Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Steve West – Stifel Nicolaus & Co.
Steve West - Stifel Nicolaus & Co.
Can you maybe explain the tip-credit wage initiative you are doing and really what does that mean? Are we supposed to be tipping at Sonic, because I’ve never done it in the past? You make me feel cheap here.
And also just a follow on question about some of the re-franchising you’re doing.
J. Clifford Hudson
On the tip-credit issues, the majority of our customers do tip at Sonic, so you are in the minority. And how they greet the customer, interact with the customer, that can significantly impact their tipping. And that’s really why we believe that this initiative is not just cost-saving initiative but it’s more about motivating our carhops to provide good customer service.
Steve West - Stifel Nicolaus & Co.
So would you expect that to have some relief on the labor line this year?
J. Clifford Hudson
I think it will over time. It’s not something where we went in and reduced anyone’s pay. It’s something that we are phasing in over time. So I think you will see the benefit of that become progressively greater as the quarters move along.
Steve West - Stifel Nicolaus & Co.
And on the re-franchising your earnings guidance contains re-franchising gains. Can you quantify that? And then maybe talk about as credit is tighter, if things get really bad would you be able to and willing to step in and guarantee loans for franchisees to ensure that your growth initiatives are carried out for the year?
J. Clifford Hudson
I will deal with the second half of the question and Steve will deal with the first half of the question.
The process of re-franchising, as those discussions are occurring today, the folks with whom we are negotiating are extremely well capitalized and so our focus is to consummate those transactions as quickly as possible and we will deal with the eventualities of a tightening credit market at a later date as those circumstances arise. But with the parties we are negotiating with right now, we don’t see liquidity nor net worth nor available funds as being a limiting factor.
Stephen C. Vaughan
And on the first part of your question, the guidance that we gave last month anticipated that roughly one half of our growth would come from operations and the other half would come from the re-franchising gains. Again, the re-franchising gain piece will be less predictable as to what quarter those will occur in, but that is roughly what that guidance was based upon.
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