Guzman y Gomez Limited (GYG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Guzman and Gomez (sic) [ Guzman y Gomez ] Limited GYG Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Steven Marks, Founder and Co-CEO. Please go ahead.

Good morning, everyone, and thank you for joining us. This year marks a very special milestone for GYG, 20 years since we opened our very first restaurant in Newtown, Sydney. We are incredibly proud of the growth we have been able to achieve in this time and the people who have been there on this journey with us. We started GYG with a simple belief. Customers have been sold bad food for too long, and we wanted to do better. Our vision, to reinvent fast food and change the way the masses is eat. That means serving clean, Mexican-inspired food that's full of flavor and made with the best quality fresh produce. We will never compromise on our food or our people. These are the foundations to our mission, to be the best and biggest restaurant company in the world. We have a mindset and a culture in our business that prioritizes making the right long-term decisions so we can build a sustainable fast food model for the next generation. This year, we made some difficult choices, including the decision to close our U.S. operations, which we will come to a bit later on. But our conviction in the potential of this business has never been stronger. Moving now to FY '26. This was another strong year for GYG as we focused on building momentum and investing in the foundations that will carry us into our next phase of growth. I will now take you through some highlights and note these exclude our discontinued operations in the U.S. We reached $1.4 billion in network sales, up 18% on the prior year. Our underlying EBITDA was $85 million, up 29%. Our record underlying NPAT of $53 million, up 30%. Including discontinued operations, that is including the U.S. trading results and closure costs, we reported a statutory NPAT loss of $27 million. Finally, we are happy to announce that the Board has declared a fully franked final dividend of $0.406 per share, which includes a special dividend of $0.144 per share. This brings the full year dividend to $0.48 per share. Our focus on food and guest experience has delivered good results this year. Our Australia segment delivered comp sales growth of 5.3%, underpinned by strong transactional growth. We opened 32 restaurants in Australia, in line with guidance. Across our network, we achieved an overall network restaurant margin of 20% with drive-thrus achieving 22% margins. Our franchisees continue to perform very well and are generating strong returns on their investment. We doubled the number of restaurants trading 24/7 to 36. And we now have 117 restaurants in our pipeline with commercial terms agreed at year-end. Our pipeline continues to grow in size and quality, and it's one of the things we're most excited about heading into the next year. This year built an impressive track year -- impressive track record of sales growth across our global restaurant network. And our strong sales growth continues to translate into very strong earnings growth, underpinned by the operating leverage that's embedded into our business model. This slide outlines progress we have made on our drivers of earnings growth during the year. Sales momentum continued to improve throughout the year, led by transactional growth. Like I just said, we expanded our network and grew our pipeline. Our franchisees continue to be extremely healthy, and we are seeing strong demand for new restaurant openings, both from internal and external applicants. We continue to innovate in our kitchens, including adding new digital training tools to make it easier for our crew. One area we are particularly excited about is electrifying some of our cooking equipment in FY '27 after successful trials this year. We continue to invest in digital and technology with more of our guests choosing to use our app to transact, which brings exciting opportunities for more personalized experiences. We built our Order Management System, OMS, using AI in-house and it's already live. We are seeing very strong results from its initial features, and we're just getting started. Finally, we have exited our U.S. operations and are pleased with the performance of our massive franchise markets of Singapore and Japan. I'll now hand over to our CFO, Erik, to take you through FY '26 performance.

Good morning, everyone. As Steven mentioned, it's been another year of strong growth in our Australian segment. A key highlight of the result is how our strong network sales growth has translated into even stronger earnings growth. Included on this slide is what GYG's earnings look like on an underlying basis, adjusting for the impact of accounting standards that cover leases, share-based expenses and other nonoperating adjustments. As you can see, the underlying earnings power of the company is very strong and growing, resulting in 33.9% growth in underlying EPS on a diluted basis to $0.521 per share. This measure is important to understanding GYG's underlying performance, and it will be the basis on which dividends are determined on an ongoing basis. We also incurred a material loss from discontinued operations in the U.S. during the second half, which I'll cover in detail on the next slide. The decision to exit the U.S. market this year was a difficult one. While we firmly believe it was the right one, we acknowledge the significant impact it has had, both financially and on our U.S. team. As Steven said, the wind down of our U.S. restaurant operations is now complete. We have completely exited 9 out of our 10 leases with commercial negotiations close to being finalized on the remaining sites. We have met all team member entitlements and the U.S. class action has been discontinued. U.S. operations are now accounted for as discontinued operations, capturing both the trading loss of USD 15.2 million and one-off closure costs of USD 32.8 million. We expect the P&L impact to land at the lower end of our guided range of USD 30 million to USD 40 million with any remaining impact in FY '27 not expected to be material. Also in line with the guidance we provided in May, total cash exit costs are not expected to exceed USD 15 million, with $3 million incurred during F '26. While almost all lease exits have been agreed, most payments were made after 30 June '26. Now turning to our core markets in more detail. We saw good growth across Australia and Asia this year. In Australia, we saw comp growth across all dayparts with double-digit comps in breakfast and after 9:00 p.m. This was supported by more restaurants converting to 24/7. In Australia, we highlighted the great value offerings in our menu with an increase in guest frequency year-on-year and an increase in value perception among our guests. We opened 3 new restaurants in Singapore this year with both Singapore and Japan planning to open more restaurants in F '27. In the Australia segment, we achieved a strong result of $85 million in underlying EBITDA. This represents a 29% increase on last year, lifting underlying EBITDA as a percentage of network sales by 50 basis points to 6.2%. The health of our network continues to grow despite our decision to keep menu price growth well below the level of cost growth. Operating leverage still delivered with network restaurant margins expanding 20 basis points to 20.3%, which was also supported by increasing mix towards higher-margin drive-thrus. Our corporate restaurants also delivered significant growth with sales up 22% and earnings up 17%. As we flagged at the half year results, corporate restaurant margins was impacted by lower corporate comp sales as well as the timing of new restaurant openings. I want to put the new openings into perspective. In the last 18 months, we've opened 21 new corporate restaurants, all of which were ramping up during F '26. We also made the deliberate decision to invest additional labor in opening our corporate restaurants and delivering a better guest experience in the first few months. These investments are delivering strong results. And going forward, we expect a significant improvement in corporate restaurant margins heading into F '27 as newer restaurants continue to grow sales and the operating leverage comes through. Franchise and other revenue growth was driven by new franchise openings, higher franchise AUVs and more restaurants transitioning to the tiered royalty structure. And we saw effective operating leverage in G&A, which included a lower bonus payment in F '26. I'll now hand over to Hilton to talk through restaurant economics, comp growth and real estate.

One thing we're extremely proud of achieving is the strength of our restaurant economics. This year, we grew average drive-thru -- average unit volumes to $6.9 million, while average AUVs for strip restaurants held up year-on-year at $5 million. We opened 26 new drive-thrus in Australia this year, taking the total to 143. Network restaurant margins were circa 22% for drive-thrus and 18% for strips. Drive-thru margins expanded while strips slightly decreased. This reflects new restaurant mix effects and lower comp growth in strip restaurants, partly offset by our chicken strategy and only modest COGS inflation. To reiterate Erik's comment earlier, the health of our network continues to grow despite very low menu price growth. And that health has flown to franchisee profitability during the year. As you know, the health of our franchisee network is critical to our collective success. This year, franchisees achieved a compelling return on investment of 47%. This was contributed to by continued year-on-year growth in the median average unit volumes to $5.8 million and restaurant margins expanding to 21%. We opened 19 franchise restaurants during the period and welcomed 10 new franchisees, including 7 who transitioned role in Hola Central to become owners. We are very proud of this model, and we believe it will lead to continued strong performance of the business into the future. Now turning to comp sales. We talked to 5 key volume levers in our business, and we have made significant progress against each one of them throughout the year, layering in a number of enduring initiatives to enable us to deliver sustainable comp growth. On restaurant capacity, we are starting to see the operational benefits from our new Order Management System and continued investment in restaurant leadership. Daypart expansion has been a key driver. We delivered positive comp sales growth across all dayparts, led by breakfast and after 9:00 p.m., which was further supported by extending trading hours across our network. Importantly, improving momentum in lunch and dinner drove the overall comp sales growth improvement in the second half. As always, menu innovation has been a key focus for us. We launched our Caesar range early in the year and our first 2 Australian LTOs, the BBQ Chicken Double Crunch and the Cheeseburger Cali tacos. These LTOs drove engagement with our brand and attracted new guests. On delivery and digital, we entered Australia's first exclusive strategic partnership with Uber Eats this year. Total delivery and digital orders now account for almost half of our network sales. We also became the first Australian QSR to integrate Apple CarPlay. Finally, marketing has played a crucial role in driving comp sales growth, supporting the launch of Caesar and our LTOs as well as other campaigns such as Double Protein, Minis, our value bundles like the $12 Brekkie Bundle or the $12 Chicken Mini Meal has contributed significantly to our sales momentum through the year. Network expansion is continuing at pace. We finished the year with 117 Board-approved sites in our pipeline with commercial [indiscernible] having added 62 new sites during the period. Around 85% of the pipeline is drive-thrus. The pipeline is the strongest it's been and provides us with very high levels of visibility for growth in the short and medium term, but also reaching our long-term aspiration of around 1,000 restaurants in Australia over time. I'll now hand back to Erik to take us through our cash flow.

Thank you, Hilton. The company remains highly cash generative with strong conversion of earnings into cash. On a continuing operations basis, operating cash flow was $98 million and cash conversion was 120%, primarily driven by timing of supplier payments and the timing of construction payments made on behalf of franchisees. Capital expenditure growth this year was driven by corporate restaurant openings, refurbishments and maintenance and new restaurants in progress. On a net basis, GYG spent $26.5 million to build the 13 new corporate restaurants opened in the financial year. We continued to see average capital expenditure per new restaurant in line with targets as outlined in our prospectus. This year, we also developed a more capital-efficient model for our smaller, more regional sites that we will apply in future periods. Following our share buyback activity during the year and payment of dividends, our balance sheet remains in a very good position. It provides plenty of flexibility for future network expansion, continued funding for our dividend and additional capital management opportunities, which I will come to now. As I said, GYG is a highly cash-generative business. Our hybrid corporate franchise model means a significant share of our earnings require minimal CapEx. At GYG, we will always prioritize investment in our restaurants, the highest returning use of our capital. Any surplus capital will be returned to shareholders through regular dividends with a policy to return the majority of earnings as well as an opportunistic buyback program when valuation is compelling. This slide illustrates how our capital was allocated in F '26 with $45 million invested in restaurants and $120 million returned to shareholders during the year. This year, the Board has declared a fully franked full year dividend of $0.48 per share. This represents an implied payout ratio of 90% of underlying earnings, consistent with our dividend policy of paying out the majority of earnings to shareholders. The final dividend declared for the year is $0.406 per share and includes a special dividend of $0.144 per share to retrospectively increase the implied payout ratio for the interim dividend, bringing it in line with the full year. The significant step-up in the final versus the interim dividend reflects the removal of U.S. losses, a larger earnings base and a reduced share count following the buyback we undertook this year. Since October last year, we purchased approximately $100 million worth of shares at an average price of $19.58. We are pleased to announce that as part of our capital allocation framework, the Board has approved an extension of this buyback program by a further $100 million. This provides us the opportunity to continue purchasing shares if valuation remains compelling after our higher priority uses of capital have been fully funded. I'll now cover off on our outlook and guidance. Our medium-term ambition is unchanged. Our unit economics continue to be strong, and we remain confident in the underlying structural strength of the business. As we set out in our prospectus a few years ago, we continue to build towards a cadence of opening around 40 new restaurants per year in Australia. On average, around 60% of these will be franchise and 40% corporate and around 85% of openings will be drive-thrus and 15% strip. Our business model is expected to deliver earnings growth significantly ahead of revenue growth. To recap on the drivers that will support this, our corporate restaurant margins will trend towards overall network restaurant margins as comp growth drives operating leverage in our restaurants and the format mix shifts towards our higher-margin drive-thrus. Our implied franchise royalty rate, which was 8.6% this year, is expected to move to approximately 10% as more franchisees transition to the higher tiered royalty structure. In addition, as existing franchisees' restaurants grow, including opening proportionately more drive-thrus over time, a greater share of sales will attract higher royalties. And finally, G&A as a percentage of network sales is still expected to trend towards around 5% as sales growth drives operating leverage. In terms of comp sales growth, our mid-single-digit outlook reflects the level where our restaurant economics will continue to get healthier and will enable us to achieve the operating leverage in our model. Our #1 focus is being relentless on delivering the very best food and experience for our guests. When we do this, comp growth will take care of itself. As a result of these levers, we remain confident that underlying EBITDA as a percentage of network sales will reach approximately 10% over the medium term. The path there may not be linear, and that is because we will always prioritize making the right long-term decisions, even if it means some disruption in the short term. Moving now to F '27. We expect this to be another year of strong network and earnings growth. We're guiding to opening 35 new restaurants in Australia and for underlying EBITDA as a percentage of network sales to be in the range of 6.7% to 6.9%. The incremental openings versus F '26 are weighted to the back end of the financial year. So these aren't expected to contribute materially to F '27 sales or earnings. We expect strong corporate restaurant margin expansion in F '27, reflecting continued comp sales growth and a mix shift towards drive-thrus. We expect comp sales growth to continue at mid-single-digit levels in F '27. In the first 7 weeks of the financial year, our comp sales growth has tracked above this at high single-digit levels, reflecting the timing of delivery campaigns and the cycling of a softer prior corresponding period. I'll now hand back to Steven.

20 years on from that first restaurant in Newtown, our ambition to reinvent fast food and change the way the masses eat remains unchanged. With a strong team and a clear vision for the future, we are making progress on our mission to be the best and biggest restaurant company in the world. I want to take a moment to thank our incredible team, our franchisees, our suppliers, our partners and our guests for their passion and dedication to this business. Before we move into Q&A, I want to provide my perspective on the economy and reporting season so far. We are hearing a lot about low growth rates, inflation and cost cutting. At GYG, it is the complete opposite. Our price growth, at less than 2% is well below inflation. We are paying our crew more. Our franchisees are growing, our suppliers are growing and we are delivering 30% earnings growth year-over-year. We can do this because we keep investing in our network, in our systems and in our people, and that is driving innovation and ultimately, productivity. Thank you, guys, for joining us and now we'll open it up for questions.

[Operator Instructions] Your first question comes from Tom Kierath with Barrenjoey.

Just a question on the corporate store margin in the second half. I think it fell 100 bps. Just a couple of things there. Was there any impact from the Uber exclusive deal on the margins there? And then second, how should we think about the investment in these kind of new corporate stores? Like how long does it take those stores to get to maturity in terms of margins, which are comparable with the rest of the fleet?

Yes. Tom, good to chat. I just want to recap on corporate restaurant margins as a whole, then I'll get to the half-on-half movement, because this is an important point. To start with, we're very proud of our overall network restaurant margin and the expansion that we saw during F '26. Corporate margin specifically, there are a number of factors that impacted F '26. And in order of significance, the first is comp growth, corporate network that came in lower than the overall network, primarily due to the higher weighting of strip and legacy restaurants. As we've talked earlier, we continued to invest in menu price inflation, making sure that's well below the level of cost growth that we're seeing in the business, and that has paid dividends through increased frequency and guest retention. The second factor after comp growth is the timing of new restaurant openings that you've called out in your question. Now as a reminder, we opened, in the last 18 months, 21 new corporate restaurants, all of which we're still ramping up in F '26. To put that into context, that represents about a 30% increase in the size of the corporate restaurant network, a level that won't be repeated going forward. And as you mentioned, we've also invested more in our labor in our new restaurants so that we can open these restaurants with more experienced crew. That is already translating to stronger sales and margin profile for our corporate restaurants. So if we put all that together, we expect corporate restaurant margins to improve significantly in F '27 and continue that momentum in the years to come. Now, to come specifically to your question around the second half, all of that was happening because the timing of new restaurant openings were weighted towards the second half. So that's the first element. The second element is that our corporate restaurant margins are always lower in the second half because we have additional public holidays where a large number of our CBD corporate restaurants are shut during those periods. And so of course, we have a lower margin profile. Specifically for the Uber deal, the Uber deal is working exactly as we expected in terms of the economics of our restaurants, and we're seeing a significant improvement in profitability as a result. So we're very happy with the way that's flowing through. But we did only see a part effect of that in terms of timing in the second half. Going into F '27, that's one of the things that's giving us a high degree of confidence in that margin expansion in F '27, and we're already seeing that play through in our numbers early in the year.

Just a follow-up. Is the comp growth you're seeing now in the corporate stores like comparable to the franchise stores? Like what's the kind of difference there in, I don't know, the last quarter or since you've made some changes?

Yes. No, we're seeing very strong comp growth in our corporate network, if not slightly ahead of the franchise network.

Your next question comes from Caleb Wheatley with Macquarie.

Perhaps just a follow-up on sort of restaurant profitability, but sort of more in a broader sense, I suppose. Obviously, seeing kind of Fair Work Commission decision around wages broadly, still seems like in place coming through from a COGS point of view, starting from food, et cetera. How should we sort of think about some of those components from a restaurant profit point of view? What else are you sort of doing internally at the restaurant level to sort of drive efficiencies? And, yes, appreciate the sort of pricing strategies well around the inflation and not necessarily matching one to one. But how should we sort of think about all those moving pieces from a broader network profitability point of view?

Yes, sure. I might comment, Caleb, just in the first part around some of the drivers and then Steven may have something to add at the end. Firstly, if I talk labor, which is our biggest -- one of our biggest costs in restaurant, we've been absorbing labor cost inflation in this business for a very long time. I mean last year was close to 5% with the Fair Work decision. This year will be close to 5% again. And as Steven mentioned earlier, we've been relentless in making sure that we're building productivity into our systems, our processes, our people and training, et cetera, to make sure that we can offset those cost increases in our business. Operating leverage is a massive part of that and continuing to drive sales and the guest experience is how we can do that. So that's the labor component. From a COGS perspective, we're very happy with where COGS is sitting. And that's post most of our contracts adjusting on 1st of July through the escalation process or escalator process. So we're very comfortable with where that's sitting. As I said earlier, and Steven mentioned again, you'll hear from us 100 times. Price is the last lever we use to drive -- to manage our COGS, and we're in a great position with many of our suppliers to make sure that, that COGS position stays in a good spot. So we're very happy with where that is. So as we look forward to things like the Fair Work decision around junior rates, we're pretty comfortable with the way that the investment that we've got lined up and some of the productivity initiatives coming through, whether it's the OMS, whether it's some of the additional ways we're using AI in our restaurants to make sure we're driving productivity and simply making it easier for our crews to execute and taking that admin away. So we see continued margin expansion in all of our restaurants as we drive sales.

I think, Caleb, maybe just to build on what Erik said and just add one other thing. And as we've said, we expect to continue to deliver mid-single-digit comp sales growth. And at those levels, with the wage growth that's coming through from Fair Work and obviously, the COGS stability, we continue to expect and we have delivered operating leverage in our restaurants, which is really the benefit of our model.

Okay. That's helpful and nice segue into my second question. Just keen to explore a little bit, if we could, just around sort of the commentary on your comps over the medium term. If I wind back to 12 months ago, from memory, it was more sort of sequential improvement in comps quarter-by-quarter. That now seems like it sort of shifted, I would say a bit more qualitatively but sort of pointing the market more toward a full year view around that mid-single-digit level supply sort of running ahead early. Is this sort of signaling that, not sort of maturity, but sort of signaling a longer-term focus on running around that level, just given the volatility around events and stores transitioning to 24/7, what have you? Yes, what's the sort of broader thought process around maybe shifting the commentary on that as we look into FY '27?

Yes. Thanks, Caleb. I'll address the first part of that question is around the timing of comp growth in the last couple of quarters and into F '27. And I know Steven wants to say something about our philosophy for the comp growth guidance overall. So just as we know, we saw a significant improvement in momentum that we built throughout F '26 from Q1 to Q2, Q3 to Q4. And really the second half of that comp growth momentum really driven by transaction growth, driven by guest frequency, we saw great stable momentum in the business, Q3 into Q4 and then also into Q1 this year. And Q4 did see a small step back in comp growth with Q1 this year seeing an improvement. And really, that relates to the timing of the delivery campaign, the Ding Dong campaign. So last year, it ran in June. This year, it ran a couple of weeks later in July. As we -- as you've heard us say before, we always time those campaigns for when it's best for our guests and best for our restaurants, not when it's best for the financial quarters of our business. And so that's really the only change in momentum in terms of the business. And then -- so we really continue to see that continue at that mid-single-digit level. And I know Steven wants to say -- just say something about the philosophy around that.

Thanks, Erik. I want to be very clear on this. And as always, we remain relentlessly focused on delivering 2 things, and it's always been these 2 things: exceptional food and exceptional experience for our guests. And we will continue to be rewarded with great comp sales growth when we deliver that. As Erik was just saying, we see mid-single-digit comp growth as a sustainable level for the network over time. And that's what delivers us incredible, obviously, restaurant economics to make sure that our franchisees are incredibly healthy and that drives us to that 1,000-plus restaurants that will open up here in Australia. Now variability in comp growth is the nature of the restaurant business. And at GYG that's no exception. We will continue, as we always have, to prioritize making long-term decisions that will set us up for the next 10 to 20 years. As we always say, this is a generational business, and we do not worry about the next quarter.

Your next question comes from Shaun Cousins with UBS.

Just on G&A to sales, it fell to sort of 5.9% in full year '26, partly assisted by some lower bonus payments. If we've got mid-single-digit same-store sales growth and some investments, and I assume possibly some bonuses come back, is there a risk that actually G&A to sales rises in fiscal '27? Or can that continue to sort of remain where it is or fall? I understand the longer-term plan to get it to 5%, but I'm just trying to think about that as a swing factor in that it was quite a helpful contributor to the EBITDA margin expansion you enjoyed this year.

Yes. Maybe, Shaun, I'll just jump in quick before I hand it over to Erik to explain the impact on G&A. But I want to highlight something that's important from a values perspective at GYG. One of our core values here is it's up to us. So in the context of our decision to exit the U.S. market this year, with significant write-downs we incurred and the costs this has had, the value we delivered to our shareholders was impacted. Therefore, it wasn't appropriate that we pay a bonus to our senior leadership team this year. I mean, however, the Australian segment did perform well, and there is a bonus payable to our Hola Central team and our operators here, but smaller than in previous years.

So just to pick up on your question, Shaun, you're right that as we head into F '27, G&A as a percentage of sales won't be a material contributor to the ongoing improvement in EBITDA to network sales that we expect for F '27. So yes, it was a contributor in F '26. We don't expect it to be a significant contributor in F '27. And that's where we really see the corporate restaurant margins and our royalty rates seeing acceleration in those metrics this year.

Great. And that leads to the second question. Just around the franchisee royalty rate. When will you have all franchisees on the new structure? And can you talk a little bit if the Uber deal actually helps franchisee economics? And does that come back to GYG to some degree in a royalty benefit?

Yes. So Shaun, [ I may do the ] second part first, and I'll come back to. So firstly the Uber deal has a very significant improvement to our franchisees that they get the full benefit of that. As always, we pass on full benefits of these types of arrangements to our franchisees. And so they're seeing obviously continued sales growth, but also improved economics as a result of the Uber deal. There is -- the primary way in which we benefit from that is through higher royalties as our franchisees continue to grow and we invest in that delivery channel. So as we've called out previously, the Uber deal was designed to drive sales, and that's how we will benefit as a business going forward from a royalty perspective. In terms of the transition to the tiered royalty structure, that's really a function of how our franchisees continue to roll through their franchise agreements, which is tied to the lease of the restaurants. The majority are already on the tiered royalty structure. There's about 30 franchisees that are yet to transition and they'll transition progressively over the next few years as we work through that. But as we've guided, in the medium term, we expect that to work its way through to a 10% royalty rate over time.

And Erik, maybe just how many franchisees -- apologies if this is in the pack, but how many franchisees do you have, just how we can put that 30 into comparison?

Sorry. 34 restaurants and there is 2...

Okay. 34 restaurants.

67 franchisees overall, and we also have the number of franchise restaurants, but it's 34 restaurants.

Your next question comes from Ben Gilbert with Jarden.

Just interested in terms of the makeup around the comps. How are you seeing average order value versus price increases in terms of the drivers of that? I suppose looking forward from here, what are you thinking about price? Because you've obviously been very disciplined. And arguably your value proposition has improved versus your peers [ who ] increased pricing more. I'm just interested in how you're thinking about maintaining that, what are you assuming in sort of your guidance -- qualitative guidance for pricing?

Yes. Great. Thank you, Ben. So firstly, transaction growth continues to do a heavy lifting on our comp growth, which is exactly where we like it. As you say, we -- I would say it's not arguably, we're definitely improving our relative value relative to competitors. So that's been great to see. We're very happy with where COGS are at, at the moment, as I mentioned earlier, and we've already taken our price. So we'll have to watch that closely. But as we said before, the last thing we're going to do is work our way through price to a price increase again this year. So we'll have to watch and see, but I expect, in terms of that mid-single-digit comp guidance that the majority of that continues to be transaction growth.

So are you seeing AOV falling, Erik? Because I know on some of those smaller brands you actually get better margin. So how are you seeing average order value?

So average order value has declined very slightly in the business. There's a number of factors that are contributing to that. The popularity of our Minis is a really big factor, which is something we're delighted about because we have great gross margins on our Minis. It's the right amount of food, and it just gives our guests the ability to come back more often. We've talked before about the value campaigns. Breakfast is also a contributor. So these are great long-term drivers of the business, and it's having a small impact on average order value, but really nothing material, and it's not something that's showing up in our economics at all.

Perfect. And just final one for me. How do you decide what is a compelling price for the buyback? I appreciate the average price that you bought back is looking pretty good now given where the share price is. But how do you, as the Board and management team, decide whether you should be buying back stock at any point in time?

Yes, it's a great question. So we have a very strong view on value and valuation framework internally that we've agreed with the Board. That valuation framework takes into account the significant growth in earnings and cash flows that we expect over the next few years. We then -- that valuation spits out a share price. And then we put in on top of that a very high return hurdle in terms of our IRR that we expect to generate because we have high competing uses of capital in terms of the restaurants that we're investing in. And so it's appropriate for our shareholders that we demand a very high return on our capital. And that's how we then get comfortable that we -- when we discount that back using a very high IRR that, that valuation is going to be compelling for our shareholders. So obviously, we won't speak to exactly the numbers. But we -- as I said, we -- as I said 6 months ago, we're delighted at which -- at the prices that we were buying our shares for. And so we're pleased to see an extension of the share buyback program.