Red Robin Gourmet Burgers Inc (RRGB) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Incorporated Fourth Quarter 2012 Earnings Conference Call.

At it this time, all participants have been placed in a 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 security laws.

These statements are commonly identified by words such as continue, plan, expect, will, and other terms with similar meaning.

These statements will include, but will not 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 revenue driving initiatives, intentions with respect to expense management, and plans for deployment of capitol and other expectations discussed during the course of this call.

Although the Company believes the assumptions upon which 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 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 conditions.

The Company has posted its fiscal fourth quarter 2012 press release and supplemental financial information related to the quarter's results on its website, www.redrobin.com in the investor section.

I will turn the call over to Mr. Steve Carley, Chief Executive Officer of Red Robin.

Please go ahead, sir.

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

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

After Stuart and I deliver our prepared remarks, we will be available for Q&A.

First, let me express how pleased we are with our fourth quarter 2012 performance.

As you saw in our earnings press release and I would also refer you to slides 3 of our supplemental financials deck, our results included a 1.4% same-store sales increase on a 13-week comparable basis.

This marks our tenth consecutive quarter of same-store sales growth.

We also achieved a 30 basis point increase in guest traffic, outpacing the industry for the second quarter in a row.

Importantly, Red Robin significantly outperformed casual dining as whole by almost 400 basis points, as measured by Black Box.

With those and other positive headlines from the fourth quarter, I'd like to share with you our priorities going forward and what we expect to accomplish in 2013 and beyond.

Clearly, we've made remarkable progress strengthening the fundamentals of our business and improving our performance.

Now, we'd like to focus our remarks on what we're doing to accelerate the business and position Red Robin for long-term sustainable growth and profitability.

We're now turning our focus on to three fronts.

We're going to call these engagement, efficiency, and expansion, as shown on slides 4 and 5.

Engagement is about how we're engaging the guest experience and enhancing it to drive the top line.

Efficiency is about increasing productivity and effectiveness to manage margins and expansion is our work to grow our operational footprint and effectively deploy our capital.

We have a number of initiatives in each of these areas; some short-term and some long-term.

Here's a really good way to think about it -- picture yourself on Friday afternoon at 5.30 at O'Hare airport.

Not only are jets landing, but they're also queued up one after another out to the horizon, sequenced to land in order for the foreseeable future.

At Red Robin, we're landing initiatives into our restaurants currently and we have a series of initiatives queued up on approach patterns and expected to land in the restaurants over the coming years.

Let me give you some examples of what we're doing on each of these three fronts.

First, Guest Engagement on slide 6; to build and strengthen the Red Robin brand, we're enhancing the guest experience and re-enforcing our value and quality perceptions.

Although we serve familiar favorites, such as high-quality burgers and other classic American fare, what makes it Red Robin Gourmet is how we do it in our own unique way; a style of food, service, and atmosphere that elevates how people feel when they come through our doors.

A great example of how we're elevating the guest experience is our brand transformation exercise.

Remember that our brand transformation is not just new paint and wallpaper, it's enhancing our service, our menu, our food presentation, and every single other guest touch point that cements Red Robin's position as the go-to place for families and kids and additionally, places firmly into consideration sets for adults spending a night out as a couple or with friends.

We know through research and observation that this adult opportunity is big for us.

Our goal is to serve more guests more often and leave them more delighted.

These restaurants will serve as an environment for us to learn and assess initial returns from both our capital investments, in terms of construction dollars, and our investment in people, training, and development.

So far, we're very pleased with the results, but I need to tell you the paint's barely dry on the last remodel, so we expect it to be Q3 before we have conclusive findings.

At that time, we'll let you know our next steps, but this will almost certainly be a multi-year effort.

A guest engagement opportunity that's much closer in is our new format for our spiral menu, currently in test.

This new menu format not only helps us leverage the quality and creativity of our new culinary team and our master mixologist, it's more flexible, enabling regional menu items and regional pricing.

It makes Red Robin more nimble and responsive to a changing marketplace.

Our plan is to get this new spiral menu into all of our restaurants around mid-year.

In conjunction with the new menu, we're introducing new food presentations to enhance the quality perception of our burgers and fries and highlight the unique ingredients on our burgers.

To further reinforce both quality and value for the money, we'll serve them on real plateware, replacing the wrapped burgers and red baskets.

Consistent with our ongoing efforts to take back the bar, we'll introduce entirely new glassware to leverage beverage innovation.

We anticipate this will accelerate the momentum we're already enjoying as year-over-year beverage alcohol is up 70 basis points in Q12 versus '11.

As you know, our Tavern Double platform anchors the affordability side of our menu and has earned its place as the most successful new platform launch in our history.

Our Tavern Double reinforces our everyday value proposition and it also reasserts our burger authority with a variety of ingredients that allow guests to style it up.

With the value and affordability component of our platform now firmly in place, we're currently conducting market research on what a premium segment of our menu would look like.

To clarify, we're currently testing concepts to learn more about what our guests would want in a premium burger and most importantly, what they would be willing to pay for.

Based on our findings, we'll determine our approach to this segment in the back half of this year.

To better complement our core burgers and sandwiches, we're also developing new appetizers, desserts, and drinks, both alcoholic and nonalcoholic, which represent a significant opportunity for us to drive average check relative to our casual dining peers.

We're already encouraged by the results of testing we've been doing these categories on the menu.

Another example of how we're driving the top line is, of course, Red Robin Royalty.

We can now track, incent, and reward our guest behavior to drive engagement, frequency, and loyalty.

Registrations recently surpassed the 2 million member mark.

Red Robin Royalty is already an effective and profitable program and we'll continue our work to refine it.

A key priority for Red Robin is engaging our team members.

We're making investments in more efficient and effective training and initiatives to help us leverage our most important competitive advantage, our people.

One example of this is our recent rollout of Team Member Foundations.

This is a leading-edge, iPad-based training program that elevates the capabilities of our training teams, increases caliber of content, and uses state of the art tools to deliver it.

The objective is to enhance our team members' ability to engage with our guests and make connections that build visit frequency.

Now, on our second front, which is Operating Efficiency on slide 7, as we continue to grow the top line and strengthen our discipline around managing costs, we have greater flexibility to make investments that will support the business and improve performance, both today and in the long-term.

We continue to work on the implementation of our technology infrastructure improvements like our IQ ERP effort, yielding supply chain efficiency, sales forecasting capabilities, realtime P&L's and reducing administration for our restaurant teams.

We're returning some of those savings to shareholders and investing the balance back into the business via improvements like new kitchen improvement to deliver hotter, higher quality burgers today while creating significant improved flexibility to accommodate future innovations from our culinary team.

Another example is the new labor management system that will help our restaurant teams put the right people in the right place at the right time to deliver a superior guest experience and meet our ideal, system-wide labor targets.

We expect to have the new system fully implemented in the second half of 2013.

Our goal is to maximize profitability and productivity through improved labor forecasting and scheduling that ultimately leads to consistent best in class shift execution.

Of course, Project Blueprint, our continuous improvement effort around margin improvement is becoming part of our DNA.

Finally, our third front is Print Expansion.

The initiatives in this area focus and include the continued growth of our restaurant base through new Company-owned restaurants.

As I stated earlier, we added 14 new units to our Company base in 2012, including three restaurants in the fourth quarter itself; of which two are mid-sized or our 4,000-square-foot prototype.

This year, we plan to open approximately 20 new restaurants, including up to five new Red Robin Burger Works.

In addition, our existing franchisees are playing a bigger role here.

They plan to open up to four more new locations in 2013; more than they've opened in the last four years in total.

When we process all the learnings from our brand transformation efforts, we'll use them to guide the development of a new Red Robin prototype restaurant that we can leverage with our franchisees, too.

Another example of our footprint expansion is Red Robin's Burger Works.

We're already learning a tremendous amount from the five locations that we've opened so far.

We believe this fast casual prototype will allow us the flexibility to open in non-traditional locations, including airports, college campuses, and urban areas where we would not be able to build a full service restaurant.

Again, while we're very pleased with our most recent financial results, we're even more excited to look ahead and focus on achieving our vision across these three major fronts -- Guest Engagement to deliver the top line, Operating Efficiency to offset cost pressures and enhance our margins, and the thoughtful deployment of capital via our footprint expansion.

With that, I'll turn the call over to Stuart to give you more perspective on our results and the outlook for 2013.

Stuart?

Thank you, Steve and good morning, everyone.

I will begin today with a brief overview of our 2012 results and then cover our outlook for 2013.

We reported adjusted earnings per share of $0.59 for the fourth quarter of 2012 excluding the non-cash charge for our debt refinancing.

If we were to also exclude the $0.21 per share impact we estimate for the 53rd week, earnings per share grew 36% to $0.38 in the quarter compared to an adjusted EPS of $0.28 a year ago.

For the full fiscal year, adjusted EPS was $2.06; an increase of 30%.

Excluding the 53rd week, we achieved EPS growth of 17% over 2011.

Looking to slide 13 of our supplemental, our total revenues were $240.7 million in the fourth quarter; an increase of $35 million or 16.8%.

The extra week contributed about $21 million to the increase and the number of operating weeks increased 12%; of which, 8% were due to the additional week and 4% from additional restaurants.

Our comparable restaurant revenues increased 1.4% in the fourth quarter, lapping over 3.1% growth in the fourth quarter of 2011.

Our average check increased 1.1%, reflecting a modest fourth quarter price increase and increased items per guest.

Compared to the third quarter, sequential average check increased over 1% due to more guests enjoying beverages and appetizers as part of their meal.

Guest traffic increased 0.3% in the quarter and exceeded the casual dining sector about 390 basis points, as reported by Black Box.

Even more impressively, traffic was favorable to the sector in nearly every region across the country.

Our reported comparable revenue growth is calculated using 13 weeks and 53 weeks for the fourth quarter and full-year, respectively, using the revenues of the matching calendar weeks.

For 2013 comparable revenue growth calculations, we will compare actual results to the most closely aligned periods, which will vary from our prior year fiscal quarter by one week.

As shown in slide 15 of the supplemental, cost of goods sold improved 20 basis points to 25.2% in the fourth quarter from a year-ago period, due to an improved sales mix and lower cheese, [fryer oil], and prime rib costs.

Higher potato and ground beef costs were offset by the price increase and higher profitability of our limited time offers.

Store labor and other operating costs together decreased 30 basis points, as higher costs associated with our brand transformation pilot and restaurant bonuses were more than offset by lower utilities, supplies, and maintenance costs.

Overall, fourth quarter restaurant-level operating profits reached $48.7 million, for 20.6% of restaurant revenue; a 70 basis point margin improvement over last year.

For the full-year, restaurant-level operating margins improved 90 basis points in 2011 and over the past two years, have improved almost 300 basis points.

Q4 general and administrative costs increased $1.4 million from a year ago to $20.5 million, due mainly to the extra week in 2012.

For the full year, G&A was $83.7 million including $6.1 million of expenses related to our new finance and supply chain systems.

We've just gone live with our new finance systems and are currently testing our new supply chain systems before rolling out later this year.

Selling costs in the fourth quarter were $6.4 million, an increase of $1.9 million, due mainly to higher marketing fund contributions related to the increased sales and gift card expenses, as we increased card sales 16% with new retail outlets carrying our cards.

Our interest expense in the fourth quarter included a $2.9 million non-cash charge related to the refinancing of our credit facility; consisting of $1.7 million for the write-up of existing fees and $1.2 million related to the redesignation of our variable to fixed interest swap agreement.

Our new credit facility has a 50 basis point lower borrowing rate and lower fees on the unused portion of our facility and also provides greater flexibility through the new covenant package.

The new facility will lower interest expense by over $800,000 annually.

Turning to full-year cash flow and investments, our 2012 adjusted EBITDA was $104.4 million, an increase of $11.8 million over 2011 and an increase of $27.7 million over the past two years.

In 2012, we invested $29 million of the cash flow we generated into expanding our store base by net 12 restaurants.

Our units continue to generate cash on cash returns in excess of 30%.

Additionally, we spent about $10 million testing our brand transformation initiative in 21 restaurants, as well as upgrading our audio visual in about 125 restaurants and spent $12 million on restaurant maintenance.

Our capitalized investments in new IT systems and other infrastructure initiatives totaled $12 million during the year.

Much of the excess cash generated this year was returned to shareholders in the form of share buybacks.

We repurchased $24.3 million during the year, including $8.6 million during the fourth quarter itself.

Over the past two years, we have repurchased over $57 million or 13% of shares outstanding.

A new $50 million share repurchase authorization became effective at the beginning of 2013.

With respect to our 2013 outlook, we remain conscious regarding consumer discretionary spending.

Economic headwinds will continue to impact casual dining and we perceive this after experiencing another year of flat to negative traffic.

That being said, we are confident that the strength of the Red Robin brand and the initiatives we have in our pipeline will allow us to profitably take market share.

We anticipate 2013 comparable restaurant sales to increased 2.5% to 3%, of which approximately 2% will be from price increases to offset commodity and wage inflation.

Further, we expect 4% to 5% more operating weeks, considering 20 new restaurant openings and excluding the 53rd week in 2012.

Our restaurant-level operating margins are expected to be flat to down 10 basis points compared to 2012, due to factors including higher commodity costs with inflation around 4%, higher minimum wages, and one time labor costs associated with the rolling out of our new spiral menu, labor management system, supply chain system, and other initiatives.

We expect 2013 selling costs to remain fairly consistent as a percentage of sales with 2012 and our general and administrative costs to range from $83 million to $84 million.

First quarter total selling, general, and administrative costs are expected to be around $36 million; the same run rate as Q4 2012, plus our annual general manager conference and some initiative expenses.

2013 depreciation expense is expected to be around $58 million, interest expense to be near $4.5 million, and our effective tax rate to be between 23% and 24%.

I also want to highlight a comment that I made on our last earnings call related to the impact of the shift of the strong holiday week.

In fiscal 2012, we had the holiday week both at the beginning of year and the end of the year.

From a baseline perspective, in addition to $0.21 lower EPS related to the extra week in 2012, we will also shift about $4 million of high margin revenue from the first quarter into the fourth quarter.

Our year-over-year comparability will also be impacted by our change in media timing.

We expect that our media spending will increase slightly in 2013, but are not currently planning any media in the first quarter as we finalize our media strategy.

The change in media timing will likely cause about $6 million of sales to shift from the first quarter into later parts of the year, which we plan to partly offset with Red Robin Royalty and other guest engagement initiatives.

Our investment priorities, once again, consist of increased restaurant openings generating outstanding returns, as well as capital investments on efficiency improving initiatives.

In total, we expect our capital expenditures to range from $50 million to $55 million.

Our 2013 guidance, however, does not include any capital, costs, or benefits related to further remodels.

We will update this later in the year as we finalize which parts of the brand transformation initiative are having the greatest impact on profitably engaging our guests and then determine our implementation strategy.

Before turning the call back over to Steve, who just outlined our 2013 road map, I want to reflect quickly on the goals we set for 2012.

We were clearly successful in building our foundation and advancing our brand with the launch of our everyday value Tavern Double platform, expanding our successful loyalty program, establishing Burger Works, and testing everything from brand transformation to new creative culinary and talked about beverage innovations.

We are very proud of what we've accomplished and it was a true Red Robin team effort.

We're also incredibly excited about the opportunities that further engaging our guests, improving efficiencies, and expanding our footprint will create for our team members and shareholders.

Red Robin truly is an American classic.

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

Thank you.

Thanks, Stuart.

I want to wrap up our prepared remarks by reiterating that while we're very pleased with our performance in 2012, a foundational year for Red Robin, we continue to look forward to the future.

2013 will be a year of testing and harvesting opportunities to accelerate growth and drive long-term performance; again focused around those three E's of engagement, efficiency, and expansion.

Finally, I want to once again thank my fellow Red Robin team members across the entire enterprise for their continued hard work, passion, and focus on results.

Our success would not be possible without them.

With that, Operator, we'd be happy to take questions.

(Operator Instructions) Will Slabaugh, Stephens Incorporated.

Congrats on the quarter.

As far as the guidance goes, I was just wondering if you could talk a little bit more about confidence you have in the 2.5% to 3% number on the same-store sales line?

Within that, could you speak just a little bit to traffic and check and how you expect those to play out throughout the next year?

This is Stuart.

Thanks for the question.

Really quickly, again, we're cautious on how the whole industry's going to do for the year.

Our guidance is built on traffic being flat to down 0.5%.

Our confidence of the same-store sales guidance is built off of that and combined with some pricing that we anticipate taking.

We feel pretty good about where we are.

Again, if the industry under or overperforms, that will probably go along with the tide going up or down.

In terms of the seasonality of that, it's a little bit hard to predict.

We've had a number of sales building initiatives that continue to layer on each other, as we've talked about in the third quarter and the fourth quarter.

Again, we'll start to cycle over some of those and we've got, hopefully, a few new ones in the bag that will continue to deliver.

Great, thanks.

On the menu, can you talk a little bit more about what you expect to gain there?

I know you've mentioned add-ons in the past as being something where maybe you under-index with appetizers, desserts, et cetera, so give a little more color around that and what you expect as far as the menu evolution throughout this year.

Will, this is Denny, glad to take that question.

We definitely have upside as we started to experience late last year with the launch of our pretzel bites and the way that our guests responded to those in the area of appetizers and add-ons, both at the beginning of the meal and the end of the meal.

We have traditionally, of course, focused on our core offering of our burgers, but we think we have upside relative to the category on both appetizers and desserts.

In terms of the overall menu, we're slotting in a nice pipeline and for the first time, have some alternatives, go-to alternatives, so that we need not rush forward with anything we're not ready to rush forward with or go forward with.

I think we're going to have a good line-up this year to balance out, obviously, the bar bill strategies we've talked about.

Great.

Thank you.

Jeff Omohundro, Davenport and Company.

Another question on the comp outlook and I understand the importance of pricing contributing to that outlook.

Where does check fall in that guidance, specifically in thinking about the efforts on the premium side of the menu?

Is there an assumption of success there in mix growth on premium and check growth?

Associated with that, given the success last year of connecting with guests on the Tavern Double and the value side, how are you thinking about introducing these products to avoid jeopardizing the traction you've gotten on the lower end of the bar bill?

Thanks.

Kind of building on that, Jeff, from my last comment is, we had not yet built in anything with regards to premium.

We're still in the stages of developing those products and so that is not contemplated yet in our plan.

However, add-ons, as I just spoke about, do have the opportunity to expand our check and I think we have demonstrated through testing that there's upside there.

As far as Tavern Double, it remains the anchor of our everyday value strategy and will continue on our menu.

We'll continue to refresh it with new styles and opportunities.

Again, I think there is room in this world for burgers priced at a wide range, so we're going to stick to what we do best, which is great burgers and I think we can pull that range out.

But for right now, premium is not yet built in.

Thanks.

Congrats.

Joe Buckley, Bank of America Merrill Lynch.

It sounds like a number of the major initiatives on the IT side and on the brand transformation side are sort of work in progress, but maybe come to a head a little bit later in the year.

Could you maybe just bring us up to date on both?

On the brand transformation, is it 21 restaurants that are in test?

How many different formats that are spread among those 21 restaurants?

Maybe on the IT efforts, just where are you in the scheme of things?

The G&A guidance relatively flat, how does that relate to the IT rollout?

Good morning, Joe, this is Stuart.

Quickly, on brand transformation, I think we're really right on track, maybe even a little bit ahead in terms of where we thought we'd be in terms of the testing of that.

As we said, we've tested 21 restaurants in the fourth quarter of various levels.

One full transformation, which included interior and exterior and those costs recorded about $400,000, all the way down to bar only cost to $125,000 to $150,000 and those were largely completed in the fourth quarter, one here in the first quarter of 2013.

We always anticipated that we would get a read on that for six months or so.

Some of this you can get a pretty quick read on in operating expenses and labor, but really a lot of it's about, again, guest engagement and frequency.

We want to be very careful about how we're reading that and how that trends over time to make sure we're not just reading out immediate honeymoon results and that type of thing.

Feel good about where we are on that, we'll do a read on that over the summer and then figure out, based on that, which restaurants are performing the best, which pieces of brand transformation are adding the best to the guest experience and team member experience and lay the plan out from there.

We may be able to get some done later in 2013, but right now there wasn't any sense just making a guess or stabbing guidance on that.

On the IT front, we're definitely behind where we anticipated being if you asked us a year ago.

The finance systems have rolled out a few months later than we thought and that's one of the risks of being early adopter of new ERP system and we knew that going in up front.

The benefit of being an early adopter is that we get lots and lots of attention and help and our providers and support companies have been great doing that with us.

The supply chain systems that are going to be rolling into the restaurants are also running a few months behind.

I think if you asked us compared to a year ago or investor day, we'll definitely have some higher run rate in 2013 than what we thought at that time and it's probably an additional, I don't know what it is, $2 million to $3 million of G&A this year than we would have guessed otherwise.

That said, in terms of what the systems are going to deliver, still highly confident in that.

It's not going to slow us down going back to the airplanes lining up to labor management and some of other initiatives.

Okay.

Then just a question on the shift in media, so just remind us what you did in the first quarter a year ago.

Were you on air for four weeks and this year you basically will not be on air at all?

We will not be on air at all in the fourth quarter with traditional media.

First quarter, I'm sorry.

We were on air four weeks last year, we will not be on air with television this first quarter.

Okay.

Do you know what the game plan is for the balance of the year or are you still adjusting and testing on that front?

We're just onboarding our new chosen creative agency and media buying firm and are locking that down over the next few weeks.

But we are shifting our strategy and looking to spend our dollars more wisely, more impactfully, over the course of the year.

Okay.

Thank you.

Conrad Lyon, B. Riley Caris.

Let me just follow on the shifting on the advertise spend real quick.

Just want to clarify, the push backward or delay on the spend is merely just a reflection of the new firm and creating a new, if you will, strategy, for advertising spend?

Yes, principally, it's a reflection of a new media strategy and approach.

Okay.

Question regarding the comps in the Q4 12-week, 13-week basis, just want to clarify.

It looks like there's a nice delta in the average check on a 12-week basis to a 13-week basis and as well from guest counts.

Can you speak to what were the principal agents or what caused that?

Conrad, this is Stuart.

Quickly, there's no difference because of the timing of weeks.

We've measured comp average check in traffic over the same weekly period.

They're really the biggest driver and again, if you looked at it and go back to our comments in third quarter, what hurt us on average check in the third quarter was we had some drop in appetizers as we've taken some items off the menu.

We'd also indicated we're bringing items back.

You saw that resonate in Q4.

It's really increased beverages, alcoholic beverages, and appetizers.

Got you.

Okay.

Could you speak to gift card sales and how they were in the fourth quarter compared to last year?

Sales were up 16% and along with the rest of the industry, you see lot of redemptions in sort of the late December, January timeframe.

But I feel very good.

We rolled out a couple of new retailers have a couple new retailers on block to rollout in 2013.

Got you.

Okay.

Just little bit more clarification also in terms of trends, there's been some chatter about February being very difficult for just consumer spending in general.

You guys have done better, obviously performing better than the major industries out there.

Are you seeing anything similar?

I know you don't want to get in too much detail, but just kind of directionally to help us guide and model going forward here.

Actually, good news is I don't like to get in any detail not just a little bit.

We just don't give interim updates.

Clearly, what happens in the first inning doesn't indicate the outcome of the game.

Our guidance for the year is built off a flat to 0.5% traffic for the year.

Again, consumer was volatile last quarter, it was volatile the quarter before and it's going to continue to be volatile in 2013.

Okay.

Final question here, just in terms of the unit development program for the year.

Any color on the distribution throughout the year and the size, if it's going to be skewed toward the 4,000 square foot box.

Yes, if you look at the 20 units, actually the mid-sized, the new 4,000 square foot unit, we've got two of those open.

We're going to expand that to another four this year of the 20 around and Burger Works, again, up to five and the balance will be filled out with the full size.

We expect franchisees to open three to four units, so we'll get a little bit of growth on that side as well and it will be skewed probably a little bit more towards the back half.

Okay, thanks.

Bryan Elliott, Raymond James.

A few clarifications, actually, Stuart, if the first inning is nine swings and misses versus three loud outs to the warning track, it's a pretty different set up for the next eight innings.

But I'll leave that one alone.

I'll give you one response to that.

The last couple of quarters we've been working really hard to try to hit some singles and doubles and get some people around the base and we'll keep trying to do that.

Let me put it that way.

All right.

You've certainly been successful with that.

Just some clarifications on some things, you talked about Q1 G&A with no advertising and I'm on a cell phone, did you say, therefore, Q1 G&A looks to be $26 million or $36 million?

Again, SG&A and everything all together, one thing you've got to remember on our selling costs, just to jump in, is we make a contribution to a marketing fund.

The actual timing of media doesn't impact when the expense hits.

That's important to be sure everybody understands.

The total SG&A is expected to be around $36 million.

Okay, because we're going to pre-fund the spending that comes later?

On that subject, Denny, you said, I believe I heard correctly, to push, think about the lack of spending in Q1 as something that will push, I believe, the number was $4 million in sales into the next three quarters from the Q1?

$6 million of sales.

$6 million, okay, and that's in addition to the calendar shift issue which you highlighted which is the big holiday week was in Q1 last year and is not in Q1 this year because the extra week in '12, correct?

Right.

Correct.

That's $4 million of sales and those are fairly high margin sales.

That's where I got the $4 million.

Okay, so the total impact, then, from advertised calendar shift is more like $10 million?

You're correct.

Okay.

All right.

Also, you said, I believe, that the comp sales will be on a fiscal rather than calendar basis this year?

On the comp sales, we always do on a fiscal basis, but what we'll do -- let me just -- what we're going to do in terms of as we report comp sales, again, because of the shift of holidays and the way the calendar works with the 53rd week, when we report comp sales, we will try to align as best we can to your point, to the calendar so it will actually be -- we'll compare -- we'll basically be off one week on a comp calculation if that's clear.

In other words, are we going to drop -- we've got to drop a week, right?

Are we going to drop the first calendar week?

No, we're not dropping a week.

We'll have the same -- our first quarter will still be 16 weeks.

But we'll compare it to the most closely aligned 16 weeks in the calendar last year, which technically will be last year's week two through 17 if you think about it that way.

Okay.

Excellent.

All right.

Very good.

That's all I had.

Thank you.

Phillip Juhan, BMO Capital Markets.

First, Stuart, you indicated in your comments that there is no budget baked in for remodels in the CapEx plan and you're pushing that out --

There's some normal remodels in there, but no brand transformation, so nothing significant built in at this point.

It sounds like you're just taking a pause to measure and assess and we'll sort of pick the program back up at the end of the six month period.

Is that a fair assessment?

This is Steve, Phil.

The last one actually wasn't even completed until this past month.

While we are going to spend six months in a very disciplined way reading the results, we're not really taking a pause in the sense that we continue to be in these restaurants on an ongoing basis talking to guests, doing research, learning, testing, and evolving; continuing to make it better.

We're not totally dead in the water on this.

We continue to learn.

With that, combined with the analytics that we'll get at the end of Q2, we'll really inform the level and velocity of how we approach the balance of the system on this.

One quick comment I'd add to that as well is this will inform our next generation prototype as well and we're working on that and we'll open that up in the second half of the year.

Okay.

I appreciate very, very early in the program, but in attempt to determine if -- back in the analyst day, you guys mentioned that if the remodels work, exceed the 2% to 3% same-store sales hurdle, then we could possibly see as many as 75 to 100 units per year.

Is there anything you're seeing at this point that might put that sort of assumption at risk in the future?

I think it's too early to tell.

Again, we think that engaging the guests in this way and making some of these service changes, inflating the presentation, again, if it's just about the costs, it's a great investment that I think 75 to 100 units per year still stands.

Last question, Stuart, if I may, back to the comp for a moment, if we're thinking about the calendar shift, if $6 million of sales that pushes out to later in the year, due to timing of advertising, if we just think about this in terms of comp store sales cadence throughout the year, if we push out $6 million, it sounds like you're starting in the hole in the first quarter even with the realignment to weeks 2 through 17, maybe of 150 to 200 basis points negative that you have to overcome in the first quarter.

Is it fair to expect that first quarter comp should be much lighter than quarters two through four?

That's a great conclusion.

Okay, thanks.

Peter Saleh, Telsey Advisory Group.

Just wanted to ask about the health of the franchisees.

I know you said they're going to be opening up a couple more units this year.

Are we starting to see franchisees being able to find capital to accelerate growth?

How should we think about that as we go forward over the next maybe 18 months?

Peter, Eric, here, I think it is using up a little bit.

Obviously, franchise partners are getting better with local banks.

I don't see really a material expansion above the four or five units a year.

Materially, it will continue to grow and it'll be our largest growth.

Peter, this is Steve.

To build on that for a little bit, as Stuart indicated, this brand transformation effort is really informing us on our new prototype.

We haven't had a new Red Robin prototype for 12 years.

Yes, 10, 12.

Our franchisees, like you guys, are anxiously awaiting what this looks like when it comes out.

I think the better job we do with that will correlate to their level of excitement and enthusiasm about going out and securing new capital and continuing to build alongside us.

On the alcohol mix, did you guys give us where that was at the end of the fourth quarter and what that was up on a year-over-year?

Lastly on that, where do you think it can go from here?

Do you think it can get back to peak?

I'll answer that in reverse order while we get the data.

The industry average on the alcohol is in the low teens.

I think even Olive Garden, the last time I looked, don't hold me to it, is about 14% and Olive Garden is not a place where people typically go and say, hey, let's take the softball team after the game and have a beer.

We've got a terrific long runway to build us back up.

Even 10 years ago, Red Robin was at 11% of alcohol mix and the end of Q4, we were at 7.6%.

As we've talked, I think it's reasonable to expect us to grow that about 50 basis points a year.

It took us 10 years to lose it, it's going to take us awhile to get it back.

But we're very encouraged by what we've seen.

Our new master mixologist is doing a bang up job both on cocktails and beers and of course, you've read about our beer milkshakes, but also on new glassware and new presentations.

Great.

Thank you very much.

Steve Anderson, Miller Tabak.

I just wanted to ask, there's a trade report about a test you're running regarding a bundling of some the appetizers, things in North Carolina.

Is it too early for you to discuss what you found in that test?

Yes.

It's too early to discuss it.

Okay.

All right.

Thank you.

But I'm glad people are paying attention.

Chris O'Cull, KeyBanc.

Given the Company's comp assumptions for the industry this year, flattish traffic, what's the rationale behind introducing more premium burgers?

One is we believe, as the burger authority, that we've got room to do everything from everyday value to the most premium burger you could possibly purchase.

We've got a lot of credibility there and it reinforces our brand authority.

Second, we have a wide range of guests and guest types and our locations and our target base support, as economy recovers, et cetera, more premium burgers.

The whole concept of providing a small, medium, and large or a low, medium, and high price is very tried and true marketing and menuing technique, back to every place I've ever been and well before me.

This is not like it's a discovery.

The more that you offer on the lower end and the more you offer higher end, you find that people support and gravitate off into the middle.

Again, also, most importantly, our testing shows that our guest gives us permission to go there, believes we can do it extremely well, and is eager, at least conceptually at this point, for us to add these.

How do you afford losing mine share around affordability, which you obviously created with a lot of success with the Tavern Double.

How do you do both?

I think with really smart media strategy and messaging strategy, more importantly.

Not everything requires the smart dimes beat dumb dollars every time and we have to be careful about how we spend our dimes and where we use mass media and what we reinforce about our brand and where we use more targeted messaging.

I think there's a lot of ways through the media mix to balance this out.

Do you expect to use more --

Chris, this is Steve.

This is about guest choice.

We're not forcing anything on anybody and that's why we're taking such a deliberate and thoughtful pace around research and understanding exactly what the guest is looking for, what they, from are a concept basis, believe is premium and what they're prepared to pay for.

But again, this is their choice.

We're simply making it available as they go through the menu and we know they're going to make a different choice when they come in with their family at the end of the month while they're stretching their dollars and that's a different choice when they come in after they just got promoted with the guys from the office.

Do you all expect that targeted media used to be for supporting the premium burgers rather than the mass media?

Don't know yet.

Not certain, yet, what we are going to do.

That's part of the testing process and thinking this through.

But I believe there's a lot of opportunities for us to make good choices about that.

Great.

Thanks, guys.

David Dorfman, Morgan Stanley.

I wanted to ask about the loyalty program and specifically, you brought it up as a potential offset to some of these headwinds you'll see in the first quarter with the comp, the 2% related to shifting media and maybe as volumes you'll lose to the extra week.

Now that you're at 2 million users and I think you sound like maybe if you tried to replicate just the number of users that you had on your email distribution, you could double that.

Could you give us an example of how you use that and how you can predict how much you offset -- go ahead.

This is where history is the best predictor of success.

If you'll remember last quarter, quarter three last year, all of us were facing tremendous headwinds from the Olympics, elections, et cetera.

We were able to tap into our Red Robin Royalty base and go direct to that community with an offer that made a huge difference for us in Q3.

That kind of activity is the kind of thing that we know we can choose to do very selectively and appropriately with the 2 million members that we currently have.

What was the magnitude of that Olympic example?

You'd have to go back and look what we shared at the time.

I'm not sure.

Also, too, as it relates to Red Royalty, the other thing this other base of users gives us is a real live learning laboratory.

We usually have a whole bunch of tactics that we're testing against different parts of this target market simultaneously to optimize which ones work the best.

It runs the gamut, everything from direct mail and sweepstakes and all of the above.

Okay.

One more question with respect to the stability of sales, it sounds like you have a lot of different things going on with menu tests and introductions.

Is there now sort of a baseline change in the way people have used your menu in that the Tavern burger and how people have used added apps, and desserts and drinks, has that played out the way you wanted?

Is that stable now or is there still a lot of shifting in how people are using the menu?

Thanks.

I think there's a lot of shifting and a lot of evolution still to come.

Is it in your ability to sort of optimize the bottom line while all that shifting's happening?

How does that play out just in terms of while comps are sort of volatile and that menu use volatile?

What percent of margin do you think you may be losing just because there's a lot of volatility in the menu and sales?

Look at a big picture, so in some areas where we're getting the profit dollars dropped to the bottom line as we add alcoholic beverages and appetizers, we've been continuing to reinvest that back.

The spiral menu and plating and presentation, as Steve talked about, is reinvesting some of those additional dollars back into the guest experience and some of the blueprint savings back into the guest experience.

Over time, we think all of this will be additive.

In terms what the individual items are that's driving it, again, we don't want to give all our tactics away to competitors.

I was trying to get more at like whether there's labor scheduling or food management inefficiencies to having all of this influx right now?

There certainly will be in 2013, as I talked about in my conference call remarks, we will have labor productivity hits as we roll those out.

Again, we expect those mostly to be one-time, but there will be some training involved and things like that and as you make system changes like this, that will be coming.

Okay.

Thanks very much, guys.

Nicole Miller Regan, Piper Jaffray.

This is Josh on for Nicole.

As we look at the Red Robin Royalty program, how frequently do you communicate with the guests and how do you think about that holistically over the course of the year on the types of communication between maybe just brand building and bit more traffic driving, specifically?

Also, as we think about the consumer research that you've done building that more value-centric platform with the Tavern Double and then you work towards looking at how to elevate that Red Robin experience in the more premium end, how does the Red Robin member base, at 2 million members, how does that play into your consumer research as well?

I cut the first question, I reject the notion that brand building and traffic driving aren't possible in the same proposition.

I would simply say we can do both.

This a very strong brand and there is a lot to discover about this brand that our guest does not yet know or potential guests don't yet know and so I'm completely confident that we can do both at the same time.

Specific to Red Robin Royalty, those 2 million members are a source for us which again, as Steve alluded to, we can tap into.

Not only to test offers that are specific to that program, but also to get feedback on initiatives that we're undertaking.

It's given us a much more efficient guest research method for some of our smaller propositions, but we don't limit our guest research, by any means, to that community because they tend to be our heaviest and our biggest fans, which we love.

When we're undertaking a larger initiative, we'll certainly go beyond the Red Robin Royalty base to sample.

But we've invested a tremendous amount in guest insight and will continue to do so going forward.

Great.

Thank you.

Does that answer your question?

It does.

Thank you.

John Barrett, Columbia Management.

Great quarter.

Thanks, John.

Just a question on the transformation, Stuart or Steve, is it safe to say and I know it's early and you're still monitoring the remodels you done, but on the $125,000 bar only, partitioning off the bar investment, new TVs, et cetera, you're getting either the 2% to 3% comp hurdle on that investment, as well as the $400,000 investment, so you just want to take a step back and say hey, if we can do for $125,000 and get more than that comp lift than spending obviously the $400,000, the ROI equation is a lot different on the $125,000, obviously, and you're seeing similar returns on a smaller upgrade?

John, this is Stuart.

Obviously, we focus on the return on invested capital as much as anything else here as we make these decisions.

What we're going to do, to your point, is we're going maximize the profitability at these.

We're not going to go and do a $400,000 remodel if, for the same return, we can get $300,000 remodel.

That said, I think the reality of it is, and if you look at a number of the other theaters that are out there, is there are some restaurants where individually, if you've got a 15-year old restaurant in a great location, you may get your best return on $600,000 remodel and create a brand-new restaurant.

In other restaurants, you may sit down and say, hey, I can get a great pop out of this as a newer restaurant for $125,000.

There's not going to be a one size fits all.

We understand that.

But I think it's probably, right now, safe, from a cash flow assumption and things like that, we're assuming, again, the 75 to 100 units a year and $350,000 to $400,000.

We'll know a lot more later in the year and can talk about it more on our probably third quarter conference call.

Okay.

You guys have a lot on your plate, no pun intended, with presentation, desserts, apps, et cetera, and that's an expensive transformation when you're talking ultimately, potentially, $32 million to $35 million in CapEx per year on the big remodels.

Right.

Again, and to Steve's point, this is definitely a multi-year endeavor and again, the ones that we've done is informing the new prototype as well.

As we build new restaurants with the look and feel and the service experiences, we've got a lot on our plate, a lot of great things on our plate.

Okay.

Just one other one, on the IT, the POS delayed, et cetera, I think that's with Oracle, if I'm correct.

Is there some refunding you're getting on this delay or are they more involved?

Just give us an update on that relationship.

Quickly, just a clarification, we're not replacing our POS system, we're keeping our POS system.

This is pay-to-procurement store ordering, prep schedules, suggested ordering schedule, restaurant P&Ls.

Again, in terms of what the agreement is, it is the new Oracle fusion ERP will be one of the, if not the first, one of the first retailers rolling this out.

It brings a lot of great things to us in terms of what the agreements are with Oracle behind the scenes we're not going to talk about.

Okay.

Great, thank you.

At this time, there is no more time for questions.

Mr. Carley, I would like to turn the conference back over to you for additional or closing remarks.

Very good.

I appreciate everyone's time and attention today.

We've had a great quarter and we're looking forward to a challenging but very positive '13.

Thanks and have a great day.

That concludes today's conference call.

Thank you for your participation.