Brinker International Inc (EAT) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Brinker fourth-quarter 2014 earnings conference.

(Operator Instructions).

It is now my pleasure to turn the floor over to your host, Chris Bremer. Sir, the floor is yours.

Thank you, Dana. Good morning, everyone, and welcome to Brinker International's fourth-quarter fiscal 2014 earnings call which is also being broadcast live over the Internet.

Before turning 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 facts.

Such items should be 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 press release and on Brinker's website under the financial section on the investor tab.

Consistent with prior practice we will be silent on intra-period sales or other key operating results yet to be reported as the data may not accurately reflect the final results of the quarter efforts.

On our call today you will hear from Wyman Roberts, Chief Executive Officer and President of Brinker International, and Marie Perry, Interim CFO, Controller and Treasurer. Following their remarks we will take your questions. Now I will turn the call over to Wyman.

Thank you, Chris, and good morning, everyone. Thanks for joining us on the call today.

For the next few minutes I'm going to share Company results for the fourth quarter and full year, take you through some of our brand highlights and then share my thoughts about the upcoming year. Then I will pass it over to Marie Perry for an in-depth look into the numbers.

But before we begin let me briefly review the other gains and charges we took in the fourth quarter which includes a charge of $39.5 million related to various litigation matters including a class action litigation pending in California since 2004. This California legation has resolved many of the legal standards for meal periods and rest breaks in all California restaurants and the parties have now reached a preliminary settlement to resolve all claims. We anticipate the net cash outlay on an after-tax basis to be approximately $24 million in the third quarter of our fiscal 2015 and since this is only a preliminary settlement agreement and remains subject to court approval, we won't be able to comment further at this time.

So as you saw in our press release this morning, Brinker reported fourth-quarter earnings per share before special items of $0.85 representing a 10.4% increase over the same quarter last year. These results reflect a solid quarter for Brinker.

We ended the fiscal year with earnings per share of $2.71 representing a 15.8% increase year-over-year and our fourth consecutive year of double-digit EPS growth.

So let's talk about Chili's. Q4 was Chili's strongest sales quarter of the year with positive comps of 2.5%. In fact, in terms of taking share from the category we achieved our biggest GAAP in over two years and this gives us confidence our strategies are paying off.

The first half of the year did start off softer than planned but we were able to steadily improve our top-line growth for a strong finish resulting in positive comps sales of 0.6% for the full year. And this is the third consecutive year of positive comp sales for Chili's.

As we look ahead the key to Chili's continued success is growing sales and traffic through initiatives that drive relevance and differentiation. Critical to achieving this is our culinary innovation pipeline. This year we introduced our Fresh Mex platform in quarter three and expanded it in quarter four with the addition of our tableside guacamole and our new mix-and-match fajitas.

This has significantly increased the number of guests eating Fresh Mex and further differentiated us from our casual dining and bar & grill competitors. So looking ahead, expect to see new additional Fresh Mex menu items early this year, a new platform later in the year and improvements in quality and relevance in many of our core food items as we continue to renovate and innovate the menu. The food innovation pipeline is full and strong and poised to drive traffic.

Another way we are differentiating the Chili's brand is leveraging technology to enhance our guest dining experience. If you think about the sales drivers of our technology journey we started in the back of the house with new equipment and cooking procedures, our Kitchen of the Future. That enabled our guests to enjoy better quality, more consistent food and opened up new possibilities for culinary innovation.

Then we moved to the front of the health with Ziosk, further improving the guest experience by providing tabletop entertainment and enabling them to control their pace more by ordering drinks and desserts and even paying their check all at the table. We now have Ziosk in all our company-owned restaurants giving us the largest network of tabletop devices in the country. And we are building on this foundation by investing in additional guest-centric technology such as an improved to-go online and mobile experience and later this year Chili's will launch a unique loyalty program that will utilize our guest mobile devices and interface with our Ziosk network.

We are excited about the opportunity this will create for us to engage our guests on a more targeted basis. We are also driving incremental revenue with a new grocery line of frozen Chili's at-home entrees. We partnered with Bellisio Foods to create a high-quality product line of entrees not found in our restaurants.

These are now available in more than 13,000 retail locations including all Wal-Mart stores. There are currently over 20 SKUs with more under development. The rollout is just being completed and we will have more specifics to share with you on our October call.

On the restaurant development front, we opened 10 new company-owned Chili's restaurants in the US in fiscal 2014. And collectively sales volumes are higher than the Company average and returns are above our hurdle rate.

This year we plan to open another 8 to 10 new Chili's in the US. We have also designed a set of new smaller Chili's prototypes that open up additional site opportunities for us and our franchise partners.

An example of how we are leveraging these new development options is happening next month as we open two new Chili's in Las Vegas. The first is a new smaller prototype, which our franchise partner is building in the airport. It's about 2000 square feet but delivers the Chili's brand exceptionally well.

The second is in the heart of the strip. It's our first ever strip location. It's going to be a flagship restaurant with a unique Las Vegas themed design and one of the biggest patios on the strip.

It will be a great place to drink margaritas, eat some fresh guacamole and take in the sites. We project both will be high volume and serve as billboards for the brand to the millions of consumers that pass through Las Vegas each year.

Turning to our franchise business, sales were up 1.4% in the fourth quarter which outperformed the industry as well. Our franchise partners are aligned with our sales-driving initiatives, Kitchen of the Future and Fresh Mex are in all their restaurants, they are finishing their Ziosk installations and are committed to the reimage program.

Most importantly, our franchisees run great restaurants. And team members and guests are receiving a consistent experience whether they are in a company-owned or franchise location.

Our global franchisees ended the quarter with positive 0.8% comp sales and an increase of 1.6% for the year. That's 18 consecutive quarters of positive comps sales internationally.

We've had many accomplishments during the year. We built 32 restaurants finishing the year with 307 in 30 countries and two territories. In fiscal 2015 we plan to open another 35 to 39 restaurants.

We successfully integrated the Canadian restaurants into our company-owned system and have begun reimaging those restaurants. We believe Canada continues to be a growth opportunity for us with one new opening last year in one planned this year.

We have also begun our Kitchen of the Future initiative worldwide. 50 restaurants are now retrofitted with two-thirds of the global system to be completed by the end of the fiscal year.

The Chili's brand continues to be strong all around the world. We appreciate the support, commitment and alignment from our franchisees and we look forward to continuing strong results with these partnerships.

Now let's turn to Maggiano's. In quarter four Maggiano's delivered its 18th consecutive quarter of comp sales growth ending the fourth quarter with positive 0.9% and year positive 0.6%.

The Maggiano's team continues to optimize their business model opening the door to consistent, profitable new restaurant growth. In fiscal 2014 we relaunched growth at Maggiano's with a new prototype that excludes banquet space.

Our first opening was in Annapolis, Maryland in the second quarter and the second opening is in the fourth quarter in Columbia, Maryland. Guest reaction to these new restaurants is encouraging and we are confident that they will deliver targeted returns.

In fiscal 2015 we've already opened one new restaurant in Chicago and will open another restaurant on the West Coast by Labor Day. And we are targeting a total of four for the year.

And in September Maggiano's will officially launch a new menu featuring a lighter take on traditional Italian fare. Our guests tell us they want traditional Italian items with reduced calories and we have delivered.

Maggiano's continues to be one of the strongest brands in the industry and shows significant potential for a bright future. And now let me turn the call over to Marie to walk you through the financials.

Thanks, Wyman. And good morning, as well.

As you just heard our fourth-quarter earnings per share before special items was $0.85 representing 10.4% increase over the same quarter last year and continuing the year-over-year improvement we have seen since we started our plan to win back in fiscal 2011. We ended the fiscal year with earnings per share of $2.71 which is 15.8% higher than prior year and representing our fourth consecutive year of double-digit EPS growth.

Fourth-quarter revenues were $759 million, an increase of 3.9% over prior year. Total company-owned comparable restaurant sales increased 2.3% driven by a 1.3% price increase and a 1.3% improvement in mix.

Capacity was up 1.5% driven primarily by the addition of company-owned Chili's restaurants in Canada at the end of fiscal 2013. Franchise and other revenues were up $23.7 million, an increase of $2.8 million over prior year primarily driven by the impact of Ziosk.

US franchise comparable restaurant sales increased 1.4% and international franchise comparable restaurant sales increased 0.8%. And we opened 17 net franchise restaurants during the past 12 months.

Let's pause for just a moment so I can explain the accounting for Ziosk and the impact on revenue and restaurant expense. We lease tabletop devices from Ziosk, which is recorded in restaurant expense. But gaming revenue from these devices is recorded within franchise and other revenue.

Because the gaming revenue is not within Company sales, in general restaurant expense as a percent of sales should be about 25 basis points higher than periods prior to the installation of Ziosk.

Now let's continue to walk through the fourth-quarter results. Cost of sales decreased 10 basis points from prior year to 26.8% driven by 30 basis points of menu price and 30 basis points of favorable mix associated with menu changes, better waste control and lower oil usage related to the new fryers. These improvements were partially offset by favorable pricing in cheese, avocados and limes, which are market-based coupled with higher seafood costs.

Restaurant labor was flat to prior year with benefits of leverage on higher sales offset by slightly higher hourly overtime, training and manager salaries. Restaurant expense was $8.4 million, or 30 basis points higher than prior year largely as a result of increased accruals in advertising spend, higher preopening costs from the new restaurants and Ziosk rental fees partially offset by leverage on higher sales.

Depreciation expense increased $2.5 million to $35.2 million continuing the trend toward the higher level of expense due to the recent investments in key capital initiatives and the addition of 11 company-owned restaurants in Canada partially offset by an increase in fully depreciated assets. General and administrative expenses were $33.3 million, an increase of $1.1 million driven by technology expenditures in support of long-term sales driving initiatives and tax consulting costs.

Other gains and charges in the fourth quarter consisted primarily of the $39.5 billion charge related to litigation matters that Wyman discussed earlier. Interest expense was about $1.1 million lower than prior year driven by higher debt balances last year which occurred as a result of the issuance and redemption of our senior notes.

Tax rate before special items was 110 basis points higher than prior year at 29.4% driven primarily by an increase in reserves for uncertain tax matters. Capital expenditures for the year were $161.1 million with year-over-year cash flow from operations of $359.8 million.

During the fourth quarter we completed the final rollout of our new fryers and to date we have also completed about 80% of the reimages to the company-owned Chili's systems. We will complete the remaining reimages by the end of fiscal 2015.

We ended the year with approximately $58 million of available cash on our balance sheet. During the quarter we bought back 935,000 shares for $47.8 million. This brought our fiscal 2014 total share repurchase to roughly $240 million, or 1.5 million shares leaving an outstanding authorization of about $307 million.

When combining the total effects of our share repurchases and cash dividends of $63.4 million, we returned a total of approximately $303 million to shareholders in fiscal 2014.

So with fiscal 2014 behind us, let's look ahead to fiscal 2015. We expect earnings per diluted share of $3.00 to $3.15. This range represents a year-over-year increase in earnings per share of 11% to 16% with EPS growth in the second quarter above this range as we lap the harsh winter weather in fiscal 2014, Christmas moves to the third quarter in 2015 and we get the full benefit of the menu price increase taken in the middle of the second quarter of fiscal 2014.

Now let's take a look at the highlights that we project around revenues expenses by category. We expect company-owned sales to increase between 1% to 2%, company-owned restaurant capacity growth of about 1% and an overall Brinker revenue increase of approximately 4%. The revenue increase assumes between 1% to 2% price and a franchise and other increase of about 15% primarily due to Ziosk coupled with royalties and other new Chili's retail products.

We expect an overall improvement in restaurant operating margin of 25 to 50 basis points driven by leverage on higher sales, continued efforts to control food costs, the full-year impact of our new Friars and labor productivity efforts. These favorable impacts will be partially offset by minimum wage and health care pressures, the full-year impact of Ziosk rental fees and a slightly unfavorable commodity inflation.

Currently 66% of our commodities are contracted through the end of the calendar 2014 and roughly 14% are contracted through the end of this fiscal year. We expect CapEx of $130 million to $140 million as we wrap up our current Chili's reimage program and continue to build new restaurants. As a result, depreciation expense is expected to increase $10 million to $20 million (sic-see press release �$12 million�) continuing the trend we have mentioned during the past two quarters and consistent with our recent and ongoing investments in key initiatives including the Chili's reimage, kitchen equipment, point of sales, back office systems, new restaurant growth and fryers.

Our anticipated G&A expense in fiscal 2015 is about $10 million higher than fiscal 2014 due to planning incentive compensation at target, coupled with technology expenditures in support of long-term sales driving initiatives. Interest expense will increase slightly due to higher debt balances in fiscal 2015.

Excluding the impact of special items and assuming governmental renewal of the Work Opportunity Tax Credit retroactive to January 2014, our income tax rate should be around 31%. Naturally this rate will rise or fall with higher or lower earnings.

And finally, free cash flow, defined as cash from operations less CapEx, is projected to be $180 million to $190 million and is inclusive of the projected cash settlement stemming from the California litigation mentioned earlier. We continue to maintain a balanced approach to our use of cash through investing in the business, debt amortization, quarterly dividend and an appropriate cash reserve with the remainder dedicated to share repurchase. The net effect projects a weighted average share count for full-year fiscal 2015 between 64 million and 66 million, continuing to play a significant role in our projected EPS growth.

That concludes the guidance for fiscal 2015. And before we turn the call back to Wyman for final comments, I wanted to make you aware of a change to the press release going forward. Beginning with the first quarter of fiscal 2015, we will report comparable restaurant sales figures only by quarter and will not provide period figures.

We believe this change will eliminate the volatility created by calendar and promotional shift that sometimes occur from period to period, which will provide a more accurate representation of the comp sales performance. With that I will turn the call back over to Wyman to share final comments before we open up the call for questions.

So to wrap things up, we finished fiscal 2014 with a 10.4% fourth quarter and a 15.8% full-year growth in EPS. These results demonstrate again our ability to deliver sustained value to our shareholders.

Going forward we will continue to drive top-line growth while enhancing the experience of our team members and guests through initiatives that strengthen our brand relevance and further differentiate us from our competitors. In fiscal 2015 we will continue to innovate our menus with Fresh Mex variations, new differentiated products and lighter take options. We will leverage technology to launch a loyalty program and enhance our guest experiences at the table, online and on their mobile devices.

We will offer consumers a new experience with at-home entrees available from the frozen aisles of their national grocers. And we will continue new restaurant expansion in a measured way within all three divisions of our business.

All of these initiatives will help generate EPS in the range of $3.00 to $3.15 as we continue toward our Company goal of doubling fiscal 2012 EPS to $4.00 by fiscal 2017. And with that we can now open the lines for questions.

Thank you, ladies and gentlemen, the floor is now open for questions. (Operator Instructions).

John Glass, Morgan Stanley.

Thanks. Good morning, it's Morgan Stanley.

Two questions about the guidance. First, can you just talk about CapEx? It was a little heavier than I had thought in 2014 and 2015.

So maybe can you talk about what that is and if you still think you can get it to $100 million by 2016, if it's just a timing issue. And can you just talk about your free cash flow of $180 million to $190 million for next year. Does that include or exclude the legal payment you expect to make?

Before I answer those two questions I do want to -- in my prepared remarks I mentioned that depreciation expense is expected to increase. It is actually $10 million to $12 million. I think I said $10 million to $20 million, so I just want to make sure as it relates to the guidance that that is corrected.

And that is stated in the press release as well. But as it relates to our CapEx guidance actually from fiscal 2014 to fiscal 2015 it actually did go down. And to your point when we think about what the CapEx is for the current year and what it looks like going forward, we actually have a little bit higher cost in 2015 than I think what we initially communicated in terms of investment cost for the new unit builds.

There is also some slight incremental and discretionary. And then we actually saw an increase in the discretionary spend related to maintenance CapEx and FF&E.

As we look forward we still expect our CapEx to decline. We will always look for opportunities for investment and those investments have to pay off. But we will expect to see that CapEx to continue to decline.

What about the free cash calculation? Does that include the legal settlement or is that outside of that?

It does. The free cash flow does include the litigation settlement.

Okay. And then just one other on the guidance. You are on this journey to this 500 basis point margin improvement.

You didn't really talk a lot about how the initiatives you've put in place so far really impact 2015. Is that because they have sort of cycled now and really just depending on sales leverage and other things, or are there other mitigating factors?

Yes, so our goal was 400 basis points by fiscal 2015 and based on our guidance we will absolutely get there.

And how much of that is in that 25 to 50 basis points?

The initiatives, we didn't talk to them specifically because they are kind of all rolled out. So now we will roll through them and we will get additional margin improvements as Marie stated.

Primarily through sales leverage and the continuedization of kind of leveraging the investments we have made. But I think that gets us to our target by the end of 2015.

Yes.

All right, thank you.

Chris O'Cull, KeyBanc.

Good morning. Congrats on the comps.

Wyman, what can you tell us about the food product pipeline? And I understand you can't give specifics but can you tell us what you hope to accomplish with the menu in terms of just shifting consumer perception of the brand?

Yes, Chris. I think we've gotten some real good insight I think over the last 18 months as to where we think we can create a better space for our brand, Chili's specifically, with regard to the menu. And Fresh Mex is a key component of that and obviously we are happy with the results we have seen so far with its introduction and development.

And we think there's still -- well, we know there's still some very exciting future potential to mine in that area. But we also have additional platforms, if you will, or areas that we think we can exploit based on insights that are unique to the Chili's brand and insights we've gotten from a lot of consumer research we have done to help us really map out a three-year -- it's really a three-year vision we have for the menu and we are just starting on that journey. We are about 9, 10 months into it.

One thing that was unique about the Fresh Mex was that it really targeted the core (technical difficulty) whereas the flatbreads kind of tried to go after a new user for the brand. The new platform that you are talking about, do you think it will really be going after the core user of the brand in trying to increase the frequency of that user?

We are going to do both. So we think it's important for us to stay relevant with current users who are also evolving their taste and their preferences. And so we've got to do -- we've got to make changes to the menu to really stay relevant with that group and keep them in the mix and actually increase their frequency.

And we think by doing that we can also make ourselves more appealing to some folks that may not be as frequent or even users at the current time. If you think about Fresh Mex a great example would be the bowls. So while some of the items that we've rolled out, maybe the fajita enhancement was more geared towards maybe our core user, the bowls that we have rolled out at lunch and dinner and have been amazingly successful, really do open us up to a different target more. So it's a balance to answer your question.

And then one last one, you increased TV advertising spend this year. Do think that was a good decision and do you plan to continue increasing TV ad spend in 2015?

Well, we are not changing the percentage that we spend. So we will grow marketing dollars and we tend to think about the marketing budget more than just the TV ad budget, so we are holding our margins.

We increased our margins a little bit last year because we had just kind of gotten behind and we saw an opportunity. We think by holding the budgets this year and growing the top line that will add to the total marketing budget.

And then we will invest that budget appropriately where we get the biggest returns. And while we know TV is a critical component of our marketing plan we are also very excited about things like loyalty and digital and social.

And as we start to roll out some of those new marketing programs we may put more resources behind some of those because we think they will deliver better returns. So we will just continue to monitor the effectiveness of each of those spends and play that game as it kind of unfolds.

Great. Thanks.

David Palmer, RBC.

Good morning and congrats on another strong fiscal year. Just building on that last question, Wyman, on the TV advertising reinvestment.

I don't know exactly what percent increase you had this year on TV advertising spending but I think it was a solid double-digit number at least for the second half of the fiscal year. Do you feel like going into this next year the digital stuff in place of a big increase in TV advertising can keep that GAAP to the industry that you have been running? What are your thoughts on that?

Yes, I don't think it was quite as high as you may think in terms of the increase. You can look at the pace for an improvement but it was significant. It was kind of a catch-up for us.

It wasn't a major change in our overall marketing strategy but points help. If your message is right. And so I think we are constantly evaluating the actual weight levels but more importantly I think now we are so excited about the message that will be on those that we will be delivering with those points.

And so we think we've got enough exciting new news and other marketing ideas coming out of the group that will more than offset what we may see in terms of a leveling off of TRPs. But we don't see ourselves reducing the spend but we don't see ourselves having to chase sales through increased marketing spend.

And it kind of goes, David, just to that point, and I know we didn't talk a lot about the 400 basis points and the margin improvements that we've made over the last few years on this call. I just want to make sure that everyone realizes we are totally committed to the margin improvements we have made and the business model we have established over the last few years. Obviously our guidance shows us increasing margins again.

But as a Company both Chili's and Maggiano's we understand the importance of growing traffic and growing sales. And with that we think there's even more opportunity to grow margins. And so that is kind of where we are at with that.

So with a marketing question specifically we are hesitant to give up margin to go after sales. We think we've got to find better, smarter ways to do that because we've worked too hard to get these improvements we've gotten in the business model.

Jeff Bernstein.

Hi, Wyman. It's Jeff Bernstein. Couple of things to follow up on.

One, let's just talk about that free cash in fiscal 2015, I think you said $180 million-plus. But if we assume like you said in the dividend $60 million, $70 million, should we therefore be assuming a more modest share repo in the $100 million range, maybe down from the $200 million to $300 million the past couple of years, or am I misinterpreting that?

Maybe there is a chance for leverage or using some existing cash? Just trying to think about the dollars that will be left over for share repo after I guess this litigation settlement. And then I had a follow-up.

So our guidance for WAS is $64 million to $66 million. And to your point we will be able to buy back shares not just with cash from operations or free cash flow but also the ability to borrow debt but within the guidance of staying investment grade.

Okay, so is it reasonable to assume you can get to that $200 million that you guys have talked about pacing ourselves at?

Yes.

Great. And then just as you look at the portfolio and it seems like maybe we are going to see a little bit more growth in that, I'm just wondering if you can give any updated thoughts on maybe the Company operated versus franchise mix?

It would seem like you could generate lots of incremental proceeds for share repo and other things and obviously you would mitigate on the ongoing cost volatility if you were to refranchise. I'm just wondering whether franchisees can absorb some incremental units or whether your thought process has changed on where you want that mix to go over the next few years.

It seems you made the decision to stall that out for the past few. But I don't know whether that might accelerate again? Thanks.

Yes, we are constantly evaluating franchise or refranchise opportunities. Last year we actually bought restaurants with the Canadian acquisition so we are always looking. I think before we would franchise, the question we always ask is why would you basically sell a brand or business when you still see a lot of upside potential?

So that's the reason we haven't been aggressively looking or doing franchise deals, if you will, outside of the current base. And we still obviously with our gross projections in our target for 2017 at $4, within the current structure we think we can generate some really good returns for our shareholders with this mix.

Again it is something we pretty much constantly evaluate and it's a almost market-by-market, partner-by-partner decision. So you never can tell what's going to pop up but right now we are comfortable that within the model we have over the near future we like the mix we are running.

Got it. And then just lastly if I could -- I think you said the comps you were thinking 1% to 2%. I'm just wondering where you think the industry is going to play out relative to that 1% to 2% and if you are willing to make any comment on the new platform you talked about for later in fiscal 2015 to support that?

Well, with regard to the industry, our hope -- not a great strategy -- but our hope is that the economy continues to strengthen. And everything that we can see is that while casual dining has been taking its lumps lately there is a desire to eat out more often. And eat out in casual dining.

A lot of the shift is happening not just because fast casual has a good product, which they do. But because people just don't have the additional income that sometimes comes with a casual dining experience in taking the family and doing that more sit-down experience.

But they want to experience that. And the research I have seen they are missing it. So with better economic times they will enjoy that more.

So I think the key to what goes on with the category is really what goes on with the economy. And we are optimistic but cautious on that. So I think the trends will get better but I don't know exactly how much better.

We are not counting, in our results, on the category getting significantly better. So we kind of say hey listen this the world, let's assume this is the world and I think it's better then we'll get better with it.

With regard to the platform that I am teasing you with, I just can't go too deep into it because it's proprietary. But we are excited about where the Chili's team is taking the brand both from an operation standpoint as well as from a culinary standpoint. And there's some exciting stuff in development and in test restaurants that bode well, I think, for future sales and traffic at Chili's.

Great, thank you.

John Ivankoe, JPMorgan.

I wanted to get back to an earlier question regarding fiscal 2016 CapEx. And of course I ask that because it was specifically guided to under $100 million.

So Marie, you seem to have left the door open that, if you find a way to spend more money you will spend more money. But just give us a little bit more definitive answer in terms of how you think about that number today as it's so important to the story.

I think those assumptions are still solid. What we are just telling you is hey, listen, if something comes up -- fryers last year, right. So there was $20 million in fryers that weren't in the plan and they were a great return so we rolled them out. And that would have taken -- if we were doing those in 2016, if that idea had come up in 2016 and we were at $100 million then we would have been at $80 million and it would've been a smart thing to do -- I'm sorry, we would've been at $120 million and it would've been a smart thing to do.

So our baseline assumptions are still in line with that. We just want to let you know that we are constantly looking for ways to generate better returns and if we can find them then we will bring them to you and we have done that in the past. But right now I think that base assumption is still a good assumption.

Okay, and understood and in the context of generating a better return, what has the initial experience with Ziosk taught you about potential changes or tweaks to your labor model, to your service model in the stores?

Well again Ziosk hasn't been rolled out to our restaurants as a huge labor savings initiative. And we look at it as an enhancement to the guest experience through entertainment, through them being able to pace their experience more to their desired need and as a service enhancement for our team members. But we didn't go in with a basis point labor reduction expectation.

That said, our operations team is running as efficient at front and back of the house as Chili's has ever run. And so our goal is to put as much money as we possibly can in our servers' pockets by giving them as many guests to wait on without sacrificing the guest experience and so we are constantly monitoring that.

The one thing that we get out of Ziosk is a lot of really really good data on how we are doing on that objective. We've got more guests providing feedback to us than anyone, I don't think anyone in the retail space has the kind of data we have now through our Ziosk system. And so how good we are at managing that data to deliver better guest experience is where we think the payoff is versus a margin improvement in reduced labor.

And do you think that we have fully seen the average ticket impact in terms of add-ons, extra drinks, what have you from Ziosk? Or might that be a further event until 2015 and also what is the experience of percent tip if you know what that is, versus the regular credit cards, I guess?

Well, back to Ziosk isn't a one-time event for us. It is kind of a living thing. It's a computer, if you will, that gets reprogrammed multiple times during the year.

So we anticipate generating additional revenue interest from our guests with new rollouts. We've got several rollouts in test and in development that will take that device and provide a different experience.

So to say that we've seen everything we are going to see out of it because now it has been out there six months is not the way we look at the investment. The investment really is, it just got rolled out and we are now excited about the loyalty program is a great example.

What we are going to try and accomplish with loyalty will be unique to us because we have those systems. And what that does and generates we will see but it does give us a different platform to play that game on than our competitors.

And the percent tip has that changed at all with Ziosk? Of people that are using that --

A little bit, a little bit up. We've seen higher credit card usage because so many of our guests now use it to check out. And so that's actually had a little bit of a cost and put a little bit of pressure on us but we think it is well worth it.

Because we now have guests paying and controlling that part of their experience a little more freely. It also should generate some quicker table turns and allow us to maybe drive throughput and have some benefits there to allow us to become more efficient. So there are other ways to drive efficiency and margin and sales out of the Ziosk platform than just expanding the number of tables a server gets because you are expecting your guests to do the labor.

Understood. Thank you.

Sara Senatore, Bernstein.

Hey, guys. This is Jonathan in for Sarah Senatore at Bernstein. Just a question about long-term guidance in that $4 a share target by 2017.

If you could just walk us through how you guys are planning to get there again that would be really helpful. Thanks.

Well in terms of a $4 EPS our long-term goal is really, there is a slight portion of margin improvement naturally driven by leverage. There's the share repurchase component and then really top-line revenues, which we say we are currently forecasting 1% to 2% comp store sales. And that number will gradually increase to get us higher revenues.

On a 1% new restaurant growth aspect.

Yes, so for Chili's we are looking at 1% to 2% domestic growth and for Maggiano's, 5% to 10% growth and then with international unit growth of 10% to 15%.

And then on the margin line in terms of thinking about sustainable drivers I know you guys have made some progress on COGS and some of the labor. Is there anything in particular that you can point to on a sustained basis that gives you a lot of confidence in having that expansion persist?

I think to Wyman's point earlier, when we look at about margins, so if you think about the past several years margin has really been the number one story to getting to that 400 basis points. The expectation going forward is driving top-line sales.

We are really holding margins but at the end of the day when you drive your sales you get that leverage and you will improve margins. So the focus internally, and you will see our efforts in terms of investments, are around opportunities to strengthen the brand and increase guest engagement and to grow traffic.

All right. Thanks.

Steve Anderson, Miller Tabak.

Sort of a question this time on Maggiano's and you are announcing that you are going to have a lighter entrees, like a reduced calorie menu selections at Maggiano's. I wanted to ask what kind of effect this will have on menu mix and particularly on average ticket?

I know one of your competitors in that space had a release of a similar menu items last year but it really hurt average ticket. Just want to see what kind of impact you anticipate. Thank you.

No, we actually have had this menu in test for quite a while. It's gotten great reviews and strong preference. But we didn't take the approach of reducing the prices as much as just reconfiguring the recipes.

So our lighter take isn't totally built on smaller portions and therefore you got to charge less. It's really more as much about changing some of the ingredients up and finding some culinary ways to lighten it up that way. Although what we heard loud and clear was our guests want the things they love at Maggiano's and if we can give them to them with a great flavor and taste with less calories that would be great.

Now, these are not going to be 400 calorie entrees that you get at Maggiano's. It's relative. So they are lighter and they are healthier but they are still pretty flavorful.

Thank you.

Peter Saleh, Telsey Advisory Group.

Great, thanks. Telsey Advisory Group. Sorry if I missed this, we just got dropped from the call for a brief second, so on the Ziosk capability, when should we expect you to open up the functionality to be able to order from the entire menu?

I don't know if we will ever do that. That's not necessarily on our radar screen. If you think about what it would take to actually order for a large party or any party through the Ziosk equipment, it would become fairly cumbersome.

So that was never a stated objective of ours to get basically self-service on the tabletop. So we are going to continue to work with Ziosk to find opportunities to enhance the guest experience, find ways to make our servers as efficient as possible without negatively impacting the guest experience. But I'm not sure if we will ever get there and right now it's not even on the top of our list.

Thanks. And then just on the World Cup, any sort of benefit you thought you may have gotten from the World Cup this summer and if so, do you think the retention ratio on new customers is fairly high?

Our World Cup experience was mixed, I think, by market more depending on kind of where we were at in the role our restaurants play in some trade areas in some neighborhoods. More of a sports -- an avenue to go watch sports and some not as much.

But we definitely have stories and saw some improvement in the business but it wasn't a significant amount. It wasn't like it was a driver for our business results in the quarter.

I do believe -- our belief is that with the changes we've made at Chili's in general the people that are coming in and the guests that are coming in now are getting a better experience and that drives frequency. So any new guests we bring in we are comfortable that they are going to be coming back more frequently than they have in the past.

Great. Thank you very much.

(Operator Instructions). Bob Derrington, Wunderlich Securities.

Wyman, I couple of questions. One, given the remodels that you have done for Chili's so far, clearly the bar area appears to be dramatically or substantially improved from what it was before. You use your email club in communication with guests pretty effectively.

Is there an opportunity to better communicate the opportunity to come in and use Chili's, for example, during World Cup times or sporting events? Have you thought through that?

No, actually, Bob, we actually do. I know the database is segmented as best we can and it is going to get so much better our ability to talk specifically to our guests based on their preferences as we go to loyalty. But even today -- so I don't know, Bob, are you on our database?

I am.

And do you have kids, or a family, or --?

Some of all of the above, yes.

I will just tell you the reason I ask is because we can kind of tell what you like. And so you may be getting offers because I have some people that work with me the don't have families and we send them a lot more information about the bar.

And we may be sending you more information about family offers or kids offers or just entree offers. So in answer to your question, we actually do it now but we try and target through the email database who is more appropriate for that message. And obviously, Bob, we are thinking you may not be our biggest drinker or sports fan --

Maybe I need to change my profile.

There is a profile there, go in and update it. Let us know you are looking for a beer and a game and we will let you know about our happy hour specials and some of the things that may be more appropriate for you.

Well, I appreciate that. Listen, as a follow-up, my other question is in the fourth quarter the combination of price and mix for Chili's was pretty dramatic, very impressive the fact that together it was considerably better than what your nominal comp number was. How should we think about that going forward with your comp guidance of 1% to 2%? Should we expect that mix and pricing will be greater than those?

I don't know about greater. I think what you saw was again with the Fresh Mex and the rollout of fajitas, fajitas are a nice check build for us. And we got a lot of add-on build with guacamole and so the rollout of Fresh Mex did some nice things for check from that perspective.

I don't think we are going to see that trend continue necessarily. It's in the base now and we move from there.

Just a follow-up on that. On the 1.9% mix in the quarter, was that driven by that or was it the delivery program, the large ticket order delivery program you've rolled out? Any kind of color there?

It was absolutely Fresh Mex and primarily the fajitas, which are a higher priced menu item for us.

Right. Got you. Very good, thank you.

Jeff Farmer, Wells Fargo.

Wyman, I just wanted to follow up on some of the category trends discussion that you were having earlier on the call. I think in the past you had pointed to disposable income or household income and obviously the employment headwinds as a reason you have seen this persistent negative transaction in the world of casual dining.

But I'm really curious at this point you have been doing this for a while, from a supply-demand standpoint, or just capacity rationalization, are we getting any closer to ridding ourselves of this excess capacity in the industry? That's the first question.

And secondarily, also curious how you guys are approaching the millennials. How important are they to you and any secrets to getting them to continue to come to the restaurant? Any of that would be helpful.

Okay. To your first question, we like to say it's almost impossible to kill a restaurant. There's so much invested in it that to get one to just go away is very difficult.

So we assume that you are going to have people that are going to cycle down. And they shrink but to actually go away is a very difficult thing to happen just because of the way the industry is structured, I think.

But we are going to see winners and losers. We believe there's a shakeout. It's happening.

You are seeing it today and through that shakeout there will be winners and there will be those that aren't as successful and we still believe in the category. We think it's got a lot of opportunities. A lot of the folks that are going to struggle, and again when we talk about the bar & grill I know we like to focus on the folks that we track and the people that are publicly traded but 44% of bar & grill is independent and small chains.

And they are under a lot more pressure. And often times within even the [NAV] number what is driving that are lot of the smaller concepts that we don't have as much visibility into. And those guys do go away more often than some of the big concepts and so I do think we are seeing that shakeout.

I think the leverage that we have as a bigger concept in things like technology. To now bridge over to your millennial question, that's one of the things we think is compelling for millennials is to engage them they want to be engaged. So in social, on their mobiles.

They want loyalty more than any other demo based on some recent research I have seen. They want fresh quality food. Obviously things like Fresh Mex, if you look at some of the fast casual guys out there that have done fairly well, I won't mention names, they seem to be doing fairly well with the millennials.

So the product offer has to be right for them. And so we are working on all those fronts because again we have a good base in millennials but we think we have to grow that as well.

Thank you.

Steve Anderson, Miller Tabak.

I just wanted to follow-up with regard to the competitive landscape. And without mentioning particular quarter-to-date performance, I noticed that one of the major competitors had an offer for free appetizers for $10. And I just want to see if you sense of another round of extreme discounting coming, or do you think the pace of that is starting to level off, what is your view on that?

Steve, we have been pretty consistent over the last three years. It is hard to tell what competitors are going to do. And as I think they look for short-term solutions to probably longer-term issues you are going to see some of them do some more aggressive things.

And our strategy is that that is not the long-term solution. So we are going to focus on an overall value proposition that is embedded in our menu. And as we focus on making sure our value proposition is strong, we tend to weather these shorter-term promotional limited time things fairly well.

It doesn't mean that they don't have an impact and I know on some of them they are probably seeing some positive results but they're just not that sustainable. So why confuse your guest with something you can't deliver day in, day out and why put your operators through that process is kind of where we net. So I don't know if it's going to get any more or less aggressive.

We just kind of continue to work our strategy, which is manage the value proposition, understand what your consumers want and do it in a way that gives your operators a chance of delivering consistently day in and day out on that value proposition and compete from that point of view.

All right. Thank you.

There appears to be no further questions in the queue. Do you have any closing comments you would like to finish with?

Yes. Thanks, everyone, for your participation today on the call. We look forward to speaking to you again on October 21 as we go over our first-quarter results. Thank you.

Have a good day.

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.