Red Robin Gourmet Burgers Inc (RRGB) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Red Robin Gourmet Burgers first quarter earnings conference call. At this time, all participants are in a Listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue for questions.

If anyone has any difficulties hearing the conference, please press star-zero for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded, and will now turn the call over to Mr. Michael Snyder, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Shelly (ph). Good afternoon. And thanks. everyone, for joining us on our fourth quarter and fiscal year 2002 conference call.

We'd like to cover several areas on today's conference call, including the financial and operational results for the fourth quarter of 2002. We'd like to update you on our current business trends and guidance for the first quarter and fiscal year of 2003. And lastly we'd like to give you a summary of our longer term strategy to drive shareholder value.

I need to remind everyone that part of our discussion this afternoon will include forward-looking statements. These statements are not guarantees of future performance and therefore undo reliance should not be put on them.

We refer all of you to our filings with the FEC for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Well with that said, I'm very pleased to announce that total revenues for the fourth quarter and in December 29 of 2002 increased 24 percent, to $65.6 million. Restaurant-level operating profit increased 35.3 percent, to $13.3 million. And our pro forma net income for the quarter was 3.6 million or 24 cents per share.

We're very delighted with those results.

For the full year of 2002 our revenue increased 22.2 percent. That's up to $274.4 million. And our restaurant level operating profit increased 25.9 percent to $51.9 million. Our pro forma net income for the year on approximately $13.5 million was 89 cents a share. Please remember that our previous guidance for 2002 was in the 85 to 87 cents per share range.

The pro forma results take into account our IPO since the beginning of 2002 and exclude certain one-time adjustments. And Jim will take you through those in a few moments.

Our fourth quarter results were driven by comparable sales restaurant increase of 2.3 percent for the company-owned units. We're pleased with these results, given that they were achieved in a, I'd say, a pretty difficult holiday retail season.

In addition, we saw steady improvement during the quarter in two of our three largest markets -- Seattle and Portland. Denver still continues to present a challenge economically for us as the economic climate is kind of lagging behind the rest of the country in its recouping its growth.

Our company-owned stores performed well during the first quarter, with comparative weekly sales averaging $56,613. And that compared to $55,323 during the same period last year. We also derived 97.1 percent of our revenues from our company-owned restaurants during the quarter compared to 95.9 percent during the same time period last year.

We opened one new restaurant during the fourth quarter for a total of 10 new company restaurants. And we relocated one restaurant in 2002. The addition of these new restaurants combined with the 10 restaurants that we acquired from two franchisees during the first quarter of 2002 increased our company-owned units by 25 percent in 2002. That's from 77 units at the end of 2001 to 96 units at the end of 2002. A total of five new franchise units opened in 2002. There were no new franchise openings during the fourth quarter. And we did have franchisee restaurant close during the month of November.

These exceptional results I feel are -- that we achieved in 2002, including a successful IPO would not have been possible without the support of all of our dedicated team members, guests and shareholders.

Right now I'm going to turn the call over to Jim McCloskey. He's going to review our financial results in more detail. Jim?

Thanks, Mike.

The $12 million -- $12.9 million increase in fourth quarter restaurant sales over the prior year was primarily derived from the 6.4 million in sales from 10 restaurants we acquired during the first quarter of 2002 and the 5.9 million in sales from the 10 new restaurants we opened during fiscal 2002.

We saw a decrease of 8.3 percent -- or $170,000 -- in our franchise revenues as we had seven fewer franchise revenues this year versus last year primarily from the acquisition of our 10 franchise units in quarter one of '02. Additionally in '01 we realized fees from five franchise openings in the fourth quarter. Again there were no franchise openings in the fourth quarter of '02.

Franchise comp restaurant sales increased 0.8 percent in the US. We were quite pleased with this increase as this was the first positive quarter in the US since the fourth quarter of '01. So they seem to be turning around. Canadian franchise comp sales were down 2.1 percent in the fourth quarter, and this was a marked improvement from the previous quarters of '02.

As Mike indicted, average weekly sales for comp restaurant owned -- for company-owned restaurants, where 56,613 during the fourth quarter, representing an increase of 2.3 percent. Average weekly sales for NRO's (ph) in the fourth quarter were 52,228. Our comp franchise restaurants averaged 51,187 in the quarter versus 50,767 in the US last year; and 35,044 versus 36,255 last year in Canada. Canadian results are in Canadian dollars.

Turning our attention to the cost side of the business, cost of sales as a percentage of restaurant sales for the fourth quarter were 22.6 percent a slight improvement over the fourth quarter of last year. The improvement was due primarily to continued favorable commodity pricing.

Labor expense is a percentage of restaurant sales for the quarter with 34.5 percent - or a 70 bases point improvement over the fourth quarter of '01 - and was due primarily to some one-time bonus expense in the fourth of '01.

We also had some favorable accrual adjustments impacting the fourth quarter of '02 -- workman's comp, benefits, liability (ph), vacation accruals that were slightly (ph) over-accrued (ph) in the fourth quarter. However these are mostly offset by higher labor costs from our NRO's (ph) '02.

Operating expense as a percentage of restaurant sales for 15.5 percent -- a 30 basis point increase compared to last year's fourth quarter. This due to primarily higher credit card fees, generally called by a shift in the cash versus credit cards, and some higher processing fees.

Occupancy expense (ph) as a percentage of restaurant sales to 6.5 percent -- a 110 basis improvement over last year's fourth quarter. The fourth quarter of '01 was high. That was due to a one-time catch up in a couple of adjustments in rent expense. But the occupancy expense in the fourth quarter of '02 was consistent with other quarters in '02.

Restaurant level operating profits in total were 20.9 percent in the quarter. That's a 150 basis improvement compared to last year -- and up from 20.2 percent in the third quarter. It was due to favorable (ph) trends that I described above.

As previously announced we recorded one specific breakdown of 1.1 million -- $760,000 after tax -- related to one restaurant.

Depreciation and amortization expense was a percentage of total revenue increased 30 basis points to 5.3 percent, from five percent in the third quarter. This percentage increase is primarily due to a one-time adjustment to correct an error we made in 2000 in depreciation expenses.

Total depreciation amortization in the fourth quarter of 2002 is not directly comparable to the '01 numbers due to the fact that we stopped advertising goodwill at the beginning of fiscal 2002.

G&S expenses at the percentage of total revenue decreased 130 basis points to 7.9 percent from 9.2 over the fourth quarter of '01. This decrease is in part the result of higher costs in the fourth quarter of '01 relating (ph) to consulting fees and some notes receivable reserved that we had booked in '01.

We are incurring higher accounting, legal and P&L (ph) insurance expenses versus last year, due to our reporting and compliance requirements as a public company. But these were offset by - or had been offset by continued economies of scale from higher efforts (ph).

Pre-opening costs increased 30 basis points compared to last year. We opened one restaurant in the fourth quarter - we had no restaurant openings in the fourth quarter of '01. We incurred $80,000 in the fourth quarter of '02 for pre-opening expenses related to the restaurant we opened early in the first quarter of '03.

Income operations was up 12.9 percent to 4.5 million, compared to 4 million in the fourth quarter of last year. As a percentage of revenues operating income declined 70 basis points due to the $1.1 million restaurant return (ph) which was 180 basis points.

Net income for the fourth quarter was 2.7 million compared to 1.7 million in '01.

For pro quota net income was 3.6 million. This is calculated by starting with the pre-tax income of 3.7 million and adding back the 1.1 million restaurant laydown (ph). This results in 4.9 million of pro forma pretax income and 3.6 million after tax.

Our tax rate for the fourth quarter was 28.8 percent. And it is estimated to be 33.1 percent of all of '02. Our tax rate for all of '02 was lower than we originally expected due to higher tax credits and lower state rates, as we derived more of our income from lower tax states.

Diluted earnings per share for the quarter was 18 cents compared to diluted earnings per share of 16 cents in '01. For former earnings per share, assuming 15.2 million shares outstanding plus the adjustments I just covered, was 24 cents.

At this point I'll turn it back to Mike.

Thank you Jim.

Based on our current plan and our outlook for 2003 we are offering the following guidance. We're especially delighted with our recent restaurant openings. And this is fueling our excitement for 2003.

We expect to open 18 new company-owned restaurants for the year. That's a 19 percent increase over 2002, with five new restaurants in the first quarter, four in the second and nine in the combined third and fourth quarters. This incremental growth will set us up well for increased net income growth in later 2003 and 2004.

On the franchise front we expect our franchisees to open 10 to 13 new restaurants in 2003. That's up from five in 2002. During 2002 we signed nine experienced restaurant operators as new franchise partners. And that extended our expansion into many new markets that we are very excited about, including Austin, San Antonio, Dallas, Kansas City, Pittsburgh, New Jersey, Delaware, northern Indiana and western Michigan. We expect our sales counts to increase approximately between 1.5 and 2.5 percent for the first quarter and for the full year. We are comfortable with this range. And it's based on actual results midway through the first quarter of 2003.

We did take a modest one percent price increase early in January to cover some of our expected cost increases. We expect the first quarter 2003 revenues to be approximately 91 million and full year revenues to be approximately $315 million.

Despite some cost pressures from some food quality initiatives, a new restaurant bonus plan and additional new restaurants, we are projecting steady restaurant level operating profit of 19.5 percent in 2003.

So based on these assumptions we expect first quarter earnings to be 20 to 21 cents and full of 2003 earnings per share of 94 to 97 percent. I know that some of you have in your models a first quarter EPS a little bit higher than that. We are ramping up our growth a little bit. And a lot of these new restaurants are coming earlier in the year than later. And we have a G&A associated -- additional G&A in the first quarter associated with this growth. And we're excited about the potential of these new restaurants.

First quarter expected results will include incremental public company costs of $370,000 or it's about two cents a share. And additional pre-opening costs that I just mentioned earlier associated with our ramped up growth of about $375,000 or about two cents a share. And those manager training costs I was talking about are going to cost about 160,000 or about one cent per share.

So full incremental public company costs are projected to be approximately 640,000 or about three cents a share, while the incremental gross (ph) costs for pre-opening are expected to be 1.3 million or about six cents per share.

To sum it up again the incremental manager training costs are expected to add an additional 540,000 or two cents. The company is expecting a 2003 tax rate of about 33 to 34 percent.

So before we go to Q&A let me mention a few points that I think I would like you to know about Red Robin.

The first is our brand and market position. We believe that we have achieved substantial brand equity with our guests by creating a distinctive dining experience for America's families. We offer very high quality and unique menu items at an exceptional value. Our per person check average around $10 allows us a very high frequency of guest visits during these times of -- when the economic conditions are less than robust. We firmly believe that Red Robin is defining the gourmet burger category of casual dining.

The second point I want to make is about our unit level economics. Cash on cash returns on our unit average 35 percent. And we continue to experience favorable results with our new restaurant openings.

The last point I'd like to make before we go to Q&A, we believe our brand is significantly under penetrated. We have substantial untapped geographic territory. And as our development schedule suggests landlords and developers are very interested in what we have to offer. And our real estate pipeline is in very good shape.

To conclude we are very proud of our accomplishments in 2002. And we are very excited about 2003. So that concludes our prepared remarks. And Shelly (ph), would you please open up the call for Q&A.

Thank you. One moment please. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Your questions will be polled in the order that they are received. If you would like to decline from the polling process, please press star followed by the two. Please ensure you lift the handset if you are using a speaker phone before pressing any keys. One moment please for your first question.

Your first question comes from Allan Hickok Piper Jaffray. Please go ahead.

Hi. Good afternoon, Mike and Jim. I'm glad to see that that momentum is continuing in the first quarter. I just want to go back to the recap that you had, Mike -- and either -- question for either Mike or Jim for guidance especially in the first quarter.

Can you just give in dollars what especially for Q1 and Q2 maybe pre-opening and G&A -- what you're expecting? Or a range?

In dollars?

Yes.

Yes. In the first quarter pre-opening year round about 900,000.

OK. And Q2?

It will be about 850 to 900.

OK. So the good news is you are moving your stores forward. The bad news is you're taking pre-opening and then your taking some of Q3 -- you're picking that up in Q2 as well, that's correct?

That's right.

And then G&A in dollars?

This is really in both -- the way we look at it, we look at both the franchise support and the G&A together.

OK.

In Q1it will be around 8.8 to 9 million.

OK.

And in Q2 about 5.7 to 6 million.

OK. And then the tax rate. You said 33 to 34 percent for the full year. And is - I mean a midpoint 33.5 in the first quarter, is that right? Or are you going to be truing up the tax rate as you move through the year?

We're anticipating -- the 33 to 34, you could probably be safe somewhere in the midpoint.

For the first quarter

Yes. We're not really going to get a good look at it, Allen (ph), of course until we file our tax returns. We're not going to get any better look at it until we file our tax returns and go back and true up our '02, and see exactly how the state tax rates in the proportion (ph) will work.

So those tax returns are filed in the late summer. So we're anticipating somewhere in that 33 to 34. If we're accurate we're not going into the year with any expectation of a true up. We're coming in with our best guess for the full year.

OK. And then the last question. If I heard you correctly Mike, you thought that your restaurant operating profit for the full year would about 19.5 percent. But you have a little seasonality. And it tends to be a little stronger in Q2 and Q3. Just give us -- so do you expect sort of gradual improvement during the year? Or maybe in the back half of the year as the newer stores mature, but maybe a little bit of the same seasonality? Does that question make sense?

It makes sense. And Allen (ph), that's true. So we are expecting a pickup in that restaurant level operating income during the second quarter clearly. And then as -- I'm just repeating what you said -- that as those new restaurants get more mature, we'll be ramping up those operating profits.

Or maybe get dinged (ph) a little bit from the five that you open up in Q1, just because they are not as efficient? Or do you think that they'll -- what's your expectation for those in terms of profitability compared to the system (ph)?

I was trying to get to the difference between sort of where a lot of the estimates were and to (ph) your guidance in the first quarter.

We're looking at net income before occupancy costs. That's one of the better ways I can tell you. It's about 11 percent spread between a new restaurant and a mature restaurant. So it takes a while to get that spread -- that deviation closed. So we will less profitable on those as a result of the new stores opening up in the first quarter.

So we do take a hit on the first quarter, based on what we're expecting, perhaps midpoint or fourth quarter of last year. But Allen (ph), I'll take new restaurant growth to get great units any day, rather than trying to manage when you have to take pre-opening costs. So first quarter is going to be dinged a little bit. But I think it really tees us up well for the remainder of the year. It really sets us up for a great 2004 as well.

OK. Super. Thanks a lot.

The next question comes from Jeff Omohundro, with Kauffman Securities (ph). Please go ahead.

Hi. Good afternoon.

Hey, Jeff

I'd like to try to see (inaudible) the continuing. A couple of questions. I wonder if you could run through the food costs - and food initiative, and what impact it has on food costs in '03. That's my first question.

Well a couple of ones that we're focusing in on was our burger and our hamburger buns. A never-ending quest to improve quality.

With respect to the buns, getting a consistent product throughout North America could be objective. And so we're ramping up the recipes. We're making our bakers through out the country adhere to those recipes. We're trying some different distribution techniques. So as a result, Jeff, we're looking at -- I don't know if you want this much detail -- but it's about one cent per bun. And actually that's going to equate to potentially something about, something in the range of about eight tenths of a percent on food costs.

With respect to our burger, always again, working on increasing the safety and the quality of the burger. So as we continue to refine our recipes to make it more safe and create higher quality, we're going to add a little bit of cost to it. That cost is going to be about another three to four tenths of a percent.

With the price increase that we took in January of approximately one percent, that should take care of a lot of those initiatives and our increasing productivity and developing that as well.

And I wonder if you could just remind us where we are on worker's comp and insurance? Where do you seeing in those line items?

Jeff, this is Jim. We've certainly seen increases -- but consistent, I think, with the rest of the industry. You know something in the 12 to 15 percent increase. We have -- we do have an exceptionally low workman's comp experience rate. So workman's comp is not as significant in a percentage basis as for us as perhaps some other restaurant chains, just because we've had very few claims.

And is there any shift in marketing or advertising as a percent of sales contemplated for '03?

No. We -- as you know Jeff, marketing and advertising is not a big component of our business models. So we do not expect any material change in those numbers or percentages.

And then I think I have two more if you don't mind. One is the capex target for '03?

And that's, that would be 40 about 45 about 46 to 49 million.

And, my other (ph) question. What, just by the way, is a percentage of sales to go to your business? I know it's not a big focus.

To go sales. Right now it's averaging between 1.3 and 1.7 percent of our total sales depending on what quarter you're looking at. Right now Jeff, we're still experimenting with the packaging -- making sure that the product ends up at its destination in great shape. Once we have that -- once we're comfortable with that, then we'll start fine-tuning the internal operation of actually how to take the order and distribute the order. And then as you know there are some unique and interesting delivery aspects out there on how to get the products out from the restaurant to the guests.

So that is certainly a growth opportunity for us. But right now we're still clearly focused on our new restaurant -- new restaurant development.

Very good. I'll conclude on that, thanks.

Thanks, Jeff.

Our next question comes from Jeff Steinburg (ph) KLF Asset Management. Please go ahead.

Thank you very much. Congratulations, guys.

Thanks, Jeff.

Thanks

Two questions. I guess the first was picking up on a comment that was made earlier from thinking about the, if you will, semi-lumpy fixed costs that will occur in '03 as you step function to growth rate. In '04 it seems like your growth rate would materially accelerate as the infrastructure costs will be comparable. So you'll have the benefit of two years (inaudible) as a higher level of restaurant growth. I think in the past you talked about EPS ...

I think your characterization of our earnings and model is correct, is that we do expect it to accelerate. We do expect good acceleration in 2004. We are working on an earnings model of 20 percent EPS, long term growth rate. And we do that by growing that top-line in units, 17 to 20 percent. We grow that 19 percent of this year. And you can expect that percentage growth to continue. We're going to grow our franchise revenues by 10 to 15 percent.

Sure

And I think Mike talked about that growth that we brought on, significantly number of additional operators. We'll probably get out of the ground this year, but may not all open this year. So we expect that continue to accelerate.

OK. Forgive me. I didn't mean delve into too much detail. But just simplistically since '03 is going to be below 20 percent EPS growth rate, with all of the, let's call it, one time start up costs, is it logical to think '04 growth should be above the long term target with those behind us and easier comparison?

OK. I think, we haven't provided -- and we will provide '04 guidance, probably in the summer of this year, so that we're ahead of the curve, but I ...

Just general thought process ...

In general I think we're going to get much closer to our long term EPS growth model in '04.

And then, terrific. Obviously there's opportunity to grow 25 percent of whatever it may be. But in terms of, the other question, I just want to get some prospective from you, Mike. I heard you make some comments about quarter to date comp experience. But also you mentioned you had a one percent price increase. And my logic would've been if you have had a price increase and that's gone smoothly, your comps would actually accelerate here in '03. Has that been your experience?

Well, that very well may come to fruition. But right now we're very comfortable with the guidance that we've established, about 1.5 to 2.5 for the year. So that's about where I'd like to leave it right now.

Would you be comfortable since it's obviously proper form with (inaudible) with how we're doing thus far.

We're, we're delighted and encouraged and comfortable with our comments.

OK great. Thank you.

Our next question comes Andrew Barish, Bank of America. Please go ahead.

Two questions, just on the incremental new restaurant bonus plan, can you give us a little more detail on that? What you're doing different and maybe the cost associated with the potentially and any weather impact thus far in the first quarter? Obviously you're mostly western but do have some Midwest and East Coast presence.

I'll take the weather one first, Andy. In my experience in the past that when our management - my management team comes to me and they blame dropped sales on weather, I don't usually - I usually ask, are you talking to me? And so I find it a little bit hypocritical to try to convey to you that weather has a great deal to do with our sales. With that said, you know, we did close a few restaurants on the East Coast. I will tell you though, Andy, we did experience positive same store sales growth during that week when we did have closed doors. I think it's because there was pent up demand.

Once the streets were open and people were allowed to travel that they - we did have a couple of record sales days on the East Coast after the streets were reopened. We don't allow weather to be too much of a dialogue around here. The new comp plan for GM, we're students of compensation, and for the past 23 years we try to apply a compensation program to meet the objectives - the then (ph) objectives of the company. And what we're trying to do now is create and incentive program that motivates general managers to stay in one location longer. It's always exciting when there's a new restaurant opening and the potential of huge sales, et cetera, new restaurant, all that excitement, so there's sometimes a natural motivation for general managers wanting to go to the new restaurant.

We're changing the comp plan ever so slightly to make it more profitable or as profitable for the GM's to stay in one place. Additionally we've added some super sales and profit tickers (ph) if you will. So additional incentives on top of our normal incentive plans, and we also have a development bonus for training management. We want to bring most of our new general managers up from within so we have a development bonus for those people who do train people. Net affect it could be nine tenths to 1.1 percent of sales.

Thank you.

Our next question comes from Mathew Difrisco GKM. Please go ahead.

Hi, congratulations on your great quarter, guys. A couple of quick questions here - can you give us that detail that you've done in the past on the foremarkets (ph) your same restaurant sales numbers with it and without it.

Yes Matt I can do that. This is Jim. In the fourth quarter the Denver metropolitan area - the big three had a negative 0.4 percent. Of that Denver which was negative 4.7 percent, with Seattle and Portland, positive.

OK.

The rest of the country was up 4.7 percent.

OK. In the fourth quarter?

In the fourth quarter.

Are you still seeing that type of - in the trends that you're seeing now and in your guidance that you're giving us now is that the same type of - for the current quarter - is that a similar disparity. Do you think that will continue, taking in the knowledge that you have of what you'd lacking and also what you're seeing out there right now?

Yes, I mean, we haven't seen any dramatic chance from the end of the fourth quarter. In so far '03 in terms of those trends. Denver continues - as Mike said, Denver continues to be of concern. There is just a local, from a local level, you know, we have a few positive things going on, but - so we're hopeful that things will occur around Denver and that'll be - because that's really the only anchor that we have, for really exceptional same store sales growth.

OK then getting into the growth plan, I guess can you break capex maintenance and how much is associated with the annual number - the 18 stores, and then the five stores you're opening in the first quarter, where those will be?

Let me answer that second question first. The five stores, the first one opened in Omaha, Nebraska in early January, that's far exceeded our expectations. The second one opened in Wenatchee, Washington. Again it far exceeded our expectations. So we're always a little surprised when they open so strong that we that we're expecting them to get down to our average. We're building those in any models. We opened one this week, the second location in Omaha, Nebraska that also was very successful, it's just beginning which is doing our grand opening and that's kind of in a new area so we're expecting that to start slow - a little more slowly. Then the fourth one will be in Portland, Oregon and continues that cluster strategy that we have, and the fourth is in Columbia, Maryland, I mean that for the fifth is in Columbia, Maryland.

OK how many company-owned stores do you have now around, would you say in demographic or that market?

Seven.

OK, do you have an average weekly sales figure for one Q '01; I'm sorry one Q '02, as you're going to be laughing (ph) now?

Let me see. 56,661 - 671.

56,671.

671, right.

OK and then the capex questions, can you just break that up between maintenance and new buildings.

I can. You know, maintenance is about six million, I've got - I have a couple of purchases of land here that we will have in '03, which we - I think we talked about our strategy in the past, about acquisition of land, if primarily the first thing we do is we look at the great site and the second thing we look at is the acquisition. So we do have a couple acquisitions of land. But the - about - there's about 300,000 of computer equipment in there and then the rest is - relates to the construction of the '03 units and in the fourth quarter the CIP for the '04 units that we're anticipating, first quarter of '04.

OK, and then just - promise to wrap this up here, just the 150,000 that you're spending on management training costs, is that associated with - in the quarter, that's associated with the five - or the mangers associated with the five stores or is this a training program for your 100 stores?

It actually is a - it's all for the new stores and most of that training that's going to be happening in the first quarter is going to be related to openings - the last two openings of the first quarter and openings of the second quarter, because it's an eight week program. So the training that we had from let's say the first two openings we had in January of this year, those were absorbed in our '02 number.

OK and then just the last philosophical question I guess. If I impact the charges that you're summing to be a nickel or about six cents here, I come up to using the 20 to 21, you come up to 26 or 27 off of the 24 year ago or so, that would be, I guess around 15 percent EPS growth. Is that then safe to assume when you're giving guidance of 1.5 to 2.5 comp in this type of cost environment you'd be feeling like you're a 15 percent organic grower - earnings grower? Is that a good way to look at it?

Well I'll go back to what I said to Jeff. I think we're accelerating that growth. I think that organic growth will go from 15 to 20 percent, 20 percent plus. We highlighted some of the most significant management training and pre-opening costs that affected that but we didn't highlight is the fact that we're hiring additional project managers and additional real estate people to support the '04 growth, and so that we're taking a big jump here in '03, especially in the first quarter. That'll level them set back percentage wise for the G&A standpoint will level itself out. So we'll continue to see improved economies of scale in that area.

OK, Thank you, appreciate it.

The next question comes from Davis Allen (ph), Davidson Investment Advisors. Please go ahead.

Thank you. I also have a couple of questions, more from a big picture perspective note (ph). First of all, on the new location opening front, philosophically and financially do you folks prefer franchise openings or do you prefer company-owned locations?

Well currently our mix is about 50/50, company-owned versus franchise. We do like owning and operating these restaurants and franchising is a great way to extend our brand more quickly throughout the continent. So we take advantage of opportunities, whether it be company and or franchise. We like being in both businesses, I can't say I favor one over the other.

Thank you. My second question is relative to the statistics that you point out that 57 percent of your customers are women, and curious given that roughly half the population is women to what degree is that statistically significant and maybe what's the industry average for the percentage of customers that are women?

I have no idea on industry average. We do really like the place that we do business in, that demographic, it, we take care of America's families, women, teens and tweens (ph) especially. The real estate developers understand this. Their customers are our guests, so that the demographic match up is a great one. Don't know the industry average on female guests.

And then my final question is relative to opening in existing markets, you folks referenced that Portland was a location that you were opening. You already have a number of locations there, to what degree or when do cannibalizations enter into the mix and begin to work against you?

Great question, with only 200 restaurants or so Red Robin's in North America, we're far from understanding the cannibalization concept. That said we are becoming very good students at being able to locate these restaurant closer to other restaurants that we have in the past. So statistically, can't answer your question, philosophically we have so much room to grow, we're a long ways off from really knowing much about it.

So to make sure I'm understanding that answer correctly, in the market where you do have a reasonable degree of penetration, it sounds like you're beginning to find that you can locate restaurants closer together than you originally had and still cannibalization has not been an issue even in those isolated markets?

That's - I think generally speaking the answer to that is yes.

That's helpful, thank you.

The next question comes from Dan Geiman, McAdams Wright Ragen. Please go ahead.

Good afternoon guys, just a couple of quick questions for you. First of all what was your average ticket during the fourth quarter? How did it compare with the third quarter? And also with respect to Seattle and Portland what factors are you seeing that account for the improvement there and are you turning around there or you think for the long term or is this a more short term blip or what do see that going?

Dan, its Mike. I'll take this one. The fourth quarter procreation (ph) desk guest check average was $9.99 cents. And we're looking at about ten dollars and two or three cents first quarter of this year, so it's safe to say around ten dollars, and it hasn't changed a heck of a lot. With that price increase we've taken we'll have some more information later on in the quarter, but it doesn't - it's about the same.

OK

Seattle and Portland, you know, things are coming around up there, economically speaking - the macroeconomics of it, and we're seeing a benefit to that. Is it long lived? Boy I guess that's a relative term, you know I've been doing this for over 23 years and lived through a lot of economic cycles up and down, good and bad, but I feel confident that Pacific Northwest is coming out of the doldrums that they've been in. Denver on the other hand it seems to be a little bit slower to recoup. And doing the math on our big three sales comps for the ticket is to get the Denver concept and like Jim mentioned earlier then we'd really have some stellar same store sales trends.

OK great, well thanks very much.

You're welcome Dan.

Your next question comes from Mike Smith (ph), Boston (ph) Stock. Please go ahead.

Thanks for the (inaudible). I have a couple of questions, one centers on your management turnover. Have you seen any improvements on that particular figure when you implemented the new bonus program?

You know Mike it's been so new we can't say. This is for - we started in January of 2003, so too early to tell.

Was that a problem that you were trying to address, was low, did you have high management turnover towards the end of last year?

Well we're, you know, management turnover in the industry is high. I think the average is around 25 percent for unit management. We're running consistently throughout the year about 11 to 12 percent so that's a pretty darn good number. Let me throw in the team member - the salary employee turnover rate. The average I think for the industry is about 150 percent. We're running between 85 and 87 percent. Again those are large numbers by any standard, but relatively speaking to the industry, we have a culture and an organization here that people seem to want to stick around with us. But the - so keeping people longer wasn't the main motivation to change the incentive plan, the main objective was to keep people longer in one place, at one restaurant. So that was the objective, we'll see how well we've done with that.

The other question I had kind of more philosophical or big picture but, with the demographics that you have and customer base and type of location that you like an average of public company was better fittings (ph) and all that. Are you finding that you're giving kind of step up in terms of potential locations?

Mike this is Jim. Absolutely I think people - developers around the country are - there's over retail in the United States. They need a competitive advantage, they're looking for restaurant concepts that will have a synergistic effect with you know everything you know that's in the strip shopping center or regional mall behind us, we're looking for that great free stand (ph) out front so that Victoria Secret and Abercrombie and Finch and Aeropostale, et cetera, et cetera have a pretty clear customer demographic focus of high income, women, tweens (ph) and teens which just happens to be exactly what our demographic is. So words getting out and I don't always take my real estate guy an order taker (ph) now but he's finding life a lot easier.

We will proceed with the next question. The next question comes from Mark Teller (ph), Morgan Stanley. Please go ahead.

Hi guys. I'm new to the story and I'm sort of scrambling around here today and I guess my question is with capex is 45 to 49 million - where will those funds come from?

Well, we have sufficient funds. To the end of the year we have $11 million outstanding on a $40 million line of credit, so with our, with the cash from operations and then combined with our outstanding available line that'll fund us. That'll be adequate to fund our, the 46 to 49 million.

Pardon me again. Sorry for not being more up to date, I figured that was probably in there somewhere, thanks.

Our next question comes from William Tanes (ph), Mayor Investments (ph). Please go ahead.

Yes, could you give us the 12 '03 ending debt balance for the projected and the associated EBITDA for '03, given the 315 million in sales?

EBIT - (inaudible) - do the second one first. EBITDA will be somewhere in the range of 37 to 40 million.

And how much pre-opening expenses is that 30,000?

About 3.2 million.

OK

And as far ending debt balance, let me just take this take this opportunity. We have already started conversations with our banks. We have a $40 million line of credit, I would expect to be able to announce within the next eight to ten weeks an extension and restatement above line, it'll probably take me somewhere in the range of 60 to 80 million.

OK, so what would the ending balance be for 12/31?

About 32 to 35 million.

32 to 35, and then last question, just going forward, EBITDA associated with the franchising revenue - what kind of margin can we expect on that?

The right answer to that, that's a really an incremental, there, let's just take the lifecycle of one franchisee. We spent a lot of time with that developer, with that partner teaching them how to select sites, how, we have a very detailed process on how to build the buildings, how to operate these restaurants. If you know in the first year, the first like it's a dramatically improving margin business, so in the first year, you know it's a - we probably about 120,000 we get on an annualized basis from a $3 million restaurant, 4 percent royalty. You know we probably spend a good portion of that. In the second and third years, that dramatically improves.

OK thanks Jim.

Ladies and gentlemen if there are any additional questions at this time please press star followed by the one. As a reminder if you're using a speaker phone please lift the handset before pressing the keys. You have a question from Allen Hickok, Piper Jaffray. Please go ahead.

Promise this is the last question. Jim you've talked several times this is a lot of questions but in the comps in your core markets and this minus four plus negative comp you have in Denver. Can you just, again review for us what the financial profile of those restaurants is in terms the average cash flow per unit or average cash flow compared to the rest of the system?

They're all significantly above our average while I - we average about $3.4 million a unit and while I don't have specifically at my fingertips, it's substantially above in terms of restaurant level operating income. And so these are highly profitable restaurants.

OK that's what I was getting at.

All right good, thank you.

It appears (ph) there are no further questions at this time. Please continue.

Well I'd like to thank everybody for joining us on our conference call and thank you again for your support and look forward to speaking to you on our next conference call. Thank you so much.

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