Cheesecake Factory Inc (CAKE) 2011 Q4 法說會逐字稿

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

My name is Melanie, and I will be your coordinator today.

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

We will accept your questions at the end of the conference.

(Operator instructions).

As a reminder, today's meeting will be recorded.

I would now like to turn the call over to Jill Peters.

Please proceed.

Good afternoon and welcome to our fourth-quarter fiscal 2011 earnings conference call.

I am Jill Peters, Vice President of Investor Relations.

I am here with Doug Benn, our Executive Vice President and Chief Financial Officer.

Unfortunately, David Overton could not be with us on today's call.

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 the 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.

We will start off the call today with some opening remarks and then take you through our operating results in detail.

Following that, we will discuss our outlook for the first quarter of 2012 as well as the full year and then open the call to questions.

Now I'll turn the call over to Doug.

Thank you, Jill.

The fourth quarter marked our highest comparable sales and guest traffic levels for the year with The Cheesecake Factory and Grand Lux Cafe both solidly positive.

We have now had two straight years of positive quarterly comparable sales.

Each of our markets delivered positive comparable sales, demonstrating the strength of our brand.

Consumers have many choices when it comes to dining out.

Our guest counts rose solidly during the fourth quarter, one more measure that tells us we are doing many things very well for our guests.

Our operators continue to demonstrate their leadership in the industry, resulting in high guest satisfaction scores and, at the same time, a disciplined focus on margins.

Over the past three years, our guest satisfaction scores increased by 20%, which is significant, given that our base level score was already pretty high.

This improvement in guest satisfaction is clearly a key driver of our growth in guest traffic over the last eight quarters.

We saw our highest profitability levels of the year in the fourth quarter with an 8.3% operating margin.

Our long-standing goal is to recapture peak operating margins and deliver mid-teens earnings per share growth, and our performance this quarter illustrates our ability to effectively turn higher comparable sales into profit.

The latest example of our continued leadership in menu innovation is our SkinnyLicious menu.

Without getting into too many details, I will tell you that guests love the new menu and they love having more options.

In Cheesecake Factory style, the flavors are big, the dishes are what people want to eat, the portions are generous and the items are priced to generate full margins.

As to development, we expect to open as many as seven to eight new restaurants in the United States this year, including a new Grand Lux Cafe.

Our first opening of the year is scheduled for next month in Salt Lake City, Utah.

We have tightened the range of our new unit openings as we know that some of our opening dates have shifted out a little bit.

Our desire to expand and our capabilities to do so haven't changed.

We continue to be selective about choosing sites and taking the appropriate business risks to ensure we can hit our required returns.

In addition to our domestic expansion, we are also expecting that as many as three new restaurants will open in the Middle East this year under a license agreement.

We are also continuing to explore other international opportunities.

We are in active dialogue with potential partners to further assess the market for our concept outside the United States as well as build relationships with established multi-brand operators in other countries.

Our performance continues to be in line with our longer-term objectives for growth.

We are moving down the path toward becoming a global brand and are confident in our ability to continue to expand The Cheesecake Factory and to deliver on our earnings growth targets.

Now let's review our financial results for the fourth quarter and our thoughts about 2012.

Total revenues at The Cheesecake Factory for the fourth quarter increased 15% to $478 million.

Restaurant revenues reflect an 11.7% increase in total restaurant operating weeks due to the extra week in the fourth quarter of 2011, the opening of seven new restaurants during the trailing 15-month period plus a 2.6% increase in average weekly sales.

Overall, comparable sales for the 14 weeks that ended on January 3, 2012 increased 2.7% at The Cheesecake Factory and 1.9% at Grand Lux Cafe.

These comparable sales increases generate additional revenue for the quarter of over $11 million.

We had a very strong December, helping drive comparable sales above our expected range of 1.5% to 2.5% for the quarter.

At the bakery, external sales were $29.4 million, down about 7.8% from the prior year, primarily due to lapping a very successful product launch in the fourth quarter of 2010.

Cost of sales decreased 20 basis points to 26.1% of revenue for the fourth quarter.

Dairy costs mitigated on a comparative basis, as we anticipated, and we had some favorability at the bakery.

Labor was 31.7% of revenue in the quarter, up 90 basis points from the prior year.

This was driven by higher payroll taxes and an unfavorable comparison to last year's fourth quarter, in which we saw a significant benefit from the HIRE Act.

Other operating costs and expenses were 24.1% of revenues for the fourth quarter, down 100 basis points from the fourth quarter of the prior year.

There were a number of factors that benefited this line item, including favorability from comparable sales leverage and a reduction in debit card transaction fees resulting from federal legislation.

G&A was 5.1% of revenues for the fourth quarter, down 80 basis points from the prior year, primarily due to leveraging and managing our G&A effectively during the quarter.

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

The favorability on this line item is primarily due to sales leverage.

Following our asset impairment testing, we concluded that it was appropriate to write off the remaining carrying value of three previously impaired restaurants, including two Cheesecake Factory restaurants and one Grand Lux Cafe.

As result, we recorded a non-cash charge of approximately $1.5 million in the fourth quarter of 2011.

Preopening expense was $3 million in the fourth quarter of 2011 versus about $900,000 in the same period last year in support of two additional restaurant openings in the fourth quarter of this year as compared to the same period of last year.

Interest income was $730,000 in the fourth quarter of 2011 compared to $4000 in the fourth quarter of 2010.

Both interest income and our tax rate were impacted by the favorable settlement of a lawsuit we filed against the IRS relating to the deductibility of certain executive compensation for the years 2003 and 2004.

As a result, we recorded interest income of $719,000 and a credit to our tax provision of $1.1 million relating to this settlement.

In summary, we are very pleased with our performance.

We ended the year with a strong fourth quarter, delivering $0.53 in pro forma earnings per share on a 2.7% increase in comparable sales.

For the year, in spite of food cost pressures that were much greater than originally expected at 60 basis points, equating to roughly $0.13 to $0.14 in earnings per share, we leveraged all other operating line items on our P&L to deliver 15% earnings per share growth on an increase of 1.8% in comparable sales.

Our performance is competitively very strong and we hit our targets for the year.

Moving on, our liquidity position continues to be solid.

Cash flow from operations for the full year was approximately $196 million.

Net of roughly $77 million of cash used for capital expenditures, we generated about $119 million in free cash flow in 2011.

During the fourth quarter we used our free cash flow to repurchase about 973,000 shares at a total cost of approximately $27 million.

Year-to-date, we returned about $172 million in cash to our shareholders through share repurchases, slightly above the range we last communicated to you.

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

Now I'll spend a few minutes on our outlook for the first quarter of 2012 and an update on the full year.

As we have 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, the effect of any impacts associated with holidays and known weather influences, which is of positive relevance as we talk about our expectations for the first quarter, given how mild the weather has been so far this year.

For the first quarter of 2012, then, we estimate a range of comparable sales between 2% and 3%.

Based on this assumption, our estimate for diluted earnings per share is between $0.34 and $0.36.

I will note that the 2% to 3% sales range is an operating week comparison.

This is always how we measure comparable sales, but due to the 53rd week last year, there is a one-week shift inherent in the operating week comparison.

Because of this and to assist you in your modeling, we are also providing an estimate of total sales for the first quarter, which is approximately $435 million to $440 million.

I encourage analysts to review their revenue assumptions for both the first and fourth quarters, as I expect that a number of earnings models assume too much revenue in the first quarter and not enough in the fourth.

For the full year the one-week calendar shift does not have an impact on total revenue.

With respect to 2012, we are raising our comparable sales range by 50 basis points to between 1.5% and 2.5%, reflecting the health of our business and confidence in our ability to grow sales.

Based on this comparable sales assumption, we estimate diluted earnings per share in a range of $1.80 to $1.90.

While food cost inflation expectations have moderated some, we are anticipating higher minimum wage costs and higher payroll taxes.

In addition, our corporate tax rate will be somewhat higher this year, in the range of 28% to 29% as we lap the benefit of some federal tax credits, such as the HIRE Act.

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

With that said, we will 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, Bank of America.

Just a question on the first-quarter guidance (technical difficulty).

It's like you're forecasting flattish EPS year-over-year.

Is that right?

And kind of what are the dynamics of that, given the sales forecast?

Well, let's talk about just the comps and the revenues.

I think that what you say is true, but again we are going to be recording -- we are reporting our comps the same way that we always have.

But in the first quarter alone, you are going to see roughly an $8 million difference in the revenue that we will generate in the quarter from what you expect based on that comp store sales guidance.

Our best week of the year, Joe, is not in our revenue in the first quarter.

It was captured in the 53rd week of 2011, and it is replaced by an average week during the quarter.

So a $43 million really good week is being replaced by a $35 million average week.

And that results in a difference of $0.04 plus in earnings per share for the first quarter alone.

For the fourth quarter, as I mentioned in my prepared remarks, I think most people are probably understated on revenue for the same reason.

But on a full-year basis, the revenue and the expected comps should line up with each other.

Okay, just from a margin standpoint, is there more cost pressures in the first quarter, I mean related in part to that revenue differential?

Well, if you want to look at it just from a margin standpoint, a couple of comments I would make -- there's the expectation that commodities, although down off their peak, are still modestly elevated compared to the prior-year first quarter.

But really, the margins in the first quarter are much more a function of the shifting of that big week and the loss of the leverage on $8 million worth of sales.

So if you do some rough math, $8 million worth of sales times 40% to 50% flow-through, will give you that kind of profitability over the total sales is going to be something in the neighborhood of 70 basis points of deleveraging from that alone.

Now, we would expect to see that that deleveraging comes back in the fourth quarter and that for the year we have margin improvement based on the same-store sales range that we gave.

Okay, that's helpful, thank you.

John Glass, Morgan Stanley.

Could you just elaborate a little bit on the real estate pipeline and maybe what happened?

You said 7 to 10, and now I think you are saying 7 to 8, or I think you did say 7 to 8.

And what the shortfall was -- was it developer related, was it Cheesecake Factory?

I'm assuming it's developer.

Can you talk about is that a pattern you expect to continue in 2013 or do you think you can catch up?

And then one last piece to that.

Can you talk about at least some of the newer, smaller markets that are being slower or maybe not as certain, or is it just right across the system and just a couple fell out of the count?

Well, nothing really fell out.

Really, some of our opening dates shifted out a bit.

And as I said on my remarks, our desire and our capability to expand more restaurants has not changed.

We are selective about choosing our sites and taking the appropriate business risks.

But I don't think things have changed all that much from a real estate perspective.

While real estate development looks like it's starting to recover, landlords are not quite in full gear yet.

So any kind of delay in openings is the landlord and site availability-related and has nothing to do with our capability or desire.

We are seeing some landlords starting to do more renovations, which is good for us because, remember, we are not dependent on just new retail development.

But they are moving slowly, so I would expect this to get better as the economy improves and the landlords are more motivated to move faster on these A-plus sites that we're looking for.

And is timing still back-half loaded, or is it more extreme than maybe even last year in terms of opening timing?

I would expect two to open in the first half of the year and five to six in the second half of the year.

Thank you.

And we have three international openings as well, and they are in the second half of the year.

Matthew DiFrisco, Lazard Capital Markets.

Just looking at the guidance, the prior guidance, I guess you have nudged up the comp by a percent and the EPS for the full year, $1.80 to $1.90 sort of remain the same.

In a similar follow on to Joe's question, in the context of the full year, why aren't we seeing more upside on the earnings?

Is there G&A kicking up a little bit or beginning to grow after a couple of quarters of contraction?

I'm just missing what's the incremental, I guess, headwind on the margin front that wouldn't have given you better leverage with the comp upside that you were predicting?

I would tell you that there's probably 20 or 30 basis points of labor pressure that's coming from minimum wage costs in a number of states, primarily Florida, but also Arizona and Washington.

And I think that's probably about 10 basis points of pressure.

In addition, unemployment taxes have increased, which impacted us in the fourth quarter probably about a penny a share in the fourth quarter, and are ongoing for 2012.

Payroll taxes, I think, is what others that I have listened to are referring to them as, but the unemployment coffers in many states are empty and they are asking companies to pay up.

And that's probably another 10, maybe 10 to 20 basis points of pressure on the labor line.

And then I mentioned our corporate tax rate is going to be a little bit higher.

We are lapping the benefit of some federal tax credits that we were able to take last year, primarily related to the retention credits that are part of the HIRE Act.

Okay, and is that completely resolved that they are not going to do a HIRE Act, or are you just taking the conservative approach that they are not going to re-up it?

It's not re-upped at this time, so I wouldn't forecast what future legislation might be.

Okay, thank you.

Andy Barish, Jefferies.

This is Alex Chan for Andy.

Just wondering little bit about fourth-quarter comps and whether or not you could maybe give us some on a 13-week basis, and give a little bit more detail about SkinnyLicious and what lift that might have had.

Sure.

Well, we talked about -- I talked about in my prepared remarks about the strength of December.

The additional week was one of our strongest weeks of the year and definitely helped during the quarter.

But even without that week, we were at about a 2.2% comp with about half of that being guest traffic, so about 1.1% of guest traffic.

So even without the additional week of $43 million in sales, we were at a 2.2% comp.

With respect to SkinnyLicious, as you know, one of the most important ways we differentiate ourselves in the industry is through our menu.

And I would say that SkinnyLicious is really just the latest example of what we continue to do from a menu innovation standpoint.

Guests love the menu, as I mentioned.

They love having more options.

I think that we believe that the desire to eat healthier is a big trend and we think we have the best approach to that.

And our approach is, in Cheesecake Factory style, to have high flavor profiles, dishes that people really want to eat, still quite generous portions and to price them at full margin.

So all in all, we are very satisfied with how SkinnyLicious is performing.

I don't want to get into quoting a percentage of total sales or giving you anything like that with respect to a menu category, because menu categories -- it's simply what we do, is we come up with new menu categories, and this is just the latest example.

Thanks, and then just another quick one.

Uses of 2012 cash -- what's left, sort of an authorization, and how are you thinking about that?

Well, as part of the guidance that we gave, it's assuming that we will use $100 million to do share repurchases during the year, and I would say that that's probably slightly front end loaded.

And then Alex, just to the second part of your question, we have 9.8 million shares left in the authorization.

Okay, great, thanks.

Nicole Miller, Piper Jaffray.

I was wondering, in the fourth quarter if there were any interesting trends you saw from gift card purchases or redemptions, and then also some of your casual dining peers are beginning to execute on loyalty programs and just wondering if you have anything in the works.

Thanks.

Sure, our gift card sales were very good.

They were strong in both the fourth quarter and for the full year 2011, demonstrating the strength of our brand.

There were up not only on an absolute basis, but on a comp basis they were up solidly as well.

We focused some of our marketing spend in the fourth quarter on gift card messaging, which was very effective for us and it resulted in particularly strong sales of electronic gift cards.

So those sales were up significantly.

We have looked at loyalty programs in the past, and currently we do not have one or have plans to implement one.

Thank you.

Michael Kelter, Goldman Sachs.

I was curious about the seven, eight new units that you're going to build in the US, whether you could talk about where they are going to be region-wise -- are they in new cities for you?

Are they secondary locations in existing cities?

Will they all be full size or at are any of these going to be set to smaller size?

And then, related, you could talk about the two that you took the impairment on, what cities were they in, and what is going on with those locations?

Thanks.

Sure, with respect to cities, these restaurants are located all around the country.

Many of them are in existing markets that we are in, some new markets.

But the size of them -- most of them will be the smaller size format restaurants.

We mentioned one of them is going to be a Grand Lux, and that Grand Lux is going to open the northeastern part of the United States next year.

So that will be our look at the new design Grand Lux Cafe decor and design.

The other part of the question, Joe, was?

The two restaurants we impaired.

The two restaurants we impaired -- while we're not going to say specifically where they were, I will say is that they were previously impaired restaurants.

A couple years ago we impaired some Grand Lux's and Cheesecake Factories, and this is just a further impairment of these restaurants.

Some of them are close to the end of their lease term.

The other thing I wanted to ask on new unit development was you talked about looking for future partners in international markets.

Are you considering any equity investments, 50-50 JVs or full ownership, or is everything going to be in the form of some royalty agreements?

I think that we would consider other forms of opening our restaurants other than simply licensing agreements, but that's our desired way of expanding.

So in most countries you our best to be operated in initially with another partner, and I think that what we would consider -- while we would consider making an equity investment, our desired way of doing it is through licensing.

Thank you very much, guys.

Sharon Zackfia, William Blair.

I was hoping you could break down average ticket for us.

I think you have seen that negative mix kind of persistent for the last few years, and just curious if that continued.

And then as you look forward, kind of what your thoughts are on commodity inflation and your plans for pricing this year.

Okay, okay.

First of all, the average ticket -- so 2.7% comps, 1.7% was traffic and 1% was average check.

We had about 1.9% of pricing in our menu, so the mix was about the same as it was the last quarter, about 0.9% negative.

We talked before about incident rates on nonalcoholic beverages, which is impacting almost all restaurant operators.

And as we look forward to the guidance that we gave for 2012, it assumes that the mix will stay about the same.

But I would expect, as I think we've talked before, that over time we would get to keep a larger percentage of our menu pricing.

But I don't know that that will happen quickly.

The second part was -- I've already forgotten.

Commodities.

The commodity inflation, okay.

So I would say this about our purchasing for the year.

We are currently about 50% contracted.

Fully contracted for us is about 60% contracted.

We are still seeing some volatility in the commodities market, and we think the best approach right now is to wait on some of the remaining non-contracted items.

We have seen commodities come down a little bit.

We are locked in on a number of our key products -- poultry and bread as examples -- and we are comfortable with where we are, given what we are seeing in the commodities market.

We would currently expect food cost inflation for the year, based on our contracted items and our thoughts about non-contracted items, to be about 3%, 2.5% to 3.5%, which is down a little bit from what we previously talked about in October.

And the last one is pricing, okay.

So in February, Sharon, we have 0.7% of pricing rolling off of our menu, and I would think that, while we will continue to balance being able to leverage our margins as well as continue to grow guest count, I would think we are going to at least replace that 0.7%, such that we will have about 2% of pricing in the menu, perhaps a little bit more moving forward as we look toward our August menu change.

Great, thank you.

Will Slabaugh, Stephens.

I was curious, on the non-alcoholic beverage mix, you mentioned that you factor that into your guidance as of last quarter, but it did not stabilize for the year along with alcohol as well, dessert mix, things like that.

Just wondering how those fared during the quarter and if you still expect that slightly negative mix to continue throughout 2012.

Well, we haven't factored in that we are going to have a negative mix of something similar to that during 2012.

That's what we factored in.

It's -- the nonalcoholic beverage sales have stabilized, but they are still not going up.

So until we see the non-alcoholic beverages lap around such that we have higher incident rates in the current you than we have in the future year, it's just prudent, I think, from a modeling and guidance standpoint to not expect that the mix improves until it does.

Okay, great, thank you.

Bryan Elliott, Raymond James.

I just missed a couple of disclosure items, Doug, when you were going through the historicals -- the CapEx, and I think you gave cash flow from ops for 2011.

Well, CapEx for the year is expected to be between $100 million and $110 million, so we've revised that downward just a little bit.

And what was it in 2011?

What was it in 2011?

It was $77 million.

And did you give cash flow from ops for 2011?

It was $196 million for 2011.

Thanks.

And on the fourth quarter -- or -- yes, the benefit of the extra week from the fourth quarter, have you attempted to quantify what maybe the EBIT contribution from the extra week was?

Well, it's really hard to estimate with any precision the earnings from that one week.

But on a simple prorated basis, if you think about it, it was a $43 million week.

And if you take $43 million over the total sales for the quarter and multiply that by the EPS for the quarter you will get that it was $0.04 to $0.05.

Make sense?

But that essentially assumes full cost allocation, weekly accruals for all the cost?

That assumes a simple prorated basis, as I described to you.

Yes, well, just understanding when you say pro rata, there's no leverage assumption in that pro rata.

Right?

You're just taking the --

There's nothing -- it's 43 divided by total sales times EPS.

That (multiple speakers)

Okay, yes, right.

Because otherwise, I started off saying it's really impossible to really figure out exactly what the impact of that additional week is.

We've had ad nauseam discussions about that internally.

Okay, fair enough.

The last question is on the tax credits that expired.

So it sounds like you booked some of those credits against labor expense and some of them in the tax line, historically.

Is that true?

In 2010, the HIRE Act had -- when you hired someone, you got a credit basically on payroll taxes, which was labor.

In 2011, if you kept those people hired, you got a credit and it went to taxes.

Okay.

So in 2012, we don't have the labor or the tax piece.

Got you.

Okay, I didn't realize there was a credit against the payroll tax.

Okay, great, thanks.

Mitch Speiser, Buckingham Research.

Doug, can you give us a little more color on the food cost outlook as it relates to dairy, what has been locked, what hasn't been locked?

Well, dairy is one of the more favorable items at least on a comparative basis with the prior year.

On a comparative basis, dairy and cheese have come down from where they were last year and some other products as well.

And it's just in terms of what we have contracted on dairy.

Fluid dairy is something that we are unable to contract on and we have contracted some of our cheese and other pieces of dairy, some of our cream cheese.

But as Doug mentioned, we are not fully contracted for the year, and that is part of our strategy.

Okay, thanks.

And another question on -- the competition has been, seems to be stepping up in terms of what I call bundling type meals.

And just wondering, when these new bundling offers do come out and they are nationally advertised, do you feel any impact, albeit even near-term, from these bundling meals being pushed from a lot of your peers?

I think that bundling, discounting, whatever you want to call it, has been going on for a long period of time.

As you know, we are focused on driving full-margin sales at a range of price points.

So I don't think that this is new.

I don't think that the bundling and the deals ever really stopped.

And so in spite of that, we have been comping positive and growing our guest counts in the last couple of years.

So I don't think that we are seeing a big impact from them, or they are already factored into the sales that we are doing.

Okay, great, thanks.

And if I could just -- if you don't mind, just on the extra week, and as I look at the fourth quarter it seems like the fourth quarter lines up very similar, fourth quarter 2012 to fourth quarter 2011.

I thought you mentioned maybe you would get that $8 million back in the fourth quarter, or so.

But it looks like your fourth quarter this year ends on January 1 and maybe the fourth quarter 2011 ended on January 3.

So are those two extra days extremely meaningful, or can you just explain why you think you might make up that $8 million in the fourth quarter when the 13-week periods kind of line up a little more similar this year?

Yes.

The math is complicated, so I'm probably not going to do it justice.

We may have to sit down off-line with a calculator.

But here's what I would say to you.

I would say that last fourth quarter was a 14-week quarter.

It had the huge week in it.

This year's fourth quarter will also have the huge week in it, but that huge week will be spread, for the quarter, over a 13-week period of time, which is going to have a significant bearing on margins for the quarter.

And as far as just the math goes, I would like to just work through that with you off-line absent that.

But we've gone through this.

We know that we are going to work -- we feel comfortable with our guidance that we have given for the year.

And it comes back some in the third quarter and some in the fourth quarter from a margin standpoint and a revenue standpoint.

Keith Siegner, [The Cheesecake Factory].

It's with Credit Suisse.

This is actually Karen Holthouse for Keith today.

One quick just bookkeeping question.

When you gave the -- talking about how comps are actually on a comparable sales week basis, is that the same for the average weekly sales number?

Karen, do you mean is the average weekly sales number on a 14-week basis?

Yes, is it on -- when you say like the comp is on a comparable week, so yes, comparable week basis, so it doesn't really pull in that -- or, yes, I guess a 14- to 14-week basis is another way of saying it.

Right.

So that 2.6% increase in average weekly sales is on a 14-week (multiple speakers).

It's computed in the same manner in comparing the same weeks that the comp store sales number did, so it's apples to apples.

Okay, thank you.

And then could you help us understand just with the 14th week in the fourth quarter how much that might have helped restaurant margins for some of the areas where you are really accruing cost on a 13-week basis or quarterly?

Well, we accrued cost for every week, so we didn't drop a week of labor or not accrue for G&A.

So the accruals were all done.

With that said, there might the some small margin benefit from having that extra week.

But generally, all the costs are accrued.

The big benefit was because it's such a big week.

In fact, it was -- at $43 million, it's the biggest week in the history of the Company.

So it had significant leverage created on the fixed and semi-fixed costs that we have on our income statement just from the fact that it was such a big week.

Okay, and then one other quick one -- what are you seeing in terms of turnover right now versus the same period last year or last quarter, increasing or decreasing or anything there?

Management and crew turnover -- our retention rates for people are very good right now.

They continue to be good.

Thank you.

John Ivankoe, JPMorgan.

Just really quickly, I'm not sure you answered the question that was asked earlier about the mix of the smaller format versus bigger format units in 2012 and whether you think that might have an average in volume impact (multiple speakers) for the new units, I'm referring to.

Yes, the new units will be the -- the majority of the units we'll build for 2012 will be the smaller format, and it shouldn't have any impact, depending on how you look at volumes.

So on a sales per square foot basis, we would expect that not to be impacted.

If you build an 8000 square foot restaurant and it does $1000 a square foot, that's obviously $8 million as opposed to a 10,000 square foot restaurant at $1000 a square foot.

So $1000 a square foot is what it really takes, John, to be able to drive the returns that we are looking for these restaurants.

Of course, understood.

And with I guess you're being a large number of smaller format restaurants, is there an opportunity to reduce the preopening per unit?

And on that basis, what's in guidance for preopening in 2012 on a dollar basis, if you have that?

What's in preopening is roughly -- Jill, make sure I get this right -- $10.5 million, somewhere, $10 million to $11 million.

And I think that you might have slightly less preopening, but really -- not really.

We go into a restaurant and have to -- there's, I guess, a few less people to train because maybe you don't need as many people in a smaller restaurant as a bigger one.

But generally our preopening expenses are not going to be less for a smaller restaurant.

When you look at preopening costs, 70% of the cost to open a restaurant is related to training the staff there.

So we are not going to invest any less in the smaller format restaurants than we would in a larger restaurant.

Of course, understood on a per square foot basis, but maybe, I thought on just an absolute restaurant basis -- but, okay, I hear you and understand you.

And then finally, if I may, again just really tightening up some loose ends here, the G&A in dollars -- the fourth quarter, given the extra week, maybe is a little bit light for what I thought.

But could you just help us with what the 2012 number would be?

For G&A?

Yes.

I would say when the dust settles that we will be somewhere just north of $100 million.

Okay, so really, some very, very good cost control and G&A in 2012 versus 2011; that's basically flat?

I mean -- well, I guess I'm maybe -- I'm looking at my old model, maybe up 4% or so?

Great leverage.

I don't know if you're talking about margins or you're talking about dollars.

Dollars.

Okay, yes, and some of it -- John, last year we had very -- we had a year where we earned over 100% bonus payout; this year, not as much, partially impacted by the 60 basis points of cost of sales pressure that hit us.

So there's a little bit less bonus accrual in this fourth quarter as well.

Okay, but importantly, as we go on into 2012 you are thinking just over $100 million?

Yes.

Okay, all right, thanks, that's it for me.

Jon Komp, Robert Baird.

Just one clarification question on Q4.

On the tax rate, on a non-GAAP basis, the tax rate looked a little bit lower than where you have anticipated.

So I just want to confirm my math is correct there, and then also ask what drove the variance.

On taxes on a quarter to quarter basis, there's often timing issues with respect to items that are impacting that line.

And if you exclude the impact from the IRS settlement, which we carved out in the press release, the rate was a little bit lower than what we expected.

And that was in part due to another smaller settlement that was favorable to us.

A better read, I would tell you, of our tax provision is to look at the full-year number, which we thought would be for the year would be between 27% and 28%, and it was pretty close to 27% for the full year.

Okay, that's helpful, and maybe just one more longer-term picture.

I know in the press release, I think David actually mentions being more confident in achieving mid-teens EPS growth as you begin the global expansion.

So I just wondered if you can give any more color on the contribution to the algorithm as you look ahead, how meaningful that international piece could be.

Well, three restaurants are opening this year, and next year, in 2013 we really don't know, but let's assume that in 2013 that two other ones could open either that we thought we'd sign another deal or that we have continued growth from our current partner in the Middle East.

If there are five restaurants open for close to the entire year 2013, each restaurant -- just roughly, rough rule of thumb -- could equate to about a penny in earnings per share.

So you could get $0.04 or $0.05 in earnings per share out of the international growth in 2013, which on just a base of let's say $2 is about 2% more growth out of international piece, on an earnings per share basis.

All right, thank you.

John Dravenstott, KeyBanc.

You mentioned the favorable weather to start the year here, and you guided to 2% to 3% same-store sales for the 1Q.

Is it fair to assume that your trend to date is above that 2% to 3% range, given that favorable weather?

Well, certainly, we have -- we are trending very positively right now with that, given a real number to you.

Here's what we've done.

We've gone, looked at the comp store sales that we have to date.

We haven't factored in that the weather is going to be better or worse than normal for the rest of the quarter.

Right?

So if it's worse than normal, then I guess we could be impacted.

But it's fair to say that our comps are strong right now, yes.

Thank you.

[Greg Margolis], [BMP].

You mentioned on the call, your long-standing goal is to recapture peak operating margins, which was 11%.

Can you just talk about the time frame that it takes to get there and perhaps any more color on what needs to happen for you to get there?

Okay, sure.

Now, let me just correct 11%.

11% was back when they didn't make us expense stock options.

So to put it on an apples to apples basis, the operating margin number that we're looking at is 9%.

Okay, so to get the 9%, we've got to really be able to continue to drive comparable store sales like we have been doing.

The good news today, Greg, is that we are at the average unit volumes, our sales per square foot that we are at today, we have higher operating margins than when we were last at that level of sales per square foot.

So the cost management initiatives that we implemented in 2009 and in 2010 primarily have brought our cost structure down such that, at a lower sales volume, we can achieve peak margins.

So our peak margins were at a sales volume per restaurant.

We really have to start talking about it on a per square foot basis, but on per restaurant of around $11 million.

So we are at $10 million or so today.

So if you assume comp store sales increases of 2% to 3% over the next few years, you can add a couple hundred thousand to that per year.

And before we get to $11 million, if it holds like it is today, which there is no reason to expect that it wouldn't, that at a volume less than $11 million we should be at close to peak margins.

Okay, thank you.

Conrad Lyon, B.

Riley.

I think earlier you alluded to that some of the impaired stores may be near their lease term.

I just wanted clarification.

Does that mean that you might consider closing the store?

Well, if it's near the end of the lease term, we might move it to another location.

We might open another one close to it, yes.

Got you, okay.

Second question -- just because some of the newer units will be smaller square footage, could you provide any color with the opening schedule for the year?

I just don't want to overestimate sales for a particular quarter.

Yes, two in the first half of the year and five to six in the second half.

Okay, great, thanks.

Matthew DiFrisco, Lazard.

Just looking at the price increase I think you have something rolling off in the first quarter here.

You were maintaining 1.9, I think you said earlier the call.

I think I have down that you had a 0.7 that you took in Q1 2011.

What are your plans for that price increase or the timing of that to re-up it, or maybe even raise it a little bit?

The timing is the same, so when the old one rolls off approximately, will be -- the new one will come on.

And what I said is that we would at least replace what is rolling off, and perhaps -- which will give us about 2% of pricing in the menu, perhaps a little bit better than that.

But I would guide you to think that we'll have at least 2% of pricing in our menu.

Okay.

And then just putting everything that you gave as far as G&A, the tax rate and the labor deleverage and your comp, if the math looks right, it looks like even on the low end of your EPS guidance of $1.80 to $1.90, that you are implying about 50 or so basis points of restaurant operating margin leverage.

Would that be correct?

At the low end, I don't think it's that big, but we could talk through it.

You have to -- I don't think it's that big at the low end.

I would say that somewhere between anywhere from roughly 20 basis points to 50 or something like that is the high and the low end.

I don't think it's 50 at the low end.

But that would be then the leverage in itself not only from COGS, but also coming from other operating expenses, given the current comp environment?

It would consider leverage on all the line items on our P&L.

And, Matt, Doug is talking about operating margins.

He's not looking at -- on a restaurant margin basis.

(multiple speakers).

Right, okay.

Yes, it's operating margins, yes, that's right.

What were you asking about?

I was asking about restaurant margins, because you gave the G&A.

So I see that G&A looks like it's flat or almost a slight deleverage.

And then I might've missed it, but did you say -- is David abroad, did you say?

I missed that, sorry.

His traveling today, so he wasn't able to be in California for the call.

Okay, thank you.

John Glass, Morgan Stanley.

Doug, last year you quantified the weather in the fourth quarter, the benefit or the detriment to weather.

And I'm sorry if I misheard you were didn't hear you.

Did you quantify what the benefit you thought in the fourth quarter of weather was?

Yes.

Last year, what we said was it cost us about 1%.

So I would say that when we did our guidance for the fourth quarter for this year, we factored in the fact that we didn't expect that awful weather from last year to continue, so we factored in more normalized weather, which is what we got.

So you can look at roughly maybe our comps had a 1% weather benefit compared to last year.

Okay.

And then just thinking about driving traffic in this business, a lot of your peers have seen the acceleration in traffic, but of course on smaller volumes.

In the past you have talked about things such as maybe bounce-back promotions, for example, or you have talked about promoting curbside, or whatever you have done in the past in your way of promoting or driving traffic.

What are you thinking about for 2012 that will be incremental in terms of traffic generation?

If you look at our traffic, it has been impressive -- the thing that impresses me about it, it has been so steady.

In fact, if you look at it on a two-year basis, it's right around 2.2%, somewhere in that range.

The things that we do -- I will mention a couple.

Our guest satisfaction scores I talked about on the call.

They continue to rise.

We set ourselves apart on food and service, and I think the guests see that.

And our execution is very good.

So we work on those types of things.

We work on retention and training of our people.

But we also make investments in infrastructure.

So a good example of that I've talked about before is -- and the investments in infrastructure are meant to improve the guest experience and, hence, drive traffic in that manner.

And one of the things that we have done -- I've mentioned the front desk system before.

Our BI tool allows us to analyze information from the front desk system from -- abandons, for instance, people that take a pager and don't ever wait around for their table, or it helps us to analyze at quote time people walk away.

We use that information, then, to be able to hone our experience and give better guest experiences.

The other thing we use is -- we use marketing to support and build our brand.

Our goal in marketing is really to convey to our guests and our audience that quality above all else is how we are run and that we are a chain in name but we're not a chain in practice.

And a good recent example of something that we've done associated with marketing is we put our Chief Culinary Officer on the Martha Stewart Show, really to show the seriousness of our food.

He made a recipe on the show that showed that we had three sauces that were made from scratch and really helped solidify what made from scratch really means.

So marketing has been -- we are very focused on our brand building, and that has been what has helped us drive sales.

And we are using social and digital media to help do that from a marketing standpoint.

So those are a couple of things that I can think of right away.

Thank you.

Ladies and generally, that does conclude the time that we have available for questions.

We would like to thank you for participation in today's conference.

You may now disconnect, and have a wonderful day.