Cheesecake Factory Inc (CAKE) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2011 The Cheesecake Factory earnings conference call.

My name is Stacy, and I will be your conference moderator for today.

At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, to Miss Jill Peters.

Please proceed.

Good afternoon and welcome to our third quarter fiscal 2011 earnings call.

I'm Jill Peters, Vice President of Investor Relations.

With us today are David Overton, Chairman and Chief Executive Officer, and Doug Benn, Executive Vice President and Chief Financial Officer.

Before we begin, let me quickly remind you that during this call, items may be discussed that are not based on historical fact, and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available in the Investors Section of our website at www.TheCheesecakeFactory.com and in our filings with the Securities and Exchange Commission.

All forward-looking statements made on this call speak only as of today's date, and the Company undertakes no duty to update any forward-looking statements.

David will start off the call today with some opening remarks.

Doug will then take you through our operating results in detail, and provide our outlook for the rest of the year, and 2012.

Following that, we'll open the call to questions.

Now I'll turn the call over to David.

Thank you, Jill.

The third quarter was our 7th consecutive quarter of positive comparable sales, with The Cheesecake Factory and Grand Lux Cafe both positive.

Geographically, there is ongoing strength in places such as California, Florida, and Texas, our three largest markets.

Each of these delivered significantly above average comparable sales.

Importantly, from a profitability standpoint, we are managing our business well.

Normalized for commodity cost, profit margins are healthy as we effectively leveraged costs across our P&L.

We are competitively well positioned maintaining high guest satisfaction scores, and delivering margin improvement in labor, other operating expenses, and G&A.

In September, we completed our summer menu rollout, including the introduction of our new SkinnyLicious menu.

Innovation is a big differentiator for us.

It helps us drive guest traffic with full margin sales across a broad range of options and price points to remain relevant to consumers' wants and needs.

Our development plans are on track for this year, with one more opening tomorrow, and the final opening in early December for a total of seven new Cheesecake Factory restaurants in 2011.

These seven new restaurants are quite diverse in their geography -- California, Texas, Florida, and the Northeast.

Our development strategy continues to be location-specific, focused on premiere sites that can meet our sales target of about $1,000 per square foot, fueling strong returns.

In reality, the restaurants that we've opened over the past three years are averaging sales that are above our system average.

As a result, our returns are exceeding our expectations.

We have a significant runway for growth as we take The Cheesecake Factory from 150 to 300 anticipated units, and position Grand Lux Cafe for future growth.

Looking ahead to 2012, it looks to be a solid year.

We are currently expecting to open as many as seven to 10 new restaurants next year, including a new Grand Lux Cafe.

The pipeline for high-quality sites is strong and more robust than we've seen in quite some time.

In addition to our domestic openings, our initial three international locations are scheduled to open in the Middle East next year.

Our plans are in line with our longer-term objectives, including increased new restaurant development, international expansion, and earnings per share growth in the mid-teens.

In addition, we plan to continue to return a sizable amount of cash to our shareholders.

Doug will get into the details.

So with that, I'll turn the call over to him.

Well, thank you, David.

Total revenues at The Cheesecake Factory for the third quarter increased 3% to $430 million.

Restaurant revenues reflect a 1.9% increase in total restaurant operating weeks, due to the opening of six new restaurants during the trailing 15-month period, plus a 0.6% increase in average weekly sales.

Overall, comparable sales increased 0.8% at The Cheesecake Factory and 0.9% at Grand Lux Cafe.

We did see some impact from Hurricane Irene, which impacted overall comparable sales by about 40 basis points.

Absent this, comparable restaurant sales increased 1.2%.

We implemented an approximate 1.25% menu price increase at The Cheesecake Factory in our summer 2011 menu change, lapping a 0.7% menu price increase from the summer of 2010.

The new menu finished rolling out in early September, so we'll now have about 1.9% of pricing in the menu, until our menu change in the winter of 2012.

At the bakery, external sales were $17.1 million, up about 12% from the prior year.

Cost of sales increased 10 basis points more than expected, to 25.4% of revenue for the third quarter.

We continue to experience higher food costs related to certain non-contracted items, particularly dairy, as well as some grocery and produce items.

Labor was 32.3% of revenue in the quarter, down 50 basis points from the prior year, primarily as a result of favorable medical insurance costs.

Other operating costs and expenses were 24.7% of revenues for the third quarter, down 20 basis points from the third quarter in the prior year, due primarily to the timing of marketing expenses.

G&A was 5.5% of revenue for the third quarter, as we were able to leverage G&A by about 20 basis points.

And depreciation expense for the third quarter of 2011 was 4.1% of revenues, down 20 basis points from the prior-year period.

The favorability on this line item continues to stem from the runoff of costs associated with corporate and IT investments over the past few years.

Pre-opening expense was $4.3 million in the third quarter of 2011, versus $1.5 million in the same period last year, in support of a higher number of openings in the third and fourth quarter of this year relative to last.

Net interest expense was $1.2 million in the third quarter of 2011, down from $1.7 million in the third quarter of last year.

Interest expense is lower this year because we have zero funded bank debt.

Our tax rate for the quarter was 29.2%, slightly higher than we expected, which impacted earnings per share by about $0.01, and was due to non-deductible losses on our investments and variable life insurance contract used to support our deferred compensation plan.

Our liquidity position continues to be strong.

Cash flow from operations for the first nine months of the year was approximately $121 million.

Net of roughly $50 million of cash used for capital expenditures, we generated about $71 million in free cash flow through the end of the third quarter.

We used our free cash flow to repurchase about 1.8 million shares during the quarter, at a cost of approximately $50 million.

Year to date, we returned about $145 million in cash to our shareholders through share repurchases, in line with our prior communicated range.

That wraps up our business and financial review for the third quarter of 2011.

Now I'll spend a few minutes on our outlook for the rest of the year, and our initial thoughts on 2012.

As we've done in the past, we continue to provide our best estimate for earnings per share ranges based on realistic comparable sales assumptions.

These assumptions factor in everything we know as of today, which includes -- quarter-to-date trends; what we think will happen in the weeks ahead; known weather influences; and the effect of any impacts associated with holidays.

As a reminder, 2011 is a 53-week year for us, with the extra week falling in the fourth quarter.

Our assumptions reflect this.

For the fourth quarter of 2011, we estimate a range of comparable sales between 1.5% and 2.5%, consistent with our recent trends.

Based on this assumption, our estimate for diluted earnings per share is between $0.51 and $0.53.

Food costs are not moderating on a comparative basis quite as much as we expected them to, and we are now projecting cost of sales to be flat to only slightly better versus the prior year in the fourth quarter.

That impacts the fourth quarter by about $0.01 in earnings as compared to our prior expectations.

We expect our tax rate to be between 27% and 28% for the fourth quarter.

Our projection for capital spending this year is now $75 million to $80 million, in support of our planned 7 new restaurant openings in 2011, as well as expected early 2012 openings.

As noted in our press release today, we are increasing our target for share repurchases by $20 million in 2011, to a range of between $145 million and $170 million.

Our restaurants generate a healthy amount of cash, and we are using the majority of our free cash flow to buy back our shares.

With respect to 2012, our initial thoughts on the year are as follows.

As David mentioned, we plan to open as many as seven to 10 new domestic restaurants next year, as well as three internationally.

Our total capital expenditures are expected to be between $105 million and $125 million.

For the full-year 2012, we are currently estimating diluted earnings per share in a range of $1.80 to $1.90 based on an assumed comparable sales range of between 1% and 2%, extending the trends we see in 2011.

Our earnings per share estimate assumes that we will use the majority of our free cash flow for share repurchases.

This represents the best estimate that we have at this time, and incorporates everything we know as of today.

With that said, we'll take your questions.

In order to accommodate as many questions as possible, please limit yourself to one question, and then re-queue with any additional questions.

(Operator Instructions) Joe Buckley with Bank of America Merrill Lynch.

Please proceed.

Thank you.

Just a couple of questions if I could.

What kind of price factor, or effective price factor did you have in the third quarter?

I know you mentioned the menu rollout, extended into September.

Yes, we had about 1.4% in price in the menu entering the quarter and about 1.9% leaving the quarter.

So roughly, on a weighted average basis, about 1.6%.

Okay.

And could you talk about the different day parts, and maybe weekend, week day business?

Because things sound like they weakened a little bit in the third quarter, based on your fourth quarter guidance, it sounds like things might have picked up again more recently, if you could talk about the flow of sales through the quarter and into October?

Yes, the flow of sales was fairly steady, Joe.

It was, if you take out the impact of Hurricane Irene, which definitely impacted August and add it back, it was pretty much the exact difference.

So if you -- July, August and September, were roughly the same.

One thing to remember about the third quarter, is we are going against our toughest comparison from last year, where our sales were up 2.8%, and that was all guest count related.

And in the fourth quarter, we are going up against our easiest comparison of the year, when we were up only 0.9%.

So we are really looking at trends that we have going now, continuing.

And that we're -- one thing about our sales is they are very steady, and they are very predictable now, with not a lot of fluctuation.

Okay that is helpful.

Thank you.

You are welcome.

John Glass with Morgan Stanley.

Thanks.

Two questions on your initial views on 2012.

First, in terms of unit development of 7 to 10 in the US, I was under the impression you guys were thinking at least of double-digit, meaning sort of bottom of 10 but it sounds like it's a little less than that, potentially.

So, have you changed your view on development since the last call or is there a site availability issue or did we maybe, or did I just maybe misperceive growth of over 10?

That's question one.

And question two is, can you talk about what you think food costs are doing to your 2012 margins?

Or what do you think your initial expectations for food inflation is, said more simply for 2012?

Yes let's talk about the first one first.

The guidance for 7 to 10.

I think that we have not changed our outlook on what we plan to do from a development standpoint.

We plan to open as many A sites as we possibly can.

Our pipeline or our list of potential sites is in better shape, as David mentioned, than it had been.

Some of those that are on that list are 2013 openings, not 2012 openings.

So, we have some 2013 openings that are already starting to shape up for us.

But we feel comfortable right now, saying that the restaurants that we believe can open in 2012 are somewhere between 7 and 10.

Now, just to talk about 2012 guidance overall, the earnings per share results that we expect for 2012 are primarily driven as a result of our assumptions and expectations on two things.

One is comp store sales growth and the second is what you mentioned, cost of sales inflation.

And with respect to cost of sales inflation and commodity costs, our contracts are generally on a calendar year basis.

So our purchasing team is right in the middle of contracting for next year right now.

At this point, we are where we think we should be, with respect to 2012.

And we have locked in a number of our key products.

Our cost inflation assumption for 2012 is that costs will be up about 4%.

Could we do better than that?

Sure, maybe we could.

But right now our best guess is 4%.

So we've taken into consideration the overall volatility of the commodities market, supply and demand dynamics and how the futures market looks to us right now, and that's what we are factoring in, that is what we factored into our guidance.

Thank you.

You are welcome.

Nicole Miller with Piper Jaffray.

Two things on the comp store sales for the current quarter, can you remind us, as you progress through this quarter, do the comparisons from last year get easier or more difficult?

Month by month in this quarter?

Yes.

Thank you.

Do I have that?

I don't know if I know month by month.

I think it was fairly stable last year.

I think the main thing to say, Nicole, would be that our comps for the third quarter -- our comparisons are much tougher than they will be in the fourth quarter.

I don't think I have month by month in front of me, but we can get with you off line on that.

Okay.

Bakery sales were up a strong 12%.

Can you talk about what you attribute that strength to?

And is there going to be a potential down the road to put other items through the grocery channel?

Bakery, as you know, we are very much in locations outside of our restaurants with our bakery products.

And I think that the bakery has done a good job.

It is very difficult actually to forecast sales in our bakery, because we have large sales to just a few number of customers.

Where we have 75 million customers in our restaurant, we have much fewer than that in the bakery.

They did a good job this quarter of being able to grow their sales compared to last year with respect to those customers.

Thank you.

You're welcome.

John Ivankoe with JPMorgan.

Hi, thank you.

I think two just pretty quick ones.

At first Doug, you called out I think lower health insurance costs helping your labor line.

If you could quantify that and talk about whether that is one time or perhaps continuing if you have made some changes to the plans?

And secondly, what are you seeing on the mix side of the business?

I mean are you seeing customers maintaining the similar entrees year on year, beverages, desserts, what is happening with customer order preference?

Sure.

With respect to medical expenses, we -- it's difficult to forecast that.

What we experienced in the third quarter was much better claims activity.

We are largely self-insured.

So the claims activity and the amount of claims activity directly impacts our medical costs.

We saw better claims activity; we saw lower cost inflation.

Looking forward in our fourth quarter guidance, in our 2012 guidance, there is neither favorability nor downside on group medical that's built into the future guidance for those periods of time.

With respect to the mix, we had, as I mentioned earlier, about 1.6% on a blended basis of pricing in the quarter, and our comp store sales were up 0.8% and that was largely check average driven.

So we did have, about 0.8% of negative menu mix shift.

Our incident rates and our sales for nonalcoholic beverages are still declining some, year over year.

They are stable, they are not declining any faster.

But furthermore, our dessert sale incident rates for the third quarter were about flat.

Still very strong, but not up, so that there was no check average absorption from increasing dessert sales as there had been in the past that would absorb lower nonalcoholic beverage sales, if that makes sense.

Said in another way, dessert sales did not mask as much nonalcoholic beverage sale and we had about a 0.8% negative menu mix.

Understood, and given the trend, when do you think menu mix stabilizes year on year?

It was starting to stabilize, and I would say that we would certainly hope to get the menu mix shift back in track, so that there is no negative impact on check average.

I think that will happen when non-alcoholic beverage sales stabilize, year over year.

I think it is prudent to plan, and the way we have reflected our guidance, is that it doesn't stabilize.

And it if it does, that is upside.

Thank you.

Sharon Zackfia with William Blair.

Hi, good afternoon.

A couple of questions, actually, to follow-up on the mix question.

I was just curious whether the SkinnyLicious menu impacted mix at all for the negative in the quarter.

And then, when you talk about beverages and, I think it is a pervasive problem, the non-alcoholic beverages, is there any kind of innovation that you can do or any kind of answers to try to encourage maybe nontraditional, non-alcoholic beverage sales of any kind?

Well we are doing a lot of things from a menu perspective to try to entice guests to buy more alcoholic and non-alcoholic beverages.

So we are not really particular as to where it comes from.

If we can get them to buy some of the new drinks that we have on our menu that are alcoholic, that would be fine as well.

So we are doing some things there.

Milkshakes.

Milkshakes, we put some new milkshakes.

They are nonalcoholic milkshakes and alcoholic milkshakes.

But nonalcoholic milkshakes on our menu that could also help drive that.

With respect to SkinnyLicious, it is pretty early on to say anything.

We don't think it is having any negative impact on our check average, though.

Okay thank you.

Matthew DiFrisco with Lazard Capital Markets.

Hi.

This is Phan Le in for Matthew DiFrisco.

I just had a quick question about smaller store formats and specifically the productivity of those stores.

I think in the past you had mentioned that the Bridgewater store had averaged around $1100 per square foot.

I'm wondering if you can provide a little bit of color whether those trends are holding and if they apply equally to the Bridgewater location as well as some of the newer locations, such as in Danbury Fair Mall?

Our productivity per square foot -- our goal is to have $1000 in sales per square foot because we know that produces great returns on investment.

So if you take the average of the restaurants that we've opened, over the last 3-year period of time, including the ones you mentioned, including Danbury specifically, I'll say Danbury is doing very well, the productivity is higher than that.

So we have productivity of higher than $1000 per square foot in our new restaurants.

Okay great.

Brad Ludington with KeyBanc Capital Markets.

Thank you.

Yes, I want to start off just quickly on the quarter.

Can you comment on how many days or weeks were impacted from closures with the hurricane?

Was there any business interruption insurance that will be coming?

I think there was one that was closed for an extended period of time in New Jersey?

We don't want to talk about specific days of closure.

But we did have restaurants that were closed for full days.

We did have restaurants that were closed for partial days.

We do have business interruption insurance.

There is a deductible associated with that, that is a period of time, so we might have received some insurance proceeds related to one restaurant, but not much else.

Okay, and then briefly, Doug, on the labor this quarter, was that negatively impacted like it was last year in the third quarter from higher than expected bakery sales?

And also, in the fourth quarter guidance, what are you factoring in, in EPS from the extra week?

The extra week, in EPS in the fourth quarter's pretty material to the quarter.

It is about $0.03 for the entire year.

So the quarter, the fourth quarter, you'll conclude at 51 to 53 is significantly higher than what we made in the fourth quarter last year and that is primarily as a result of the extra week.

Some as a result of higher expected sales.

Then the labor costs were not negatively impacted by the bakery.

Bakery increased sales will generally negatively impact cost of sales more so than labor.

Okay.

Thank you.

Paul Westra with Cowen and Company.

Great thank you.

Good afternoon.

Could you talk a little bit more about 2012 on your, I guess, range at least, maybe your same-store sales assumption and what your pricing assumption might be in your forecast?

Sure.

You know, when we looked at comp store sales, again, there is two primary drivers of next year's earnings per share -- comp store sales growth and cost of sales inflation.

I talked about cost of sales inflation.

But with respect to comp store sales, we have assumed an economic environment in 2012, Paul, that is very similar to 2011.

An environment where we think we can grow our guest count some and an environment where we think the menu mix shift will still be somewhat negative.

In 2010, we delivered 2% annual comp store sales growth.

In 2011, if you allow us to take out the impact of weather, we'll be right around 2% again.

And given our sales stability and predictability, in 2012, we expect to be in that range again.

So we've said 1% to 2%.

Now if we have a better economic environment, in 2012, than we had in 2011, we could do better than that.

But I will remind you that at 2% of comp store sales growth for us, that is about on an average unit of volumes of $10 million, about $200,000 a year.

That is a big number and that is what really, I think, allows us to be able to leverage our margins better than most, at comp store sales growth of 2% or even 1%.

Okay but officially you say between 1% and 2%?

I guess I just missed that?

I did.

Yes.

1% to 2%.

And the pricing in that -- it looks as though you run the model up $1.85 just roughly, you are looking for store level margins about flat next year and obviously you'll have some pressure and cost of goods sold if you do get a basket above 4.

Is that right to assume you do expect some leverage in the labor and other occupancy line?

We do.

We would expect that we would have slight margin -- operating margin improvement for the year, even with whatever happens with cost of sales.

And from a menu pricing standpoint, we've said it before, that we are really going to continue to try to do a very good job of balancing our desire for offsetting margin pressures with our equal desire to grow guest traffic.

So we were a little more aggressive in our recent menu price increase, where we took about 0.5% more than what we had rolling off and we'll look at it again in February of next year.

But we have not made any decisions with respect to that.

But the assumption is that we'll roughly replace or maybe increase by a little bit what's rolling off in February.

Last question.

We had a few calls coming in about -- questions about geography performance, especially in California.

Can you give us as much update as you can on if there is any -- (multiple speakers)

Yes the -- we are doing well.

The trend in California, is one of the stronger markets now.

California, Florida and Texas are our three strongest markets.

And our softest markets now are the Northeast and the Mid-Atlantic, which seems to be in line with what we are hearing other restaurant operators saying that they are seeing.

Which is true.

Okay, great.

Thank you.

Brian Vaccaro with Raymond James.

Good evening.

I wanted to clarify one thing.

On the extra week, Doug, did you say that was $0.03 of benefit you are expecting?

$0.03 for the year, yes.

I guess it is $0.03 for the quarter, too.

Yes.

Okay I just want to make sure I heard that clearly.

And then, as we think about the margins next year and offsetting some of the COGS inflation that you are going to see, are there any incremental explicit cost savings initiatives that you are thinking about, or is it just we are going to get leverage with a 1% to 2% comp and there is natural leverage on some of those semi-fixed and fixed cost lines?

The second part more heavily than the first.

We have gone through our P&L.

We have pulled out a lot of the, well pretty much all of the fat that we see.

So there might be some areas where we can get small amounts.

But primarily, we can get back to margins that we had when we had -- if you go back to our peak margin years -- we can get back to those peak margin years, simply by growing our comp store sales and the leverage that's created by that comp store sales growth.

So most of the margin improvement on line items other than cost of sales, next year, is really based on comp store sales growth.

Okay thanks.

One more.

On the international franchise development, are there any up front kind of territory fees or anything that are included in that 2012 guidance on those three stores that are going to be built?

We don't talk about specifically the timing of that, because it happens at different times.

Doesn't happen necessarily right when they open.

But we -- our primary compensation is a royalty from our licensed partner there.

But we also do receive other up-front fees that -- they are part of the guidance.

If we think we either -- if we have received them or we will receive them -- what's going to happen is we'll receive fees associated with future openings next year, not necessarily just right in line with the three openings that we expect.

Okay.

Understood.

Thank you very much.

Michael Kelter with Goldman Sachs.

I wanted to follow up on the geography question.

If it sounds like traffic was roughly flat for the quarter and California and Florida and Texas were up, and that implies you are losing guest count in the Northeast and mid-Atlantic, I guess I'm just curious.

I know it's kind of common right now and what's going on in the marketplace, but what specific, active things might you guys be able to do to turn around for yourselves?

Well, I think that we'll continue to do the things that we've done to get to where we are today.

We'll try to provide guests with even better dining experiences than they have.

We'll continue to innovate our menu and provide them with choices.

Those are the -- that's the way that we will generally approach that.

We -- from a marketing standpoint, we use social media.

We have 1.1 million Facebook fans -- Facebook fans, is that what you call them?

Yes, okay.

Facebook fans that allow us to directly communicate with them.

Some of those are in the Northeast, so we'll use that and our opt-in emails.

We have many people on opt-in email.

So operationally, our approach is, we are restaurant operators, providing great value to our guests, continuing to try to do a better job of that, particularly in areas where we would be struggling the most from, with respect to sales.

And then a follow-up.

It seems like some of the other casual dining restaurants that are facing similar kind of traffic trends are resorting to price promotions to get people in the door.

How would you guys approach that if it does get increasingly intense?

Is there a way you would try to match the value in some form that's in the right Cheesecake message form?

Or is that something you just wouldn't ever approach?

It is just not your model?

We are very focused, as you know, on driving full margin sales, but we try to do that at a range of price points from small plates and snacks to full dinner portions.

We have the broadest options in our menu that we've ever had and they are at varying price points, giving guest choices to spend less if they'd like.

So, that is more the way that we would approach that.

The only thing that I would call discounting we have done in the past is we have, on occasion, offered guests in our restaurants, a free slice of cheesecake, if they came back during periods of time like Sunday through Thursday, where we wanted them to come anyway because those were the less-busy periods of time and they spent $30 or more, and we got them to try what we want them to try, our signature product.

So we have done that, but other than that, discounting is not something that we are looking at.

Thank you very much.

Mitch Speiser with Buckingham Research.

Great.

Thanks very much.

First, on the cost outlook for 2012, is it safe to say that the outlook is a little more front-end loaded, meaning the cost outlook is higher in the first half versus the second half?

I don't think that -- no, I wouldn't look at it that way.

I would look at it more as throughout the year.

Okay thanks.

And on share repurchase and your cash balance, I think your cash balance ended under $20 million.

You probably have enough cash on -- in terms of cash flow, to hit the top end of your repurchase target.

But would you be willing to take on some debt to accommodate that share repurchase?

Or is it all through internally generated cash flow?

We wouldn't be looking to borrow money.

We are looking to do it with internally generated cash flow and we would expect, even with the incremental $20 million share repurchase, that we just announced for the fourth quarter, that we would end the fourth quarter with somewhere between $35 million and $45 million in cash.

Okay great.

And on the fourth quarter comps guidance, 1.5% to 3%, I believe you had a -- 1.5% to 2.5%, rather.

It was 1.5% to 3%, I guess, what you said on the second quarter call.

Is that just fine-tuning the top end, due to that menu mix trend which is a little more negative than what you think?

I think we are basing it on everything that we know, right?

We are looking at the quarter-to-date trends.

We are looking at our 2-year stacked comp and the fact it is against 0.9%.

It is just -- we just felt that as the year goes by, you have greater visibility with respect to each coming quarter and our visibility today would tell us we would think our comp store sales can be in that range of 1.5% to 2.5%.

Great thanks.

My last question is on that extra week.

I think $0.03 would assume that extra week is a normal week.

It does come in, I guess, during that New Year's week, so when you think about it, wouldn't it be maybe a little more weighted, that extra week?

Or is it just considered a normal week which does equate to about $0.03 a share?

Yes it is not a normal week.

It is a very high-end week.

So $0.03 a share, I haven't really fully thought through the impact of it on the fourth quarter, I have only really thought through the impact of it on the full year, which I know is about $0.03.

In the fourth quarter it may be greater than $0.03.

I'm not sure how the math on that actually works.

But it is one of the best weeks of the year.

Okay, thank you.

You're welcome.

Steve Anderson with Miller Tabak.

Yes just a question on the restaurant -- on pre-opening expenses for 2011.

How do you consider the opening schedule for next year?

Do you see equally weighted or front --- or back-end loaded as it was this year?

More back-end loaded.

So out of 7 to 10, I would say roughly a third of them in the first half of the year and two-thirds in the second half of the year.

All right thank you.

Jonathan Komp with Robert W.

Baird.

Hi Doug.

Just more of a broad-based question on the Q4 outlook.

Even if I back out the contribution from the extra week, the implied year-over-year earnings growth is pretty substantial, after you just did a slightly down earnings quarter.

I'm wondering if you could help walk through some of the moving pieces on why the earnings growth will improve in Q4.

I think the biggest thing is first of all, the comps -- there's two things mainly in fourth quarter that are driving the earnings growth.

One is a whole extra week, right?

A whole extra week.

So maybe I'm not, I have probably misstated when I said it is a $0.03 benefit.

Because it's a whole extra week that wasn't even in the fourth quarter last year.

So that -- and that week is more impactful than 1/14th or 1/13th, however you do the math on that.

The other is our assumption for comp store sales of 1.5% to 2.5%.

The mid-point of that range is 2%.

If you pick 2%, that is much better and provides $0.02 to $0.03 of benefit versus last year at 0.9%.

So that's roughly where it is.

Okay thanks.

That's helpful.

Just on the commodity outlook for next year, one more question.

Can you give us any sense the degree that you might be contracted today?

Then maybe what some of the biggest moving parts are as you look out for the year?

Well we are contracted today where we think we should be, based on it being October.

We normally wouldn't -- we will end the year, more than likely where we always are, which is about 70% contracted.

So we are not 70% contracted today, but we are not going to say exactly where we are or certainly not what specific products we've contracted for.

But we're where we normally would be at this point in time, or where we think we should be at this point in time.

Okay.

Thank you.

Jeff Matthews with Ram Partners.

Hi, thanks very much.

I wonder if there have been any significant trends plus or minus in labor costs this year?

Well, we are leveraging our labor costs very well.

What we have done -- labor costs are really composed of two things, the rate and the number of hours.

So what we have done with respect to the rate is done just an excellent job of managing that.

That is up less than 1% for the year and then with respect to productivity, the number of hours, we have also done a very good job of improving our productivity.

So as measured by sales per labor hour, that we would -- we've done a good job of that.

So our labor costs, when the dust settles on 2011, are going to be down as a percentage of sales compared to last year.

And really, that's despite the fact that in the fourth quarter last year, I don't know if everybody recalls, but we had some extremely good one-time benefits in the fourth quarter last year from the HIRE Act and from equity, some forfeiture of some decrease in equity compensation.

So we are overcoming that, and again, when all the dust settles, labor costs as a percentage of sales should be down in 2011 compared to '10.

Okay.

I take that to mean then that you also haven't had any dramatic change in turnover?

No.

Not any dramatic change in turnover.

We still have very good retention rates.

Okay.

And then, just in terms of your consumer, your customer's behavior, say to this point versus a year ago.

What have been the major changes, if any, in their behavior?

Well, I don't -- their behavior, I measure that by what our sales are, right?

So I would tell you that I think that consumer confidence now is certainly not improving at a fast pace, but again, our sales remain very stable.

They are predictable.

We are not seeing a lot of volatility week to week.

And we are doing that in an environment where our sales growth is at full-margin sales, that were not driven by any discounting.

So I would say that the consumer is impacted a lot by the external factors, and that our sales are remaining steady with whatever's going on with the consumer.

Great.

Thanks very much.

Joe Buckley with Bank of America Merrill Lynch.

Yes.

Just a follow-up, two follow ups, actually.

Can you talk about the timing of the international openings next year?

And, Doug, you have talked in the past about the EPS contribution per store -- if you wouldn't mind revisiting that topic.

And then secondly, just the CapEx budget, seems like it's up a lot, relative to the increases in unit openings.

So if you could address the CapEx budget for 2012 [a bit], that would be helpful.

Joe, we think we can get the three stores open between June and September of next year.

So they will be second half weighted, Joe, and basically, just a rough rule of thumb to use, is that for each year that an international restaurant is open, it provides us with about $0.01 in earnings per share.

You know, that is a real rough rule of thumb.

But it is something that is -- you can work into a thought process.

So, if there is three of them in the second, in the last third of the year, that you might get three quarters of a, or to one whole year of openings in there.

We don't know what the volumes will be yet.

We think they will be strong, but we don't know.

Of course.

(multiple speakers)

Go ahead, Joe.

I'm sorry.

I was just going to ask on the CapEx budget.

Yes, the CapEx, the majority of it is for new restaurant openings, the 7 to 10.

And part of maybe what you are missing is that we also have an estimate in there for early 2013 openings.

None of it has anything to do with the three international locations, because we don't make a capital investment in those.

The rest is maintenance CapEx and corporate and bakery CapEx.

We are spending some money putting a second bakery line in the East Coast bakery and so that's some of it.

But, I don't know how much you think you are missing on what's high, but that's a few million dollars.

That is helpful.

You are welcome.

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