Cracker Barrel Old Country Store Inc (CBRL) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the Cracker Barrel third-quarter 2012 conference call.

Today's call is being recorded and will be available for replay today from 2 o'clock PM Eastern Time through June 5, 2012, at 11.59 PM Eastern by dialing 719-457-0820 and entering passcode 397-4901.

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

Please go ahead.

Thanks, Vicky.

Good morning and welcome to Cracker Barrel's third-quarter fiscal 2012 conference call and webcast.

This morning we issued a press release announcing our third-quarter results and outlook for the fiscal 2012 year.

In this press release and on this call, we will refer to non-GAAP financial measures for the current fiscal year and third quarter, adjusted to exclude charges and tax effects related to severance from our recently announced reorganization and to the proxy contest concluded at the Company's Annual Meeting of Shareholders last December.

We will also refer to non-GAAP financial measures for the previous fiscal year and third quarter, adjusted to exclude a gain on a sale of a property and related tax effects.

The Company believes that excluding these charges, gains and tax effects from its financial results provides information that may be more indicative of the Company's ongoing operating performance while improving comparability to prior periods.

This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP.

The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.

The press release can be found in the Investor section of our website, crackerbarrel.com.

In that press release and during this call statements may be made by management of their beliefs and expectations of 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 management's control and may cause actual results to differ materially from expectations.

We urge caution to our listeners and readers in considering forward-looking statements and information.

Many of the factors that could affect results are summarized 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 file with or furnish to the SEC.

We urge you to read this information carefully.

We also remind you that we do not comment on earnings estimates made by other parties.

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

On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran, and Senior Vice President and CFO Larry Hyatt.

Sandy will begin with a review of the business and Larry will review the financials and outlooks.

We will then open up the call for questions and Sandy will return to close.

With that I will now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran.

Sandy?

Thanks, Coco, and good morning, everyone.

I am pleased to report strong third-quarter results which exceeded our previously stated expectations.

The business initiatives that we outlined in September of last year continue to gain traction and for the second consecutive quarter we outperformed the industry by beating the Knapp-Track Index for sales and traffic.

Despite continued increases in commodity costs, we also posted improvements in our profit and profit margins which resulted in a nearly 50% increase in EPS from last year on an adjusted basis.

Overall, we are encouraged with the pace of our progress and pleased to report that Mother's Day, which occurred early in the fourth quarter, was the highest combined restaurant and retail sales day in the history of the Company.

As a result of our continued success, we are again raising our earnings guidance for the fiscal year.

During our Analyst and Investor Day on April 26, we shared consumer research highlighting the strength of our highly differentiated and unique brand.

We noted that the Cracker Barrel brand has high reach among boomers and the millennial generation.

Recent research by Technomic, a well-respected restaurant industry firm, indicates that members of the millennium generation consider Cracker Barrel to be among the top restaurant brands for equality and social responsibility.

We also presented our three-year strategy which consists of enhancing our core business, expanding our store footprint, and expanding the Cracker Barrel brand.

The first element of our strategy, enhancing the core business, includes the 6 business priorities that I've focused on since becoming CEO.

We have made significant strides in these initiatives and will continue to work to improve operations, drive profitable traffic growth, and expand our margins.

With regard to the second component of our strategy, expanding our footprint, we expect to add between 12 and 15 new stores a year and grow our footprint at a rate that allows for optimal site selection and consistent execution.

This fiscal year, we are opening 13 new stores and we anticipate a similar number of new stores in fiscal 2013.

The third component of our strategy is to leverage the power of the Cracker Barrel brand by sending it beyond the 4 walls of our stores.

Over the long term, we are confident that we can create additional value and further connect our guests and reach new guests through further initiatives such as e-commerce and licensing.

Larry will review the financial results for the quarter in more detail.

And I will spend most of my time this morning updating you on the progress we are making on enhancing the core business through our 6 business priorities.

Our first priority is our new marketing strategy, which we launched early in the second quarter.

We refined our media target to women ages 25 to 54, who are likely to be married with children, employed and live in smaller cities or suburbs.

We've concentrated our advertising spending in the second and fourth quarters in order to provide advertising support for the entire chain during our peak sales periods.

We were encouraged that our sales trends in the third quarter continued to outperform the industry despite the planned absence of broadcast support.

Building on the success we had in the second quarter, we plan once again to cover 100% of our system with national cable TV advertising and 70% of the system with spot radio advertising during the fourth quarter to help drive traffic through the summer travel season.

Our efforts to increase the use of social and digital media to extend the Cracker Barrel experience and to reach our guests outside the store are gaining momentum.

Facebook engagement remains strong with our base of followers growing 49% during the quarter.

Twitter participation also continues to grow rapidly.

We are excited by our launch in April on the online pinboard, Pinterest, a site that allows our guests to share photos, recipes, and stories which build their connection to the brand.

We continue to reach customers through our website as well and we look forward to a planned online event, the All-American Spin and Win Game, expected to launch in June as part of our summer promotion.

As we discussed in our Investor DAY presentation, we view our investment in billboard advertising as a competitive advantage.

Our over 1,600 billboards increase visibility and awareness while our guests are traveling and build brand recognition and familiarity with potential guests.

Our strategy is to regularly reinvigorate our billboard messaging through fresh creative and we have a new campaign in final development.

Our new billboards will have an updated look and reinforce the messaging of our Handcrafted by Cracker Barrel campaign.

We expect to launch them early in fiscal 2013.

Our exclusive music program continues to be a success, creating significant brand impressions and building awareness.

Our latest release in April was a DVD CD set by Dolly Parton called An Evening With Dolly.

It debuted strongly and held the number 2 spot on Billboard's Top Music DVD chart for 3 consecutive weeks and it also earned a Gold Award which is a first for Cracker Barrel's exclusive music program.

In addition, Dolly drew national media attention with the release and generated strong positive impressions for the Cracker Barrel brand.

Our second business priority is refining our menu and pricing strategies with the focus on value, affordability and variety.

Since we introduced our $5.99 weekday lunch specials last September, our scores for value have consistently improved among our guests and lunchtime traffic grew the most of any day part in the third quarter.

Our lunch program is an important element, both in driving our overall sales growth and creating a solid value perception of the brand.

Our seasonal promotion is still dining frequency by providing our guests with variety through limited time offerings that appeal to both our most frequent guests and our lighter users.

Our spring promotion began in mid-March and runs through May 23.

For lunch/dinner, we are featuring our fancy fixed (inaudible), along with shrimp and grits and a grilled chicken and spinach salad, which is a personal favorite of mine.

For breakfast, we are featuring multigrain pancakes and our wholesome morning sampler with strawberries and raspberries.

We are pleased with the guest response to the promotion and it has exceeded our expectations for sales mix.

In addition, we are focused on enhancing our core menu by increasing and expanding the choices available to guests who are looking for a lighter, fresher, and more nutritionally balanced meal.

In conjunction with our upcoming summer promotion, we will introduce a comprehensive refresh of our salad offerings.

We are overhauling our primary salad by enhancing our mix of salad greens, changing fresh ingredients and introducing brand-appropriate elements such as deviled eggs.

We are excited to introduce a new offering our grilled chicken and fresh vegetable salad, which features an appealing blend of fresh vegetables and has less than 600 calories.

Our salad line will be featured with the menu insert and supported by radio as part of the summer promotion.

We also have work underway to reposition our country dinner plates and add healthier sides and choices at all mills and we will provide an update on these plans as they develop.

Moving to our third business priority, to enhance our operating platform, we completed the introduction during the quarter of equipment and technology updates, which make it easier for our employees to deliver a consistent guest experience, and we also rolled out an enhanced production planning system.

This system helps our managers better organize food preparation, and we expect the results to be improved food quality and reduced waste.

In connection with these in-store improvements, we are working on other systems and processes that reduce the time our management team spend on back-office tasks such as ordering and processing invoices.

As a result of ongoing enhancements to our operating platform, our guest satisfaction scores have continued to improve across key measures of the guest experience.

In particular we are pleased with the increases we have seen in overall satisfaction, intent to recommend and overall value, all of which are up compared to the third quarter of last year.

Overall we believe our operational initiatives and execution contributed to our beating industry sales trends.

We are also working with Mindshare Technologies to upgrade our capability to gather guest feedback.

The new system will increase feedback choices for guests, allow for data collection in other languages and integrate voice comments directly into store ratings.

Our fourth business priority is growing our retail business and we reported a second consecutive quarter of comparable retail store sales growth.

Apparel and accessories continue to be sales drivers with strong performance in jewelry and women's and children's apparel.

Within this category we offer a unique and appealing assortment at a good value.

Partially offsetting these categories was our Easter product, which was negatively affected by a calendar shift that created a shorter Easter selling season.

As we discussed on our last conference call, during economic uncertainties seasonal product purchases tend to be more discretionary.

The most important recent development in our retail business was the addition of Laura Daily, our new Senior Vice President of Retail.

Laura brings over 20 years of experience as a merchant with a number of retailers, most recently with Ballard Designs where she was in charge of all merchandising and trends for the company.

Laura's strong brand perspective will strengthen the appeal of our merchandise and her deep knowledge of customers and what they want will help position our retail business for continued growth.

We also announced important changes to our field organization in April, aligning our retail and restaurant operations to better deliver the Cracker Barrel brand experience.

We are pleased with the success that we are seeing with our fifth business priority of focused cost reduction, which resulted in sustainable improvements in our cost structure and contributed to higher operating margins for the third quarter.

While commodity cost increases continue to be a challenge, we are beginning to see a moderation in inflation trends.

As we said on our last conference call as we completed the rollout of phase 1 of our enhanced labor management system in the second quarter.

Using this system, our managers are more accurately forecasting sales and scheduling labor.

We've been pleased with the cost savings we have generated so far, which are at the high-end of our expectations and we expect to see continued improvement as our store management teams become more proficient with the system.

In addition, as expected, our new transportation management system is fully implemented and will reduce costs by optimizing our routing schedules from our retail distribution system center to our stores, especially during peak retail sales periods.

As I mentioned earlier, we are also completing a restructuring and realignment of our field operations during the third quarter.

In conjunction with the restructuring of certain home office functions, these changes are expected to deliver annual savings of approximately $5 million.

Finally, we remain committed to our sixth business priority, maintaining a balanced capital allocation.

Our Company generates substantial cash flow as evidenced by $142 million of year-to-date cash flow from operations which was substantially higher than we generated last fiscal year to date.

With our strong cash flow, we intend to balance reinvesting capital to profitably grow the brand, repaying debt within the established leverage targets and returning capital to our shareholders through dividends and share repurchases.

Our ongoing cash flow generation followed operating performance and consistent execution of our business plan gave our Board confidence to increase our dividend by 60% to $0.40 a quarter.

Before turning the call over to Larry, I would like to reiterate that we are pleased with our performance and progress in the third quarter, which reflects the success of our continued focus on our six business priorities.

We believe our plans to strengthen our core business are working and -- with sales increases and margin improvement and we have solid momentum heading into our final quarter.

And with that, I will turn the call over to Larry to discuss our financials.

Good morning, everyone, and thank you, Sandy.

I would like to discuss our financial performance for the third quarter of fiscal 2012, our update, our outlook for the fourth quarter and 2012 fiscal year and provide some initial thoughts for the 2013 fiscal year.

In this morning's release, we reported our financial performance for the quarter and year-to-date on a GAAP basis and adjusted for charges related to the recently announced field reorganization.

Adjusted for those charges, we reported net income for the third quarter of $20.1 million or $0.86 per diluted share.

In comparison our net income in the prior year quarter adjusted for a gain on a property sale was $13.6 million or $0.58 a diluted share.

Consequently, our adjusted net income per diluted share was 48.3% higher than in the prior year quarter.

Our revenue in the quarter was $608.5 million compared to $582.5 million in last year's third quarter.

Our restaurant revenues increased 5% to $500 million and retail revenues increased 2.2% to $108.5 million.

Our comparable store restaurant sales increased 3.1% as traffic increased 0.6% and average check increased 2.5%.

The increase in average check reflected menu price increases of approximately 2.4% and a favorable mix impact of 0.1%.

Our comparable store retail sales increased 0.3% in the third quarter.

Our total cost of goods sold in the quarter was 31.2% of revenue, a 30 basis points increase over the prior year quarter.

Our restaurant cost of goods was 27.1% of restaurant sales compared to 26.9% in the prior year quarter.

Our food commodity costs were 4.5% higher in the third quarter than in the prior year quarter, as costs for seafood, beef, cooking oil and coffee were up sharply from last year.

Our retail cost of goods was 50.1% of retail sales compared to 48.8% in the prior year quarter.

This 130 basis point increase is due primarily to higher product costs for certain merchandise categories and higher freight expenses.

Our retail inventories at the end of the third quarter were $96.4 million, representing a reduction of $2.2 million compared to the prior year's third quarter.

Our store payroll and related expenses were $235.3 million or 38.6% of revenue compared to $227.4 million or 39% of revenue in the prior year third quarter.

Our hourly wage expense was 40 basis points lower as we continued to see the productivity improvement from our enhanced labor management system.

Our employee benefits expense was 30 basis points lower due to a favorable retro adjustment that was partially offset by higher claims experience.

Fees reductions in hourly wage and employee benefits expenses were partially offset by higher store management bonus expense due to our relatively strong performance in the quarter and higher payroll tax expense.

Our other store operating expenses in the quarter were $109.9 million or 18.1% of revenue compared with $112.1 million or 19.3% of revenue in the third quarter of the prior year.

Advertising expense, which is included in other store operating expenses was 50 basis points lower in the third quarter than in the third quarter of the prior year.

As we discussed in our first and second quarter conference calls, we have changed our quarterly pattern of media spending with relatively higher spending levels in the second and fourth quarters and lower spending levels in the first and third quarters.

For the full year, we expect advertising spending to be close to the historical level of approximately 2% of revenues.

Our expenses for utilities, supplies, insurance and credit card fees as a percent of revenue were lower in the third quarter than in the third quarter of the prior year.

Our store operating income was $73.7 million or 12.1% of revenue compared with $63.2 million or 10.8% of revenue in the prior year quarter.

Adjusted to exclude severance and related charges, our general and administrative expenses in the quarter were $32.9 million or 5.4% of revenue compared with $34 million or 5.8% of revenue in the prior year quarter, reflecting savings from our previously announced organizational changes.

Our adjusted operating income in the third quarter was $40.8 million or 6.7% of revenue as compared to $29.2 million or 5% of revenue in the prior year quarter.

Our interest expense in the third quarter was $11.2 million compared to $11.6 million in the third quarter of the prior year.

The reduction in interest expense is due to lower debt levels and lower fees than in the prior year quarter.

Our effective income tax rate was 32.1% for the third quarter compared to 22.6% for the prior year quarter.

For the full year, we expect an effective tax rate of between 29% and 30% compared to 26.3% in the prior fiscal year.

The expected increase in the full-year tax rate is due primarily to the failure of Congress to extend the work opportunities tax credit adjustments in our reserves for uncertain positions and a prior year adjustment to deferred taxes.

Our capital expenditures for the third quarter were $18.6 million and $57.4 million year-to-date compared to $18.8 million in the third quarter of the prior year and $59.4 million in the prior year to date.

Our balance sheet continues to be strong.

At the end of the third quarter, our long-term debt including current portion was $550.2 million and we had unused capacity on our revolver in excess of $150 million.

We ended the third quarter with $127.3 million of cash and equivalents, an increase of $64.8 million since the end of the prior year's third quarter.

Following the end of the third quarter, we reduced our long-term debt by $25 million.

In the course of the third quarter, we repurchased [220,400] shares.

With respect to the Company's outlook everyone should be mindful of the risks and uncertainties associated with the outlook as described in today's earnings release and in our reports filed with the SEC.

On the basis of our year-to-date financial performance, recent trends and current estimates we are again raising our full-year earnings guidance for the 2012 fiscal year.

The Company expects revenue for the current fiscal year of between $2.55 billion and $2.6 billion, reflecting anticipated increases and comparable store, restaurant, and retail sales in the range of 1.5% and 2% and the opening of 13 new Cracker Barrel stores.

We now expect that the [core] adjusted earnings per diluted share for the fiscal year in the range of $4.35 and $4.45, excluding our proxy contests and severance expenses totaling $0.21 per diluted share.

On a GAAP basis, we expect to report earnings per diluted share for the fiscal year of between $4.14 and $4.24.

The 2012 fiscal year is a 53-week year and the impact of the 53rd week, which is included in our guidance, is expected to be additional revenue of approximately $50 million and approximately $0.25 of additional earnings per diluted share.

Food commodity costs for the full year are expected to increase by between 5% and 5.5% from the prior year and adjusted operating income margins are expected at a range between 7.4% and 7.6% of total revenue.

We expect our depreciation expense to be in the range of $64 million to $66 million, net income expense of approximately $45 million, and capital expenditures of between $85 million and $90 million.

In order to provide additional visibility into our expectations of future performance, we are providing a preliminary earnings estimate for the 2013 fiscal year.

Consistent with our recent Analyst and Investor Day presentation and based upon our current outlook for comparable store sales, new store openings and commodity cost increases, we expect to generate our earnings per diluted share in the range of $4.50 to $4.70 for the 2013 fiscal year.

After adjustments for proxy contest expenses, severance charges, and the impact of the 53rd week on the current year's results, this represents a year-over-year percentage increase in the high single digits.

And with that, I will now turn our call back to Sandy.

Thank you very much.

Vicky, we are ready for questions.

(Operator Instructions).

Jeff Omohundro, Davenport & Company.

My first question is related to the tenor of sales by month that was reported in the quarter and the deceleration.

I am just wondering in particular, in April, if you could comment on that.

And was the retail drop there in particular due to the prior year comparison or some promo timing?

That is my first question.

I have a follow-up.

Yes.

The tenor of sales and in particular the tenor of comparable restaurant traffic was February was a very strong month, to some extent we were going up against weather in February last year and some milder weather in February this year.

The tenor of sales between March and April was, to some extent, the shift in the Easter holiday and spring break and things of that nature.

Third-quarter retail sales, as Sandy noted and I'll ask her if she has any additional comments, we had a number of things that worked very well.

Apparel worked well, accessories worked well.

Some of the specific seasonal holiday things worked a little less well.

I'll just comment -- let me add a little bit to that, Jeff.

I think it was as Larry said, it was a choppy quarter.

A lot was going on from month to month on the retail side.

An early Easter is always tough.

We thought it would be and we just weren't able to overcome it with the rest of our assortment.

What we were pleased with was that throughout the quarter we had a consistent outperformance to Knapp-Track.

Very good.

And then as a follow-up with the reduced CapEx target of $85 million to $90 million just wonder if you could talk to spending going into 2013.

Is your outlook there shifting a little bit?

Is some moving there?

And then maybe with the building in cash remind us once again about the priorities around deployment?

Yes.

As far as CapEx spending we noted in the Analyst and investor Day meeting that we anticipate CapEx spend over the next 3 years to be in the range of $325 million to $350 million.

And with that falling roughly evenly across those 3 years and the number that you may recall for 2013 was in a range of about [105 to 115].

Couple of things.

One is as you may recall, two store openings that we have anticipated for the current fiscal year have now moved into the subsequent fiscal year and we anticipate some additional spending on various of our initiatives which Sandy has been speaking about for the last year.

As far as returning capital to shareholders, as we've noted our model anticipates a gradual increase in the dividend payout beyond our recently announced $1.60 a year.

We additionally anticipate over the 3 years that we will both retire some debt and stay within our targeted leverage ratio and additionally buy back shares.

Thank you.

And congratulations on your strong quarter.

Thanks, Jeff.

Joe Buckley, Bank of America Merrill Lynch.

It is actually [Steven Barlow] for Joe.

I guess I am curious on the fourth quarter implied retail same-store sales guidance.

I guess this assumes a pretty nice acceleration.

Could you talk about some other drivers and just your general thoughts there?

I will.

Last year, some of you may recall that we were particularly disappointed by our travel business in the fourth quarter, which has a higher portion of retail sales in our local guests.

So what we are looking for this fourth quarter is some recovery with our debt portion of the business, which we hope will result in some disproportionate retail sales.

Great and then just any preliminary thoughts on food inflation for 2013?

Have you locked a sizable portion of your basket?

Yes.

As you may recall, in our Analyst and Investor Day presentation we were saying that we expected to see commodity inflation in the 4% to 6% range for fiscal 2013.

We are still thinking we will be in that 4% to 6% range.

Although as a result of some commodity deacceleration over just the past 30 days we will likely be a little closer to the low end than we even anticipated at the time of our Analyst and Investor Day.

Great.

Thank you.

Jeff Farmer, Wells Fargo.

Good morning, everyone.

You sound, Sandy, a little bit reluctant to talk about this.

It might be just a little bit too early but with the country dinner plates this fall, can you provide any color on the potential price point and media support for that?

Well, let's see.

Not -- we will be supporting it on the radio and so what we intend to do is to go back on TV with same creative which we intended to use again, and then we will be able to use it on the radio and maybe some billboards.

We did our daily lunch special, we did modify a couple of hundred of our billboards and we were pleased with that.

So we are still putting that plan together.

It will be a similar price structure and we are still having that discussion internally.

Okay so it's [really still] the electronic media.

It sounds like it is going to be all brand brand messaging.

There is not going to be a price point popping up on TV.

That's right.

Well, the TV at the very end does highlight the affordability, but I think it's really about the brand.

Okay and then you just touched on this, so it sounds like you think at current price points, you are not going to have to reengineer this product to be a little bit more margin friendly.

It is probably good to go as is.

I think that that is correct.

Okay and then sort of moving on to the $5.99 lunch special.

Again having, I guess it was the fall that you introduced that.

So is there any more or additional learning in terms of the mix you are seeing on that product?

Has it stabilized?

What happens when you do have media around it even if it is billboard media?

Any updated learnings there as you continue to be, I guess, what, 9 months deep into this right now?

Well, we continue to be pleased with it.

We do believe that it continues to drive traffic in our lunch day part.

We really haven't had media around it.

We have had the same billboards in since the beginning and we didn't have the media in the last quarter.

So we introduced some enhancements to the program last quarter where we offered some enhancement to the baked potato and so on, and we are looking at how we might continue to do that as we move on.

But in general, we continue to be pleased with it.

Okay and then, Larry, I apologize I might have totally missed this, but as relates to FY 2013, so, the outlook for that year.

Did you -- is there any same-store sales parameter that you have outlined for that year yet?

No.

We've not specified.

Obviously there is a range of same-store sales that is anticipated into earnings per share range of $4.50 to $4.70 and we spoke in the Analyst and Investor Day meeting that over 3 years we anticipate same-store sales in the 2% to 3% range compound annual growth.

But we've not at this point in time offered anything more specific for 2013.

And then final question for me.

It looks like you have roughly 2% pricing in FY 2012 and it looks like the most recent sort of outlook.

Safe to assume a similar number in FY 2013 even with -- well you still have pretty material commodity inflation so is that that 2% number still pretty good?

That is a pretty reasonable range, yes.

Thank you.

Bryan Elliott, Raymond James.

Just a couple of clarifications, Larry.

Could you give us a little more on what you called the favorable adjustment in the third-quarter labor line?

What was it?

How big was it?

And just confirm that it is not recurring?

Yes.

It's actually -- we have been speaking about it for a number of quarters now.

What it is is because of the favorable claims experience as compared with what was anticipated when our insurance rates for employee health care were initially established, actually believe it or not -- at the beginning of last year, at the beginning of the last calendar year that we have been receiving a favorable retro adjustment that we actually -- this is the third quarter -- and we anticipate that we will continue to receive it at least through the fourth quarter.

Oh, this is the last one and the next --.

I'm sorry, Q3 is the last one or fiscal Q4 will be the last one?

3 is the last one.

And the net of the retro adjustments and the claims experience as noted was in the third quarter on a year-over-year basis about 30 basis points.

Okay.

All right.

Thanks.

And then just a clarification, too, on the guidance for next year.

So we brought down the food outlook, food inflation outlook towards the lower end of the range.

What kind of pricing assumption underlies the guidance to get us into what COGs -- the COGs in basis points we can calculate that?

Yes.

As we said we are anticipating for 2013 menu price increases roughly in the same range as the current year at 2%.

And we are doing a lot with the menu which is going to make mix potentially meaningful and obviously unpredictable.

Are you assuming static mix as well?

We are assuming more or less static mix, yes.

Okay.

Thank you.

(Operator Instructions).

Steve Anderson, Miller Tabak.

Good morning.

Just missed the tax rate assumption for future quarters.

You said it is going back up.

What was the tax rate you are assuming for the fourth quarter?

What we said -- and you really have to think of the tax rate on a full-year basis, because it is calculated and it is estimated on a full year and then there is an ongoing adjustment on a quarterly basis.

So, allow me to walk you through that.

So, last year we had an effective tax rate of 26.3%, and we have said for the current fiscal year it will be in the 29% to 30% range.

There are 3 reasons why that rate is higher this year than it was last year.

First is, since Congress didn't extend the workout [for opportunities] tax credit so there is the advantage of that credit which we had last year won't have this year and anyone's guess if we are going to have it next year.

And that, in round numbers, about 1.5 percentage points of the rate change.

Then as I noted, we have made some additional provisions for what the account is referred to as uncertain tax provisions which is, again, approximately 1.5% in the current fiscal year as compared with the amount we had last fiscal year.

That one is very hard to actually estimate going forward.

And third is, as noted in my remarks, we had some positive adjustments to deferred tax balances last year that we don't have this year and aren't likely to have next year and that is about 1 percentage point of the rate change.

Okay.

Now going forward, going into fiscal 2013, have you made any assumptions to the tax rate for that?

You can probably take some of the information I just gave and, depending upon what you think the Congress of the United States is likely to do, it would probably lead you to a tax rate that's around the current years maybe if the work opportunities, the tax credits extend it 1% to 1.5% lower.

Okay.

Thank you.

And there are no other questions I would like to turn the conference back to Sandy Cochran for any additional or closing remarks.

Well, thank you all for joining us today.

As we head into the final quarter of the year, we are pleased with the progress we are making on our strategic priorities and the momentum that we are carrying in what remains a very challenging external environment.

I look forward to building on this success and fully executing the strategies as we move into the next fiscal year, confident that we have the right strategy and the right leadership in place to make the brand forward and drive shareholder value.

We appreciate your interest and support and thank you for being on the call today.

Thank you very much.

That does conclude our conference for today.

I would like to thank everyone for your participation and you may now disconnect.