Brinker International Inc (EAT) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Brinker International third-quarter earnings release. At this time, all lines have been placed on a listen-only mode and we will open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Marie Perry, Vice President of Investor Relations and Treasurer. Marie, the floor is yours.

Thank you, Kate. Good morning, everyone, and welcome to the April 22 Brinker International third-quarter fiscal 2008 earnings conference call.

During our management comments and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts. Any such items should be considered forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in the morning's press release and the Company's filings with the SEC.

Upcoming calendar dates include the filing of the Company's third-quarter SEC Form 10-Q on or before May 5, and the Company's fourth-quarter comparable sales and earnings results currently scheduled to be reported on August 5.

With me today are Doug Brooks, Chairman and Chief Executive Officer; Chuck Sonsteby, Chief Financial Officer; and Guy Constant, VP of Operations Analysis. On the call today, Chuck will begin with a financial recap of the quarter's operating results and will share revised development and capital expenditure projections. He will turn the call over to Doug to more fully describe our Company's long-term areas of focus which we began outlining last quarter. At the end, we will open up the call for questions.

Well, thank you, Marie. Good morning and thank you for joining us. Our third-quarter fiscal 2008 proved both rewarding and challenging. We are seeing success on our top line, demonstrating how the power of our world-class brands, coupled with the hard work and dedication of our team members, can create an even stronger Brinker portfolio. By capitalizing on our previous experiences during other challenging times for the industry, our team is responding to the environment and driving results.

We're encouraged by the momentum gained on sales this quarter, as comparable restaurant sales for the quarter increased to 1.1%, very good considering the impact of Easter and weather.

At Chili's, excluding the impact of California, Nevada, Florida, and Arizona, the markets hardest hit by the subprime crisis, comparable restaurant sales improved to 3.5%. So the short-term trend appears positive, and we're off to a good start and expect the stimulus checks to help in May and June.

In addition, it appears California and Florida are showing better, but still negative, performance. Both those markets appeared to have bottomed out in December and have showed improvement each month since.

Chili's has outpaced the industry benchmark as reported by KNAPP-TRACK, on comparable sales for the last three quarters, with the gap widening considerably in the most recent quarter. The gap speaks to Chili's ability to differentiate itself in the segment, with strong core menu flavor profiles that capitalize on the iconic chili pepper. These menu flavors work in partnership with the advertising campaign -- Pepper in Some Fun -- and Chili's reimage program to provide an atmosphere our customers perceive as uniquely Chili's.

This momentum coupled with our previously focused actions around key priorities will be the path for sales and margin growth, driving operating results and long-term value creation for our shareholders.

Business inputs like food commodities and labor continue to rise. In fact, we experienced what we believe to be an all-time high in cost of sales as a percentage of revenue during the quarter.

That being said, delivering on guest experience to profitably grow sales is a key business imperative. As such, we remain committed to delivering a business model that delivers on both the needs of our customers and our shareholders.

To further this goal, Brinker must place significant focus on what is happening within the four walls of the restaurants, leveraging the strong positioning and operating strength of our world-class brands. To support that effort, we continue to refine our projected domestic Company-owned restaurant openings. We now expect to open approximately 70 Company-owned restaurants in fiscal 2008; approximately 15 Company-owned restaurants in fiscal 2009; and anticipate even fewer restaurants in fiscal 2010.

The slowing of Company-owned development is driven by a narrowed focus to emphasize the experience inside the four walls and Brinker's ongoing promise to generate appropriate returns from any new restaurant investment.

As a result, we anticipate our total capital expenditures for the fiscal year 2008 to be approximately $265 million, with $150 million relating to new restaurants. Fiscal 2009 total CapEx will also decline to approximately $185 million to $190 million, with approximately $40 million for new restaurant development.

To ensure we engage and delight our guests, we will continue to implement our reimage program into fiscal 2009, muting some of the decline in capital spending from new restaurant development. Currently, the Company has completed 77 reimages in fiscal 2008, with plans to complete an additional 80 to 90 reimages in fiscal 2009.

We have slowed our fiscal 2008 expectations from what we previously communicated so we could take time to read the results of the restaurants reimaged to date. From these findings, we expect to reduce the average investment cost for our fiscal 2009 reimages, focusing only on those elements of the reimage that resonate most with our guests and are the most relevant in driving returns. The reimage program represents approximately $45 million and $42 million of capital expenditures for 2008 and 2009, respectively.

Lastly, our fiscal 2009 capital expenditure projections include $25 million to $30 million for primarily kitchen-related technology improvements Doug will discuss later. From previous estimates, we reduced our total capital expenditure projections for both fiscal year '08 and fiscal year '09 by 20% and 14%, respectively.

We continue to move our ownership mix and will achieve our stated goal of 35% franchise-owned and 65% Company-owned by the end of fiscal 2008. This evolution to a more highly franchised system both domestically and internationally will prove beneficial by helping us win market share with a lower-risk investment profile, while continuing an aggressive brand penetration rate.

Our franchisees are well positioned in markets that are less penetrated and have headroom for growth without significantly cannibalizing their existing restaurants. In fact, our franchise comparable restaurant sales are up over 3%. As a result, Brinker's overall revenues will now be driven in a more balanced manner of comparable restaurant sales and increasing franchise royalties.

We anticipate opening approximately 76 franchised restaurants in fiscal 2008, with 36 openings residing in international locations. In fiscal 2009, franchise openings should range from 75 to 85 restaurants, with a relatively even mix between domestic and international.

Honing our priorities to key and complementary strategies that focus on the four walls of our existing restaurants, in addition to slowing domestic Company development, will come together in fiscal 2009 to deliver a free cash flow yield that will improve significantly over fiscal 2008 expectations and should exceed the current peer average of approximately 5%.

So let's get to the quarter. As a reminder, all discussions will exclude the impact of Macaroni Grill unless otherwise noted.

Earnings per share for the quarter, excluding the impact of special items, were $0.33, which is a 10.8% decline from the prior year. $0.16 of special charges represents the impact of initiatives that will lay the groundwork for the strategies Doug will outline shortly.

Consistent with Brinker's track record of financial discipline, we continually review the portfolio of assets and take actions that create long-term shareholder value by closing restaurants that no longer perform at required levels of returns and evaluating infrastructure needs to support an evolving business model. Functional needs and assets were evaluated for strategic fit, with our five areas of focus serving as a filter. Difficult decisions were made, leaving a strong foundation for long-term growth.

These after-tax charges include $7.6 million of development-related costs, including discontinued dead sites that we did not expect would achieve the required returns, along with other asset impairments. $5.6 million related to restaurant closures or lease declines that were previously disclosed in our second-quarter 10-Q. And $3.3 million of severance to restructure Brinker's restaurant support center functions, changes which represented a 10% reduction of costs at Brinker's restaurant support center. This is in addition to the deferred hiring or allowed attrition of over 100 positions since the beginning of 2008.

We expect to realize margin improvements from the removal of underperforming restaurants from the system; more focus inside the four walls; less effort towards opening new restaurants; and a more directed restaurant support center. The charges discussed above should result in approximately $15 million of savings in fiscal 2009 G&A costs, consistent with our commitment to hold G&A costs flat as a percentage of revenues as we evolve our ownership model.

The changes made will result in more efficient operations and better operating margins, serving as a brick in our path to profitable long-term revenue growth.

Revenue for the quarter decreased 3.9% from the prior year to $908 million for the quarter. Capacity decreases of 6.7% account for the largest piece of the change, with comparable restaurant sales and increased franchise revenues offsetting these declines. Consistent with recent quarters, capacity was negatively impacted by the sale of 172 Company-owned restaurants to franchisees over the last 12 months, as well as 18 restaurant closures.

As noted in the press release, comparable restaurant sales increased 1.1% for the quarter, primarily driven by approximately 3% price. Additionally, the quarter was unfavorably impacted by 40 basis points due to the Easter holiday trading into the quarter from the prior year, when Easter fell in April; and 30 basis points related to weather.

Franchise royalties increased 75% over prior year to $15.7 million in the third quarter. Strong growth in franchise royalties is attributable to our change in mix of Company-owned to franchise restaurants, supporting our financial goal of diversifying portfolio risk by increasing our franchise ownership, and good same-restaurant sales performance by our partners.

As noted earlier, cost of sales proves to be a challenging area for us. Our competitors in the entire food industry. The third quarter saw our cost of sales increase 50 basis points to 28.9%, a Company high. The commodity increase to the quarter was approximately 160 basis points, mitigated by a concentration of contracted goods in key commodities, price, and leverage from franchise revenues.

This is a significant headwind to our business, with increases materializing on virtually all food categories, often at unusually high levels. Our operations and procurement teams have and continue to partner with each other, exploring best practices in managing and optimizing menu items, with a concentrated focus on quality and value. The actual versus theoretical tool used in our restaurants continues to benefit the business by providing the necessary insight to the operators to minimize waste.

Brinker will continue to explore and employ strategies to help minimize the volatility we experience on this line item, while maintaining our focus on the heritage of delivering food and beverage excellence.

Restaurant expense for the quarter was 56.1%, a [50] basis point increase over the prior year. Wage rates, supplies, maintenance, and insurance costs were the primary drivers of the increase.

We continue to emphasize the importance of investment in the restaurants, as evidenced by an increase in repair and maintenance expense on a per-store basis for the quarter, as well as costs related to an increased supplies expense driven by upgraded to-go packaging. The increase in restaurant expense was offset in third quarter of fiscal 2008 with lower preopening expenses. During the quarter, we opened 17 fewer restaurants, resulting in approximately $4 million of savings on this line item.

Depreciation and amortization was $40 million for the quarter, or $1.3 million higher than last year. The increase in depreciation is primarily attributable to the growth from new restaurants and investments in restaurants through the reimage program.

G&A expenses were $39.6 million or 4.4%, a $2.5 million decrease on a year-over-year basis. The decline was primarily due to savings on the salary and team member related areas resulting from the Company's efforts to evolve our corporate structure to align with the increased mix of franchised restaurants as well as the expected decline in future Company restaurant development.

Interest expense increased $4.4 million on a year-over-year basis for the third quarter to $10.8 million, but actually declined on a consecutive quarter basis. The year-over-year increase is primarily attributable to the $400 million term loan used to fund the Company's share repurchase program and for general corporate purposes. Improvement on a consecutive basis is due to lower interest rates resulting from the aggressive actions taken by the Federal Reserve to ease the strain from the credit crisis. We will begin to lap the increase in debt during the fourth quarter of 2008.

The effective income tax rate remains a benefit to the business, decreasing 1.6 percentage points to 28.1% for the quarter excluding the impact of special items. The decrease in the tax rate was primarily due to an increase in the federal work opportunity tax credit, the leverage of FICA tax credits, and offset by a decrease in incentive stock option exercises.

Cash flow from operations for the first nine months of the fiscal year was $255.8 million, an $80.6 million decrease from the prior year due to lower adjusted earnings, reduced income taxes payable, and the timing of operational payments and receipts. This was partially offset by a $76.4 million savings from lower capital expenditures, largely due to opening 46 fewer restaurants on a year-over-year basis.

Credit markets continue to prove incredibly challenging, resulting in a more complex process for completing sales of Company-owned restaurants. Specifically, we continue to work with multiple parties on the divestiture of Macaroni Grill. In fact, one transaction was compromised by the inability of the party to obtain financing. We remain hopeful to announce a signed agreement by the end of the fiscal year, with for a close date in the first half of fiscal 2009.

Additionally, the Company incurred $67.1 million in an after-tax other gains and charges in discontinued operations, primarily related to the writedown of Macaroni Grill assets held for sale to the estimated fair value cost -- fair value less cost to sell, as well as asset write-offs and costs related, resulting from the Company's decision to close 25 underperforming restaurants in connection with its effort to sell the brand. This charge was a result of a decline in the expected performance of the brand due to increased commodity costs and the inability of an interested party to obtain financing for the purchase.

The casual dining industry is facing some difficult times. Just as we've done in our 33-year history, we will make the necessary decisions to weather these times. Our Company has and will continue to generate strong and reliable cash flow through systemwide growth of world-class brands, emphasis on the guest experience and delivering on their needs, as well as prudent financial discipline in our operations.

The top priority remains to grow profitable traffic over time. We see progress and traction with the initiatives underway and realize we must leverage what we've learned from those initiatives to ramp up results for the immediate future. At the same time, we're actively looking for opportunities to make additional forward-thinking, long-term changes that enable Brinker to achieve sustainable growth in a variety of economic environments.

We believe these opportunities reside within the restaurants we have today, along with international growth. To accomplish this overarching goal, we will employ actions around our five priorities of hospitality, food and beverage excellence, restaurant atmosphere, pace and convenience, and international expansion. I will now turn the call the over to Doug so he can share in more detail our plans around these priorities.

Thank you, Chuck. Over the past three months, the Brinker leadership has been dedicated to communicating an action plan that focuses on delivering positive bottom-line results in a variety of economic environments. As Chuck outlined for you, we've seen early progress and traction with the changes made so far; and we will continue to leverage what we have learned with those initiatives.

The improvements we're making on the top line are encouraging, but we also understand the importance of achieving sustainable growth over the long term. After careful review of our strategic plans, we're confident Brinker is headed in the right direction.

However, we realize our tactical approach to the strategy must be streamlined and concentrated on those few areas that make a lasting and dramatic impact on growing our core operations. So over the last 90 days, we have taken action to narrow the attention of our organization on five areas of focus, which we introduced to you in our January call.

Our five areas of focus build on and complement the Brinker strategy which we launched in August 2005. What's changed in 2008 is our execution of that strategy. Our organization is now focused on five priorities designed to grow our base business by engaging and delighting our guests, differentiating our brands from competitors throughout the industry, reducing the costs associated with managing our restaurants, and establishing a strong presence in key markets around the world.

You'll notice the five areas of focus primarily address growth within the four walls of our restaurants. We believe our greatest opportunities reside in leveraging the strength of our base business, so that is where we will focus our energy and our resources over these coming years. You'll also notice that each of those five areas builds on, complements, and enables the other four areas to create an integrated and powerful advantage for Brinker and its brands.

Our most exciting area of focus is to transform the casual dining experience in terms of pace and convenience for the guest. From what our guests tell us in our satisfaction surveys, pace and convenience is all about guest choice, putting them in control of the dining experience. Whether the guest is in a hurry or wants to relax over a leisurely meal, Brinker brands will deliver an experience like none other in the industry.

Our focus on hospitality combined with process improvements and significant investments in new restaurant technologies will enable us to grow our business by delivering a tailored dining experience that is customized for each guest. Now, comprehensive hospitality training emphasizes the importance of looking for clues that help the team member understand and act on our guest needs.

In addition, we're streamlining and revamping processes in the front and the back of the house so food delivery can be appropriately timed and servers can be more accessible and attentive to guests in the dining room.

Finally, we're exploring and investing in a number of enabling technologies that allow our team members to accelerate or slow the dining pace, depending on what the guest prefers.

Taken together, these process improvements and cutting-edge technologies combine to deliver a dining experience that can be 15 minutes faster than the typical 45-minute casual dining meal. These innovations enable us to meet the expectations of guests who are looking for an expediated dining experience, often during the busy lunch hour, one of the most time-pressed dayparts for most of our guests.

But because our systems are flexible, we can provide an outstanding experience that is customized to the pacing preference of our guests, which gives Brinker a powerful advantage over other dining options.

At our On The Border brand, we have tested a new kitchen layout and process as well as new handheld ordering technology that gets food to guests more quickly. These improvements enable us to not only quicken the pace of the dining experience but could also potentially provide savings in the back of house staffing.

We're excited about what we have learned in these tests, and look forward to exploring how we might apply the knowledge to nontraditional locations and international restaurants where our footprint is often much smaller.

Guest satisfaction scores for these test restaurants indicate improvements in the guest's ability to place their order quickly and enjoy a speed of service appropriate to their occasion. We're leveraging those learnings into new tests at Chili's with a comprehensive, fully-integrated technology system that dramatically changes the casual dining experience at every guest touchpoint.

From the moment a guest enters the restaurant, our team members at the host stand utilize technology to find the best seat for guests based on server availability and restaurant capacity; make more efficient use of our restaurant space; and if there is a way, provide more accurate quote times. When the guest is ready, our servers utilize technology to send orders to the kitchen electronically, which not only speeds up the ordering process but also ensures more accuracy.

Drinks and food are brought to the table by runners so our servers can spend more time in the dining room, providing thoughtful and attentive service to our guests.

In the kitchens, our cooks take advantage of new technologies that enable them to get the food out faster and more accurately, ensure dishes adhere to brand standards and are made to order for each table.

Once our guest has completed their meal and is ready to pay, our servers use portable technology to present the check and process credit card transactions at the table, guaranteeing a timely payout.

Now as far as completion dates and investment cost, our plan is to install new kitchen technology that expediates the cooking process and improves food quality, which is currently in a larger-scale test, with the expectation of a full rollout for Chili's restaurants by the end of fiscal year 2009.

We're also continuing to test front of house technologies that enable us to deliver a dining experience customized to our guest needs. We expect to have these improvements fully tested, with implementation well underway by the end of fiscal 2009. All totaled, Brinker has dedicated $25 million to $30 million in our capital expenditure projections for fiscal 2009 for those initiatives.

While technology enables better customization of the dining experience, it cannot stand alone. Attentive, responsible team members are crucial to reading each guest and delivering the overall experience they crave. Customized service platforms at each brand address the behavioral side of the equation. The goal of each program is to create an exceptional dining experience by training team members how to better understand and meet each guest's needs.

For example, On The Border's Serving With Mucho Gusto program focuses on three loyalty drivers -- one, establishing emotional connections with guests; two, delivering a dining experience that is relevant to the pacing needs of each table; and three, getting it right the first time and through all phases of the dining experience.

Each team member's position has three specific behaviors based on their role in the restaurant, and they are all held accountable for consistently executing on those behaviors. In addition, team members are rewarded for consistent performance with an ongoing recognition program and periodic contests to win special prizes.

Equally important as our technology investments and team member training to support pace and convenience, our brands are also exploring service practices and menu offerings that can expedite the dining experiences for time-pressured guests. Chili's new Bottomless Express Lunch featuring unlimited soup, salad, chips, and salsa served daily until 4 PM, delivers a quick and satisfying meal price for value.

Our focus on pace and convenience is not limited to just the dining experience. We're also building on our strength and innovation in to-go by implementing significant improvements that help us deliver hot, fresh orders that are on time and accurate for our guests. These improvements include technology as well as new packaging and new processes designed to offer a superior to-go experience.

These improvements will be supported by television advertising reiterating our promise to deliver to-go orders that are right and right on time. In initial tests, to-go sales showed an 8% lift as results of these low-cost improvements. We are encouraged by the growth potential of these results and are moving with urgency to roll them out to the entire Chili's system at a total investment cost of approximately $3 million. We plan to install the to-go improvements by the end of the first quarter in fiscal 2009, with approximately half of the expenses occurring in 2009.

Our next area of focus is ensuring our restaurant atmosphere. This represents the vibrant and relevant personalities of our brands and offers a warm and welcoming atmosphere for our guests. The current reimage program at Chili's has demonstrated progress in driving instrumental traffic as guests return to the brand in fully remodeled and updated restaurants. This new more contemporary take on our well-known brand is bringing guests back to Chili's and proving successful in enhancing the overall dining atmosphere.

As you may remember from our January call, the program targets older, solid-performing restaurants in need of a facelift and is resulting in positive guest feedback and traffic boosts. As we refresh and re-energize these older locations, we also take the opportunity to educate our team members on the changes and retrain on our core brand equities. This practice has proven effective in helping team members reintroduce the brand to guests.

We also drive traffic with newspaper freestanding inserts inviting guests to come see the newly-redesigned restaurants and order a free order of chips and queso or a Sweet Shot dessert.

Since the start of the program, we have reimaged 88 Chili's restaurants; and results show mid single digit growth in guest counts. While we're encouraged by positive results from these initial reimages, we continue to analyze and evaluate this program.

Using guest feedback gleaned from the first phase of reimages, the Chili's team is refining the scope of future reimages with the full intent of reducing the current investment cost while preserving those elements of the reimage that clearly resonate with our guests.

Future reimages will be scheduled on a market-by-market basis to take advantage of efficiencies in construction and to provide a broad base of marketing news. The program will continue into fiscal 2009 as we reimage 80 to 90 additional domestic restaurants.

Across the system, we're updating our restaurant atmosphere with new flatscreen TVs in the bar area. These streamlined high-definition televisions make our restaurants a contemporary and relevant choice for guests who want to gather with friends to watch sports or their favorite TV programs. The new TVs will be installed across the Chili's brand by the end of this fiscal year.

An ongoing area of focus for Brinker and its brand is number three priority, food and beverage excellence. We will continue to deliver against high standards of execution in food and beverage quality within our restaurants. We will also offer menu items that align with our brand positioning and satisfy our guests' needs.

Our flagship brand, Chili's, continues to differentiate from others in the bar and grill segment by capitalizing on the vibrant, spicy personality of the brand's iconic chili pepper. Guests can take a break from the mundane and everyday by Peppering in Some Fun at Chili's. The brand delivers menu items that offer kicked up levels of flavor, familiar favorites with a Southwestern twist, or the of [unapolic] indulgences that our guests crave.

Tapping into the guest preference for spicy, flavorful dishes, the brand builds on its competitive strength by introducing new twists on old favorites from the core menu. For instance, the addition of a sweet and spicy honey chipotle glaze to our signature Chicken Crispers was an instant hit in the first quarter. In our second quarter, our guests enjoyed three new flavors of the brand's signature Baby back Ribs -- brown sugar chili rub, blazing habanero, and honey chipotle.

Now our new Smokehouse Bacon Big Mouth Burgers, featuring special triple-thick bacon, were a strong third-quarter addition to our popular burger menu, a guest favorite for overall quality and value.

Our current promotion, Big Mouth Bites, which features mini-burgers served with a side of jalapeno ranch dressing for dipping, is now the brand's number-one selling burger on the menu.

Chili's 2008 marketing calendar was built around these punched-up favorites and supported by TV and radio advertising in major market areas.

Our brands are also focusing their efforts on improving core menu execution by increasing training for managers and back of the house team members, and by typing product specs for our supplier partners. Before the third-quarter launch of our new Smokehouse burgers, Chili's hosted nationwide all-team-member meetings before restaurant opening hours. This [dedicated] training session included new menu item tastings, ongoing training on core menu items, and a review of hospitality behaviors and much team member recognition. The brand will continue to hold similar meetings each quarter at the same date across the entire country, supported by satellite training so all team members have a chance to learn and benefit from consistent training and discussion of our strategic initiatives.

By periodically reviewing recipes, ingredients, and processes for our signature menu items, such as our Baby Back Ribs, our Chili's team ensures consistent execution across the system.

Our On The Border brand is proudly serving the world's favorite Mexican food and re-energizing its commitment to food and beverage excellence through enhanced food and management processes, also evaluations of our facility and equipment standards, and a comprehensive recertification program for every back of the house team member scheduled for later this summer. This brand will reinforce quality standards and deliver on its promise to serve picture-perfect food.

The team also continues to create compelling menu items that include guest favorites, exciting new features, healthier choices, and value offerings. The brand's Border Smart selections, which addresses the guest's desire for healthier menu items, continues to gain popularity. In fact, the Border Smart's Fajita Chicken Taco is now the brand's number-two taco, selling an average of 24 per day.

And for those who do enjoy an occasional indulgence, On The Border featured a new value option in the third quarter, Endless Enchiladas, which offered unlimited platefuls of the brand's signature enchiladas.

At Maggiano's Little Italy, their culinary team is focused on continued professional development of our chefs using a very unique certification program. Across the brand, culinary training at all levels from leadership to back of house and to the front of house has been aligned so that all team members become menu experts during the same week. In addition, the brand is simplifying back of house systems to narrow the focus of the kitchen on those processes that add the most value for guests and clearly deliver the food and beverage excellence this brand is known for.

In the third quarter Maggiano's used radio advertising to support Chef Specials such as Crab and Shrimp Cannelloni in key markets, and recently announced Maggiono's will be honored by Nations Restaurant News with a 2008 Menu Masters Award for the best single product rollout, Braised Beef Cannelloni. Described by reviewers as a cravable dish, this popular menu item features fresh pasta stuffed with braised beef and Asiago and Parmesan cheeses. Maggiano's will receive this award at the National Restaurant Show on May 17.

Now at Romano's Macaroni Grill, the brand offered a new twist on a guest favorite, Create Your Own Pasta, with hits Create Your Own Primo Pasta promotion in the third quarter. This promotion allowed guests to choose among six premium ingredients to add to their customized pasta selections. The brand also innovated with new signature drinks such as a new Sangria and a White Peach Sangria Martini.

Tying all these areas -- these focus together, Brinker and its brands will create a culture of hospitality that establishes emotional connections with its guests and engages our team members. We believe that providing a consistently warm, welcoming, and engaging experience will differentiate our brands from all others in casual dining.

Hospitality also builds guest loyalty, as evidenced by the feedback gathered in our guest satisfaction surveys. As we deliver a great guest experience, we will also engage and retain loyal team members who enable us to deliver on that hospitality promise.

In fact, all four Brinker brands are actively engaged in implementing fully-integrated hospitality platforms that are customized to the individual personality of each of our four brands. Although each program is tailored to the specific positioning and target customer base of the brand, all four include a consistent set of components.

Each Brinker brand continues to utilize and benefit from our improved hourly hiring process, which enables restaurant management to identify potential team members with a natural affinity to connect and engage with guests. As a result, we have not only seen improvement in guest satisfaction scores, but also improvement in team member turnover and engagement.

A similar selection system is now in place to enable our brands to better identify potential management team members who can effectively teach, coach, and model hospitality behaviors.

In addition, our decision to slow domestic development has resulted in increased manager retention and effectiveness at Chili's. When Brinker was focused on building a record number of restaurants in the US, we often depended on our most tenured managers to open new restaurants. By reducing the number of domestic openings means our managers can devote more time to optimizing our existing restaurants, coaching longer-tenured team members, and taking advantage of leadership development opportunities. Providing hospitality is about cultivating relationships; and with loyal and tenured team members in place, we will establish stronger relationships with our guests throughout the communities our restaurants are in.

Now, to fully leverage the power of hospitality, all team members are participating in customized hospitality training, which outlines the Brinker and individual brand approach to delivering an outstanding guest experience. As team members emulate hospitality behaviors on the job, they're recognized and rewarded using a unique recognition program created for each brand.

We will measure our progress with hospitality a number of ways. First, by enhancing our existing guest experience measurement program. We are using in-store audits, guest and team member interviews, and we've identified a unique set of expectations for delivering a great guest experience at every touchpoint.

We've defined these unique factors for each brand and developed fully-integrated training, communication, and reporting mechanisms that enable our restaurant teams to deliver a consistently superior guest experience.

We are also testing new program enhancements that make guest feedback more actionable for our operators. In fact our operations team at Maggiano's are at the forefront of these tests and have experienced significant improvement in guest satisfaction scores over the prior year.

Our final area of focus is to continue disciplined and aggressive international expansion. In a strategic move to redefine development for Brinker, we have shifted our focus to increase franchise development both domestically and in growing international markets. Our global franchise partners continue to see comparable restaurant sales driving tremendous potential for the future.

Now, competition in the casual dining segment is not as well developed in many parts of the world; and Western brands are very popular with guests outside the US. Growing middle classes in developing countries are driving increased demand for the quality of full-service restaurants. In fact, returns in some markets may be superior to the US, as many foreign markets have cost advantages in terms of food, facilities, and labor.

Our strength has been to retain the equities of our well-known brands while being flexible enough to accommodate the local taste and customs. Currently, almost 90% of our international business comes from local customers, a testament to translating the power of our brands into many different languages.

Brinker is already one of the top three companies focused on growing casual dining outside of the US. We are opening more restaurants internationally than ever before. During the third quarter, Brinker opened three international franchise restaurants in Qatar, Bahrain, and Mexico. To date 171 Brinker restaurants operate internationally in 23 countries and one territory outside the US.

We will continue to leverage our positions of strength in the Middle East and Mexico while establishing footholds in emerging and developing regions where there is a growing middle class. Our growth will be driven by cultivating relationships with equity investors, joint ventures, and franchisees interested in building their business interest through our portfolio.

With current high interest in our brands and a number of active agreements in place, Brinker will reach its goal of 300 restaurants outside of the US by 2010.

Our portfolio strategy offers a distinct advantage over other restaurant investment opportunities. While many casual dining companies offer one brand and one type of experience, Brinker offers a portfolio of options that help investors maximize their reach and penetration of key markets. Our brand offerings are complemented by the high-quality support of our culinary, marketing, ops, system, and training experts. We are also implementing new Web technology to enhance communication and data sharing with all of our international partners.

Franchise partners in the Middle East are taking full advantage of Brinker portfolio by developing multiple brands. Our Middle East partners are also leveraging the power of Brinker brands by forming a marketing coalition that benefits their collective interest in the regions. Members pay annual fees to invest in advertising opportunities that build guest awareness and drive traffic into the restaurants. As a result of these initial ads, our partners have experienced a sequential sales increase of approximately 3 percentage points. We expect the campaign to continue, alternating its focus between brand awareness and specific menu item features.

Our partners in Mexico have taken a similar tactic, investing in national television advertising during the second half of fiscal 2009.

Now our global development team is focused on markets where there is a high potential to build a significant number of restaurants, such as our expansion in Latin America. There is high demand for Western casual dining restaurants and a high potential for building on our presence in specific regions.

In our last call, we announced a new joint venture with CMR in Mexico which will effectively double our presence in the country to more than 100 restaurants over the next few years. To date, CMR has developed seven Chili's restaurants as a result of the joint venture agreement and will build one more in the fourth quarter. Development will continue into fiscal 2009, when CMR will build an additional 13 restaurants, bringing the total to 21 of the 50 planned.

In addition to Mexico, Brinker is proactively targeting a number of other Latin American countries where we are conducting market research and establishing relationships with potential partners.

So creating a focused and strong presence in these markets served us better than developing a handful of restaurants in multiple markets. Markets such as China, India, and Brazil provide the same potential; and we're pursuing opportunities with potential investors in those areas.

Leading our international expansion efforts is one of the most experienced global teams in the business. With their combined expertise we are well positioned to become the globally dominant casual dining restaurant company.

Although Brinker continues to be challenged by a highly-competitive environment, increased fuel and commodity cost, and an uncertain economy, we are more focused and motivated than ever to produce positive results for our shareholders. Through specific communication on our five areas of focus, both inside and outside our organization, we have achieved more clarity and more commitment to those strategic goals.

We're going to continue to optimize the use of capital by being disciplined about new restaurant development, by closing underperforming locations, selling Company restaurants to strong franchisees, optimizing our debt levels, and returning capital directly to shareholders in the form of increasing dividends or stock buybacks.

Just as important are our efforts to run the business efficiently by managing our operating expenses, including our G&A. Our top priority as an organization remains increasing profitable traffic over time. We see progress and traction with the changes we've made, and we realize we must leverage what we've learned with those initiatives to ramp up results for the immediate future.

The five areas I have outlined for you this morning are the five areas you will continue to hear about over the coming months. Our organization is laser focused on these initiatives and motivated to see them implemented across our system.

With that, I would like to turn the call back over to Kate to facilitate the question-and-answer period.

(OPERATOR INSTRUCTIONS) Jeffrey Bernstein at Lehman Brothers.

Great. Thank you very much. I actually had two questions. One, obviously, very pleased to see the improvement in terms of the comp trends at Chili's.

Just wondering if you could talk in a little bit more detail in terms of what you believe to be the driver. It sounds like there was sequential improvement throughout the quarter. I know you mentioned some consumer insight studies. Just wondering what you've discovered from that, perhaps between balancing price discounting and value versus premium, and the overall kind of landscape. Then I have a follow-up question.

Well, Jeff, you know, we feel like we've had some compelling new products hit the market here that have really helped us gain some traction. I think Chili's has always had a reputation for great food at a great value, too. I think in the tough economic time, we (technical difficulty) get a little bit of traction from that.

We put in a number of things that we try to really move the needle on at the beginning of this fiscal year. We had our teams focused on turnover, employee turnover; we're starting to see that number come down significantly. We hope that that is translating to a better guest experienced more focused on hospitality. So we think we are starting to get some traction from those items, too, that are really playing out to a better experience for the guest.

Versus kind of the competitive landscape, I know you said you have outperformed. But just wondering perhaps what you see yourselves doing differently and whether or not something like that is sustainable.

Jeff, again, I think --

I would just add, Jeff, to what Chuck said. I think we are just focusing on a great brand, particularly at Chili's, and focusing on the most important things -- the training of the team members, lowering the turnover, hiring the right people, rolling out products that resonate with the guests, that deliver on sort of the reputation and chili pepper brand, [for] the iconic spicy flavorful.

We think our new marketing Hill Holiday is more laser targeted towards delivering that message, and we think we are delivering in the restaurants maybe better than we have historically because of the better training, focus on hospitality.

Jeff, you asked -- is that sustainable? I think the brand positioning for Chili's is unique within the bar and grill category. I think our team has done a really good job of really aligning the experience in the restaurant, the food and new food products, and the advertising to deliver a consistent message to the guest. And I do believe that is sustainable.

Then with the comp improvement, obviously the restaurant margins are still challenged, as are most others. Just wondering if you can kind of look out for the rest of fiscal '08 and give your initial thoughts on fiscal '09 in terms of specifically -- you know, obviously commodity and labor cost pressures, which you have mentioned, commodity at least being at current highs. And whether, with those cost pressures being persistent, whether you think you have more pricing power potential. Kind of how high would you take that? Or whether you're seeing any consumer pushback on that front.

Well that's a lot of questions all at once, Jeff. Let's see if I can kind of go back. We will talk about '09 and where we think we will be in '09 at the next conference call and give our guidance for the year.

Commodities do look tough in the very short term. I do know that for the next couple months they probably won't get any better. We're still working on trying to manage our costs. As we said, working with our ops teams and also our purchasing group to try and find effective pricing and then also balance the items that we have.

We do have a few things going in our benefit as we look out. G&A is going to be down. Preopening will certainly be down. But we will have excess cash from reducing our investment in new restaurants, to see if we need to pay down investment expense or buy shares, all of which can help mitigate any impact from commodities.

Okay. But in terms of things actually locked in beyond the next couple of months, do you have contracts to help you protect on that front?

This is Marie. We absolutely do. 75% to 80% of our commodities are contracted. But within those specific items, they're staggered in expiration date. Then some of our longer-term, like chicken that we talked about before, we have escalators for fuel and corn.

So just maybe to look out over the next 90 days, of the commodities that we do have contracted approximately 5% will be up for renewal and will renew based on the current rates.

Jeff, I know you asked about pricing potential. We will be taking a small price increase at Chili's in the beginning of May. Again, as we look out along the landscape, I know a number of our competitors are taking pricing. We are also seeing higher prices in food away from home at the grocery stores.

So we've been very cautious about taking price and very diligent about how we do it. We are seeing a lot of strength in markets. Again, Chili's was up around 3.5% if you exclude those subprime markets. So we are seeing some pretty good effects of the consumer in markets where people haven't been as much challenged by subprime.

Great, thank you very much.

John Glass at Morgan Stanley.

Thanks very much. A couple questions. First, just with respect to the use of your free cash flow, is it safe to assume you're going to use that all for repurchases in '09? Or are you thinking about dividend policy or perhaps repaying debt with that money?

Hi, John, it's Chuck. Again, all those things will be on the table. We will sit down and talk about it internally and also with our Board and make decisions on an ongoing basis about what is best for shareholders.

Got you. Then just as we look at '09 and the reduction in preopening, what is a good number to use on a preopening savings per store?

Generally, about $225,000 per restaurant.

Got you, okay. Then you talked about the Mac Grill, and I guess two questions. One, is the financing environment also slowing down your refranchising efforts? I think last quarter you talked about a few announcements coming out.

Also last quarter I think you talked about getting maybe book value for Mac Grill. Has the book value changed, and I guess by how much? Is that also your estimate of how much you can get for it changing?

Well we did have to write down the book value of Macaroni Grill in the quarter, John. So yes, we wrote it down to really what would be an expected value if we were to have a sale. The new book value is what, 180 -- 190 -- it's like $189 million,$190 million.

In terms of the refranchise, Guy, you have been working on some of the refranchising activity. Do you want to talk a little bit about that?

John, while we don't have anything to announce today, we still expect, as Chuck focused on earlier, hitting our 65/35 goal which as you know would require us to do one or two smaller transactions than what we've seen recently. We still expect to be able to announce that certainly by the time we have another call in August.

Is the financing environment impacting your refranchising? Or is it simply the attitude of franchisees in this environment that is impacting that?

Again, I think as we talked about last quarter, John, I think for new franchisees entering the market I think it is challenging. But given that most of our transactions have been with existing franchisees that have established a track record with us, or in their quick service business, which many of our franchisees have, franchise business in quick service as well, they have typically still been able to access financing.

Great, thank you.

John Ivankoe at JPMorgan.

Hi, thanks. Just a couple questions and I would like just to follow up on that, because your answer actually confused me a little bit. It was my understanding, and I think it was in your last 10-Q, that the carrying value of Mac Grill was $283 million. I think I understood from this press release that the write-down was $67 million. Am I thinking about that incorrectly?

Well, John, we also closed restaurants.

Okay, so the closed restaurants is not in the $67 million.

That's correct.

Okay, all right, that explains that. Secondly, you're obviously making a fairly strong statement in terms of the long-term return potential of your brand in the US, specifically in fiscal 2010, which has to be a number fairly close to zero.

Can you juxtapose the franchisees' desire to continue to open new units in the United States, especially after paying a royalty and perhaps being a little bit more capital constrained than you? It's kind of an consistency that we get asked about a lot.

Well, John, our franchisees are continuing to have good success with the restaurants that they have here in the US. They are also in markets that are less penetrated. So where we may have slowed back on a Company development, we own a lot of the markets that are in the South; about a third of our restaurants are located in Florida, Arizona, California, which are markets where right now we're pulling back from growth, particularly in those markets.

So I don't think it is inconsistent to say that our franchisees can continue to expand in the markets they have, given their good top-line sales results and being in markets that are not that penetrated by the Chili's brand.

Okay, thank you for that. One final question for me. You obviously gave us a lot in terms of pacing and convenience being the number-one factor for guests and a lot of things happening on the technology side, both front of the house and back of the house. Has that actually been implemented and proven in stores? Is that still something that is yet to come?

John, this is Doug. We've got that in restaurants and we think we have proven it out in those restaurants. So we're vigorously working with equipment suppliers, with technology partners. As I mentioned, from the moment you walk in the front door to when the guest leaves, there's pieces of the experience that we have tried to sit back and analyze.

Casual dining has stayed fairly similar in terms of the timing of the experience for a long time; and it's obvious that the guest in today's world sometimes has needs for higher quality food but shorter time horizons. So we just took a serious approach at how we could deliver better hospitality, higher quality food, but let the guest manage time more.

If casual dining restaurants might not have been on someone's radar at lunch, we want to have the ability to make that happen if the guest wants that type of experience.

So we have seen that happen. Colin Powell once said, when you 70% of the information it is time to move forward. We have somewhere close to that amount of information based on our experience in the business. Now it's just a matter of figuring out -- getting the equipment rolled out, the technology created, crossing some t's, dotting some i's on processes in the restaurants.

But we're very bullish and very excited about that pace and convenience piece and think it can again allow our guest to have different types of restaurant experiences on different days depending on what their time constraints are.

Just so you can give us something to hang our hat on, is there a measurable traffic impact or quantifiable traffic impact? I guess it may be -- is it capacity specifically at the lunch hour that you're prepared to share with us?

In those restaurants where we have put this equipment in we have seen more table turns. For instance, one of the restaurants on Valentines night, both its to-go window as well as the front door were able to have more guests go through the restaurant. Part of that is the handheld technology, part of it is using this technology at the host stand that helps on wait time.

So we have seen those restaurants that have all pieces of this show not just improved timing but also higher quality.

Most of our time spent, actually, John, has been on the quality of the food and making sure that the hospitality is at a higher level. If we actually can drive more guests through, great. But the primary concern here is quality of experience and allowing a guest that has a tighter time frame to come to our restaurants, particularly at lunch.

Okay, thank you.

Steven Kron at Goldman Sachs.

Thanks. Good morning, guys. A couple of questions. First, I guess a follow-up, Guy, on the refranchising, recognizing over the next couple of months you plan to get a couple small deals done to get to that 35% target.

But how should we be thinking about fiscal '09? What is kind of the next hurdle beyond the 35%? Really curious based on the comments of the financing conditions how the pipeline develops beyond that.

Well, we do expect to get a couple -- as you said, a couple of transactions done before fiscal 2008. We're certainly focusing on some more aggressive goals and refranchising our On The Border brand, which we talked about last quarter as well.

As we've always talked about, about the refranchising, it is really the math exercise that we go through as to whether it makes sense overall from a shareholder return perspective to refranchise a market or not. We are always doing that analysis, Steven. Right now we are not ready to share where we would go beyond the numbers we talked about for the end of the fiscal year.

Okay, it sounds as though directionally we should expect that piece of refranchising at least in the current environment to kind of slow a bit.

I think some of that will depend on what our results are going forward. Obviously, better comp sales and traffic (inaudible) continue that trend will result on balance in less franchising than it would be otherwise.

Okay. Then on the G&A line, Chuck, it's my understanding or at least I remember that there is still a little bit of cost in the G&A line associated with Mac Grill that couldn't be stripped out and put in discontinued ops. Am I correct in remembering that?

If so, upon sale can you quantify how much do you think would be stripped out there?

That's correct, Steve. There is still some cost in there that are related to Mac Grill. As we look out, we're looking at trying to get rid of anywhere from $2 million dollars to $3 million in addition to what is directly related to the brand. So about $2 million to $3 million in that continuing ops line that will come out once the Mac Grill brand is sold.

Okay. Then just lastly for me, and I apologize if you addressed this, but the same-store sales as it developed throughout the quarter, can you maybe give a little color on that? Maybe you can comment on how the momentum has continued into April, where I think the compare gets a little bit more difficult.

Well, I think, for us we had a pretty good January, and we maintained that momentum really throughout the period. March was different because of weather and Easter impact, so it's a little bit muted on the actual results. We have seen a good start to April.

So again, we think as I said in the script, April started out pretty well; and then we think with the rebate checks coming in May and June, we think we're prepared for a pretty decent quarter on the same-store sales line. Cost will continue to be a challenge.

Okay, so let me just follow up on that then. If I think about the quarter, EPS on a year-over-year basis down 11% yet same store sales up over 1%, recognizing the cost environment is very tough.

Can you just give us a little bit of kind of visibility as to where we stand as far as what we need from a comp standpoint to maybe start to get positive EPS growth down the road?

You know, I would rather not get into really trying to forecast quarterly results. Because I think by answering the question, Steve, I will inadvertently start to give guidance on the quarter, and I really don't want to do that.

I think what I am really trying to signal and tell everybody is I think everyone is worried about the consumer, and rightfully so. It's been tough over the last couple of years at casual grill and bar. But we're starting to see some signs of life in our brand, and we're pretty excited by that.

I think we will continue to deal with all the issues related to commodities and wage pressures, just like everyone else in the group. But it sure is nice to see traffic and sales going in the right direction. I think that is really the message we're really trying to get across today.

Thanks.

David Palmer at UBS.

Hey, guys. Chili's has clearly had a hit here with these new Smokehouse Burgers and the Big Mouth Bites. When I was at a store recently, it felt like every third table had these things on the table.

Could you perhaps give a sense just given the mix you are seeing, how much you think that those platforms, particularly Smokehouse burgers, may be helping your sales? Do you have a sense on that?

We do; I just don't have that number in front of me right now, David.

I guess really the flipside of that is I'm wondering if -- are you a little concerned that the lift from this platform might diminish in the coming months? Or do you think that this is kind of a platform that you've kind of put out there, and you have a pipeline of news that can keep the momentum going?

I think, David, we are excited about one thing. Chili's brand was developed and created on a great hamburger. So I think one thing we have re-established with the guest this item that Chili's has been famous for forever, and we used a lot of great culinary innovation to add new flavorings and, with the Big Bites, options that some guests use as an appetizer to be shared among the table; and they order something else for the entree.

So across the whole line, there is some flexibility with the product. But it's hard to sit back and be disappointed when a product your brand was built on is having new and exciting success with innovative new versions of that product line.

I mean, do you -- is there anything that you're feeling like -- that is a platform that has been a big success. There has obviously been a bulge of sales from that. Do you feel like that is a sustained lift and/or perhaps you're going to be resting your hopes on some other platforms in fiscal '09, fiscal '08, fiscal '09?

Well, David, I think if you look throughout this fiscal year, in the first quarter we did the Honey-Chipotle Crispers, which was again an innovative new way to do a new flavor on Crispers. Those two products became the highest-selling item on the menu.

In the second quarter we went with new versions of our Baby Back Ribs, and those then became one of the higher selling items. So I think what it shows is if we can be innovative with new versions of old favorites, the Chili's platform has a number of product lines that continue to stimulate guests and get them coming back for more, and keep it balanced throughout the menu.

We've also had good success with tilapia, this new Bottomless Express Lunch gives us a chance for value, and something the kitchen can get out quickly. So yes, burgers are kind of big news right now, but there's been a number of different products that I think have been successful this year across the menu.

Okay.

One more additional point to what Doug is saying. I think again Chili's does have a differentiated positioning. We've done a good job of matching new products with the differentiated positioning within the grill and bar space. That coupled with the advertising and what we believe is a different hospitality experience that people are getting in restaurants, I think it's a combination of all those things that are driving it.

Not just -- I don't think you can separate those and say it's only the food, or it's only the advertising, or it's only the in restaurant experience. It's a combination of all three coupled with a differentiated positioning that is helping to drive things a little different for us.

Just to wrap up, I am wondering if you might be able to comment on just a few other factors just really quickly. Is the slowdown in unit growth itself, maybe the Mac Grill closures and their general sales perhaps being -- going Chili's way? Because often those Mac Grills are very close to the Chili's.

Lastly, the reimaging, could you perhaps just touch on those things and perhaps think about how those might be helping today and in the future same-store sales at Chili's?

Well, I think the slowdown in growth will obviously help us from a cannibalization. We talked last year that cannibalization was costing us between 1 and 2 points. That is down probably 50 basis points this year on a year-over-year basis.

When we look at the Mac Grill closures, most of those happened toward the end of March; and really we wouldn't have seen that come through the March sales in any kind of measurable effect. Then, last the --

Reimaging.

Oh, the reimaging. We are still seeing sort of mid single digit same-store sales performance. So. And that is a change between what they were trending and what they are doing today, we're up mid single digits on the reimaged restaurants. So we are still seeing sufficient numbers to continue with that process.

Okay, I will stop there. Thanks.

Joe Buckley at Bear Stearns.

Thank you. A couple questions as well. First on the -- another question on the sales trend. Can you talk about what you are seeing lunch versus dinner or weekday versus weekend? Anything that stands out.

We're seeing lunch about 100 basis points worse than dinner decline. But we're not really seeing any huge drastic change between through the week and weekend. It seems to be relatively consistent in terms of where traffic and sales have been down.

Okay. The Bottomless Express Lunch, has that gotten a pretty good share at lunch? Has that sort of caught on for you?

Well, it's brand-new for us, we just started advertising it last week. We've been offering it for a while in-restaurant on the menu. So, this is our first opportunity to see how it's going to do backed by media. So we will hopefully be able to talk about that next quarter.

Then a question on the technology initiatives you mentioned. Is the $25 million to $30 million of CapEx in '09, is that enough to roll this out throughout the entire Chili's brand?

Joe, it's Guy. Yes, on the kitchen technology side that Doug talked about, it is enough to roll it across the Chili's brand. But it only represents the start of the implementation for the technology that we talked about in the front of the house. Some of that will continue on into fiscal 2010 as well.

Okay, so $25 million to $30 million is back of the house. Is it sort of an enhanced KDS type thing?

Part of it actually, Joe, is some new kitchen equipment as we discovered at On The Border. Changing the process, changing the way that different pieces of equipment work together, and the fact that the front of the house is connected through KDS, there is more information getting in the kitchen about when guests enter the restaurant. Through the handheld technology the items get to the kitchen much quicker.

So you combine all of those things and we're getting food out of the kitchen faster in all of these test restaurants. But some of it is kitchen technology. Actually the equipment that allows us to have high quality but actually the food prepared faster.

Okay, does it include the handheld devices then? Is that part of the '09?

That is not part of that number at this time, Joe.

Okay. Then one last question, Doug. You talk a lot about hospitality and behaviors. This may sound like a funny question, but are you trying to script team members' behavior a little bit more?

No, actually we're probably doing just the opposite. I think if you look across not just our company, but casual dining, the training historically has been a lot of functional scripting of steps of service; and here is all the information about the food items.

We're actually hiring the right person. This pre-employment test -- we call it [Convertis] because that is our partner -- it is helping us have more confidence that the person we are hiring actually has what we call the hospitality gene.

We're making sure they understand how big the chicken breast weighs, and what the marination is made out of, and then giving them more freedom, actually, to get to know the guest, find out what the guest needs are, and to create that emotional experience.

So actually we're doing a little bit more upfront training on how to create a connection, and then giving them actually more freedom to wow the guest with their own personality and their own style.

Okay, sounds good. Thank you.

Bryan Elliott at Raymond James.

Good morning. Just a couple little detail questions here. First, can you -- you may have it, but I may have missed it. You gave us a lot of info in the scripted remarks.

But the advertising swing, did you quantify or give us some ability to think about how much advertising we had this year versus last?

I will actually take that one, Bryan. Literally when we look at the third quarter and we will focus on Chili's kind of for January, we actually did not have advertising last year. Advertising this year is the same for February, but when you look at March, it's about equal.

Okay, then going forward, when we think about fourth quarter and beyond, some of the other initiatives that you referenced earlier, is that going to be kind of consistent with Q1? Or should we assume a little bit of bump in spending, maybe? Or with calendar Q1, sorry.

It's pretty flat year-over-year. When we look at total advertising spend on a year-over-year basis, Bryan, it's flat.

Okay, and we should assume that basically going forward?

We're still talking about '09.

Okay, all right. Fair enough. The weather impact was slightly negative in March, I think you said, right?

Yes.

And last year, I know in February, Valentine's Day was a big washout. Was there a big recovery that helped you in February from that, or not really?

Yes, it did help in February, Bryan.

50 bps maybe in the quarter, or was it not that high?

When we give the 30 basis point number, I think that is all-in.

Okay, okay, all right. Coming back to a question about sort of the magnitude of the testing here. I appreciate the Colin Powell quote and wouldn't take issue with it. But maybe you can give us a little help with how many stores are we really talking about, and what duration did we have some of the kitchen plus the integration, and maybe how many stores sort of have the whole package where it's all integrated and we have the handheld and the credit card payment at the table, and all the things that Doug went through?

Well, Bryan, the honest truth is there's various stages of the technology. For instance, the handheld we were testing one that wasn't designed actually for a casual dining restaurant use to make sure we didn't spend a lot of money and it didn't integrate with the other parts of the technology. We have a prototypical -- we have a partner who is creating a prototypical one that will adapt better.

So there's different phases and stages. Limited number of restaurants. Less than 20 restaurants have had pieces of all of this. But the results are conclusive enough to us to know that we have something here we want to move forward with, if for no other reason understanding the guest needs right now.

Wanting to sometimes -- and I mentioned lunch a couple times, but dinner is the same thing. We know there's lots of families who at dinner may cross a casual dining restaurant experience off their list because of the schedules with their family and kids. If we were able to tell them that if they wanted to have a great day casual dining experience in 30 minutes we could provide that. We think that is a big message to consumers.

So we do have enough information, as long as we been in the casual dining business, to know that we think we have a big idea here, even though we haven't tested it in a large number.

And it's not new. In Europe, for instance, where we have restaurants, we have used handheld technology there for years. It is kind of funny; over in Europe, the technology has been cheaper than people. Now what is happening here in the US is the cost of labor is going up and the cost of technology is going down.

So this is a really neat sort of we call it the hospitality technology partnership. Where in these locations where the handhelds are in place, just the fact that we were able to meet the guests' time needs, their satisfaction scores about service and hospitality went way up. That is part of the equation.

So we think what is exciting here is we actually have better hospitality and the technology allows us to meet their time needs. And it's a win-win for casual dining.

Great, all right. Very helpful. Congrats. Thanks.

Thank you. There are no further questions in the queue at this time.

All right. Well thank you for your continued interest in Brinker and this will conclude the call.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.