Red Robin Gourmet Burgers Inc (RRGB) 2012 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, welcome to the Red Robin Gourmet Burgers first-quarter 2012 conference call.

At this time, all participants have been placed in listen-only mode and the lines will be opened for your questions following the 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 of the Company, results of operations, plans, objectives, future performance and business, including the Company's traffic and revenues 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 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.

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 call.

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 first-quarter 2012 press release and supplemental financial information related to the quarter's results on its website, www.RedRobin.com in the Investors section.

I would now like to hand the conference over to Mr. Steve Carley, Chief Executive Officer of Red Robin.

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 also be here for the Q&A portion of our call.

So let's start with a few financial headlines.

As we shared in our earnings release and as you can see on Slides 3 and 4 of the supplemental information, during our first quarter -- first fiscal quarter of 2012, our restaurant revenue increased 4.7% to $294.6 million, and total revenues increased to $299.5 million, or 4.4% over the first quarter last year.

Our Company-owned comparable net restaurant sales increased 0.5% driven by a 4.1% increase in average guest check.

About half of this increase was price and the balance was guests adding items to or trading up on their check.

This was offset by a 3.6% decrease in guest counts.

Earnings per diluted share were $0.71 compared to adjusted earnings of $0.58 and GAAP earnings per share of $0.56 in the same period a year ago.

On the development side, during the fiscal first quarter of 2012, we opened three new full-size Red Robin restaurants and our second smaller prototype Burger Works restaurant.

Our restaurant level operating profit margin increased to 21.2% from 19.8%, driven by sales leverage and lower other operating costs, partially offset by increases in food and occupancy expense.

Our restaurant level operating profit was $62.4 million or 12% higher than a year ago.

Finally, our cash flow from operations during the fiscal first quarter of '12 was $29.6 million compared to $29.9 million a year ago.

Red Robin's 2012 fiscal first-quarter results were mixed in that we were pleased to continue our momentum in strengthening the business by growing net sales and earnings per share, and maintaining cost control.

But driving positive guest counts remains a challenge.

While we began the year with strong sales and achieved modest year-over-year same-store sales growth during Q1, we were disappointed by the extent of softening in guest traffic in the second half of the quarter.

Nevertheless, we remain confident that our long-term plan to strengthen our operating foundation while we continue to differentiate the brand and position Red Robin for future growth is solid.

Throughout 2011, we provided quarterly updates on Project Red.

Our three major areas of focus -- driving revenue, expense management, and optimizing deployment of capital.

Since we remain committed to our overall strategy and our focus on these areas today and going forward, we will share some headlines on the progress we've made on the key initiatives under these separate areas.

First, I mentioned that we were disappointed in our performance in the back half of the first quarter, especially in our guest count trends.

We said before that we knew we could hit some air pockets given the continued intensity of competitive discounting, the (inaudible) ongoing execution of our long-term plans, and implementation of change across the organization, from operational improvements to more efficient marketing.

While our guest counts at March and April declined, price mix was up strongly with over half of the price mix driven by folks, our guests, adding on or trading up items on their check.

Stuart will expand on this in his remarks, including the signs of progress we are seeing in increased sales of appetizers and beverages, which is a key goal of our menu strategy.

Still, we actually need to sell more burgers and entrees and our Q1 LTO featuring the Big Melt Bacon Burger and TV add support struggled to break through the clutter and drive the performance we were expecting.

On the plus side, continued incremental and robust sales of non-entree items is encouraging, as is the early guest response to the launch of our Tavern Double on April 30.

At a price point of $6.99, including Bottomless Fries, featuring a trade up to one of three gourmet Tavern styles for $1 more, it is intended to protect average check.

In addition to variety, we are now delivering everyday value.

We are confident that the Tavern Double will be a great burger platform for us going forward as we execute our menu strategy both thoughtfully and profitably.

You can see an overview of some sales and traffic driving initiatives on Slide 5.

During the first quarter, we were also very pleased with the continued growth of registered users in our Red Royalty program.

We rolled out our best-in-class loyalty program to all of our Company-owned restaurants in January of last year.

So as of early Q1 of this year, we were a full year into the program.

We now have nearly 1.7 million guests registered in Red Royalty, and we are continuing to explore how we can optimize engagement to drive profitable incremental visits and frequency with those guests.

We also made further progress on taking back the bar.

In Q1, we passed the one-year mark since our first rollout of initiatives to increase our beverage per-person average check, boost alcohol beverage sales as a percent of total sales, and deliver a great adult experience.

Through the first quarter of this year, our beverage PPA continues to climb in both the alcohol and non-alcohol beverage categories.

This remains an area of opportunity for us as we expand our event days, such as drink specials around big sporting events, St.

Patrick's Day, and even this past Valentine's Day when we had a successful Girls' Night Out promotion to highlight our wine and dessert offerings.

In addition to programs around beverages, we've also begun making our bar environment more of an adult dining space.

We are enhancing our audio-visual packages, revamping the decor, and creating more of a bar atmosphere overall.

We are currently testing and learning in a handful of restaurants with plans to expand in phases into other markets over time.

We're also having some fun and success with social media.

We recently surpassed 300,000 followers on Facebook, which is about 82% more than we had in Q1 last year.

Late in the quarter, we posted a $5 Off/$20 (technical difficulty) on Facebook and had more than 425,000 offers claimed during the two-week promotion period, far exceeding our total number of followers and creating quite a bit of buzz in the social sphere.

The redemption rate of 10% for this kind of promotion is clearly best in class and embraced by our guests, so we will continue to leverage social media strategically as part of our overall marketing mix.

Finally, with gift cards, they continue to be a source of both success and growing opportunity for us.

In the past, the year-end holiday season was the focal point for these sales.

We are now finding opportunities to generate news and awareness for our gift cards throughout the year with seasonal and special occasion themed cards.

This is another area in which we are increasingly leveraging social media, as well as strengthening our relationship with our third-party distributors and our online marketing channels.

In all of 2011, we sold 38 million in gift cards and we continue to expand our points of distribution primarily with our third-party vendors.

So, we believe our sales in 2012 will be even better.

Let's move on to the expense management slide on Slide 6. As we said in our call in February, our continuous improvement efforts during 2011 reduced our operating costs at a faster pace than we anticipated.

In the past, you've heard many examples of how we are accomplishing this.

During Q1 of this year, we made even more progress attacking opportunities, big and small.

Through improved portion control in our side dressings, we are not only reducing food waste but we are also capturing about $0.5 million a year in annualized savings.

By simply changing hot sauce suppliers, we saved about $50,000 a year.

You can see on Slide 7 our restaurant-level operating margins continue to improve.

The great work of our restaurant teams, their commitment is doing a super job managing their costs and is a big contributor to this trend.

We believe we are establishing a culture of continuous improvement.

It's incorporated in operation's scorecards, it's part of our peer review process with our management teams and we have created an effective process for collecting, screening, and evaluating new opportunities for improvement.

So even when we achieve our targeted savings in 2012, this continuous improvement ethic will actually be part of our operational DNA.

Lastly, on deployment of capital, Slide 8, in the first quarter, we opened four new Company-owned Red Robin restaurant, including our second Red Robin Burger Works.

Our new restaurants continue to perform well and generate strong cash-on-cash returns, so this remains a highly productive use of capital for us.

This year, we expect to develop a total of seven to eight of our full-size prototypes, two to three midsized prototypes and an additional four Burger Works.

Finally, during Q1, we made additional progress on the upgrade of our IT systems.

This, as we've discussed in the past, is a multi-year effort that will make our foundation stronger, our systems more robust, and help us make better and more timely decisions with better business intelligence.

It will also give us the tools to grow our business in the future.

We recently introduced a new online hiring tool that screens (technical difficulty) applicants and makes it easier for our restaurant managers to select qualified team members and bring them in for interviews.

Comments from our managers have been very encouraging with the ease of the system, the quality of the applicants recommended and the time it has saved by prioritizing the applicant pool.

We are finalizing the performance management and interactive computer-based training portions of our infrastructure improvements and in the coming months expect to make progress on enhanced supply chain management and other essential tools for driving the business.

So with that recap of '12's first quarter, I will now 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.

Good afternoon, everyone, and thank you for joining us today.

As Steve mentioned, our first-quarter results were characterized by soft sales but favorable cost of sales and very effective management of operating expenses.

Compared to a year ago, our net income increased to $10.6 million, which is $1.6 million, or 17% growth, excluding last year's unusual items.

Overall, considering the challenging sales environment, we are pleased with our accomplishments and are confident we will capture opportunities for additional growth.

Before reviewing insights from our first 16 weeks of 2012, let me first put our performance in greater context by taking a quick look back at cumulative changes that have occurred over the past two years.

As you have watched, the Red Robin team has significantly improved results and we remain committed to continuing value creation into the future.

Compared to the first quarter of 2010, total revenues have increased 8.7% on a modest store expansion program.

Comparable store revenues have increased 2.7% through the introduction of a number of menu changes and modest price increases.

Average unit weekly sales have grown to $56,300 from $54,800 in 2010.

Restaurant level operating margins have expanded 300 basis points to 21.2% as a decrease in total operating costs of 400 basis points and the benefit of sales leverage was partly offset by cost of sales, which increased 120 basis points.

Excluding the one-time gift card breakage adjustment recorded in the first quarter of 2010, EBITDA has increased 50% to $32.4 million and EBITDA as a percentage of total revenue has increased 300 basis points to 10.8%.

Likewise, the first-quarter adjusted net income and earnings per share have both increased more than three times over the past two years.

Compared to the first quarter of 2011, as you'll see on Slide 10, comparable restaurant sales increased 0.5% with guest counts having declined 3.6% and averaged guest check having increased 4.1%.

Note that all reported sales numbers are on a net basis and we will no longer disclose gross sales which was revenue before loyalty incentives.

As we have been discussing for some time, we've been making a number of changes to enhance our brand, including addressing our overall value, balancing price, product and experience as part of our strategy to increase profitable guest visits and average check over time.

You may recall that last year we introduced a new menu design, new appetizers, including Jump Starters, Combos and Shareable Desserts.

Just three weeks ago, we introduced the Tavern Double Burger that delivers great everyday value and is engineered for a compelling gross margin.

To promote guest trade-up, we have created different tasty styles such as our Pig-Out or Buzzalo which a guest can add for just $1 more.

Some of you had the chance to try this at our investor update and we will keep these fresh with different styles over time.

The increase in average guest check in the first quarter resulted from guests adding items or trading up with half the increase coming from last year's price changes.

The average items per guest check increased 4.3% over the last year.

A few examples include beverage mix, as Steve mentioned, which increased 80 basis points to 7.1% of restaurant sales.

Sweet potato fries, which was new in October 2011, are now added by 2.8% of our guests, and more guests are enjoying an appetizer with their meal than a year ago.

The new items all have strong contribution margins and we are getting better at suggesting to our guests to try these great additions.

On the other hand, the decrease in traffic seems mainly caused by aggressive promotions by our competitors and the inability of the marketing of our Big Melt Bacon Burger limited time offer to bring guests into our restaurants.

The sales mix of the Big Melt Bacon Burger was good at 4.6% compared to the 2011 LTO, the Prime Chophouse Burger, which had a mix of approximately 4%.

However, the advertising did not give the traction we would've liked or expected.

We have taken learnings from this situation and applied them to the roll out of our Tavern Double by changing this advertising plan.

You can see the ads on our website, our Facebook page, and they have a bit more edginess with our unique set of triplets selling our three styles of the Tavern Double.

In addition to our new menu items, we continue to be excited by the performance of our new Red Robin locations, where sales at restaurants opened over the past year have averaged $75,000 per week since opening.

Our first Miami location at The Falls broke the record for opening week sales, demonstrating pent-up demand in new markets for quality burgers and great service, not to mention the great work of our new restaurant opening team.

We are also pleased with the results and guest feed back at our first to Red Robin's Burger Works which were opened in a lifestyle setting near Denver and the college campus at the Ohio State University.

Our third location opens in Denver on May 21, which will be our inaugural Central Business District location.

Looking at Slide 11, cost of sales was slightly favorable to our expectations in the first quarter.

Cost of sales increased 50 basis points from the first quarter of 2011 to 25.5% with the cost of ground beef, fries and fry oil all having increased versus a year ago and produce having decreased about 19% due to the favorable winter weather.

Operating expenses continue to benefit from the cost-savings initiatives we have been implanting with labor as a percent of sales lower than a year ago by 90 basis points due mainly to the sales leverage on a higher average guest check.

In addition, management of supplies, transaction fees, and repair costs and helped expand our operating margins.

Restaurant level operating margins, as Steve mentioned, reached 21.2% in the first quarter compared to 19.8% a year ago.

Depreciation was $500,000 lower than a year ago despite the addition of 15 new restaurants due to equipment from restaurants placed in service in 2006 to 2008 becoming fully depreciated.

Selling costs in the first quarter were $1 million higher than in 2011 due mainly to higher costs related to the gift cards following the substantial increase in sales in the fourth quarter last year.

Other general and administrative costs increased about $800,000 from 2011 due to higher equity-based compensation and costs related to the upgrade of our IT infrastructure, and were partly offset by lower severance costs.

EBITDA also grew strongly versus a year ago, up $4.1 million, or 14.5%.

EBITDA rose to $32.4 million for the 16 weeks ended April 15 and operating cash flow was $29.6 million compared to $29.9 million for the same period last year, as shown on Slide 12.

We invested $10.4 million during the first quarter in new restaurants and maintenance capital as well as our IT systems.

We open three full new -- three new full-service Red Robins and one new Red Robin Burger Works for a total of four stores while we closed one Tennessee location and one franchise location also closed.

While we didn't purchase any shares in the first quarter, we paid down $18.8 million of our term loan near the end of the quarter, of which $15 million was an early repayment of principal.

Our new financial and supply chain IT systems remain on track and we are in the process of quality assurance testing.

We will begin user acceptance testing later in the quarter in anticipation of starting implementation in our pilot restaurants and corporate office in the third quarter.

As far as our updated outlook for 2012, this is detailed in our press release and Slide 14.

The lower expected annual comparable store sales growth (technical difficulty) articulated on our call last quarter is due mainly to the softer sales trends in the second half of the first quarter.

Still, we expect this to be mostly offset by slightly better operating margins with both cost of sales and operating expenses favorable to our original guidance.

Capital expenditures are expected to be at the higher end of our earlier range to (inaudible) the capital costs associated with 2013 new restaurant openings and additional restaurant improvements.

The economy and consumer sentiment remains fragile and we can foresee the possibility of more turbulence from outside events as we move through the year.

However, as we discussed at our investor day, we are laying the planks in place to assure our long-term success and growth in earnings and returns.

We noted that enhancing our menu and environments and providing great value to our guests is the ultimate winning strategy.

Steve, back over to you.

Thanks Stuart.

In closing, as I said at the top of our call today, we were disappointed by the extent of the softening in guest traffic late in the first quarter as we, like many of our competitors, were buffeted by a volatile consumer environment.

But with the yearly guest response to our new menu and the introduction of our Great Tavern Double Burger platform, we are encouraged by improved trends as we enter into the summer.

As we talked about at our investor day, we are still in the early innings of building our platform for long-term growth and profitability.

But most importantly, our business is already getting stronger and our financial performance is improving.

I appreciate all the talent, focus, ideas, and hard work displayed by the Red Robin team members across the organization who work hard every day to take care of our guests and contribute to our progress.

With that, operator, I'd be happy to take questions.

(Operator Instructions).

Jeff Farmer, Wells Fargo.

Thanks.

Good afternoon everyone.

I'm just curious how -- you mentioned the Tavern Double Burger.

Just curious how that actually represents sort of everyday value proposition for you guys.

Is that -- my understanding is -- is that an LTO or is that a permanent part of the menu?

How should I be thinking about that going forward?

The intention is it's a permanent part of the menu, and it allows us to have a $6.99 starting price point every day for guests to come in, and then choose to trade-up from there either via the styles or to discover another Signature burger.

Also, it comes with Bottomless Fries, which is a great value proposition and we really emphasize that in our advertising because we know that Bottomless is part of our value proposition.

Okay, then sort of sticking with that theme, sort of drilling guest counts is obviously an important focus for you.

The LTO strategy, I think historically there's been five a year.

Sort of correlating that with I guess going after communicating everyday value, what's going to change here over the next couple of quarters?

Is there going to be a more intense focus on the value part of it, or will we see less LTOs, more LTOs, fewer advertising dollars, more?

How should I think about that?

Just for clarity, we've done -- we've traditionally offered five over the course of the year and promoted three via media.

So, you can continue to expect to see us on air about the same amount, the same amount of level of spending.

But I would say that we are looking at the mix of how best to move forward with the Tavern Double just being so new, and looking at that relative to the opportunities to return to some proven winners perhaps in the back half of the year.

But at this point, we are balancing the two.

I think we're always going to have that opportunity for great Signature $9 something burgers that guests have come to know and expect from us and the challenge in question will be how do we balance the marketing of those two things?

But you know our two biggest barriers to frequency and reach in terms of Red Robin guest usage are everyday affordability and creating a space within our restaurants where adults can dine and feel like they can get away from their kids if they didn't choose to bring about that night.

So we are working on both those things very heavily.

Thank you.

Conrad Lyon, B. Riley & Co.

A question about the cost structure.

You've done a nice job of keeping the costs down.

Really my question here is just reviewing it.

Do you have a sense of what type of comp you need now to generate operating leverage, especially at the restaurant level operating profit?

This is Stuart.

I'm not sure I know the exact nature of your question.

If you look at the margin expansion we've had, and what that tells you even with the lower, the softer sales growth that we had this quarter is, as sales will grow, the ability of that flow through the entire P&L is going to be very, very meaningful.

(multiple speakers) look for a numeric answer or --

Yes, that's what I'm getting at.

Essentially, is your cost savings (technical difficulty) sustainable, and going into, say, next year as you lap these comparisons, I would have to think that, as you just indicated, that you're perhaps with a 2% comp, 3%, will continue to see your [RLOP] expand.

Would that be --

Yes, you definitely will.

I think about a 1% comp lift is about $0.25 of EPS or was about $5 million of net income.

So --

Okay.

Second question, I want to make sure I get this right.

I think Denny Post, you was just talking about your marketing spend.

I know it's been about [$29 million] I think the last couple of years on an annual basis.

So was that what you were saying, that you expect to spend is about the same amount marketing/advertising?

Yes.

Have -- you get this question, I know it comes up in past calls, but I'll bring it up again, is as kind of a sense of the effectiveness of the advertising.

Have you tried to quantify that more so, get an impact to see if you think there's areas of opportunity maybe to lower costs, or is that still just too hard to get a handle on?

We are definitely beginning to make progress on that, getting our arms around that.

As both Steve and Stuart spoke to, we felt a breakthrough in the Q1 offer.

We learned a lot from that process about how to improve not only the message but also the media associated with it and we've applied to the new promotion that's on air now.

So we are putting a lot of disciplines in place, and ensuring that we don't repeat past mistakes and we get more value for every dollar we spend.

Got you.

This will be my final question.

The new menu team that was -- you just press released, was that a result of what we saw this quarter, the sales weakness, or was that an initiative that was in place to say, hey, let's get going and let's get some more innovative product out there?

That absolutely was an initiative that was started back when I arrived last fall.

So we have been out recruiting for a while to build up that team because we know we have a lot of things we want to be going forward.

Again, I'd reiterate that the Big Melt Bacon Burger mixed very well in our restaurants and a lot of guests were satisfied.

It was a marketing issue that we failed to drive them in.

Thank you.

Bryan Elliott, Raymond James.

Good afternoon.

A quick modeling question and then a bigger picture one.

So Stuart, can you help us a bit with how to think about the depreciation line going forward?

Will it begin to rise sequentially in absolute dollars from here now that it sounds like we've fully written off some -- the life on a bunch of investments?

It will stay probably a little bit more at this level.

Again, this is 16 weeks.

These (inaudible) averages out for the next few quarters.

It will really start to turn on a couple of things, A, when we turn our new systems on, because we've been capitalizing those costs.

So when we turn that on, which essentially will be late this year, beginning of next year, you'll start to see the depreciation on that pick up and that will be about a ten-year life.

And then as we look at the remodels and things like that, the capital the goes out with those, you'll see depreciation pick up, so it's really more you'll see a pickup in '13 not so much in '12.

Okay, all right.

Then I guess help me understand the disappointment around the promotional and the response to the promotion in the context of I believe I heard that the mix of this year's Big Melt was 60 BPS better than the mix of the prior-year promotion?

Did I hear that correctly?

Yes, so what occurred is the mix in terms of guests in the restaurant that opted into the Big Melt Bacon Burger was the same frequency that they opted into the Prime Chophouse last year.

Issue is didn't we did drive incremental guests into the restaurant to enjoy that burger.

So what we ended up with is essentially trade-down of the existing guest.

Okay.

So we tried to roll a very successful promotion last year with a few less days, weeks of media and a less impactful message.

Okay.

When you look at the traffic kind of by month or even week-to-week, was it relative to industry?

Because we saw a pretty big traffic shift in the [nap track] numbers first half of your quarter to second half of your quarter.

Did you do better relative to [nap] in the first half when the industry was stronger, much of it weather driven, and worse when the traffic got worse for the industry in the second half?

Or help us understand how you think you did relative.

I think we all benefited from the same start to the quarter.

And we also have the advantage of very strong gift card sales and growth there, so we all benefited from that January/February.

But then we underperformed the underperforming category beginning about March.

I think it's a combination of suffering the same ills.

Everybody else saw the same -- it's funny to call mild weather and ill, but the mild weather, gas prices, the consumer uncertainty.

We picked up some baggage potentially.

It's hard to qualify from the pink slime noise around burgers and ground beef, but when we really turned below the overall traffic of the industry is when we again tried to roll a very successful LTO last year and weren't as successful at doing it.

So we underperformed the category in the back half.

Very helpful.

Thank you.

Peter Saleh, Telsey Advisory Group.

Thanks.

So I'm just wondering, in the second quarter of this year versus second quarter of last year, can you remind us how many weeks on TV you were on last year and how many weeks you plan to be on this year?

The weeks on TV in the second quarter this year versus last year is --

No.

Actually, the second quarter, we were on air, really never dark from last year.

We will not be on air in the same timing as we were before in the summer.

So if I look at April, May, June, the actual number of weeks -- I'm sorry (inaudible) number of weeks is correct.

Timing is different.

Sorry about that.

Yes, number of weeks is the same, timing is different.

Okay, but all within second quarter, the same number of weeks?

Yes.

Then in terms of pricing, I know you had taken some pricing last year in April.

Is that rolling off and have you taken -- are you taking on more pricing?

We have not currently taken on more pricing, but we've left the door open for consideration throughout the remainder of the year as appropriate.

Okay.

Then in terms of trends into this quarter, have trends kind of rebounded a little bit from what you saw in April?

This is Stuart.

We don't -- we sort of, a few quarters ago, sort of stopped giving updates in the first few weeks of the quarter.

I can tell you we are pleased with the traction we are getting on the Tavern Double, but I think we'll sort of leave it at that.

All right.

I figured I'd ask regardless.

Thanks again.

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

Stuart, at the investor meeting a few weeks ago, you kind of expanded the guidance a bit to guide the EPS growth in the upper teens for the full year.

Modest changes here or there in the guidance comments in this release, was that upper teen EPS growth still what you're thinking?

Yes, and if you run through the other piece of the guidance that we've just given, I think you'll wind up at that same place.

Okay.

Then just on the cost side of things, you mentioned the Red program (inaudible) the Red program obviously a little but more prominence this call and highlighted a few costs and expenses.

Is that effort -- I know you described the effort as a continuous but it is intensifying a bit versus what we might have thought at the beginning of the year?

Just in terms of -- in terms of the expense traction, yes, as we talked before, when we've been sort of ahead of schedule in terms of the overall statements we're going to get but we are starting to reinvest some of that back into the menu and some of the other enhancements we've been talking about.

So there's some upside on that.

We captured a lot of it this quarter.

We've done a great job on continuing to expand that.

We've got a few more initiatives that we will still be rolling out this year that we can give some examples on.

But overall I think a lot of it is sort of getting to be in the run rate now.

Then one more.

Is the Tavern Double burger, is that being advertised on TV?

Yes, it is.

It's running right now.

Yep.

Go to our Facebook page and you'll see some pictures that will make you hungry.

Or watch the Round 2 NBA Finals on TNT, you'll pick it up there.

Sounds good.

Thank you.

David Dorfman, Morgan Stanley.

Thank you.

First, I just wanted to dig in a little bit into the comp guidance for the year of up to 1%, and just sort how you think about that in terms of going into second quarter you'll stored sort of start lapping that average check and probably can't rely on that as much to sort of offset traffic and sort of how you see the sort of traffic layering in over time to get to that 1%, or up to 1%, and what the bottom of that might be, in your thinking.

If you look at the first quarter, which is 16 weeks, the biggest chunk of the year was up 0.5%.

I think that's where, as words we've used, that's our biggest disappointment, because that's where we are actually cycling or getting the benefit from most of the price increase.

So we had a price increase we took in April last year of about 1.5% or so, probably 1.4%, 1.3% is actually sort of flowed through, so that goes away.

So for the rest of the year, if you look at from a traffic and comp growth standpoint, we're going to be -- our anticipation is we will be in mid-single digits -- I'm sorry, 1.5% to 2%.

Remember also last year's LTO also, the chicken sandwich that we had didn't resonate and the strawberry salad didn't resonate really well.

We'll be cycling over that with some other products.

So we've looked at it obviously week by week, and as Denny mentioned earlier, right now those assumptions don't include any price in them.

Is it largely at least a traffic component, is the next big thing I guess sort of new menu rollout in the second half or is there something you're going to -- other than the LTO?

No, I think the biggest thing is really the Tavern Double that we've just rolled out.

Which again is not an LTO.

Yes, that will stay on the menu.

So is the new menu rolling out in pieces like that, or is there a day when you say "We have our new menu in place"?

The first effort is to get the everyday priced Tavern Double launched and then we are considering weighing the options for the back half of the year, getting our testing done, and we will make some decisions about that shortly.

Got you.

Last question is if you can just talk about the performance of the sort of Red Robin units that are closest to the Burger Works that have opened.

Have they seen sort of similar trends to others or have they lagged or are there any sort of competitive or cannibalization you've seen?

There is no discernible cannibalization is the good news, but there's -- none of them are really close to our full-service restaurants, I think some of the other chains that may have done some similar things.

Our strategy is very different.

So, we are building Burger Works to go into locations that you can't put a full-service Red Robin, so something where you can put a 2000 or 3000 square foot location such as a Central Business District is not going to be an overlapping customer base space.

Thanks very much.

Will Slabaugh, Stephens.

Thanks.

Could you talk about traffic during the different dayparts?

I know you mentioned on last quarter's call that lunch was a bit more pressured than most, so just curious on the update there.

Yes.

We continued to see a disproportionate pressure at lunch.

We have more to give there because we've always done better there than our competitors have and they certainly have come after it.

That was one of the other factors in Q1 that we just haven't seen before is this heavy deep discounting at lunch.

You've got Applebee's out there at $5.99 on air.

TGI Friday's is throwing in a drink at $6.99.

Chili's had at least three different price points.

I got an e-mail for a $5 for any burger local e-mail from Applebee's.

There's just tremendous competition at lunch.

And so that said, it did hurt us disproportionately, no doubt.

It also kind of changed the pricing game a bit where they had been so heavily focused on "Two for $20" last year, they now came down and played in that $5.99, $6.99 price point where we have traditionally put our LTOs.

So again, it points out the importance of us having an everyday offering and not just the lunch offering but an everyday affordable offering that our guests can start with on our menu.

Got you.

On the menu there as a follow-up, so you've sort of gone after that value customer that you mentioned earlier with the Tavern Burger.

Then at the analyst day I know you mentioned something about potentially going up as well as the higher-priced entree.

I'm wondering when we might be able to see that on the menu.

When we are ready.

I think we have to be quite, but I think our first order of business is to address everyday affordability.

We know that our guest is also going to give us a lot of room in terms of premium and gourmet, so we'll go there when we are ready.

Fair enough.

Last from me, the buildout and your confidence around that acceleration, wondering if you could speak to recent unit openings, if you are still seeing those strong openings you talked about a couple weeks back, and any initial returns there and just overall confidence in the number of openings you talked about at the analyst day?

Yes, no, so as I mentioned, our restaurant openings that we've had over the past 12 months, average weekly sales of $75,000, so that was a pretty good number.

So we talked about the invest day in 2013 of hoping to get 15 to 20 full-service Red Robins open and up to five, ten Burger Works open.

I can tell you I think [ICSC] is going on in Las Vegas right now, where our restaurant -- where our real estate team is meeting with potential landlords.

We are in the process of expanding our new restaurant opening team to be sure that we've got people available to get those restaurants open, so it's going to be finding the right sites at this point.

Again, it still stays a little bit of a challenge because there's not a lot of -- no new real estate coming out of the ground, so we've got to wait for somebody else to be moving out.

The good news is there are some landlords that are kicking some people out and making room for us.

So that's where our targets are.

Great, thank you.

(Operator Instructions).

Nicole Miller, Piper Jaffray.

Denny, I was wondering.

For the second quarter, you said that the timing is different.

There will be (technical difficulty) for advertising.

I was wondering how and why.

Some detail behind that difference please.

Partly we had planned this for a while to roll into when we are ready to launch Tavern Double.

We just wanted to get going with strong momentum to get that product, that item launched and carried into summer.

So it was just something what we had on the books for a little bit of time.

So when we are ready to launch Tavern Double.

So (technical difficulty) the advertising moved up is happening earlier?

Yes.

The other thing I would say is we've looked over time is effectiveness of our media,.

Traditionally, summer, the summer time frame that we had been airing has been our weakest return time periods.

So we believe that airing a bit earlier in the second quarter was going to generate stronger returns for us as well as coupled with the launch of Tavern Double.

Okay, got you.

The other thing -- this is Steve -- when you look at this year, it's a year-over-year comp nightmare.

You start with leap year.

You move into Easter flipping about a month.

You go into the London Olympics in August, and then a presidential election in November.

All that pushes your normal media planning around in different ways.

Makes 2013 looks like a breeze.

(Laughter).

Another year never looks like a breeze for our marketer.

There was a question about the dayparts trends.

Can you speak to check by dayparts?

I'm wondering about the appetizers and the beverage, and just sweet potato fries pick-up.

Is that happening at one daypart or across the board?

A little bit -- this is Stuart.

I don't have the details right in front of me.

I think it's a little bit more across the board.

I think Tavern Double probably will address it a little bit more at lunch in terms of value at lunch than it will at dinner, but --.

But I'd say generally -- and I don't have it exactly in front of me -- but particularly the alcohol pick-up is more driven by Happy Hour.

It's going to be later day.

Yes.

Because we are featuring the appetizers with those, I think you'd probably see that later in the day.

Also, the customer is -- and the consumer is more challenged around -- more likely to pull back and be a little more reluctant to spend at lunch than they necessarily are when they come out with their families in the evenings.

One last question, Stuart, on the previous question, your real estate comment that some of the landlords are turning others away.

Could you just help us understand?

Is it independents or your peer chain concepts where you're trumping them into those locations?

I think this year, 2012, at least three of our openings were former restaurants.

One of them would've been a chain that went bankrupt.

The other two locations are a chain that I would say is a casual diner that's a landlord would rather have somebody coming in that's driving more traffic into the shopping center.

I'll put it that would.

Thank you.

Bryan Elliott, Raymond James.

A couple additional questions here.

I guess, first, can you -- obviously you are enthused about Burger Works.

Can you give us maybe a couple of anecdotes or a data point or two to help us share your excitement?

Well, Bryan, we are pleasantly surprised, or I shouldn't say surprised, but we are pleased with the results that we've seen so far and great anecdotal feedback from our guests, especially of some of the college stadiums that we are going into like OSU, great millennial responses.

We are just really happy with some of the numbers, good check average.

It's great value.

Hearing a lot of things about the food quality and the service model that we have adopted.

We've really looked at adopting the kind of Chick-Fil-A service model in the front of the house, so guests are noticing that and giving us credit, but it still -- we still have a long way to go.

This is Steve.

We also are having quite a fun quite a lot of fun with it from a location standpoint.

The OSU unit is several blocks away from a Five Guys and the store that's opening in the 16th Street Mall is just a block or two away from a Smashburger.

So we are really enjoying that element of the learning too.

Fair enough.

The second question relates to the Tavern Burger.

So, this is not just an LTO but a platform.

Can you elaborate some more on that?

Is it a full margin product?

What are some of the particulars on it that -- what are the platform aspects I guess?

What can you really do over time with it?

A lot of things.

I can tell you that (inaudible) it is definitely a new platform for us, engineered with existing ingredients for the most part in our restaurant and we are bringing in unique things to create these styles.

So we are very excited about it being kind of today's version of what we traditionally have been known for, which is these great gourmet builds over time.

I would say we've been encouraged by the take on the build even more so than the research had predicted.

The Styles, the Pig Out, the Cantina Jack, and the Buzzalo all have their fans, and they are all pretty unique and interesting.

So, it's taking a value size, value-priced burger that was still probably two-thirds of a pound by the time you put the two patties together.

The Double platform is a great value and then when you add on the $1 style, you're really getting some unique experiences.

We are also coupling it with a new way of presenting in-restaurant.

We've gone to a menu card and are going away from the table clutter and the cube that we've used over the years.

So I think it's helping our guests really focus on this new idea and make perfect choices for themselves.

Then you if you flip the card, we just added a terrific Salted Caramel Shake that we are loving as well.

So I do think, over time, this is something that people are going to be -- they're going to find their favorite with the styles, or they will be intrigued by new styles that we'll be bringing out.

It's a very easy way for us to add news to our menu.

It's got and [ND] kind of credit to it a little bit which is, again, in this world of social media, the way we are approaching these styles, these are things that will get some buzz, and some interest.

Great, thanks.

Steve Anderson, Miller Tabak.

Good afternoon.

Seeing the disparity between the average weekly sales of newly opened locations versus the rest of the system, do you see any kind of drop-off from the honeymoon year to any extent?

Can you respond to that?

Steve, you're always going to typically see a drop-off from honeymoon sales.

I would say we're very encouraged by, as we talked on investor day, where the sales are holding for the 2010 and 2011 class.

I think that shows that the brand has staying power in a lot of these new markets, and very -- we are hearing a lot of guest feedback in new markets that have been seeing our television commercials for the last three or four or five years and haven't had a chance to get a Red Robin.

So I think there's -- you will obviously see a drop-off; everyone does.

But we are real encouraged with 2010 and 2011, where they're performing today.

Okay, thank you.

Peter Saleh, Telsey Advisory Group.

Thanks.

So just a quick question on the guidance.

Is there any buyback embedded in your upper-teen EPS guidance for the year?

No, there is no -- again, it was, as was said before, capital outlay we are going to be opportunistic in that.

There is not -- there's no specific guidance out there for buybacks, though.

Okay.

I don't know if I missed this, but how much of the $16 million to $18 million in targeted savings have been realized at this point?

Yes, I think, again, I sort of talked about it earlier on an earlier question.

From a run rate standpoint, we are almost there.

Any additional we get over that, we are planning, we've already planned to sort reinvest back in the business with some of our enhanced items that are going to be coming on the menu.

Then Stuart, I know you ran the contest of giving away the -- or writing a check for the top ideas or other cost cuts.

Can you tell us what the top idea was?

Yes.

It was actually -- there were a lot of really good ideas.

Really the best one, and it was one by one of our general managers who has recently taken over a learning and development role, (inaudible) idea was really going from a disposable kids cup to a reusable kids cup which obviously from an environmental standpoint is a winner, from a cost standpoint is a winner.

It's something we've kicked around for a while.

But it's worth about $350,000, just that idea.

The next one was looking at the way we serve knives, and the knives we are using in our restaurant.

Should we go into a steak knife which we use in our restaurants as well and the list goes on and on.

But it was a lot of fun.

Believe me, it was a great check to write.

And the few people that actually -- a couple extra people who ended up getting extra checks actually donated it to the Red Robin Foundation to help out other team members, which was also great.

Great, thank you.

(Operator Instructions).

At this time, there are no further questions.

Mr. Carley I'll turn things back over to you for any additional or closing remarks.

Thanks Lisa.

That wraps it up for our Q1 '12 conference call.

Thanks, everybody, for your time and attention and look forward to talking to you going forward.

Have a great evening.

Ladies and gentlemen, that does conclude today's conference.

We would like to thank you all for your participation.