Red Robin Gourmet Burgers Inc (RRGB) 2011 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers fourth-quarter 2011 conference call.

At this time, all participants have been placed in listen-only mode, and the lines will be opened for your questions following this presentation.

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 continue, plan, achieve, expect, will, implement, optimize, target and other terms with similar meaning.

These statements will include but will not be limited to statements that reflect the Company's current expectations with respect to the financial condition, results of operations, plans, objectives, future performance and business, references to Project Red, including the Company's traffic and revenue driving initiatives, intentions with respect to expense management, and plans for deployment of capital and other expectations discussed during the course of this call.

Although the Company believes 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 on 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 presentation.

Participants on the call today should refer to the Company's Form 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 fourth-quarter 2011 press release and supplemental financial information related to the quarter's results on its website, www.RedRobin.com, in the Investors section.

I will now turn the call over to Mr.

Steve Carley, Chief Executive Officer of Red Robin.

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

Joining me are Eric Houseman, our President and Chief Operating Officer, Denny Post, our Chief Marketing Officer, and Stuart Brown, our Chief Financial Officer.

After Stuart and I deliver our prepared remarks, Eric and Denny will be available for the Q&A section of our call.

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

As we shared in our earnings release and as you can see on Slides 3 and 4 of the supplemental information, during our fiscal fourth quarter this year, our restaurant revenue increased 7% to $202.5 million, in total revenues increased to $206 million.

Our Company-owned comparable restaurant gross sales increased 4.8%, driven by a 5.6% increase in average guest check, partially offset by an 80 basis point decrease in guest counts.

Our adjusted earnings per diluted share were $0.28 compared to $0.13 in the same period a year ago.

On the development side, during the fiscal fourth quarter of 2011, we opened three new Company-owned full-size prototype restaurants and our first smaller nontraditional prototype Red Robin's Burger Works.

Our restaurant level operating profit margin increased to 19.9% from 17%, driven by better labor efficiency and lower other operating costs.

This was partially offset by increases in food costs.

Our restaurant level operating profit was $40.3 million or 25.3% higher than a year ago.

Finally, our cash flow from operations during the full fiscal year 2011 increased 35.5% to $95.7 million.

Looking at Slides 5 through 8, you'll see our quarterly improvements in our comparable restaurant gross sales, adjusted earnings per diluted share, cash flow from operations, and adjusted net income.

Red Robin's 2011 fiscal fourth-quarter results represents the momentum that we are achieving in strengthening our business with six consecutive quarters of same-store sales growth and five consecutive quarters of earnings growth.

We are pleased with the continued success of our teams across the Red Robin organization in driving significant and consistent improvements in our financial performance.

In each of our quarterly calls during 2011, we've given you updates to the key components of Project Red.

So, I'd like to first share some of those headlines with you on the progress we've made through the end of the year at each of these important areas.

Let's look at Slide 10, driving guest sales.

As you may recall, in early 2011, we rolled out our loyalty program called Red Royalty to all of our Company-owned restaurants.

Since then, we've launched the program at about 50 of our franchise partner restaurants.

We are very pleased with the results of the first year of Red Royalty.

We now have a database of registered guests that's about 1.4 million and growing.

For perspective, it took almost 10 years for us to sign up 2.2 million members in our e-club.

Most importantly, Red Royalty is not just an e-mail address, but a treasure trove of guest insight.

One of the things we know now is a registered Red Royalty member has a two-year profit potential, more than three times higher than a non-Red Royalty guest.

So the program is doing precisely what we designed it to do, giving us valuable insight into our guest behavior and allowing us to surprise and delight guests and drive incremental business.

In 2012, our goal is to build on this momentum and expand the universe of our registered guests.

We also plan to keep expanding the program within our franchise system this year.

By enhancing our relationships with our guests, we expect to build affinity to our brand, offer incentives that are relevant to our most loyal Red Robin fans, and continue to drive profitable guest traffic.

Regarding our limited time promotions, throughout 2011 we continued to strengthen our product offerings and our media plans to support them.

As a result, the fall LTO which wrapped up in the fourth quarter and featured our Oktoberfest burger was very successful.

During this promotion, we saw significant pre- to post-trend improvements in both guest counts and sales.

And our Jim Beam burger, which we featured around the holidays, was a big hit with our guests, achieving strong sales at full margin with only social media and Red Royalty messaging support.

With each new LTO promotion, we are maximizing the efficiency in our marketing spend, which was one of our major goals for 2011.

In 2012, LTOs and TV media will continue to be important tactics for driving guest traffic in communicating the quality of our menu.

During Q4, we continued our progress on taking back the bar, which began just before the start of 2011.

We are continuing to drive increases in beverage per-person average sales and alcohol beverage mix.

We ramped up our beverage program early in the year and began seeing increases in overall beverages in Q2, Q3, and especially in Q4 when we achieved a 90 basis point year-over-year increase in alcohol beverage sales.

For the full year '11, we regained about 50 basis points of our beverage/alcohol sales mix that we had lost in the previous decade.

As a reminder, a 1% lift in our alcohol beverage sales represents about $6 million in EBITDA.

When we began this effort, our challenges included a lack of marketing around our bar offerings, compounded by the fact that our team members did not instinctively educate our guests about our great beverages.

We still have a long way to go, but talking about beverages is slowly becoming part of our team members' vernacular and we are turning this part of our business around.

Combined with the new drinks and desserts menu that we introduced in 2011, increased sales of appetizers and opportunistic promotions like our Jim Beam event like last year we expect to make even more progress in this area of significant profit potential in 2012.

Looking at Slide 11 on expense management, you can see that, despite continued pressures from commodity inflation, our team members were able to capture substantial cost savings, resulting in a significantly higher profit in the fourth quarter.

In fact, the reduction in restaurant costs we outlined earlier this year with Project Red have been realized even more quickly than we anticipated.

Throughout 2011, we shared with you many specific examples, big and small, of how our teams are managing costs, increasing productivity, and improving our restaurant operating margins.

In 2011, we captured about two-thirds of our stated goal of achieving $16 to $18 million in annualized savings by the end of 2012.

As I've said before, continuous improvement is becoming ingrained in our team culture and our people are finding ways to harvest cost improvements without negatively impacting either our team members, and especially without compromising our guest experience.

In fact, our year-over-year top box score for overall restaurant experience improved 5 full percentage points to end the year at about 70%.

Our goal is to drive loyalty by building on this momentum and expanding the number of our restaurants that are achieving best-in-class guest satisfaction scores at the same time.

Lastly, here is where we are with optimizing our capital deployment on Slide 12.

We told you that our efforts in this area are focused on establishing capital deployment strategies that allow us to both the grow the brand and maximize long-term shareholder returns.

To that end, in Q4, we opened the last three of the 12 new full-size Red Robin restaurants planned for '11, and franchisees opened the last of their for three new restaurants scheduled for the year.

New restaurant development remains a highly productive use of our capital.

Our new restaurants continue to perform well with the 2010 and 2011 classes generating average weekly sales of $63,853 and generating cash-on-cash returns approaching 40%.

In addition, in the fourth quarter, we opened the first location of our smaller nontraditional restaurant prototype, Red Robin's Burger Works, here in Denver.

This first Red Robin's Burger Works is meeting our expectations and we are planning to open a handful of other Burger Works locations, one on Ohio State's campus in late March and in other locations here in Denver this year.

Once we have some operating experience at these initial locations, we will evaluate the format and determine our long-term plans.

In the meantime, we are excited about the positive comments we are receiving from our guests on the Burger Works quality of product and speed of service.

In reality, really the only negative feedback we have received is that we are not serving bottomless steak fries at Burger Works.

Finally, we told you that a critical part of our focus on driving change and achieving our future state was investment in revamping our IT systems.

During 2011, we made substantial progress developing systems that will make our foundation stronger, help us make better and more timely decisions, and give us and all our team members the tools to grow our business well into the future.

This includes progress on our IT infrastructure, improving labor scheduling, and a new interactive computer-based training system for our hourly team members and managers.

So to summarize, our fourth quarter of 2011 marked a strong finish to a year of significant and meaningful progress.

The tasks we have undertaken are essential to improving our operations, achieving sustainable growth and profitability and increasing shareholder value.

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

Thank you Steve.

We had a terrific worth quarter of capping off a great year.

Fiscal 2011 adjusted net income of $24.3 million was $13.2 million higher than 2010.

Furthermore, our cash flow from operations increased to $95.7 million in 2011 or an increase of 35% year-over-year.

In the quarter, adjusted net income increased $2.1 million, more than double a year ago to $4.1 million.

The three drivers underlying our performance this quarter versus a year ago were, first, revenue growth of 7% with healthy comparable restaurant sales; second, a 390 basis point reduction of operating expenses to 54.7% as a percentage of restaurant revenue; and third, a 100 basis point increase in cost of sales as a percent of revenue to 25.4% due to commodity inflation.

Together, these resulted in restaurant level operating profit of 19.9% in the fourth quarter, or 290 basis point better than a year ago.

Looking at fourth-quarter sales in a little more detail, comparable restaurant growth sales increased 4.8% due to a 5.6% higher average gross check.

The higher average check reflects our guests adding items such as appetizers and alcohol beverages to their checks, as well as the flow-through of price increases taken in April and October of approximately 2.2%.

Guest counts in the quarter decreased 0.8% from a year ago, which is a meaningful improvement from the third quarter when counts were negative 3.2%.

Comparable restaurant net sales increased 3.1% in the quarter versus 2010, with higher incentives related mainly to the rollout of Red Royalty.

The revenue increase was also helped by our accelerated store openings.

As Steve mentioned, we added 13 Company-owned restaurants in the year, which added approximately $8.5 million of net sales to the quarter and for the year added over 300 operating weeks for $21.7 million of net sales.

There's been a lot of discussion in the industry about the impact of inflation in general and beef in particular.

During the fourth quarter, the cost of our commodity basket increased about 4% from 2010 due largely to ground beef, which represents approximately 13% of our total cost of goods sold.

The market price of ground beef -- and we buy fresh ground beef -- increased about 14% in the fourth quarter over the prior year.

For the year, the market price of fresh ground beef increased almost 17%.

We were able to offset -- we were able offset much of this increase in commodity costs, savings initiatives we have discussed in the past, such as our new distribution agreement, changes in pack sizes, as well is the shifting of sales mix into items with higher dollar contribution, although also a higher cost like seafood.

As you can see on Slide 13, despite our efforts to mitigate inflation, our cost of goods sold grew to 25.4% of restaurant revenue, an increase of 100 basis points.

Regarding operating expenses, the organization has made significant progress improving processes and managing purchasing to drive costs out of the business as part of what we refer to as Project Blueprint.

The savings we were able to capture in the fourth quarter exceeded our own expectation, particularly around labor costs, supplies and maintenance, which was key to our reducing operating expenses by 390 basis points.

As Steve discussed, we realized cost savings of almost $12 million in 2011 toward our goal of $16 million to $18 million of savings by the end of 2012.

The process we've been using to identify and implement these savings has become institutionalized across the organization and follows principals of change acceleration that General Electric and others have used over the years.

These have moved from top-down initiatives to grassroots idea generation, taking advantage of the knowledge and experience of our team members who serve our guests every day.

We would not have collected the ideas or achieved the results without the actions and the drive of all of our team members who have my personal thanks for their effort.

The continuous improvement process has actually become a fun exercise as we conduct internal challenges and use our captive social networking site to post and share ideas.

Cost reduction initiatives have ranged from reducing supply-chain costs to changing supply specifications, to the installation of energy management systems.

The savings to date were delivered well ahead of schedule and will likely surpass the $16 million to $18 million originally targeted, which will continue to mitigate pressure from commodity inflation.

Additional savings will likely be reinvested back into initiatives that advance our guest experience and build on our strong brand and differentiation.

As shown on Slide 14, we have consistently improved year-over-year restaurant margins.

Fourth-quarter restaurant level operating profit was $40.3 million, an increase of $8.1 million or over 25% compared to fourth quarter 2010.

For fiscal year 2011, restaurant level operating profits increased $27.6 million, or 18.3%, from 2010 to $178.3 million.

An easy way to think about how the year unfolded was that we realized about 1% of sales growth from pricing, or approximately $8.5 million, which was offset by about 3.5% of commodity inflation for the year, so the $27.6 million of higher operating profits resulted from improvements in menu and mix as well as cost savings.

Selling, general, and administrative costs increased $4.1 million in the fourth quarter from a year ago due mainly to higher performance based compensation, project costs for our new information systems and legal expenses.

Selling and marketing costs in the quarter were flat compared to a year ago.

As we talked about last quarter, the implementation of our new general ledger, store financials procure to pay systems and human capital management tools are set to start rollout in the middle of 2012 and be complete by year end.

The total cost of this phase of revamping our IT system is expected to be nearly $20 million.

In 2011, we expensed $3.1 million and capitalized $4.8 million related to this project.

In 2012, we expect to expense approximately $4.5 million and capitalize $6.5 million related to these system changes.

Our 2011 tax rate came in a bit lower than we expected at 6.8% for the year.

This lower rate was primarily related to impairments recorded in the fourth quarter.

Excluding impairments, executive transition and other adjustments in 2011, we estimate our normalized tax rate for 2011 would have been 13.8%.

The impairments taken in the quarter relate primarily to one restaurant which had been on our watch list but additional competitive openings results in our lowering of assumptions and the rate of recovery and the estimated fair value of the restaurant.

Turning to cash flow and our balance sheet, cash flow from operations in 2011, as mentioned, was $95.7 million compared to $70.6 million in 2010, reflecting a strong improvement in operating results.

Investments in new and existing restaurants increased as well to $44.1 million in 2011 from $35 million last year, reflecting our increased new store openings and infrastructure investments.

In 2011, we repurchased 1.2 million shares for 33 million of which $2.3 million was bought back in the fourth quarter.

Shares repurchased represented over 7% of our shares outstanding as of the beginning of the year.

Our capital position remains strong with total cash of $35 million at the end of 2011 and our $100 million credit facility undrawn.

Look ahead to 2012, as you read in our press release and as shown on Slide 15, we expect comparable restaurant sales for the year to grow in the low single digits over 2011, resulting from improved traffic trends as well as price and mix.

We expect to open net 13 to 15 new restaurants ranging from 2000 to 6000 square feet in the year, adding over 250 operating weeks.

Based on our current outlook, we don't expect to make any meaningful price changes to our menu this year.

However, the timing of our pricing changes in 2011, movement in holidays and timing of media will impact quarterly growth rates.

As you recall, we increased price approximately 1.5% in April 2011 and an additional 0.9% in October.

So sales growth from pricing and mix will have its greatest impact in the first quarter of 2012 with more moderate growth expected for the remainder of the year.

However, revenue in the fourth quarter will obviously benefit from the impact of the 53rd week.

Due to continued pressure on ground beef prices and other commodities, partly offset by lower average dairy and produce prices, along with benefits from our supply-chain initiatives, we expect cost of sales to increase 60 to 80 basis points over 2011 to near 26% in 2012.

In the middle of the P&L, increases in minimum wages in many of our states will increase labor costs 20 to 30 basis points over 2011 average of 33.8% of sales.

This cost pressure from wages though should be more than offset by the cost reduction initiatives in labor and other costs as well as some additional leverage on higher sales.

As a result, restaurant level operating profit margins are expected to expand 10 to 20 basis points from the 19.8% we generated in 2011.

The margin expansion will be greatest in the first quarter and then flattening out as we move through the year as we cycle against many of the cost saving steps implemented in 2011.

We are planning for selling, general, and administrative costs to range from $105 million to $107 million in 2012 as selling and advertising costs rise in line with sales, and general administrative costs rise 4% to 5% due to the infrastructure investments, support of our increased store openings, and the 53rd week.

Furthermore, our tax rate will rise from our normalized 2011 rate of 13.8% to a range of 22% to 24% of pretax income due to higher earnings and the expiration of the HIRE Act tax credit.

Our investment in 2012 are expected to range between $50 million to $60 million due to the increased store openings as well as increasing investments in equipment that will improve kitchen efficiency and an increase in store remodelings.

These investments include our new IT investments and other infrastructure costs of approximately $10 million.

We are in the process of developing our next-generation restaurant prototype and expect to test this brand refresh in a number of existing locations later in the year.

We'll talk more about this on future calls.

We plan to prioritize investing any excess cash from operations into areas where we can create value for shareholders.

To the extent those opportunities are not immediately available, we may retain cash to fund future investments, pay down balances on our term loan, or buy back shares opportunistically.

As we talked about in our last call, our Board has authorized $50 million of share buybacks and almost $47 million remains on that authorization.

Before turning the call back over to Steve for some closing thoughts, I want to echo his comments around 2012 being a year to build our foundation and advance our brand which provides for a stronger and faster growing Red Robin in 2013 and beyond.

Looking at Slide 16, we are making major investments in new systems.

We'll begin updating our menu.

We'll continue expanding our successful loyalty program.

We'll test our next-generation restaurant prototype, and we'll expand our testing of the Burger Works concept, all while continuing to deliver a superior experience for our guests and growing our new store pipeline.

For 2013, this will mean better insights into operational performance and guest insights into guest behavior, having a foundation to make our guest experience more contemporary and the ability to accelerate the growth of our new restaurants.

Steve?

Thanks Stuart.

In closing, we are very pleased with our results for both the fourth quarter and for the full year 2011.

Our recent financial performance was a solid finish to what was a critical transitional year for Red Robin.

Our business is getting stronger and our financial performance is improving, and I deeply appreciate the commitment, the hard work, and the sense of urgency displayed by team members across the organization that made all this progress possible.

As you might recall, when I joined about 1.5 years ago, Red Robin faced a number of challenges.

First among them was that our best-in-class peers had taken steps to compete more efficiently in what was then a very difficult economy, and Red Robin had not.

There were consequences for this complacency.

But as a total team, we put together our strategic plan to improve the business and ensure that Red Robin got off the sidelines this year and back into the game.

As you can see on the final slide of the presentation, 2011 was the year we began the transition to strengthen our business and get us back on track to becoming a best-in-class competitor.

But the hard work is not over.

In fact, it's just begun.

In 2012, there will be significant headwinds, including an intensified competitive environment, continued cost pressures, and lingering macroeconomic weakness.

Also, from a media planning standpoint, 2012 is the perfect storm with both the Olympics in the summer and the national election in the fall.

So this year, we'll use the momentum we've achieved so far to begin building the foundation for long-term growth.

We are making the necessary investments to build a stronger and scalable infrastructure which, once established, will allow us to leverage social, mobile, and other guest-facing media.

We're also creating a culture of continuous improvement and developing robust brand strategies to make the Red Robin experience even more relevant and differentiated in the eyes of our guests.

This includes a comprehensive brand refresh and a next-generation prototype.

We are creating an updated look and feel that will drive great adult guest experiences without compromising our core (inaudible) families, and this will help us accelerate guest counts, build sales, and grow our market share.

But make no mistake, 2012 will be another challenging year, but it will be an exciting one too.

The primary accelerator that drove our success in 2011 was the powerful Red Robin culture combined with the talent, passion and ideas of our team members.

The progress we've made so far has given our team a renewed passion and enhanced confidence about our ability to be the best in casual dining.

We still have a long way to go, but our teams are engaged and focused like never before, we are in the game, and we are laying the foundation of winning.

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

(Operator Instructions).

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

Just a couple of questions.

The same-store sales pickup and the traffic improvement in the fourth quarter, I know you mentioned selling and marketing expenses were basically flat year-over-year, but did you utilize the loyalty program more?

Is that one of the drivers?

There's been a lot of talk about favorable weather for the industry.

I don't know if that was as big a factor for you, given your geographic footprint in December, but if you would comment on that too, that would be helpful.

This is Denny.

I can certainly speak to the differences in the marketing program.

One, the Oktoberfest burger was extremely successful for us, our second best-selling LTO of the last few years, and almost as successful as one that we did prior in '10 when we rolled over dark media.

So I will say the Oktoberfest burger really delivered for us, gave us great momentum coming into the quarter.

Then we also added an LTO in December, the Sweet Jim Beam bacon burger, which is the first time we've done an LTO in what we call golden times or holiday in quite some time.

It was also extremely successful and all at full margin with the exception of our one social media fun day around Jim Day where we gave the burger away.

So I would say it was a combination of some really successful LTOs, the way we spend our media in dollars and how we spend it.

We got more impact than we had in prior years, and will continue to take that learning into this year.

But I would say, for the most part, it was earned.

With regards to Red Royalty, absolutely.

Red Royalty is an engine that's working for us.

It is helping us on a number of fronts, and driving I think -- and we know some frequency amongst those Red Royalty registered members.

The growth in Red Royalty in Q4 was significant.

As Steve shared, we are now at over 1.4 million members.

And then just one other question on the share repurchase.

It seemed sort of modest in the fourth quarter, and just kind of curious how you are thinking about it going forward as you evaluate other potential uses of capital.

This is Stuart.

Yes, it's obviously something we talk about regularly with our Board as we reviewed it with them and sort of going into the fourth quarter, excess cash -- we will retain the opportunity to buy back shares opportunistically.

But we are, at the same time, cautious of the volatility in the economy, both in terms of what that may do operationally as well as what it does in the share price, so we are going to basically continue to sort of be disciplined and make sure that we've got -- keep our strong balance sheet, keep capital to invest this year, so something that obviously the tool in the toolbox is something we're going to keep looking but in terms of more detail on that, we are probably not going to be giving a lot.

Thank you.

Bryan Elliott, Raymond James.

Good morning.

I was wanting to ask Denny maybe for an update on the work that she has been doing since she joined the Company, and then kind of what we are thinking about more strategically from potential marketing and merchandising, branding efforts going forward.

Terrific.

Glad to update.

I just passed my six month anniversary, in fact did so on the stage at our leadership summit, so it was a great way to celebrate six months in the brand.

I've been digging in, learning a lot about both our marketing and our menu.

I have the opportunity to lead both sides of that.

I would say we have already begun to optimize our marketing mix, our messaging, our plans this year for LTOs, etc., social media.

We've begun to really I think make some real progress there.

We have a lot of fans that are Red Robin fans that are eager to support this brand, and of course our continued growth of Red Royalty will be critical.

But specifically to some of the observations and opportunities, we continue to look to broaden our range of burgers, not just through LTOs but to broaden the menu.

It's very clear that a lot of folks out there would particularly at lunch occasions and perhaps some other occasions or just different types of guests would like to enjoy smaller, less expensive burgers.

There's also a market for some really strong premium burgers.

We're going to be looking at building out as we call it the barbell, no specific announcements regarding that, but we are working hard on broadening our range.

If we are going to be America's best burgers, we need a broader range of sizes, prices, and types of burgers to be able to offer our guests.

So I'd say that is a primary focus in terms of growth.

As Steve alluded to, we still have a lot of room to grow in our beverage PPA, happy hour, etc.

Our drinks and desserts menu has worked hard for us, but we continue to look for opportunities to up our beverage PPA, and see tremendous opportunity in that this year, and also to better target specific daypart offers without using mass media, again social media and Red Royalty.

We have the opportunity to begin to really target and segment our guest base in a way that we have not been able to before.

So there's a lot of opportunity here.

Great, thanks much.

Will Slabaugh, Stephen's.

Thanks guys.

I wanted to ask about the evolution of the check and how you see this most recent 5% or so move we've seen in the past few quarters as playing out over time, just as it relates to customers trying more appetizers, drinks, desserts, etc., just how you see that playing out quarter to quarter, because I know we've sort of seen three quarters of this now, and just how you're picturing that throughout 2012.

This is Stuart again.

So again, look, you mentioned the last three quarters and that's really reflective of some of the menu changes that we made last April and also bringing out the drinks and desserts menu.

As Steve alluded to, the increase in alcoholic beverage sales has been continuing to build as we move through the year, so those are things that we are going to keep emphasizing.

As Denny touched on, we will keep looking at optimizing the items on our menu and maybe making a few additional refreshes there.

So, we will keep building on the momentum that we have.

Then from a pricing standpoint, again you'll get the greatest impact of that really in the first quarter, and then that will start to drop down over the year as we cycle against the April increase and the October increase.

Okay.

Just lastly from me, on traffic, again, a nice sequential improvement there.

But with that number still being slightly negative, I know you've highlighted a lot of things you're doing there from LTO perspective to Red Royalty, etc., just wondering if there's anything else you would add there that it takes to get that number to a more sustainably positive number, or if you think it's more of an economic tailwind that you need, or just kind of comments around traffic.

I certainly am never going to count on an economic tailwind to drive us forward, because we certainly can't predict that.

I do think, again, (inaudible) segmented offers we have see more of a drop-off in lunches, as have many of our other competitors.

People are falling way a little bit more at lunch, so we have an opportunity to target that daypart specifically to reinforce that.

Then, again, I think broadening the range of items on our menu will have an impact over time, continuing to drive awareness of other ways to enjoy Red Robin such as happy hour.

There's a lot of evidence out there that, when people choose to come at happy hour, they sometimes make that a meal, and we certainly see that opportunity as well.

So it's continuing to push on all the things we've got, and really beginning to segment daypart.

Great, thank you.

Dustin Tompkins, Morgan Keegan.

Thank you.

Just a couple of clarifications.

I guess, first of all, on the sales trends, I know there -- I think there was a question earlier about if you felt like there was a weather benefit to the fourth quarter.

I think we've seen some companies discuss it as well early on in 2012.

So I'd just be curious if you feel like that's helping in certain areas, and if so if you had any -- if you would be willing to quantify what that benefit might be.

This is Steve.

I think that clearly with restaurants in 40-plus states across the country and a little bit milder fourth quarter, there was a modest benefit from a weather standpoint.

As the numbers indicate, there was a very modest uptick in how the consumers felt, and there was a little buoyancy in traffic across the whole industry.

But I would refer back to comments by both Stuart and Denny that was -- if it was a factor, it was probably the smallest factor in our performance.

Okay, great.

Then on the comp number, the 4.8%, I know you mentioned that's a gross comp number and I think you provided the net number of 3.1%.

I'm just curious.

Is that spread, has that grown because of -- assuming it has grown, but is that driven by the royalty incentives?

I guess as I looked back at the least last quarter's release I don't remember you reporting a net number.

I remember it being mostly a gross number.

So can you kind of help?

Is it just a function of the changing marketing and you are trying to provide apples to apples from a marketing perspective, why the differences and kind of as we look at some of the past numbers, was the spread quite as large as it was in the fourth quarter?

This is Stuart.

So the spread historically within Red Robin prior to the rollout of Red Royalty was pretty steady quarter-over-quarter and year-over-year.

Obviously, that's grow as we've increased the Red Royalty registrations up to 1.4 million users, as we've had some incentives upfront with the free appetizers upon registration and things like that.

We've done some things on purpose to drive registrations.

So that's why that has continued to grow.

However, over time, the year-over-year change will moderate as, A, we think will probably be able to pull back on some of the sort of registration incentives, but then we'll be able to go to much more targeted incentives to particular users in particular markets for different dayparts or to try new items and the surprise and delight that Steve mentioned.

So historically, it hadn't been that (technical difficulty) it has grown during the year, which is why we continue to point it out.

We will evaluate going forward whether it makes sense to keep reporting both, but right now, since we've historically reported gross, we'll keep giving you both numbers.

Let me just add to speak to the investments (technical difficulty) the long-term health of the brand, we'd much rather spend this to reward loyalty than to broadly discount, and that is not our intent.

We're also looking to really grow the Red Royalty program from purely reward to more relationship.

We are seeing the ability with Red Royalty to extend the impact of promotions like LTOs by advising them first to the availability of the new product, new menu items as well as the opportunity to then extend and give them special opportunities to enjoy them beyond the time that we are on air.

So we are finding it a really, really strong tool.

Again, we'll see it moving over time from reward to relationship, the more and more refined we can get about targeting.

Great.

That's very helpful.

Thank you.

Peter Saleh, Telsey Advisory Group.

Thanks.

So my question is on the menu changes.

It sounds like you will make some menu changes in 2012.

I'm just wondering if you are testing anything already in terms of either the barbell or more value type items, and what kind of results you are seeing if you are testing some of these items?

We are developing them.

We are not at a point where I can reveal any test results yet, but we are working very hard on a much broader menu platform.

We're also using a lot of our guest insight to drive that than we have in the past, screening concepts.

We've just opened our [Yum U] innovation center where we now have dedicated kitchen facilities, sensory facilities, focus group facilities, things that we just never had.

So it's going to be a strong development for our pipeline to be able to have access to that type of development.

Great.

Then just on the franchisee development, where do we stand for 2012?

Will franchisees be opening units as well?

Where is the health of the system right now?

The health of the system is fine.

There will be some franchise growth in 2012, probably very modest growth.

They are, as we have said in future calls, we've developed a 4000 square foot prototype that the franchisees very much want to see us get some road results behind, but they are actively developing but very modest right now with the capital markets.

Great, thank you very much.

Brad Ludington, KeyBanc Capital Markets.

Thank you.

Hey, I wanted to get clarification on one thing.

Did you say on the alcohol mix that the fourth quarter was up 90 basis points year-over-year and in the full year was up 50?

Yes.

Okay, good.

I wanted to make sure I heard those numbers correctly.

Now, moving on to you're focusing on limited time offer going forward, is that something that -- I guess two questions with this.

Is that the strategy that you think should continue long-term or is there a goal to move to maybe more of an everyday value message in the future?

Then also is there thoughts about going around a lunch offer as well?

I think a limited time offers provide an interesting way to appeal to a certain guest who is really driven by news and exciting new kind of menu offerings.

It continues to help us stay on the leading edge of interesting recipes and burger authority.

It's not the sole strategy though, so we need to layer that over some of the fundamental changes that we have alluded to with regards to a broader range of offerings in our menu, more of a barbell strategy so that when that guest comes perhaps driven by the news of an LTO, they also discover a number of reasons to come back and join us again.

Then beyond that, I do think we have the opportunity, as I've said, to segment menu and value with regards to daypart and lunch is one of our key targets for this year.

Then finally, just on menu innovation, is there an expectation that you will -- I think you talked about it before -- maybe expand the menu a little bit throughout the year and we'll see some new products and maybe new product categories coming out this year?

Certainly that is one of our priorities, is to begin to expand again, but remember that we stand for burger authority, so in terms of categories, our first opportunity is to expand our burger range.

Thank you very much.

Phillip Juhan, BMO Capital Markets.

Thanks guys.

Stuart, your SG&A for the quarter came in about $1.2 million higher than your prior guidance would have suggested, and I know you mentioned higher performance-based comp and perhaps additional IT spending.

But can you quantify the variance in the plan?

Yes, Probably, again, just off the top of my head, probably about half of that is due to performance-based incentive, and the rest of it is due to a little bit higher expensing of some of the IT costs in terms of the timing of that regarding the infrastructure.

We have a little bit -- I think about $300,000 of higher legal expenses in the quarter as well been expected regarding some claims that we have.

Okay.

Then as we look forward to the first half of next year, I know there were some one-time items particularly around the proxy contest last year.

Can you quantify perhaps what those costs were in the first and second quarters of '11?

Yes.

In terms of the total cost, I don't think we've disclosed what the total cost is, but obviously in the guidance range, I've given what we expect the SG&A to sort of come out in 2012.

We've taken into account those rolling away.

Okay, thank you.

John Glass, Morgan Stanley.

(Operator Instructions).

Conrad Lyon, B.

Riley & Co.

That was interesting.

A question about your restaurant level margin.

Clearly, you're getting up there, best-in-class type levels.

My question surrounds this, and it's potentially a good problem.

Do you see potentially the guest experience, or how do you preserve the guest experience, keeping those margins up?

I say that in relation to -- I know COGS are going to be challenging this year, and I suspect you'll probably try to cut costs elsewhere, and will the guest experience necessarily perhaps get a little softer?

That's my question.

Conrad, Houseman here.

Great question.

I think Steve alluded to it.

If you look at even the $12 million that we took out of the middle of the P&L in 2011, we saw our top box guests restaurant overall satisfaction scores move from 65% to 70%, which is getting close to best-in-class from a guest experience standpoint.

Steve and Stuart really didn't go into a lot of the details around Blueprint on this earnings call as we have in the past, but a lot of these savings that you are seeing as we claw back the 200 basis points in the middle of the P&L are really not guest-facing.

Let me just give you a real simple one or two.

We used to purchase a pre-sliced onion with a very high cost.

We were able to source a piece of equipment for $200 that pre-peels the onion so it allows us to bring in peeled onions.

Just that savings alone -- now the guest sitting at table 52 doesn't know that onion is coming in pre-peeled, post-peeled, so we are able to do that.

That savings alone is an $800,000 savings for the system.

We made a spec change.

We went from a different -- we were -- we changed the spec on our lemon cases so we actually increase the size of our lemons.

Didn't change the lemon, just increased the amount of the case pack that came in the door.

That alone was a $400,000 savings.

So if you kind of see where I'm going here, these savings are not about increasing section sizes, getting away from bussers, changing our standard on ticket times so we run with fewer cooks.

This is really about taking costs out that the guests don't see as well is becoming more efficient.

We went through a very elaborate time and motion study that allowed us to identify just low-hanging fruit that we were able to tightening up.

So we always weigh on any of these ideas that are coming in from our team members and our managers and team members here at the home office.

We always weigh it against does this distract from the team member or the guest experience?

If it does, then it really doesn't make the cut.

Got you, Okay, nice explanation there.

A different question regarding marketing.

From a marketing perspective, it really sounds like you're trying to put kind of the gourmet back in the gourmet of your brand and expand that burger range.

How deep is the pipeline?

Are you looking, say, with LTOs 12 months out, 24 months out?

Can you give me color to that regard?

With regards to the process that we are taking now in terms of screening, certainly we are well over a year out at this point.

Okay.

In terms of let's say potential LTOs that come with any type of discounting, I've always had the thought that there's an opportunity to continue to do that, but at a lesser rate.

Is that kind of the sense going forward that you'll be able to do that and then increase the average check as a result of that?

Yes, and I think we learned that in Q4 with both the Oktoberfest, where we took the $6.99 price only during the time that we were on-air and returned to the regular menu price of $9.99 when we were off air, and then of course the Sweet Jim Beam bacon burger which we promoted over the holiday times was at full margin the entire time.

So I think you'll see us being more -- extending the availability of these LTOs.

We can drive awareness but minimizing the amount of time that they are at lower price.

Got you.

Okay.

Last question, I don't know if you discussed this at all, regarding the same-store sales outlook for the year, low single digits, can you talk about what the embedded traffic is in that?

This is Stuart.

Yes, we are probably not going to give specific traffic guidelines.

I think if you look overall at the market prognosticators, they are basically expecting a fairly flat market next year.

So we are going to do everything we can to take more than our fair share of market, but obviously the 1% to 3% would probably have some improvement over traffic trends that we had in 2011.

Thanks.

(Operator Instructions).

David Dorfman, Morgan Stanley.

(technical difficulty).

I'll catch up with you off-line.

We have no more questions in the queue.

We appreciate your interest in Red Robin, and have a great day.

This concludes today's call.

We thank you for your participation.