Red Robin Gourmet Burgers Inc (RRGB) 2011 Q3 法說會逐字稿

Good afternoon ladies and gentlemen.

Welcome to the Red Robin Gourmet Burgers third quarter 2011 conference call.

(Operator Instructions.)As a reminder part of today's discussion will include forward-looking statements within the meaning of Federal Securities Laws.

These statements are commonly identified by words such as achieve, expect, will, potential, improve, optimize and other terms with similar meaning.

These statements will include but will not be limited to references to Project Red, including the Company's traffic and revenue driving initiative, intentions with respect to (inaudible) management, and plans for deployment of capital and other expectations discussed during the course of this call.

Although the Company believes that the assumptions upon which the preliminary or initial results, financial information and forward-looking statements are based are reasonable as of today's date these forward-looking statements are not guarantees of future performance and therefore investors should not place undue reliance upon them.

Also these statements are based on facts known and expected as of the date of this conference, call and the Company undertakes no obligation to update these statements to reflect events or circumstances that might arise after this call.

Participants on the call today should refer to the Company's 10-K and other filings with the SEC for a more detailed discussion of the risks, uncertainties, and other factors that could impact the Company's future operating results and financial condition.

The Company has posted its fiscal third quarter 2011 press release and supplemental financial information related to the quarter's results on its website www.redrobin.com,in the investor section.

I would like to now turn the conference over to Mr.

Steve Carley, Chief Executive Officer of Red Robin.

Thanks, Peter, and thanks everyone for joining us on our call today.

With me are Eric Houseman, our President and Chief Operating Officer; Denny Post, our Chief Marketing Officer who joined in August; and Stuart Brown who joined us in September as Chief Financial Officer.

After Stuart and I deliver some prepared remarks on Red Robin's fiscal third quarter 2011 performance, Eric and Denny will be available for Q&A.

So let's get started with a few financial headlines from our most recent quarterly performance.

As we shared in ourearnings release, and you can see on slides three and four of the supplemental information, during our fiscal third quarter this year our restaurants revenue increased 5.8% to $202.7 million and total revenues increased to $206.2 million.

Our Company owned comparable restaurant sales increased 2.1% driven by a 5.3% increase in average guest check partially offset by a 3.2% decrease in guest count.

Our adjusted earnings per diluted share were $0.24 compared to $0.08 in the same period last year.

On the development side we opened two new Company-owned Red Robin restaurants during the fiscal third quarter of 2011.

Our restaurant-level operating profit margin increased to 18.8% from 17.5%,driven by better labor efficiency and lower other operating costs,partially offset by increases in food costs.

Our restaurant-level operating profit was $38.2 million or 13.9% above a year ago.

Finally our cash flow from operations year-to-date through Q3 increased 41.8% to $73.1 million.

On slides five through seven you will see our quarterly improvements, adjusted earnings per diluted share, cash flow from operations and adjusted net income.

Red Robin's 2011 fiscal third quarter results represents our fifth consecutive quarter of same-store sales growth and our fourth consecutive quarter of earnings growth.

And I am very pleased with the continuing improvements in our performance in what has remained a fairly soft economic environment.

As in prior calls, I'll spend some time updating you on our Project Red priorities, shown on slide eight.

I will provide a summary of our progress on growing revenue, managing expenses and effectively deploying our capital.

Then I will turn the call over to Stuart to talk about the key drivers of Q3 results, and our outlook for the fourth quarter.

Let's look at slide nine.

The early results of our loyalty program, Red Royalty, continue to be very encouraging and exceed even our own expectations.

We recently surpassed one million registrations, and are already gaining valuable insights into how our guests interact with our brand, their frequency of visits, their average check, purchase behaviors and other information that will help us make better product and promotional decisions.

Additionally we have recently started testing programs to surprise and delight our loyal guests.

With special incentives that will drive their frequency.

As you know, we rolled out Red Royalty to all Company-owned restaurants at the beginning of the year and around mid-year we began expanding into our franchise system.

Currently about half of our franchise restaurants participate in the program and we'll continue expanding into our franchisees as their systems allow.

Our teams are very excited about Red Royalty's growth and the engagement of our guests in the program.

Regarding our latest LTO promotion.

We talked out on our last call about the strength of the product offering as well as our solid media plan to support it.

In fact, the Oktoberfest Burger that we featured during the fall LTO was a huge hit with our guests and exceeded our sales expectations.

Together with this great burger we applied learnings from our past LTOs to optimize our media and maximize the efficiency in our marketing spend.

TV media will continue to be an important tactic for driving guest traffic and communicating the quality of our menu so we will keep exploring ways to assure that we're getting full value for every dollar we invest.

As I mentioned a moment ago that our average guest check was up 5.3% in the third quarter.

This increase was driven by our menu redesign which is resulting in incremental sales of beverages, appetizers entrees and shareable desserts.

In addition, as you will recall, the April menu included a 1.5% price increase of which we realized about 1.2%.

The improved menu design as well as the price increase continued to make year-over-year contributions to price mix and margins.

Our taking back the bar initiative continues to pay off driving increases in beverage per person average sales and alcoholic beverage mix.

Year-to-date we have improved the alcohol beverage mix by about 40% basis points since we rolled out happy hour at the start of the year and introduced our new beverage menu in the spring and implemented our take back the bar initiatives.

So we are making significant and steady progress.

Even with the continued economic uncertainty and pressure on guest counts our initiatives have successfully resulted in increasing our sales and profitability per guest.

In addition we have been able to maintain market share relative to our peers.

In fact, we're encouraged by the start to the fourth quarter sales which had a good lead in from the success of our LTO and the media plan.

And while we're achieving meaningful revenue gains our plans for 2012 will include initiatives to continue same-store sales growth and improve guest count trends.

On the expense management side, slide ten, during the third quarter we continued to make progress toward our goal of capturing cost savings opportunities to improve our restaurant operating margins, representing $16 million to $18 million in annualized savings once fully implemented at the end of 2012.

By the end of next year we expect to capture at least 200 basis points of savings of which approximately 150 basis points should be realized in the fourth quarter of 2011.

In the past I have given you examples of the areas where we have either achieved savings or are exploring opportunities.

The opportunities continue to be across the restaurant P&L and range from big to small, such as a vendor change for trash liners that will results in more than $300,000 in annualized savings and a spec change to our kids' beverage cup to one that is more environmental friendly and will actually lower our costs more than $350,000 a year.

The goal of continuous improvement is becoming ingrained at Red Robin and we will keep looking for efficiency improvements to create value while always maintaining or improving our high standards of food quality, safety and great guest service.

One of the drivers of improvement in the restaurant level operating profit compared to last year was once again a decrease in labor costs.

Labor as a percent of sales was about 200 basis points lower in Q3 and Stuart will cover this in a bit more detail.

Lastly, here's where we are in optimizing our capital deployment.

As shown on slide 11, our goal is to establish capital deployment strategies that allow us to both grow the brand and maximize long-term shareholder returns.

Next week we'll open the last of 12 new full size Red Robin restaurants that we planned for 2011 and our new restaurants continue to perform well.

In facts the restaurants opened in 2010 have had an average weekly sales of approximately $65,000 this year and are generating cash on cash returns of nearly 40%.

This month we're also opening our new pilot smaller prototype restaurant, Red Robin's BurgerWorks, opening here in the Denver area and Northfield.

I encourage you to go to the following website -- rrburgerworks.com for a detailed understanding of what is going on with Red Robin BurgerWorks.

So to summarize, during the third quarter we continued to make significant progress in all areas of the business that are part of our strategic focus on operational improvement, achieving sustainable growth and profitability and increasing shareholder value.

Now I will turn the call over to Stuart to give you a bit more color on some of our operating results and our outlook.

Stuart?

Thank you , Steve, and I appreciate everyone taking time to be on our call today.

As Steve said, we had a great quarter financially and continue to make progress on many strategic fronts.

Third quarter adjusted net income which excludes impairment, severance and executive transition costs, rose to $3.7 million, an increase of $2.5 million or well more than double last year.

Adjusted earnings per diluted share for the quarter were $0.24 compared to $0.08 a year ago reflecting a higher net earnings and a 2.7% lower average share count related to repurchases.

Year-to-date adjusted earnings per share is $1.31, an increase of $0.79 compared to 2010.

The main drivers of performance this quarter were the 5.8% increase in restaurant sales and reductions in labor and operating expenses as a percentage of revenue which offset meaningful headwinds from higher food costs.

Comparable restaurants gross sales rose 2.1% in the quarter and year-to-date has increased 2.3%.

The changes to our April menu have resulted in increased item penetration per guest, favorable product mix and an approximately 1.2% realized price increase.

These and other initiatives including our successful fall limited time offer resulted in average guest check growth of approximately 5.3%.

Guest counts though decreased 3.2% compared to last year's increase of 2.6%.

While we entered the third quarter with a slow down in guest transaction we gained traction during the quarter supported by the positive impact of our effective media and our loyalty program.

As Steve discussed, we had a very successful launch of Red Royalty with over one million registrations supported by programs to assure traction among our guests.

In fact, the program has ramped up more quickly than expected which drove cost of incentives a bit higher.

The incentives are accounted for as a reduction of reported sales so on a net basis comparable restaurant sales increased 0.8%.

Also our new restaurants continue to perform very well.

The average weekly sales in our new and non-comparable restaurants were almost $70,000 and we are very pleased with the margins being generated.

The $10.3 million of sales from new restaurants in the third quarter added over 5% to revenue growth.

As we have discussed, though, commodity inflation continues to be a challenge.

Cost of goods sold was 25.5% of sales in the third quarter, which is an increase of 110 basis points over a year ago and 30 basis points higher than last quarter.

While ground beef pricing was slightly favorable to our expectations for the quarter, it increased 5.5% compared to a year ago.

In addition we had increases in steak fries, cheese, and items which are based on soybean oil.

Costs of goods sold would have been higher if we had not managed to offset some of the inflation through the cost saving initiatives that we have discussed in the past.

Labor as a percentage of sales has continued to improve.

Our general managers are doing a great job controlling wages, efficiency and productivity.

Labor costs were 33.6% of sales in the quarter, 200 basis points better than a year ago, to the ongoing benefits of multiple productivity initiatives and leverage on higher sales.

Project Red continues to reduce other operating costs which are about 80 basis points lower than a year ago, due mainly to the lower supply cost and repair and maintenance expenses.

Bottom line, as you can see on slides 12 and 13, is that restaurant level operating profit continues to climb on both the dollars and margin basis.

Turning to selling, general and administrative expenses, costs increased about $2.1 million excluding executive transition costs from a year ago due mainly to higher variable compensation and increased infrastructure investments.

As we have talked on previous calls, SG&A includes investments in IT as we develop a new backbone for our financial and store systems.

We expensed approximately $400,000 this quarter of project costs and are on track to roll out our new general ledger, store financials, and procure to pay systems in the middle of 2012.

Since joining Red Robin I have been impressed by the project team leading the system implementation, and the project plan.

There remains a lot of work to do, and the change across the Company will be substantial.

We plan a phased roll out of the systems, but this is like changing the engines on a aircraft while in flight and we wouldn't be surprise if we encounter some turbulence.

One implemented, these systems will deliver better insights into our business, significant process improvements and efficiencies and will enable us to continue transforming Red Robin.

The next phase includes a human resource information system to support hiring and team member training and builds on the new payroll system implemented earlier this year.

As you saw in our results we recorded a $1.9 million impairment this quarter related to a restaurant opened in 2008 in Southern California.

This lease was signed before the great recession in an area with new residential development.

While we have made a number of improvements in operating performance we concluded that the time it will take for the area to recover and improve sales warranted a write-down.

Quickly on income taxes, we recorded a tax benefit this quarter mainly due to credits under the hire act, which brought our year-to-date income tax rate to 7.5%.

Regarding our balance sheet and cash flow our leverage remains low and our liquidity remains in excellent condition.

Year-to-date our operating cash flow totalled $73.1 million compared to $51.6 million in 2010.

Despite investing capital on increased store openings to accelerate growth in returns we have continued to have excess cash which we have used to repurchase shares.

Year-to-date we have purchased 1.1 million shares for a total of $30.7 million for an average price per share of $27.78.

We announced also that our Board reauthorized purchase of $50 million shares through the end of 2012.

We have substantial opportunity to create value through increasing investments in the business and growing our store base, but this authorization provides the flexibility for us to react if market circumstances and our cash position warrant the purchase of additional shares.

Looking forward.

we expect to our performance in the fourth quarter to follow similar trends to our experience in the third quarter, as you see on slide 14.

Comparable restaurant sales in the fourth quarter are expected to grow in the low single-digits, and we launched our new menu on October 17 with minor item changes and a price increase of approximately 90 basis points.

Restaurant level operating profit margins are expected to decrease 20 to 30 basis points from third quarter due to higher cost of sales and labor as well as the impact of seasonally lower sales partly offset by better other operating expenses.

This seasonal change in margins is favorable to last year when margins decreased 50 basis points sequentially.

Selling, general and administrative costs should be relatively flat in the fourth quarter compared to the third quarter, excluding executive transition costs, and our income tax rate for fiscal 2011 is expected to be near 7.5%.

Our outlook for 2012 remains cautious given the economic volatility and the expectations for very low employment growth.

Steve talked about some of theinitiatives we are talking and we will provide further information on our next call.

Consistent with many of our peers, though, we expect commodity prices to increase cost of sales by a range of 3% to 5% from our average in 2012.

Ground beef alone could increase 10% to 15% over the average price this year.

Further we will be lapping most of the steps we took to reduce 2011 labor expenses and expect minimum wage increases by a number of states, particularly in the west, will increase labor by 20 to 30 basis points.

As discussed previously, we target opening 12 to 15 new restaurants, which will be a combination of 2,000 square foot, 4,000 square foot, and 6,000 square foot prototypes, and we will provide more details in our fourth quarter earnings call.

Finally, 2012 will consist of 53 weeks.

As the extra week is typically a strong sales period for us we expect week 53 to add approximately 2.5% to our sales.

Before I turn the call back over to Steve, let me say how excited I am to have joined Red Robin.

The level of passion for the brand by guests and team members is amazing.

Further to have joined when there is so much positive change ongoing but still so much to do will be challenging and fun.

We have a lot of work ahead of us including new systems and processes, menu and brand optimization and increasing the pipeline of new restaurants, designed to lay the foundation for further improvement of performance and accelerating growth beyond 2012.

Thanks, Stuart.

In closing we're very pleased that our solid results this quarter continue to reflect our progress in consistently improving our operating performance.

We're continuing to lay the foundation for sustainable and meaningful long-term growth and increased shareholder value through investments in our infrastructure, our marketing programs and other initiatives.

And I am particularly proud of our team members across the organization and appreciate all their hard work and dedication to making our business stronger.

These would not be possible without their commitment.

Our restaurant teams are driving the improvements and all elements of our balanced operation scorecard and they're excited about the positive impact they're having.

Seeing our guests check averages rise, the Red Royalty memberships expand, our bar initiatives take hold, and our culture of continuous improvement growth, they especially appreciate the fact that we are asking them about their opinions through our team member voice program and then working very hard to positively improve the areas they have highlighted for us.

Going forward, particularly in 2012, our focus will be on increasing the strength of our brand's value proposition, enhancing the great quality of our food across every menu item, delivering our promise of exceptional guest service and making our restaurant atmosphere even more fun and more relevant to all of our guests.

We will have more to share on these and other topics on our fourth quarter earnings call.

So that's our perspective on the third quarter and our view ahead.

With that operator, we would be happy to take questions.

Thank you.

(Operator Instructions).

Let's first go to Wells Fargo Securities, Jeff Omohundro.

Thanks.

I guess first just a clarification on one of the comments Stuart made regarding the cost of sales outlook for 2012.

I think, sir, you said 3% to 5% and the supplemental data sheet says 4% to 5%.

Maybe you could clarify that and also in looking at the 2012 cost of sales outlook could you give us an update of some of the components behind the inflation outlook?

Thanks.

Yes.

I guess having that disconnect shows you how fluid things are in the world of commodity pricing so really the outlook is for 3% to 5%.

And I think a number of our peers have really talked about where commodity prices are going so I don't think what we're going to experience is that different.

In terms of where we are in terms of contracting and things like that, obviously corn pricing is having a significant impact on all proteins.

While chicken is down today the market, if you look at sort of where futures are chicken, expect that chicken price is going to increase fairly meaningfully next year so we are fairly short-term in terms of our contracting on chicken.

Really just going out a few months on chicken breasts.

Beef we've talked about in the past we're don't have -- we're really on the spot market on beef.

There is -- beef is going to go up.

The question is more by how much as there's been an increased number of cattle going to slaughter this year so next year you will have less supply and what supply there is out there, weights are going to be dropping on those due -- presumably due to the price of corn and farmers are going to be sending beef to slaughter earlier.

Other products prices really are probably less impactful.

Pork market overall is a little bit elevated compared to a year ago but we expect that we'll go out on pork and take that out in February for most of next year.

Sort of more of a seasonal purchase.

And potatoes, we've actually -- which is another big item for us -- we've purchased that essentially through October of next year, through the fall of next year, we've locked contracted pricing on that, but beef and chicken we're going to stay shorter-term just because the insurance cost of going further out is so expensive it just doesn't make sense in the market today.

Thanks.

And then on the burger works concept, how long do you think you will be incubating that before making a decision on accelerating development in terms of the 2012 outlook?

Well, Jeff, this is Steve.

I'm glad there's such a high level of interest in the store that has not opened yet and, of course, we have high expectations.

The reality is we are going to open.

We're going to watch it for a while.

We're going to open a couple more in different, very different trade areas in the Denver area and read it through next year to make sure we understand both the capital costs, the consumer response and the margin implications before we pull the trigger.

So we're going to be pretty thoughtful about it.

Thank you.

Let's go to next Bryan Elliott with Raymond James.

Good afternoon.

Just I guess wanted to drill down -- I appreciate all the color so far on the food costs but just actually the 3% to 5% is relatively low, compared to what some people have spoken to here recently.

And just wanted to get a sense -- I mean you talked about 10% to 15% potential ground beef and just -- and your expectation for chicken prices to rise from where they are currently and where your current contract is so what are the offsets?

What do you expect -- did the potato contract come in really well?

I know we had a produce spike Q1 last year that benefits you probably.

Just want to get a little tighter sense of the offsets and if say we are up 15% in ground beef would that really keep you within that 3% to 5% band?

No.

Again, orders are sort of based on where current markets are and also the pricing that we're getting coming back from our suppliers again.

So we've, again if you sort of assume a -- in that range we have assumed that ground beef goes up 10% to 15%.

We have looked at -- we recently -- we met last week with our main chicken suppliers and in that we're getting new pricing coming back from them on that in terms of -- really what we're trying to do is work with our suppliers to find a contract term and pricing that makes sense for them and for us.

So we're not out trying to force what's going on in the market to say, okay, we have to contract out six months.

If you've got a supplier who says I can give you great price if you contract out for three months and then you can sort of come out with layered contracts to sort of take some of the risk off the table so I think that's part of it.

In terms of just what our product mix is and what we've compared last year, sort of experienced in 2011, is that we have had some elevated pricing in cheese, that's come back down, so you get some offset there, and oil and produce.

-- or soybean based products -- oil and produce which is also relatively flat and cheese may actually be down versus a year ago.

Okay.

Great.

Thank you.

And a question now from Brad Luddington, Keybanc Capital Markets.

Thank you.

I wanted to see what -- you know you are really lapping the kind of change in the LTO focus, keeping the promos to a shorter time frame and everything else.

What should we expect with average check or mix going forward.

That's been a big boost over the last few quarters and do we expect -- or do you expect that to flatten out in the coming quarters?

I'm sorry.

Can you repeat the question?

I missed the first part of it.

Just looking at what we should expect with same-store sales going forward.

You had some help from a positive average check or positive mix or however you want to word it over the last few quarters, this quarter it knocked you out from negative traffic to a good positive comp.

Is that impact supposed to diminish in the coming quarters or should it stay strong?

Just looking out to Q4 I don't think the patterns will change that much.

Again we saw an improvement during the third quarter of what happened during the quarter in terms of guest counts and 2012, in terms of we have some menu increase -- so it will flatten out next year.

Okay.

And then just talking about your Red Royalty, the loyalty program.

Can you give a little color on some of the tests or how that's been working out?

There's been, I know, some emails promos, the savings [test] and other things.

Is there something you're finding that works particularly well or where are you headed with that right now?

This is Denny.

We are -- we've got an outside analytical partner working with us to really refine this program and it's paying off for us in a number of ways.

We're seeing our most sustained positive impact so far against our lightest users.

Which are those currently visiting us less than once a month and that really shows us the benefit of the frequency challenges that we've put in place, the ability to buy four burgers get a fifth, they've got a challenge along those lines, a number of those.

It's also telling us that we need to take some of these smart rewards that we're beginning to test and really focus those on our heaviest and most engaged users.

In many cases our guests that come to us most frequently are more interested in things like sneak peeks to upcoming LTOs et cetera.

So we're learning and refining what that combination of incentives and rewards is, and continue to be very committed to it.

Again, very impressed with the uptake on the program and the number of customers who have come in and the more customers we get the more insight we get and the more value we can drive out of the program.

So we are -- we're learning as we go and refining for next year.

Okay.

Thank you.

And then finally I'm sorry if I missed this earlier but did you comment on what's going on with alcohol mix right now?

Yes.

We said that year-to-date we're up about 40 basis points in beverage alcohol mix.

Alright.

Thanks, Steve.

Appreciate it.

From Morgan Keegan let's go to Destin Tompkins.

Thank you.

Steve, just thinking about a lot of your competitors, seem to be more value-focused, maybe looking to grab market share, a little more aggressively.

I'm just trying to get a sense of how comfortable you are with your average check up 5%, the way it's been the last couple of quarters, the way it's trending.

Is that by design, with the broadening appeal of the menu and growing alcohol and some of these things?

Are you comfortable with that at least for the time being?

How are you thinking about value promotion and maybe trying to drive traffic as you go into 2012?

Well, Destin, we look at our average check across the competitive set, and we're still in a relatively good place in an absolutely basis, number one.

Number two, a big part of the average check increase are guests consciously adding appetizers, beverages, and trading up from a burger to an entree.

And so that's the guest in control of their own check so we're not overly concerned about it.

Having said that, we are in the process of finalizing our strategic plan and by the end of the year we're going to be putting our tactics in place for 2012 and we do want to take a very hard look at both what's happening competitively and what we're doing at Red Robin to reignite growth in traffic and guest counts.

If you look at our performance versus black box, which is an industry metric, we're not losing market share.

We are -- certainly in the third quarter outperformed black box.

At the same time long-term, we know this is a guest count, a traffic driven business and given the fact that we are outspent ten to one by some of our casual dining competitors we can't rely on just two or three times tipping our toe in the moment from an LTO.

We are going to have to put together a thoughtful every day value proposition and by that I don't mean discounting.

I mean value and that is job one for us going into 2012.

Okay.

Great.

That's helpful.

And then on the 200 basis points of restaurant level margin by the end of 2012 I missed some of your comments around that.

Can you just maybe just reiterate kind of where you are at this point and how to think about next year given the commodity inflation you're talking about as well as the labor pressure?

Sure.

We are on track to hit that annualized $16 million to $18 million net savings number by the end 2012.

As a matter it of fact is you look at the fourth quarter, we're going to have about 150 basis points of that starting into the P&L.

I talked about a net number because we are consciously driving savings to offset both unexpected food costs commodity inflation and some of the labor inflation and so we're doing that consciously to make sure we do have a net savings number and we're on track for that.

Okay.

And then on the menu pricing, I don't know if you're willing to share kind of the menu pricing plans for 2012 as you're -- to try to offset some of the commodity inflation, do you plan to try to price to offset all of it or a portion of it or how are you thinking about menu pricing?

Destin we -- how we are thinking about is we would like to take nothing.

We know consumers are strapped and they're not coming into any of our restaurants indicating that they would like to pay more for anything.

So depending on how fruitful our project blueprint exercises are, number one, and then number two, kind of how the business is shaping up, we're going to try and be a little bit nimble on our pricing.

And we're not -- really have not concluded what we're going to do for 2012 at this point.

Okay.

Great.

Thank you.

Let's move on to Will Slabaugh with Stephens.

Okay.

Thank you.

I wonder you could talk a little bit more about the LTO, the results there and how that mixed and sorry if I missed that number.

And then also I believe it was extended a little bit this time.

Wondering about the thinking there and if you would expect that to continue going forward.

Actually following on our learning earlier in the year we were on air for four weeks with this LTO.

We did optimize our media mix so that we had higher reaching frequency this time, which was one of the efforts and it paid off for us.

This specific LTO, and I don't think we talked specific mix but I can tell you that it was it the highest performing LTO in units at that price point and we feel real good about where it turned out.

We also saw a really nice mix of other items to kind of offset that in stores as well as so a lot of customers who came in then maybe traded up to a seafood scatter or added some other things.

But what we have refined is we keep the price point, the promotional price points only during the time we're on air.

So we start the soft roll at the original price point and then return to that post being on air and really reap the benefits of the awareness of the item at maximum profitability.

Okay.

Great.

And quickly on pricing just wondering on the small amount pricing [you took] in October, if you see any sort of push-back there, anything that would indicate that the consumer is in a difficult spot?

No.

Great.

And just lastly high level here, and I know it's early.

On the BurgerWorks concept, as that space becomes more crowded and just wondering at high level development plans might be there and then more importantly as you have seen a lot of these fast casual guys expand rapidly across the country, any sort of learnings you can take from them.

There's a couple points there, Will.

I think the way to think about BurgerWorks right now is it is really a non-traditional vehicle for Red Robin.

We don't right now have anything that works in airports on military bases, college campuses, food courts and those kind of venues.

We think at a minimum BurgerWorks will be something that we can then take and expand into those non-traditional venues.

I think the other lesson that is taught to all of the food service folks time and time again is that if you expand faster than your human resource and training resources can handle, you will disappoint the guests and you will come to a bad place.

So that's why we're being thoughtful as we talk about this and probably very prudent in how we forecast our growth.

Great.

Thank you.

David Dorfman with Morgan Stanley has our next question.

Thank you.

Can you dig into the labor productivity initiatives.

That seemed to be the bulk of where your savings are coming from so far and t I think the examples you gave were more related to sort of the other savings line.

Maybe if you can give some examples of the labor savings and then a follow-up to that would be just if you can talk about the impact of the extra week next year not on sales but maybe on the margin where you will find some leverage?

Yes.

David, Houseman here.

In the project blueprint and under the umbrella of Project Red we've been looking at our labor and our efficiencies both in the [heart of the] and the front of the house for some time now and a lot of these efficiencies, to give you some examples are -- we're taking labor out by purchasing different pieces of equipment, changing some processes and procedures with a procedure that we are calling afternoon prep, looking at redeploying.

We've undertaken a labor time and motion studies so we know the capacity both of our team members as well as of our equipment and are maximizing those efficiencies by moving fixed hours that would have been spent possibly before open or after close into down periods where our team members have natural extra capacity so it's really across-the-board.

We've done some prep changes in our homemade soups that have really benefited us as well as looking at -- I think we talked about taking some prep hours out because we're able to get like pre-made cocktail sauce from Heinz that tastes identical at even a cheaper price.

So it's really across the board in all areas.

And to come back to your question then on week 53, I mean typically the quarter that you have a week 53 in is typically a higher margin quarter then it would normally be as you're leveraging additional sales over some costs that are fixed.

We'll provide more color on that in the February call.

(Inaudible - multiple speakers.) Sorry, was most of that leverage below the sort of restaurant level though?

The majority of it is.

Okay.

And David, I just want to just reiterate, too, is we haven't changed any of our guest facing standards.

So tables per server, our expectation around ticket time production, none of the guest facing standards have been lowered so I want to be clear with everyone it's really a efficiency play versus reducing physical bodies within our.

That's helpful.

At the same time we have seen our customers sat scores quarter over quarter continue to increase.

Thanks very much.

(Operator Instructions.)And let's now go to Piper Jaffray, Nicole Miller Regan.

Thanks.

This is Josh on the call for Nicole.

I had a question about how the year-over-year traffic comparisons shape up as you go through the back half of this year?

It looks like you've done a good job on the price mix component, but kind (inaudible) from the other question.

What does that value equation look like in 4Q and maybe just if you could also comment on how traffic trended in 4Q thanks.

4Q 2010.

The question was really on where -- how do expect sort of guest traffic to shape up in the fourth quarter, is that what part of the question is?

(inaudible - multiple speakers) How it compares with last year.

So last year guest counts were favorable.

We're up about 1.1% and that compares to Q3 last year was up 2.6% so, theoretically it's a little bit easier.

That said I wouldn't expect a big change from the way we ended the third quarter and Steve sort of mentioned we started off the fourth quarter encouraging and feel good about the way we're entering it.

Was that pretty balanced last year in 4Q?

The traffic trend?

It got a little bit easier as the quarter went on.

Okay.

Great.

Thanks.

We now have a follow-up question from Bryan Elliott.

Thanks.

I wanted to circle back to the BurgerWorks concept for a bit.

I just wondered if you could, Steve, spend a few moments just sort of fitting that in from a strategic standpoint and, just sort of, is it offensive, defensive, some of both can you just elaborate a bit on your thinking about that -- the risks and opportunity there?

Sure, Bryan.

I think as I mentioned before the fundamental purpose of BurgerWorks is to give us a flexible, non-traditional vehicle to get into sites and locations where we currently are absolutely not available, so think of airports and military bases, food courts, college campuses, stadiums, number one.

Number two, we have gone through a rigorous real estate assessment this year and one of the learnings is, first of all we have done a pretty good job historically in real estate given the 300 plus Company-owned units, we've only had a couple we've had to impair over the course of the last couple years and that's pretty striking.

Having said that, the vast -- the overwhelming majority of our units are in suburban power centers, regional power centers by suburban cinemas and those kinds of places and as many of you know we are virtually unrepresented in urban environments and in many urban environments getting a 6,000 square foot building is a big challenge and so the other element strategically for us is that BurgerWorks may give us a way to become a lot more convenient in places where we don't have any units right now.

And think of almost every major urban market in the United States and so those are basically the couple of offensive minded strategic elements that we think BurgerWorks brings to the table.

Great.

Thank you.

And a follow-up now from Destin Tompkins.

Thanks.

Just a couple of quick ones.

One, if you could just for help as we look at 2012 can you tell us what the commodity inflation ended -- or what it looks like it will end up being for 2011?

Total commodity inflation will be about 4%.

Okay.

So if we looked at the cost of sales pressure you saw this year, given you're still talking about 3% to 5% is that a reasonable basis to be thinking about for 2012 or are there too many other moving parts?

No.

I think it's a reasonable basis.

I mean also remember in 2011 we have benefited from a number of changes that we've made in -- we've talked about in the past, going to using fewer distribution centers and things like that that's helped offset some of the commodity inflation we've had this year so having it roll into 2012 makes sense.

Okay, and then lastly I didn't notice franchise comps in the press release.

Would you be willing to share what the franchise comps were for the quarter?

Yes.

We have those, I think they were in the presentation actually and they're in the supplemental.

Okay.

Great.

Financial information.

So that's in the supplemental on slide four.

Mr.

Tompkins, anything further?

That's it for me, thanks.

Thank you, and that is all the time we have for questions.

At this time I would like to turn the conference back over to Steve Carley for any additional or closing remarks.

I want to thank everybody for joining us today and your continued interest in Red Robin and we look forward to sharing our 2011 full year results for you in February and giving you some insight into our key priorities and tactics for 2012.

Thank you.

Once again we now concludes our audio conference for today.

Thank you very much for your participation.

Have a great day.