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Operator
Greetings and welcome to the Red Robin Gourmet Burgers fourth quarter 2009 financial results conference call.
At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation.
(Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Katie Scherping, Chief Financial Officer for Red Robin.
Thank you, Ms.
Scherping, you may begin.
Katie Scherping - CFO
Thanks, operator.
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 margins, 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 obligation to update these statements to reflect events or circumstances that might arise after this call.
These forward-looking statements are not guarantees of future person form answers 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 condition.
We plan to file our 10-K for the 2009 fiscal year by close of business next Thursday, February 25th.
I also want to inform our listeners that we will make some references to non-GAAP financial measures today during our call.
You'll find supplemental data in our press release on schedules one and two, which reconcile our non-GAAP measures to our GAAP results.
Now with that, I'd like to turn the call over to Denny Mullen, Chief Executive Officer.
Denny?
Dennis Mullen - CEO
Thanks, Katie.
And thanks everyone for joining us today.
We also have with us Pattye Moore, our newly appointed independent board chair; Eric Houseman, President and Chief Operating Officer; Susan Lintonsmith, our Chief Marketing Officer.
Pattye will discuss some of the recent actions taken by our board to enhance our corporate governance.
Eric will provide details on the fourth quarter results and an update on our operations initiatives, and Susan will give you an update on our marketing efforts.
Then Katie will review in detail our most recent financial performance and our business outlooks.
As you've seen from the earnings press release, our comp store sales decreased 10.5% in the fourth quarter 2009.
This was a sequential improvement from 14.9% decrease in the comp store sales that we reported in the third quarter.
We believe that in addition to easier comps as we lapped in the fourth quarter a year earlier, a contributing factor to the improvement was our successful fall limited time offer promotion in early October that we supported with local network and cable TV--in markets that covered about 100 of our restaurants.
We saw a continued benefit to comparable sales from the promotion throughout the fourth quarter in these TV test markets, and we also saw some nominal sequential improvement throughout the quarter in our non-TV markets.
As mentioned in our last earnings call, our marketing strategy remains focused on driving traffic by supporting product news.
We continue--we're continuing to place greater emphasis on LTO product news while reinforcing our message around quality, value, and variety.
We are very excited to be kicking off our first big promotion of the year with the launch of our new YUM campaign and leveraging a part of Red Robin brand that has become so popular with our guests.
The launch will--excuse me.
The launch will include our first limited time offer promotion of 2010 and a variety of marketing tactics to support the YUM campaign and the LTO.
Susan will provide more details in a few minutes as she recaps our 2009 marketing efforts and shares plans for the TV media and other tactics to support our marketing strategy for 2010.
Regarding new restaurant development, in the fourth quarter, we opened the last two of our 15 new company owned restaurants we had planned for 2009.
All funded from operating cash flow.
Together, with the five new franchise restaurants open during the year, a total of 20 new Red Robin restaurants opened in 2009.
In 2010, we expect to open 11 to 13 new company-owned restaurants.
Again, all funded with operating cash flow.
Our average investment in new company-owned restaurants has been reduced from roughly $2.5 million per restaurant in 2007 to less than $1.9 million per restaurant estimated for our 2010 development.
This is a result of our team's efforts to reduce the cost of new restaurant construction and our strategy to incorporate end cap units and conversions into our development plans.
Five of our 2010 company-owned restaurants, NROs, are under construction, three of which will open next month.
Our franchisees are expected to open four to five new restaurants in 2010, two of which are under construction and expected to open early in the second quarter.
With that overview, before we go into detail on the fourth quarter results and the outlook for the year, I wanted to provide a follow-up to a Form 13D initially filed with the SEC on December 22nd.
Since the filing we have had constructive dialogue with the shareholder group that filed the 13D, and a group of our independent directors has reached out to our large shareholders to understand their perspective on various points addressed in the 13D.
Even prior to the 13D, the board had been working on several changes for some time to enhance our corporate governance structure.
One of those changes resulted in the Company separating our chairman and CEO roles.
Effective immediately, Pattye Moore will serve as our board chairperson, while I will continue to serve as CEO and as a board member.
To share more on our other governance changes that we've had in the works for some time, I would like to turn the call over to our new board chair, Pattye Moore.
Pattye?
Pattye Moore - Chairman
Thanks, Denny.
I'm going to discuss some recent actions taken by the Red Robin Gourmet Burgers' board of directors.
As you saw in our earnings release, our class two directors, Edward Harvey and Gary Singer, have decided to not stand for re-election when their terms expire later this year.
Also to support the future growth of the Company, we are looking to increase the amount of industry experience that we have on our board.
The board will make further announcements related to the board of directors at a later time.
In addition to the changes in Denny Mullen's agreement that was previously announced in the Company's 8K filing on January 11, 2010, the board's compensation committee has made the following changes to compensation of the Company's senior management team based on pay for performance criteria: One, Denny's annual incentive bonus target, which is now 100% of his base salary will be tied 100% to company performance.
The performance metric will be based on the Company's target for earnings before interest, taxes, depreciation and amortization or EBITDA.
In addition, bonuses for senior executives will also be primarily company performance based with 90% of their bonuses based on EBITDA.
Furthermore, the committee has determined that 100% of Denny's equity awards for 2010 will be performance based.
And finally, the 2010 stock option awards of other members of senior management team will also be performance based and the restricted stock awards will be time based.
The metric that will be used to measure performance for purposes of the 2010 equity awards will be based on a total shareholder return calculation.
More details on the specifics of this metric will be available in the Company's upcoming proxy filing.
The Company's board of directors has taken these steps to further align executive compensation with the long-term performance of the Company and with shareholder interest.
So with that overview of some of our governance changes, I'll turn the call back over to Denny.
Dennis Mullen - CEO
Pattye, thank you very much.
And now to continue the call with an operations update is Eric.
Eric Houseman - President & COO
Thanks, Denny.
And good evening, everyone.
In the fourth quarter of 2009, our comp store sales decrease of 10.5% was driven by a 9.3% decrease in guest counts and a 1.2% decrease in average check.
This compares to comp store sales being down 7.4% in the fourth quarter of 2008 and down 14.9% in the third quarter of 2009.
In the fourth quarter of 2009, average weekly sales for the 277 restaurants in our comparable base was $50,249, compared to $57,073 for the 241 restaurants in our comp base in the fourth quarter of 2008.
Average weekly sales for our 29 noncomparable restaurants was $49,167 during the fourth quarter of '09, compared to $55,188 for our noncomp restaurants a year earlier.
For all company-owned restaurants, average weekly sales were $50,148 from the 3,666 operating weeks in the fiscal fourth quarter of 2009, compared to $56,446 from the 3,537 operating weeks in the fourth quarter of 2008.
In previous calls, we shared the progress that we've been making as we also streamlined operations in our kitchens, improving the schematics and efficiency in the heart of the house, eliminating SKUs and reducing daily prep items.
During the fourth quarter, we continued to realize significant improvements in our labor costs as a result of these efforts, reducing our heart of the house hours by an average of two hours per restaurant per day.
On the NRO front in the fourth quarter, we opened the last two of our 15 new company owned restaurants that we had planned for 2009.
During the year we continued to strengthen our NRO process for new restaurant openings, and the improvements we made in 2009 will benefit us as we move forward with the development in 2010, including our strategic and scalable NRO training, our selection and prep of our new restaurant GMs up to a year before opening, and our ability to fully hire and train a full crew of team members out of a new restaurant building five weeks prior to opening.
Our strengthened NRO process has resulted in the improvement of more than 500 basis points of restaurant level operating profit or RLOP in the 2009 openings compared to the 2007 opening class.
Finally, in the past we've told you about the progress we've made on leadership development for our GMs and multi-unit managers to help our restaurant teams focus on key loyalty drivers and make meaningful connections with our guests.
Our make a connection initiative was a big success, and we've taken this program to an even higher level to make sure all of our team members are 100% aligned from top to bottom and bottom to top.
During our annual leadership conference earlier last month, we rolled out align and engage initiative that focuses on the most meaningful aspects of our business from the perspective of our guests.
We've taken the inside scheme through extensive research of the preferences and perceptions of our guests and developed training materials that will help our restaurant teams focus on the things that will ensure our team members can consistently deliver an amazing experience to our guests.
We continue to work with our third party vendor to statistically measure and track our most impactful loyalty drivers and how our operators can focus on delivering the technical and cultural deliverables to ensure we're creating loyal Red Robin guests for life.
The momentum we've gained from our teams coming out of the leadership conference was huge and we are very encouraged that the focus and passion is translating into greater operations.
Just this past weekend, for example, we broke almost 60 hourly, shiftly, and weekly records in our restaurants.
These accomplishments are even before the television campaign has started, and we are all looking forward to seeing the similar results we saw in the 10 test markets last year.
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.
Susan Lintonsmith - CMO
Thanks, Eric.
Today I'm going to briefly review some of the successes from 2009 and give you an overview of our plans for 2010.
As Denny said, our strategic marketing plan includes a number of tactics that are designed to drive traffic to product news and our quality, value and variety messages.
To support our focus on LTO product news during 2009, the team developed more than 40 delicious and innovative menu items.
These products were put through our rigorous development and product testing process, and more than half were big hits with our guests, and will either be added to our next new menu or used as promotional items in 2010 or beyond.
That's a strong batting average to support our new products focus and our efforts to offer a wide variety of quality products to our guests.
Our gift card programs also were a big success in 2009.
Recall that our two major initiatives were expanding distribution outside our restaurants via third party retailers and online sales, and increasing focus on gift card occasions throughout the year inside our restaurants with the gift card merchandiser.
Total gift card sales were more than $22 million by year's end, a 28% increase over prior year.
We achieved our 2009 target of third party gift card placement and 7,400 locations by the end of the fourth quarter, up from 2,137 locations at the end of 2008.
We significantly expanded our gift card presence to businesses and consumers online and launched the in-restaurant gift card merchandisers in October in all company and nearly 70 franchise restaurants.
In the first four weeks of 2010, we estimated that we realized about 100 basis points of sales benefit to year-over-year comp store sales from gift card redemptions.
Finally, our continued public relations efforts, including our annual kids cookoff program, helped us double positive media coverage for Red Robin compared to 2008, reaching more than 100 million current and prospective consumers.
Now on our last call, we shared with you the results of our fall 2009 TV test that ran in ten markets, supporting the limited time wise guy burger and the chicken caprese sandwich.
Recall that during the three weeks of TV media to support the LTO promotion, guest counts in our ten TV markets improved more than 1,200 basis points from the four weeks of pre-trend comps, bringing our guest counts in these ten markets into positive territory.
Same store sales in the ten TV markets improved more than 900 business is points over our pre-TV comp trends.
The TV markets continue to see the benefit from the advertising through the end of the year, even after the promotion was over, showing the power of high quality limited time products that communicate variety at a value-oriented price point.
In fact, for the full fiscal Q4, 2009 year-over-year same store sales in the ten TV markets were down only 5.1% compared to down 14.9% in the non-TV markets.
In the ten test markets during Q4, Red Robin brand awareness was 89%, that's 4 percentage points higher than the non-TV markets.
And our advertising awareness was 26% for these ten markets, significantly higher than 21% for the total US.
In addition, our overall guest satisfaction scores increased 8 percentage points to 74% since October and are well above the roughly 50% score of the restaurant industry as measured by our third-party source for these metrics.
So based on the results in this significant guest research that we conducted during 2009, we've developed initiatives that are aligned with our 2010 strategic marketing plan, which includes our focus on generating product news with an emphasis on quality, variety, and value.
To generate product news throughout the year, we're planning a total of five promotional windows in 2010 that will focus on product news.
Three of these featuring limited time only products supported with TV media.
The first of these three is the spring LTO promotion.
Similar to the fall LTO promotion, we are promoting two high quality limited time items, our prime chop house burger and the southwest grilled chicken salad, at a great value price point of $5.99 each.
This spring LTO promotion will be supported with four weeks of national TV media over a five-week period, plus local network TV in more than 30 markets.
Beginning this week, our prime chop house burger and the southwest grilled chicken salad became available in our markets.
The four weeks of TV ads supporting the LTO will begin on Monday, February 22nd, and will be a major part of the launch of our YUM campaign to leverage the brand equity that's become so popular with our Red Robin guests.
In addition to the LTO ads, we'll expand recognition of the Red Robin YUM pneumonic and support our product news with the strong online digital plan, social media initiatives, and local restaurant marketing.
We're all very excited about this campaign, and we're eager to see the results.
We know the spring TV is going to drive guests in and we're implementing a bounce back program that's designed to bring the guests back in during the window following the spring LTO promotion.
Also during that window, post the TV plight, we'll support a new product, the patty melt, with digital media, our e-club program, and advertising inside our restaurants.
The patty melt, plus up to 12 new items will be added to our new Red Robin menu that we're planning to have in our restaurants by the end of May.
We will closely monitor the results of the spring TV promotion to inform both our TV buy, national cable or local network and what, if any, value price point we offer on the remaining two LTOs planned for later this year.
During 2010, we'll also continue to grow our very successful gift card program, including further expansion of our third party gift card program to another 2,600 retail locations to be in at least 10,000 total locations by the end of the year.
Finally, we'll also continue to focus on new product development and evaluating menu enhancements as well as piloting our Red royalty program and testing initiatives to drive incremental traffic in select trade areas and during opportunistic day parts.
So those are some of the marketing headlines.
We plan to share results of our spring LTO promotion and updates on our future marketing initiatives during our Q1 call in May.
Now, I'll turn the call back over to Katie to review our financial results in greater detail.
Katie Scherping - CFO
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 RedRobin.com in the Investor Relations section.
The fiscal fourth quarter of 2009 was a 12-week period ending December 27, 2009.
Compared to the fiscal fourth quarter last year, total revenues, including restaurant sales and franchise royalties decreased 8.3% to $182.2 million.
Restaurant sales decreased 8.2% to $179.6 million and consisted of $163.1 million in sales from our comp restaurants and $16.5 million in sales from our noncomparable restaurants.
Franchise royalties and fees decreased 13.4% in the fourth quarter to $2.6 million.
The 104 comp restaurants in the US franchise system reported an 11.9% decrease in same store sales, while the 18 comp restaurants in the Canadian franchise system reported a 0.5% increase in same store sales for the fourth quarter.
Before I begin my discussion about RLOP margins, I want to bring to your attention a reclassification of our marketing expenses.
As you'll see on schedule one and also in the text of our press release, we have reclassified our marketing and advertising expenses out of other operating costs to SG&A for all periods presented.
Our press release further describes the rationale for this reclassification.
The margins that I will be referring to today will be the adjusted RLOP margins and selling, general, and administrative expenses for Q4, 2009 compared to the adjusted percentages from Q4, 2008.
Our adjusted restaurant level operating margin was 17.3% in Q4, 2009 compared to an adjusted margin of 19.9% in Q4, 2008.
The 260 basis point decrease from the fourth quarter last year was driven by a 120 basis point increase in labor costs, 50 basis point increase in other operating costs, and about 110 basis points of higher occupancy costs due mainly to deleveraging from lower average restaurant volumes and certain fixed costs year-over-year.
These higher costs were partially offset by 20 basis points of lower food and beverage costs.
From a cost of goods standpoint, we continue to see relief in a good portion of our commodity basket in the quarter.
Our hamburger pricing, which had been running above our contracted 2008 pricing through the first half of this year, saw prices drop beginning in the third quarter that continued into the fourth quarter.
The average price for our fresh ground beef in the back half of 2009 was below the 2008 contracted price.
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.
In addition, our lower price point from the LTO promotion had an 8 basis point negative impact on COG in Q4, 2009.
Another commodity that has seen prices fall below the 2008 level is cheese.
However, prices for cheese began to increase late in the fourth quarter from the bottom we saw earlier in the quarter.
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 a higher price than the expiring contract.
We have recently recontracted our steak fries at prices lower than the expiring contracts, and we began to see some benefit in the fourth quarter from steak fries.
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.
Our labor, occupancy, operating, and depreciation and amortization costs all increased as a percentage of revenue primarily due to sales deleveraging.
Selling, general, and administrative expenses in the fourth quarter 2009 increased slightly to $17.4 million compared to $17.2 million last year.
All of our marketing and advertising expenses have been categorized as selling expenses and are now reflected in this expense category.
Our pre-opening expense of $430,000 in the fourth quarter of 2009 was about half the pre-opening expense during the same period in 2008.
We opened two new company-owned restaurants in Q4, 2009 compared to pre-opening expense related to four new company-owned restaurants that opened in the fourth quarter of 2008.
Net interest expense was $1.8 million in the fiscal fourth quarter of 2009 compared to $2.2 million during the same period in 2008.
Our interest expense in the fourth quarter of 2009 decreased from the prior year due to a lower average interest rate of 3.2% versus 4% in 2008 in addition to a lower average debt balance.
We had an effective tax benefit of $422,000 in the fiscal fourth quarter compared to $1.9 million in tax expense recorded in the fourth quarter of 2008.
Our full year 2009 effective tax rate was 18.3% compared to 26.6% in fiscal 2008.
This decrease from 2008 is primarily due to the amount of federal income tax credits for 2009 being applied against lower pretax income.
Net income for the fourth quarter of 2009 was $1.6 million or $0.10 per diluted share compared to net income of $5.8 million or $0.38 per diluted share in the fourth quarter of 2008.
Included in the fourth quarter of 2008 results were asset impairment charges of $0.05 per diluted share after tax.
Looking at the cash flow statement, our cash from operations of about $91 million for the 2009 fiscal year exceeded our capital expenditures of about $50 million.
We paid down debt of $30.3 million during fiscal 2009.
On December 27th, we had $20.3 million in cash and equivalents and had a total outstanding debt balance of $191.3 million, including $122.7 million in borrowings under our $150 million term loan, $62 million of borrowings under our $150 million revolving credit facility, and a $6.6 million outstanding balance for capital leases.
In addition, a $5 million letter of credit outstanding on our revolving credit facility.
During fiscal 2009, we made $10.2 million in payments required by the term loan portion of our existing credit facility and since the end of the fourth quarter, we've made additional debt payments of $4.5 million on our revolving facility and $4.6 million on our term loan.
We are subject to a number of customary covenants under our credit agreement and as of December 27, 2009, we were in compliance with all debt covenants through fiscal 2009.
Now let's talk about our outlook for 2010.
We currently have five company-owned restaurants under construction.
Three of these new restaurants are scheduled to open next month and another is scheduled to open early in the second quarter, and the fifth NRO is planned for early in the third quarter.
As we previously announced, we expect to open between 11 and 13 new company-owned restaurants in 2010.
Our franchisees are expected to open four to five new restaurants this year.
Given the uncertainty and the level of success that we will experience from our TV support of our LTOs in 2010, we are going to give you some of our thinking in terms of our annual revenue, comparable restaurant sales, and earnings per diluted share estimates; however, we are using a fairly wide range in our estimates.
Remember that $192,000 of pretax income or expense is $0.01 in diluted earnings per share for us.
For the 2010 fiscal year, which is a 52-week year, we expect revenues of $887 million to $895 million and net income of $1.27 to $1.45 per diluted share.
These projected results are based upon certain assumptions, including an expected comparable restaurant sale result of approximately--up approximately 2.4% to 3.4%.
Our sensitivity of a 1% change in comp restaurant sales is approximately $0.18 per diluted earnings per share.
Through February 14, 2010, the first seven weeks of the Company's 16-week fiscal first quarter of 2010, comparable restaurant sales decreased 7.8% from the prior year comparable period for company-owned restaurants, compared to being down 4.6% for the first seven weeks of 2009.
We estimate that the impact from winter storms in several of our markets during the first seven-week period this year impacted our comparable restaurant sales by approximately 80 basis points.
Our annual financial guidance also includes the launch next week of our national advertising campaign.
Total 2010 spending for television is expected to be approximately $16 million to $17 million, up from $2.3 million in fiscal year 2009.
In the first quarter of 2010, our spring LTO campaign, which will be supported with both national cable television as well as some local network and local cable television in certain markets will cost $6.7 million and will be funded entirely by the Company.
An additional $10 million is expected to be spent on TV to support the LTOs later in the year.
Based on our development plans and other infrastructure and maintenance costs, we expect our fiscal 2010 capital expenditures to be approximately $35 million to $40 million, which will be funded entirely out of operating cash flow.
We also expect to make scheduled payments of $18.7 million required by the term loan portion of our existing credit facility from free cash flow after capital expenditures in fiscal 2010, and we expect to use our remaining free cash flow to make payments on our revolving credit facility.
Now, with that, I'll turn the call back over to Denny.
Dennis Mullen - CEO
Thanks, Katie.
In closing, during 2009, we remained focused on the fundamentals of our business by managing controllable costs, increasing brand awareness and driving guest loyalty and retention with product news that emphasizes Red Robin's quality, variety, and value.
We were very encouraged in the fourth quarter to see the one marketing tactic in particular, the targeted TV media support behind our fall LTO promotion, generate significant improvements in business trends, which continued to benefit guest counts and same store sales throughout the fourth quarter in our selected TV markets.
We are very excited about the launch of our 2010 spring promotion next week, our new TV ads, and other components of our YUM campaign that will support the Red Robin brand and our craveable new products.
Looking ahead, we will continue to expand our business through further strengthening of our operations, solid execution of our marketing initiatives, and expansion of our presence in a prudent approach to new restaurant development.
And with that, thank you for bearing with us for this long script and we'd like to open the call up for questions.
Operator
Thank you.
We will now be conducting the question-and-answer session.
(Operator Instructions)
Our first question is from the line of John Glass with Morgan Stanley.
Please proceed with your question.
John Glass - Analyst
Hi, thanks.
I guess just first around the incremental advertising, how committed are you to the second and third runs of that or do you have a chance not to spend that money if you don't get the desired results?
And can you--your comp guidance of 2.5 to 3.5 or 2.4 to 3.4 seems aggressive in the context of what other casual diners are looking for in 2010, so can you talk about what kind of minimum lift you're expecting from the advertising to make that come to fruition?
Dennis Mullen - CEO
Sure.
We'll divide it up a little bit.
We are not committed for the second and third LTO at this point and we have time to measure the results and analyze the results of the promotion that starts Monday, John.
Katie, do you want to take the comp--the lift guidance?
Katie Scherping - CFO
Yes.
Basically our lift guidance is based on using some of the results we saw from Q4 and interpreting those into the full year of 2010 with the three LTO promotions.
We're assuming those will all three be supported by television.
Break even and plus maybe 50 to 100 basis points better than break even is what we've modeled in the range of 2.5--or 2.4% to 3.4% lift.
John Glass - Analyst
What is the break even?
Is it--I seem to remember something around 6%, does that still hold true?
Katie Scherping - CFO
It will depend on the price point that we use in each of the campaigns.
But basically it's about 4% to 5% lift during those--overall for the promotions that we plan on running.
John Glass - Analyst
So it would be 4% to 5% plus another 100 basis points, so 5% to 6% is what you're forecasting in that 2% to 3%--
Dennis Mullen - CEO
On a full year basis.
Katie Scherping - CFO
Yes, for the full year.
John Glass - Analyst
And did you--I'm sorry if you said this.
Are you franchisees going to contribute after the first--have you discussed this with them?
Are they going to contribute after the first run or not?
Dennis Mullen - CEO
We've talked to our franchisees and continue to certainly at the conference we just came from.
We, with them, will be measuring the results from this first campaign and we'll make that decision as we get closer to having to make a decision on the second campaign.
John Glass - Analyst
Okay.
Great.
Thank you.
Dennis Mullen - CEO
Thanks, John.
Operator
Our next question comes from the line of Jeff Omohundro with Wells Fargo Securities.
Please proceed with your question.
Jeffrey Omohundro - Analyst
Another question on the LTO.
In terms of execution on it in the $5.99 price point, in your testing, how is the mix on the $5.99 and was it supported in store--will you be supporting that price point in store on this next round?
Katie Scherping - CFO
We did not support the price point in our restaurants in either the fall and not in the spring as well.
We'll support the product news, but not the price point itself.
The price point itself will only be external.
Dennis Mullen - CEO
And the mix of--on the fall promotion was about 10%, almost split equally between the chicken caprese sandwich and the burger.
And we're expecting or projecting about the same level of mix for the two items coming up starting Monday.
Jeffrey Omohundro - Analyst
That makes sense about the--not supporting it in store.
I've been intrigued in my recent visits with your in-store gift card merchandiser.
I'm just curious how long has that been in place?
Has it been through the system and how much of your success in your gift card sales is linked to that?
Thanks.
Katie Scherping - CFO
Yes.
We rolled it out to all of our company restaurants and about 70 franchise restaurants in October of 2009, and what we have seen is the gift card sales have really been driven primarily by third party gift cards.
But the merchandisers have helped to drive our in-restaurant sales, but the huge growth was primarily third party.
Jeffrey Omohundro - Analyst
Great.
Thank you.
Operator
Our next question comes from the line of Jeff Farmer with Jefferies & Company.
Please proceed with your question.
Jeff Farmer - Analyst
Great.
Thank you, and good afternoon.
Katie, I apologize if I missed this, but are you still looking for commodity deflation of about 2% to 2.5% this year?
Katie Scherping - CFO
Yes.
Jeff Farmer - Analyst
Okay.
And then as it relates to that deflation number and then understanding that you don't have a pricing target in place yet, theoretically, what type of costs of goods sold benefit could that equate to in 2010 relative to 2009?
Katie Scherping - CFO
Well, some of that is going to be a little bit masked by the price promotion that we'll run, so there's still some benefit that we expect to see, about maybe 50 basis points on a year-over-year basis.
Jeff Farmer - Analyst
Okay.
And then as it relates to development, obviously you cut your development pretty aggressively in '09 versus 2008, and you're slowing it down a little bit more in 2010.
But based on sort of macro trends and your own traffic at the concept, what's the argument against slowing development even further, to a handful of units?
I understand that there's some lead time here, but why wouldn't you guys have potentially taken the development down to even a lower number in 2010 and potentially 2011?
Dennis Mullen - CEO
Great question.
One of the reasons that we--Eric covered in his is the great success that our NRO teams are having and our ability--we've evidenced to drive both restaurant level operating profit up from the 2007 level; and the fact that we've been able to drive CapEx per unit down from the $2.5 million down to the $1.9 million area.
So we have confidence in those two metrics in terms of new restaurant development.
The metric that obviously we're concerned about is topline and we're seeing improvement--improved trends and we expect success with the television campaign that will influence our decision to go forward either more aggressively or less aggressively in the CapEx.
The 11 to 13 is really not a material--it's material versus 15, but it's more timing than anything else as we get--we've delayed some things to get closer further into the year.
Jeff Farmer - Analyst
Okay.
And then final question from me.
Katie, as it relates to the EPS guidance for 2010, and again I might have missed this, but what tax rate theoretically does that assume?
Is it going to move up from 2009 levels?
Katie Scherping - CFO
It will probably move up a bit, probably closer to about 19%.
It will depend on certainly taxable income, but we still expect to be able to leverage those tax credits, so it will be about 19.
Jeff Farmer - Analyst
All right.
Thank you.
Dennis Mullen - CEO
Thank you.
Operator
Our next question is from the line of Matthew DiFrisco with Oppenheimer & Company.
Please proceed with your question.
Jake Bartlett - Analyst
Yes.
This is Jake Bartlett in for Matt.
I just wanted a little more clarification on the kind of boost you need to kind of--to leverage the national advertising for these LTOs.
It looks like there's $16 million in the advertising.
By my math you need--seems like you need more like 8% or 9% comp on--on your whole base to kind of cover that.
If you could just kind of run through the math on that, I'd appreciate it.
Katie Scherping - CFO
Well, it's a benefit also coming from noncomparable stores as well.
So you can't just take the lift from comps only.
You get the lift from your whole store base of revenue.
Jake Bartlett - Analyst
Right.
But would you--I assume those--the sales are slightly lower than average margin as well.
So wouldn't--I mean if you--if you're going to spend say $10 million on the marketing, wouldn't you need about $5 million in sales boosts from that or $50 million just as kind of hypothetically?
Katie Scherping - CFO
If you modeled it kind of the way we did in the fourth quarter, it was a little over two to one, so you needed a little over 2%--two times revenue versus your advertising spend to break it even.
Jake Bartlett - Analyst
That would be assuming that that revenue would be 50% margin flowing through from the restaurant?
Katie Scherping - CFO
About 42%.
Dennis Mullen - CEO
Yes.
At two to one and then you have to add in the extra, if you will, food costs for the item being sold at $5.99.
So we saw about 42% to 43% flow through from the October campaign.
So you can apply that math to the media spend, if you will.
Jake Bartlett - Analyst
Okay.
And then--
Katie Scherping - CFO
And it gets less if you don't include a $5.99 price point.
If your price point changes later on in the year, that certainly impacts the break even point.
Jake Bartlett - Analyst
Okay.
And then--
Eric Houseman - President & COO
You also get impact from increased franchise royalty fees as well.
Jake Bartlett - Analyst
Right.
Okay.
For G&A and just kind of modeling G&A going forward, just to help me understand how the marketing will progress into monthly expense in 2010 will progress, a lot of that is marketing, it's not just the natural advertising, is that more consistent and then it gets a little more lumpy as you lay on the national advertising; or how should we model that on a quarterly basis?
Katie Scherping - CFO
Yes, the--the quarterly basis for TV will be, of course, the $6.7 million is going to hit all in Q1 because it's a 16-week quarter, so all of that will be absorbed in Q1.
Q2 will probably be another roughly $5 million and then kind of split between 3 and 4 you'll have the other 5 million that we talked about.
And again, that's not committed, but that's how we've modeled it.
Jake Bartlett - Analyst
Right.
And then the rest, just the other marketing expenses, kind of, is split --?
Katie Scherping - CFO
That's fairly even throughout the year.
Jake Bartlett - Analyst
Okay.
And last question, on G&A in this quarter.
Given the difference, there was less from a marketing expense in the quarter, what was driving the higher kind of G&A just excluding the marketing effect?
Katie Scherping - CFO
The Q4?
Jake Bartlett - Analyst
Yes.
Dennis Mullen - CEO
It was marketing in Q4.
Katie Scherping - CFO
Yes, there was marketing in Q4.
We had two weeks of the promotion.
So more of the marketing actually fell in Q4 this year from the three-week promotion.
Only one week fell in Q3.
Jake Bartlett - Analyst
In the reconciliation for how you're changing--it looks like in 2008 in the fourth quarter there's $5.4 million in it and this year there was 2 point--$3.2 million.
Katie Scherping - CFO
Right.
Last year, I think there was an adjustment for the NAF or the national advertising fund.
Jake Bartlett - Analyst
Okay.
All right.
Thank you very much.
Katie Scherping - CFO
Yes.
Operator
Our next question is from the line of Brad Ludington with KeyBanc Capital Markets.
Please proceed with your question.
John Dravistadt - Analyst
This is John Dravistadt in for Brad, actually.
To go along with that last line of questioning, it did look like 4Q G&A was a little bit higher than we had modeled even taking out that ad spending.
There wasn't anything related to the board changes or any additional meetings that could have driven that up?
Katie Scherping - CFO
A little bit of additional severance from the changes that Eric spoke to in the Q3 call.
Dennis Mullen - CEO
But no--specifically to your question about board meetings or board changes, there was no--no incremental expense at all.
John Dravistadt - Analyst
Okay.
And then with the second two promotion, you alluded to the idea that they might not include price points.
What kind of result from the spring promotion would you have to see to make you comfortable with not using a price point in the later promotions?
Dennis Mullen - CEO
Well, we obviously want to see the results from the--meet and/or exceed the guidance that we've built into the projection.
We want to see--we will be doing pricing tests on other items between now and then, and we also would like to see the consumer be a little bit more confident.
So I think it's--we're going weigh all of those things, but our clear preference is not to be at $5.99 going forward.
John Dravistadt - Analyst
All right.
Thank you.
Operator
Our next question is from the line of Nicole Miller with Piper Jaffray.
Please proceed with your question.
Nicole Miller - Analyst
Good evening.
I was just hoping you could give us some idea of how things are going on a regional basis?
Earlier, California Pizza Kitchen reported tonight and talked about some of the housing states, like Florida, Nevada and California being better.
Are you seeing any of that?
Dennis Mullen - CEO
Well, let's see.
We're not seeing a huge change in California, but again, we didn't--we--for most of California didn't get the television.
So we were focused in on the ten other markets.
Arizona does not--has not changed that much for us.
I mean there's been some sequential improvements, but not, I wouldn't say materially improvements.
We love Florida, but we only have three or four restaurants there, so we're doing fine there.
So I think the midwest has been great or better, I mean; but sequentially, not the big markets in California.
The northwest has been--was on television, responded extremely well and continues to do well.
Nicole Miller - Analyst
Thank you.
Operator
(Operator Instructions)
Our next question is from the line of Steven Rees with JPMorgan.
Please proceed with your question.
Steven Rees - Analyst
Hi.
Thank you.
So assuming you go with the full $16 million of incremental advertising this year, how many weeks of that buy you versus 2009?
Dennis Mullen - CEO
Susan?
Susan Lintonsmith - CMO
Yes.
In 2009 we had six total weeks of television.
What we would have in 2010 with this would be roughly about 12 weeks.
Steven Rees - Analyst
Okay.
And then I understand that it tested very well, but can you just sort of talk about and give us some more color in terms of the look, the feel, the price points on these advertisements and why they were more successful this time than prior ads that you ran?
Susan Lintonsmith - CMO
Are you talking about the fall in particular?
Steven Rees - Analyst
Yes.
Susan Lintonsmith - CMO
The--what we did differently in the fall is a couple of things.
First off, it was a very strong local buy.
It was a stronger buy than we've had in the past.
Secondly, we've, in the past, only promoted one product.
This time we communicated variety via two products.
So we had a great kind of a wow burger and then the chicken caprese sandwich, which had a little bit more variety and some health perceptions as well.
And the third thing is we just believe that the quality of the commercial was strong.
We really tried to demonstrate not only the variety, but the quality cues.
So we think those three, paired with the very strong price point, was what was successful in the fall.
Steven Rees - Analyst
Okay.
And then just finally for modeling perspective, I know there's some uncertainty in terms of the timing in the second half, but how should we think about those 12 weeks of advertising throughout the year, or at least if you could help us out for the first and second quarter, that would be great?
Susan Lintonsmith - CMO
Okay.
So if we follow what we did for--what we're doing for the spring promotion, we would likely do a similar kind of buy, which would be starting in the second part of the second quarter.
We would do two weeks on, one week off, two weeks on and we would do that during the summer promotion and also during the fall.
And the fall would be very similar to that kind of a buy, more heavily, again, very little in the third quarter, more heavily in the fourth quarter.
Steven Rees - Analyst
Okay.
Great.
Thanks very much.
Operator
Our next question is from the line of Joe Buckley with Banc of America.
Please proceed with your question.
Joseph Buckley - Analyst
Thank you.
You mentioned playing off the spring promotion with bounce back marketing.
Is that some kind of gift card or card credit promotion for customers in the store?
Is that what you're thinking or is it something else?
Susan Lintonsmith - CMO
No.
What we're going to be doing during the television in the spring is handing each table a--it's a scratch off that says come back in, scratch and win.
So it's--what we are going to do is bounce the guest back in during the non-TV window to scratch off and then redeem the offer.
And everyone is a winner on these--on these bounce backs.
Joseph Buckley - Analyst
Okay.
Well, I like games like that.
Question on--
Dennis Mullen - CEO
You could be a winner, Joe.
Joseph Buckley - Analyst
Question on--with the advertising campaign, the spring campaign starting on Monday.
What kind of first quarter same store sales performance do you need to make the full year numbers viable?
I mean do you look for an immediate response once you go in there next week?
Susan Lintonsmith - CMO
Yes.
I mean we modeled it similarly to what we saw in Q4, which was a pretty immediate response to that television campaign.
So we expect to see response back as early as next week and then through--through the end of the promotion and beyond.
We continue to see benefit.
It tails off later after you go off of television, but that's how we've modeled it is with a lift--pretty substantial lift during the media with a continued benefit, albeit a trend down during the dark windows.
Joseph Buckley - Analyst
Okay.
And two to four--2.4% to 3.4% positive comp for the year, do you start off the first quarter positive within that framework?
Susan Lintonsmith - CMO
Probably close to neutral.
I'd say probably Q1 will be flat since we're starting down about 7, 8 in these first seven weeks.
Joseph Buckley - Analyst
Okay.
Dennis Mullen - CEO
And, Joe, in terms of how quickly it reacts, there's a couple--there's a number of differences.
The television we ran in the fall was local cable--I mean local network.
This is going to be national cable supported by in 30 markets, as Susan said.
And we're--we are up against the Olympics, which we don't know what the viewership is going to be there, but we will--we think it will be great placement that we will have including some on the Olympics and it may be--it may not drive it immediately, but it will be very quickly.
Joseph Buckley - Analyst
Okay.
And, Katie, how do you encourage us to think about the first quarter income statement in light of all of this, then, because that 6.9 million ad expense is obviously a big nut that flows right through?
Katie Scherping - CFO
Right.
That 6.7 probably won't all break even in Q1.
Again, we expect to still see benefit even beyond Q1 after the promotion ends.
So that break even target is built into our full year guidance, but isn't all aligned with exactly when media runs.
So the first quarter, again, probably flat to maybe down slightly in Q1.
But not trying to pinpoint a specific time when we run off that benefit of media.
It just kind of continues, we hope, to build throughout the year.
Joseph Buckley - Analyst
Okay.
You say flat to down slightly, are you talking about same store sales or EPS?
Katie Scherping - CFO
Yes, same store sales.
Joseph Buckley - Analyst
Same store sales, okay.
Okay.
Those are my questions.
Thank you.
Dennis Mullen - CEO
Thanks, Joe.
Operator
Our next question comes from the line of Greg Ruedy with Stephens, Incorporated.
Please proceed with your question.
Joshua Long - Analyst
Hi, how are you doing, it's Joshua Long in for Greg.
Dennis Mullen - CEO
Hi, Josh.
Joshua Long - Analyst
I wanted to talk about how we should think about the optimization of the back of the house procedures and processes that you've been working on; and how does that break out between just rolling those learnings that you've come across forward into new units versus kinds of ongoing discovery of new ways to save, and do things better in the back of the house and the front of the house?
Eric Houseman - President & COO
Yes.
Great question, Josh.
We--we rolled out the simplification project to all of our restaurants around March, April of last year.
So we should continue to see some year-over-year benefit through Q1, and that's something that we continue to look at and examine both in the heart of the house as well as the front of the house on an ongoing basis in terms of how we take costs out of the business model that don't affect the team members or the guests.
Joshua Long - Analyst
Okay.
Thanks.
And then on the marketing side of it, speaking more towards the digital and online components.
We've talked in previous calls about your ability to grow the Red Robin e-club.
Where is that at now and do you have some specific examples or anecdotal evidence that you're able to really leverage that user base yet?
Susan Lintonsmith - CMO
Yes.
We still are supporting all of our windows with digital and we have seen the e-club grow significantly.
We are up to about--it's a little under 2 million still.
What we work towards is not only signing them up for e-club, but getting people onto our website and interacting.
And we can measure it through click throughs, and we do know that our promotions have done very well versus industry average of getting people from the ads to our website and the time spent on our website.
Joshua Long - Analyst
Okay.
Thank you.
Dennis Mullen - CEO
Thank you.
Operator
Our next question comes from the line of Amol Desai with Johnson Rice & Company.
Please proceed with your question.
Amol Desai - Analyst
Hey, good afternoon.
Just a couple of questions.
In terms of your 2010 openings, can you talk about what markets are these slated for; and then in terms of rent, what type of rents are you seeing any benefit on that side?
Thanks.
Eric Houseman - President & COO
Yes.
Our--the 13 at lease break down is we have six free standing units, two in line units, and five mall conversions.
We've got a number of sites.
They're all really--most of the--the 11 of the 13 are in existing markets.
We are going into Tampa and in Florida as new markets, but we're doing real well as Denny said in Florida, so we like that.
Most--all these are ground leases and some include some tenant improvement allowance.
We're going into Virginia, Maryland, one unit in California.
So it's really--it's our strong existing markets.
Also going into a conversion in a mall in Wisconsin, a great location, so--
Amol Desai - Analyst
Thank you.
Dennis Mullen - CEO
Thank you.
Operator
Our next question is a follow-up question from the line of Matthew DiFrisco with Oppenheimer & Company.
Please proceed with your question.
Jake Bartlett - Analyst
Yes, hi.
This is Jake Bartlett again.
Just wondering on cannibalization, the level of cannibalization that you saw with the LTO in this quarter.
That would be great.
Katie Scherping - CFO
Are you speaking about trade within the menu?
Jake Bartlett - Analyst
Yes, with the LTO trade within the menu.
It sounded like you got a big boost to the same store sales, but that the mix was about the same--same boost, just wondering how--if you've measured how many sales are kind of switching away from your other items into the LTO from people who would have come in anyway?
Dennis Mullen - CEO
Well, as we said during the promotion, the mix was about 10% of the two LTOs.
Obviously we had 1,100, 900 basis point lift, so there was very little trade down.
And then as soon as we stopped our promotion, the revenues stayed up so that we went back to full price immediately.
Jake Bartlett - Analyst
Great.
Thanks.
Dennis Mullen - CEO
We don't think there's a tremendous risk there.
Jake Bartlett - Analyst
Okay.
Thank you.
Operator
There are no further questions at this time.
I would like to turn the floor back over to management for closing comments.
Dennis Mullen - CEO
Okay.
Well, thank you all for joining us today.
And as always, our success is driven by the talent and passion of our team members who we thank each and every day for the hard work and dedication to Red Robin.
We'll talk to you again soon.
Thank you very much.
Operator
This concludes today's teleconference.
You may disconnect your lines at this time.
Thank you for your participation.