Cracker Barrel Old Country Store Inc (CBRL) 2010 Q4 法說會逐字稿

Good day, and welcome to the Cracker Barrel Fourth Quarter 2010 Conference Call.

Today's call is being recorded and will be available for replay today from 2 PM Eastern Time through September 2010 at 11.59 PM Eastern by dialing 719-457-0820 and entering the pass code.

At this time for opening remarks and introductions, I would like to turn the call over to Ms.

Barb Gould.

Please go ahead, ma'am.

Thank you, Christine.

Welcome to our fourth quarter 2010 conference call and webcast this morning.

Our press release announcing our fiscal 2010 fourth quarter results and our outlook for fiscal 2011 was released before the market opened this morning.

In our press release and during this call, statements may be made by management of their beliefs and expectations as to the Company's future operating results or expected future events.

These are what are known as forward-looking statements, which involve risks and uncertainties and in many cases are beyond our control and may cause actual results to differ materially from management's expectations.

We are cautioned to our listeners and readers in considering forward-looking statements or information.

Any factors that can affect results or summarize in the cautionary description of risks and uncertainties found at the end of this morning's press release and are described in detail in our reports that we filed or furnished to the SEC and we urge you to read this information carefully.

We also remind you that we don't comment on earnings estimates made by other parties.

In addition, any guidance or outlook we give or statements that we make regarding trends speak only as of the date it's given and we do not update our expressed continuing comfort with our guidance, outlook or trends, except as required by law and then only in broadly disseminated disclosures, such as this morning's press release, our filings with the SEC in this call.

We plan to release fiscal 2010-11 first quarter earnings and comparable store restaurant and retail sales on Tuesday, November 23 before the market opens.

On the call with me this morning are Cracker Barrel's Chairman, President and CEO, Mike Woodhouse, and our Executive Vice President and CFO, Sandy Cochran.

Mike will begin with a review of the business, Sandy will review the financials and outlook, and then Mike will return to close.

We will then respond to your questions.

Mike?

Thanks, Barb.

Good morning, everyone.

Thanks for joining us today.

Well, here we are with another year gone by.

The economy continues to be sluggish in terms of job growth and consumer spending and yet at Cracker Barrel Old Country Store, we've compiled yet another very good quarter which completes, what I believe, is an outstanding year.

We ended the fiscal year in good shape and now we're setting the stage for continued growth in the coming 12 months.

My confidence in our continued success is based on several factors.

First, our brand is getting top ratings in consumer surveys.

Second, we're picking up market share as we outperform our peer benchmarks.

Third, we continue to improve productivity at the store level.

And fourth, we're gearing up to increase our growth in new stores.

To get through the tough times, you need to stay focused on what's most important, and that's what we did in this past year.

We stayed true to the promise of our brand, which stood us well during what's being now called the great recession.

Consumers knew that they could come to any of our locations and get consistent quality, friendly service, and good value, all at an honest price.

Cracker Barrel Old Country Store is a place to relax and reconnect with family and friends.

We know this because our guests tell us so by their actions and they tell us so in our research.

As I reported last year, Cracker Barrel was chosen for the nineteenth consecutive year as the best family dining chain in the choice and chain survey conducted by Restaurants and Institutions magazine.

This year, of course, I wanted to report a twentieth year for this honor, but I can't, and the only reason is that there was no survey this year.

Restaurants and Institutions recently stopped publishing, another victim of the weak economy.

But even without the long running Choice in Chain Survey, we still achieved recognition for excellence.

In an independent consumer study, Consumer Brand Metrics program, which was conducted by Techno King, Cracker Barrel was rated at the top of the full service restaurants in the casual and family dining categories.

Cracker Barrel was rated the best in three categories.

First, overall attributes and attitudes.

Second, the appearance and ambiance; and third, convenience and takeout.

In fact, we received top ratings in a number of key areas.

Food and beverage quality, quality of the kids menu, being treated as a valued individual, delivering food the way consumers wanted it, delivering good value through prices, service, and ambiance, and a pleasant overall experience.

We were recognized in the Zagat 2010 Consumer Survey of Chain Restaurants as having the best breakfast at a full service restaurant.

And yet in another study which was conducted by a nationally recognized research firm, which covered ten major markets, Cracker Barrel was ranked as number one in family dining in all five of the markets in which we have a meaningful presence, which speaks to our ability to prove -- to provide consistently satisfying experiences wherever we go, as does the fact that our comp restaurant sales in the fourth quarter were positive in all ten of our operating regions.

And for the ninth consecutive year, Cracker Barrel was also selected as the most RV-friendly sit-down restaurant in America as rated by members of the Good Sam Club.

And there's more positive proof of Cracker Barrel strength.

By providing our Pleasing People experience to each guest through consistent execution, better merchandising on the retail side, and expanded food offering supported by advertising, we were able to outperform the Knapp-Track (TM) traffic index throughout 2010, extending our stream to a total of 16 consecutive quarters.

And if we look at this on a two-year basis, we outperformed Knapp-Track (TM) traffic index in the fourth quarter by almost five percentage points; and on the sales index, we were almost eight percentage points above Knapp-Track (TM) and we accomplished all these things without resorting to discounting.

While our relative performance we believe is impressive, we were especially pleased that we had positive traffic in the fourth quarter for the first time since the first quarter of our fiscal 2007.

The fourth quarter coincides with the summer travel season, and we believe we've benefited from a pent-up demand for travel after two years of recession.

The additional good news here is that the returning traveler had the opportunity to experience the improvements in service execution and promotional product offerings that we made in the past two years.

Not only did we grow our top line in 2010, but we strengthened our business model, as we made structural improvements to our cost and also captured the benefits of a favorable cost environment.

All of this was reflected in our very strong financial results.

We reported 2010 full year EPS of $3.62, which was 25% up from fiscal 2009.

And while profits are a key measure of our success, cash flow is the life blood of any company.

Net cash from operating activities was $212 million, which funded $70 million in capital expenditures, dividends of $0.80 a share, or $18.5 million in the aggregate, debt repayment of $65 million, and share repurchases of 1.35 million shares for $62.5 million.

Continuing the programs begun in 2009, we focused on one best way to clarify and standardize execution at every location, every day, but especially on the weekends, when we have our longest waits.

The programs help remind our managers and work force of our high standards of performance that are expected every day.

Having a highly trained work force with a turnover of 72% has helped us deliver on the Pleasing People guest experience throughout the recession.

The Seat to Eat initiative is now rolled out in three regions, and it's live in 190 units.

We have two more regions in the second phase of training, concentrated in Tennessee and the Midwest, and we initiated the first phase of training for three more regions in late August.

We'll complete the implementation in training for all ten regions by the end of the third quarter of 2011.

We've been pleased with the results to date, with increases in traffic, relative to non-Seat to Eat stores, especially at lunch and the weekends, and our guest satisfaction scores for speed of service have improved.

Our food management processes from sourcing to the preparation of each menu offering to the management of waste have improved.

And we'll continue to look at -- for additional ways to eliminate unnecessary costs throughout the operation without affecting guest experience.

For example, in fiscal 2011, we plan to roll out a system-wide energy management initiative.

We're launching two initiatives in fiscal 2011 aimed at improving the guest experience.

The first is a complete overhaul of our lighting in the dining room and in the store; and by obtaining the technology that we use for lighting, we also expect substantial cost savings, as well as enhancing the guest experience by improving the ambiance and also the functionality for the guest.

The second initiative is a system-wide remodel of our restrooms that will start in 2011 and complete in 2012.

By executing our brand strategies over the past two years, we're expanding our share of the full service restaurant industry.

We're continuing to update the core menu by offering lighter, healthier options that appeal to both light and heavy users.

For instance, we added the grilled trout from last fall's promotion to the main menu, and the yogurt parfait and the yogurt muffin breakfast offerings from the spring and summer promotions respectively are now part of the regular Cracker Barrel menu.

Our fall promotion includes an Orchard Grilled Chicken Salad, Apple Herb Roasted Chicken 'n Dressing, and Apple Streusel French Toast for breakfast.

Now turning to the retail side of the business, comp store retail sales were positive for the quarter at 2.6%.

Children's apparel, motion, musical, and novelty toys and the new regional assortments were positive contributors to retail sales over the summer.

Through the brand-driven product strategies and measures to improve inventory productivity, we plan to grow retail sales to a higher percentage of total sales over the long-term.

In this past year, retailer accounted for 20.5% of total sales.

We plan going forward to use marketing support to leverage the synergies between our retail and restaurant businesses to aim for historical peak retail percent to total sales of 24% or better.

Achieving a better product mix in the core categories, apparel, seasonal, and toys, is an important part of the strategy to grow retail sales faster than restaurant sales, and guest feedback in 2010 indicated we're making progress in this area.

Areas of opportunity in retail include additional Cracker Barrel branded food products and increasing our assortment of unique regional items.

We currently offer over 25 Cracker Barrel branded food items and we plan to expand our offerings even more.

Regional items provide the opportunity for the traveler to find something unique to purchase at every Cracker Barrel location they stop at.

Judging from higher guest satisfaction scores, we believe that we're making real progress in creating a better retail experience.

We know that it takes more than a better product selection.

It also takes more training on product information, so employees can be helpful to our guests, and it takes improved visual merchandising and a better system for getting the right product to the right store at the right time.

As I've discussed on previous calls, we have slowed down our development during the last year, opening only six stores in 2010, and in Q4, we closed one store in a deteriorating trade area.

We intend to increase our new store growth in 2011, with 11 new Cracker Barrels.

As you all know, the real estate market has changed dramatically over the past two years.

Areas that were once considered high growth have not developed as expected.

We've used the slowdown to refocus our development plans and improve our ability to execute at a high standard at a new store from day one.

All new units will now open with the Seat to Eat equipment and the training that goes with it.

We believe that we can repeat the successful opening of Nicholasville, Kentucky location, which was the first store to open with the Seat to Eat format in place, and continues to exceed our expectations.

We're always looking at ways to make our units more efficient, especially in the kitchen.

Our kitchen is larger than most restaurants, so our cooks have to take more steps than in other concepts.

In 2011, we'll be working on a new design to capture both operating costs and construction cost benefits in a new prototype that will deliver improved unit economics as we ramp up new unit openings for the next few years.

We anticipate that our strong cash flow will fund all of our capital needs, including highest capital spending for new growth, continued debt repayments, share repurchase to offset dilution and a competitive dividend.

Preserving the integrity of our brand means living out our mission of Pleasing People.

With the right talent at every level, we can continue to deliver a great guest experience, grow our revenues and improve our profits.

The dedicated efforts of 67,000 people who are part of the Cracker Barrel organization make the brand what it is today, a one of a kind experience to share a great meal with family and friends in a down home country atmosphere.

And now I'll turn the call over to Sandy for a review of the financials.

Sandy?

Thanks, Mike.

I would like to review the financials now in more detail.

For the fourth quarter of 2010, we reported a 15% increase in diluted earnings per share to $1.14 compared with $0.99 per diluted share in the fourth quarter of last year.

Our earnings growth was generated by a combination of revenue growth and improved margins.

Revenues during the fourth quarter increased 2.8% to $612 million, reflecting 2.8% top line growth in restaurant revenues and 3.2% growth in retail revenues, which were driven by year-over-year increases in comparable store restaurant and retail sales and store growth.

Operating income grew 9.8%, as operating margins improved by 40 basis points to 7.4% for the quarter, again, as a result of strong store level performance.

Comparable store restaurant sales increased 2.0%.

Our average check increased 1.9%, including a menu price increase of approximately 2.2%.

Guest traffic was positive for the quarter, the first time since the first quarter of 2007.

The effect of Memorial Day being in fiscal June in 2010 had a positive impact on June sales of 1.5% to 2% in the corresponding negative impact on May sales.

All day parts on both weekdays and weekends had positive comparable store sales, so we appear to have benefited from a strong summer travel season in the fourth quarter.

We outpaced the Knapp-Track (TM) traffic index by more than three points this quarter and approximately 2.5 points for the year.

As Mike mentioned, it was the 16th consecutive quarter in which we outperformed the Knapp Track (TM) index.

We believe our strong brand and solid everyday value has enabled us to sustain pricing power and maintain a positive check average.

Cracker Barrel's comparable store retail sales were up 2.6% in the fourth quarter of 2010.

Apparel sales were driven primarily by gains in children's wear and toys were also a strength, as Mike mentioned.

The regional items that we introduced in the third quarter in our collegiate clothing and accessories also sold well.

Gross margin for the quarter improved 110 basis points compared with last year.

On the restaurant side, cost of sales as a percentage of sales was lower than last year because of menu pricing and lower commodity costs.

Commodity costs declined 2.5% compared with last year, primarily because of price declines in poultry, oils, and seafood, which was partially offset by higher pork costs.

Retail gross margin improved, primarily as a result of reduced markdowns.

Labor expenses, as a percentage of sales, were 120 basis points lower than the fourth quarter last year, primarily as a result of lower employee healthcare costs, which we believe are a result of the new plan that went into effect last January.

Management and restaurant hourly labor costs were also lower.

Our hourly wage rates increased in the quarter by just 0.4%, and our continued low hourly turnover, which is now at 72%, has reduced our hiring and training costs and helps contribute to higher gross satisfaction scores and a positive guest experience.

Other store operating expenses as a percentage of sales increased 140 basis points over last year, primarily due to higher maintenance, advertising, and supplies expense.

Maintenance expenses were higher in the quarter because of the timing of sign maintenance and other programs.

Advertising was higher in the quarter because of increased media spending in the quarter, as well as in additional market research to support brand development compared with last year; and the higher supplies expense was related to our menu promotions and a change to year-over-year -- year-round usage of our oil lamps.

In the quarter, we took a $537,000 charge to close 27-year-old store in Georgia because of its age, location, and required CapEx.

As a result of the higher gross margin and favorable labor expenses, store operating income of $83 million was 13% higher than in the same quarter last year, and store operating income margin of 13.5% was 120 basis points higher than last year.

General and administrative expenses were higher by 80 basis points.

This is primarily in the two areas, both of which we discussed last quarter, of higher incentive compensation accruals resulting from our strong performance, and higher manager training expenses compared to last year, as we rebuild our inventory of store managers to prepare for the FY '11 store openings.

Interest expense of $11.7 million was lower than last year's fourth quarter, reflecting lower debt, partially offset by the higher interest rates resulting from the amendments to our credit agreement that extended the maturities of our revolver for portions of our term loans.

Our income tax rate of 18.8% in the quarter is a result of the settlement of a number of state tax audits.

Our net income of $27 million in the fourth quarter was $5 million, or 20% higher than last year.

Our balance sheet and cash flow position continue to be strong.

At the end of the quarter, we had approximately $48 million of cash on hand.

Our retail inventory of $114 million was up slightly from the end of fiscal 2009, reflecting earlier receipts of seasonal merchandise.

At the end of the quarter, our debt, which includes current maturities, was $580 million and there were no borrowings outstanding under our revolver.

The higher level of cash on our balance sheet is the result of our decision not to pay down additional debt, given the level of our interest rate swap.

During the year, we repurchased 1.35 million shares for $62.5 million to offset dilution.

Now, let's move to our cash flow.

In fiscal 2010, cash provided by operating activities was $212 million compared with $164 million in 2009.

The increase reflects our higher net income and continued improvements in working capital management, and an increase in bonus accruals as a result of our improved performance against financial objectives.

Capital expenditures for the year were $70 million compared with $68 million last year.

We paid our current $0.20 per share cash dividend in the quarter, bringing the total amount paid in fiscal 2010 to $18.5 million.

Regarding our outlook, everyone should be mindful of the risks and uncertainties associated with this outlook as described in today's earnings release and in our reports we file with the SEC.

As Mike mentioned, the strength of the economic recovery is a concern.

With that in mind, we are projecting total revenues for fiscal 2011 to be up 3% to 4.5%.

Comparable store restaurant sales for the full year expected to increase 1.5% to 3%, including approximately 1.7% of menu pricing.

We expect comparable store retail sales to remain positive and to increase 2% to 4% in fiscal 2011.

We plan to open 11 new Cracker Barrel units in fiscal 2011.

The land for five stores will be owned and six leased.

Seven of the 11 will be on interstate and four off interstate.

The first two opened on September 6, one in Summerville, South Carolina, and the other in Virginia Beach, a great destination location.

We plan to open the third store on the interstate in Kingwood, Texas on October 4 and that will complete our first quarter openings.

We're forecasting commodity costs for fiscal 2010 to increase 1.5% to 2.5% for the year and we currently have approximately 61% of our commodity requirements for 2011 locked.

We believe commodity costs increases will peak in the second quarter, but will remain higher throughout the rest of our fiscal year.

Pork costs are expected to be up double digits over 2010's low prices, and we sell a lot of bacon and sausage.

Dairy costs, especially butter, are expected to be significantly more expensive than they were in fiscal 2010.

We expect our operating margin for fiscal 2011 to be between 7.1% and 7.3% compared with 6.8% in fiscal 2010, and we expect our full year tax rate to be approximately 27% to 28%.

We're projecting diluted earnings per share for fiscal 2011 to be in the range of $3.95 to $4.10, with approximately 23.5 to 24 million diluted shares outstanding.

We intend to repurchase shares during the year, solely to offset dilution associated with stock option exercises and other share-based compensation.

We expect our growth in earnings per share to be higher earlier in the year, primarily due -- because of the lower commodity inflation in the first quarter and the continuation of lower costs we've seen in our calendar 2010 healthcare plan.

Capital expenditures are forecast to be in the range of $110 million to $120 million, which allows for approximately $35 million to $40 million in maintenance capital, plus investments in new stores for 2011 and 2012, continuing innovation initiatives such as Seat to Eat and special projects like updating our restrooms and lighting packages.

We expect that the cost to build and equip a Cracker Barrel Old Country Store unit, excluding land, will range from $2.3 million to $2.9 million, depending on the location and the size of the unit.

The land costs range from $800,000 to $1 million.

In conclusion, we're very pleased that our earnings per share growth exceeded our sales growth in a challenging economic environment.

With one of the strongest and most highly differentiated brands in the industry, we believe that we're well positioned to take advantage of an improved operating environment and to continue to deliver solid returns to our shareholders.

Now, I'll turn the call back over to Mike.

Thank you.

Thanks, Sandy.

Now, we would like to open the call for questions.

(Operator Instructions).

And our first question comes from Jeff Omohundro with Wells Fargo.

Your line is open.

Thank you.

My question relates to your thoughts around driving retail sales going into this holiday season.

Can you talk through that and also talk about the strategies related to that, that you were successful with last year regarding the reduction in inventory markdowns?

Are there further opportunities on that?

Thanks.

Well, let me take the second half of the question first.

In terms of inventories, we had the cleanest inventories we've had for a number of years.

We really were successful in selling through and cleaning out pretty much everything we have.

As we talked about last year, we used to have storage trailers out back for a large part of the year, so by taking those away, that -- we didn't have places to put the inventory, so really had to sell it through, so we did that.

Going forward, we're going to be much more in control of our inventories and stay that way.

Now, we'll continue to use markdowns to sell through, because a lot of our merchandise is obviously seasonal, but I would expect our markdowns, generally, to be lower than they have been in the recent past.

In terms of Christmas, first of all -- I don't know if you've been in the stores recently, Jeff, but you may have seen Halloween, which is, I think, the most spectacular Halloween floor set we've had.

And that's doing very well.

And Christmas is beginning, is creeping onto the floor.

We expect Christmas -- the quality of the merchandise of Christmas this year I think is going to be very -- noticeably better than it has been.

Our merchants have worked very hard in terms of the -- on the quality side of the merchandise, so we expect Christmas to be successful.

We learned last year how to manage Christmas at the right inventory level and therefore not have substantial end -of-season markdowns downs and I would expect the same to be true this year.

Thank you.

Thank you.

And our next question comes from Joe Buckley with Banc of America Merrill Lynch.

Your line is open.

Thank you.

Just a follow-up to Jeff's question on the retail.

Do you expect to repeat the program from last year?

Yes, we do, Jeff.

We're excited about the assortment we've got planned for that.

Okay.

Then, I would like to ask just a couple owes Seat to Eat rollout.

I think you mentioned that the day part we are getting the most benefit is weekend lunch.

Was that -- ?

That's what I said.

And -- well, I ought to wait for the question, I guess.

I'm curious.

Why that day part?

Is there a reason that the business is skewed that way?

Yes, absolutely.

I think the whole idea of Seat to Eat has been two-fold.

One is to improve throughput and the other is to improve quality by getting the food consistently faster to the table.

On the throughput side, we believe that as we improve throughput -- we know we have long waits at peak times and by improving the throughput, we'll be able to satisfy more of that wait, because there will be more people who are willing to stick around for whatever time period they normally stick around, and that will increase sales.

And weekend lunch is one of those time periods where I think that really is true.

I expect it to happen across all of the day parts, where we have long waits, as the news gets out, if you will, because it's very much a word of mouth kind of campaign, so it's encouraging to us to see the theory is really working in practice.

Okay.

And then are you keeping the operational targets for Seat to Eat in terms of the average service times?

Yes.

And so forth?

Yes.

As we said before, it's a pretty major change, because it touches everyone on the restaurant side of the business in terms of how they do things.

It changes the nature of the job for all of those employees.

When we go in and make the change, it takes a little while for everybody to adjust, but as we go through the adjustment and come out the other side, we're absolutely hitting the targets in terms of time; and as I think I may have said on an earlier call, one of the big benefits is -- not only is the average time coming down, but the outliers, the long tickets, where a ticket gets lost, or something happens, are pretty much disappearing.

And that really changes the nature of the experience to the guest because the -- over time, the consistency, I think, will really impact and improve the guest experience.

Okay.

Very good.

Thank you.

Thanks.

Thanks, Jeff.

And our next question comes from Bryan Elliott with Raymond James.

Your line is open.

Thanks, good morning.

Just a couple questions on the guidance, drill down a little bit.

It sounds like, if I heard correctly, that given where you've locked in your commodities and the 1.5% to 2.5% inflation you expect, you're basically going to price for most or all of that on the restaurant side.

I think I just heard, Mike, you express some confidence that further, lower markdowns and further improvement probably cogs on the retail side.

So I just wondered if you could give us a better sense of what you're thinking on the labor side in particular and given that turnover seems to be picking up a bit -- I think you were in the sixties, the last couple quarters now were in the seventies -- and what turnover assumptions you might be making on the labor line?

Well, let me just address that.

I'll ask Sandy to jump in a minute on the costs.

The way we report turnover for the hourlies is on a year-to-date basis, so it picks up some of the normal seasonal changes.

This time last year -- the end of last year, we were at 77 and the end of this year, we were 72.

And last year, it was, it was down at 76 at one point.

I don't know that there's a big increase in turnover coming.

We're certainly, make certain that with do everything we can to manage our turnover from these low levels.

The rising star program that we've put in place three years ago, I think, this had a big effect on turnover, aside from the benefits of the economy.

So, we're going to focus on managing our turnover as well as we can coming out of this thing.

Sandy, on the labor costs?

So on the store expenses then, Bryan, we've got on the labor side, we've got some initiatives that we hope will result in improvement in our productivity and labor expenses.

We do anticipate lower incentive payments, both in the store side, as well as in G&A.

Those will be -- and some additional advantage from our healthcare program, which will carry through to January.

Then we'll be cycling that.

On the operating expense side, we have made some progress on a utilities initiative, so we're optimistic that we'll get some improvements on the utilities line.

We've got a few one-time -- we've got a few unusual things in maintenance that hit this year that we're not expecting to repeat next year.

So, we've got some opportunities on the store side for next year.

All right.

One last guidance question.

You talk about expecting to be able to buy in the dilution.

This year you spent a little over $60 million and didn't quite get there.

Just wondered if you could give us a little help in what -- how many shares you might have to rebuy?

What's the dilution re-purchase or what kind of general assumptions did you make there to help us out modeling that a bit with respect to your guidance?

What's embedded in the guidance on that issue?

Thanks.

We're not really providing any more detail.

What we've got -- a couple of $1 million options outstanding that could be exercised.

Whether they will be is probably a function of what the stock does over the year.

When we say we'll repurchase it, it might not be the next day.

Some of the exercises we had last year were really quite late in the quarter, and so we would intend to do those repurchases then, soon, or as soon as we see an opportunity in the market.

A better way to phrase the question would be, was this year an unusually high exercise year?

Yes.

The stock price, when it crossed $50, we saw a number of options get exercised.

I think it was unusual.

Okay, great.

Thank you.

Thank you.

And our next question comes from Robert Derrington with Morgan Keegan.

Your line is open.

Yes, thank you.

Mike, could you give us -- now that you've got as many stores which have implemented the Seat to Eat program, can you give us some -- can you size some average metrics as you look at that program?

In other words, how much does the hardware cost per store?

How long does it take to train your folks at that restaurant?

And generally, how much does that training cost figure out on a per store basis?

The total capital was--

$14 million.

$14 million.

Total, and that crosses about $6 million or $7 million of it was last year and the balance of it is in this year.

So that's for the total chain.

We haven't been really very much more specific than that.

It takes several weeks to get the store up to speed, so obviously there was some impacts on some training costs associated with labor and food, because we're training and practicing and, therefore, wasting some food.

Those are built into our guidance numbers, so they were not really a surprise when they happened.

We haven't disclosed, specifically, what those numbers are.

Okay, all right.

And then, Sandy, as we look at the interest expense in the fourth quarter, it's a little bit lower than we had anticipated.

And as we look into this new year, on an annual basis four times the fourth quarter amount is greater than where you're currently guiding for interest expense.

Can you help us size the pieces of that?

You're expecting to pay down your debt.

Is the interest rate, effective rate, for the full year expected to be higher than fourth quarter?

No, but it's built based on probably the usage of the revolver this year versus last year, and the interest rates were higher because of the amend and extend.

Okay, all right.

Fair enough.

And then last point, Mike, when you look at your dividend, you've got a history of gradually increasing it.

Is there any color you can provide as we are looking out into the new year?

Well, I ought to use the caveat that history is no future performance and all that stuff, but we believe in having a competitive dividend; we believe ours is right now.

We're going to continue to make certain that it is competitive.

Great, very good.

Thank you.

Thank you.

Thanks, Bob.

And our next question comes from Brad Ludington with KeyBanc Capital Markets.

Your line is open.

Thank you.

I -- actually, most of my questions have been asked, but I did have one.

I apologize for this.

You probably covered it already, but I had to get on a little late.

On the OpEx line, it was measurably higher than what we projected.

What was the driver of the big increase in operating expenses this quarter?

Brad, it was -- we did cover it.

You'll probably read the comments, but to summarize, it was maintenance, advertising, and supplies.

And the maintenance was largely some programs that we did, sign maintenance, and timing of routine maintenance, some of the Seat to Eat expense comes there.

The advertising with some increased media support and some additional market research.

And the supplies was a variety of things, including support for our menu promotions, and then we decided to use our oil lamps year round and the expense associated with doing that was meaningful in this quarter versus last year.

Okay.

Then we should expect a little bit of that to continue to flow through in the future quarters?

A little bit of it.

Okay.

Thank you very much.

Thank you.

And our next question comes from Steve West with Stifel Nicolaus.

Your line is open.

Yes, thank you.

This is Matt Van Vliet on for Steve this morning, but a couple of questions.

As you've started to roll out the Seat to Eat to a few more stores now, have you been able to reduce the costs of the training or the rollout at all -- just having the corporate people being a little more efficient with it?

Have you been able to realize any of that yet?

Well, yes.

Obviously, the early training, we were learning how to do it, but we pretty much got a routine now that is pretty predictable, so the costs we were experiencing today will be the costs we'll see for the rest of the program, the rest of the rollout.

Okay.

So you probably don't expect to have a whole lot more leverage going forward as you roll it out to new stores?

No.

Okay.

Were there any dramatic differences in the summer vacation traffic trends that you saw, whether it be across regions or across the system, this year that - not comparing to last year, but more to a more normalized year?

Were they up, down?

Can you make any comments on that?

Well, we haven't seen the, the USDOT numbers beyond June, I believe, at this point, where travel was up a little bit, but we certainly believe, as I said in my remarks, that there was some pent-up demand and there was some higher level travel than we've seen for a couple of years.

And I think that's reflected in our numbers.

But I would also stress that as I said also in my remarks, that we saw positive sales in all 10 of our regions, so there were no big regional fluctuations going on.

Okay.

Then finally, on the commodity outlook, with the -- nearly 40% that's not contracted yet, is some of that just kind of strategically waiting until -- whether the costs of the contractor or the cost of the commodity underlying it is expected to come down, or is some of that just a functionality of not being able to contract out far enough out at this point?

There are some commodities where we're not able to contract at all.

Fresh produce is one.

Shell eggs, we can contract out three months.

90 days.

90 days.

With dairy.

But it's really -- a higher percentage is contrary to that.

Only 61% is locked.

Okay.

That's an important distinction.

We have contracts in place, but they don't necessarily always lock to a fixed price.

But we haven't chosen to do the lock.

Partly what you're saying -- in some cases, and we've seen that in the eggs is a good example during the issue, egg prices went up.

They have now settled back down.

Wheat has settled down, although higher than it was last year.

It has settled down as the concerns over the wheat crop have abated.

Okay.

Thank you.

Thank you.

And our next question comes from Michael Wolleben with Sidoti & Company.

Your line is open.

Thank you.

I just wanted to circle back to the retail side of the thing.

Can you give us a little more color on -- with the right sizing of the inventories, where the discounting fell this quarter compared to last, or this quarter compared to a year prior?

Are you asking about the fourth quarter or the--

First quarter.

I'm not sure I understand the question.

Sure.

I mean, the markdowns were?

You saw significantly less discounting, markdowns in the third quarter.

Did that trend continue here with your inventory levels where they were?

Yes, yes, it did.

We had better sell-through while our themes were set on the floor and we had significantly less product as we went into the quarter from prior themes and years and so on, so we had less that we needed to clear through our porch sales to make room for both the Halloween set and the Christmas set.

So just in general, we're doing a better job of sell-through at full retail, or at a lower markdown rate than in prior years, which I think speaks to the quality of the assortment and the products and the initial price.

Can you just remind us when that retail, or that inventory was brought down last year and when you're going to lap that?

What I'm trying to get at here is, when we'll stop seeing year-over-year benefit on the reduced discounting and reduced -- having to sell markdown items?

Well, I think we've largely lapped it at this point.

The problem really began two Christmases ago and we had to work ourselves through that and then through a very disappointing consumer environment, but I think we're largely through that now, although we do have plans and continue to see improvements, as Mike was saying, in both the assortment and some new items and so on.

So we're looking to continue to improve, but I don't think you'll see the same order magnitude going forward.

Okay, great.

That's helpful.

And then on the remodel campaign that you guys mentioned, how many stores are you planning over the two-year period?

And how many do you think you can get done here in fiscal '11?

You mean the restroom remodel?

Is it just restroom remodels?

Yes.

The one Mike was talking about?

Yes.

And that's included in the maintenance CapEx, $35 million to $40 million this year?

No, no.

That's a different one.

The $35 million to $40 million is consist went prior years.

The restroom remodel is really a special initiative that we intend to start here soon.

And we'll hit as many restrooms as we perceive after we evaluate where they are versus where we feel like they need to be.

We'll hit all that we need to over the next two years.

Okay, great.

Thank you.

Thank you.

And our next question comes from Chris O'Cull with SunTrust, Inc.

Your line is open.

Good morning, thanks.

I just had a couple of questions.

Sandy, you mentioned the new healthcare plan and low turnover has helped lower labor costs, but has a new labor management system helped reduce labor costs, or has it been more beneficial to service?

Well, we're still just testing our new labor system, so I wouldn't say it had an impact at all in this quarter.

Right.

We're optimistic when we finish tuning it and we implement it, that it will continue to help us, but that really is not a factor, nor is it a significant issue.

We haven't baked it in really to 2011.

Okay.

In the test results, has the benefit really been around the costs or the service side?

The costs.

Okay, great.

And then one other question.

Should we expect advertising weight to be up year-over-year in fiscal '11?

No.

The increase in the quarter was simply timing, and it wasn't a substantial amount in total.

I would just remind you in the scheme of things, we spend 2%, as you know, sales on advertising, 1% of that's on billboards.

Then there's some other stuff.

What's left for media is quite a low amount, certainly compared with our competitors, so we like what we're seeing with the effects of the advertising, but we have a similar amount built into our guidance as we have spent in the past.

Okay, great.

And then one other question.

Did you mention what the pricing plan was for fiscal '11?

Do you expect to continue to run around 2%, 2.5%?

Yes, what we said was 1.7%.

1.7%, great.

Thanks, guys.

Thanks, Chris.

(Operator Instructions).

Our next question is from Bryan Elliott with Raymond James.

Your line is open.

Actually, Chris just asked it, the advertising.

So thanks.

Thanks, Bryan.

And our next question comes from Jonathan Waite with Precipio Research.

Your line is open.

Hey, this is Jonathan Waite with Precipio.

Question, let me just go to the EBIT margin growth here of the 1030 bps of growth.

Can you just sparse out where you expect to see that leverage?

Sounds like on the commodity side you're not going -- you may or may not see some -- are we going to see more on the labor side, is it going to be other?

You're kind of lapping some of your labor gains here.

Where do you expect to see most of the margin efficiency?

Well, Jonathan, we don't really provide a lot more of detail beyond the guidance that we gave.

What I had mentioned is that where we see opportunities in general is we do see some on the labor line net.

So we'll have improvements in labor productivity and incentive comp, offset by some additional pressure we think in the second half of the year on healthcare.

We won't see the same level improvement.

We'll see improvements.

I think there's opportunities in utilities and maintenance and some other lines in the stores.

And then, G&A will have lower bonus.

We're projecting to be more on target bonus versus this year higher.

That will be offset with spending on these initiatives, as well as our manager training program, which we continue to rebuild.

Okay.

Thanks.

That's helpful.

And we have no further questions at this time.

I would like to turn it back to Mr.

Mike Woodhouse for any closing remarks.

Okay, thank you.

As we look forward to fiscal 2011, just want to express that we still face economic uncertainty.

We don't expect earnings per share to grow evenly throughout the year.

We believe there will be inflation and commodity costs during the year, and we're going to lap the introduction of our lower cost healthcare plan in January, both of which are expected to cause pressure on margins later in the fiscal year.

What we do know about our business is that when families dine out, they are going to be -- remain focused on value.

And that's exactly what we offer.

We're delivering value, which consistently provides for higher scores in satisfaction.

Over the past two years, we made great strides in improving our business and we aren't finished.

We're encouraged about the long-term potential each step of the way and we appreciate your continuing support, so thanks for joining us today.

We'll talk with you again next quarter.

That concludes our call for today.

Thank you for your participation.