Brinker International Inc (EAT) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Brinker International fourth-quarter 2009 earnings release conference call. At this time all participants 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. Ma'am, the floor is yours.

Thank you, Jenna. Good morning, everyone, and welcome to Brinker International's fourth-quarter fiscal 2009 earnings call which is being broadcast live over the Internet. Today with us from management are Doug Brooks, Chairman and Chief Executive Officer; Chuck Sonsteby, Chief Financial Officer; Todd Diener, President of Chili's Grill & Bar and On The Border Mexican Grill & Cantina; Wyman Roberts, Chief Marketing Officer and President of Maggiano's Little Italy; and Guy Constant, Senior Vice President of Corporate Finance.

Before I turn the call over, let me quickly remind you of our Safe Harbor regarding forward-looking statements. During our management comments and in our responses to your questions certain items may be discussed which are not based entirely on historical fact. Any such items should be forward considered forward-looking statements within 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 risks and uncertainties include factors more completely described in this morning's press release and the Company's filings with the SEC.

On the call we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the Company's ongoing operations. Reconciliations are provided in the tables in the earnings release and on Brinker's website under the financial section of the investor tab. Now I'll turn the call over to Doug.

Thanks, Marie. Good morning and thank you for joining us on the call. As we work through the remainder of the first quarter we will continue to proactively manage the business looking for additional opportunities to improve on our current expectations. But as we talk to you this morning, and based on our performance to date and limited visibility on external factors likely to impact the top line, the insight provided is the best view of the business we can offer today.

Our first-quarter expectations may be surprising given our solid fourth-quarter results in fiscal 2009. But as you will hear on the call today, our early July sales were much less than we projected. We attribute this change to our tactical decisions to offer a new promotion at Chili's which has lower margins, but has met our goal to bring guests back into the restaurant.

As all of you know, Brinker gained significant traction related to margin improvement in the past year and our first quarter represents an investment of some of that traction towards driving guest counts. However, our goal is to drive profitable guest counts over the long term and this will include investments in the business that will more clearly and more permanently differentiate our positioning versus our peers, work that is well underway already here at Brinker.

Fiscal year 2009 has been a year of change and flexibility for Brinker International. As the economy continues to challenge our industry along with many others, we have shifted our focus internally, taking significant actions to strengthen our business model and protect our leadership position in the casual dining industry.

Our intention is to win no matter what the economy is doing and to position our brands for accelerated profitability as our country emerges from the current downturn. And I believe we do have one of the strongest leadership teams in the industry leading us through this challenging time.

In June the entire restaurant industry joint Brinker in mourning the loss of our company namesake and our Chairman Emeritus, Norman Brinker. As you all know, Norman's contributions to the restaurant industry and casual dining in particular are unparalleled. His influence and mentorship spurred many leaders on to successful careers in what is now the nation's largest private employer and we are proud to continue his legacy of developing strong talent to lead our industry.

Through his leadership and his own life experiences Norman taught us to respect our guests and our team members, to be optimistic in the midst of great obstacles, and to be fiercely competitive. Norman's influence on our business and our industry will endure and we are proud to work for the Company that bears his name.

Now last March you may remember Brinker announced a new organizational structure designed to streamline decision-making and maximize leadership talent while achieving better operational efficiencies across the portfolio. Todd Diener was named President of both Chili's and On The Border and we combined the strengths of two brand teams into one powerful operation. Todd brings more than 25 years of ops experience and leadership to this new role which makes him ideally suited to lead both brands.

We also announced Wyman Roberts' promotion to Chief Marketing Officer for Brinker in addition to his continuing role as President of Maggiano's Little Italy. Based on Wyman's experience leading marketing, branding and culinary functions it was a perfect opportunity to apply his experience across all three Brinker brands.

Now our goals in making these changes were to flatten the organization, operate more efficiently and to create expanded development opportunities for our team members. As a result our high potential leaders have taken on additional responsibility; they are learning about new areas of the business and they are building stronger connections between brands by sharing their talent and best practices across the portfolio.

In addition to promoting internally we have strengthened our leadership in two key areas of the Company by bringing in new talent from outside the organization. In April we welcomed Steve Provost as Senior Vice President of Marketing and Brand Strategy for Maggiano's Little Italy. Steve comes to us with almost two decades of restaurant and food service industry experience. Steve reports to Wyman and leads branding, advertising and development of the overall marketing strategy for the Maggiano's branch.

Now supporting our goal to establish 500 restaurants outside the United States by 2014, in June we welcomed restaurant and food service industry veteran, Carin Stutz, as Senior Vice President and Chief Offering Officer of our global business development. Carin oversees restaurant operations for our more than 200 international locations and working closely with franchisees and is serving as a member of our leadership team. We are proud to welcome both the Steve and Carin to the Brinker family.

As Marie mentioned, Todd and Wyman are joining us to provide more detail on their areas of responsibility. So I'd like to now turn the call over to Todd.

Well thank you, Doug, and good morning, everybody. When the Chili's and On The Border leadership teams merged five months ago we immediately realized the benefits of bringing our best and brightest together to focus on the combined system. We've been able to realign the teams to increase both regional and brand efficiencies, but, more importantly, both teams have spent the past few months listening and learning from each other, sharing best practices from each brand, and looking for opportunities to apply them across our organization.

Our sharing goes beyond ideas to our renewed focus on actions that matter most to our guests -- outstanding hospitality, and fresh great tasting food served in a warm and welcoming environment. Two years ago we combined recruiting and training for all three brands into a shared services function resulting in reduced oversight cost, lower turnover, and more development opportunities for our team members.

We have now applied that same idea in other areas of operations including facilities, ops, and people works. We have taken steps to streamline systems in the back offices of the restaurant, combining labor tools for both brands into one common system. And in the heart of the house we have improved food portioning practices to eliminate waste while promoting consistency and quality. We're also examining every aspect of our service platforms to combine the best practices of each brand into one solid program.

Over the past year at both Chili's and On The Border we have done a great deal of foundational work to improve our operations and increase margins in a very tough sales environment. Lower cost of sales, affective labor management and holding the line on G&A spending are just some of the ways that we're becoming more efficient. Our guests are responding very favorably to the new menu at On The Border, as demonstrated by our recent traffic improvement and positive guest satisfaction score.

Throughout the entire organization we're putting our focus back on people -- our people, our team members and our guests by redirecting talent and developing our leaders into change agents who can encourage flexibility, drive execution and deliver results. Leading this transformation is Kelli Valade who we recently named Chief Offering Officer for both Chili's and On The Border.

A 13-year veteran of Brinker, Kelli brings outstanding leadership skills, strategic vision, and a strong focus on results to this latest challenge. A former restaurant general manager, Kelli has been instrumental in many company successes throughout her career here at Brinker.

In her new role Kelli will help to oversee our more than 1,400 Chili's and On The Border restaurants nationwide. Her drive for success will be critical to our two largest brands as we strive to take our execution and hospitality to new levels of excellence.

Kelli and I are working hard to maximize operations talent by putting the right leadership in place to drive dramatic change at the restaurant level. And in the coming months they will heighten the level of energy amongst our team members in working with Wyman and his team to ensure our culinary innovation is executed flawlessly at every one of our restaurants.

Now Wyman is here to provide an update on marketing and culinary initiatives at all of our brands. Wyman?

Thanks, Todd. At all three Brinker brands we continue to make food and beverage excellence an important and ongoing area of focus. Because we understand our guests' desire to manage expenses during these challenging economic times, all three Brinker brands have been focused on innovative menu offerings that deliver great food at the best possible value.

We're moving very quickly on parallel paths to make value part of the everyday experience for our guests. We'll deliver value in two ways -- through short-term promotions as well as long-term strategic initiatives that focus on menu innovation. The difficult operating environment along with the highly competitive casual dining space requires that we be flexible in our approach to creating innovative new items and taking worthwhile risks. At all three Brinker brands we effectively demonstrated that flexibility earlier in the fourth quarter.

In this time of aggressive discounting and couponing throughout the industry our goal for Chili's was to find a compelling value promotion that balanced the needs of our guests with our ability to protect margins. To that end we created and launched the 10 Under $7 promotion which was structured to provide a wide variety of the brand's most popular items in smaller portions priced under $7.

We believe the concept was strong, but the aggressive offers featured by our competition were even more compelling to the consumer. And although initial results for 10 Under $7 seemed promising we started seeing a trend of neutral to less favorable guest feedback, most of which was attributable to the portion versus price trade off.

As such we did not experience the traffic lift we planned for, so in response to the trend we immediately began working on a new promotion that would resonate more effectively with our guests. And given the strong margin improvements we have made over the past year we had the opportunity to invest some of that back into a more compelling offer that would drive guests back into our restaurants.

The result of this work was our new three-course promotion. In very short order we were able to leverage the learnings from 10 Under $7 and deliver an idea based on value and abundance. It enables two guests to choose two entrees and share an appetizer and a dessert for a low price of $20. This bundled approach offers our guests more of what they love at Chili's for a lower price than if purchased separately.

Although the three-course promotion has only been in place for a few weeks, early results indicated it is accomplishing the goals we intended for the brand. We're encouraged by the significant improvement in traffic trend as well as positive guest satisfaction scores and actual guest feedback indicating a balanced and broad-based offer.

Although our guests seem to be responding favorably to the promotion, it does carry a margin impact that will need to be offset by increased traffic. While the three-course promotion is an effective short-term package designed to compete in the aggressive discounting environment, we are actively pursuing a new long-term strategy for the Chili's brand.

As we move forward in the fiscal year our marketing and operations teams are focused on differentiating Chili's from others in the Grill & Bar segment by offering new and better food, better hospitality along with the innovation and increased energy within the restaurant that Todd discussed earlier. You'll begin to see some of those changes by the end of the first quarter.

On The Border continues to deliver fresh, flavorful food with its newly revamped menus. Guests have responded very favorably to the innovative menu items such as Taco Melts and to the expanded Create Your Own Combo which starts at just $6.99. The brand has seen positive results by delivering compelling everyday value supported by ongoing media. In fact, On The Border comp sales outpaced [NapTrac] benchmark for the casual dining industry for three out of the last four quarters.

This month Maggiano's will launch an innovative new value promotion called Maggiano's Today & Tomorrow. Leveraging the brand's reputation for generous portions, this promotion enables guests to choose from a selection of seven of our chef's favorite pastas and bake specialties to enjoy in the dining room, then take home another selection to be served later at home.

The guest receives two half portions of pastas for $12.95. The core idea behind the promotion is giving the guest more value for the same price. In our test market guests responded very favorably to the offering, so we're very excited to extend the promotion to all 44 restaurants nationwide.

In addition to our current value offering at Maggiano's we are leveraging the culinary expertise within our restaurants by expanding the monthly specials program. Chefs at each location are actively involved in crating innovative new menu items that give our loyal guests reasons to visit more often.

As we look ahead to the remainder of fiscal year 2010 our marketing and culinary teams are focused on differentiating our brands with fresh, innovative food our guests clearly prefer over the competition. Working in close partnership with Todd and Kelli and their operations team we will tie our marketing and culinary efforts to better execution and renewed energy within the restaurants. We are confident our offerings combined with the hospitality of our teammates will give Brinker restaurants a competitive edge.

Thank you. And now I'll turn the call over to Chuck so he can share the details of the quarter with you.

Well, thanks, Wyman; good morning. And from an economic environment standpoint fiscal 2009 certainly proved to be one of the most difficult years in Brinker history. The casual dining industry as a whole faced many challenges and was not without casualties. There were numerous brands forced to restructure significantly or close altogether. But in the face of adversity we have the opportunity to respond in a way that will allow us to emerge from this time as both a stronger company and a stronger competitor.

The actions taken this year underscore this philosophy. So let's take a quick look back at the year end review to see what was accomplished. With the organization focused on our key priorities we executed strategies to modify the business model and deliver on the guest needs in a financially prudent manner even as we work to unlock the consumer value equation.

And these actions included -- shedding underperforming or non-strategic assets; slowing company-owned restaurant growth and discretionary capital programs, allowing cash to be used in a more productive vehicle. We increased our cash flow yield from 4.4% to 11.1%. Successful restructuring of our debt in a difficult credit environment, we strengthened our balance sheet and liquidity.

We diversified the risk in our portfolio by continuing to move our franchise mix which is now at 39% with franchisees opening 77 restaurants during fiscal 2009. We extended our international presence by opening a milestone 50 new restaurants and entered six new countries during the year. And we generated margin improvements by making those difficult right decisions.

Yes, like our competitors, we also faced adversity and we accepted the challenge to control our destiny by evolving our brands and our strategies. While building sales momentum has been tough, significant traction has been secured around the magnitude of margins, capital expenditures and cash flows. So let's turn our results and review the quarter.

All comparable year-over-year numbers in today's discussion of results will exclude Macaroni Grill from prior year for an apples-to-apples comparison. And this is slightly different from what's presented in the press release where prior-year numbers still reflect the results of Macaroni Grill as required by GAAP. Our majority interest in Macaroni Grill was sold in the second quarter and a reconciliation of our consolidated income statement is provided on our website.

In the fourth quarter revenues decreased by 10.5% over prior year largely driven by comparable restaurant sales down 9%. Our fourth-quarter lap was a pretty tough comparison as prior-year was bolstered by the distribution of stimulus checks, an incremental 160 basis points of price as well as a successful promotion. The lap was made tougher with Easter trading from the third quarter in fiscal 2008 to the fourth quarter in fiscal 2009. But we're encouraged that on a two-year basis we still outpaced NapTrac although at a lower rate than in previous quarters.

Additionally, the capacity of company-owned system measured by restaurant operating weeks decreased by 1.8% due to the closure of 50 company-owned restaurants this fiscal year. Franchise and other revenue was relatively flat on a quarter-over-quarter basis. Specifically July comparable restaurant sales started off down low double digits which was even worse than fourth-quarter trends.

An unfavorable year-over-year advertising comparison and the fact that the Fourth of July fell late in our fiscal period hurt the early weeks of July. As advertising comparisons came in-line and the new Chili's promotion gained traction sales trends improved sharply in the back half of July and now trend down in the low to mid single digits. This bounce back in sales is encouraging and helps demonstrate the strength of Chile's brand.

The July period is by far the most important period of the quarter, as virtually all of this quarter's profit come in this month due to the seasonality of sales. The unusually slow sales in the first three weeks of July will make it very difficult to recapture the lost profitability in the balance of the quarter and it's why we're forecasting first-quarter profits to be down year over year.

We would expect August and September profits to perform more closely to norms and these are challenging months from a topline perspective as the summer winds down and school begins again. In fact, the average weekly sales at Chili's in September is typically 10% lower than July.

Cost of sales was a bright spot in the income statement, improving an impressive 140 basis points, 27.1% in the fourth quarter of fiscal 2009 compared to 28.5% in the fourth quarter of fiscal 2008. Price virtually offset the headwinds in commodities on a year-over-year basis. So really the cost of sales improvement is a result of the actions we've mentioned in prior calls. The operations and culinary teams remain focused on ways to improve the theoretical versus actual usage by continuing to find the right balance of pre-portion products to reduce waste.

Additionally, the changes we made to the menu items during the third quarter continue to vet out and yield positive benefits to results. In recent weeks value and quality scores have returned to levels consistent with historical norms and the end of the three-course promotion are trending up, as Wyman mentioned.

On a year-over-year basis restaurant expense was favorable by 20 basis points to 54.6% for the fourth quarter of fiscal 2009. Restaurant expense this quarter has some unique nuances that warrant a bit of deeper discussion. First, in light of a comparable restaurant sales decline of 9%, sales deleverage was a significant drag on restaurant expense. We estimate the impact of the leverage hurt restaurant expense by approximately 300 basis points.

However, to answer the question of how did we overcome this significant sales deleverage? It requires breaking things down into a few different pieces. First, let's discuss the items that did and will continue to yield positive results for the business in the coming quarters. The quarter was favorably impacted by the benefits of lapping those hidden costs of growth we talked about before.

And this is the positive impact of having fewer, less efficient new restaurants and underperforming restaurants in the system. Until we eventually lap the dramatic reduction in restaurant development and related ramp up time of new restaurants in Q2 of fiscal 2010 and fully lap the store closures in Q3 we would expect to see these margin improvements continue. And for the quarter these reductions in restaurant growth generated approximately 65 basis points of margin benefit.

Next, the changes we made in the above store management of our Chili's and On The Border operation produced a favorable impact to restaurant expense due to lower supervision costs of approximately 30 basis points. And we expect some slight favorability to continue into the first of fiscal 2010.

Lastly, the quarter saw a decrease in pre-opening of 40 basis points and we expect to see this item be favorable through the end of the first quarter of fiscal 2010 until we lap the last of new restaurant development of a year ago. In addition, inflationary pressures that were lower than the price we're carrying in Q4, as well as a few other minor items, favorably impacted restaurant expense by about 75 basis points.

Lastly, this quarter also benefited from lower than expected expenses in several areas which are not anticipated to occur or at least won't occur to this magnitude in future periods. Insurance expense was positively impacted by favorable claims experience in the last year and was driven by our successful loss prevention and safety programs. Additionally, changes in our business resulted in lower property taxes, utility and vacation expenses.

In aggregate these items delivered approximately 110 basis points of favorability to the quarter but don't represent sustainable improvements. So while the sales for the fourth quarter were disappointing, we managed inflationary pressures and yielded substantial margin improvements in certain areas of the business, this was aided by lower than normal expense.

As you can see, a great deal of groundwork for the margin improvements seen in the fourth quarter resulted from work that was done earlier in fiscal 2009 and while we still believe there's an additional opportunity to improve margins, the declining sales environment that we saw in Q4 warranted careful consideration as to the timing of implementation for further margin improvements.

As we move forward into fiscal 2010 we'll look for the appropriate point to analyze and then implement further improvements in conjunction with the work Todd, Wyman and Kelli are doing to improve and differentiate the guest experience.

Depreciation and amortization as a percent of revenues increased by 30 basis points to 4.8% for the current quarter, but was $1.1 million lower on an absolute basis. The dollar decrease results from the closure of 50 underperforming restaurants since the fourth quarter of last fiscal year. The increase as a percent of revenue is caused by sales deleverage.

General and administrative expenses decreased 20 basis points to $37 million. The decrease is primarily attributable to the restructuring activities that took place during the year. We will continue to manage these costs closely in future periods maintaining our stated goal of keeping general and administrative expenses flat as a percent of revenue. Other gains and charges were $26.8 million primarily stemming from the closures of restaurants and non-cash impairment charges.

Interest expense decreased $3.8 million from the prior year for the fourth quarter to $5.9 million. And the reductions are attributable to lower average borrowings and lower overall rates as well as a $1.3 million gain associated with repurchase and retirement of a portion of our 5.7% Notes in the fourth quarter.

In the fourth quarter the other net line was more significant than usual and on a year-over-year basis was 6.8% -- $6.8 million favorable. The decline in other net is primarily due to life insurance proceeds of $5.5 million and to a lesser extent an increase in lease income from closed restaurants now leased to third parties.

The tax rate after adjustments for special items was 24.7% in the fourth quarter compared to 28.8% in the fourth quarter of fiscal 2008. The tax rate benefit for the quarter was due to an increase in federal tax credits. So we ended the fiscal year with a free cash flow yield of 11.1% which is a significant improvement from the 4.4% in fiscal 2008. Enhancements in our business model through increased margin efficiencies and capital spending reductions generated excess cash which was used to extinguish almost 20% of our total debt balance and to fund dividends.

These actions coupled with our moratorium on share repurchase shows our commitment to proactively manage our balance sheet and improve our leverage metrics. Our actions to boost liquidity include expanding the revolving credit facility by $35 million which, along with the financial flexibility we have created, allows us a greater number of options to employ our capital in the future.

As a reminder, at our fourth-quarter earnings call a year ago we projected Brinker could deliver 8% to 10% EPS growth on full year comparable restaurant sales growth of 1.5% to 2.5%. As a result of our performance and further weakening in the economy we reduced our outlook at the first-quarter call reducing or EPS guidance to down 15% to 25% on a year-over-year basis, and reduced the sales range to a 2% to 4% decline in full year comparable restaurant sales.

So here we sit at the end of fiscal 2009, not down 2% to 4% on a comp sales basis, but actually down 6%. However, instead of EPS declining by 25% or more, it actually grew by about 2%. So I bring this up for two reasons.

First, our team did not sit idly by and let the sales decline win. But instead we rallied behind the business, made strategic decisions and modified the organizational structure. We retained key talent at all levels and managed margins. We also took the opportunity to solidify the balance sheet and improve cash flow. We did not play the victim but proactively evolved our business model so we can succeed even in these challenging times.

The second point I want to make here is just how hard it is to forecast the future in this unusually turbulent time. So while we put guidance fourth to you today, it's not without both risk and opportunity. Fiscal 2009 taught many lessons and we've attempted to use those experiences to gauge 2010. But as the year unfolds we'll continue to react, innovate and manage our future. So let's talk about fiscal 2010.

As I said earlier, the first quarter had a very sluggish start in July. We see the resulting impact of profitability reflected in our current first-quarter EPS guidance of $0.12 to $0.14. And as Doug outlined earlier, these earnings reflect the investment of some of the margin improvements we saw in fiscal 2009 in an effort to drive guests back into our restaurants.

However, these results are not acceptable and the path to long-term improvement in sales and profitability lies in becoming a stronger and more differentiated competitor. As you heard Todd and Wyman discuss earlier, our plan to bring greater energy to the brands by delivering new and better food, better operational execution and better hospitality will enable us to evolve the business to a clearly differentiated and profitable competitor as we move beyond the first quarter into the balance of fiscal 2010 and beyond.

As noted in the press release, comparable restaurant sales decline of 2% to 4% would result in a full-year EPS decline of 10% to 20%, with the 53rd week of being approximately $0.04 to $0.06 accretive to the year. And please note that this 53rd week adds approximately 2% to comp guidance for the year.

On cost of sales we expect inflation for our basket of commodities to be flat to slightly down on a year-over-year basis in fiscal 2010. For the first-quarter's promotion and the reinvestment mentioned earlier, we expect it to have a negative impact on cost of sales due to the mix shift that's more than offset by traffic gains.

While we expect full-year cost of sales to be approximately 27.5%, cost of sales during the first quarter will be higher on a sequential basis and only slightly improved on a year-over-year basis. Should we choose to extend similar value promotions as we transition to a more differentiated position you could expect to see similar impacts to cost of sales in future periods. But an improvement in restaurant expense and leverage on fixed costs should occur.

As for restaurant expense, you can expect sales deleverage to continue to play a key role in margins, but we would expect the deleverage to be partially offset by the roll through of items such as the hidden cost of growth benefits we discussed earlier in the call. So as outlined in the press release, we expect depreciation and amortization expense to total $160 million to $165 million and G&A expense to approximate $145 million.

Interest expense is also projected to be flat on a year-over-year basis and that's mostly due to the fact our plan conservatively projects a renewal of a portion of our long term loan facility in the back half of fiscal 2010 at prevailing rates. As we monitor the progression of our cash position it could result in a change in the planned timing and the amount of the refinancing.

Projected company openings is close to zero, so capital expenditures will be approximately $85 million primarily representing customer remodel and maintenance CapEx for our existing fleet. And as such expect the Company will continue to generate strong positive cash flows for the year resulting in another year of free cash flow yield in the low double digits.

Fiscal 2009 was not without its bumps too; unlocking the value equation for the customer proved harder than expected and we've learned lessons along the way. And as are others, we continue to monitor the competitive environment to ensure we are offering a compelling value proposition to our guests.

However, these challenges acted as a catalyst to drive even further intensity in the business to make operations efficient and deepened our financial rigor. These valuable lessons are driving our desire to further transform our business in fiscal 2010 and beyond, keeping us a strong and relevant competitor in the casual dining industry.

And now I'd like to turn to call over to Jenna to facilitate the question-and-answer period.

(Operator Instructions). Steven Kron.

Goldman Sachs. I guess just to start off with, Chuck, can you maybe drill down a little bit on how dilutive this promotion really is? It would seem that you've gotten a pretty nice (inaudible) more recently since you've introduced it and the comps seem to have moved anywhere from maybe 8 to 10 percentage points, so it's early. But you keep talking about maybe a mix shift, but getting that traffic to leverage the fixed cost within the restaurants.

So how much traffic do you really need to get? Because that would seem like you're getting a pretty good result, so it seems like a little counterintuitive translating that into what you guys are projecting from a margin standpoint.

Yes, I think, Steven the issue is not necessarily the promotion we're running right now. The issue is that we started out really slow in the first three weeks of July. We had anticipated that last year was soft going -- the first couple weeks of July were very soft. And as we went into the quarter we felt like we would be able to maintain our two-year run rate and actually have some fairly good first part of July results without having a promotion or necessarily anything different than what we had been running.

That wasn't the case. We started out the first three weeks of July down double digits. So really the lost profitability in those first three weeks really hurt us a lot and have created a situation where that's why we're giving first-quarter guidance. So I wouldn't say it's much around the promotion, although the promotion does have lower margins than we've historically seen. We started out July basically in a whole and haven't been able to pull out of that.

So I guess related to that, forgetting about the first three weeks on the go forward basis, if you were able to sustain what you're seeing right now in the business, is the traffic lift that you're getting adequate to support protecting margins going forward?

I think we will give up some margins. primarily on cost of sales. But it certainly much better than what we've seen in the past.

Okay. And then Chuck, I guess for the full year, I realize it's a big moving target, but can you just share with us your thought process on how you derived it down to the 4%? Was there an implicit assumption on what your trends would look like? How are you thinking about that?

Well, a couple things. First of all that 2% to 4% negative does -- it's on a 53-week basis. So that's giving us about 2% better numbers. So really on a run rate basis for one year that's looking at minus 4% to minus 6% which I'd say is pretty much in line with what we've seen on two year trends. We would certainly love to see better sales performance than that. However, I think it's tough to go ahead and forecast that, that's really why we landed on that minus 4 to minus 6.

And then last question for me I guess related to the guidance again. The restaurant operating expenses for the full year, what's implicit in your down 10% to down 20% guidance?

Well, Steven, I think for us it would be counterintuitive to continue to project margin improvements on negative comp sales. I think for us we will be trying to do that, believe me we will look at every corner of the business trying to get margin improvements, and that certainly shouldn't stop anyone from trying to find where we can save money. But I think in this industry it's been really tough to get margin improvements with negative sales.

And I think when we sit down and try to forecast what the year would look like I think we did not want to forecast that continued trend, although I'll tell you, as we look back at 2009 I would have said we'd have a very hard time getting 2% EPS growth on the negative comps that we saw, negative 6 comps, but we did. So I wouldn't say it's game over, I would just say it's very tough to forecast continued margin improvements on negative sales.

Thank you.

Jeff Omohundro.

Wells Fargo Securities. My question is around the marketing spending strategy in fiscal 2010, both in terms of the channels that you might pursue to support the value initiatives and also around spending levels going forward? Thanks.

Wyman, do you want to take that one?

Sure. With regard to spending levels for the F10, we anticipate being aggressive in the marketplace and taking the opportunity we have with this -- with the new innovative ideas and the promotions that we'll be coming to the market with and aggressively getting that message out there. What does that mean for a spend standpoint? Right now we aren't not anticipating a significant increase in the spend level.

And there is the opportunity with the favorable media environment that's out there now that we could possibly see some lower cost that we could flow back into the P&L, but right now we're really excited about the potential we have to get new messages out there. So we wouldn't anticipate reducing our spend levels in any significant levels or at least our weight.

With regard to channels, again, we're a heavy TV player, we'll continue to leverage that, but we're also working very aggressively on almost all of the new media channels that you're aware of and we'll continue to use the ones that are most appropriate for the individual brands as we push those messages to more targeted audiences.

And so would that -- do I understand correctly that the percentage spending against sales would be relatively stable or that the dollar spending -- on media?

Percentage is what we're focused on right now.

Great, thanks.

Jeffrey Bernstein.

Great, thank you, Barclays Capital. A couple of questions. One, Chuck, it sounds like you're saying in a tougher sales environment that maybe some initiatives that you guys had previously forecasted for fiscal '10 to drive margins might actually be delayed until you see some sort of sequential improvement in comps in order to get full benefit of that. I'm just wondering if maybe you can give -- if I'm reading that right, if you can give some examples of opportunities that you might have expected initially but now are perhaps pushing off a little bit.

Well, I think I can't necessarily say that we've had opportunities we've pushed off. I think we want to make sure that we are looking at a balance, that we're not chasing guests away by some of our margin improvement initiatives we've put in place. I think also in the first quarter was we saw such a dramatic decline in sales in the first couple weeks of July we couldn't adjust.

I mean we just could not get labor in line to a run rate that was certainly significantly less than we had planned. So that did hurt us on margins in the first quarter. But I can't necessarily point to or say that there are items that we have specifically put on hold for any reason, I think we're just trying to maintain a balance and make sure that we don't chase the guest away. Todd, do want to talk a little bit about that?

Yes, hey, Jeff, this is Todd. The things that haven't stopped and will never stop are really the blocking and tackling operational drivers of margin improvements for all the brands whether it's continuing to focus on actual versus theoretical food costs where we think we still have perhaps some room to make some improvements; productivity programs, i.e. labor in the brands as well; we've been able to lower supervision costs.

We're really focused on outlier management; and what that means, we're finding the restaurants in markets that are outside of the brand norms and we're monitoring that very, very closely to make sure that we are not going to far and making sure that we're aligned with our guest scores and the feedback that we're receiving from the people that come in our restaurants every day. So again, a lot of blocking and tackling still going on. And I think we can continue to maintain margins and obviously focus every day on how we can improve them at the same time.

Okay. And then I think you had mentioned in your prepared remarks that maybe we need to look at a new long-term strategy at Chili's and we'd see something by the end of the first quarter. Obviously without giving too much away, I'm just kind of wondering what exactly that means in terms of a change of strategy. Is it different food offerings, different types of promotions? Like big picture what would we be talking about?

Well, I think it's the things that Wyman talked about, it's going to be a couple things with looking at innovation around food; continued improvements with our core menu, our famous and favorites, how can we take the items that people come in and get at Chili's each and every day and make them better. And couple that too with the environment that we're in to be able to provide our guests ongoing compelling value, reasons to come into our restaurants. Add all that on top of every day focus on operational excellence and having a more consistent execution each and every day when people walk in.

And I can assure you with Kelli and my operations team focused every day on those initiatives -- hot food, attentive service and our managers and teammates' interaction with our guests -- that on top of the great things that Wyman and the culinary teams are working on make for a pretty compelling story for our brands.

Okay, and then just lastly for me in terms of the free crash flow usage, I can appreciate the yield going up pretty meaningfully this year. I'm just wondering though now with unit growth for this coming year pretty much nothing, and it looks like some of the debt you were looking to pay down now gone, I'm just wondering the excess cash between -- is a further debt pay down likely, or are we talking about a more aggressive share purchase or dividend? Thanks.

Well, I think our first commitment is to pay down debt. We do have our term loan that comes due in October of next year. And we've committed that we want to get that balance on the term loan down below our revolver availability so that we do have flexibility to do really anything else that we might want to do from a capital perspective. But the first step is to get that revolver balance under $250 million.

Joe Buckley.

Thank you, with Bank of America Merrill Lynch. Two kind of short-term questions, then maybe one long-term. Could you just walk through, again what the experience has been since you went to the three-course promo? I think you said comps down low to mid single digits. Does that imply traffic up or is traffic still negative in that same-store sales number?

Traffic is better than what sales have been. And it bounces around, we actually have seen a couple of positive days but it is still slightly negative.

Okay. And then from a price standpoint, when do you run off the pricing that we saw in the fourth quarter and where are you thinking about price as you look at fiscal year 2010?

Well, overall I think price, as we look at it, Joe, I think we are going to be cautious. I think we would still say somewhere in that 2% range as we go. But we have very little run off Q1.

Okay. Is most of the runoff in the second half of the year, Chuck, or is it second-quarter?

Most of the runoff, I believe, it happens through the year pretty much. There is just little pieces and parts taken during the remaining three quarters, Joe. I don't think we had any significant price increase in any one quarter of 2009. Marie, is that --?

Yes.

Okay. And then from a longer-term perspective if we go back a year ago you reported a pretty good fourth quarter for 2008 and I think in 2008 Chili's had comped up in three of the four quarters admittedly with traffic still down, but at the time it looked like you were succeeding in starting to break away from the pack and differentiating the brand. And now the most recent performance is pretty disappointing. I guess I'm curious if you think the market shifted, did something change internally? Or was I just too optimistic based on last year's performance that maybe you were starting to break the brand out a bit?

Well, I think those are the things that we're evaluating and looking at all the time, Joe. And I can't tell you exactly what the issues are there.

Hey, Joe, this is Doug. I know certainly there was a lot of aggressive promotional activity in the marketplace. And if you go back to the 10 Under $7, that was a little bit more conservative on our standpoint and didn't resonate with the guest and at the same time we were doing that we had competitors who were more aggressively promoting.

And as we moved to the 3 Under $20 that has obviously resonated. It's more abundant, there's a perception of more value and more food offerings, but in the time leading up to that, I think the time you're speaking of, we were a little bit more conservative trying to protect the overall brand integrity and the economic model. And the guest I think is looking for more for less.

So we're trying to balance offering value in the short-term with innovation and improvement in the overall brand experience in the long-term. And part of the last quarter and beginning of this quarter we kind of got caught in the middle of aggressiveness outside of us as we move to a richer value promotion.

Okay, thank you.

John Glass.

Morgan Stanley. I have two follow-ups and then a question on the business. Just Chuck, if you were to -- if you isolated out July performance from the first-quarter results what do you think you could earn? In other words is there a way to parse out the first month of the quarter?

Well, we -- as I said in the prepared text, John, we earned basically almost all the money that we earned in the first quarter in July. So it is significantly weighted in the quarter. So I don't know if that answers your question or not.

Would earnings be closer to flat year on year if you were able to say normalize July into the levels you expect in August and September?

Yes, I would say so.

Okay. And then just -- I don't know if you answered the question or not. What kind of traffic improvement do you need to make this current promotion profitable? Did you say what that number was?

Wyman, do you want to talk about that?

Yes, it's about 3%. It depends on where the mix -- 3% to 4%, depending on where the mix comes in. But that's where the breakeven falls on this promotion.

So the current traffic, even after the promotion has been launched, is still negative, but it would need to increase to a positive 3% to 4% to make this work. And are you assuming that occurs during this quarter in that guidance?

John, that would be a 3% to 4% break from trend. Not 3% to 4% positive.

Got you. So if it's down 3% now it would just have to be zero in order to make this work then.

Or if the run rate was minus 6% and it went to minus 2% to minus 3% that promotion would pay off.

Okay. And then just on that topic I guess, what was -- you mentioned the 10 for Under $7 didn't work and maybe there wasn't enough value there. So why do you think this one works better? Maybe there's more value on the plate, but it seems like others will do this -- if they haven't done the same they'll do the same. So what distinguishes this from what else is out in the marketplace and how confident are you that this is going to -- the gains you're seeing now would actually sustain or do you just get the initial blip and then you kind of see traffic and comps roll over once again?

Wyman, do you want to take that one?

Yes, sure. Well first, what was the difference between 10 under $7 and the three-course promotion? It really came down to how the consumer was evaluating the value proposition, right? So we were more focused on pricing and the price element in 10 Under $7 and adjusting the portions to keep the margins kind of in line with our current business model.

And what we found from that exercise was that the value proposition wasn't as compelling based on price and they're more excited about an abundance strategy, if you will, from a promotional standpoint and getting more for their dollar. And that's where this promotion comes in.

It is proprietary? Obviously not. Other people could come in. What makes it more compelling for us is the strength of our product, our brand and our ability to compel -- to leverage our voice through our marketing and through the quality of marketing that we do.

Is it a long-term strategy? No. This is obviously a promotional idea that we'll leverage while it continues to be viable for us. And right now, as we just talked about, it is viable; it is doing what it needs to do. But we're aggressively working on those long-term solutions that put that value in the face of the business and get us stronger on a day in, day out basis.

John, this is Todd. I guess the only thing I'd add to that is just like any other time we put a television commercial on, whether it's a new rib flavor, a new crisper flavor or whatever, people may come in for that initially, but what's going to bring them back is how we execute.

So they come in and have a great new rib flavor for instance or they come in and have a great value experience with three courses for $20 and they have a great experience with great service and great hospitality from our teammates in a great environment, we'd like to think that's going to be a compelling reason to have them come back into our restaurants again as well.

Great, thank you.

John Ivankoe.

Hi, thank you, I'm with JPMorgan. I'm just struggling with that interest expense guidance, quite frankly. Because if I take the midpoint of your EPS, I back out net income, I add the D&A, I subtract the CapEx -- I mean it does look like there's going to be something like $200 million, round numbers, of free cash flow in 2010.

And I know you've continued to discuss the fact that you want to get the term alone down to where the revolver is, and it seems like that's something that you can accomplish, quite frankly, very easily in fiscal 2010. So, one, just try to position for me why interest expense isn't materially down in fiscal '10 versus fiscal '09. And secondly, discuss why you feel like you need to refinance the term loan at all.

Well, I think, John, what we're trying to do is be conservative on that line. I do believe that we can get the term loan down below the revolver as we've stated as a goal. But if we were to go out and refinance that in the marketplace we would pay significantly higher interest expense than what we have today. We'd be paying somewhere in high single digits to even 10% more for the interest on that $200 million.

We put that in our forecast only because if we feel like we have to go out and for some reason get that liquidity and lock that up it wouldn't be a significant negative event; it would be something that's anticipated.

Can you give me what that "for some reason" is?

No, just that let's say we see some kind of change in the marketplace either for liquidity or we see a change in the marketplace on cash flows. We're just putting that in as conservative -- as a conservative estimate, John.

And I know the notes, you have something like $300 million, I think they mature in 2014. Is there any risk that something happens to the revolver, whether it gets called early or I guess you don't have a balance on it, that it gets canceled or that the amount that you can borrow gets shrunk, is there anything from a covenant perspective that we should be sensitive to?

No, there is not.

Okay, all right, that's it for me, thank you.

Nicole Miller.

Piper Jaffray, thank you, good morning. When you look at August and September compared to July of last year, are the comparisons going to get easier or harder for the rest of the quarter?

I know September saw some deceleration last year. Let me check that. Guy, do you happen to have that handy?

Yes, Nicole, it's Guy. It doesn't appear to get significantly any worse or better through the balance of the quarter than it was in July.

In the prior year?

In the prior year it's fairly similar.

Okay. The CapEx guidance doesn't seem to factor in a lot of remodels or any tactical, maybe technology initiatives. Am I interpreting that correctly?

There is some money for -- we continue to have scheduled remodels and scheduled reinvestment back in the restaurants we have. If you look at the per restaurant spend, I think it's higher than what you'd normally see in the industry. So we think we are making investments back into the fleet and not letting it deteriorate. However, there is no huge initiative that we have planned that we're putting lots of dollars into.

Okay, so compared -- I think there were like 30 remodels in fiscal '09, but there won't be any major remodels of that type in the current year?

Well there were 44. And we'll have remodels and reimages of restaurants that are -- that need that, but we don't have a specific reimage program where we're going through and taking blocks of restaurants and changing those. We've pretty much have done that, Nicole. We've done that with our prior capital spend. So fiscal 2010 doesn't require that same kind of investment.

Okay. And then from a regional perspective, can you just tell us which markets were the best and which were the worst?

Wyman, do you want to take that one?

Yes, we continue to see softness out on the West Coast, so our West Coast markets continue to be probably the most challenged. The East Coast has kind of firmed up, we're actually seeing a little bit of a better improvement in the trend there. And now in the central part of the country we're we actually kind of offsetting some of that with some softness in the central part. So it continues to move as we see the basic economy kind of move and then as our promotional efforts roll out we see some varying levels of impact. But overall that's how we're continuing to see the marketplace.

Is the West Coast just as soft as it had been or did it get worse sequentially?

It's pretty much held the same.

Okay. Thank you very much.

Brad Ludington.

Thank you, with KeyBanc Capital Markets. I wanted to start off just with the decline in operating weeks of 1%. With a 53-week fiscal year that seems to assume or imply that you're going to have about 10 to 15 closures or sales to franchisees. Is that what you were thinking?

Do want to take that one?

Yes, Brad, it's Guy. No, it's really just more the impact of the roll off of what happened last year. There are no planned closures in that number or planned franchise sales. That doesn't mean that those won't occur because, as we've done in the past, if it makes sense to close a restaurant we would do so. And we would continue to look at re-franchise of a potential restaurant, although nothing like the bigger deals we did before. But really those numbers more reflect the roll off of what was done last year.

Okay. And then can you give a breakdown from the fourth quarter of what was franchise royalties and what was fees and I guess it was probably about $17.3 million you said?

I mean, overall for the year, Brad, franchise royalties were up around 10%, a lot of that reflecting just the development that was done. They've seen similar comps sales trends as we have, although international is holding up a little bit better than domestic had. But no, fees are down fairly significantly -- not necessarily in the fourth quarter, but fees are down fairly significantly year over year because we did the large ERJ transaction in the second quarter of fiscal 2008. So it's really reflecting the lap pf that big transaction.

Okay. And then what was your cash balance at the end of this quarter?

Marie?

The cash balance at the end of the quarter was $94 million. But just to clarify, that actually includes some restricted cash associated with our captive insurance which is about 45.

Okay.

$45 million.

All right, thank you very much.

Ryan Renteria.

Karsch Capital. Three questions. First one is, I'm just trying to understand why you're talking about only modest favorability in commodities when others are talking about a decent decline and why the cost of sales guidance doesn't seem to imply any further waste efficiencies, which it seems like you've only had two quarters of that so far.

Marie, do you want to take that one?

Absolutely. In terms of the commodity price, we have about -- we have reasonable visibility up until the end of the calendar year where we have about approximately 70% of our commodities under contract. And what we're seeing or what we're anticipating in terms of our full-year guidance is commodities actually going up in the first half of the year, but actually seeing a sequential trending down through the back half of the year that equates to the flat to slightly up.

So we're under contracts for the first part of the year. So we're pretty clear about what those costs are, but we will start seeing some of the commodity reductions that we're seeing in the market toward the back end of the year.

And the waste efficiencies?

I can talk to that one, Ryan, I mean we've been seeing those latent efficiencies for a much longer period than just the last few quarters. I mean, we've been working on actual versus theoretical, addressing outliers, as Todd mentioned before, taking steps for those that are not as close to the norm of the brands we'd like and asking them to go through different procedures to get them back in line. So that's been in place for some time, much longer than just the last two quarters.

Got you. And the second question is it looks like if you back into your restaurant expense guidance it implies flattish to slight growth which I'm trying to understand why that line would be up if you're comping negative and have some of your cost efficiencies from the back half trailing into the first couple quarters?

Well I think, Ryan, what we started to do is we started to lap a number of the cost savings we put into place toward the end of fiscal year 2009. And then we just run into sales deleverage due to negative comps at the top line. Again I want to tell you that we won't stop trying, as Todd said; we'll work continuously to try and bring margins back in line. And try and gain efficiencies on that line. But it's very difficult to say we're not going to experience sales deleverage on negative comps.

Right. And I guess the last, just to understand the three for $20 promotion. If you were running down low double digits before and you want to down low to mid, so let's say you saw an 8 point lift. Do I understand correctly that you said you needed a 3 to 4 lift from where you were running to breakeven such that if you got call it an 8 point lift that that promotion is accretive?

It means that it is doing better than what we would have experienced had we not done it, yes.

Okay, thanks.

Tom Forte.

Great, thanks, Tom Forte from Telsey Advisory. I had two questions, one on expense and one on sales. From the expense side I was wondering where you sit on your efforts to renegotiate rents with your landlords? And then on the sales front, wondering if you saw anything trend wise on a weekday versus weekend?

Guy, do you want to take those?

Yes, I can address the first one for you. We've seen I'd say some success, I wouldn't say we've seen a great deal of success on addressing rent issues with landlords. Just an opportunity as we do renewals and that's probably where the biggest opportunity lies. I think going on existing leases where we're kind of in the middle of the lease we've seen less success, although we've seen a little bit but I would not say a lot of success on renegotiating rent.

On the weekday versus weekend we really haven't seen any change in trend. As we look through the fourth quarter it was very similar to what it was in Q3 and Q2.

Thank you.

Karen Lamark.

Federated Investors. I've got a couple questions. When you talked about capital allocation you indicated that after the debt pay down target was met that you'd have flexibility to I think you said do anything you want to. Can you talk about what you might be considering and the priorities around that?

Oh, I think those -- anything you want to is pretty broad (multiple speakers). But anyway I think we would look again at what would make sense given what the business environment would be. Should we -- we'll look at reinvesting back in the business, should we look at paying out cash to shareholders -- all those would be options that we'd sit down and take a look at.

And where do acquisitions sit in that?

Right now we're just worried about paying down the balance sheet and get the business back and running where it needs to be.

Okay. And then also, if your sales -- if your comp assumptions turn out to be a little too optimistic, do you have a plan B or at what point might you revisit the store base and consider closing or rationalizing it?

Well, I think we have done a good job of looking back at assets, we've sold brands, we've certainly closed restaurants. That's a continuous process that -- we do that every day. So I'm not sure that there's a wholesale other group of restaurants that we would need to close should sales be slightly less than what we think they are.

Okay. And then finally, with respect to the food innovation and differentiation you talked about, can you give us a little color on what you're thinking about and maybe your expectation about the average price point versus your average menu item? Thanks.

Well, I think, Karen, that's one think we'd probably prefer not to talk about on this call. We know our competition is listening in and we wish them well, but we're not going to give them a roadmap to what we're going to do.

Okay. Not even a comment on the expectation for your average price point on it? Are you shooting more towards a value or --?

No, we'd prefer not to address that until we get it in the restaurants and we see what kind of results we get and then we'll tell you how it's going.

Okay, thanks for your time.

Rachel Rothman.

Wedbush Morgan. I just had a couple of questions if I could; most of them are follow-ups. And the follow-up to Joe's question earlier, I guess bigger picture how do you guys see this as a Casual Dining issue versus a Bar & Grill issue versus a Chili's issue? Because when we look at how Applebee's has been performing and you guys obviously have much higher unit volumes and to a certain extent your ad budgets are comparable. And I think your consumer appeal had been rated higher. What do you think has enabled them to gain market share and how do you plan to take it back or do you just see this as a whole segment issue? And then I have a couple of other questions if I could.

Well, I think the biggest issue that we face is we were probably a little late for the value game. We said that on the last call, that we wish we had maybe had a value message out a little bit earlier. I think in that sense they were probably a little earlier in recognizing where the consumer was and I think that hurt us a little bit.

Wyman talked about 10 Under $7; we felt like people might be willing to take lower portions for lower prices. And while we learned a lot through that initiative, I don't think it really played as well as what we would have liked, which is why we canceled that and got onto a different program.

So we certainly think our brand is a very strong brand. We think we've got some excitement built back in with this promotion. We're doing a good job of executing. I think all those will add up to us taking share back from the rest of the category. Doug, do you want to take that?

Rachel, if I just maybe can expand -- we're still very bullish on casual dining. Our guests that we talk to, first of all they're excited about the current value promotion, but the whole social aspect of dining out, being with friends, being with family, we don't see that changing. But we're obviously dealing with rising unemployment, with consumers' savings going up to three and four times what it was just a year and a half ago.

So it's a short-term phenomenon, people still like going out, we're going to continue to drive innovation and new menu products and offer value, but we don't see consumers changing the behavior of enjoying eating out, it's just a matter of giving them value during this very, very challenging economic time.

Great, thank you. And then a bigger picture question on your G&A. I guess I was a little bit surprised that given the outlook for same-store sales and the number of store closures that you've had, the refranchisings, the divestitures of the brand and looking back historically at where G&A was when your sales were at similar levels, that maybe the cost cuts in that arena weren't more dramatic. Can you talk about what opportunities you would have to eliminate G&A further or if this is basically it or are you just being conservative in that arena?

Well, Rachel, I think I'll let Guy expand on this. First of all, we've done a great job of keeping G&A as a percent of revenues flat. And if you go back on an absolute dollar basis, we've taken quite a bit of dollars out over the last three years. We were looking at -- we've reduced G&A by about $50 million over the last three years.

Now you may be looking back historically before we had the accounting change where we were including 123R as an expense in G&A. And that alone has created a $1 increase by the expensing of stock options in G&A. But on a dollar basis we have dramatically reduced G&A even at the same sales level. So, Guy, I don't know if you have anything else that you want to add to that?

Rachel, I think the only thing I'd add is that if you look at where we were in 2005 with G&A and what we're suggesting we could be at in fiscal 2010, those numbers are fairly the same. And as Chuck says, the number today includes 123R and it didn't in 2005 and the revenue levels are fairly similar. So that will tell you that we're doing -- we're significantly more efficient in G&A now than we were even five years ago.

I guess maybe just as a quick follow-up, yes, we were looking before stock option expensing. But I guess given the outlook for the compression in the business, I guess my underlying assumption would be that bonus compensation next year would be fairly limited. Is that fair to say or am I thinking about that incorrectly? And then I had one last quick housekeeping question. Thank you.

Rachel, we said we'd keep it flat on a percent of revenue. So if we're saying we have a decline in revenue we will also have a corresponding decline in G&A. So you had a follow-up question?

Okay, but incentive compensation wouldn't be down more than revenue? Because profitability is down more than revenue?

Well, that would assume that we paid out a large amount of incentive compensation this year, which we did not. So I guess I don't understand your question.

I guess maybe more specifically, what level of restricted share grants or non-cash compensation is assumed in your 2010 G&A guidance?

Wow, that's fairly specific and I actually don't have that number with me right now.

Okay, and then one last question (multiple speakers). Sorry, go ahead.

I would say it would probably be less because we have a number of less employees on a year-over-year basis than we had last year. So while I can't give you a specific number, I can tell you that number is lower than it was last year.

Excellent. And then if I could, just on your term loan, does that go current in October 2010?

That will go current in October of 2012. Actually it will be classified as current in our third-quarter financial statement.

Third-quarter fiscal 2010?

Our fiscal second quarter financial statement is when it will be classified as a current liability. Is that your question?

Yes, sorry, you're breaking up on my end, but it's probably just my phone, I apologize.

Yes. It's that -- the term loan is due in October of 2010 -- calendar.

Okay, in calendar?

Yes.

Okay. So it is going a current in October 2009?

It will be classified --.

Oh, no, you said --.

On the balance sheet.

Classified as current in fiscal second quarter 2010?

That's correct.

Is that what you said?

Yes.

Okay, excellent. Thank you so much.

Destin Tompkins.

Morgan Keegan. This call is going long, so I'll try to make it quick. But on the tax rate, I assume that since we don't have the charge in fiscal 2010 that it would normalize more maybe in the 30% range. If you could give some direction there? And then also on the labor line. Do you expect much pressure to come from the last round of minimum-wage increase?

Guy, do you want to take those?

Yes. So, Destin, on your tax rate question, I'm not sure it would normalize quite at that high level, but certainly we would expect it to be higher than it was this year. So not a specific number, but I think 30% is probably too high of an assumption for next year.

Then your question on minimum wage. We've talked about minimum wage before. It can be an issue in some markets, but generally speaking the federal minimum wage change doesn't have the magnitude of impact that you might think simply because of the tip credit that exists in so many states. It does have a slight impact on the FICA tax credits that we have because it increases the threshold at which you can start claiming those credits.

But all in all, I think our wage rate experienced recently, even in an environment where we've seen lots of minimum-wage increases, at least recently it's been tracking on a better trajectory than it has been a couple years ago.

Great, thanks. That's all I've got.

Chris O'Cull.

SunTrust Robinson Humphrey. Just a bigger picture question. Wyman, it feels like Chili's has been turning a knob from traffic with three-course promo in margin. With the 10 for Under $7, it doesn't really have a promotional strategy that can improve gross profit dollars without affecting traffic. Based on your experience with other brands how much time do you think it's going to take to start benefiting from some of the strategies you've talked about today on the call?

Well, we think as soon as we start to get some of these new longer-term initiatives in they'll have an impact. So as we said, you'll start to see some of those late this quarter and we'll continue to bring those. I can't give you anything specific, but as soon as -- the nice thing about a brand like Chili's, it has the ability to get the message out there. When we get the improvements in the news out there we'll be able to talk to the consumers and our guests about it and they'll respond.

Will this include a new advertising campaign?

Well, will there be advertising specifically around some of these messages? Sure.

Okay, but will there be a new -- I mean a new -- I guess a new platform that you're going to be focused on or a new campaign that surrounds a different message than you've been running with Chili's?

We'll just have to wait to see how that all plays out.

Okay, great. Thanks, guys.

Thank you. There are no further questions at this time.

We just want to thank everyone for joining us today. This concludes our earnings call. We look forward to talking to everyone again when we discuss our first-quarter October 20. Thank you.

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.