Red Robin Gourmet Burgers Inc (RRGB) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thanks very much for standing by.

Good day, and welcome to the Red Robin Gourmet Burgers Inc.

third quarter 2009 financial results conference call.

(Operator Instructions).

It is now my pleasure to turn the floor over to your host, Katie Scherping, Chief Financial Officer of Red Robin.

Thanks, Kevin.

Before I get started, I need to remind everyone that part of today's discussion will include forward-looking statements.

These statements will include but not be limited to references to our margin, new restaurant openings or NROs, trends, costs and administrative expenses and other expectations.

Also, these statements are based on what we expect as of this conference call, and we undertake no obligations to update these statements to reflect events or circumstances that might arise after this call.

These forward-looking statements are not guarantees of future performance, and therefore investors should not place undue reliance on them.

We refer all of you to our 10-K and our 10-Q filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

We plan to file our 10-Q for the fiscal third quarter of 2009 by close of business tomorrow.

And I want to inform our listeners that we will be making some references to non-GAAP financial measures today during our call You'll find supplemental date in our press release on Schedules 1 and 2 which reconcile our non-GAAP measures to our GAAP results.

Now I will turn the call over to Denny Mullen, Chairman and Chief Executive Officer.

Denny?

Thanks, Katie, and thanks, everyone, for joining us today.

We also have with us Eric Houseman, our President and Chief Operating Officer, and Susan Lintonsmith, our Chief Marketing Officer.

Eric will provide detail on the third quarter results and an update on our operations initiatives, and Susan will update you on our traffic, building and loyalty efforts.

Then Katie will review in detail our most recent financial performance and our business outlook.

But first I want to share with you some of the more recent developments on the marketing front.

As you have seen from our earnings press release, our comp store sales decreased 14.9% in the third quarter.

In our call last August, we told you that our comps were down 15.3 for the first four weeks of Q3 as we lapped our third best comps in the first four weeks of Q3, '08.

In response to the very challenging business environment, we have implemented a variety of marketing and promotional tactics to promote our overall marketing strategy of product news, which has been our strategy since the beginning of 2009.

Specifically, we recently introduced our most recent product news in our fall promotion, the Wise Guy Burger and Chicken Caprese Sandwich, with three weeks of local network and cable TV in ten markets covering about 100 of our restaurants.

These great products were featured with Bottomless Steak Fries at a $5.99 price point as part of a limited time offer.

Since the ads began the last week of Q3 and ran through the first two weeks of Q4, the impact on the third quarter results was nominal.

However, we are pleased with the campaign's results, and Susan will cover those in greater detail in a few minutes.

On the restaurants development side, we didn't have any Company opening restaurants in the third quarter.

However, more recently in the fourth quarter, we opened the last two of the 15 new Company-owned restaurants planned for this year, all funded from operating cash flow.

Together with the four new franchise restaurants that have opened so far this year, a total of 19 new Red Robin restaurants have been open year to date 2009.

While Company-owned NROs are now complete for the year, one more franchise NRO is scheduled to open in mid-December, and we currently have three Company-owned restaurants under construction.

We plan to open these three restaurants late in the first quarter of 2010.

As we previously announced, our Board of Directors approved the development of up to 15 new Company-owned Red Robin restaurants next year, which we expect to open fairly evenly throughout 2010.

Similar to 2009 development, we will fund new Company-owned restaurant developments in 2010 with operating cash flow.

Also, our teams have done a terrific job reducing investment costs for new restaurant development as we expand our base of Company-owned restaurants.

Our average cash investment in new Company-owned restaurants has been reduced about 24%, from roughly 2.5 million per restaurant in 2007 to less than 1.9 million restaurant estimated for our 2010 development.

So with that as an overview, I will turn it over to Eric.

Thanks, Denny, and good afternoon, everyone.

In the third quarter of 2009, our comp store sales decrease 14.9% was driven by a 13.8% decrease in guest counts and a 1.1% decrease in average check.

This compares to being down 2.2% in the third quarter last year.

As Denny mentioned, we didn't realize a significant impact from television advertising in the third quarter of this year, since only one of the three weeks of TV advertising to support our Wise Guy Burger and Chicken Caprese Sandwich LTO was in the third quarter.

For the first four weeks of the fourth quarter this year, which include the last two of the three-week LTO TV ads in our ten TV markets, our comp store sales trended better on a sequential bases, as they were down 11.6%.

This compares to down 8% in the first four week period of the fourth quarter of 2008, which did include two weeks of national cable television advertising.

Average weekly sales for the restaurants in our comparable base was $51,964 during the third quarter of 2009 compared to $62,182 for a comparable base in the third quarter of '08.

Average weekly sales for our 35 non-comparable restaurant was $49,385 during the third quarter of 2009.

This compared to $56,111 for our non-comp restaurants a year earlier.

Continuing along with the operations update, you'll recall that a restaurant enters our comparable base five full quarters after it opens.

The h15 franchise restaurants that we acquired early in the second quarter of 2008 did join our comparable base beginning in the third quarter this year, so our third quarter had 269 Company-owned comparable restaurants out the 301 total Company-owned restaurants.

For all Company-owned restaurants, average weekly sales were $51,667 from 3,648 operating weeks in the third quarter of 2009, compared to $60,974 from 3,433 operating weeks in the fiscal third quarter of '08.

Our third quarter 2009 restaurant level operating margins of 16.5% were below the 18.5% margins in the third quarter of 2008.

Katie will talk about the key drivers of the 200 basis point decrease in operating margins in just a few moments.

Although the operating environment is still challenging, we do remain laser-focused on managing our labor and other controllable costs, strengthening our restaurant leaders and their teams, and continuing our Making A Connection training initiatives.

One important step that we took since our last earnings call involved the strengthening of our field operation structure to make sure our teams are more agile and more responsive to our business and growth opportunities.

A couple of weeks ago, we completed this restructuring of our regional vice president responsibilities and promoted six individuals to Regional VP of Operations for a total of eight RVPs that will help oversee operations across the country and report directly to me.

This allowed us to remove a layer in our field operation structure.

And while the elimination of some positions were made -- a tough decision -- this reorganization will improve our operational effectiveness and provide the right structure for future growth by placing decision-making power closer to our restaurant teams and our guests.

In addition, during the last call we told you that late in the second quarter we completed the rollout of our initiative streamlined operations in our kitchens by improving the schematics and efficiencies in the heart of the house and give our restaurant leaders more time to lead and develop their people.

Since then, we have begun to see the benefits of these efforts, including the elimination of more than two dozen one-item SKUs and reduction of daily prep items by about 20%, which is helping us reduce our heart of the house labor hours by an average of two hours per restaurant per day.

On the NRO front, while we did not open any new Company-owned restaurants in the third quarter, our teams continued to strengthen the process for future new restaurant openings.

This includes our strategic and scalable NRO training and our ability to now select and prepare new restaurant GMs up to a year before opening, as well as fully hiring and training out of a new restaurant building five weeks prior to opening.

We believe that these efforts will continue to pay off as we prepare for the NROs that we've planned for next year.

Finally, we are making great progress on our leadership development for GMs and multi-unit managers with our Make A Connection training initiative to help our restaurant teams focus on our key loyalty drivers and engage our guests in unbridled ways that make Red Robin fans for live continue to get great results.

So with that overview of operations, let me turn it over to Susan to talk about our recent results and future plans related to marketing.

Thanks, Eric.

Our marketing strategy continues to be focused on supporting product news with targeted tactics to drive incremental traffic and retention.

Our focus is greater emphasis on product news, quality, value and variety, versus pure brand building initiatives that in prior years were successful in strengthening awareness for Red Robin.

We used the results of our Steak Slider TV advertising in Q2 of this year to determine how to best use TV to support product news going forward.

We called out we supported Steak Sliders without a price point on for three weeks on national cable TV in June.

While we saw a slight shift or lift in sales from the TV ads, we learned several things we have applied to the latest round of television that Denny described earlier.

In our last call, we mentioned that we were exploring local TV advertising as an additional tactic to support our limited time offer or LTO product news, the Wise Guy Burger and the Chicken Caprese Sandwich.

Both products are [craveable] and represent the quality, value and variety that are core to our Red Robin menu.

We decided in early September to make a $1.1 million investment to run local TV advertising in ten Company markets to promote the two LTO products for a value price point of $5.99 each.

We were pleased with the TV creative that blended product news with messages of quality, value and variety, and with media waits that were significantly higher than our waits for the Steak Sliders in Q2.

The TV media ran for three weeks ending on October 18th in 10 markets, covering about 100 of our restaurants or a third of our Company base.

We were pleased by the positive traffic and sales results, which I will share with you now.

In the four weeks prior to running the TV ads that supported our LTO, guest counts were down 11.4% versus prior year.

During the three weeks of TV media, guest counts improved more than 1200 basis points bringing our Guest Counts in these ten markets into positive territory.

Sales in the ten TV markets in the four weeks prior to the TV running, we were down 12.4%.

During the three weeks of TV media, same-store sales in these ten markets improved more than 900 basis points.

Based on the results from the TV media to date, we believe the TV ads have paid for themselves.

The fall LTO promotion continues in restaurants through November 8th, so we will continue to measure and monitor the full impact of the promotion.

Since we do not have additional new product news until February 2010, we do not have any more TV scheduled during the remainder of 2009.

We will share more details on the full impact of the fall TV and the LTO promotion on our Q4 rules in our -- on our Q4 results in our February earnings call.

In the TV markets, both the Wise Guy Burger and Chicken Caprese Sandwich were very well accepted by our guests, ranking among the top three Red Robin burgers sold in the TV markets.

We also added a bounce back program in the TV markets which was designed to capitalize on the new traffic that the TV media drove into our restaurants with an incentive offer to bring the guest back by mid-December.

We also supported the fall LTO promotion in all markets, TV and non-TV, with an incremental online campaign and expanded direct mail program, and endorsement radio in several markets.

In markets that were not covered by TV media and did not have the $5.99 value offer, we provided a $3.00 off incentive in a direct mail post card to try either of the two promotional items.

We are also testing additional initiatives that include some menu engineering, as well as other programs to drive incremental traffic in select trade areas and also during opportunistic day parts.

We will continue to measure the results of all of our initiatives, including our digital, loyalty and retention, direct mail and endorsement radio as we plan for 2010.

We will share more about our future plans for these tactics and our media plans for 2010 in our February call.

We have concluded, however, that our TV media will be an important part of our marking tactics to support product news LTO strategy during the 2010 promotional windows.

There is more to come as we develop our plans in collaboration with our new strategic marketing partner, Minneapolis-based Periscope, which we recently brought on board as our lead agency.

Our major marketing focus for the next two months is promoting our gift cards.

As you know, the holidays are a big time for gift card sales.

Again this year, we are incenting gift card sales with a $5 in Bonus Bucks for $25 gift card purchases.

We are supporting the holiday gift cards with a strong digital plan and targeted direct mail to both businesses and consumers.

In preparation for this focus on holiday gift card sales, in early October, we rolled out our nearly 7-foot tall gift card kiosk to all of our Company-owned restaurant and more than a third of our franchise restaurants.

Third party gift card sales also continue to grow.

Since last quarter, we increased nationwide distribution of our gift cards by another 900 retail locations, for a total of nearly 4,000 third party locations, and we are on target to be in 7,400 by the end of 2009.

This program has generated more than 1.5 million in gift card sales so far this year.

We have also shared with you our focus on strengthening guest retention through our Red Royalty program.

In July, we launched the pilot for this program in four markets.

This program is designed to build a robust guest database with the intent to provide personalized incentives to our guests to improve frequency and retention.

So far, we have seen positive results in driving incremental visits, while we're also gaining visibility into the purchase behavior of our guests.

This is helping us develop smart rewards that should strengthen our ability to drive incremental visits from guests who are in the program.

We will continue to share details as we move from pilot to rollout in 2010.

And on December 3rd, we are holding our Fourth Annual Kids Cook-Off Burger Recipe Contest Championship here in Denver.

We are excited to have the Food Network Celebrity, Robin Miller, as one of our judge's this year.

The Kids Cook-Off continues to be one of our most successful family oriented marketing and public relations programs.

The Holy Peno Burger, created by last year's winner, was one of our most successful kid-invented burger yet.

During Q3 when it was available in our restaurants, we sold about 135,000 Holy Peno burgers, which raised more than $60,000 to support the National Center for Missing and Exploited Children.

This program reinforces our unbridled culture and also generates a significant amount of positive coverage promoting our family-friendly brand positioning and gourmet burger expertise.

So those are some the marketing headlines.

Now I will turn it over to Katie to review our financial results in greater detail.

Thanks, Susan.

First of all, if you haven't already seen our news release on the quarter's results, you can find it on our website at www.redrobin.com in the Investor Relations section.

The fiscal quarter of 2009 was a 12-week period ending October 4th, 2009.

Compared to the fiscal third quarter last year, total revenues, including restaurant sales and franchise royalties, decreased 10.4% to $187 million.

Restaurant sales decreased 10.4% to 183.9 million, and consisted of $163.5 million in sales from our comp restaurants, which include the 2008 acquired restaurants since they're now part of our comp base, and $20.4 million in sales from our non-comparable restaurants.

Franchise royalties and fees decreased 8% in the third quarter to $3 million.

The 101 comp restaurants in the U.S.

franchise system reported a 4.4% decrease in same-store sales, while the 18 comp restaurants in the Canadian franchise system reported a 0.2% decrease in same-store sales for the third quarter.

As Eric said, our restaurant level operating profit margin was 16.5% in Q3, 2009.

The 200 basis point decrease from the third quarter last year was driven by a 160 basis point increase in labor cost and about 100 basis points of higher occupancy costs, due mainly to deleveraging from lower average restaurant volumes year to year.

These higher costs were partially offset by 30 basis points of lower food and beverage costs and 30 basis points of lower operating costs.

From a cost of goods standpoint, we did see some relief in a good portion of our commodity basket in the quarter, in addition to receiving some benefit from a true-up of food and beverage rebate.

Our hamburger pricing, which had been running above our contracted 2008 pricing through the first half of the year saw a reduction in the third quarter that averaged the price we incurred for our fresh ground beef slightly below for the 2008 contract for the first time this year.

We are expecting the price of ground beef for the remainder of 2009 to continue to stay below our 2008 contract, and therefore we will see some continued benefit year-over-year in our food costs in Q4 from hamburgers.

Somewhat offsetting the pricing benefit from ground beef has been an increase in our sales mix to our beef burger category, as our promotions are heavily focused on our core gourmet burger offerings.

Another commodity that has seen prices fall below the 2008 level is cheese, which we also expect it stay below 2008 pricing for the remainder of the year, even though recent prices have begun to increase slightly for cheese.

As we have mentioned in prior calls, our cost of steak fries has been higher in 2009 than 2008, as our contract that we entered into late in 2008 was at higher prices than the expiring contract.

In addition, we have seen a mix shift over the last year to more items that include our Bottomless Steak Fries, which has also increased our costs over 2008.

We will spend some more time in a few minutes discussing an update on commodities when I talk about our outlook for the balance of 2009 and into 2010.

Our total labor cost increase of 160 basis points is attributed primarily to the impact of sales deleverage on fixed labor costs like management wages, taxes, benefits and insurance, as well as increased minimum hourly wages.

As Eric mentioned, we are beginning to see the benefits from our efforts to reduce prep up labor and our continued progress on managing overall controllable hours.

As they have throughout this period of macroeconomic challenges and lower sales volumes, our restaurant teams have managed the controllable costs extremely well.

But we continue to feel the sales deleverage impact on our fixed costs.

Our occupancy cost is largely a fixed cost representing primarily base rents, as well as common are maintenance charges and real property taxes and insurance.

The primary driver of the 100 basis point increase continues to be sales and leverage.

Other operating costs decreased by 30 basis points.

The reduction in our National Advertising Fund contribution of 125 basis points this year has been partially offset in the third quarter by the increase in the advertising and marking costs that we incurred late in the quarter for all of the tactics supporting the LTO, including the TV media campaign that Susan covered earlier.

This increase in costs for Q3, 2009 marketing efforts represented about 65 basis points of additional operating expense in the quarter.

In the fourth quarter, we will incur about $1 million in operating expense for additional advertising and marketing cost for the continuation of this campaign into Q4.

Depreciation and amortization expense during the third quarter was 7% of total revenue, about About110 basis points higher than a year ago, primarily due to revenue deleverage.

G&A expense decreased nearly 23% to $12.1 million compared to $15.7 million last year.

The decrease was primarily attributed to $1.5 million in marketing expense last year related to the National Advertising Fund versus no NAF related expense this year; about $1 million in lower operations training cost from lower turnover and reduced new manager hires from fewer NROs versus last year; and about $1.3 million in lower stock compensation expense.

We also reversed about $1.7 million in performance-based bonus accruals in Q3, 2009, but that was similar to the amount that was reversed in Q3 of 2008.

Our preopening expense of $125,000 in the third quarter of 2009 was significantly lower than the 2.7 million in the third quarter last year.

Our only preopening expense in Q3 this year was related to the two NROs we just opened in early Q4 compared to preopening expense a year ago related to ten new Company restaurants that opened in Q3 of 2008.

Net interest expense was 1.3 million in the fiscal third quarter of 2009 compared to 2.1 million during same period in 2008.

Our interest expense in the quarter of 2009 decreased from the prior year due to a lower average interest rate of 3.1% versus 4.2% in 2008, in addition to a lower average debt balance.

Our effective income tax rate for the third quarter of 2009 was 16.3% compared to 21.6% for the third quarter of 2008.

This decrease from 2008 is primarily due to the amount of Federal income tax credit for 2009 being applied against lower pretax income.

We anticipate that our full year 2009 effective tax rate will be approximately 21%.

Net income for the third quarter of 2009 was $5.7 million or $0.37 per diluted share, compared to net income of $6.2 million or $0.40 per diluted share in the third quarter of 2008.

Included in the third quarter 2008 results were asset impairment charges of $0.05 per diluted share after tax.

Looking at the cash flow statement, our cash from operation of $66.5 million for the year-to-date 2009 has exceeded our capital expenditures of $42 million.

We have paid down debt of $23.9 million year-to-date through the end of Q3.

On October 4, 2009, we had $8.9 million in cash and cash equivalents, and a total outstanding debt balance of $197.6 million, including $122.7 million of borrowings under our 150 million term loan, along with $68.5 million of borrowings and $5.1 million of letters of credit outstanding under our $150 million revolving credit facility.

Year-to-date through the third quarter, we have made $10.3 million of the scheduled $15 million in payments required by the term loan portion of our existing credit facility in 2009.

Since the end of the third quarter, we've made additional debt repayments of $5 million on a revolving facility, bringing our total debt payments to $28.9 million so far this year to date.

We are subject to a number of customary covenants under our credit agreement, and as of October 4th, 2009, we were in compliance with all debt covenants, and we expect to remain in compliance through fiscal year 2009, which I'll elaborate on in just a moment.

Now let's talk about our outlook for the remaining quarter of 2009 and 2010.

We have completed our new restaurant development for 2009.

The three new Company-owned restaurants that are under construction now are scheduled to open late in the first quarter of next year.

The last of five franchised NROs for 2009 is expected to open in mid-December.

As Denny mentioned, we expect to open up to 15 new Company0owned restaurants in 2010, fairly evenly spread throughout the year.

Once again, we will not be providing full year EPS or revenue guidance at this time.

For fiscal year 2009, which is a 52-week period, we expect comparable restaurant sales to continue to decline based on the current macroeconomic environment and the significant reduction in our national cable television advertising.

In the fourth quarter of 2008, we were on television for three of the first six weeks of the quarter ending in mid-November.

The two weeks of our recent local TV campaign in just ten markets in the fourth quarter of 2009 overlapped one week of systemwide national cable advertising in 2008.

On the commodity front, we have entered into several new contract recently, most notably for our poultry and steak fries, beginning in October, both at prices favorable to the expiring contract.

The poultry contract is for two years ending in December of 2011, and our steak fries contract expires in October of 2010.

We are currently under contract for about 65% of our 2010 commodity basket, excluding ground beef and cheese, which we will continue to monitor into early 2010 for contracting opportunities as appropriate.

Considering all of our most recent pricing visibility, we currently expect a reduction in our cost of goods basket of 2 to 2.5% for fiscal 2010.

We expect certain costs, including our recent increased marketing efforts and promotional pricing, as well as revenue deleverage, will continue to put pressure on our restaurant level profitability for the remainder of 2009.

Therefore, we are anticipating that without any additional menu price increases and the addition of $1 million of advertising and promotional expense in Q4, restaurant level operating margins could decline by 150 to 160 basis points for the full year 2009, even after considering the benefit from other cost reduction activity.

It is worth noting that all of the marketing and advertising expense related to the cost of the most recent fall LTO promotion have been included in our operating costs and restaurant operations -- about 1.2 million in the third quarter and about $1 million which has been incurred in the fourth quarter.

The cost are allocated between quarters depending on the timing of the effort in each period.

For every ten basis point change in the restaurant level operating profit during the full year of 2009, diluted EPS is estimated to be impacted by approximately $0.04.

We are not currently planning any more menu price increases for the balance of 2009.

Our annual stock compensation expense for outstanding equity grants in 2009 is expected to be about $2.9 million, of which 17% will be charged to restaurant labor, and 83% will be expensed in G&A.

In addition, the one-time charge for the tender offer for stock options incurred in the first quarter of $3.1 million is also included in the G&A expense, and $886,000 is included in restaurant labor.

We expect our fiscal 2009 G&A, excluding the stock option expense of $3.1 million related to the tender offer, to decrease by 4 to $4.5 million from full year 2008 G&A expense levels.

Depreciation and amortization expense on an absolute dollar basis should increase approximately 12% year-over-year in 2009.

And interest expense will be lower in 2008 given average rates that are lower in 2008, combined with our significant debt pay down during 2009.

As we said earlier, we funded our new restaurant development during 2009 using our operating cash flow.

Taking into consideration our full fiscal 2009 capital expenditure estimate of around $45 million, we expect to use our remaining cash flow primarily to pay down our outstanding debt during 2009.

Let me remind everyone how our debt leverage calculation works.

The total debt outstanding was $197.6 million at October 4, 2009, plus our outstanding letters of credit of $5.1 million, and that's the debt we use to compute the ratio on.

Our debt does not include operating leases.

Our last 12 months of EBITDA excludes the non-cash charges for stock compensation expense, acquisition-related reacquired franchise costs, and any asset impairment charges or restaurant closing costs.

Our debt to EBITDA ratio for purposes of our covenant was 2.02 to 1 at October 4th, 2009.

Assuming we use our expected free cash flow to pay down debt in 2009, including $15 million in scheduled term loan payments, we will stay well below our maximum debt leverage ratio of 2.5 to 1 allowed by our credit agreement for all of 2009.

I also want to remind everyone that $196,000 of pretax earnings or expense for us equals a penny per diluted share for the full year 2009, which is equivalent to about 2 basis points as a percentage of revenue.

This illustrates the sensitivity level of our business from sales cost and EPS, which in this uncertain business climate makes accurate forecasts extremely challenging.

With that, I will turn the call back over to Denny.

Thanks, Katie.

In closing, as we've seen from last quarter's results, the operating environment remains difficult.

But our teams continue to focus on the right things to strengthen our business and build the Red Robin brand.

We've cited many examples, such as the progress our restaurant teams continue to make in growing our leadership talent, managing controllable costs, delivering great gourmet burgers and making the connection with our guests.

Our marketing strategies and tactics are now even more focused on driving traffic and loyalty, and at the same time communicating quality, variety and value that Red Robin offers our guests.

And our development teams are on track to complete the first of our new locations in 2010 that represent continued and prudent new restaurant expansion at average investment costs that are lower than we have seen in several years.

Across the Company, our team members are contributing to the continued growth and strength of our brand, and I'm thankful for all the hard work and dedication to each other and to our guests.

With that, we welcome your questions.

Thank you.

(Operator Instructions).

First up, we'll hear from Joe Buckley, Bank of America-Merrill Lynch.

Hey, guys, it's Andrew Charles for Joe Buckley.

Could you talk a little bit about the pressure that you're seeing from double cheeseburger competition at the QSR level?

Well, there is competition across all levels, so I don't know about -- but we have nothing specific to respond to on any particular double cheeseburger promotion.

Okay.

And also with the first four weeks of the quarter in October same-store sales, what are you guys lapping for the November and December of 2008?

We don't disclose to period.

Our full quarter of 2008 was down 7.4% for the full quarter.

We began with a negative eight in the first four weeks.

Okay.

Great, thanks so much.

Next up is Matthew DiFrisco, Oppenheimer and Company.

Hi.

This is Rachel [Schactor] in for Matthew DiFrisco.

Just regarding your comps, if you could comment on your traffic trend at lunch versus dinner and weekday verses weekend, and also if you see any change in major geographies?

The lunch versus dinner mix has not changed, Rachel.

It's been the same that we've seen for several years, and we've kept our eye on that -- back to the competition question.

We watch that very carefully and we haven't seen any degradation there, and the weekday parts -- or sorry, the weekday trends haven't really changed.

So that's still about the same, pretty consistent all across the week.

Okay.

And then any major geography changes?

Not really.

We called out California, Arizona, and Nevada a while ago when they first started impacting significantly early in 2008, and we haven't seen any material changes in any regions since then.

Okay.

And then some of the other calls we have been listening to have mentioned that they expect a negative impact on same-store sales from the Halloween and Christmas weekend shift this year.

Are you expecting to see the same?

We looked at our past history when Halloween and Christmas fell on the same days.

We really didn't see a significant impact.

So maybe ten basis points in a quarter, but it's not significant.

Okay.

Halloween was Friday last year and Saturday this year, so they're both big nights for us, so it wouldn't be -- we wouldn't have seen a material change there.

Okay.

And then also, I know recently there was some snowfall in Denver.

Did that effect your October comp at all?

No, I don't think materially.

We didn't close any restaurants.

We actually had a board meeting and went out to dinner at the Red Robin that evening, so it had some effect, but we always have snow in Colorado.

Okay, and just last question, given your guidance of 150 to 160 basis points decline in restaurant margins, does that mean you are expecting Q4 restaurant margins to be sub-15%?

Well, it depends on what you expect the top line to be, and I'm not going to guide you there.

So full year, we gave you 150 to 160 and you can do the math on whatever you think the top line is going to be.

Okay, thanks very much.

Next, we have a question from Jeff Omohundro at Wells Fargo Securities.

Thanks.

My question relates to average check and the decline in the period, pricing versus mix, and what kind of activity are you seeing among your guests in terms of their search for value?

It sounds like from the LTO there is significant pent up demand there.

Just in general, what your thinking is around that?

A little bit more elaboration would be helpful, thanks.

From a price mix standpoint.

Our price mix has been declining a bit since obviously prices rolled off.

We see a little bit of a mix shift kind of away from the some of the entrees into the burger category, but it's hard to tell if that's coming from more restaurants opening and trying the burgers and shifting a promotion to the burger category, like we were talking about.

We've seen a lot bigger increase in that, so we have lost some mix shift from that, but that's really about it.

And then as far as value, et cetera, I will let Susan comment on that.

What I can say is that we did see quite a few people capitalize on the $5.99 Chicken Caprese Sandwich and the Wise Guy Burger.

That didn't materially impact our guest check average.

I mean, we did see about $0.40, but it was --

In those ten markets.

In those ten markets.

$0.40 in those ten markets, where the two products that we promoted represented around 10% of sales.

Wow, that is really remarkable.

Did you happen to do any testing around guest satisfaction in those markets?

Well, we are continuing to test that or monitor that with our Guest Voice program.

And we have been seeing some gradual improvements period over period in our guest satisfaction ratings, so we are -- and we started off as higher than the industry average on those anyway, so we have been really pleased to see guest satisfaction increase overall in TV and non-TV markets.

So that is overall,not specific to these ten markets, where I would assume they're probably spiking.

So --

Yes, and we will getting that data as we roll forward here, as it gets sent in or put in through the internet.

But we talked to team members, et cetera, and general managers, et cetera, while the promotion was going on in all the markets to try to gauge guest reaction, and certainly increased the traffic big time.

Yes.

Very encouraging, thank you.

Thank you.

(Operator Instructions).

And we will go next to Brad Ludington at KeyBanc Capital Markets.

Thank you.

I wanted to ask on the -- one thing I might have missed a little bit trying to keep up with the commentary on marketing was obviously it sounds like you are going to have some more television advertisements in 2010; but what kind of focus will you have on the direct mail and loyalty program going forward?

We plan at this point to continue with both.

I mean, the loyalty, first off, is in the pilot right now, and we do plan to roll that out in 2010.

And direct mail has been -- we have been very pleased with the results of that to date.

And so just currently, we are looking at having that as part of our tactics for 2010.

But all of it is, again, to support our LTO product news.

Okay.

And then in those markets when you ran the $5.99 for the roll out of the Chick Caprese and the Wise Guy, as that $5.99 price point rolled off, did you see a bit drop off in traffic, or did traffic still at least maintain to some level?

Well, we actually have continued that price point through the entire promotion in those ten TV markets, so it continued past those three weeks.

It actually goes until Sunday.

Yes, it goes you until Sunday, November 8th.

And then the product will be out of the restaurant, so it's not a discount of anything that is permanently on the menu.

Okay.

And what kind of -- do you have a schedule for LTOs going forward?

I mean, should we expect one a quarter, or is that still kind of being decided?

It is still being decided right now, but we definitely are looking at having a couple of pulses similar to what we had this year with product news in 2010, and this time probably supported with television and whatever markets we think make sense.

We have a good pipeline of products to choose from going forward, so we'll make those decisions as we move forward into the 2010 planning phase.

Okay.

And then just given a similar number of store openings, should we expect similar CapEx -- 40 to 45 million -- in 2010?

Yes.

That's how we are modeling it.

All right, thank you very much.

Sure.

Moving next to Greg Ruedy at Stephens.

Thanks, good afternoon.

Following up on the price point to the Wise Guy and the Caprese, is that $5.99 an average?

Were you scaling different price points across those ten markets, or was it just $5.99 across the board?

We did $5.99 in all ten markets.

Okay.

Question for Eric -- the heart of the house efficiencies, I appreciate the color on the two hours of prep that you have been able to pull.

Can you talk about further opportunities to get more efficiencies out the back of the house?

And -- or are we at the point where really the easiest labor saves are out of the four walls model?

No, Greg, great question.

We were actually able to pull more than the two hours.

That's the net/net.

We were actually able to pull closer to five, but reinvested another three hours in the business.

We'll continue to examine the heart of house efficiencies.

There is some opportunity there.

We don't have major initiatives right now underway.

We are focusing more of our attention in the front of the house.

So just more to come on that, but we are too early in the analysis to quantify any savings there.

Great.

Thank you.

We will continue to Tommy Halleran at Courage Capital Management.

Yes, I have two questions.

The first is, on the burgers that you are discounting -- I mean, excuse me -- limited time offering, are they the same size as the burgers that are currently on the menu?

Yes, they are.

Yes.

Okay, all right.

And then secondly, when you are all talking about looking for cost savings on the labor side in the front of the house, where do you begin to feel like you are getting into territory that begins to impair the guest experience?

Yes.

We would -- and there is a balance, Tommy.

We'd never sacrifice labor in terms of eroding the guest experience.

However, we would look at how to utilize technology in different areas of the business to effectively improve our efficiencies, as well as managing the shoulders of our business better.

Thank you.

You have a question now from (Inaudible) from Johnson Rice.

Yes, hi, good afternoon.

How are you?

The ten markets you are referring to you, what is that as a percentage of your total system?

Of our company restaurants, it's about a third of our restaurants.

Okay.

In terms of the poultry -- the two year poultry contract that you signed, how much of a premium did you have to pay over spot to sort of in a longer time frame?

We don't disclose the terms of our contract.

Just suffice it to say, it's a contract that's more favorable than the two year contract that just expired, so we are looking forward to some relief on poultry pricing going forward.

Okay, and just one last question.

Regarding the sequential decline in G&A, how much of that is the result of the headcount reduction, and is there anything else in that number?

For the overall full year, we don't expect that to be material at all.

There is some severance expense that will hit us in Q4, so it won't be material for the year.

So how should I think about G&A number for 2010?

Can you help with that please?

We are not going to give guidance on that yet.

We need to fully bake our G&A plans and we are in the process of doing that right now.

Okay, fair enough.

Thank you.

Sure.

And with that, ladies and gentlemen, there are no other questions.

We will concludes the question and answer session.

I will turn things back over to our speakers for any additional or closing remarks today.

Well, thank you all for your questions, and certainly thanks to our great team members out there at Red Robin's.

We appreciate it.

Thank you.

Thanks again for joining us, everyone.

That will conclude today's call.

Have a good afternoon.