Red Robin Gourmet Burgers Inc (RRGB) 2010 Q1 法說會逐字稿

Greetings and welcome to the Red Robin Gourmet Burgers Incorporated first quarter 2010 earnings 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, Ms.

Katie Scherping, Chief Financial Officer for Red Robin Gourmet Burgers.

Thank you.

Ms, Scherping, you may begin.

Thanks, Manning.

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, cost 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 performance and, therefore, investors should not place undue reliance on them.

We refer all of you to our 10-K and 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 first quarter of 2010 by close of business tomorrow.

I also want to inform our listeners that we will make some references to non-GAAP financial measures today during our call.

You will find supplemental data in our press release on schedule 1 which reconciles our non-GAAP restaurant level operating profit to income from operations and net income.

Now I'd like to turn the call over to Denny Mullen, Chief Executive Officer.

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 an update on our operations initiatives and Susan will share results for our first quarter marketing efforts and upcoming promotional plans.

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

As we reported in our earnings press release, our comp store sales decreased 2.3% in the first quarter of 2010.

This was a significant improvement from the double digit decreases in comp store sales that we reported in the prior three quarters of 2009.

A big contributor to our improved comp trends was our successful limited time offer promotions and TV media support that we implemented throughout the system beginning in late February.

Susan will provide details of the success of the spring 2010 LTO, our most recent television advertising, and our ongoing Yum!

campaign when she shares our marketing update.

But, in short, we are very pleased with the list of sales in the first seven weeks of the first quarter, when our comp -- from the lift in the first quarter when our comps were down 7.8% to the end of the quarter with our year-over-year comps down only 2.3%, clearly a big improvement.

Regarding new restaurant development, in the first quarter we opened three new Company-owned restaurants and on May 10 we opened another new Company-owned restaurant, all funded from operating cash flow.

In addition, two new franchise restaurants were opened in the second quarter.

As we've said previously, we expect our average cash investment for new Company restaurant development in 2010 to be about $1.9 million per restaurant which is significantly less than the roughly $2.5 million cash investment per restaurant just three years ago.

Obviously we're pleased with our development team's continued efforts to reduce costs on new restaurant construction and our strategy to incorporate end cap units and conversions into our development plan as market opportunities allow.

Four new Company-owned restaurants are currently under construction.

One of these is expected to open early in fiscal third quarter of 2010 while the other three are expected to open later in fiscal third quarter.

Currently, no new franchise restaurants are under construction.

During the fiscal year 2010, we expect to open 12 to 13 new Company restaurants with the remaining eight to nine split between Q3 and Q4.

All new Company restaurant development is being funded from operating cash flow.

Our franchisees are expected to open a total of three to four restaurants for this year.

Now I'd like to turn over the call to Eric for an operations update.

Thanks, Denny and, good afternoon, everyone.

In the first quarter of 2010, our comp store sales decrease of 2.3% was driven by a slight increase in guest counts of 0.1% that was more than offset by a 2.4% decrease in our average check.

Note that about 1.4% of the average check percentage decrease was the impact of the LTO which was priced at $5.99.

The 2.3% comp store sales decrease compares to comps being down 8.1% in the same period a year ago and is a significant improvement from where we reported comp store sales down 10.5% in the fourth quarter of 2009.

In the first quarter of this year, we estimate that the impact from severe winter storms in several of our markets in the northeast, California and the mid-Atlantic states negatively impacted our comp restaurant sales by approximately 140 basis points, which is about a 10% impact to diluted earnings per share.

Also in the first quarter of 2010, our average weekly sales for the 286 restaurants in our comparable base was $55,896 compared to $58,079 for the 244 restaurants in our comp base in the first quarter of 2009.

Average weekly sales for our 22 noncomparable restaurants was $56,560 during the first quarter of 2010 compared to $55,245 for our 41 noncomp restaurants a year earlier.

For those of you that are modeling our business, please be aware that our average weekly sales that we quote is a gross sales number that excludes the impact of discounts which run about 2.5% to 3% of our gross revenue.

So the restaurant revenue that we report on our income statement reflects our weekly sales multiplied by the operating weeks net of these discounts.

For all Company-owned restaurants, average weekly sales were $55,909 from the 4,906 operating weeks in the fiscal first quarter of 2010 compared to $57,352 from the 4,768 operating weeks in the fiscal first quarter of 2009.

Beyond the pass, we've talked about how important guest feedback is to driving marketing and operations initiatives.

We've been collecting this feedback through our guest voice program that we've talked in previous calls.

To provide an update on our overall guest satisfaction scores, we have increased 6 percentage points to 74% since our call in February and remain well above the roughly 50% score of the restaurant industry as measured by our third-party source for these metrics.

We have further strengthened that program to provide our operators with an even more focused and measured results that our guests are saying drive loyalty.

In addition, we've used the guest voice model internally to strengthen our team member satisfaction and engagement which we believe is critical to having the most informed, passionate and motivated teams in the industry serving our guests and making them Red Robin fans for life.

This work is in its early stages, so I'll have more to report on our team member voice initiative down the road.

On the service side of our business, as we discussed on our last call in March, we successfully executed all of our regional conferences across the country with all of our assistant managers and lead certified designated trainers, or CDTs, from all of our restaurants.

During those training and motivational sessions we rolled out our 2010 operation focus of align and engage.

Many of the elements of align and engage will be focused on delivering an amazing guest experience as seen through our guest's eyes and their voice.

Early stage of this initiative is involved in continued strengthening and focus on our CDT program which we believe provides us a competitive advantage.

In addition, we're strengthening our CDT and regional trainer focus on our great beverage offerings, specifically our bottomless limeades and lemonades, our signature freckled strawberry lemonade and, of course, our hand crafted monster milk shakes.

These items we believe also demonstrate to our guests great value as well as Red Robin variety.

Finally, as you know, we have been focused on strengthening our NRO process for the last couple of years now and our efforts continue to pay off.

With the benefit of stronger NRO training programs and improved selection and the preparedness of our new restaurant GMs, our new restaurant openings continue to get even better and better.

To illustrate the progress we're making, our restaurant level operating profit, or our LOP for our 2009 NROs was 500 basis points better than our 2007 opening class.

We're also very pleased to report that our first four new restaurant openings in this year 2010 have all well received -- been well received in their markets and an average -- achieved an average of opening weekly sales volume of nearly $120,000.

We look forward to continuing seeing these great results out of these new restaurant locations.

So with that overview of operations, I'll turn it over to Susan to talk about our recent results and upcoming initiatives related to marketing.

Thanks, Eric.

Today I'm going to review the results from the first quarter marketing efforts, give you an overview of our plans for the balance of the year.

The big marketing headline during Q1 was the result of our spring limited time offer or LTO.

In mid-February, we began promoting two high-quality, limited time items, our prime chop house burger and our southwest grilled chicken salad at a value price point of $5.99 each.

We supported the LTO promotion with four weeks of national cable TV over a five-week period plus local network TV in more than 30 markets.

The promotion itself ran for eight weeks during which we also supported the campaign with an integrated and innovative digital plan.

The TV and the digital creative was part of our Yum!

campaign that's become very popular with our guests and continues to reinforce our quality, variety and value messaging.

As I share the guest count and sales results from our spring LTO promotion, I'll be dividing the 16 weeks of the first quarter into three parts.

The first seven weeks of the quarter, which we talked about on our last call, the results of the next six weeks during which time we had the four weeks of TV, and the impact on the last three weeks of the quarter, or the post media period.

So as we discussed in our last earnings call, our Q4 2009 guest counts were down 9.3%, which had some benefit from our ten market media test in the last week of Q3 and the first two weeks of Q4.

In the first seven weeks of the first quarter this year, prior to our spring LTO and TV media support, our guest counts were down 6.8%, compared to down 7.3% in the first seven weeks of Q1 last year.

During the next six weeks in Q1 this year, which includes again the four weeks of TV media supporting the LTO, our guest counts improved to a positive 5.8% or a positive lift of 12.6%.

In the last three weeks of the quarter, or post media period, guest counts were still up 4.6%.

Regarding same-store sales, recall that our Q4 2009 comps were down 10.5%.

During the first seven weeks of the first quarter this year, again before our spring LTO and TV media, our same-store sales were down 7.8%.

During the next six weeks, four of which included the TV, our same-store sales improved to a positive 2% or a positive lift of 9.8%.

In the last three weeks of the quarter, or post media, our comps remained up 2%.

So we're pleased with the results of the spring LTO promotion.

The TV support more than paid for itself based on the number of incremental guests generated by the TV and the LTO promotion.

It generated sufficient returns to more than break even on the entire spring promotional investment, including the $1.2 million that we funded on behalf of our franchisees.

The spring LTO and TV media also helped us increase Red Robin's unaided brand awareness by 5 percentage points from 21% to 26% for the January to March time period versus prior year.

Our aided or total brand awareness also increased during January to March period this year to 88% compared to 85% in the same time frame a year ago.

Based on the spring LTO results, our franchisees will support the two balance of year promotional windows with national cable media.

We have raised the national advertising fund, NAF, from 25 basis points which covers our national digital media plan, to 150 basis points from the beginning of the second quarter until the end of the year.

This budget funds national television and digital media similar to what we did in the spring for the entire system during our summer and fall promotions.

Katie will break down the media investment by quarter for you later in the call.

Now, our summer LTO promotion kicks off June 14 and features two cravable and innovative limited time items, our big melt bacon burger and our honey mustard chicken sandwich, each at an attractive $6.99 price point and each reinforcing Red Robin quality, variety and value.

Similar to the spring promotion, the summer LTO will be supported with four weeks of TV media over a five-week period.

We plan to support two more innovative products with TV during the fall promotion and will share more details on the fall promotion with you on our call in August.

So shifting gears now to gift cards.

Our gift card sales during the first quarter of 2010 were up 54% or $1.5 million versus prior year, generating nearly $4.4 million in gift card sales through third party, in restaurant, business to business and online sales.

We continue to expand our third party gift card placement during the first quarter growing to about 8,000 retail locations up from 7,400 at the end of 2009 and up from less than 2,000 locations in Q1 of last year.

We also have commitments that will add another 1500 locations in mid June, so we're on track to achieve our goal of 10,000 locations, third party retail locations for our gift cards by the end of this year.

Finally, we continue to focus on new product development, testing and evaluating menu enhancements to make sure we're always anticipating and satisfying the need of our guests.

We're on schedule to have our new menus in our restaurants by May 24.

In addition to our already wide selection of gourmet burgers, salads and entrees that are long-standing guest favorites, we're adding nearly a dozen new items on the menu, including the patty melt that's a big hit with our guests which we introduced late in the spring with digital media in via table cubes in our restaurants.

We're also adding a new pub burger, a few new pastas, lower priced appetizers that we're calling Jump Starters, and several new other items that meet the needs of our guests and add news and excitement to our menus.

I should also mention that there will be no price increases in this new menu.

So those are some of the marketing headlines.

We're all very excited about our upcoming spring -- or summer LTO promotion and executing on all the other great marketing initiatives that we have lined up for the balance of the year.

We look forward to sharing the results of our Q2 marketing efforts during our call in August.

So now I'll turn the call back 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 our quarter's results, you can find it on our website at redrobin.com in the investor relations section.

The fiscal first quarter of 2010 was a 16-week period ending April 18, 2010.

Compared to the fiscal first quarter last year, total revenues, including restaurant sales, franchise royalties and for the first time gift card breakage revenue which is included in other revenue, increased 1.7% to $275.5 million.

Restaurant sales increased 0.3% to $267.5 million and consisted of $249.9 million in sales from our comp restaurants and $17.6 million in sales from our noncomparable restaurants.

Franchise royalties and fees were nearly flat year-over-year at $4.2 million.

The 106 comp restaurants in the US franchise system reported a 2.1% decrease in same-store sales while the 18 comp restaurants in the Canadian franchise system reported a 4.8% increase in same-store sales for the first quarter.

As with our Company-owned restaurants, same store sales results for both the US and Canadian franchise systems represent significant sequential improvement from prior quarters.

Before I begin my discussion of our lot margins, I want to remind you about the reclassification of our marketing and advertising expenses to SG&A.

Our prior year numbers have been adjusted to reflect the classification change which we talked about on our last call.

The margins that I will be referring to today will be the adjusted RLOP margins and selling and general administrative expenses for Q1 2010, compared to the adjusted percentages from Q1 2009.

Our restaurant level operating profit margin was 18.2% in Q1 2010 compared to 19.4% in Q1 2009.

The 120 basis point decrease from the first fiscal quarter was primarily driven by 130 basis point increase in labor costs and about 30 basis points of higher occupancy costs.

Our occupancy costs increase is mainly due to deleveraging from lower average restaurant volumes on certain fixed costs year-over-year.

Our increase in labor costs includes both the deleveraging on salary wages and fixed cost benefits from lower sales volumes as well as some reduced productivity as we staffed up to accommodate an increase in sales from our media campaign.

These higher costs are partially offset by 20 basis points of lower food and beverage costs.

From a cost of goods standpoint, we continue to see a relief in a good portion of our commodity basket in the quarter.

Our hamburger pricing, which we bought on the spot market in the first quarter of 2010, ran below our contract pricing that was in place in the first quarter of 2009.

However, late in the quarter, we saw ground beef spot prices increase above what we had expected and we have factored in an increase in ground beef for the remainder of 2010 well above the average ground beef prices we paid for the balance of 2009.

In addition, our lower price point from the LTO promotion had about a 50 basis point negative impact on COGS in Q1 2010.

Also negatively impacting the quarter was an increase of nearly 25 basis points in COGS from produce.

The weather issues in produce growing states earlier this year created a decreased supply and, therefore, a negative impact in the pricing for produce that we continue -- that we see continuing into the middle of Q2.

Selling, general and administrative expenses in the first quarter of 2010 increased 11.2% to $30.8 million compared to $24.8 million last year.

The spring LTO campaign that Susan covered during her update, including national cable television as well as some local cable and network TV support cost approximately $6.6 million and was funded entirely by the Company, including about $1.2 million or about $0.06 of earnings per share that was paid by the Company to fund the franchisee's portion of the spring media investment.

As I explained earlier, all of our marketing and advertising expenses are now categorized as selling expenses and are reflected in this expense category.

Our pre-opening expense of $877,000 in the first quarter of 2010 was much lower than the $2.6 million in pre-opening expense during the first quarter last year.

We opened three new Company-owned restaurants in Q1 2010 compared to seven new Company-owned restaurants that opened in Q1 of 2009.

Our preopening costs have stayed at about $275,000 per unit for the last couple of years.

Net interest expense was $1.9 million in the fiscal first quarter of 2010 compared to $2.1 million during the same period in 2009.

Our interest expense in the first quarter of 2010 decreased from the prior year, primarily due to lower average outstanding debt balance as we continue to pay down debt with free cash flow.

As you saw in our earnings release, we recorded other revenue from gift card breakage for the first time in the first quarter this year.

In addition to revenue that we recognize when a gift card is redeemed by a guest, which is reflected in restaurant sales, gift card breakage revenue is recognized at the likelihood of gift card redemption is remote and we determine that there is a not a legal obligation to remit the unredeemed gift cards to the relevant jurisdiction.

We completed our analysis of unredeemed gift card liabilities during the fiscal first quarter of 2010 and recognized $3.5 million to other revenue or approximately $0.19 per diluted share as a one-time cumulative adjustment and about $266,000 for the ongoing amortization of the unredeemed liability.

Breakage from our own restaurant-based gift card program on an ongoing basis is expected to be between $200,000 and $250,000 per quarter.

Please note that we have not recorded any breakage on our unredeemed gift cards from our third-party program since we don't have enough history from this program yet to make an accurate estimate of breakage income.

Once we have determined that we have adequate history from the third-party gift card program, we will quantify and record breakage to income on our unredeemed giftcard liabilities associated with the third party program at that time.

Our effective income tax rate for the first quarter of 2010 was 17.1% compared to 25.3% for the first quarter of 2009.

The decrease is primarily due to more favorable general business and tax credits, primarily the FICA tip tax credit, which as a percentage of current year income before tax did not change at the same rate as the change in our taxable income.

We anticipate that our full-year 2010 effective tax rate will be approximately 17%.

Net income for the fiscal first quarter of 2010 was $4.9 million or $0.32 per diluted share compared to net income of $3.8 million or $0.25 per diluted share in the fiscal first quarter of 2009.

As Eric mentioned, severe winter storms in several of our markets this year impacted our comp restaurant sales by approximately 140 basis points or about $0.10 per diluted share in the fiscal first quarter of 2010.

Our cash flow statement will be included in our first quarter 2010 10-Q filing tomorrow and our cash flow from operations of about $23.9 million in the fiscal first quarter this year exceeded our capital expenditures of about $9.2 million.

We paid down debt of $21.2 million during the fiscal first quarter of 2010.

On April 18, 2010, we had $13.9 million in cash and cash equivalents and a total outstanding debt balance of $170.2 million including $113.3 million in borrowing under our $150 million term loan, $50.5 million of borrowings under our $150 million revolving credit facility and $6.3 million outstanding for capital leases as well as $5.4 million of letters of credit outstanding.

In the first quarter of 2010, we paid down about $21.2 million in debt, but since the end of the first quarter of 2010 we've made additional debt repayments of $3.5 million on our revolving credit facility.

We are subject to a number of customary covenants under our credit agreement and as of April 18, 2010, we were in compliance with all debt covenants.

Our debt to EBITDA ratio for purposes of our covenant was just below 2 to 1 at April 18, 2010.

The leverage ratio below 2 reduces our borrowing spread from LIBOR plus 1 to LIBOR plus 87.5 basis points.

Assuming we use our expected free cash flow to pay down debt in 2010, including $18.7 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 2010.

Now, let's talk about our outlook for the remainder of 2010.

We're updating our guidance for the fiscal year 2010 to take into account the actual results from the first quarter, including the trends of our media campaigns for the remainder of the year based on the results we saw with the spring LTO TV promotion as well as the negative impacts of the weather and higher produce costs.

While we still expect to experience deflation in our commodities for a large portion of our commodity basket, we have modified our expectation to a deflation of between 0.5% and 1% for the year, taking into account the continued impact on produce cost pressure and the potential cost pressure we are beginning to see from ground beef above what we had originally estimated.

Offsetting the increased COGS assumption, we expect to see some G&A savings.

We have also factored in gift card breakage that we recorded for the first time in Q1, which was not included in our guidance in February.

I just want to remind you that $188,000 of pre tax 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 $872 million to $880 million and net income of $1.10 to $1.30 per diluted share.

These projected results are based upon certain assumptions, including an expected comparable restaurant sales result of flat to up 1%.

Our sensitivity of a 1% change in comp restaurant sales is approximately $0.21 per diluted earnings per share.

Through May 16, 2010, the first four weeks of our 12-week fiscal second quarter 2010 comparable restaurant sales decreased 1.2% from the prior year comparable period for Company-owned restaurants compared to being down 11.1% for the first four weeks of the fiscal second quarter of 2009.

Our annual financial guidance includes expenses related to TV support of our LTO promotions during 2010, including the $6.6 million that we spent on TV advertising in the first quarter this year.

Total 2010 system wide spending for television is expected to be approximately $18.1 million, up from $2.3 million in fiscal year 2009.

Here's how our SG&A will break down by quarter for the remainder of the year.

For the run rate G&A expense, we expect to incur between $16.5 million to $17 million per quarter for the remaining three quarters.

Adding to that will be what the Company only TV marketing expense is expected to be by quarter as follows, for Q2 we expect to spend $3.3 million, for Q3 we expect to spend $3.4 million, and for the fourth quarter we expect to spend about $2.3 million.

Based on our development plans and other infrastructure and maintenance costs, we expect our fiscal year 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 debt 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.

As Denny mentioned, in 2010, we expect to open between 12 and 13 new Company-owned restaurants with the remaining eight to nine restaurants being opened fairly evenly between Q3 and Q4.

Our franchisees are expected to open three or four new restaurants this year of which two are already open.

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

Thanks, Katie.

In closing, while there are still many lingering challenges in the current macroeconomic environment, we are encouraged by the strengthening of our comp restaurant sales.

We're confident that the recent guest counts in sales in both comp restaurants as well as our new restaurant openings have benefited from our successful LTO promotions, TV media and other marketing tactics, as well as our continued focus on quality, variety, value and our team member commitment to making connections with our guests through unbridled passion and service.

We're looking forward to building on our momentum into the summer with our new menu rollout next week, the upcoming launch of our second LTO promotion of 2010 in mid June and all of the exciting marketing programs and operational initiatives and new restaurant development we have under way or planned for the balance of the year.

With that, we'd like to open the call for questions.

Thank you.

Thank you.

(Operator Instructions) Our first question is from the line of Matt Difrisco with Oppenheimer.

Please go ahead.

Thank you.

Just a little points of clarification here.

The guidance of $1.10 to $1.30 includes the $0.19 benefit then, not just the 266 going forward?

That's correct.

Okay.

And then looking at the labor, I guess since -- I think you started the LTOs back in mid September of last year with the Wise Guys sandwiches.

Is there -- I mean is that the explanation for -- I think that's when your labor started to delever as a percent of sales, you weren't -- I mean you were doing a good job of pulling it down, but it wasn't going down as fast as comps were coming down, so you started to delever.

Is that primarily the LTO and now that we're almost one quarter away from lapping that, should we start to see that benefit or the lack of deleverage from the L TOs, or can you quantify how much the LTOs might be way weighing on that labor line?

The LTOs don't necessarily weigh on the labor line.

I think the labor itself was more under pressure just generally from our change in our revenue assumption when you look back to what we expected to see in Q1 and certainly the weather didn't help that labor productivity number either.

So, it's a combination of those.

Labor itself is primarily from a deleverage and a productivity issue.

Right.

But isn't it -- I thought up mentioned in the prepared comments that the productivity issue was in relation to staffing up?

Staffing up.

It's a combination, Matt, of staffing up as well as first quarter was still negative sales, so year-over-year you're still going to have some deleveraging from all your fixed components of that labor line, management salaries and such.

Okay.

And then just in a basket, your commodity cost outlook, do you -- I heard what you were saying about beef.

I recognize you've done a good job of always showing us all of your commodity exposure, beef not being as significant even though it's in your name, burgers.

I guess in aggregate, with produce and some other things that you mentioned, you're then modeling to have beef up year-over-year in the next couple of quarters?

Yes.

I mean cogs as a relative basis up year-over-year?

Yes.

That's why we took our assumption for the cost deflation of the basket down from what we thought was going to be a deflation of 2% to 2.5%, down to about a 0.5% to 1% because we're taking into account that impact of the increased hamburger costs.

Okay.

And then can you -- you mentioned all those -- the breakdown of the quarter by comps when you had advertising, when you didn't have advertising.

Can you tell us, was there a particular -- I mean is it as natural as January and February?

We know the industry got hit by weather, was that in particular also with you guys, January and February the majority of that hit of the one plus adverse to the overall quarter happened earlier in the quarter?

We did see some weather impact that we talked about on our call in February and we had seen some at that point, but early March we had a big impact as well while we were still on television.

So that was pretty impactful to us and that was the difference for the remainder of the quarter that we talked about, the 1.4% impact to same-store sales in the quarter itself.

Okay.

Am I correct to assume those numbers that were given did include the weather impacts?

Correct.

Yes.

Yes.

Great.

Okay.

And then just last question, in that number that you gave for the first four weeks, is there a impact or did you have any store closures?

I know you've been opening -- the last couple of years, you've opened a couple in Kentucky, Tennessee and obviously with the severe floods, Indiana.

Did you have any store closures or is there a quantifiable weather impact to that?

No.

We only had one store closing and it was a lease end in end of March, so we only had one store closing.

There weren't any other weather closures.

I meant days of operations lost, I didn't mean actual store gone for good.

There were days in Nashville that we probably should have closed, but the team members, we were in some cases the only restaurant open for lunch in some of those centers.

Okay.

We weren't flooded out, so to speak.

All right.

But we've had -- a combination of that, I don't know if you've been following Oklahoma, but it's been one -- one hail storm, wind storm, tornado after another going through there, up until just this past week.

Yes.

Okay.

Thank you very much.

Yes.

Thank you.

Thank you.

Our next question is from the line of Jeff Farmer with Jefferies.

Please go ahead.

Great, good afternoon.

Going back to Matt's first question, did your original $1.27 to $1.45 guidance assume any gift card breakage benefit?

No, it did not.

Okay.

And then in terms of the bounce back promo which I think you began right after the advertising stopped, what kind of benefit did you see from that?

How effective was that for you in terms of holding on to that traffic?

It hasn't been materially impactful, Jeff.

Okay.

So any sense on the participation rate?

I mean it sounds like it's pretty low, low 10%, something like that?

Below 10%.

It's like 5%, 5.5%.

It's still coming in.

We didn't start it until after the promo was ended and, in effect, they weren't redeemable until after the promo was ended and the product was off promo.

Okay.

I think salads were just about 8% of your sales, but it looked like part of your LTO strategy in the spring was a salad.

Can you talk about your strategy there, what you're thinking, whether or not you're able to get that salad mix up, if salads are going to become a bigger part of your future sales, what are you thinking with the salad promotion?

First off, when we did the salad, it was really to help drive the variety messaging beyond the burgers, beyond the chicken sandwich, so that was the strategy there.

We did see as we expected about a total 10% mix of both items of which the salad was about 40% of that.

So that's -- and that did help our -- I think it helps our salad awareness.

It has not materially impacted the total mix of salads and spend.

Okay.

And then final question for me, any way for you to monitor whether or not you're driving new customers to the restaurant or just driving frequency from existing customers?

What we have seen through just our credit card information is that we have seen a little bit of both.

We've obviously seen our -- some new credit cards that we hadn't seen the prior 12 months and we did -- what we expect the rest would be is frequency.

I don't know the exact percent, but we did see both.

And, Jeff, we logged about six months on that data, so we don't -- we don't have the most current television run in that mix.

Okay.

Thank you.

Thank you.

Our next question is from the line of Destin Tompkins with Morgan Keegan.

Please go ahead.

Thank you.

My question is on the revenue guidance.

It seems like for the first quarter you guys saw the sequential improvement in sales and I think you previously talked about ending the quarter, maybe down 2 to flat and if you add back the weather impact, it seems like you're in that range and you've talked about the TV program continuing, you feel pretty good about the results there.

I guess I'm just surprised to see such a -- almost a $20 million haircut in the revenue target for the full year, especially when you include the gift card breakage.

Now, so can you help me reconcile that?

Is it just conservatism or is there something else you're seeing now that makes you less optimistic?

Well, I think we -- we're happy with the results of the TV campaign, but the result of the take down in the same-store sales was a combination of both the weather impact and that was about 40 basis points on a full-year basis, as well as just about a 2% reduction in same-store sales and, remember, that's $0.21 of EPS for us for every 1% of same-store sales reduction, so it's pretty impactful.

But really it's based on the pattern that we saw of both the lift during the media and then the post -- more importantly, the post media retention or lack thereof, if you will, modeling that going forward in the next two promotion periods.

Destin, this is Denny.

When we put together the projection, obviously we've had no national LTO roll out until this one.

We had a ten market test, you will recall, in last September, October which gave us a lot of information and data to extrapolate, but that again was in ten markets.

And we used that to not only get the lift during promotion but to do the retention numbers afterwards.

What we're not seeing -- what we factor into this in terms of first national promotion is the effects of some of the other more difficult markets, like California, where it was not in the -- for most of California, was not in the October promotion and Arizona was not in the October promotion and those markets continue to be an issue for us.

Okay.

Compared to some of the other markets.

So we adjusted accordingly on that basis going forward.

We will get more experience with the next LTO and as we continue to roll these out, we clearly hope to be much better in terms of projecting.

That's helpful.

And as you look at the price point of the burger, I was curious what kind of mix you were getting on the $5.99, the LTO, the prime chop house and the other $5.99 item?

Can you give us what the mix was on those promo options?

Sure.

It was very similar to what we saw in the fall, which is a 10% overall mix of those two items, so in the fall we saw more of a 40% the chicken sandwich, 60% the burger.

We saw similar this time around, too, where it's 60% was the burger and 40% was the salad, but overarching 10% mix.

I was trying -- and the reason I ask is I'm trying to get a sense of it sounds like the LTO is going to be priced at $6.99 in the second quarter and what your expectations are as far as the I guess negative mix affect on the average check or maybe it will be -- it will lessen somewhat with that $6.99 price point?

Absolutely it will lessen substantially going from $5.99 to $6.99.

That's obviously always a concern.

We were concerned in terms of our projecting mix that it would not well exceed the 10% mix, so we would have had more pressures, but it came in right on target.

Which means 90% of our guests are coming in of that list and paying full retail, if you will.

We're pretty comfortable with $6.99.

We're hopeful we get some economic tail winds behind us to support that.

We've had one franchisee group that didn't -- had the item, but had great lift without being at $6.99 -- or $5.99.

So that's our only basis at this point, but we're pretty comfortable with $6.99.

Okay.

Great.

Thanks, guys.

Thank you.

Our next question is from the line of Joe Buckley with Banc of America, Merrill Lynch.

Please go ahead.

Thank you.

I wanted to follow up on the revenue guidance question.

So the same store sales for the quarter sound like they were pretty close to what you were thinking, I think based on what you told us on the February call.

So is it the first four weeks of the second quarter kind of the post -- yes, the post advertising retention, is that what's pushing the overall comp expectation lower?

Well, we did see the three weeks post trend down as well.

We said we thought we would be somewhere in that flat to slightly down range.

We did have weather impacting us in Q1, so that was a negative to the 2.3 that we saw.

But I think it was not quite as robust as what we were modeling originally and then carrying that forward with the post trend -- post media trend into Q2 we saw negative 1.2, so you see it continuing to decline and projecting that into the summer and the fall promotion trend line.

And then a question, I think, Eric, you mentioned the average weekly sales numbers are gross sales before discounts.

Is that discount couponing, is there couponing going on that is sort of driving that or something else?

No.

In essence, that's the discount that we give our team members for team member meals makes up the bulk of that coupon line.

And that's also any e-club promotions that we do that have some kind of a discount with it.

Our birthday burgers, things like that.

It runs pretty close to 2.5 to 3 and it has for a very long time.

Joe, it's apples to apples, though, year-over-year and it's been the same methodology forever now.

Okay.

Okay.

Very good.

And just one last one just on the restaurant margins.

I guess with the limited time only products I might have thought you might have done a little worse on food and it looked a little better on some of the other lines.

Can you talk a little bit about that, why the food costs were actually better year over year?

Well, the food costs better year over year is really a fact of deflation we expected and then you have to take into account the pressure we saw from the produce items as well as the impact of the promo.

The promo in the quarter we said was about a 50 basis point impact negatively and then you have the benefit from the deflation generally, including hamburger, we still saw a benefit year-over-year in hamburger in Q1, we didn't see the increase starting to creep up above 2009 until later in the quarter of Q1.

So that's how the cost of goods laid out, still some benefit from the deflation, but offsetting that with the produce and the promo.

Joe, do remember that we're contract -- we're writing -- we're contracted in almost all of our categories with the exception of hamburger, produce and cheese.

So we negotiate a very favorable chicken deal that's locked for 2011 and a very favorable French fry deal at the beginning -- or I should say at the end in October of 2009.

Okay.

That's helpful.

Thank you.

Thank you.

Our next question is from the line of Brad Ludington with KeyBanc Capital Markets.

Please go ahead.

Hi, this is actually John (inaudible) on the line for Brad.

It looks like you've got a slight decrease in your expectations for the ad budget this year both in overall and in TV.

Could you explain just how it's changed from the first quarter?

Is that less impressions you're going for there or are you getting better pricing on that?

It's -- overall, it's about 15.6 company and we said it would be between $16 million and $17 million, so it's not a significant difference between the two.

Okay.

Pricing and are we seeing anything there.

Not really.

We're not seeing much difference at all.

John, the base thing is obviously it's -- the NAF is driven by a contribution of sales, 1.5% of corporate and franchise, so with sales being below our expectation, the pool of money to spend in marketing is obviously going to be less.

Okay.

And as far as the break even goes for the year for same-store sales, can we still hit that with the reduced guidance for same-store sales for the year?

The break even --

The break even on the media spending for the list.

The media spend.

I mean it's the classic question of where would you be without media?

The first quarter when we compared the pre media trend and the guest counts from that to the lift we saw in guest counts during the media and the contribution of the margin of those guest counts was more than enough to pay for the investment of the $6.6 million in Q1, including the franchise partner portion that we contributed.

So we felt very comfortable that we have a good mix of a media plan going forward.

Okay.

And just one last question, we talked about the mix of the $5.99 offer.

I was wondering if that was similar for the $7.99 offer you had during the quarter and if that price point was too high, is that kind of why we went back to a $6.99 for the next promotion?

Well, what we're doing right now is considered one of our classic windows and we're supporting -- it's the patti melt which we're putting on our menu and that's being promotionally priced at $7.99.

It is just an introduction of an item that's going on our menu.

That's not a limited time offer.

It was not supported with television, it was supported mainly in restaurant with point of sale elements and then minimally with some national digital.

It's our normal product introduction scheme, if you will, and it will go back up to normal pricing albeit new for it when the menu comes out next week, in four days.

Great.

Thank you.

It obviously gives us learning at different price points, which is one of the reasons we did it at $7.99 during that window.

It will influence our decisions as we go forward with the other LTOs and other product introduction windows.

Thank you.

Our next question is from the line of Bryan Elliott with Raymond James.

Please go ahead.

Thank you.

I guess I'm a little slow.

I'm still confused about the sales guidance.

You -- let's just look at it piece by piece.

Not this aggregate TV and non-TV.

We're down two and change this quarter with some weather, we're down one and change in the first four weeks of the quarter, we have much easier comparisons going forward and we're going to spend a lot of money on TV which we've demonstrated last fall and this spring drives significant bounces in sales and traffic.

What am I missing?

Keep in mind, Bryan, that fourth quarter we don't have easier comps because we have the TV from last year helping our comp store sales overall.

In ten markets if I recall, right?

Right.

It still helped the overall comp store sales.

We were only down 10.8% in Q4 and that was relative to Q3 being down 14.9%.

So we did see some benefit in those ten markets that helped blend the comp store sales down only 10.9% -- or 10.8% in the fourth quarter.

We go over that in Q4 this year as well.

And then the halo hasn't been as robust as what we saw in the fourth quarter in those markets again.

What Denny was talking about, in California and Arizona, we're still challenged in those markets, so the list in residual in those markets so the lift and residual in those markets isn't quite as strong.

But --

Those are big markets for us.

Yes, but didn't -- wouldn't that -- that shows up in the quarter to date number, that shows up in the numbers you gave us pre-advertising with advertising, post advertising, that's not really a delta.

But it wasn't how we -- we used the fourth quarter results to model all three promos in 2009 in our original guidance.

And you effectively -- I mean I guess I don't see what was disappointing about Q1 when adjusted for weather, you beat your comp number.

You said minus 2, you came in at minus 2.3 and we had a point and something of weather, right?

Well, flat to 1.

We said flat to slightly down in Q1 was our original estimate and we were down 2.3 with weather.

Okay.

All right.

Thanks.

Well, within the food cost guidance, what's your assumption on sort of sequential beef from here?

Probably year-over-year for Q2 through Q4, we'll see somewhere around a 7% increase above 2009.

All right.

Thank you.

Yes.

Thank you.

Our next question from the line of Greg Ruedy with Stephens.

Please go ahead.

Thanks.

My understanding on the $5.99 LTO is it's advertised externally only, so are you having your core $75,000 a year guests use that price point and any color there would be helpful?

Greg, that's really tough to tell.

Obviously team members when there's value in the restaurants illustrate that sort of guess.

Very anecdotal, not a real way that we can track that within the four walls.

Okay.

You discussed the align and engage program.

Was there incremental year-over-year G&A or restaurant operating costs and, if so, how should we model that for the rest of the year?

Yes, it won't be material.

Okay.

Any update on your royalty program when you plan on rolling that out, what kind of repeat frequency are you getting in your test stores?

We are still piloting it in our 17 restaurants, we're still monitoring it.

We're looking at the design of the program itself and making sure that giving our situation and our opportunity that we have the design built correctly.

Once we do that, then we would look at expansion down the road but at this point we're just still making sure that we have the right program to roll out.

We've been pleased with people who have signed up and we're still trying to assess exactly the results since we don't have a pre wave of these guests, but we're trying to track who's in the program and seeing what tactics influence behavior.

So we're monitoring it.

When we roll it out, we want to make sure we have the right program designed.

Right.

Last one on the noncomping units, you gave some data points on the four units this year and pretty strong volumes there.

But can you talk to the performance of the units that opened first half of 2009 when the world was still kind of coming to an end and what are you seeing there?

Yes, we're still -- the opening -- the 2009 openings not quite as strong but I think 9 out of the 11 averaged about 100 -- a little -- right around $110,000 a week.

Thanks.

Thank you.

We have time for one last question.

And our final question is from the line of [David Doorman] with Morgan Stanley.

Please go ahead.

Hi, thank you.

A question on the lowered guidance for the year.

Can you just -- other than -- other than the lowered comp in the food cost, is there anything else material that is causing you to lower your number for the year?

Those are probably the big buckets of changes that we're seeing.

Would the lower tax rate persist?

Yes, we're expecting to be about 17% on the full year.

And then finally, when you were talking about the retention of customers after the LTO, can you -- are you willing to share your sort of internal expectation of what that would have been given what you saw in the fourth quarter test versus what actually happened?

We're not going to give that granular.

It's not as high as what we projected based on our experience from the October 2010, that's the only experience we had with LTOs, and on a national basis, it's not as high and we're seeing the pressure subsequent to that to Bryan's question, in the -- more in California and Nevada.

We took it down -- we took the retention down on that basis.

Got you.

And then one last last one, are the franchisees sort of happily on board with paying going forward or do you have to twist their arms at all?

No.

We've never twisted arms anyway and we had a great meeting when we shared all the results, both their results and our results in terms of cost recovery and break even.

So it was a super meeting.

Got you.

Thanks very much.

Thank you.

I think that was it.

Thank you all for joining us today.

As always, our success is driven by the talent and passion of our team members who we thank each and every day for their hard work and dedication to Red Robin.

We'll talk to you again in the second quarter.

Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.