Dine Brands Global Inc (DIN) 2002 Q3 法說會逐字稿

Please welcome today's speaker, Miss Carol Diraimo.

Thank you for joining Applebee's third quarter 2002 conference call, this call is being broadcast simultaneously over the Internet. A couple of housekeeping items to note, comparable sales for the November fiscal period, which ends November 24 will be released the week of December 2nd. It's important to note that Thanksgiving will shift from our November fiscal period last year to our December fiscal period this year. Fourth quarter and 2002 full year earnings are schedule to be released Wednesday, February 12, 2003, after the market closes and our quarterly conference will be on Thursday morning, at 10:00 a.m. central time. As we continue with our remarks, many of the statements we are about to make with respect to our business outlook, including comparable sales increases, costs, earnings per share growth, any restaurant development are forward-looking and based on current expectations. There are several risks and uncertainties that can cause actual results to differ materially from those described, including but not limited to the ability of the company and our franchisees to open and operate additional restaurants profitable and our ability to retain qualified franchisees. The impact of intense competition in the casual dining segment of the restaurant industry and our market changes, minimum wage and unemployment laws, costs and inflation. You should review our format K filed on July 16, 2002 for important information about factors that could cause actual results or events to be materially different. Now I'll turn the call over to Lloyd Hill, Chairman and Chief Executive Officer.

Thank you Carol. Good morning everybody. I hope you like starting your morning with a little Johnny Cash. I'm here with George Shadid and Steve Lumpkin are here and we're eager to talk about our quarter. To start with, I'll make a few introductory comments to cover the following areas. Our third quarter results, marks on our sales performance, terrific in light of the current macro environment that we're in and finally some quick comments on our recent franchise conviction.

Now, regarding our quarter, as you saw in our press release. Diluted EPS increased 23 percent (ph) to 37 cents, compared to 30 cents last year when adjusted for our stock split in June. I'm also pleased that our net income increased 25% in the quarter. Steve is going to cover more details on the earnings picture for Q-3 later in the call.

As you know from our press release, systemwide sales for the quarter were a record 822.6 million, that's an increase of 10% over the prior year. System sales for the 39 week period exceeded $2.4 billion that's up 11%. We're well on our way to substantially exceeding $3 billion in system sales for this year.

And as you might imagine, we're also particularly excited about the fact that systemwide comp sales increased 2.8% for the quarter, and that surpassed our own expectations, especially after we started the quarter with - well, with softer sales. Systemwide comp sales for the year to date period through September increased 3.1%. And that's compared to the year to date industry average. Now this according to net track of 1.9% including Applebee's. In September, our systemwide comp sales increased a strong 4.7% and that reflects a 5% increase for franchise restaurants and a 3.6% increase per company restaurant. So we're particularly happy to report that an increase of 5 to 5.5% in traffic driven by our strong all you can eat riblet promotion. We think there can be little doubt that the consumer today wants value and is seeking out brands that they trust.

I'd like to note, too, that our sales results in September were substantially higher than the industry average according to net track, which was up 1.4% and that also includes Applebee's. In this recent sales momentum is carried forward into October with our current fire grilled favorites promotion. October systemwide comp sales increased 4.1%, including 4.3% increase in the franchise restaurants and a 3.3% increase for company restaurants. Once again, the company results reflected positive traffic (ph) growth of 2 to 2.5%. Both our all you can eat riblet and the fired grilled favorite promotion featured terrific advertising. You just heard Johnny Cash. An interesting point about the voice on burning ring of fire, we connected with Johnny Cash very recently here of after sending him a courtesy copy of the original commercial. He called and he requested to do the voiceover as Applebee's is one of his favorite restaurants. It seemed like this creative has really connected with our guests.

We thank you the execution of our strategies relating to improvement in our food and menu, our promotions, effective advertising campaigns as well as the to-go initiative are starting now to become more visible in our results. And George will comment in more depth on the results we're seeing - about the results we're seeing from to-go. In general, our results I think are even more impressive when you consider we have not been as active in taking price increases as have most of the large casual diners, so perhaps our price value strategy is starting to take hold.

Now, reflecting for a moment, as we said in July, we have seen some inconsistent consumer spending behavior since memorial day and that we think in reaction to the macro economy and the events that we've all talked about. Further, consumer confidence levels as reported this week are at the lowest levels we've seen since 1993, about nine years.

Having said that, and as I'm fond of stating the obvious here, people still have to eat, so we continue to view the long- term sales outlook favorably as eating out is firmly established as part of a consumer lifestyle and more of a consumer statement now than a consumer cyclical.

Lastly, comments on our last franchise meeting which we just completed in September. I think it's important to note there that our franchisees expressed overwhelming support for our leadership, overwhelming support for the direction of Applebee's, and maybe more importantly, overwhelming support for this team.

At that meeting, among other things, we celebrated the achievements of our company and franchise partners with the recognition of our top performers. We had more than 100 restaurants that exceeded the $3 million annual sales level, and they were led by our times square New York location, which had record sales of over $8.5 million in the months.

Just in closing my remarks, we're confident that our strategies are ripe for the long term and that we're focused on staying the course and executing against that plan. With that, I'm going to turn it over to our Chief Operating Officer, George Shadid.

Thank you, Lloyd. I want to take a few minutes and go through some of the developments and performance along the lines of our food and menu advertising and our overall execution. On the food and menu front, we just this past week, and this week in some areas, are rolling out our new fall menu. The implication of this new fall menu is that over the last 18 months, we have significantly improved or introduced new menu items to the extent of 50% of our menu. Our pipeline of new menu items for next year Continues to be strong and we expect another exciting menu introduction next April. As you look over the last two or three years, we spent a lot of time and focus and resources on really improving our core menu and repositioning our menu offering. From an overall standpoint, we're very, very pleased with the improvements we made and we think this time next year we can say that we've repositioned our menu to where we can be more proactive going forward with the continued evolution of our menu and we will have accomplished at that time our initial strategic goal of building a very competitive core menu.

While doing this, we've demonstrated our ability to not only improve our food but also leveraging the investments we've made in our supply chain improvement, resulting in improved food cost.

On this new menu, there were six no menu items, low fat Romarolla (ph), boneless chicken wings, barbecue brisket sandwich, the Portabella Swiss burger and a new skillet offering, the southwest steak skillet. Through this past year, we've really continued to evolve our advertising message as well. With more of an emphasis on the neighborhood aspects of Applebee's, and really setting forth the message of value, and at the same time building and promoting the strength of our increasingly strong core menu. John Sywenski (ph) is leader in the chef market area and (ph) his team is outstanding and it's resulted in excellent, far more creative and effective advertising, some of which you just heard. In fact, on our neighborhood positioning commercial, the coach, which you may recall from earlier in the year, we recently won an award for the best single advertising spot for all restaurants chains with sales of more than 500 million. So you can see, we believe strongly the overall quality and effectiveness of our TV commercials is having an impact on brand perceptions as well as sales. As far as our TV ad awareness, we reached our all-time high in the third quarter, another testament to our advertising muscle and our new advertising look and feel.

Now as we continue to leverage the strength, the brand awareness of Applebee's is also continued to grow. Recently ad age put up their annual ranking of the 200 top mega brands across not just restaurants, but all retail and all brands worldwide. Applebee's moved up significantly, 26 positions to number 137 and most importantly, that is the highest rating of any casual dining chain.

During this past quarter, we had two promotions with network media. The neighborhood block party, which was the first five weeks of the quarter. We followed that up with our hometown barbecue promotion for seven weeks. And during five of those weeks, we promoted the very popular all you can eat riblets promotion. As Lloyd said, here on September 23, we began our current promotion, the fire grilled favorites. This is a seven week promotion featuring a variety of items, price point, and new items, ranging from our new buffalo wings to a cracked pepper porter house. We're very pleased with the results we've -- in October driven by this new promotion.

Now, as we look at price value, Lloyd commented a little bit on it. I want to expand a little bit more. You know, the casual dining consumer, as we all know, continues to seek value. They expect strong value for what they pay, but they also consider a dimension of value in terms of the variety and the overall affordable price levels of a concept. Within the uncertain economy and low consumer confidence, we believe these value attributes are becoming more and more important and Applebee's has increasingly been well positioned to fill those attribute needs. So when you look at overall value for what you pay in variety, what you paid for in absolute price, we believe we're striking very well in these dimensions.

It's overall value for what you pay. We've really made great strides in strengthening our value proposition and the improvements in hour menu and execution are also bearing well there. With our new menu items, we've really increased the dimension of variety on our menu.

Now has to what you pay for value, being in the $10 to $11 average check range, we think we're positioned right in the sweet spot of casual dining. This is a very important part of our value positioning that we want to protect. We want to be not only the price value leader, but continue to be the price leader on the lower end of the range of pricing in casual dining, so we've been very cautious about price increases, and we'll continue to be cautious and not be aggressive in order to protect this very important $10 to $11 range.

Another value dimension that is emerging is that our consumers wants the low price alternative even if it's not the point of a promotion. So even if a promotion isn't a value promotion overall, we're setting forth exquisite pricing, we find that is true items we include as part of the promotion are drawing attention. In our last three promotions, we've had very successful items that are priced at the lower end of our pricing range. These have had very high level of trial and attention by our guests. High value propositions like our cowboy burger, (inaudible) sandwich, and our new zesty chicken sandwich, all in the 6 to $7 price range. So while guest (ph) check may be negatively impact only slightly during these types of promotions, we consider these an important aspect of our driving overall traffic growth. Important to remain price value leader and price leader in our segment.

The important sales initiative has been our to-go program. As you know, we completed phase one of this rollout during Q-3 and it went very well and we have had solid, solid support for this by not only company operators, but franchisees as well. We're also in test with curbside alternatives. We now have over 150 restaurants with curbside alternatives being tested. This is in preparation for beginning curbside rollout on a more accelerated basis next year and into 2004.

We're also putting more advertising in local markets around to-go, starting in late September/early October in most of our company markets, we've put a TV and radio program if place to support the to-go program and we're very pleased with the results, which did draw into the results we announced for October. Our mix continues to grow on to-go, and it's really one of the fastest growing parts of our business and it's been a very important contributor to our same-store sales both in third quarter and October. Along the lines of convenience for our guests, we've introduced our - introduced our new gift card program and we'll be advertising this new program in the fourth quarter with a holiday gift card and related commercial.

This is a very important, you know, evolving change in the retail segment and we believe with our reach and number of restaurants in our convenient strategy, we'll have a great reception during the holiday season.

Now on the operating front, we continue to operate well. Our customer satisfaction scores continue to remain high, and are very solid. We are also rolling out our kitchen display system, in company restaurants. We'll have over 100 restaurants completed by November. We'll complete that rollout in company stores and begin in franchise restaurants next year. This is a great example of not only the use of technology, but an operating tool to increase through put, quality of execution, and convenience. This system helps coordinate the speed of service, and really delivers a coordinated preparation of our food to facilitate delivery consistently hot every time.

It's been a great reception to this system, and we believe it will be in essence an important driver of sales as well as guest satisfaction.

On the development front, we're on track for reaching our target of 105 to 115 restaurants this year. 25 company openings and 80 to 90 franchises. As always, we'll have a heavy fourth quarter opening scheduled with 35 to 45 new openings systemwide. As you know, this will be the tenth year we've hit over 100 new restaurant openings.

The people investments continues to be an important part of our success. We've touched on that a lot over the last couple of quarters, an we're really starting to see the benefits of these investments now. Our labor costs remain constant in the third quarter with the higher level we had earlier in the year and our retention continues to be high. Our turnover low. Our overall management turn over is around 20 to 21 percent and we're very pleased with the return on our innovative people practices.

In fact, you may have seen in the people report last week, the award we recently received for innovative retention practices, and an article just appeared in chain leader, it's a nice background and review of these practices that have resulted in great people metrics for us.

So as we look ahead, we're very optimistic about our operations execution, our marketing, our food and our advertising. As we look at the sales environment, we really see five or six elements that will contribute to Applebee's being a great sales performer. Our clear price value leadership in this uncertain and erratic economy we believe plays well to what the consumer wants. Our guests are impressed with our continually improving menu and they're responding to our more creative and effective advertising in our media presence and strength.

The to-go initiative has been very successful this year and we look for it to be additionally a significant contributor in the future, and our KDS program really speaks to speed and quality of execution. Most of all, our focus on execution and the foundation of great people that we've invested in are beginning to really make us show some difference in our results.

So we're pleased with our overall progress and we just want to remind ourselves an you of the opportunities we saw ourselves going into this year, four areas, continuing to strengthen the brand image with media advertising, increasing the effectiveness of our operations execution, our food and our service; and our strong retention of quality management staff; and number one, improve the food menu of the Applebee's concept. So we've had an exciting quarter. Everyone is feeling great about the results. As we look ahead to the fourth quarter of next year, all systems go to Applebee's. So Steve, I'll turn it over to you.

Thanks. And thank you everyone for joining us this morning. Let's take a look at our overall results and then I'll quickly hit highlights on the P and L and then at the end, talk about a you few comments on the coming acquisition of our Washington, D.C. market and think about expectations for the full year.

First, as a company sales, company sales were up 11.3% overall to nearly 183 million. Driven by comps of 1.7% in 19 new openings year to date. Over the last 12 months, on the company side, we've opened 31 new restaurants, and that's an increase in capacity of about 10%. Franchise income was up 9.4% to 26 million. Driven by strong comps in the franchise community of 3.1%. And 50 new openings year to date. Openings over the last year have driven about a 6.5% increase in unit capacity on the franchise side.

Total revenues for the quarter were almost 209 million, and were up 11%. Avoiding the system wide sales system came in at 822 million and we are on track to substantially exceed systemwide volume of 3 billion for the year. Year to date, we're over 2.4 billion in systemwide sales. Now, system wide sales were up 10.3 percent for the quarter, driven by strong comps of 2.8% and over 7% capacity growth in the last year when we opened over 100 restaurants over that same period.

Net income came in at 21 million. That was up 25% versus last year. Of course, as we talked about for the last few quarters, this performance includes the impact of the change in goodwill accounting. Now when you exclude that impact, net income was up a solid 19%.

Diluted EPS, we earned 37 cents a share versus 30 last year and that's up 23%. Again, taking out the impact of goodwill, EPS was up 19% for the quarter.

Let's hit a few highlights on the P and L. Starting first with food costs. As George indicated, we continue to be pleased with our food cost performance, which showed 100 basis point improvement quarter over quarter. We continue to benefit from our supply chain initiative. And really, the ops teams focus on managing waste. We're doing this in an environment also I think as George indicated where we're putting more food on the plate. As we think about commodities in the future, I think we feel good about favorability in the commodities markets ahead.

Labor, overall, came in 32.9. That was up 70 basis points. Let's peel that apart a little bit. Hourly labor was up 20 basis points and I think we think about the wage rate pressures there, we think they're moderating, and hourly wages we see are up in the mid to upper 2% range.

Management labor, management costs was up 20 basis points in the quarter. As George indicated again, due to slightly higher bonuses, salary increases as we previously discussed.

Benefit costs are up 30 basis points due to higher workers' compensation and group insurance. And I think we're experiencing what many are in our industry, in pressure on that line of the P and L.

Now as to D.O. costs, we're up 50 basis points there in the quarter, led primarily by higher packaging costs related to our to-go initiatives. That was about 20 basis points of that. And some pressure at property and liability insurance, about another 20 basis points. We are continuing to see favorability in energy. That's around 20 basis points. And then we had some here and there really increases that were all below 10 basis points on the P and L. G and A showed nice leverage here quarter over quarter, 60 basis points last year. G and A coming in at 9.6% of revenue. Amortization decreased by 1,000,004 (ph), due to adoption of FAS 142. Interest beings pens, we're benefiting from combination of two things. Our new credit agreement, which in kind of a great interest rate environment and slower debt levels, we paid down almost 36 million in debt since last year. Our tax rate is 36.5. That's 30 basis point improvement due to the change in accounting for goodwill.

Let's quickly take a look at the balance sheet. Cash and investments at the end of the quarter, about 8 million. Debt at 39 million. We had 34.5 million outstanding on our facility. Actual shares outstanding at the end of the quarter, 55.2 million. And we had a debt to cap of 9.5%. We did repurchase some stock during the quarter. We repurchased 835,000 shares. At an aggregate cost of 17.8 million and for the year, we purchased 1.2 million shares at an aggregate cost of about 26 million. We got nearly 70 million remaining on our stock repurchase authorization.

Now, we talked and our team has been working diligently here to get this transaction in Washington, D.C. closed up. We expect to close in the next two weeks. And just to refresh everybody's memory, that's 21 restaurants that will be joining the Applebee's family with revenues of approximately 45 million.

Our purchase price on this transaction is 34.3 million. That will be for cash. These are solid operations. All these stores are positive cash flow, an they're running year to date comps above our system average.

Where we've been working the market, we've already starting to build pipeline of new stores for openings in the future. And I think when we bring - when we close this transaction, I think you can expect to see some G and A leverage, and this year, this - closing this acquisition really isn't going to have much of an impact on our EPS but it will be nicely accretive next year. Those of you who read our press release, we have upped our CapEx expectation for the year, 63 to 68 million, and I want to remind you that does exclude the purchase price of this acquisition but does include certain costs we expect to incur here in the balance of the year as we start to move into this market and as well as some timing elements for our next year CapEx program.

Just a couple notes here before we open it up for Q and A. I want to remind you as Carol mentioned, in November we do have the Thanksgiving shift. And that will give us an extra day of sales here and that will object vows hi positively impact our November outlook. And we also have got a little bit of a calendar shift in advertising between November and December. We end up with two weeks less advertising in November, but we pick those weeks up again in December and really for the two months we're absolutely on track.

Also, I think there's been a lot of attention paid to the six less shopping days this year between Thanksgiving and Christmas.

Now, given all that together, we continue to expect for the full year systemwide comps to increase at least 2.5%. And finally, down to the bottom line, down to EPS, our full year guidance on EPS is now $1.44 to $1.45, and this is an increase from our previous guidance, but I think it's in line with concensus, and of course this does exclude impact of any additional stock repurchase we might have between now and the end of the year. Operator let's open it up now for Q and A.

Thank you, sir. For those of you who have a question, please press star one on your touch tone phone and questions will be answered in the order that they are received. Please keep in mind that if you are using a speaker phone, you must pick up your hand set when pressing star 1 to answer in the question and answer lineup. If at any time your question has been answered, please press star 2 on your touch tone phone to remove yourself from the question and answer lineup.

Our first question comes from Mr. Alan Hitchcock (ph) from Viper.

Good morning. Okay. First question, maybe just strategically, in the past year or so, you've talked about moving away from your food specific promotions and focusing on your core menu, yet, I mean, it seems where you still generate your sales momentum is on the promotions, like riblets in August and September and the fired-grilled favorites. Just give a little color on your thinking strategically there.

Okay. Alan (ph), this is George. Our thinking remains the same, that over time, our reliance on LTO's for new food introduction is the key. That the food strength should come from our core menu and the equities we build there and our promotions would be highlighting items that come from the core menu, primarily, not exclusively, but primarily and we're starting to see a shift in that, but it will be gradual and over time.

I would also say that while we've had good results during our advertised promotion, that coming from the strength of the advertising as well as inspiring trial into the restaurant, and even on these promotions, we're still seeing 15 to 20% mix coming from promoted items, so the commercial, the advertising, and the proposition gets a group of consumers in, but all don't order the promoted items. So we still believe in that theory and as we continue to introduce more core menu items, what we're just introducing now and then next spring, get this to where we think later next year will be where we should be to really be more in that and less reliance on the L.T.O.'s

And the 15 to 20% mix, is that pretty consistent?

From promotion to promotion?

Yeah.

Yeah. Sometimes on the lower end, sometimes on the higher end, but that's generally the range we look for and get.

A smaller question, but you mentioned on direct occupancy, that 50 basis point rise due to higher packaging costs. Is that - was there some front end loading there or is that something that we should, you know, be thinking about sort of as just higher overall costs or as a run rate or could that maybe even go higher as to go - rose as a percentage of your sales mix?,

Alan, Steve. First of all, we have a full quarter on the company side on this new packages, so we had been fully implemented for the quarter, so you shouldn't expect in anything that that will go up and if anything, it will get better as we drive more of this volume and we get some leveraging to scale, but I think it's important, you know, we think, we strategically, with a industry strong point of view, said we're defining a category here. We're defining new packaging, wee defining for the consumer that to-go can be much better of an experience than anyplace else. This was I think very well strategically thought out and researched on our part. The 20 basis points on packaging is something in the future you will expect should go down.

Okay. Great. Thank you.

You bet.

Thank you. Our next question comes from Mr. Peter Oakes (ph) from Merrill Lynch.

Hi. Good morning. I was actually hoping we could hear that commercial one more time that you shared with us up front.

Peter (ph), we can send you the C.D.

Actually, I had just a couple questions if I may. On the to-go, you clearly have got that systemwide, you've got some momentum behind it and George, I think you cited it as a contributor to the comp. Can you give us a sense as to where that is mix wise at this stage and where you think potentially that can go for you?

I think - I'll take a shot at it and so can George. Systemwide, we're really only here about 60 days, you know, into the systemwide rollout. Knowing us like you do, I think we're - we're a little - we're a little concerned about kind of, you know, going - talking about this early into a rollout. I would say, I think George would probably echo it, that this thing really is exceeding our expectations and we're really pleased. And I think - we think that what we're doing here, as I said earlier, defining a category and the consumers will continue to experience this in a way that we'll continue to grow in the future.

Clearly our mix it going up. We started at around 4% without doing anything, an we had targets for phase one, which we've readily met and we wanted to see how the impact of advertising settles in and as we go through some of the early winter months, but we're very, very pleased.

What exactly can you share with us as far as the mix of the product that seems to be flowing with the to-go, is it mirroring the typical mix of what you're seeing or is it a little more skewed with the lifestyle phenomena (ph)?

Well, salads are one of our strengths in any event and we see that even more so into-go. The riblets of course carry well and we're seeing the customer evolve to the items that carry well. With our packaging, we think that's broad end the range of what carries well. The salad, riblets, and appetizers -- of course you see less on to-go beverages, which I think all of our competitors would find to be the phenomena, too.

Last quarter you had cited at that point you were seeing weakness, especially on the weekends, has that come back?

We've seen that completely normalize back to a normal traffic pattern.

It was that kind of post memorial day, June, July, but come middle of August forward, we've seen pretty normal trends, wouldn't you say, Steve?

Exactly, we have.

Okay. And just kind of curious about some of the P and L behavior, the labor line in particular with systemwide comps running a little north of three year to date, I'm curious why you haven't been able to make just a little more headway on the labor line given that I think that's up about 100 basis points year to date and what that suggests, you know, if your comps do moderate more to your targeted level, does that suggest that you know, we need to think about the inherent pressure that could be building under those - that circumstances?

I think, Peter, just a couple points. You are right, labor year to date on that line is up 100 basis points. Keeping in mind that even though systemwide comps are up over 3%, you know, the company is up one-seven, and I think we've always talked about 2% is kind of a tipping point where you start to cover, and I think we're - I think we believe, and you'll start to see here in the fourth quarter, we're going to be rolling over some of the real improvements we made in our bonus plan and our compensation and our retention. I think we're pleased at these levels about the kind of effectiveness we're having in managing our stores, the level of staffing we have and the retention we're getting, and in our view, it's the right kind of investment. I don't think that we're - we're thinking about that that is a trend that will continue into the future.

Thank you.

C.D. is on the way.

Thank you. Our next question is from Mr. Robert Harrington (ph) from Morgan Keegan.

Hi. Congratulations on a terrific sales results especially. Question along same store sales. Given how strong it appears that to-go is contributing to the sales trends, is there any reason to believe that you would change your guidance for same store sales for 2003? I think 3% is what you had targeted.

Bob, I think with regard to next year, we're at least 3% on same store sales. I think knowing like we do, we don't want to get too far ahead of ourselves. There's lots of things that are going to be driving our sales next year, to-go is going to be one of them. There's other things we're working on we're not going to talk about in this call. When we look ahead, I think we think to go as we start to open up phase 2 curbside, you know, we've got about 150 stores that will be curbside by the end of the year. As we start to really open that up into the system, later on, next year, and really throughout next year, I think there could be - we'll get into a secondary push and then when we get the whole system on, you know, we'll be looking at advertising, so systemwide on to go. So those are all things that we talked about, and I think next year, I think as we think about you know, next year, I think there's a lot of uncertainty still surrounding this economy. We're certainly rolling over very favorable weather for the whole industry. And the industry drove some big comps. So we still like at least 3% and wouldn't be moving it at this point.

You know, one of the comments that was discussed was regarding pricing, and it's been by my memory, I think well over a year and a half now since you've taken any pricing. Is there any planned?

We took some modest pricing in Q3 and selected markets on selected items and that continues to be our strategy. Where it makes sense, but not across the board increases. You know, for the year, we've probably been less than 1% on an effective annual basis. You know, we're going to continue to look cautiously at pricing. We're very well positioned to take it if necessary or if appropriate. So we think we have the best of both aspects there. And you know, we're not going to be hesitant to take it if it's appropriate, but we do want to moderate it and not be aggressive.

Great. Lastly, if you could give us update on your commodities situations, your forward buys for next year, anything give you any concerns?

I think overall, in the biggest picture, pulling back as far as we can, we're not concerned about commodities next year. I think we've talked a little bit about our beef - beef buy is basically done and we've seen some overall favorability there. Ground beef may be up slightly, but beef overall given where we are is favorable. Poultry, our view is going to be flat. I think seafood, our view is also going to be flat to perhaps slightly up. And dairy, the view on dairy, I think it's going to go lower. I think all of it hasn't landed yet for next year, but when we think about 2003, I think we're going to continue to see some of the trends that - the favorable trends we've seen over the last really year and a half to two years

Remember, one of the major goals of our supply chain initiative is not necessary live always to take costs out but to avoid cost increases that would otherwise be there. So a flat food cost if today's environment is a - could be a very successful accomplishment given what commodities could do.

Congratulations again, guys.

Thank you, sir. Our next question is from Mr. Jeff Omahundro from Wachovia Securities.

I thought I'd lob in another to-go question. I wonder if you could talk a little bit operationally about where you go from here. At least in my market, you have to wind your way through to the bar to pick up your to-go and see that wonderful packaging. I'm interested in the curbside strategy, and how does that work with the store layout as it is now? Do you need to have a separate store entrance with curbside?

Jeff, this is George. That's one of the issues we're addressing with the numerous tests that we're doing. Obviously, we believe that curbside delivery enhances the convenience and experience of the guests, just like you said, you don't have to wind through the restaurant to the bar to get it.

With the size of our system, the varying ages of the restaurants and the varying prototype design, there probably won't be a one size fits all sort of facilities plan. In some cases, it could be curbside delivery through the front door, in some cases, it could be through a side entrance, and that depends on the prototype, the, you know, ease of conversion to that, and really how the restaurant is laid out physically versus surrounding businesses. Might very well have a side door, but it goes not to where there's parking. So with a system of 1,500 restaurants, you will not see a one size fits all approach. There will be a number of different approaches.

Okay. Fair enough. We'll stay tuned on that. And then, I wonder if you could just update us on your ad spending in the quarter and what you see for Q-4?

Yes, I think the ad spend (ph) on the quarter I think year over year is I'm going to call it flat from what we had in the prior year, maybe just very slightly favorable. I think when we - and that's, I'm speaking now in what our trip volume is. I think we - in the final quarter of the year, we're going to show some improvement here I think in our overall, you know, trips versus the prior year, and I think with regard to next year, I think we're, you know, we're I think our buy is done and I think we're looking forward to, you know, I think some increases next year in trips, but in fact I think we are overshadowed by some of the increases in the prices. We are not seeing any change in our ADS (ph) ratio and we're - our advertising to spending ratio and we're still going to be spending at the same levels we have but benefiting in the last quarter, quarter over quarter, with more trips.

Very good. Thanks.

Thank you. Sir. Our next question is from Mr. Andrew Barish (ph) from Banc of America Securities.

Hi. Question on the labor side of things. Is there any way to break out or can you help clarify, I mean, was there some ramp up in curbside labor necessarily for the restaurants, and I assume you did that for the company stores and secondly, haven't you guys consciously been kind of catching up and fully staffing the restaurants this year so - I assume there's been some incremental intentional investment on the hourly labor side.

On the to-go part of that, the 150 or so units we have are across the system. I think we have about 60 of those are company and 90 or so are in franchise, and where we would staff up, we'd also have the increased sales, so I don't think that the higher labor really relates to the to-go or the curbside, but it does relate to the latter point that you made that we've talked about the last couple of quarters and that is a we've achieved full staffing on our management teams as well as our hourly teams, which had brought the overall investment up, and we've changed our management bonus plan this year to where there's higher payout, which we believe competitively needs to happen, and really all of this is around keeping our best people and hiring at full staffing levels with the best people, so we've effectively said we're going to make an advance investment here and you know, the goal, drive traffic, which over the long term will more than pay back that investment.

Thanks.

Thank you, sir. Our next question is from Mr. Joe Buckley (ph) from Bear Stearns.

Thank you. I have a couple, just on the to-go again. Talk about the rollout plans for the next phase? I think George, you might have mentioned, you know, kind of the route into 2003 and 2004. Just sort of when you think you might have the curbside rollout complete.

That's a pretty easy one. We're not in a position to say yet the staging over the next year. The key point is - what I said earlier is with this many restaurants and with the various prototypes, it will be a more elongated rollout just from the standpoint of the facility, but the goal would be to have this in all company stores by next year for sure, and to the franchisees, a significant number, but it will go into the early part of 2004. I would think if you jump ahead a year from now, the 150 would be sizably higher.

Okay. And questions for the fourth quarter. One is in November, you mentioned the favorable shift of Thanksgiving out of the fiscal period, but then also mentioned two less weeks of advertising. Do you anticipate those essentially offsetting each other in November and then relating to the fourth quarter, how significant are the six less shopping days

First of all, it's hard to say, you know, a two-week shift in advertising versus one full day of sales. I wouldn't even want to hazard a guess. I mean, we could be flat between those two things, those two factors, or we could be slightly - we could be slightly up. I think it's a little unknown. I think on the exposure to the six less shopping days, I think given the fact that we don't have a preponderance of stores in malls, you know, I think we're going to be probably more insulated than other people will be on that particular aspect. And so I think, you know, we don't view that as a big factor, but I think it's a big factor for retail, something we're thoughtful of, we don't think it's going to be a big story, though.

Okay. Thank you.

Thank you, sir. Our next question is from Mr. Don Glass from TIBC

Thanks. Two questions. Would you just remind us on the apple capital acquisition, are the store level margins, unit level margins roughly the same as the chain average or should there be any other margin impact we should be aware of?

We haven't really talked about margin, but I think you could anticipate that these stores are running above average company margins at the moment.

Great. And then with respect to the to-go advertising, forgive me if you mentioned this, but my recollection is you were going to turn on national network in December. Is that still the plan?

What we had talked about was advertising in company markets in the last quarter of this year, local, which we're doing

We're doing as we speak.

I think the national exposure, we want to do that when our system is really ready to execute curbside and that will be sometime in the future.

So sometime in '03?

I don't want to pin us down that precisely.

It depends on how successful we are at the numbers of restaurants that actually convert because that would not be a proposition we'd do on network until we have, you know, majority or a high majority of the stores converted, but what we can do is as we convert markets in their totality, local advertising, as we're doing now in company markets for phase one can be directed to curbside.

Okay. And then you didn't address specific earnings goals for next year. I know you talked about comps and overall earnings growth, is there a point at which you will talk about earnings goals for next year?

I think, John, a couple things.