout. As a result, we are pleased about our early off premise and digital efforts to-date, and we'll continue to build upon that foundation in the coming year. We believe offering our guest full access to our brand is simply an extension of our focus on providing great service and hospitality.

To support all of these initiatives, we are planning to increase our marketing spending in 2019. We will start with a geographically targeted approach, utilizing various digital, social and mobile channels. Our marketing efforts will reflect already initiated brand worth and will focus on promoting the high quality of our food and hospitality, as well as different ways our customers can access our brand today. We believe that this clear communication of our brand benefits media channel selection and the targeted nature of increased spending will help us elevate our brand awareness and drive traffic in both new and existing markets.

Switching now to development. During the fourth quarter, we opened four new company-operated restaurants, three of those were drive-thrus. All four of these new restaurants were located on the West Coast. Our franchisees also opened three locations during the fourth quarter one in Las Vegas, one on the campus Loyola Marymount University in Los Angeles and one in Shanghai China.

During 2018, we opened 30 company-operated restaurants including five on the East Coast. Additionally our franchisees opened 10 new locations during the year. For 2019, we expect to open 21 to 23 company-operated locations approximately 30% of those locations will be on the East Coast and about two-thirds of these stores will be drive-thrus. We also anticipate a slight uptick in the number of our franchise and license locations opening in 2019 to be between 10 and 12 locations.

With that, I'd like to turn the call over to Ira to discuss our financial results in more detail.

Ira Fils -- Chief Financial Officer

Thanks Russ. Now turning to the results of our 13 week fourth quarter ended December 25th 2018. Total revenue increased 21% to $102.7 million for the fourth quarter of 2018 compared to $84.8 million in the comparable quarter last year. Our four new company-operated restaurants were opened -- we opened during the quarter were opened for a combined 26 sales weeks. Our other 219 company-operated locations were opened for a combined 2,847 weeks of the quarter. In total the 223 company-operated locations were opened a combined 2,873 weeks in the quarter. This year's fourth quarter included a recognition of $580,000 in revenue related to the upfront area development and franchise fees, resulting from the termination of our Middle East franchise agreement after the franchisee closed its two locations.

With regards to adjusted EBITDA and pro forma EPS discussed on the call and in our corresponding press release, we have excluded the $580,000 for comparison purposes. As Russ mentioned, we are pleased with our sales trends during the quarter as comparable company-operated restaurants sales increased 2.4%. In breaking down the comp store sales increase, traffic decreased 3% offset by 5.4% increase in the average transaction amount. During the fourth quarter, we were carrying cumulative pricing of approximately 5.5%.

And just a reminder, we implemented a 3.9% price increase at the end of May in 2018. We had also introduced a 2.1% pricing in December of 2017 which rolled off in December of 2018. So for the first quarter of 2019, we expect to carry 3.9% in pricing. If you look at the price of a Charburger with cheese, fries and a drink and you compare it to some of the major QSR brands, our prices continue to be very much in line and more importantly our prices are generally lower than our fast casual competitors. We offer everyday value while providing a made-to-order product with high-quality ingredients delivered with exceptional hospitality.

Now turning to expenses. As a percentage company revenue food and paper costs were 29.6% an 80 basis point decrease compared to last year. The decrease was largely driven by a favorable impact from the 5.5% price increase partially offset with relatively mild commodity inflation compared to last year. Labor related expenses as a percentage of company revenue were 33.4%, a 120 point -- basis point decrease from the fourth quarter of 2017. The decrease was driven by an approximate 110 point -- basis point decline in labor related costs which was mostly due to lower payroll taxes as a result of the elimination of the California food and payroll tax that was retroactively eliminated in November of 2018 for the entire year of 2018. The affected elimination of the California food and payroll tax for the full year of 2018 was about 25 basis points.

Direct labor as a percent of sales was slightly favorable year-over-year as the 5.5% increase was offset by government-mandated wage increases for our hourly employees, as well as a tight labor market which continues to put upward pressure on labor cost. We did however see slightly less wage pressure in the fourth quarter than we have seen in prior quarters. For the fourth quarter our average hourly rate wage increase to 4.6%.

Occupancy and other related expenses as a percentage of total company revenue increased approximately 130 basis points to 19.4% about 100 basis points of this increase is due to higher expenses related to third-party delivery costs, as well as online and call center costs. We expect to continue to see pressure in this area, especially in the first half of 2019 as third-party delivery continues to grow and as we don't overlap the introduction of third-party delivery into our locations until the end of the second quarter. In addition, we experienced higher rent and common area maintenance expense.

Our general and administrative expenses increased approximately $2.1 million to $10.3 million during the fourth quarter. A key component of the increase was the timing of our annual general managers conference which occurred in the fourth quarter of 2018 versus Q3 of 2017, as well as a higher incentive compensation expense as a result of our improved performance as well as cost associated with supporting an increasing number of restaurants over a larger geographic area.

As a percentage of total revenue G&A expense increased 40 basis points to 10.1%. Pre-opening costs were approximately $465,000 in the fourth quarter of 2018, compared to $1.1 million in the prior-year quarter. As Russ mentioned, we have four company-operated openings in the fourth quarter of 2018 which compared to 13 openings in the fourth quarter of 2017. We expect pre-opening cost to range between approximately $100,000 and $105,000 per restaurant for 2019. GAAP net income for the fourth quarter of 2018 was $0.7 million or $0.03 per diluted share compared to a net loss of $6.4 million or a loss of $0. 31 per diluted share in the prior year.

On an adjusted fully distributed pro forma basis net income for the fourth quarter was $0.7 million or $0. 03 per fully distributed weighted average share compared to a net loss of $0.2 million or a loss of $0.01 per fully distributed weighted average share in the fourth quarter of 2017. In terms of our liquidity on the balance sheet as of December 25th 2018, we had cash and cash equivalents of approximately $24.9 million and outstanding debt of $19.8 million, which consists solely of our deemed landlord financing. We expect capital expenditures to be between $35 million and $38 million before landlord contributions for the fiscal year 2019. Based on our growth plans, we believe cash flows from operations and current cash on hand will be sufficient to fund our capital needs for the next couple of years.

Now I'd like to turn our expectations for fiscal 2019. Before providing our detailed guidance, I'd like to note a couple of key items that will impact the upcoming year. As you no doubt know, new lease accounting rules go into effect in 2019. In conjunction with these new guidelines, we are now required to account for all our operating leases on our balance sheet starting 2019. We expect to recognize approximately $174 million of lease liabilities and approximately $150 million in right of views assets based upon the lease liabilities adjusted for deferred rent and lease incentives currently on our balance sheet.

From a P&L perspective there is no material change to the accounting of our existing operating leases. However the accounting treatment of our current build-to-suit leases will impact a few key expense lines, primarily occupancy, where expenses for build-to-suit leases will now be recorded for which these expenses were previously recorded in depreciation and interest expense. The impact of the new lease accounting standard will have an unfavorable impact of about 30 basis points to our restaurant operating profit and adjusted EBITDA. This change is non-cash and should have no material impact on net income.

Additionally, I would like to remind everyone that 2019 will contain 53 weeks with the extra week falling into Q4 of 2019. With regard to fiscal 2019, we expect the following: Total revenue to be between $458 million and $462 million; comparable restaurant growth is expected to be approximately 2% to 3% for the full year in 2019. I would like to note that while we feel good about our current sales trends, Q1 has been unfavorably impacted by the significant amount of increment weather we have seen in California and the East Coast. During the first part of the quarter with our Q1 comps up 1.4% quarter-to-date.

We expect our restaurant contribution margin to be between 16.25% and 17%, which includes a 0.3% unfavorable impact related to the change in lease accounting, included within our restaurant contribution margin guidance is the expectation that commodity inflation will be up approximately 2% and we expect our average wage rate to increase approximately 5.5%. Also included in the guidance is the incremental marketing spend Russ mentioned of about 25 basis points.

As I mentioned earlier, we expect to see delivery expense pressure from the growth of third-party delivery costs particularly in the first part of 2019 until we lapped last year's introduction. General and administrative expenses are expected to be between $44.5 million and $45.5 million. And as Russ mentioned earlier, we expect to open between 21 and 23 company-operated locations for the full year and our franchisees are expected to open between 10 and 12 locations for the full year.

We expect our depreciation and amortization expense to be approximately $28.5 million for the year and we expect interest expense to be approximately $100,000 in income in 2019 as opposed to the $1 million in expense we saw in 2018. The difference reflects the change in lease accounting which had $1.1 million expense related to deemed landlord financing in 2018 which will now be recorded in occupancy cost in 2019. And finally, we expect our pro forma tax rate to be between 29% and 30%.

With that, I'd like to turn the call back over to Russ for some final remarks.

Russell Bendel -- President and Chief Executive Officer

Thanks Ira. As we look toward 2019, we're excited about the current state of our business. Well like made in the industry, we saw some challenges early in 2018 and we were able to fight through these challenges and finish the year strong enabling us to achieve good financial performance for the year 2018. I'm certain that the initiatives that we have put in place have strengthened our business and given us momentum as we enter 2019.

While great food at a great value with superior customer service will remain hallmarks of our business. We continue to innovate and evolve during the coming year with a goal to make Habit a full access brand, allowing our customers access to The Habit in the best way possible for them, whether through the drive-thru, on their mobile devices, via the kiosk or third-party delivery. Finally we're excited to have Iwona on our team as our new Chief Brand Officer, he has focused on increasing awareness of The Habit brand by activating it with first digital approach.

We believe that making the brand top of mind at amplifying our digital strategy will ultimately drive transactions and support brand growth over time. I would like to at the end say a huge thank you to the wonderful team members who have worked so hard throughout 2018. They are the face of our brand and the reason our customers come away with such great experiences each and every day.

With that operator, I'd like to turn the call over for questions.

Questions and Answers:

Operator

Certain. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Will Slabaugh with Stephens Inc.

Will Slabaugh -- Stephens Inc -- Analyst

Yeah, thanks guys. Congrats on the quarter. Your guide is pretty, be it on both top line and from a margin perspective, as far as the top line goes it seems like you're more optimistic. As you talk around what's happening and what you expect to happen around just the general momentum than in prior years? So outside of the improving numbers that we've been seeing, what else in particular you're looking at to be more impactful in driving sales in the coming year? And how much does that incremental marketing play into that?

Russell Bendel -- President and Chief Executive Officer

Yeah, I'll start with that and Ira or Iwona can jump in. I think, we feel pretty good about the initiatives we laid out in early 2018. And as I said some of the progress that we've made in regard to their implementation and having Iwona onboard, I think allows us to accelerate some of those initiatives and look to see them bear more fruit. The labor headwinds continue to be consistent from a regulatory perspective, as you know well as probably, as well supply and demand.

And we plan on -- we let the one price increase roll-off, so for the first half of the year we're carrying 3.9%. But we plan -- we haven't landed on a number yet, but we're probably going to take 4% to 5% price in the back half of the year. And as I said in our prepared comments, as we look at our pricing against our direct and indirect competitors, we are not being any more aggressive than anyone else. And while the traditional QSR brands that we believe don't have the quality of the product in the service that we provide are priced -- their menu prices are at every bit the same level that we are. So there's kind of -- that's how we're looking at things.

As I mentioned price, we'll probably be much more targeted in regards to regional pricing than we have been historically. Most of the wage pressure is coming from on the West Coast a little bit in the mid-Atlantic and New Jersey markets. So those areas will probably see more priced than those markets that aren't as labor sensitive.

Will Slabaugh -- Stephens Inc -- Analyst

Got it. That's helpful. And on the labor side, this is the biggest year-over-year percentage drop in labor cost, I can find in four, five years. Can you talk a little bit more about what's going on there in terms of from an efficiency standpoint? And I realized pricing probably helped that out a good amount as well, but just curious what's else is happening the scenes?

Russell Bendel -- President and Chief Executive Officer

Yeah, we had the food (ph) credit that was significant.

Ira Fils -- Chief Financial Officer

Yeah. Well if you look at the quarter and I called it out in the script, we were about 100 points basis points favorable in labor-related costs which was really mostly driven to this essentially payroll tax credit we got from the food elimination.

Russell Bendel -- President and Chief Executive Officer

Yeah. But we've worked pretty hard internally and those efforts have been most of you have met Tony Serritella, our COO who's been with us 20 plus years. He and his team have worked very hard on very specific targeted projects around labor efficiency primarily focused on times when we do not have guests in the restaurant, and we've certainly seen the benefit of that, that has helped mitigate some pretty substantial regulatory increases.

And in fact Tony is leading another project as we now have 35 drive-thru locations and most of those have occurred over the last 24 months. We're taking a much deeper dive and look into how we deployed labor in those drive-thrus not only to minimize ours, but to maximize throughput and revenue.

Will Slabaugh -- Stephens Inc -- Analyst

Got it. Thanks, guys.

Operator

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. Russ, I just had a question there or Ira specific to the margin guidance, but then you also said you'll probably take some price. Now does that margin guidance include that four to five price in the back half or would be probably upside to the margin outlook?

Ira Fils -- Chief Financial Officer

No, that's definitely included in the guidance.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Definitely include. Okay. And then is there some conservativeness in that margin guidance? In the idea that you're not going to be opening as many stores on a year-over-year basis and sometimes when companies sort of take the pressure off of company openings, you have less openings at the -- not only the pre-opening are done, but also the restaurant margins themselves tend to be less weighted down from those new openings.

Ira Fils -- Chief Financial Officer

No, we have the appropriate level of guidance built-in based on the level of growth we think we're going to have in 2019.

Russell Bendel -- President and Chief Executive Officer

Matt, you know we're always thoughtful about these things.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Sure. Of course. And then last question with regards to the franchise the 10 to a dozen or so franchise stores. Can you talk about the regions that those might be? Could some of those may be take on some of the burden of the more developing markets like the Northeast or they're still going to be primarily on the West Coast?

Russell Bendel -- President and Chief Executive Officer

Primarily, I mean we don't have any agreements on the East Coast. So we don't see anything on the East Coast. But as we said on our last call, we're definitely open to doing more franchising nontraditional, both of our domestic franchisees that have stores open both in Washington state and in Vegas, we'll continue to develop stores. The new franchisee we signed in the Spokane and Idaho, Western Idaho, we would anticipate opening a store or so.

Our franchisee in China currently has four locations open and continues to be very bullish on the brand. And as you know we recently announced the signing of a new franchisee in the Chicago land area that we're excited about. We haven't landed on a number for that area yet. And then we continue to look at opportunities in nontraditional venues specifically, airports and college universities that have been, that we continue to like very much.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Okay. And then just a bookkeeping question Ira, was the traffic just simply, I'm sorry if you said this already, but was traffic just simply the price 5 -- less 5.5 -- the comp less 5.5% price or was there any sort of mix effect in there that we should calculate as far as traffic?

Ira Fils -- Chief Financial Officer

This was pretty flattish, it's pretty close to that correct.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you.

Operator

Our next question is from David Tarantino with Baird. Please go ahead.

David Tarantino -- Robert W. Baird -- Analyst

Hi, good afternoon. Couple of questions. First on margins. Ira is there an easy way to frame-up why margins are coming down more in 2019 versus what you saw in 2018? If my numbers are right your full year margin -- restaurant profit margin was down 50 basis points this past year and you're guiding I guess at the midpoint of around 100 basis point decline, if I factor of the accounting change. So I guess, why would there be more margin pressure this year with a higher comp assumptions?

Ira Fils -- Chief Financial Officer

I think we -- a couple of things, we're seeing some pressure related to costs related to delivery in online quite frankly. I mean that's weighing a little bit on the P&L, that's probably the biggest. I think we have a little bit higher assumption also in for our wage rate, expectations that we actually saw in 2018. And I think last year where commodities were pretty mild, we now have a 2% inflationary impact built into 2019.

David Tarantino -- Robert W. Baird -- Analyst

Okay. Great. And then on the delivery side, can you maybe elaborate on what percentage of the sales mix that's running? And then frame up for us again the profit impact, because it seems like it's getting the cost maybe more than the sales? So how -- can you just maybe talk about how that's impacting profitability overall?

Russell Bendel -- President and Chief Executive Officer

Yeah, it's really been in the system, DoorDash is the only one that fully integrated and that happened in the second quarter of last year. So we're not ready to say absolutely what percentage of business that category is, but we are happy with it, David, it certainly is -- it's almost table stakes today going forward. But these sales I don't believe are as incremental as the third-party aggregators tell you they are or that maybe people believe them to be and they certainly have cost associated with them.

We charge a 25% premium to our online prices or in-store restaurant prices, but with commissions, fees et cetera, et cetera you are not at on par with someone that walked in the front door and spent money and probably is more likely to have a drink attachment to that order that is highly profitable. Now while we like these sales, we're very encouraged by them and we -- it is part of doing business and it will -- we believe it will continue to grow.

But we believe, I believe, these are this incremental as everyone may think they are. And there's a cost associated with that, that is reflecting in our operating costs as Ira commented on in his remarks. But having said that, we're happy with it and our online channel grew almost 21% from the last quarter, so we're excited about it. It's just -- it has different economics associated with it than historical dine-in restaurant sales.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

And if I can just ask a follow-up about that Russ, why not charge a higher premium then and make it sort of an indifferent sale between in-restaurant and deliveries?

Russell Bendel -- President and Chief Executive Officer

We never said we were stuck on 25%. But if we take a step back, when we did that at 25% and our average -- our per-person spend last year was in the $9 range. So the economics are much different for us and the third-party aggregators at that time. We were one of the few people that even had an up-charge at the time. And I think, if you look across those providers, you'll see many more brands doing so and we're not married to 25% necessarily forever. But we want to be smart and thoughtful about this and we don't always leave the charge on pricing.

David Tarantino -- Robert W. Baird -- Analyst

Great. That's helpful. For what it's worth I think you're doing it the smart way. On the commentary around the new layouts that you're testing, I just wonder if you could elaborate a little bit more on what specifically is being tested? And you mentioned being pleased with what you're seeing so far just, if you could maybe talk about what benefits (Multiple Speakers)

Russell Bendel -- President and Chief Executive Officer

Most of those shifts are around the kitchen, and how the production starts and the food finishes, when it was from a drive-thru, we have the food finish it at different place than it -- if it's a dine-in guest. And we have about four restaurants that are open, where we tightened up the physical space a little more and that we believe -- now again, we have a couple of months of operating history with four or five restaurants at various volumes. But we have some average to higher volume restaurants. We feel pretty good about that layout, with the drive-thru, we've also seen from a capital structure that we've had three different formats either a build-to-suit, a ground lease or an end cap. And you'll probably see less of the build-to-suit where we take down a piece of dirt and develop the whole thing. They just require a lot significantly -- significant more capital.

So -- and then as this convenience economy as we get more into it and you have mobile app, online delivery, third-party delivery, more of your, one-third of our food historically before we even had a drive-thru one-third of our food was carried out in the front door and our guest consumed it somewhere else. With all these new channels that percentage of food leaving the building is growing, plus if you have a drive-thru that piece is growing, so that we may not need quite as large of a physical plan in total.

So we have a couple of locations upcoming, that are maybe 200 square feet less than we've historically been taking. So we're looking at a lot of different things because the regulatory environment, it's been here forever, it's maybe more aggressive than it has been in a while, but we need to be thinking further out where labor potentially is going and where the consumer is going.

David Tarantino -- Robert W. Baird -- Analyst

Right. Thank you very much for that.

Operator

Our next question is from Nick Setyan with Wedbush Securities. Please go ahead.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. Congratulations on a great quarter again. You guys talked about the plus 1.4% quarter-to-date trend. Ira, is there any way to parse out what the actual weather impact may have been or what the underlying trend may have been without the weather?

Ira Fils -- Chief Financial Officer

Yeah, that's tough for sure, there's a lot of moving parts in that. I think the underlying trend definitely lies within our guidance that we gave of 2% to 3% for the year.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And in terms of the price increase you talked about the second half, is there like an exact time, it kind of last year was December, it's not going to be that late this year, right?

Russell Bendel -- President and Chief Executive Officer

No, probably be in the mid-part of the year.

Ira Fils -- Chief Financial Officer

Yeah, we roll-off in May.

Russell Bendel -- President and Chief Executive Officer

We roll-off the end of May.

Ira Fils -- Chief Financial Officer

We'll probably take it right as the other one rolls-off, if not maybe a little bit sooner than that.

And we'll probably more targeted in regards to areas that have more labor pressure than ever before. Obviously Northern California, some of the premium parts of LA in regards to the regulatory there and some East Coast. So --

Nick Setyan -- Wedbush Securities -- Analyst

Got it. How many units now have both DoorDash and Postmates?

Russell Bendel -- President and Chief Executive Officer

About 40.

Ira Fils -- Chief Financial Officer

That pretty --

Russell Bendel -- President and Chief Executive Officer

And that was as recent as yesterday.

Ira Fils -- Chief Financial Officer

That's pretty recent.

Russell Bendel -- President and Chief Executive Officer

Like, yesterday. As you know from our last call, we had DoorDash rolled-out exclusively and about 10 units with Postmates were part of our test. And then this week, we just added about another 30.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And at the end of the quarter, we're going to roll it out systemwide at Postmates?

Russell Bendel -- President and Chief Executive Officer

I think we're -- Iwona, we're targeted for about 220, total DoorDash unit.

Iwona Alter -- Chief Brand Officer

Correct 220 by the end of Q1.

Russell Bendel -- President and Chief Executive Officer

Yeah, but the end of Q1, about 220, which is effectively most all the locations we can do because we do it in obviously airports, college, universities, casinos, things like that.

Nick Setyan -- Wedbush Securities -- Analyst

And that's both DoorDash and Postmates in 220?

Russell Bendel -- President and Chief Executive Officer

Yes, correct. Approximately.

Nick Setyan -- Wedbush Securities -- Analyst

Got it.

Russell Bendel -- President and Chief Executive Officer

Yes.

Nick Setyan -- Wedbush Securities -- Analyst

Okay perfect. The marketing uptick of 25 basis point in 2019, what's the base in 2018? What was marketing as a percentage of sales in 2018, if you don't mind reminding us?

Ira Fils -- Chief Financial Officer

70 basis points to 75 basis points, so we're going up to about a percent of sales.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. The tax credit in Q4 with respect to the labor expands, is that something that's just one-time and it's not going to be repeated in 2019? Or is that something that can happen every year?

Ira Fils -- Chief Financial Officer

So it happens as it goes away, so we will not have to pay that tax as of we know today in 2019. So it's eliminated for the foreseeable future.

Nick Setyan -- Wedbush Securities -- Analyst

Perfect. Last question, the cadence of openings in 2019, is that going to be more even quarter-to-quarter? Is that going to be a little bit more front-end loaded like it was in 2018?

Ira Fils -- Chief Financial Officer

It will be pretty even, a little more front-end loaded but pretty even.

Russell Bendel -- President and Chief Executive Officer

Yeah, I mean I think our development team has done a nice job in getting that a little more evened out the last two years, especially this year and we would expect 2019 to be similar.

Nick Setyan -- Wedbush Securities -- Analyst

Perfect. Thank you.

Operator

Our next question is from Joshua Long with Piper Jaffray. Please go ahead.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thanks for taking my question. I want to see if you might be able to talk about any sort of regional trends you saw during 4Q. Previously we talked about maybe a slow start in some of those Orlando units. But curious on just how performance was across East Coast, West Coast, core markets, anything that you'd be able to share there?

Ira Fils -- Chief Financial Officer

No. I think as we talk about always and that still holds true that the East Coast while the volumes -- the opening volumes are lower, they are definitely comping at a higher rate than the system. We've seen a little more strength in the bay area than LA. I mean other than that, it's not hugely different but -- and as we move into Q1, weather has really played more of a factor into the -- I'm sure you've heard other folks talk about that as well.

Russell Bendel -- President and Chief Executive Officer

We don't like to talk about whether and maybe next year this will be a windfall to go over, but particularly in Q1, it's been challenging.

Joshua Long -- Piper Jaffray -- Analyst

Understood. And as we think about the cold weather aspect or maybe just the ability to get ahead of that, is there an opportunity from a menu perspective at time to maybe bring in some innovation and do some maybe what you might call a cold weather add-ons, I don't know some of your peers have had some success with chilis or soup or something that kind of placed that idea of kind of getting out of the cold and eating something warm, so obviously the burgers are great. But just curious, if inside of the innovation piece that you've working on, is that something that's come up? Or if that is necessarily on brand for how you think about some of the menu opportunities?

Iwona Alter -- Chief Brand Officer

We didn't necessarily start thinking of developing weather-specific products. I will tell you that we are monitoring the trends and obviously looking at the next week, whether all the time, and this is where the third-party delivery in terms of the any promotional focus comes in handy. So as Russ is talking about, how our online and delivery is performing, that's part of the answer to address the bad weather.

Joshua Long -- Piper Jaffray -- Analyst

That's helpful. And then Iwona, love to have you here and hear your perspective on kind of what you've seen, what you're spending your time on? Where maybe some of the opportunities are from a branding perspective with Habit given your experience? And I think you're still in the stages of figuring out what and where and when you want to do in terms of projects with your team. But curious on any high level thoughts you might be able to share just for thinking about up to 2019 and maybe even long-term?

Iwona Alter -- Chief Brand Officer

Absolutely, I have to tell you I have been blown away by the level of operations that The Habit brand has. Obviously, I was a consumer before and certainly enjoyed it, but it's a marketer's dream to have as highly performing restaurants and the hospitality level that we have. So really as I have been looking at the brand, the biggest area of opportunity for us is talking about what it is that we offer. And while we had some basic support in terms of marketing messaging last year, for this year we started with some refining of who our target consumer is and which brand benefit, we want to lean into in terms of our communications. And secondarily looking at our footprint and the market penetration that we have.

My focus will be to lean into media and channel that can be geo-targeted. We certainly want to be supporting both our mature markets and new markets and that geo-targeted approach and leaning into all of the transactional media is going to make it possible to have it down to the restaurant level, as far as the trade area and talking about the brand, talking about those new product that as you know we are not just burgers, we -- the innovation that is more in line of American modern taste will continue and that definitely will be the topic that we will want to keep top of mind for our current guest and more importantly grab some new guests to visit us.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thank you. Looking forward to following the progress on that work. Iwona, when we think about that 2% inflation in the COGS basket, is that primarily centered on some of the proteins? Is that evenly balanced? How should we think about that in terms of inflation coming back into the conversation?

Ira Fils -- Chief Financial Officer

No, it's a couple of things, it's mostly in the proteins and produce quite frankly, we're well concerned about produce --

Russell Bendel -- President and Chief Executive Officer

With all these -- will all the rains in the West.

Ira Fils -- Chief Financial Officer

It's primarily focus around where that 2% comes from. A little bit of transportation costs, we're hoping that doesn't materialize maybe as we thought it might have a little while ago, but it's mostly on the protein side.

Joshua Long -- Piper Jaffray -- Analyst

Okay. Thanks so much.

Iwona Alter -- Chief Brand Officer

Thank you.

Operator

Our next question is from Andrew Charles with Cowen. Please go ahead.

Andrew Charles -- Cowen & Company -- Analyst

Great guys. Thanks. So very encouraging on the same-store sales guidance for 2% to 3% for next year. Can you just walk us through the cadence though? You mentioned that you're running somewhere around that range when you strip out weather in the beginning of this year, I mean obviously, if we went back to last year you run a slightly positive around this time. And so, the trends are going to meaningfully -- the compares excuse me are going to come meaningfully more difficult, is it sitting here today, can you kind of help us through the cadence around, the confidence you guys have about being able to lap these comparison deliver on the full year guidance?

Russell Bendel -- President and Chief Executive Officer

Yeah, I think it's a combination of a few things. I think we hinted a little bit about, obviously we felt our underlying trends are little better than 14%, (ph) given what's going on from a rain perspective. We are just in the process of rolling out Postmates which we think will be helpful to the comp as well. We think about pricing, we're probably going to take as Russ talked about, we're caring about 4% in Q1 and for part of Q2. And when that rolls-off we're going to take -- we're going to probably take 4% to 5% pricing.

So there was probably will be a little bit more pricing in the back half of the year. And we feel as we move throughout the year, as we start to do some of the initiatives that Iwona is focused on, in regards from a marketing perspective and taking those to fruition and actually spending some money and putting that to usually feel like that will help us achieve kind of the guidance that we've laid out from a sales perspective. We got more other tools in our toolkit, the app will be rolled out as we move toward into the third quarter. So we just feel like there is lot of -- we have a lot of -- we have more levers this year that we can pull than we have had before.

Andrew Charles -- Cowen & Company -- Analyst

That's helpful. And just on the pricing Ira, is that inclusive of the 25% higher delivery pricing that you guys have as well or is that just strictly in menu -- in restaurant pricing?

Russell Bendel -- President and Chief Executive Officer

Just in menu.

Ira Fils -- Chief Financial Officer

That's strictly in menu. The 25% is on top of that on just delivery.

Russell Bendel -- President and Chief Executive Officer

On just delivery.

Andrew Charles -- Cowen & Company -- Analyst

Right. Just lastly just want to -- just quick update on Orlando. As you dig into that market's underperformance, what are you finding to diagnose the challenges you're seeing there?

Russell Bendel -- President and Chief Executive Officer

What we've seen is that now again one store is in the comp base OK? So keep it in perspective, they never opened at volumes that other East Coast locations did and their trajectory has never looked similar. And believe me, we have all kinds-of-eyes on it, looking at things. We have great people there. We execute very well. Our mystery shops, all our internal metrics are at or above the system average.

It's just a little bit now again, it's only three locations it's a transition I mean a lot of tourist it's a little different market than others that we operate in and it's a little bit, following to us. It doesn't behave the same. We are going to Iwona and her team are going to really look at some very micro-geo targeted efforts to support those stores. When I say, geo-targeted, we are talking within one or two miles of each location on how we can potentially stimulate trial. So it's -- and if you look at the rest of Florida, the rest of Florida is really performing nicely.

Andrew Charles -- Cowen & Company -- Analyst

Appreciate it. Thanks guys.

Operator

Our next question is from Brian Vaccaro with Raymond James. Please go ahead.

Brian Vaccaro -- Raymond James -- Analyst

Thanks and good evening. I just wanted to do circle back on the pricing and just the relative value proposition discussion. Can you speak to how your gap versus peers has trended over the last few quarters? And maybe break down East Coast versus West Coast, given the differences in competitive set that you're comparing to?

Russell Bendel -- President and Chief Executive Officer

The gap really, we recently done twice comparisons with us with our more direct better burger, competitors and then with our less direct but QSR players that gap while we have taken price they have taken every bit as much price as we have. And on a menu side, some of the more larger QSR brands have been even more aggressive what we've noticed with price. So that delta between us and our direct better burger competitors has not changed.

And without mentioning the brand, as some of us we've spoken individually, a quarter-pound sandwich fries and a drink compared to our Habit Charburger fries and a drink with $0.10 under that competitor in Southern California. Now we know, approximately 40% of their transactions are discounted but that menu price to menu price. And we understand value and we believe the experience that we give for the prices we charge, it's hard to find anyone in this category that can operate and execute and provide a guest experience for about $9 like we do.

If you look at our Yelp scores. I mean if you go, there's hundreds and hundreds of thousands of them. If you look at our Yelp scores you look at the feedback versus who we compete directly or indirectly with two things they always mention. We really like your food, your people are amazing and how do you would do it for those prices? And I'm paraphrasing, but that's the feedback that's who we are. We pride ourselves on blocking and tackling and executing.

And with Iwona and the freshness she's bringing to how we look at this brand, we need to tell that story; much better, much clearer and especially faster in new markets. But we feel all the foundational work and our ability to execute and stay the line in some very challenging times will serve us well short-term and long-term. And we're not worried about a 4% price increase.

Brian Vaccaro -- Raymond James -- Analyst

All right that's helpful Russ. Switching gears to the drive-thru. And I I guess as Russ said, I think you said 35 units exiting 2018 and just curious if you could speak to some of the core fundamentals that you're seeing in the drive-thru? Sort of what your average drive-thru time? Are you pleased with the accuracy et cetera? And are there particular areas of the drive-thru experience that you see opportunities to improve or you're pretty happy overall with where things stand?

Russell Bendel -- President and Chief Executive Officer

Overall we're pretty happy. I can't tell you what our drive-thru times are. I can tell you that it's going to take probably six to eight minutes, if you're the only person in-line, because we make everything to order. We do know that your time at the window when you are there to pick up the food and make the financial transaction is under a minute OK? What we're really focused on the drive-thru is that we provide an experience in regards to the food and even the service and the limited opportunity you have with hospitality that separates us and differentiates us from the mass QSR players who are more identified by a drive-thru and low price points than anything.

So we've always, always, always try to be focused on the little things. The please, the thank you, taking a little more time to talk about the food what they order, answer questions. So while we understand, time is important to people we're never going to compete, we're never going to compete with the McDonald's Burger, Kings Wendy's and Sonics on drive-thru times that's not who we are. We're going to provide an elevated product with better service that's convenient.

Ira Fils -- Chief Financial Officer

One thing that we are working on and Russ talked about it already and we think we got some opportunities, we got to work on labor a little bit in the drive-thru. So we're looking the kitchen designs and we're kind of tearing that part from one-off perspective and so we got a little work to do for sure. But what we do like is as Russ talked a lot about is and what our guests like it's the convenience it provides.

Russell Bendel -- President and Chief Executive Officer

Really one of the core strength of this company is our ability to tweak things and to look at things. We're not afraid to take on menu-items that are more challenging than most all of our direct competitors will do because we have the confidence then we have a culture of real culinary skills and our people are used to cooking food very similar or exactly like casual dining does. And once we figure that out, then we look to try to make it a little bit better incrementally all the time. So that to me what separates this brand and really allows us to long-term be able to continue to steal share from traditional fast food because they just can't do that.

Brian Vaccaro -- Raymond James -- Analyst

Okay. Thanks. That's helpful. And then just one last quick one for me. Ira the extra week in 2019, would you be willing to quantify the impact to EBITDA? And also just remind us in the fourth quarter, which line item if any that you accrue on a monthly versus weekly basis where you would see that sort of incremental flow through an average if you will thinking maybe brands or DNA or any other lines worth highlighting?

Ira Fils -- Chief Financial Officer

Yeah, hey, I'll try to hit the high points on that. You'd probably look -- We're looking at about and I'm going to be really rough with these numbers about a $7 million impact on the top-line, with the 53rd week. We're not going to have incremental on utilities or rents or anything like that. So it is pretty incremental and we're looking in the neighborhood a $1,250,000-ish on EBITDA for the week. So it's a highly profitable week. We wish we could do 53rd weeks every year.

Russell Bendel -- President and Chief Executive Officer

We'll take 52 of them.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thanks guys.

Ira Fils -- Chief Financial Officer

Thanks, Brian.

Operator

This concludes the time allocated for the question-and-answer session. I would like to turn the conference back over to Russ Bendel for any closing remarks.

Russell Bendel -- President and Chief Executive Officer

Hey, well, thank you all for your continued interest. A lot of good things going on and we certainly appreciate and value your time. Talk to you soon.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Duration: 68 minutes

Call participants:

Russell Bendel -- President and Chief Executive Officer

Ira Fils -- Chief Financial Officer

Will Slabaugh -- Stephens Inc -- Analyst

Matthew DiFrisco -- Guggenheim Securities -- Analyst

David Tarantino -- Robert W. Baird -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

Iwona Alter -- Chief Brand Officer

Joshua Long -- Piper Jaffray -- Analyst

Andrew Charles -- Cowen & Company -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

More HABT analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.