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Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cara Operations 2017 Fourth Quarter and Year-End Results. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time.Before turning the meeting over to management, please be advised that this call contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties, risks or other factors which may cause actual results, performance or achievements of Cara to be materially different.Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found on the company's management discussion and analysis and annual information form available on SEDAR.I will now turn the meeting over to Bill Gregson, Chief Executive Officer of Cara Operations Limited. Mr. Gregson, you may begin your conference.
Thank you, Denise, and good morning to everyone. Thank you for joining today's conference call. On the call today with me is Ken Grondin, our Chief Financial Officer. And today, we will be discussing Cara's results for our fourth quarter and year ending December 31, 2017, and the results released last Friday evening that are available on SEDAR.Our 2000 (sic) [ 2017 ] results are the highest we have reported since our 2015 IPO. And with it being Q4, and therefore, the year-end, we thought maybe we would just take a little but time and put the results into perspective. In the 3 years since 2014, we have increased our total System Sales by $1.1 billion or 64.3%. And we've increased our operating EBITDA by $107.4 million or 128.6%. Our operating EBITDA margin as a percent of sales also improved by 200 basis points from 4.9% in 2014 to 6.9% in 2017. And our earnings before tax has increased from $9.9 million in 2014 to $116.5 million this past year, and adjusted diluted EPS has improved from $0.36 per share in 2014 to $1.88 per share in 2017.So I would have to say, for sure, I don't think there's any doubt that we've transformed our financial statement, both the P&L and our balance sheet also is remarkably transformed from a debt-to-EBITDA ratio.Turning to Q4. In the fourth quarter of 2017, System Sales grew $133.8 million to $774.9 million compared to prior year, representing an increase of 20.9%, but we also had an extra week, a 53rd week, which we do every 4 or 5 years. Removing our 53rd week from Q4, sales were up -- System Sales were up 13.1%. For the 53 weeks ended December 31, System Sales grew $737.8 million to $2,780,000,000 compared to the 52 weeks ended December 25, 2016, representing an increase of 36.1% or 33.8% with the 53rd week excluded. Luckily, we won't have to talk about a 53rd week for another 4 or 5 years, because it is a mouthful. The increase in System Sales for the quarter-end -- sorry, the increase in System Sales for the quarter and for the year is primarily related to the addition of St-Hubert in September of 2016, Original Joe's in November of 2016, Pickle Barrel in December of 2017, Same Restaurant Sales growth and the addition of 56 new restaurants that opened in 2017, partially offset by restaurant closures.Same Restaurant Sales growth for the fourth quarter and year ended December 31, 2017, were positive at 2.5% and 0.7%, respectively. The return to positive SRS and our improving SRS trend was primarily driven by sales increases from renovated restaurants, menu enhancements, digital marketing and strong performance in Québec and improvements in Alberta. 2017 SRS excludes the impact from Original Joe's, Burger's Priest and Pickle Barrel brands due to timing of those transactions, and these 3 brands will be included in our 2018 SRS results.Cara achieved $58.5 million in operating EBITDA for the quarter, an improvement of $11.8 million or 25.3%, and $8.3 million or 17.8% with the 53rd week excluded when compared to 2016. On a full year basis, Cara's operating EBITDA increased $47 million to $191 million compared to $144 million last year, an improvement of 32.6% or 22.8% versus 53rd week excluded.And operating EBITDA increases were driven by an increase in contribution dollars in each of our operating segments as well from the full-year effect of the acquisitions of St-Hubert in 2016 and Original Joe's in November of 2016. Operating EBITDA margin on System Sales for the fourth quarter was 7.6% compared to 7.3% in 2016, and when we removed the 53rd week, it remained at 7.6%. And this is within our long-term target range of 7% to 8%. Operating EBITDA margin on System Sales for the 53 weeks ended December 31 was 6.9% compared to 7.1% in 2016. And in 2018, just to give everybody a heads up, we will be below the 7% level with the addition of the Keg. And the Keg, and as everyone knows, has royalty payments to the trust. When you net out those royalty payments, that brings in an operating EBITDA of approximately 4% of System Sales.Now at this time, for more detail, I'd like to turn it over to Ken Grondin to give -- to review the financial results.
Thank you, Bill, and good morning, everyone. My overview will refer to our fourth quarter financial statements and MD&A issued last Friday night, both of which are available on SEDAR, as Bill mentioned.For the first part of the financial highlights, I will focus on Cara's consolidated results and will finish with the summary of our segmented business performance.Total gross revenue was $225.5 million, $775.2 million for the 14 and 53 weeks ended December 31, 2017, compared to $175.6 million and $463.3 million for the 13 and 52 weeks ended December 25, 2016, representing an increase of $49.9 million or 28.4% for the quarter and $311.9 million or 67.3% for the year.The increase in gross revenues was primarily the result of new restaurant openings in 2016 and 2017, the additions of St-Hubert and Original Joe's in 2016, including the Food Processing and Distribution business from the St-Hubert acquisition, and the addition of Pickle Barrel in December 2017. The estimated impact from the additional week in 2017 was $10.5 million in gross revenue. Operating income was $40.3 million and $128.7 million for the 14 and 53 weeks ended December 31, 2017, compared to $33.3 million and $102 million in 2016, representing an increase of $7 million or 21% for the quarter and $26.7 million or 26.2% year-to-date. The increases were primarily the result of the additions of St-Hubert, Original Joe's, increased net franchise royalties and higher central contribution dollars.Net interest expense and other financing charges were $3.5 million and $12.5 million for the 14 and 53 weeks ended December 31, 2017, compared to $2.8 million and $5.9 million for the 13 and 52 weeks ended December 25, 2016, an increase of $700,000 and $6.6 million, respectively.The interest expense increase is due to the -- due to additional borrowings made for the St-Hubert, Original Joe's, Burger's Priest and Pickle Barrel transactions and for buying back and canceling 1,468,000 subordinated voting shares under our normal course issuer bid in 2017.Earnings before income taxes was $37 million and $116.6 million for the 14 and 53 weeks ended December 31, 2017, compared to $30.3 million and $96 million for the 13 and 52 weeks ended December 25, 2016, representing an increase of $6.7 million or 22.1% for the quarter and $20.6 million or 21.5% for the year. The increases are mainly attributed to higher contribution dollars from additional corporate and franchise restaurants from the St-Hubert and Original Joe's transactions, improved contribution in a number of Cara banners, improved contribution dollars from the Central segment, driven by the addition of St-Hubert's Food Processing and Distribution business, the impact from the 53rd week and overall cost reductions, partially offset by higher interest and financing cost, increases in depreciation expense for more depreciable assets after the St-Hubert and Original Joe's transactions, noncash impairment provisions and restructuring charges.Adjusted net earnings was $36.3 million and $117.1 million for the 14 and 53 weeks ended December 31, 2017, compared to $25.9 million and $97 million for the 13 and 52 weeks ended December 25, 2016, representing an increase of $10.4 million or 40.2% for the quarter, and an increase of $20.1 million or 20.7% for the year.The increases for the quarter and full year are related to the increased contribution dollars from additional corporate and franchise restaurants, related to the 2016 St-Hubert and Original Joe's transactions, improved contributions from the Central segment, driven by the addition of St-Hubert Food Processing and Distribution business and overall cost reductions, partially offset by increased interest and financing charges and higher depreciation expense on a larger asset base.Adjusted diluted earnings per share for the 14 and 53 weeks ended December 31, 2017 was $0.62 and $1.96 compared to $0.44 and $1.86 for the 13 and 52 weeks ended December 25, 2016, respectively. Adjusted diluted EPS for the 14 and 53 weeks ended December 31, 2017 was $0.59 and $1.88 compared to $0.42 and $1.76 for the 13 and 52 weeks ended December 25, 2016, respectively.The increases are primarily related to improvements in adjusted net earnings, offset by the impact from increased -- from the increased number of subordinated voting shares outstanding as a result of the 2016 subscription receipt offering to support the St-Hubert transaction, reduced by 1.47 million total shares repurchased and canceled under the NCIB in the second and third -- second, third and fourth quarters of 2017.Turning to segmented results for the quarter. Total contribution from corporate restaurants was $12.3 million and $42.5 million for the 14 and 53 weeks ended December 31, 2017 compared to $6.8 million and $29.9 million for the 13 and 52 weeks ended December 25, 2016, an increase of $5.5 million for the quarter and $12.6 million for the year. The increases are primarily driven by the increase in number of corporate restaurants, including the addition of St-Hubert, Original Joe's, Burger's Priest and Pickle Barrel, the increase in SRS, partially offset by lower contribution from restaurants temporarily closed for renovation in Q2 and Q3 of 2017. The estimated impact from the additional week of contribution in 2017 was $1.5 million. Total contributions from corporate restaurants, as a percentage of corporate sales, was 9.8% and 9.7% compared to 8.3% and 10.4% in 2016 for the quarter and year, respectively.The full year decrease was primarily from lower percentage contribution from Original Joe's corporate restaurants that operated at lower contribution levels and other corporate -- other Cara corporate restaurants, and from lower contribution from the restaurants temporarily closed for renovation in Q2 and Q3. Total contribution from franchise restaurants was $24.1 million and $84.4 million for the 14 and 53 weeks ended December 31, 2017, compared to $20.1 million and $67.2 million for the 13 and 52 weeks ended December 25, 2016, an increase of $4 million or 19.9% for the quarter and $17.2 million or 25.6% for the year.The increase was related to increased royalty income as a result of the franchise sales increase and the addition of St-Hubert and Original Joe's. The estimated impact from the additional week of contribution was $1.7 million. The effect of net royalty rate was 4.2% and 4% for the quarter and year compared to 4.1% and 4.0% in 2016. Cara's standard royalty rate is 5%. There are brands acquired since 2014 which charged different standard royalty rates, in particular, St-Hubert, which charges 4% as its standard royalty.As at December 31, 2017, a total of 138 restaurants were paying Cara a royalty below the standard rate as compared to 148 restaurants at December 25, 2016, a decrease of 10 restaurants. 71 out of the 138 restaurants paying below the standard royalty rate are related to previously agreed conversion agreements, an improvement of 20 restaurants compared to 91 restaurants as of December 25, 2016. 67 out of the 138 restaurants paying less than the standard royalty are related to temporary assistance provided to certain other restaurants, an increase of 10 restaurants compared to 57 as of December 25, 2016. The increase is primarily related to temporary assistance to restaurants in Western provinces.The Central operations segment consists of processing fee revenues from Cara's and St-Hubert's off-premise business, franchise fees, property and equipment rent, Food Processing and Distribution sales and vendor volume rebates reduced by central overhead costs. Central segment contribution, including Food Processing and Distribution, for the 14 and 53 weeks ended December 31, 2017 was $22.1 million and $64 million compared to $19.8 million and $46.9 million for the 13 and 52 weeks ended December 25, 2016, representing an increase of $2.3 million or 11.6% for the quarter and $17.1 million or 36.5% for the year.The estimated impact from the additional week in 2017 was $400,000. Total Central segment contribution, as a percentage of total System Sales, was 2.8% for the quarter and 2.3% for the year compared to 3.1% and 2.3% in 2016, respectively.Before I turn the discussion back to Bill, looking ahead to 2018, I would like to remind everyone that our 2018 fiscal year is returning to its usual 52-week calendar compared to the 53-week calendar we had in fiscal 2017. This will affect how we interpret and compare quarterly and full year 2018 results to 2017. For comparative purposes, results from the first quarter of 2018 compared to 2017 will be negatively impacted by 2 factors: first, by a shift in the calendar as the sales period from December 25 -- December 26, 2016 to January 1, 2017, which was included in Q1 2017, but the same holiday week, typically a higher sales week will not be in our fiscal 2018 first quarter; and secondly, Q1 2018 will include Easter, typically a low-sales week, compared to 2017 when Easter was included in Q2. Also, the fourth quarter of 2018 will return to 13 weeks as compared to 14 weeks in Q4 2017, a difference of 1 week.This concludes the financial commentary on the call. I'll now turn the discussion back to Bill.
Thanks, Ken. In 2017, total System Sales grew to $2.8 billion and operating EBITDA grew to $191 million. With the Keg merger that we announced earlier this year, this will add approximately $612 million on pro forma System Sales and $23.5 million on pro forma operating EBITDA to our results. This will take us to approximately $3.4 billion of total annual System Sales and pro forma operating EBITDA of $211 million in 2018.So we look back to 2014, by the time we did an IPO, we also announced some targets of 2020 to 2022. I'm very pleased to say -- and when we did that in 2015, the IPO, we then raised those targets in 2016 when we did the St-Hubert acquisition. And I'm very pleased to say that with -- compared to those revised targets from 2016 for 2020 to 2022, with the merger with the Keg, we're very much into that range now. So those targets for System Sales were $2.9 billion to $3.7 billion, as I said, with the Keg, and pro forma would be at $3.4 billion. And the EBITDA range was $203 million to $296 million and will be at $211 million on a pro forma basis. So we got there well ahead of time.In Q4, our operating EBITDA margin on System Sales was 7.6%, which was our highest quarterly result since our 2015 IPO. The EBITDA margin on System Sales for the year was 6.9%. Again, I want to remind everybody, as I said earlier, in 2018, the Keg merger will have a negative impact on EBITDA margin as a percent of sales, because of the 4% royalty paid to the Keg royalty income fund. So total operating EBIT dollars will be higher, but as a percent of System Sales, they will be lower than our 7% to 8% target range. But that gives us something to work on, as we work towards 2020 to 2022. So we will focus on building earning efficiencies, growing our operating EBITDA from where it will end up being in 2018, which will be below 7%, back well into the range of 7% to 8% by 2020 to 2022. And we'll do this by leveraging higher sales from these mergers and transactions that we've done by realizing synergies with the new businesses and also just continuing to work at improving our core business. And I don't want to underplay that. We still believe we have an opportunity to improve our core business.Same Restaurant Sales grew 2.5% for the quarter and 0.7% for the year. And while we're happy with these results and we're certainly encouraged by the positive quarterly trend, our focus remains on building a platform that will help deliver ongoing sustainable sales growth through restaurant renovations, greater emphasis on menu innovation and enhanced guest experiences, expanded and improved e-commerce and off-premise applications and digital social marketing initiatives. And we've made significant progress on these initiatives in 2017 but we still have lots to do in 2018. And I would remind everybody that on some of these calls earlier in 2016, as everybody knows, we went into negative same-store sales, and we realized that at time after a few months that we just really needed -- although we had transformed our P&L and transformed our balance sheet, we needed to transform some of our processes as well to grow a long-term sustainable same-store sales growth, and we've done lots of work on that. And I'm encouraged by what we saw in 2017, but like I said, we still have lots to go in 2018. And every month, something gets crossed off that we were looking to accomplish, and we'll continue to do that throughout this year.In 2017, we renovated 92 corporate and franchise restaurants, and these helped to deliver positive same restaurant store -- sales. We've completed improvements to our website and mobile applications to simplify and enhance order functionality to improve online sales. Our new native in-house developed ordering apps for Swiss Chalet has become the #1 rated branded restaurant app in Canada on the iOS App Store. The new Swiss Chalet app in response to the website formed a typical foundation for Cara to quickly launch new apps for Montana's, East Side Mario's, Kelsey's and additional brands in the future. We've also expanded our online aggregator relationships, including UberEATS to over 500 restaurants to enable customers to place delivery and pickup orders through the channel and application of their choice. And in 2018, we'll continue with this rollout across our corporate and franchise restaurants, and expect to be active in at least 600 restaurants by the end of Q1 2018. We continue to build on existing partnerships with key media partners, including Facebook and Google and have established new partnerships and integrations with strategic digital media partners, including the Weather Network, TeamSnap and Waze, where their subscribers overlap with Cara customers. This is part of the continued goal of enhancing customer-specific marketing and marketing effectiveness.In 2017, we deployed a new CRM tool and database management system to market directly to customers and to effectively maximize the lifetime value of these guests. With the help of this new CRM tool and database, brands can more effectively identify opportunities and put plans in place, to drive not only new guests but also to grow lifetime value with purchase frequency and order size tactics of each consumer segment. In addition, we developed an analytics platform that integrates customers' satisfaction data, sales and operational effectiveness data and health and safety data from a number of dispersed data sources. This information is aggregated, represented in-store and brand-level dashboards that provide franchisees, managers and operators with specific information about guest experiences in their particular restaurants. This data forms the foundation of what will, later in 2018, become a mobile analytics solution for our franchisees and operators to have timely and restaurant-specific information at their fingertips to better service guest.In 2018, Cara will continue to enhance its partnership with SCENE and Canadian Automobile Association to more effectively leverage the combined 50 million-plus SCENE and CAA member database and customer data to drive new and repeat purchases from these partners members. So while we've made progress and we're seeing positive results, we view that as a long-term multiyear strategy with initiatives that will continue into 2018 and beyond. We continue to monitor the impact of the recent changes to minimum wage on our business. And I want to make sure everybody's aware, it's still too early to draw any conclusions. And we just closed February a week -- sorry, we just finished the month of February a week ago and are still awaiting our detailed final results.So -- but the early indications are -- from the information that is available for our corporate stores in Ontario, they indicate that the management of labor hours and food cost as a percent of sales can be successful in mitigating the higher labor dollars. And so far, we see us -- ourselves generating gross margin dollars comparable to last year. Now a key factor in that is that -- is sales. And sales have been stronger in Ontario than the rest of Canada so far for this year. And those increases in sales are key to the overall equation of labor hours and food cost, equal and equal gross margin dollars. But again, I would caution, we're very early. We'll continue to monitor this situation, and if necessary, we will react. But so far so good. After the Keg transaction, Cara's debt to EBITDA ratio on a pro forma basis will be approximately 2.2x. With our strong balance sheet and our growing cash flows, we are well positioned to pursue additional acquisitions, and at the same time, explore alternatives to return more capital to our shareholders. And thus -- this -- and currently, that includes a continuation of our NCIB, and as Ken pointed out, we bought back almost 1.5 million shares. And in Q4, we increased our dividend rate.In Q2 of 2017, we activated our number of course issuer bid, and I just said, it resulted in about 1.5 million shares purchased for about $34 million. And the dividend that I just referred to, we declared a dividend of $0.1068 for the Q4 for subordinate multi-voting common shares outstanding, which is an increase of 5% over our prior quarterly dividend and will be paid on April 16 to shareholders of record of March 31, 2018.So in summary, our focus is on continued operational improvements, same-store sales growth, working towards a return on that 7% to 8% EBITDA margin by 2020 to 2022, acquisitions and returning capital to our shareholders. And we now believe we have an income statement and a balance sheet that enables us to do all of that. So on that note, I'd like to thank all of you for attending our call today. And we'll turn it back to the operator to open it up for questions.Thank you, Denise.
[Operator Instructions] Your first question comes from George Doumet with Scotiabank.
I'd just like to talk a little bit more about the minimum wage situation in Ontario. Can you maybe share with us some strategies we're doing there? And what the competitive response has been to date?
Well, I think -- yes, it -- I think -- I don't know that we have really much of a different strategy than anybody else, George. And obviously, we don't get access to theirs. And we kind of limit access to ours. But I think everybody is making sure that their hours are as efficient as possible. And we've always -- we've been working on that for a few years. But we continue to refine it. So that's certainly one. Menu review is our item -- other items on there that have been marginal items that you don't necessarily sell a lot, but have a very high food cost or a very high labor cost. You take a look at those. And then, also, I think that you've seen people take some price, and it's not necessarily across the board on every item. But on certain items, you'll see promotional items that are maybe a little higher priced than they have been in the past. We've seen that certainly in the QSR. And so I think we're all doing the same thing of trying to balance a number of different, I guess, factors, and at the same time, trying to have sales increases, because you can't -- you need the sales increases to offset the higher cost. And so either way, for -- as I said, for the first 2 months, we've -- that whole -- in Ontario, for our corporate stores, that whole juggling of all those different factors seems to have worked, but it's only 2 months in.
Yes. I think you guys provided a little bit of an outlook for gross margin dollars for the corporate stores. But is there anything you can share -- I know it's early days, I appreciate that. But is there anything you can share in terms of the health of the franchise network? Do we expect kind of -- how do we expect the, I guess, the systems to track in the context of kind of a recovering Western Canada right now?
It is too early, George, I think, to talk about it. We don't -- I mean, we don't even have February results in yet. We just -- we got a flash on gross margins and stuff like that for corporate stores, but it is too early to tell that -- again, the key is going to be sales and what happens with same-store sales.
Okay. On that topic, can you maybe give us a sense of how much of the 2.5% same-store sales growth this quarter was pricing? And maybe some of the other big buckets that contributed to that number?
The majority of it was pricing. But there was some traffic -- there was positive traffic as well.
Okay. Great. And just one last one, if I may. Just looking at the net openings, we've had 11 of those fall into this quarter, but if we were to exclude them, will we expect that kind of the 25-ish number for net opening this year?
My favorite topic, George, net openings. But I'm going to answer it this way. Our focus, as I talked about last time, is -- net openings are not at the top of our list on our focus. Our focus would be on same-store sales. Our focus would be on acquisitions. Our focus would be on probably the same-store sales as overall network profitability. The -- and like I said in the opening comments, since compared to 2014, our System Sales are $1.1 billion, that's a huge number. Now having said that, yes, we want to open stores. And in fact, if you look at 2017 numbers, we did open 56 stores, which is more than we opened up in 2016. We just closed more stores. But the stores we're closing are for many different reasons, but typically, obviously, it's performance or financial performance but also they could have been -- those stores could be 20 years old, could be 30 years old and it could be in an area that's moved on. And the stores that we're opening up, the 56 that we opened up, we have an incredibly rigid real estate review or a process to make sure that those are low-risk. And I think -- and we use our leverage of our size to get, what I believe, are great rent deals. So when I look at that overall, the net number isn't outstanding, but the 56 openings -- I know those are a lot better at 56 stores than the 44, I think -- or whatever the number was that we closed. And so I look at that and say that the network just got that much stronger. So it's -- I -- again, it's -- it is a number -- it's certainly a number that the analysts focus on. It is -- but to be honest with -- to everybody, it is not the highest priority of our total number -- of our total priorities. And we're pretty happy that we're at $3.4 billion now. We want to work on it. It's more important to generate same-store sales from that $3.4 billion and to improve the financial profitability for all involved with that $3.4 billion.
Your next question comes from Derek Dley with Canaccord Genuity.
Was wondering if you could just give us some color on the franchise contribution margins? We noticed that it was -- it's been moving up nicely here. What's driving that increase above 4%?
I think that -- Derek, as Ken said, there's 10 less stores. It's -- overall, it was still -- for the year it was 4% versus 4%. So I think you have to put that in perspective and things can switch from quarter-to-quarter. I don't know that we're going to -- we will -- you will see a jump in 2018 because of the Keg and the Keg franchise business, which runs between 5% and 6% from a royalty basis, depending on the timing of the deals that were done for the franchise there. But it's -- it was -- we look at it as yes, it was slightly better. So we're happy with that. I wouldn't expect from the core Cara business, a rapid increase. Yet again, we are down 10 stores, but there're still a number of stores that are on assistance. And so I kind of think of -- we kind of think of it more or less as flat or very minor improvements, Derek.
Okay. And jumping to the stores on assistance, you've noted that Alberta is assumably turning the corner here the last couple quarters. Some of those stores have come off assistance, have they been Alberta-based stores? Like have you seen an overexposure of Alberta-based stores coming off assistance in the last 2 quarters?
Ken's a little closer to that than I am. Ken, do you have...
Yes. Derek, it's Ken. No, the -- coming off assistance would be -- mostly, it's the contractual deals, the old conversions. And the Alberta's restaurants that were on assistance, right now, are still on assistance. But the ones we have seen improvement on are outside of Alberta.
Okay. And on that Alberta rebound, where have you seen the biggest benefit? Has it been in your premium brands or more in your value brands?
It's been across the board. It's really -- it's everywhere.
Okay. And then just last one for me. Just on your capital allocation priorities, I mean, we've seen you guys complete some acquisitions here within the last month, increase the dividend and you do have an NCIB in place. Can you kind of give us a pecking order for capital allocation for 2018?
Yes. I don't know if there is a pecking order, Derek, or as much as opportunistic, if you would. So we do acquisitions when the opportunity arrives and when it's a good fit for us and it's a good fit for who we're talking to. And so it's really hard to -- we don't go and have a quota. I guess, maybe is the way to put it for acquisitions. So if there's none out there that are a good fit and that are the right deal, we won't do them. We're opportunistic on our share price. And the -- we've been up and down, up and down, and more down than up I think as most people would say. And so we've used that down period as an opportunity, because we believe it's undervalued, to buyback. So the 1.5 million shares that we bought back, the average price is, I forget what it is, it's around $23, might be slightly over $23. It's certainly well below $24. So that's been opportunistic. The one that is not opportunistic is the dividend increase that we announced in Q4. And that was because just of the amount of cash that we're generating now and because of our debt position, we believe we have enough room to increase the dividend, which we did, while still being opportunistic if a good acquisition comes along and still being opportunistic to buy our shares back if the price remains, in our opinion, low. So -- but -- so it's probably that bucket, Derek, that we -- those 3 things right now. That's acquisitions, NCIB and the increased dividend that we're playing in for now and -- but I think we can play in all 3. I don't think there has to be an order to them.
Your next question comes from Sabahat Khan with RBC Capital Markets.
Just first on the store renovations. You indicated you completed about 92 last year. I guess, how far along are you in, kind of, throughout the network, how much of the network is done, how many are still to go and any target for 2018?
I'd probably -- the easiest way to answer that, Saba, would be is -- I would expect a similar number in 2018.
Okay. And then, just on the, I guess -- just earlier conversation on less stores that are on contractual assistance, a big drop versus what we saw last year. I guess, we saw some commentary around more stores being refranchised. Are you may be signing more kind of these assistance agreements as part of those? Or should we expect that number will continue to moderate this year?
That's a good question, Saba. The -- and just for the benefit of everybody, we have a number of corporate stores and franchise banners and -- we designate as a franchise banner, you may need 2, 3, 4 corporate stores for training purposes and for different things. And in some cases, we had 10, 11, maybe up to 15. So we really began this path in 2017, selling some of those off and some of them are marginal. And so in the cases of the ones that are marginal, and we think that they'll do better with a franchisee running them rather than it being run corporately. And so what -- and we'll continue to do that in 2018. But yes, you're right, some of the deals that we've done under that scenario going forward is, we have provided a scale on a royalty based on sales, but we typically require a significant renovation at the time of the acquisition. So yes, there will be more from the disposition of corporate stores to franchisee that will increase the number of stores that are paying less than a full royalty. However, having said that, we think overall we're going to increase our profitability. We're also going to -- because we're going to get a renovation out of it and it's also going to reduce our requirement going forward for CapEx.
Right. Great. And then, I guess, you called up stronger sales in Ontario, are you seeing -- is it kind of across the board? Is there an actual benefit from maybe the minimum wage increases leading to more customers? Like, where are you seeing this strength in Ontario?
Yes, it's across the board. Is it most banners? Yes. Most of our banners for the first -- whatever we're in, 9 -- 10 weeks, I guess, we're into it, have had stronger sales in Ontario than other parts of Canada.
And just a couple of quick housekeeping ones, I guess. For 2018, how should we think about the tax? Or are you largely through kind of the favorable tax period after 2017?
Ken, you want to...
Yes, Saba, we are. So we'll be regular tax -- we'll have regular tax, roughly 26.5%, for 2018.
Right. Great. And then one last one for me. There was a commentary around less CapEx in 2018. But from additional spend on a Pickle Barrel and a Keg, net-net, are we still thinking down on CapEx or similar to last year?
We haven't finalized the Keg numbers yet, Saba, but I'm going to say, ballpark with the Keg and the additional Pickle Barrel one, we probably will be somewhere around the same number as of this year. On the Cara side, we would obviously be down. And so we're down and then we might get back to where we were this year with the Keg and Pickle Barrel.
Your next question comes from John Zamparo with CIBC.
I wanted to follow up on the SRS growth number. Bill, you mentioned pricing was a contributing factor and the press release called the menu enhancements and renovations in digital marketing. I was wondering if you could list those in order of magnitude in terms of what they contributed for the quarter.
I couldn't. It's -- I don't know how you would, actually. But yes, we don't -- I don't have that information at my fingertips.
Okay, but fair to say price was a greater contributor than traffic or mix?
No. Well, yes, traffic was up, which is good. So we're very pleased that traffic was up, but there was some price in there as well.
Okay. Maybe back to the minimum wage. You mentioned price increases from competitors and you've taken some as well. Can you comment on what the impact has been on same-store guest counts and have you seen a difference in markets with greater price increases maybe versus ones that don't have as big an increase?
Not sure I understand your question, John.
Well, I'm looking for what consumers are or if consumers are pushing back against these price increases, particularly since the start of the year?
No. We have not seen that. Again, it's early. We've tried to be -- we've tried to minimize the price increases -- I mean, I think we're no different than every other company. I think everybody is trying to figure out how you minimize the price -- and again though, there're price increases every year. So this is really not that different. And that we have the added benefit of right now that food inflation, the cost inflation is virtually 0 for us right now in terms of our baskets year-over-year. So we've been able through the menu engineering, through efficiency of number of hours being used and through -- and because of an environment of, let's say, 0 inflation right now year-over-year on food costs, we've been able to minimize price increases. And so far -- and again, we have many different banners and many different stories, but if -- I would say is that we are -- traffic is -- has been reasonable in the first 10 weeks. And yes, and we have -- and in many cases -- many banners, it's up. So again, it's really early. There is a whole pile of factors, but right now, traffic does not seem to have been negatively affected. And the price increases, again, we're trying to minimize, as I'm sure everybody else is.
Okay. That's helpful. And last one for me. You mentioned you look to refranchise some restaurants in 2018. Have you got a particular target in mind for where you'd like to be either by the end of this year or maybe at some stage in the near future?
No target that we would talk about. But directionally, I think the long-term target and long -- and again, long-term is, it'll happen when the right deal comes along or the right franchisee or whatever in terms of somebody adding more to their existing one is to get down to -- on each of our franchise banners is to get down to between 2 and 4 stores. And some -- many banners are going to be there by the end of this year and others are going to take longer. So it's just a long-term directional. It's not -- it's not a -- something -- we're not saying we need to be by this number by this time, that's just not how we operate.
Your next question comes from Elizabeth Johnston with Laurentian Bank.
Could we talk about the joint venture locations? I noticed there was an increase this year. What are your plans for those stores longer term? And do you intend to franchise some of those or sell them and -- to return to more of a franchise focused in terms of the percentage of total sales? [indiscernible] stores.
Yes. Yes, we have a -- when we acquired Original Joe's, they had basically 3 types of stores. They had corporate stores, they had joint venture stores and then they had pure franchise stores. And going forward, we will not be doing anymore joint venture stores with Original Joe's. And Derek Doke, who runs and is our partner in Original Joe's, is looking to move, again, as the offers of a deal or the opportunity arises to move JV stores into a pure-franchise type. So some of that will happen this year, it certainly won't all happen -- it will happen over a whole pile of years. So you should look -- we would look for a reduction in the number of joint-venture stores over time.
And I noticed that you opened 2 JV Milestones locations, is that right?
We've always had 2. They've been there for -- since long before I got here.
And so are there any changes with respect to the strategy with Milestones?
No, those are -- that just happens to be in Victoria, we have 2. And that's -- no change there, that's just a long-term historical deal that works for both of us.
Okay. And going back to the restaurant renovations, 92 this year, how many of those were major renovations? I think I recall on previous quarters you were talking about expecting a lower number of renovations in 2017, you came into the higher number than I think we were expecting, so any comments around that?
Yes, in my commentary, Elizabeth, that's up there with my favorite topic of new store openings. So -- and I think I said last time or a few times ago, I wish I'd never talked about major versus minor versus medium renovations. So we're just going to talk about the number of renovations that we do. And really the purpose of a renovation obviously is to try and costly affect same-store sales. So it's just got into -- we're -- in my opinion, we were splitting hairs and -- in these conversations. So we're just going with the number of renovations that we had.
Okay. But fair to say there was a pretty heavy quarter in Q4 for renovation activity.
It was too heavy, actually. You're right, it was a heavy quarter. And we're doing some things internally to have more in the first 3 quarters and less in the fourth quarter in 2018. But a similar number for 2018 to the 92.
Okay. And turning back to corporate segment contribution margin. Year-over-year, in the quarter specifically in Q4, recognizing on a yearly basis there was a decline, but in the Q4 there was a pickup, can you talk about that a bit?
Yes. That was -- it was just a better quarter, simply for the -- the roster that we had, had a better quarter than it had a year ago. And -- but you'll see that we're still below the 10%. So I think maybe, Elizabeth, that's more of a function that a year ago the 8.3% was not a very satisfactory number.
So we should assume that with a higher same-store sales growth, you are able to leverage your fixed cost. So would some of that have played a part in the market in a particular quarter?
Yes. Yes, absolutely.
Okay. And as we look forward to 2018 then, can you give us a...
Also -- I guess so the other part too would have been is some of the renovations that we did. And Q2 and Q3 had a positive effect on Q4 this year for corporate store renovations.
Okay. Great. So as we look forward then, can you give us a sense of how far along you are with respect to working on the margin at the Original Joe's? And thinking relocations, what we should expect this year in terms of improvement?
See, [indiscernible] has done a pretty good -- not a pretty good job, they've done a very good job on it. And so -- but I would say that, for Joe's, Joe's is -- in my mind, I think it's a 2-, 3-year timeframe of getting them where we want. And part of that is JVs becoming franchised, part of it is more corporate stores becoming franchises. It's just -- it's a complicated long-term solution to getting the right mix of corporate and franchised, and getting the right results out of corporate stores. So we would look for an improvement this year. But we would not look to get it to, let say's, be where we want it to be long-term.
Okay. Great. And just lastly for me. In terms of the closures, you've already talked about the restaurant closures in 2017. Is there any potential for those to be slated for a reopening. You mentioned various reasons of why restaurants close. But are any of those on a list of looking for other locations or a franchisee that wants to reopen elsewhere, any color there?
Of the ones that closed to reopen those, Elizabeth?
Yes, that's right.
Yes. If there is, it'd be 1 or 2. Like it would be -- it -- in almost every case it's we're moving on to something different.
[Operator Instructions] Your next question comes from Leon Aghazarian with National Bank Financial.
I just had one question. Most of my questions were answered. Just on the food operations side, can you give us a little bit of color as to what the progress is looking like there, maybe in terms of the capacity utilization at the moment, how some of the new products that you've -- went to market with are doing, because we did see margins, I mean, decline from a year-over-year basis. I'm just trying to get a sense of what we should be looking at for food ops for next year.
Yes, one of the reasons -- probably the major reasons of the margins decline, Leon, was the -- a lot of listing fees in Q4 for a new product -- new Swiss Chalet product going on grocery shelves. And you kind of pay it at the time you list. And then -- you pay it once, and then you benefit. So if you have a whole pile of new listings, it can negatively impact the margin, that's what happened in Q4. In terms of the capacity, we have lots of capacity in certain parts of the -- in certain types of the factory. But we do have a bottleneck in one. And so we're -- which is in the pies. So we are -- we've been -- we're investing this year. We've -- I think they've started already. And by the second half of this year, we will have greatly increased our capacity in there. So it depends what the product line is, but there is one pipeline where we have a bottleneck. We're investing. The other product lines, we have ample room still to grow.
And there are no further questions queued up at this time. I'll turn the call back over to the presenters.
Thanks, Denise. Thanks everyone for joining. March's great. So I'm looking outside the window here, nice white snow flurries coming down. But I think there is a smaller number on the call today, a lot of people hopefully are spending some time with their families and their kids and are off. Certainly, the traffic was low today.But in terms of Q4 and the year, just to put it in perspective, we're quite happy with the year. We had a board meeting on Friday. Our board is very happy. Looking back to 2014, which it is the beginning, massive growth. Looking ahead to 2020 to 2022 being in the upward revised range already on a pro forma basis with the Keg, to -- we think is phenomenal. But there's lots to do. And so probably the easiest way to recap is, again, is just to talk about what our focus is and our focus is on continuing to get better at what we do, building a better foundation. It's same-store sales, which lead to overall network profitability. It is acquisition. We do have a great balance sheet still, even after the Keg merger, we're only at 2.2x. And continuing to be opportunistic on returning capital to shareholders, if NCIB, if the price is opportunistic. And because of that -- because of our cash and the strength of our balance sheet, this was the first time since we've gone public that we've raised the dividend. So big year, but it is in the rearview mirror. And we are working hard on a lot of things to continue to improve in 2018 and beyond.So with that, thanks everyone, and enjoy your day, and enjoy your week.
This concludes today's conference call. You may now disconnect.