Dine Brands Global Inc (DIN) 2012 Q3 法說會逐字稿

Good day and welcome to the DineEquity quarter three 2012 earnings conference call. My name is Dave, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Ken Diptee, Executive Director of Investor Relations. Go ahead please, sir.

Good morning, and thank you for participating on DineEquity's third-quarter 2012 investor conference call. Today, I'm joined by Julia Stewart, Chairman and CEO, and Tom Emrey, CFO. Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information.

Today, management may discuss information that is forward-looking, and involve known and unknown risks, uncertainties, and other factors, which can cause the actual results to be materially different from those expressed or implied in such statements. We caution you to evaluate such forward-looking information in the context of these factors, which are detailed in today's press release, as well as in our most recent 10-Q filing with the Securities and Exchange Commission. The forward-looking statements made today are made as of the date hereof, and assumes no obligation to update or supplement any forward-looking statements. Additionally, on this call, we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are described in our press release today, and are also available on DineEquity's investor relations website.

With that, I will turn the call over to Julia Stewart, Chairman and CEO. Julia?

Thanks, Ken. Good morning, everyone. Welcome to our third-quarter 2012 earnings call. We will provide supplemental details on this morning's press release, and then open the call up for Q&A.

Before I begin, I'd like to highlight that we've completed our transition to a 99% franchised company earlier this month. I am extremely proud of this unique achievement in the casual dining segment, and I would like to thank everyone who played a part in helping us reach this very significant strategic milestone. I am excited about our next chapter as a fully-franchised restaurant company. Consistent with our practice of providing updated financial guidance after deal closures, we issued a separate press release today with updated guidance for 2012. With closures of the final three Applebee's refranchising transactions, we've reached the goals that were set when Applebee's was acquired in November, 2007.

So let me remind you what we talked about. We said at that time we would refranchise the Company-operated restaurants and transition to a 99% franchised system. We have substantially lowered G&A by at least $50 million. We paid down debt and reduced our total debt by over $960 million since the acquisition. We've reengineered the menu for profitability. We've restored same-store sales restaurant momentum. We've improved performance at the Company-operated restaurants. We completed a sale leaseback agreement for the 181 Company-owned properties. We improved operational execution. We capitalized on the opportunity to reduce commodity costs, and formed a purchasing co-op. We've implemented a shared services model to deliver services more effectively and efficiently, and make Applebee's number one in the casual dining segment.

And ladies and gentlemen, we achieved all of those objectives. In addition, we have been at the forefront on creating popular value platforms such as the industry first Two for $20 and Under 550 calories and Fabulous, which are often copied by the competition. Now, we are acutely focused on the overall health of the business and improving franchisee profitability being our top priority. The hard work of our purchasing co-op has helped to mitigate the impact of commodity inflation. And since the co-op's inception in 2009, it has maximized the combined purchasing power of both brands to realize a significant net positive financial impact. We are continually working in partnership to uncover additional opportunities to lower costs and create value for our franchisees. We recently introduced our Centers of Excellence, which function similarly to DineEquity's shared services model. These centers pool our talent from across the organization in the areas of development, consumer insights, training and operation services to help us realize synergies, share best practices, and be much more nimble.

I'd like to review now the third quarter and then Tom will provide an overview of the financial performance. Our financial results for the quarter reflect a committed focus to manage costs, generate strong and stable free cash flow, and further reduce debt. So let's begin with IHOP. Were doing the heavy lifting necessary to restore IHOP's performance over time. The management team and I, along with all of our franchisees, are 100% focused and dedicated to this goal. We have a four-point plan in place, which I will discuss in a minute. Now, as you may recall, I told you last quarter that I would assume day-to-day leadership of the brand, and provide strategic direction. Since stepping back into the IHOP leadership role, the team and I are excited to reignite success at this iconic brand. We are paying attention to every part of this business. As the head of IHOP, I will ensure everyone's attention, and I'm ardent when I say we will do whatever it takes to regain the momentum. To that end, we are not searching for a new President at this time. I will personally lead the brand until I feel we've made sufficient progress, before bringing someone into to take IHOP to the next level.

In September, we held our annual IHOP franchise conference, which focused a plan for improvement. This was another great opportunity for me to hear directly from franchisees. We received incredible buy-in, and we have strong alignment with our franchisees. Our goal is to obtain consistent and profitable sales and traffic growth, and we will not rest until this is achieved through a combined franchisor-franchisee focus and shared accountability. And while this is still work in progress, I can tell you that the team and I are committed to leveraging the heritage of this great brand to drive the business forward. We must balance new and innovative thinking, while staying focused on the basics of strong brand leadership. We are aggressively making the changes needed to return IHOP's performance to where it should be.

I'd now like to provide you with a little more detail on the four pillars of our plan for improvement. Pillar number one, revitalizing our menu. It's about the food, plain and simple. The strategy and principles that we successfully applied at Applebee's, following the acquisition, are being implemented at IHOP. We did it before, and we will do it again. We are laser-focused on keeping the menu fresh. IHOP's menu is being redesigned and streamlined for better navigation and to capture the essence of the brand. A new menu is scheduled to launch next year, which will have less items overall. We are alpha testing new, innovative and craveable breakfast items to remain competitive, create excitement, and meet the needs of our guests. Most importantly, we are building a robust pipeline of fresh and innovative offerings that are scheduled for inclusion throughout 2013. I am certain our guests will love them. Another key component of our menu revitalization is delivering value. Providing a compelling value proposition remains a core tenet in our strategy to improve sales. We plan to provide our guests with the best unique offerings that align with our mission of being the first choice for breakfast. In addition, we are working on reengineering our menu for value, and continually looking at ways to optimize our portioning and plating for the benefit of guests and franchisees alike. As always we are committed to ensuring the profitability and success of our franchisees.

Pillar number two, achieving operations excellence. IHOP's team members have laid the foundation to ensure we continue to deliver service excellence to each and every guest that walks through the doors of an IHOP. In July, we finished testing our new protocols for conducting restaurant inspections. We now have delivered action plans to all restaurant operators, based on the inspection program. Our franchisees have embraced this tool to help them ensure all of our restaurants exceed our guest expectations. IHOP's field personnel have completed the second round of operation evaluations for the entire system, and the final round for 2012 will be completed before year-end. We are driving the operations excellence process through inspections and additional training when our standards are not met. We are collaborating with our franchisees to simplify current processes to improve speed of service and to allow team members the time to deliver the warm and friendly service IHOP is known for.

Pillar number three, maximizing media. To make sure we are breaking through today's competitive media landscape and maximizing our spend through an improved buying process, we are focusing our media planning principles on the following -- media waste in key decision time periods; a strong on-air presence to maintain share a voice; and diversifying our media mix to reach our guests. Additionally, we are improving our modeling tools to measure media effectiveness.

And lastly, pillar number four, ensuring advertising effectiveness. Our goal is to attract new guests to our restaurants, and to encourage our existing guests to come more often through focused and compelling communications. Our new Branson campaign and testimonials across our promotional windows, like signature pancakes, have scored very well in the areas of motivation to visit, and top of mind. These ads work to both convey our brand heritage and remind consumers of the great food they can get at IHOP. We will continue to provide effective advertising that resonates with our guests. Our track record of success with the Applebee's turnaround gives me great confidence that we can, and will, successfully execute on our strategy to restore performance at IHOP through bold and decisive thinking, just as we did when Applebee's was acquired. I have no doubt that IHOP's accomplished management team and our franchisees are primed for success.

Now let's turn to IHOP's third-quarter results. On same restaurant sales, IHOP's third-quarter domestic system-wide same-restaurant sales declined 2%, due to a decrease in traffic, which was partially offset by a slightly higher average guest check. Regarding expansion and development, on August 4, we started offering our famous pancakes halfway around the world, with the opening of the first IHOP in the Middle East, specifically in Dubai. The opening marked the first under a development agreement between IHOP and our franchisee in the Middle East, the Alshaya Group, for 40 new IHOP restaurants over the next several years. I'm excited to say that the restaurant is doing very well, and in the first two months, is one of the most successful openings in all of our history. This great accomplishment for IHOP and the Alshaya Group, furthermore it reflects the affinity for the brand outside of the US. We look forward to replicating the success of this initial restaurant with subsequent openings. IHOP's franchisees opened 12 restaurants in the third quarter, of which 10 were domestic. This is a continued sign of confidence in the future of this great brand.

Now let's discuss the third quarter for Applebee's. Applebee's achieved positive comp sales growth and experienced improvements across all day parts in the quarter. Notably, we have made progress in the lunch day part, as we continue to test menu items, and focus our media strategy to make Applebee's the lunch destination of choice. On Applebee's same-restaurant sales, Applebee's domestic system-wide same-restaurant sales increased 2% in the third quarter, which was the eighth positive quarter of the last nine. The increase was primarily driven by a higher system-wide guest check. We are continually looking for ways to drive sales by focusing on new menu offerings, operational excellence, and exciting promotional campaigns. On promotions and late night, our late-night day part performed solidly, supported by an even contribution to sales from the other day parts. We are executing on our strategy to drive sales across all day parts. The strategy to promote late-night with an assortment of events in sports programming has yielded favorable results. The bar mix held steady at 14% in the third quarter. As you may recall, the bar mix at the time of the acquisition was 12%. In the lunch day part, we are focused on improving sales with a wide selection of items on our Pick and Pair Menu, which has performed well. Additionally, we have utilized digital media to urge consumers to reclaim their lunch break at work.

Providing guests with value and variety are core components of our revitalization strategy. To this end, we refreshed our menu in July with a launch of the Fresh Flavors of Summer, which featured an enticing array of new menu items with a value-oriented price point, starting at $9.99. This was our second-best promotion year-to-date behind our Under 550 Calories campaign. On innovation, our strategy is all-encompassing and extends beyond just the menu. During the third quarter, we launched Applebee's new campaign, See You Tomorrow, which reflects broader changes for the brand, such as the relevancy of the restaurant. We are currently working to simplify the menu by reducing the number of items that receive low satisfaction scores, are too complex to make, and don't have a strategic role in the menu. We are doing all of this with one goal in mind, to improve the guest experience by consistently delivering great-tasting food, prepared as ordered, every time.

On the remodel program, our Applebee's franchisees remain enthusiastic about the remodel program, with franchisees completing 97 remodels in the third quarter, for a total of 272 this year. We continue to expect that more than 50% of the domestic system will have the updated look by the end of 2012. Regarding development, Applebee's franchisees opened five new restaurants, of which four were domestic.

In summary, we are continuing to execute on our plans to restore sales growth at IHOP. We are simplifying and reengineering the menu for value, ensuring advertising effectiveness, improving our media program, and achieving operational excellence. We are confident in our long-term strategy to restore momentum at IHOP, as we address the key areas vital to success. Our objective is to see incremental improvement throughout the year. And at Applebee's, we are seeing results from the groundwork that has been laid. The revitalization plan is working, and we will continue to do more.

With that, I'd like to turn the call over to Tom Emrey, our CFO, for a discussion of our third-quarter results. Tom?

Thanks Julia, good morning everyone. I'd like to review some of the highlights of today's press release. As discussed, we completed two refranchising transactions during the third quarter. The combined net after-tax proceeds from these sales was approximately $87 million, which was used to pay down debt. For the first nine months of 2012, total debt has been reduced by $256 million. And a reminder, that the last and final refranchising transaction closed on October 3, and will be reflected in our financial results for the fourth quarter of 2012. At the end of the third quarter, our leverage ratio was 4.8x, down from 5.3x at the end of the second quarter. Let me remind you that our current leverage ratio is based on the latest trailing 12-month EBITDA. These results are core to our strategy of reducing the Company's debt and diligently managing costs.

Since the Applebee's acquisition in November of 2007, our highly-franchised business model has generated strong, stable free cash flow, which has enabled approximately $1 billion in debt reduction. The lower debt levels in the third quarter of 2012 led to a $3 million reduction in interest expense compared to the third quarter of 2011. Regarding income for the third quarter, adjusted net income available to common stockholders was $18.9 million or $1.03 per diluted share. This is compared to $19.1 million or $1.04 per diluted share a year ago. The year-over-year decrease is due to the expected decline in segment profit, as a result of the refranchising of Applebee's Company-operated restaurants. This was partially offset by lower cash interest expense.

On segment profit, our franchise segment profit was up approximately 4% over the third quarter of 2011. The improvement was primarily due to an increase in effective franchise restaurants, due to the refranchising of Applebee's Company-operated restaurants and restaurant development, namely by IHOP franchisees. For the third quarter of 2012, Applebee's Company-operated restaurant margin was 15.5%, compared to 14.2% in the third quarter of last year. The increase was primarily due to the full depreciation of assets held for sale in the fourth quarter of 2011, the refranchising of lower margin Company-operated restaurants, and lower advertising expenses. These items were partially offset by higher labor expense and commodity inflation. Given that we are now 99% franchised, Company-operated margins will obviously be a less material discussion going forward, and we won't consider restaurant operating margins to be a key indicator in affecting our operating performance.

The effective tax rate for the third quarter of 2012 was 30.1%, compared to 34.5% in the third quarter of last year. The decline in the effective tax rate was primarily due to state deferred tax adjustments, resulting from the refranchising and sale of Applebee's Company-operated restaurants. In G&A, G&A expenses were $49.0 million for the third quarter of 2012, compared to $39 million in the third quarter a year ago. The year-over-year increase was primarily due to a one-time charge of approximately $9 million related to the settlement of the Fast litigation that commenced prior to our acquisition of Applebee's in 2007, and severance charges associated with the Company's previously-announced G&A restructuring. These items were partially offset by the G&A savings resulting from the workforce reduction. Our previously announced G&A initiative is tracking to deliver the savings we had anticipated in the fourth quarter of 2012, and full-year 2013.

There were some extraordinary financial events in Q3. The $74 million gain on the refranchising the restaurants, and as previously discussed, the $9 million one-time charge related to a litigation settlement. Lastly, we should revise 2012 financial guidance this morning, which reflects the significant nonrecurring items previously discussed. Highlights on the key points in the new guidance, we expect IHOP's domestic system-wide restaurant -- same restaurant sales to come in at the low end of the previously-guided range of negative 1.5% to positive 1.5%.

Consolidated cash from operations is now expected to be between $43 million and $55 million, and this is down primarily from one-time events, refranchising, the litigation settlement, and some expected lower segment profit from refranchising. Our previous guidance was $110 million to $122 million. Please note that the income tax paid on the gain on the sale of assets is recorded as operating liability and is therefore a reduction to cash flows from operating activity. However, the gross proceeds from refranchising are required to be reflected in cash flows from investing activities. The range for consolidated free cash flow was subsequently revised and is expected to be between $36 million and $50 million. This is down from previous expectations of $103 million to $117 million, due to the same reasons just discussed.

On G&A guidance, consolidated G&A as revised, also for the one-time litigation settlement, and is currently expected to between $164 million and $167 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million. This reflects an increase from our previous expectations of $155 million to $158 million. Due to the significant debt reduction in the third quarter, we now expect consolidated interest expense to range between $115 million and $118 million, of which approximately $6 million is expected to be non-cash interest expense. This is down from previous expectations of $120 million to $124 million. The lower interest expense guidance is primarily due to the reduction of long-term debt and the decrease to financing obligations as a result of refranchising activity.

And lastly, I would like to highlight that all of the outstanding 34,900 shares of Series B convertible preferred stock will automatically convert into shares of the Company's common stock on November 29, 2012. The conversion will result in an increase in the common stock outstanding, by approximately 680,000 shares. Our current 2012 guidance for weighted average diluted shares outstanding is approximately 18.5 million shares, and includes this conversion. Based on the conversion in November, we also expect our fourth-quarter 2012 diluted shares to approximate 18.5 million.

And now, I'll turn the call back to Julia.

Thanks, Tom. To close, I'm pleased with the overall results for the third quarter. As I said earlier, we are executing on our four-point plan to achieve steady traffic and sales growth at IHOP. We achieved all of the goals that were set when Applebee's was acquired. We further solidified our business model by completing the transition to a 99% franchised restaurant system. We continue to use our stable free cash flow and net proceeds from refranchising to significantly reduce debt. Looking ahead, while debt reduction remains a priority for at least the near-term, we will come back to you sometime in 2013 with details on our capital allocation strategy. It will take the next several months to execute on everything that we've laid out, as we focused on the post-refranchising business and further reduce debt to be in a good position in 2013. I'm very optimistic about our strategy to drive performance at both brands, and deliver the value to our shareholders. Our fundamentals are solid, and we are positioned for long-term growth.

Now, Tom and I would be pleased to answer your questions. Operator?

(Operator Instructions)

Your first question comes from Will Slabaugh of Stephens Inc. Go ahead, please.

Wonder if you could talk a little bit more of the IHOP franchise conference? Just the general tone there, where they were happy, where they may have been a little disappointed, and where they most feel like we saw opportunity or wanted some the change, like you mentioned earlier?

Yes, the conference was in Palm Springs, and it was a record heat, so beyond them being angry that I couldn't control the weather, it was == on a normal day it was like 110. All kidding aside, I think they came in and I think it's a great question. I think they came in a little bit, I don't know if skeptical is the word, but concerned. I think they left very reassured. The evaluations we've gotten back have told us they felt good about the fact that they believe in the plan, they think we can work the plan.

As you know, just like at most franchise companies, they vote a group of people onto what we call a counsel, the Franchise Leadership Council. They have a lot of faith in that Leadership Council working with us day-in and every day- out on the menu, on the advertising. So I think they left pretty jubilant and excited about the opportunity in the future and believe very much in the brand. So I have not heard any negatives other than the weather.

Got you, and then I wonder if you could also talk about the consumer environment that you have been seeing throughout the quarter. The ups and downs, and any trends you may be able to speak to as you near the end of the quarter, September, October period where a lot of your peers have been warning more or less on some sort of softness, and just general choppiness in the environment?

Yes, I mean I've been quoted for the last couple of years, no one likes the statement but I do think it is lumpy and bumpy. I think the reality is, I have said this now for a while I think it's going to continue that way. I don't think the consumer is necessarily predictable, other than to say that value is at the top of the consumer's mind.

Frankly, in the family dining category and in casual dining category, and I think us playing to that value need is what we are very focused on. The good news is, both brands have been value-oriented. But it is hard to predict. I think the lumpy and bumpiness is going to continue for a while.

Thank you.

Thank you very much. Your next question comes from John Ivankoe, from JPMorgan. Please go ahead.

Just a couple of questions, if I may. Firstly, it does look like the Applebee's comp guidance for the fourth quarter is very wide given you guided to a fiscal 2012 number and we're three quarters in. Could you help tighten up an expectation, and I'm sorry if I missed this for the fourth quarter on Applebee's comps and maybe to the previous question, incorporate some thinking of where the business is currently trending into that guidance?

Yes, we never guide on quarters and we don't talk about inter-quarter. I think we feel very comfortable with our guidance that we've issued. And as I said, I think I said before, lumpy and bumpy but we are comfortable with the guidance that we currently set at the beginning of the year for Applebee's.

And I think if our numbers are right, and again I apologize if they're not, I think what we interpreted for the fourth quarter was something like down 2% to down 6% in the fourth quarter at Applebee's just using your annual guidance where you are year-to-date. Does that sound right or do I need to recalculate that number?

I'm not sure where you're getting that number. The guidance for Applebee's for the year was a positive 0.5% to positive 2.5%. I'm not sure where you're getting your number. We guided the beginning of the year on that, and as I said, we're very comfortable with that number.

Okay, I'm just going to look at that year-to-date then again and rerun that number. Secondly, if I may, for remodels in fiscal 2013, what are franchisees currently committed to, and what kind of sales lift are they getting for these remodels?

On the Applebee's side?

Yes.

Yes, we've been saying now for multiple quarters that they are getting a single-digit comp growth number on the remodel, usually around 5%, 6% pre-post net of control. And you can see from the trend, although we haven't guided for 2013, it is running about 25% of the system per year.

And I did -- Julia I do apologize, I just re-looked at the number, think it was down 2% to up 6% is what we looked at the fourth quarter, I'm sorry I misread something, I do apologize for that to go on the record, not to send the wrong signal on the call.

And then finally, regarding I think you mentioned paying down debt, is that something that you are eluding to for fiscal 2013? Is that continuing to be part of the plan for fiscal 2013 as well or are we finally at the point now with the refranchising, largely finished and having the view on CapEx that you can begin returning cash to equity holders?

Yes, as I said in my prepared remarks that we are all very comfortable with this, that in the near-term, we will continue to pay down debt, and then as we said, we will come back to you in 2013 with a the capital allocation strategy.

Okay.

Not sure exactly when in 2013, but we will come back to you in 2013.

Okay, thank you.

The next question comes from Jeff Farmer of Wells Fargo. Please proceed.

Just trying to better understand your TV advertising efforts with Applebee's, specifically how many weeks do you think you'll be in the air in 2012, and how that number will compare versus 2011?

Doing this off the top of my head, Applebee's is on almost 52 weeks a year and has been for some time. So there is no inherent large difference between 2011 and 2012 on the Applebee's side.

Okay that was what was leading into this question, so that does make sense, but as it relates to the Two for $20 weighting, would it be a similar level of promotion for Two for $20 in 2012 versus 2011? Or are you guys had to amplify that a little bit, considering what is going on in the environment out there?

We don't necessarily do Two for $20 the same time year-over-year. We do Two for $20 on television a couple times a year. The weight levels have been pretty consistent year-over-year. There isn't any dramatic difference, but when we choose to do it isn't necessarily lapping the same time year-over-year, if that makes any sense.

Sure, and I might be mis-characterizing this a little bit, but I think late-night was one of your better day parts in terms of same-store sales momentum over the last few quarters. It sounds like that has fallen in line with the consolidated same-store sales number. Now you're talking about lunch a little bit more. What is the incremental opportunity at lunch, and can you explain the advertising efforts around further driving that lunch day part?

Yes, we talked for quite a while now, that our goal is to focus different media on lunch, dinner, and late night. So, that really hasn't changed. So, late-night is done more through local marketing and digital space, and we've done lots of work in that arena.

Dinner is largely television. Historically, lunch has been radio and other forms of media. And we are looking at exploring some other opportunities including digital.

But we focus each of the day parts on a different strategy from a media standpoint. And we also see that when we go on television if we tag the commercial for late-night, we've also been very successful in that regard. So, each of the strategies around each of the day parts gets a different media mix, if you will. And we have had that now for, gosh, I want to say a year or two.

Okay and just one more if I can. So, refranchising obviously complete now. As we look forward into 2013 and 2014, are there some rough parameters as two how we should think about G&A growth versus revenue growth on a consolidated basis?

Yes, we are going to guide in early 2013 on all of 2013. So, we will certainly give you those G&A numbers. We historically have always said that our G&A is never going to grow as fast as our comp sales or vice versa, right? Our G&A will always grow slower than our comp sales, but the exact numbers, we will give you that for 2013 in our guidance.

Okay, thank you.

Thank you. Your next question comes from the line of Bryan Elliott at Raymond James. Please go ahead.

Back to the Applebee's sales question, if I may ask, is there any reason to not, or that you would expect Applebee's not to gain share again in Q4, given all the concern about the static industry demand environment? I think that is where people are looking for, just a little, your view is on where Applebee's is competitively, and whether you think there's any reason why it would stop gaining share in Q4?

Yes, I guess because we were so comfortable with the guidance, that's where we started with. I mean it is a good question, Brian, but we were so comfortable with the guidance, which again was 0.5% positive to 2.5% positive, and what is in fourth quarter? Well it is the sale of gift cards, it is the continuation of all the work we've been doing in each of the day parts. So that is why we were so comfortable with our guidance.

Well except that again, we can talk about it off-line but your guidance is so wide that it creates discomfort or lack of --?

That is easy to say. We're in the middle to the high end of the guidance, that is easy to say. We're not going to be at 0.5%.

Okay that's very --.

Sorry about that, you are right, I see what you're saying.

So on the late-night, how big of an opportunity is that? It seems to me it might be significant, and was it -- and just to confirm, it was not an outsized driver of comps this quarter, correct?

Yes, the day parts were pretty equal this quarter.

Right, but it's just been rolled out. You're putting some more effort behind it. Can you maybe give us some anecdotes of what some of the folks who are testing it saw, and how big the opportunity might be, as we really don't have a comparable to look at here in the public markets? And instinctively it would seem like it could be a brand-new bolt on business that could be quite meaningful. So if you could give us a little of your thoughts on that, I appreciate it.

Yes, the notion of marketing the late-night, we've been doing for about two years now with different programs, very locally based, that different franchisees could do. Monday night is Girls Night Out, Wednesday night is Football Night, Thursday night is Karaoke. That work has been very successful along with the tagging of the TV spots.

Recently, one of the franchisees tested this concept of the Bs, the Bar Bs and you have seen some media interest in that, which is a little bit more aggressive in the late-night day part. It doesn't start until 10.00 at night, but it provides an opportunity. That is not a system-wide thing yet, so certainly there is some opportunity, but we have to obviously manage that and find the right balance in our own brand and in our own culture, and that is what we are looking at. So certainly there's an opportunity.

Maybe the better way to think about it is when we made the acquisition, the mix was 12% liquor, one of the lowest in the entire industry. Today at 14% we are pretty much in the middle of the pack, but certainly there is some opportunity. I don't see us being a 20% mix for liquor as a Company, I don't see that in our brand, and certainly as you know, we're considered a family restaurant, we don't see ourselves going all the way to 20%.

But is there opportunity? Absolutely, closer to 16%, I think I said on the last call, is probably a good place to be. So, yes, there is opportunity, but it is certainly going to take a while.

Great, thanks.

Thank you. Your next question comes from the line of Bryan Hunt, of Wells Fargo. Please proceed.

This is Kevin McClure standing in for Bryan. Most of our questions have been answered, but Julia, one macro question for you. In your conversations with franchisees, what are the things that you continue to hear about things that they are looking at in 2013 that give them concern? Is it the fiscal cliff, local economies, impact of healthcare reform, what you continue to hear is a major theme?

I would say number one is waiting to see who is going to be President of the United States. I think they talk a lot about that. I think they talk a lot about what is going to happen to taxes. I think they talk a lot about Obamacare and the implications.

We're doing we are doing a lot of work with our franchisees. We've done, I think, a terrific job at both of the conferences of bringing in outside experts to help them understand Obamacare to the degree that we now know the regulation. We've done a good job with that.

And obviously commodity costs. I think they worry about the same things frankly that everyone worries about, in being able to put that in an order of magnitude. I think both brand's franchisees are still very bullish on their brand and the future. There really isn't anything that I think people lose sleep over, but I think these are the things the governmental regulations, that they are most concerned about. Things out of their control, if you will.

Remember, all of the franchisees belong to the co-op, and so they have a not only a fiscal accountability, but they have a desire to do as much as they can in the co-op. So there is a real focus on what additional things they can do to help offset inflation. And so, there's a lot of focus on that right now.

Got it. Thank you for your time.

Ma'am, you have no further questions at the moment.

(Operator Instructions)

So, we want to say thank you very much for joining us this morning. Our fourth-quarter reporting for the next reporting date will be February 27, 2013. If in the interim, you have any questions, you should feel free to call Ken or Tom or myself. We hope all of you that are in the Northeast are safe and sound and have a great day.

Thank you very much. Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Have a good day.