Carrols Restaurant Group (TAST) Q1 2020 Earnings Call Transcript

Carrols Restaurant Group (TAST -0.10%)
Q1 2020 Earnings Call
May 07, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Carrols Restaurant Group, Inc. first-quarter 2020 earnings conference call. [Operator instructions] I would like to remind everyone that this conference call is being recorded today, Thursday, May 7, 2020, at 8:30 a.m. Eastern Time and will be available for replay.

I would now like to turn the conference over to Tony Hull, chief financial officer. Please go ahead, sir.

Tony Hull -- Chief Financial Officer

Thank you, Sarah, and good morning, everyone. 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, including the impact of COVID-19. During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. A reconciliation to comparable GAAP measures is available for our earnings -- in our earnings release.

With that, I will now turn the call over to our chairman and CEO, Dan Accordino. Dan?

Dan Accordino -- Chairman and Chief Executive Officer

Thanks, Tony, and good morning, everyone. As you will recall from our Q4 call, we began 2020 with optimism with respect to what we intended to accomplish this year in improving operations across our restaurants, resetting our priorities in terms of capital allocation, and generating free cash flow. Of course, our company, our industry, and our fellow citizens were faced with a whole new set of challenges beginning in March due to the worldwide pandemic caused by COVID-19. We, as a management team, reacted quickly and decisively to align with the realities of the new marketplace.

First, to comply with national state and local guidelines and for the safety and well-being of our team members and guests, we closed our dining rooms across the system and ramped up our off-premise capabilities, including takeout and drive-through. We also launched delivery services to the majority of our Burger King and Popeyes restaurants during the last few weeks ahead of our original timetable of late in the second quarter, which had a positive impact on sales. As approximately 75% of our 2019 restaurant sales were generated from takeout and drive-through orders, we were fortunate to be able to continue generating a consistent level of base revenue as conditions unfolded, but traffic and sales still rapidly declined. This put a lot of pressure on us to protect every shift in every job that we could.

To address near-term financial flexibility, we look for every efficiency, including cutting executive salaries starting with my own. We put on hold any nonessential operating expenses and capital expenditures other than those necessary to maintain restaurant operations, and we added additional safety protocols to protect our team members and our guests, including face masks, thermometers, and greater usage of a multitude of cleaning products. In many cases, we have reduced operating hours based upon sales volumes, day-part traffic, and mandated curfews. We have also temporarily closed 46 restaurants consisting of 42 Burger Kings and four Popeyes where we could improve overall operations by shifting guests to nearby locations.

In those situations, we reassigned team members where possible. We have lowered our current cash payments on rent. Although let me be clear that we are not in breach of any of our leases as we are working with each of our nearly 600 landlords on an individual basis in an effort to mutually agree on accommodations during this period in order to preserve cash in the near term. Our relationship with our landlords is very important to us, and we have sought through this process to maintain our hard-earned reputation.

We are also communicating proactively with many of our largest vendors and suppliers in order to optimize payment terms while preserving these long-term relationships. In addition, we shored up liquidity by increasing our revolver borrowing capacity through several amendments to our senior credit facility and taking other actions to improve working capital. Tony will review our current liquidity cash balances and first-quarter financials in a moment. I am encouraged that our April comparable restaurant sales numbers have steadily improved from the weakest period in late March.

To give you context, during the last week of March, comparable restaurant sales at our Burger King restaurants were negative in the mid-30s. For the month of April, our Burger King comparable restaurant sales were down in the low 20% range. And over the past week, they were down mid-single digits, even with the vast majority of our dining room still closed. Hopefully, this trend can continue and build over the next several months as restrictions are lifted, businesses begin to open and more people leave their homes to go back to work and shop.

We are also seeing the average check improve at our Burger King restaurants. It increased about 18% from January and February to April. We believe the increase is due to more frequent group ordering. Adding delivery capability to almost 700 of our restaurants is also gaining traction.

In the last week of March, companywide delivery revenue was about $270,000. And for the week ended April 26, delivery revenue approached $800,000. Annualizing that weekly run rate, this will definitely move the needle for us, especially given that we are in the early stages of rolling out this distribution channel. In order to support our team members during this difficult time, the company created a Carrols carers' fund a fund created to assist our employees who are experiencing financial hardship.

Funding for the program comes from my three-month salary holiday and from other senior executive contributions. Ultimately, I believe that Carrols will come out of 2020 with a cost and capital foundation that will enable us to realize the full potential of our restaurant portfolio. We will continue to focus on our recently acquired restaurants that we believe will add to our overall growth with operating efficiencies and improved margins. In the meantime, we are working through the present challenges and protecting our business and team to the extent that we can.

To close, let me say that on behalf of the management team, I would like to personally thank each and every one of our employees for their tremendous efforts in adapting our restaurant operations to the current environment and for their commitment to help seed America during this challenging time. With that, let me turn the call over to Tony to review our financials.

Tony Hull -- Chief Financial Officer

Thanks, Dan. Before I go into a high-level review of the first quarter and some forward-looking comments, I would like to walk you through some financial steps we have taken in response to COVID-19. The focus since the onset of the pandemic has been to reduce cash outflows to the extent possible as quickly as possible. As a high proportion of our costs are variable, we work swiftly to ensure that our restaurant expenses were properly aligned with our revenue trends.

We also reduced fixed operating costs where possible. By temporarily shuttering 46 restaurants, we were able to immediately avoid a certain amount of costs. The bulk of the expense reduction, however, was efficiently executed at each and every one of our restaurants by our regional staff organization to reflect revised restaurant hours and accessibility. We also reached out to our landlords to reduce or defer rent payments.

Regional and corporate overhead has been reduced by $5 million to $7 million on an annualized basis. Savings reflect a reduction in real estate development, training efforts, regional field administration, as well as a companywide pay reduction of 10% for all nonrestaurant employees, a hiring freeze and the elimination of all discretionary spending to the extent possible. From a cash flow standpoint, we've taken many actions that further improved our financial position. We work closely with our suppliers and vendors to optimize payment terms.

We closed 11 restaurants that were EBITDA negative and had near-term lease and franchise term maturities, and we move forward with sale-leasebacks on several existing fee-owned properties in our portfolio. Finally, we have suspended our stock repurchase program. In terms of capital expenditures, we are delaying all projects that have not yet commenced and expect total outflows of about $35 million to $40 million for the full year, net of sale-leaseback proceeds. Approximately $20 million of the spending is behind us as at the end of the first quarter.

The majority of which was carryover spend from projects commenced in 2019. To further bolster our financial flexibility, we increased our revolver borrowing capacity, and it now stands at a total of $145.8 million. At quarter end, our cash balance was $41.3 million, and total outstanding debt and finance lease liabilities were $536.7 million. Fast forward to May 5, 2020, our cash balance was $53.4 million, and liquidity in the form of cash deposits and available borrowings under our revolving credit facility totaled $77.8 million.

We expect to remain in compliance with our first lien net leverage ratio. At our current revenue trajectory, combined with operational actions we have executed, we estimate that the company is on a path to generating positive free cash flow during the second quarter of 2020. With that, let's discuss our quarterly results. For the first quarter, revenue increased 20.9% over the prior period to $351.5 million, and this included $67.4 million in restaurant sales from restaurants acquired in the Cambridge acquisition completed on April 30 of last year.

Our Burger King comparable restaurant sales during the quarter outpaced the U.S. Burger King system by 80 basis points, decreasing 5.7%. Adjusted EBITDA declined $9.4 million during the quarter to $4 million from $13.3 million in the first quarter last year. Adjusted EBITDA margin decreased 345 basis points to 1.1% of restaurant sales.

Adjusted restaurant-level EBITDA decreased $5.9 to $22.8 million in the quarter from $28.7 million in the first quarter of last year. Restaurant-level adjusted EBITDA margin was 6.5%. Restaurant sales have decreased 345 basis points. On expense line items, cost of sales increased approximately 90 basis points in the aggregate.

Ground beef averaged $2.21 per pound in the first quarter of 2020 and increased 10.8% from the first quarter of last year. It was, however, 2.4% lower than Q4 levels. Over the last two weeks, we have seen an increase in beef costs, but it is too early to evaluate its impact on the year. Restaurant labor expense increased 90 basis points as a percentage of sales compared to the prior-year quarter, inclusive of a 5.9% increase in the hourly wage rate in our legacy Burger King restaurants and the impact of fixed labor costs against lower restaurant sales.

Restaurant rent expense increased 90 basis points as a percentage of sales compared to the prior-year period, primarily due to the higher rents as a percentage of sales on restaurants we acquired in 2019 and the impact of lower restaurant sales. Other restaurant operating expenses increased 80 basis points as a percentage of sales compared to the prior-year period due to proportionately more credit card usage and higher utility costs. General and administrative expenses were $18.9 million in the first quarter of 2020, excluding $800,000 in onetime costs primarily related to site development write-offs. This compares to $15.4 million in the prior period on an apples-to-apples basis, which excludes $2.8 million in acquisition and other costs.

As a percentage of net revenues, general and administrative costs expenses increased slightly to 5.4% in the first quarter of 2020 from 5.3% in the same period last year. For the year, we expect the ratio will be favorable on a year-over-year basis given the cost reductions that have been implemented. Our net loss for the quarter was $22.2 million or $0.44 per diluted share. The net loss includes a $2.9 million charge, primarily due to impairment charges related to three underperforming restaurants and other lease charges relating to nine restaurants closed during the quarter.

Before such items, the Q1 adjusted net loss was $19.3 million or $0.38 per diluted share. Finally, while we are withdrawing our previous guidance due to the uncertainty surrounding COVID-19, please note that our full-year 2020 has one additional operating week compared to 2019. That concludes our prepared remarks. So with that, operator, let's go ahead and open the lines for questions.

Please go ahead.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Jake Bartlett with SunTrust.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the question. My first one is on the commentary around free cash flow being positive -- the track toward being positive in the second quarter. What does that assume in terms of same-store sales? And maybe if you can kind of frame out the sensitivity, what would free cash flow be if same-store sales kind of remained at the current negative 6% level or some level that we can kind of assess the sensitivity toward that?

Tony Hull -- Chief Financial Officer

Well, we gave guidance that free cash flow will be positive for the second quarter, and the trajectory definitely is impacting that. We were down on Burger King, 6.4% through May 3. And if you look at the last seven days, it's actually down 1.9%. So we're seeing week to week very dramatic improvement.

And we believe that's going to generate positive free cash flow for the second quarter, especially given the cost cuts that we've put in place.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. Great. And then on that same vein, what does that include in terms of temporary savings like deferred rents or even deferred royalty payments, if that's what you're doing? Trying to assess whether there's kind of more pressure in the third quarter just from a free cash flow burn perspective.

Tony Hull -- Chief Financial Officer

There are no deferred royalties. So we have not -- that has not been something that we've asked for or received from our franchisor. So there has been some working capital management costs. Some of those are sort of permanent in nature for the year, and some of those will come back.

But we think at this kind of even without those sort of short-term eases to cash flow, we think that we're going to be in a cash flow positive position.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. And then last question, such a sharp acceleration or change in trajectory in the last week and the last seven days, as you just mentioned. To what do you attribute that to? I know that on the last few weeks, you've gotten delivery, which has been incremental. But what are the other drivers to that? And is it exposure to states that are relaxing stay-in-home orders? Any kind of color so you can help us understand what is driving such a sharp improvement?

Dan Accordino -- Chairman and Chief Executive Officer

Yes, Jake. This is Dan. Some of that is because states are relaxing their stay-at-home orders. We have not yet opened any dining rooms.

So that's really other than for takeout. We don't have any dining rooms open for seating yet. But there just seems to be an increased amount of traffic across our entire portfolio in 23 states. We have more people on the road, and our drive-through business has picked up pretty significantly, as well as delivery continues to increase dramatically on a week-over-week basis.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. I appreciate it. Good luck out there.

Dan Accordino -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Thanks. Nice job guys, navigating some pretty tough environment out there. I wanted to come back to beef prices for a second and just get a sense for the arc that you've seen in terms of the weekly delivered price per pound. At start of the year at relatively high levels, I think that probably came down quite a bit, and now it sounds like there's been a little bit of an uptick.

Can you give us, Dan, maybe some numbers behind that in terms of, if you were at kind of two, let's say, $2.40 a pound, $2.45 a pound, maybe early on in the year? And did that get down to, let's say, $2.10, $2.05? And then what have been the prices you paid the last couple of weeks on beef?

Dan Accordino -- Chairman and Chief Executive Officer

Yes. You're right, Jeremy. Your numbers are right on. It was started out in $2.30, $2.40 in kind of range.

It went down to $2.03, I think, was the low point. In the last two weeks, it's accelerated pretty significantly, and our forecast assumes that we will be at a more elevated level until probably the first week of June, and then we think that it's going to go start to stabilize again.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Could you put like a little more specific numbers in terms of where it's accelerated to? I mean, is it above $2.50 a pound?

Dan Accordino -- Chairman and Chief Executive Officer

No. No. No. It's $2.43.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

OK. That's super helpful. And then just in terms of what -- typically, the company will adjust based on some of the proteins that it serves, where it might be highlighting. Again, this is such an unusual environment.

But you do have the impossible Whopper offering. Is that something where you're getting anything from corporate that they may pivot where marketing dollars are being spent? Are you seeing -- is there any potential adjustment in terms of pricing? I know that's probably difficult in this environment. But how do you respond when -- I think your prices are generally about 25% of your cost when you have a scenario like this, or do you just ride out kind of until we hopefully see a break in about a month?

Dan Accordino -- Chairman and Chief Executive Officer

Yes. It's only for a month. No. We're not going to adjust.

Right? This is absolutely not the correct time to be making any price increases. Certainly, the guest feedback that we're getting is from -- value is very important during this period of time, given the unemployment rate and so forth. So we're not going to be adjusting prices. The Burger King marketing really has been focusing from a mobile app standpoint, focusing on food safety and the things that we're doing in the restaurants to make sure that the employees are safe and the guests are safe.

We continue to have the eight-piece nugget for a dollar promotion, which is helping. We still have the Impossible Whopper. So I think that the focus on the marketing calendar will continue to be on delivery of food safety, restaurant safety and that sort of thing, Jeremy. I don't see a major change in the next four weeks.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

And just along those lines, in terms of thinking about -- you've had a really dramatic upturn in business, which is great to see. In terms of the composition of that, is this being driven by check? What was your -- in terms of the composition of comps in Q1, what was check versus transaction? And then over these last five or six weeks, are you seeing orders -- I have to assume larger tickets because -- and what are you seeing from a day-part perspective of -- we've pretty frequently heard that breakfast is taking a little bit of hit and kind of after-hours or snack, whereas you're seeing strength in lunch and dinner day-parts. But can you provide some color on that?

Dan Accordino -- Chairman and Chief Executive Officer

Well, as we said and as I said in my script, the average check has increased about 18% from January to April, and that has bundled orders through the drive-through. I mean, it's for -- you're not seeing as many single-person orders. Average check for delivery is much higher than the average check, typically, we would have in a Burger King. So that's primarily what is driving the check.

What was the second part of your question, Jeremy?

Tony Hull -- Chief Financial Officer

The day-parts.

Dan Accordino -- Chairman and Chief Executive Officer

Day-part. Yes. You're right. Breakfast and late night are the two day-parts that are the most problematic.

Some of that is simply a function of, as you would know, people aren't out and about going to work and so forth. And the other part of that is it tends to be somewhat of a cyclical phenomenon in that as your breakfast sales during the beginning of the pandemic primarily back in March and the first part of April, breakfast sales weren't there. And consequently, operating hours were adjusted, and some of these restaurants didn't open for breakfast until 7:30 or 8:00. And also, we're closing at night at maybe 9:00 because it just wasn't much traffic.

Those hours are now back to full normal hours, and I think we'll start to see a tick up in both breakfast and late night from that standpoint.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

And would that have a positive impact on your margin profile?

Dan Accordino -- Chairman and Chief Executive Officer

Yes.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

OK. Last question I wanted to get into was just in terms of labor, we've got some, obviously, unusual things happening here. And I imagine that the staffing overall is reduced partly because of the hours. But in terms of just the number of people that you're using in the store, have you -- I mean, this is a high turnover business, and I would imagine you're probably focused on your best employees and keeping them employed and because you want to have them there on a long-term basis.

But how have you had to adapt just your labor pool overall? And then the second part of the question is we've got this unusual scenario where those that are unemployed are getting kind of an additional unemployment benefit that may make it better for them to stay home and not work, at least until the end of July, rather than out there looking potentially at jobs at a BK or Popeyes and so forth. Sorry. That's a big question. But how are you adapting your labor schedules?

Dan Accordino -- Chairman and Chief Executive Officer

Sure. The first part of your question, our staffing levels pre-COVID, if you will, we're operating at about 25 employees per restaurant. The staffing levels went down to about 21. So, I mean, that was not a significant reduction.

We reduced some of the hours of the employees in the restaurants, but we kept a lot of the -- most of the employees that we had still employed. So we don't have to and didn't have to add a whole lot of team members back to get back to full staffing given the sales increases. In terms of the a $600 federal unemployment subsidy, what we have told our -- first of all, we have reached out to any of the employees that were laid off and invited them to come back to work, which most of them have done. What we've told them is that based upon the unemployment laws in most of these states, if you reduce the employees' hours from 20 hours a week to 15 hours a week, they can still apply for unemployment.

They would get a reduced level of state unemployment, but they would still qualify for the full $600. So that's what we have invited them to do, you're better off coming to work and working a few less hours and you'll still get the additional benefit until the end of July.That's interesting. All right. Thanks so much for the color, guys.

Good luck.

Thanks, Jeremy.

Operator

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

Brian Vaccaro -- Raymond James -- Analyst

Good morning, and I hope everyone is doing well. I wanted to drill down a little bit more on the Cambridge units, if we could. And Dan, I know you've been doing a lot of work there to improve operations, etc. Could you give us a sense on the progress you've made in terms of core operating metrics and margins at those units? And are you starting to see relative sales trends respond positively to these changes even in the crazy environment we find ourselves in prior to that in January and February?

Dan Accordino -- Chairman and Chief Executive Officer

Yes. Listen. Thanks for the question, Brian. Yes.

As a matter of fact, the delta between the Cambridge restaurants and the legacy restaurants is now down to around 2%. Whereas, if you recall, back in Q4, it was 6% or 7%. So that delta has narrowed dramatically in terms of the same-store sales performance between -- the comp sales between the two groups. In terms of the labor improvement that we suggested, we are right on target.

Our Cambridge restaurants, the labor number of hours used relative to sales is exactly the same as our legacy restaurants. So we've reduced that labor by a couple of hundred basis points since last fall. The Popeyes labor, we have reduced by 400 basis points since last fall. Cost of sales metrics were now 200 -- 220, 240 basis points better than we were last fall in terms of the Cambridge cost of sales.

So all of the things that we said we were going to do in terms of those operating metrics, we have either exceeded the targets in that time frame or we're right on target.

Brian Vaccaro -- Raymond James -- Analyst

All right. So that's encouraging to hear. And I guess back to the free cash flow and sort of margin outlook, just to think about the flex in the model, I guess in Q1, you certainly did a -- it looked like you did a solid job sort of flexing the cost structure. And Tony, I wanted to ask, can you help me understand the flex in that other OPEX line? And can you frame how much of that line might be fixed versus variable?

Tony Hull -- Chief Financial Officer

Yes. I mean, it's hard to -- I mean I have to -- I didn't really have to look at it to see how much is fixed versus variable, obviously, excluding rent because that's pretty fixed, but we variabilized it or at least deferred a bunch of it to 2021 and 2022. I think where we've seen changes is some of the discretionary repairs and maintenance has come down, so that's been variabilized. But on the other hand, obviously, if the restaurant needs something to keep working efficiently, we'll spend that money.

But some of the more discretionary stuff has come down a little bit, and we don't think that's going to be an issue long term. So I'm just trying to think some of the costs that related to -- we kind of shut off those spigots until the restaurant's dining reopens. And then obviously, there's a lot less maintenance needed to keep the front of house looking sparkling clean when the only thing people are coming into is to pick up takeout orders. So I think there's a lot of costs there that have gone away but would come back, obviously, to the extent that we are allowed to open up the dining rooms.

Dan Accordino -- Chairman and Chief Executive Officer

The variable cost to a large degree are sales-related. As Tony said, you don't have anybody in the dining room cleaning tables. You've reduced the amount of times that you have to have windows washed and that sort of thing. And we've reduced number of sanitation pickup.

That was a pretty significant savings because when your volume is down, you don't need to have the folks come and take away the trash as many times as you used to. Utility costs are lower because you keep the dining room temperature at a different level. So there are certain things that we've done that as we turn the dining rooms back on, those costs will have -- some of those costs will be reengaged.

Brian Vaccaro -- Raymond James -- Analyst

OK. All right. That's helpful. And back to the second quarter free cash flow comment, I just want to make sure I understand correctly.

The rent deferral that you disclosed, that's about $7 million benefit for the quarter. And is that still due to be paid in the third quarter?

Tony Hull -- Chief Financial Officer

Well, it's actually about double that amount. The $7 million was one particular landlord, and then we sort of doubled that with the other 599 landlords that we spoke to and negotiated with. OK. So the one you pointed out is due to be repaid in July.

But the rest of them, we've worked with the landlords and pushed most of them off until 2021 and 2022, maybe tacking on to the end of the lease or something like that. So it's kind of a mixture. But so about half is going to be pushed out of this year and half is going to be repaid this year of the total.

Brian Vaccaro -- Raymond James -- Analyst

OK. OK. And last one for me. I just want to ask about the CAPEX budget and sort of the capital allocation priorities.

I mean you obviously cut the CAPEX budget to $35 million to $40 million. Tony, what does that include in terms of expected sale-leaseback proceeds for the year? And did you receive any in Q1?

Tony Hull -- Chief Financial Officer

No. I think we did some Popeyes sale-leasebacks in Q1. That was kind of a net wash in terms of purchases and sale-leaseback proceeds. In Q2, we're going to do a little bit more.

There's some new restaurants that came online that were started last year that were doing sale-leasebacks on. But for the year, it's going to be a fraction of what it was, obviously, last year. And most of the spending is kind of behind us on CAPEX because out of the $25 million in Q1, $17 million or $16 million of that was really sort of carryover spend on stuff that was started in 2019. And what we're not touching really is the maintenance CAPEX for the rest of the year.

That's the bulk of what our spending is going to be for the rest of the year, just making sure that restaurants continue to operate efficiently. But it's obviously going to be a much lower burn rate going forward than it was in the first quarter.

Dan Accordino -- Chairman and Chief Executive Officer

We opened five restaurants. We've opened five restaurants so far, which were under construction in the latter part of 2019. So that's the majority of the CAPEX in Q1. Some of that was sale-leaseback, one or two of the locations.

We've got one more restaurant that we're going to build this year that'll open in June or July and no remodels, and that's the primary delta. And the CAPEX versus our initial forecast is there's no remodels projected for the balance of 2020.

Tony Hull -- Chief Financial Officer

All right. Thank you. I'll pass it along.

Operator

Our next question is a follow-up from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Thanks for taking the additional question. Actually, I just wanted to ask about Popeyes for a second and kind of future plans there. So obviously, producing some pretty extraordinary results, still seeing benefit from the chicken sandwich launch. It is noticeable you guys, the Burger Kings are doing slightly better than the U.S.

system average. The Popeyes are slightly trailing the U.S. system average. Any particular reason you might identify as to why that might be? That's part one of the question.

And then two, as you think past 2020, and I know that's probably hard to do, but is there a sense that the Popeyes brand that you may look at building that out in terms of 2021 and beyond as opposed to focusing on BK development?

Dan Accordino -- Chairman and Chief Executive Officer

The first part of your question, Jeremy, the previous owner, Cambridge, in the first quarter of 2019 ran a $5 big box promotion that most of the rest of the system didn't run. And consequently, their same-store sales in Q1 of last year were higher than the balance of the Popeyes system. So that's the reason why this year, our Popeyes numbers underperformed relative to the balance of the Popeyes system. But currently, now that we've lapped that, our Popeyes numbers are back to being pretty much consistent with the balance of the system, running 14%, 15% positive in the Popeyes world.

In terms of 2021, certainly, we will be looking for growth opportunities in the Popeyes business, and I wouldn't exclude Burger King development. But certainly, we're very bullish on the Popeyes business.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Great. Thanks, guys. Best of luck.

Operator

Our next question is also a follow-up from Jake Bartlett with SunTrust. Please go ahead.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the additional questions. Just one clarification. The comment that the last seven days, the same-store sales were down just 1.9%.

I think that implies pretty strong positive results in the last few days. Maybe if you can just frame that up or confirm that? And the second question is, throughout 2017 and into '18, there's a deep focus on value, and it had a pretty negative impact on your margins. And so I'm wondering now, I think Burger King Corporate has talked about focusing on value in this environment, thinking that's one reason may be the brand has underperformed some peers. And so as the marketing calendar focuses on value, how concerned are you that that will have kind of similar pressure to margins as it's done in the past?

Dan Accordino -- Chairman and Chief Executive Officer

Right now, our credits -- our discounts are lower than they were during the same period of time last year. And looking at the calendar on a go-forward basis, we would expect that the discounts will remain lower than they were last year through the balance of the year.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. But promotions, like I think the eight nuggets for a dollar, that kind of thing. Does it concern you that it's going to kind of go back into this cycle that we were in before that was pressuring margins?

Dan Accordino -- Chairman and Chief Executive Officer

No. I mean, as I said, I would expect that right now, our discounts are lower than they were last year, even with the $8 nuggets, which we've now had for -- I mean, the eight nuggets for a dollar that we've had for a while. And based upon the calendar that we've seen, we would expect that with the level of discounting that's forecast, our discounts will still be lower than they were prior year.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. And then just on the comment about the trend of same-store sales. It seems like it could have been pretty meaningfully positive in the last two days -- or two, three days, given the two numbers you've given?

Tony Hull -- Chief Financial Officer

That's true.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. Thank you very much.

Tony Hull -- Chief Financial Officer

Thanks.

Dan Accordino -- Chairman and Chief Executive Officer

Thanks, Jake.

Operator

Our next question is a follow-up from Brian Vaccaro with Raymond James. Please go ahead.

Brian Vaccaro -- Raymond James -- Analyst

Yeah. Dan, I just wanted to -- you were talking briefly about development and growth opportunities perhaps into 2021, hopefully, in a more normal operating environment. But can you help me understand how some of the prior CAPEX commitment that you had, say, late last year, entering into 2021, how do those play into that? How have they been renegotiated with the franchisor, whether thinking about the term renewals or the BK of tomorrow remodels or other commitments that were made at the time? Can you help me frame that a little bit?

Dan Accordino -- Chairman and Chief Executive Officer

Yes. We're in complete alignment with the franchisor. Even pre-COVID, as we said on our Q4 call, we have significantly reduced our capital expenditure forecast and that we were reducing the number of restaurants that we were going to build and the number of restaurants that we were going to remodel. And in 2021, that will be the same that we're going to be primarily focused on cash flow and paying down debt.

And the franchisor is completely in alignment with that strategy.

Brian Vaccaro -- Raymond James -- Analyst

OK. And has there been, I guess, a schedule for how many you would catch up under different? Or is it more of a flexible TBD depending on how the COVID environment -- is there a schedule that you've agreed to at the moment that you could fill us in on? Or is that just sort of TBD and flexible?

Dan Accordino -- Chairman and Chief Executive Officer

Yes, the second part. No. We have not agreed to anything yet, and it's flexible, and it's going to be a continual dialogue with burger King in terms of what the business looks like and what our cash flow position looks like. And we're in complete alignment that we should be generating free cash flow and paying down debt.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thanks very much.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Tony Hull -- Chief Financial Officer

Dan Accordino -- Chairman and Chief Executive Officer

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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