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Habit Burger raising menu prices to offest LA minimum wage hike

May 6, 2019

Although The Habit Burger Grill reported Friday that revenue and comparable restaurant sales were up for Q1 this year, CFO Ira Fils said the chain was implementing an average 5.3% price hike at the end of May to help offset minimum wage increases coming in July to Los Angeles. The city is raising the wage from $13.25 to $14.25 per hour.

"The planned price increase will be higher in our California markets which have been impacted the most by wage pressure and will be less aggressive in our non-California markets," Fils said during the company's earnings call.

Direct labor as a percentage of sales were slightly unfavorable year-over-year by about 20 basis points. 

"The tight labor market combined with government mandated wage increases for hourly employees continues to put upward pressure on labor costs,," Fils said. "For the first quarter, our average hourly wage rate increased a little over 5%."

Despite the labor issue, CEO Russel Bendel said the year had started off strong with a revenue growth of 17.6% and comparable restaurant sales growth of 3.2%. 

"We owe much of our success this quarter to our progress against our strategic initiatives and our focus on remaining nimble in this ever-changing consumer environment," he said during the dall "During the quarter we opened seven new company-operated locations, including six drive thru locations, and one licensed location. For 2019, we will continue these efforts and look to open between 21 and 23 company-operated locations and between 10 and 12 franchised/licensed locations."

Highlights for the first quarter ended March 26, included:

• Total revenue increased 17.6% to $108.2 million compared to $91.9 million in the first quarter of 2018.
• Company-operated comparable restaurant sales increased 3.2% as compared to the first quarter of 2018.
• Net loss was $0.2 million, or $(0.01) per diluted weighted average share, compared to net income of $0.7 million, or $0.03 per diluted weighted average share, in the first quarter of 2018.
• Opened seven company-operated restaurants and one franchised/licensed restaurant  

2019 Outlook

The company anticipated the following for its fiscal year 2019:

• Total revenue between $460.5 million to $464.5 million.
• Company-operated comparable restaurant sales growth of approximately 2.5% to 3.5%.
• The opening of 21 to 23 company-operated restaurants and 10 to 12 franchised/licensed restaurants.
• Restaurant contribution margin of 16.25% to 17.00%, which includes a (0.3)% unfavorable impact related to the change in lease accounting.

Habit, based in Irvine, California, has 230 company-operated locations and 25 franchised/licensed locations.