Red Robin Gourmet Burgers Inc (RRGB) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Incorporated third quarter 2013 earnings conference call.

At this time all participants have been placed in a listen-only mode and the lines will be open 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, expect, believe, intend, should 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 revenue driving initiatives, sales growth expectations, expected operating margins, anticipated costs and expenses; intentions with respect to expense management; plans for deployment of capital, new stores 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 second-quarter 2013 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 turn the call over to Mr. Steve Carley, Chief Executive Officer of Red Robin.

Please go ahead, sir.

Thanks, Lauren, and thanks, everyone, for joining us on our call this morning.

With me in the room are Eric Houseman, our President; and Stuart Brown, our Chief Financial Officer.

Denny Post, our Chief Marketing Officer, is joining us by phone from New York City where she will be hosting a lunch event for the first burger in our new finest lineup tonight.

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

To begin, let's walk through the quarters highlights, shown on slide 2 of the supplemental financials.

The third quarter reflected continued progress enhancing the guest experience and delivering on key elements of our long-term strategic plan which I will detail in a moment.

Based on Q3 results and third-party research, the changes we have been making are resonating with key members and guests.

Compared to Q3 last year, same-store sales rose 5.7% with an associated guest count increase of 1.1%, returning Red Robin to positive traffic despite the current weakness in the casual dining sector.

This also marks our sixth consecutive quarter taking share as our guest count growth outperformed our industry peers by more than 400 basis points according to Black Box Intelligence.

We were also pleased with the continued expansion of our restaurant operating margins which grew 70 basis points during the third quarter.

Combined with our solid top-line performance in Q3, we achieved a nearly 32% increase in net income and more than 33% growth in diluted EPS compared to the third quarter last year.

During Q3, we continued to focus on the 3E's -- guest engagement, operational efficiency and footprint expansion.

I will cover engagement and Stuart will provide an update on both efficiency and expansion.

In Q3, we rolled out a number of changes based on the learning from our brand transformation pilot, all designed to elevate the guest experience.

These changes included a new service model for our restaurant team members that gives them the skills to anticipate a guest's needs, inform guests about our food and beverage offerings and continue to go the extra mile to make sure all our guests have a wonderful, memorable Red Robin dining experience.

Now, I can't overstate the significant behavior changes we have introduced to our team members.

Given our legacy service standards where team members relied on a script or cubes on the table, we are seeing some inconsistent execution in the near-term as our restaurant teams adapt.

We expect this to be a continuing challenge going forward as we build new muscle memory around this new service system.

The new spiral menu replaced to the laminated diner-style tri-fold systemwide and guests are telling us they like the new look and layout.

It reinforces our burger authority and also helps guests discovered great entrees, salads and other menu items they may not have noticed before.

Consequently, we have seen some positive mix shifts.

Our add-ons remain popular, specifically with guest as they really appreciate these $3, $5, $7 and $9 appetizer platform and updated dessert offerings which continue to drive incremental sales.

The enhancement we made to plating and presentation are showcasing the creativity and cravability of our unique burgers, moving from red plastic baskets to plates and elevating our signature bottomless fries in a fun new way has been met with rave reviews from guests and team members alike.

We continue to innovate in beverages with our first-to-market can crafted beer cocktails, which were recently recognized in Full Service Restaurant magazine's 20 best beverage programs, where Red Robin was one of only two chains named alongside beverage programs consisting of fine dining, restaurants and noteworthy independents.

Regarding our brand transformation remodels, we are on track to complete 20 more full transformations in 2013.

12 of them were completed recently and the remaining units are under construction and scheduled to be finished by the end of the year.

Quickly on the advertising front, our new ad campaign, 24 burgers, a million reasons and the associated new media strategy, are both really starting to work for us.

During Q3 we continued the media pulsing strategy that we introduced earlier in the year and this helped us achieve higher levels of awareness and momentum early in the quarter.

While we are pleased with the campaign and the new media strategy, we continue to make some modifications to improve its effectiveness even further.

During the third quarter, we focused on a strong summer LTO.

Our Gourmet Berserker burger and our iconic Kazuri-style Tavern Double were coupled with 20th Century Fox's Wolverine film franchise.

This LTO, in combination with a number of targeting marketing tactics extended the impact of the promotion for a full three months both preceding and after the premiere of the movie.

For fall, we brought back our popular October Fest Burger, our Sam Adams Beer Shake, and added a new Oktoberfest-inspired app and dessert, along with a spiced pumpkin pie shake, which is sure to become an annual classic.

Overall, we were pleased with the results of our fall lineup, though sales of the Oktoberfest Burger were softer than last year.

This was the third year this burger was featured as an LTO, so it didn't generate the same level of news.

As I'm sure you are aware, a lot of other restaurant chains jumped on the pretzel bun bandwagon, deleting some of the product's uniqueness.

Red Robin's stance going forward is to continue and innovate with food and flavor-forward gourmet burgers at a pace that is tough to follow.

Finally, we continue to use Red Robin Royalty to engage with, understand, surprise and delight our guests.

Unique registrations in this profitable best-in-class loyalty program now total more than 2.7 million guests.

Before I turn the call over to Stuart, let me caution that, as pleased as we are with Q3 and the traction we have achieved, we still have a lot of hard work ahead.

It will take longer to fully embed our new service changes with team members through training and coaching to build the muscle memory and deliver consistent execution.

We have also encountered ongoing challenges implementing our restaurant IT infrastructure.

While implementing our new financial systems earlier this year went relatively smoothly, our restaurant supply chain systems, which will be unique in the industry, are providing some challenges.

And we are addressing the inevitable gaps in beta software during the pilot phase, which has been more complex than anticipated.

We are piloting in over 30 restaurants with some adapting well and others finding it more challenging to implement than we expected.

This technology will enable other initiatives down the road, so it's critical we get this fully stabilized before rolling it out system-wide.

And of course, the persistent headwinds related to volatility and consumer confidence and spending are among the external challenges that continue to cause uncertainty for our guests.

So with that, I will pass it over to Stuart to speak about our Q3 financial results and outlook for the balance of the year.

Thank you, Steve, and good morning, everyone.

Thank you also for joining us today.

Our very strong third-quarter results reflect the guest-facing improvements which Steve reviewed.

We have talked previously about the importance of growing earnings through top-line revenues and not just managing expenses.

Reinvesting a portion of our cost savings into guest engagement and experience are clearly paying dividends.

In addition, we have made continued progress along both the expansion and efficiency planks of our strategy by opening more stores and continuing to find ways to reduce costs.

This should help us mitigate some of the industry headwinds and other challenges on the horizon.

Our comparable restaurant sales rose 5.7% in the quarter ended October 6. This reported growth actually would have been a bit higher except for the fact the same-store revenues last year were increased by about $1 million or 0.5% for the one-time reduction of accruals related to Red Robin Royalty discounts.

You can see details of our Q3 sales growth on slide 8 to the supplemental.

The 5.7% comparable sales growth resulted from 1.1% higher guest counts, 2.3% of price increases and 2.3% of favorable menu mix and increased items per guest.

Through the first three quarters of 2013, our comparable sales growth was 4.2%.

The growth in same-store sales over the past five quarters as shown on slide 9 of the supplemental exceeds even our own expectations.

Our guest count trends continue to show that we are taking market share despite an environment in which most of our direct competitors are promoting heavily.

This past quarter, our traffic growth outperformed casual dining peers by over 400 basis points, and over the past two years our third-quarter traffic growth has outperformed our peers by about 700 basis points according to Black Box.

The increase in average check was helped by higher sales of appetizers from our October 2012 and April 2013 menu changes as well as increased sales of alcoholic beverages.

Compared to third quarter last year, total revenues increased 8.1% with operating weeks having increased 3.8%.

As a reminder, total revenues are reduced by about $1 million in the quarter for restaurant-level promotional costs, which last year were reported in other operating costs.

We opened six new Red Robins in the quarter, bringing us to 11 new locations year-to-date.

An additional 10 full-service restaurants will open in the fourth quarter plus one Burger Works.

Our franchisees opened two Red Robins in the quarter, one in Pennsylvania and one in Canada.

We have had five Burger Works open for the past year and we continue to evaluate the results of the different types of trade areas as well as optimize everything from menu to equipment.

The underlying restaurant performance has been mixed with sales at our central business district and lifestyle trade areas performing well and our college campus locations underperforming our expectations.

Our real estate team is focusing on finding central business district locations in a couple of major metro markets for next year while we consider the future of the college campus sites.

Restaurant-level operating margins in the quarter were 20.4% of restaurant revenues, a 70-basis-point increase from 19.7% last year.

The leverage of the increased sales on fixed costs was the main region for the solid margin expansion.

Cost of sales increased 40 basis points, due mainly to commodity inflation and some mix shift, while labor improved 40 basis points due to the sales leverage and lower insurance costs, partly offset by higher trading and restaurant bonuses.

Depreciation and amortization expense grew in the quarter, but at a slower pace than past quarters, due partly to some assets becoming fully amortized.

General and administrative costs were $20.6 million and generally in line with expectations, though higher than a year ago.

The increase was due to cost of increased staffing over the past year, manager training as we have increased new units and higher incentive compensation.

Selling costs were $6.8 million, or $1.3 million higher than a year ago due to the timing of contributions into the Red Robin national advertising fund; increased expense on the higher sales as well as the cost of sports sponsorships.

Overall, while media weights are still light compared to many of our peers, our media spending this quarter was about double what we spent in 2012 as we have shifted the timing of advertising.

Year-to-date, media spending has been about flat with 2012.

Turning to cash flows and investments, EBITDA for the first three quarters increased 6% to $83.3 million.

This year, we have paid down $43.5 million on our credit facility, bringing the balance to $81.5 million.

We have invested just over $50 million this year, comprised of $32.4 million in new stores, $3.8 million in remodels, $7 million on IT and other projects and the remaining $7.1 million spent on maintenance CapEx and other.

In addition, we've repurchased almost 37,000 shares for $2.5 million.

Bottom line, we had a strong quarter with net income growth of over 30% and diluted earnings per share growth of 33% to $0.32 per share.

Year-to-date, earnings per share has increased 18% over 2012.

With only two months left in the year, we are obviously confident that we will exceed our initial 2013 guidance we issued back in February and believe that we have the initiatives in place to outpace our peers in the fourth quarter.

The overall outlook for casual dining, however, is fairly pessimistic in the near-term with consumer confidence down and little expected improvement in employment, retail sales or discretionary spending in restaurants.

Based on the 4.2% comparable sales growth for the first three quarters of the year, we expect comparable sales growth for the full year and somewhere close to 4%, implying about 3.5% growth in the fourth quarter.

We remain concerned about the weak industry trends, the one less weekend and fewer shopping days between Thanksgiving and Christmas this year compared to last year and an intensifying competitive environment.

Further, remember that we rolled off 90 basis points of price in October, so Q4 will be caring 140 basis points of price increases.

Restaurant-level operating margins for the full year are expected to average around 21.7%, consistent with what we have seen year to date.

The fourth quarter of 2012 benefited from the leverage of the extra week in our fiscal calendar, but we should continue to have some benefit this year from the increases we have seen in average guest check.

Further, we will continue to incur rollout costs from our new labor management system which will be fully deployed in the fourth quarter.

It will take a few months for our general managers to fully implement the recommended staffing changes, negatively impacting labor productivity into the first quarter of next year.

2013 general and administrative costs are expected to exceed $92 million.

The increase in guidance from last quarter stems from higher incentive compensation, higher training cost of new managers as well as expected relocation costs of our new executive team members.

Selling costs are expected to be 2.9% of sales for the year, an increase from our previous guidance of 2.8% due to the higher gift card production cost as we continue to expand third-party outlets.

As you see in our press release, we have modestly brought down our guidance for depreciation and our tax rate.

Investments in new stores, brand transformation remodels and other capital expenditures will reach about $75 million, a $5 million increase from previous guidance due mainly to an additional new unit and additional relocation in the fourth quarter.

Pre-opening costs for the full year will total almost $6.1 million with the fourth quarter about $1.5 million as we open the 11 new locations.

Also remember that the extra week in our fiscal calendar last year increased 2012 revenues about $21 million and increased earnings per share an estimated $0.21 for the year.

As is our custom, we will provide 2014 guidance on our earnings call in February.

I want to provide a few thoughts, though, as we look to next year.

We believe food inflation will be around 3% or a 70 basis point increase and labor cost as a percent of sales will increase about 30 basis points, all else being equal.

Labor inflation is expected to be more meaningful in the next couple of years as the $1 minimum wage hikes in California in June 2014 and again in 2015 hit us particularly hard with our 69 restaurants.

We will obviously try to mitigate a portion of these risks.

We expect to open another 20 new full and midsize Red Robin's next year along with a handful of Burger Works with openings more weighted to the middle of the year.

Given the great guest feedback and solid financial results at our remodeled brand transformation restaurants, we will continue these profitable investments with the 2014 pace to be finalized as we evaluate the results of the 20 restaurants currently being remodeled.

Given commentary from some of our peers, we expect them to continue increasing discount activity as well as media spending.

We plan to stay on our present course, truly focused on the guest, differentiating our brand and delivering everyday value while investing for continued long-term growth.

We plan to limit price increases next year to support our value positioning.

This in turn may lead to lower operating margins next year but should facilitate a continued increase in market share.

Above all, we believe we have the initiatives in the pipeline and the team in place to execute on our strategic plan.

With that, I will the call back over to Steve.

Let me wrap up by reiterating that our strong third-quarter performance reflected some initial traction on our efforts to enhance the guest experience.

The changes that we made this summer in our menu and presentation as well as our new marketing approach helped us return to positive guest traffic.

Looking ahead, we know consumers continue to feel challenged finding great value and a great casual dining experience.

We are encouraged by the traction we have achieved with the guest service initiatives that we have launched this past quarter, but we have just begun.

Delivering consistently great execution will require a lot more time and effort.

We are certainly not immune to what is transpiring in the casual dining sector and we have our own challenges.

But we are confident the steps we have taken through brand transformation are positioning Red Robin well for the long term.

We are optimistic about what we can accomplish in the fourth quarter and next year, but must also acknowledge the factors beyond our control that might impede some of our progress.

Of course, to address these challenges, we continue to rely on the great Red Robin team.

The enthusiasm of our team members and their passion for taking care of our guests continue to be the hallmarks of our brand.

The credit for all of Red Robin's accomplishments both past, present and current going forward belongs to our great Red Robin team members.

Finally, as you may have seen in our earlier announcements, we have recently added two outstanding new leaders to our senior management team -- Chief People Officer Cathy Cooney and Chief Legal Officer Michael Kaplan.

Both Kathy and Michael bring to Red Robin considerable talent and experience in their respective fields and we are looking forward to the contributions they will make to our future success.

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

(Operator Instructions) Joe Buckley, Bank of America Merrill Lynch.

Just a couple of questions -- I just want to put the brand transformation restaurants in perspective.

If you complete the remodels, so you will, if I understand correctly, will have completed 20 remodels this year when I figure roughly 29 by year end?

That would give us 29 full transformations.

We had three or four middle transformations as well and we are going to also go ahead increase those to the full transformation, so really it will give us closer to just over 30 total transformations to the end of this year.

And I wanted to try to understand a little bit more about the new service program and what is involved.

It sounds like it has been a little hard to execute maybe, or maybe that's not the right way to phrase it, but it sounds like the execution is a bit of a concern.

So could you just talk a little bit more about what it is and how it will be rolled out?

It's really -- we were very much in previous -- very much, I want to say, robotic in our service standards, both from a time as well as execution.

So we really went back and took a look.

We actually call it RRR, and the RRR really stands for recognize our guest needs, recommend the various things on the menu.

Obviously with the new spiral menu, our guests are finding a lot of new different items.

And then lastly, the third R is just reassure so that the guests reassure that they are going to have a great experience, reassure that the menu items that they chose, if it's not one of their long-term favorites, they are going to be happy with; if not, we will make it right.

So it's really about making sure that all of our team members -- Denny always says, with the brand transformation that's really the paint and the exterior and painting the box, but truly what happens within the box that is really going to drive frequency and create guest loyalty.

And then just one last one if I -- it sounded like the marketing spend -- I think you said the marketing spending was actually two times the level of third-quarter 2012.

I realize how you can recognize those expenses a little bit differently when you gave us those numbers.

But do I have it directly that the actual spend or the actual media noise in the quarter was double that of a year ago?

This is Stuart.

What we talked about originally is we have shifted timing of the media around as we have gone to this pulsing strategy so the media weights and dollars spent were about double in third quarter.

But year-to-date through the third quarter we have been about flat.

Okay, very good, thank you.

Alex Slagle, Jefferies.

I had a question on the fourth-quarter same-store sales guidance.

I just wondered if you could expand further on the choppiness maybe you are seeing out there and can circle back on the October promotion and dynamics at play and what you are reading through in terms of getting to the fourth-quarter guidance.

This is Stuart.

I'll start off and anybody else jump in if they want to.

It's just when you look at the noise that came out of Washington with the shutdown and what that has done to consumer confidence overall, we definitely saw a tick down.

I think everybody has seen it in the third-party remarks.

And definitely, we will see some choppiness just as we get through the year just due to seasonality with Sandy last year.

And I'm sure we will have some other weather events this year.

In addition, we did see on Oktoberfest going in -- coming out of the third quarter, going into the fourth quarter, as Steve mentioned, a little bit of softness on the sale of the Oktoberfest Burger.

Obviously that was more than offset by increase in appetizers and beverages, so we have seen some great increase in average check.

So I think really fourth quarter for us we expect to be a little bit of the same -- still continued choppiness.

We do expect competitors and we have seen some competitors get even more aggressive, so we are a little bit nervous about that.

And just with the fewer shopping days, and I'm not sure when the political noise will heat back up for the January fight, but that starts hitting in December again, we are just being pretty cautious on our outlook.

Helpful, thank you.

John Glass, Morgan Stanley.

First, could you just go back to the comments about the marketing spend this quarter?

It sounds like it was very heavy relative to the rest of the year.

How does it look in the fourth quarter relative to the third quarter?

The fourth quarter will be pretty flat with what it was last year.

We've sort of overall said our marketing spend as a percent of sales stay the same, so we are running year to date pretty flat.

The fourth quarter will be up modestly, but very meaningfully.

And, we will be cycling over the start of the quarter.

We're cycling over some pretty heavy media last year, but we planned for that.

Okay, that's helpful.

Next year, you are talking about the 30 basis points of labor pressure.

Is that entirely California minimum wage, and/or is there some cost to implementing the service piece?

Can you talk about what that cost has been to date in the training and execution of that?

Yes, I will start off and then hand over to Eric to talk about labor management standards.

But the 30 basis points is really all minimum wage, not just California and other states, but California is now the biggest piece.

So Eric, do you want to talk about labor management a little bit?

Yes.

We have just successfully deployed our new labor management system system-wide as of the fourth of this month, which really focuses on putting the right people in the right place at the right time.

So we did have -- we did incur some costs, a meeting cost when we rolled out the RRR service as well as pinpoint seating and our sorting at the door.

But it wasn't real meaningful.

We haven't changed our labor standards in terms of section size or to peak to peaks.

So I think we're just going to get even better and better as we roll out the new labor management system.

Lastly, you had discussed pricing being a little bit more sedate in 2014.

What is your initial thought on pricing?

I assume in your labor guidance, you are not going to try to price that minimum wage in California, or can you actually try to offset some of that in those stores?

We probably can try to offset some of it.

We have got our new spiral menu.

We have got a lot more flexibility in terms of how we take pricing and where we take it.

We historically have had essentially one pricing zone across the entire country with a few regional differences.

This will start to give us a little bit more flexibility on pricing.

Our pricing strategy has historically been to really, for commodity, labor and utilities to that extent, offset the dollar inflation with price.

Next year, we are going to try to limit the amount of price and try to offset some of that with other either cost-saving initiatives, other mix initiatives if we can try to do that and try to limit the amount of price we take.

Okay, thank you.

Will Slabaugh, Stephens Incorporated.

I wanted to ask you about the traffic growth.

What changed, if anything, on a quarter-to-quarter basis or what you might credit that traffic improvement sequentially to when others are falling off in the space.

And then also your outlook for that traffic growth as we continue into the fourth quarter and into next year.

Denny, do you want to take that one?

Sure, I'll be glad to.

I would say primarily this summer, obviously a very strong tie-and promotion with the Wolverine and our Berserker Burger and rolling dark from last year.

As Stuart has referenced, we had more media activity in the third quarter than we have had for a while.

Again, it's flat on the year.

It's just a matter of timing and the way we have done it.

So primarily it's the opportunity to have come back on air in a time period when we have been dark prior with a very strong promotion.

Got it, and one more I had about remodels.

It sounds like those are off to a promising start.

I wonder if you could give us an update as far as what you're seeing from a lift standpoint, and if also a full system rollout, sort of the time frame might look like.

Could that be a three-year time frame, or any thoughts around that.

This is Stuart.

As we talked about in the last earnings call, the sales lift from the initial remodels was about a 6% traffic lift, and that has continued to hold in those units.

Our 20 units we are doing now are really -- some of them the paint is drying, some are not finished yet, so we don't have any comment on that.

We can give an update on that in February, but we are really encouraged by the results, the guest feedback.

This is probably something that across the entire chain is really a 3- to 4-year rollout.

What I would caution is that a 6% sales lift is probably not likely something that you'll see across the entire chain, because you will have some units that are either lower volume units or older units you are just not going to put that $400,000 of capital in because you won't see the sales lift or return.

So we are going to try to be very smart about how we are doing that.

This next 20 -- as well, remember that five of those are locations that we are testing either because they have got different demographics -- actually, one of those units is actually a fairly newly built unit a couple years old.

We are trying to still learning that will help us inform us, again, what the pace will be for 2014 and beyond.

Thanks.

Congrats, guys.

Brian Elliott, Raymond James.

A quick follow-up on the remodel question just asked.

So when you look at that traffic gain, are you seeing some other differences?

Possibly I'm thinking of the demographic, bulk beverage sales, other mix over and above what the chain as a whole is seeing from all the broad initiatives.

Denny, from New York?

Glad to join in.

In the brand transformation locations, the separation of the zones is definitely benefiting us in terms of lift in alcohol sales where adults are finding themselves more comfortable in the areas we have created for them.

We see some other positive benefits from it as well, but that's the primary one.

Again, brand transformation is designed to ensure that we accommodate guests of all ages in the space that makes them most comfortable so that the experience is great matter who you are.

That creates opportunities to sell more beverages.

And Stuart or Steve, can you elaborate a bit on the IT challenges that you referenced a couple times in the prepared remarks?

And are you protected from a financial standpoint, given you are a pilot of a big global software company that's trying to develop this for you and others, obviously?

To answer your question just to the point is from a financial protection standpoint, yes, I think the benefits we get out of it is we get a lot of customization that we wouldn't get if we were not an early adopter.

So they are doing a lot of things for us that, if we were not helping them develop perpetual inventory for restaurants, suggested reorders, suggested prep schedules.

You've got to remember, bacon cheeseburger with about 20,000 different combinations to keep a perpetual inventory system is fairly complex.

So I think the big benefit we get is customization and support and attention.

So there is some additional burn rate.

Every month it takes us to roll it out additionally is really one month that we are not getting all the benefits that we expected to be getting by now.

We are still confident that the benefits will be there in terms of inventory reduction, times it takes our general managers to build those order schedules and build prep schedules.

But we do definitely have some exposure and one of the things that's keeping our G&A run rates a little bit higher than it would have been otherwise.

But if we continued to be challenged, that G&A spend rate is not at risk of having to go up further?

No, I think it's basically built into the current run rate, so it's more of an opportunity for us to take those dollars and potentially to reinvest them in other things or cut back.

I think we'll continue to leverage over the next few years, leverage our overall G&A dollars as sales go up.

But it will probably take us through the end of next year at this rate to get the system fully rolled out and then a couple months after that, a couple of quarters after that to stabilize.

Okay, all right, very helpful, thank you.

Conrad Lyon, B. Riley & Co.

Let me follow onto that topic just about the supply chain and perpetual inventory.

Just broadly, should we expect to see a little inefficiency with COGS going forward here and then perhaps midway through next year or early part of next year, finally some efficiency, maybe less waste and, as you have suggested, lower inventories?

I would say probably over time, yes, once we get better information of exactly where waste is.

I talked to a general manager today.

Our general managers know where waste is by item in the restaurant.

We have challenges today rolling all that up system-wide really timely.

So the system should allow us to make better decisions, faster.

And also at the same time, it will allow us to test things more quickly because we will be able to get that out of the system faster, a little better business intelligence.

And so, as we test things that either work, we can roll them out quicker; if they don't work, we can kill them faster.

So that's really the advantages of the business intelligence that we will get out of it.

Labor management in itself will allow us to already start to think about some of those pieces as we start to think about make versus buy decisions because with our new labor-management system and the scheduling in 15-middle increments, we will be able to goes through and start to say what does it makes sense for us to bring prep into the restaurant versus make from scratch in the restaurant?

Got you, okay.

Just to go back in terms of when you would think you'd see a benefit from the supply chain, perhaps maybe a window -- do you expect to see a benefit midway through next year, to have all these ironed out?

No, I would say, consistent with my earlier comments, it will take us through next year to roll it out, and then it's going to take us six months to stabilize and really take those data feeds and really start to build the database that we can leverage, similar to what we saw with Red Robin Royalty, where took us 6 to 9 months to roll it out, build all the information on our guests' behavior and then really start to leverage it.

And the labor, just also a clarification, I sort of view it more as a guest experience enhancer more than a cost reduction.

Is that a fair way to make a blanket?

Yes, Conrad, I think you are looking at it exactly the same way we are.

Okay, all right, fair enough there.

Lastly, Berserker and kind of pricing -- with the success you had with Berserker and then the reiteration of the Oktoberfest, how does this work its way into perhaps LTOs next year?

Might you just pull back on pricing and some of these aging LTOs and really focus on layering the media with some of these more, if you will, effective LTOs?

Denny?

Conrad, we stopped taking discount pricing on our LTOs when we rolled out the Tavern Double, which gave us the everyday value strategy.

So what we really have now is with the advent of the finest burger or the first one, which is sneaking this week and launching next week fully, is a range of opportunities from Tavern Double through our gourmet burgers to our finest line to work a range of pricing and opportunities.

So the answer to your question is yes, I think it's going to give us a lot more flexibility.

And we have some very distinctive and differentiated propositions to deliver to the guest.

Okay.

Really what I was getting at is I didn't expect it more discounted, but more overlay with perhaps movies or other types of big media events.

Yes, we are still assessing exactly what that contributed to our summer and continuing to look for those opportunities.

But the combination of our new campaign approach, which is more to keep us top-of-mind on an ongoing basis.

You are correct, we are not looking at those so much.

Media is no longer just about supporting a single limited-time-only offering.

It now becomes about supporting the brand and the reasons that you want to come to red Robin every day.

Last one, do you happen to have the mix of the Berserker for the quarter?

Stuart is looking that up.

I'm looking it up.

It's probably -- I'm going to guess it's low-single digits, but I will come back and get you that exact number.

It's comparable to our prior LTOs.

Got you, okay, thank you.

J. Donnelly, Wells Fargo.

This is J. Donnelly on for Jeff Farmer.

It looks like your restaurant-level margin guidance for 2013 has reached the Company's peak level seen almost 10 years ago, and you touched on 2014 a bit.

But as you look out to 2014 and 2015, any reason to believe that the margin cannot continue to trend higher?

Yes, I think the margin expectations long-term are something we will talk about a little bit at our investor day, so giving guidance out for -- we are not giving that guidance today for 2014, so I certainly don't want to think about it for 2015 or 2016.

Obviously the whole competitive environment is something we've got to work our way through.

If you look at where our volumes are today and our traffic in our restaurants today, we are still fairly significantly below peak levels, and we are operating more efficiently.

So I don't necessarily want to talk about restaurant-level operating margins.

I think when you look below that in terms of overall EBITDA margins and things like that, there's room for us to continue to expand that over the next few years.

Okay, fair enough, thanks.

And then a question on the remodel work -- we will lap the remodel work for the initial group of 21 restaurants this quarter.

Would you expect those units to comp positively in the second year following the remodel?

You know what?

We will find out.

It's something that I don't think we're prepared to talk about.

I think the understanding we get from most of our peers and other analysis that we have seen is a sort of plateau up and then behave like a comp base.

So you continue to get some lift out of it, but not significantly above what the rest of the comp base is doing.

Okay, thank you very much.

(Operator Instructions) Peter Saleh, Telsey Advisory Group.

Great, thanks, congratulations on the quarter.

I just wanted to ask about -- top-line performance has been fairly strong for a number of quarters now, a couple of years.

The margins have been improving within the four walls of the restaurants, and then we haven't really seen any franchisee-funded unit growth start to kick in.

So how should we be thinking about that going forward on the franchisee side?

Peter, this is Steve.

We have sat with our entire franchise, all our franchise partners recently and walked them through the impact of brand transformation on the Company stores.

And of course, as you can imagine, many of them have a number of older units that need to be remodeled, and the brand transformation is exactly the answer they are looking for.

So I think short-term, a significant amount of the available our franchise partners have is going to go into taking advantage of the pop they will get by remodeling the restaurants consistent with the brand transformation design.

Having said that, we did have two franchise restaurants opened this quarter, new restaurants open.

And we have signed one area development agreement with our franchise partner in west Texas.

So there is some heartbeat on new units, but our focus is around getting their older restaurants remodeled consistent with the brand transformation standards.

And then I just wanted to ask about the announcement the other day on Halloween about the Seasoned Steak Fries for at home.

Is this going to be a one-off, or is this something we should expect more of on a go-forward basis, more leverage in the brand and the grocery channel?

Denny?

Peter, yes, we were surprised, frankly, by the rate with which this first effort, our Steak Fries, which is in partnership with ConAgra, ConAgra and Lamb Weston, who is also a major provider of our steak fries in restaurants -- we had expected it to frankly be a test this year.

But when it was presented to retail, it was widely accepted.

So, one, we are thrilled.

It's going to give us brand exposure in something like 9000 outlets by the beginning of first quarter.

So I'm very pleased for that alone.

As far as what comes beyond Steak Fries, we are continuing to keep our options open and look at a number of other licensed opportunities but we're going to move cautiously in this space.

It's not so much about -- obviously, it has got to be accretive to the brand to make sense for us.

So we're much focused on that.

My last question is on alcohol mix.

Where do we stand at the end of the quarter and how much was that up for the year and year-over-year?

Total alcohol mix was up about 20 basis points over a year ago, so we are at 7.4% in the quarter.

Great, thank you very much.

(Operator Instructions) Steve Anderson, Miller Tabak.

Just a couple quick questions on the food costs.

I know the last few quarters, you have seen actually some improvement.

So do you attribute more to the mix or more to some of the changes going on in the supply chain?

And then I have a follow-up.

This is Stuart.

It's really a combination of both.

We have definitely seen some higher commodity inflation again versus what we were cycling over a year ago because in third quarter last year is where we started to see ground beef start to come down a little bit so we are starting to cycle over that as well as some mix shift from the new menu into entrees and other things into some of our higher-margin, higher-dollar items.

So it's really a competition of both.

With regard to the fast casual category, what are your thoughts on that category in general as regarding the Burger Works expansion?

There has been some press about maybe some shakeout going on in that sector.

There has been a tremendous explosion of growth in the sector.

As we go and look for new sites around the country, it doesn't appear to be abating.

There are better burger independent guys popping up literally in every major city.

That's, of course, going to put continued pressure on the established players.

It puts tremendous pressure on the real estate sites which effectively drive the cost of those up.

And that, then, bounces back on the margins and profitability.

So we are happy with our learning on Burger Works.

We think a thoughtful, cautious approach going forward makes a lot of sense.

We are watching with keen interest on what happens to the balance of the rest of the players, and we do think at some point the bubble will begin to lose air and we stand ready to take advantage of that when that happens.

Okay, thank you.

It appears there are no further questions at this time.

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

Thanks, everybody, for joining us this morning.

We are really looking forward to seeing many of you during our November 20 investor day presentation which we will webcast for those of you who cannot attend.

They will include a tour of our new restaurant opening in Secaucus, New Jersey.

This location will serve as an example of the direction upon which we look to evolve the brand as expressed in our guest experience roadmap, and we hope you can join us.

If not, we'll talk to you again in February when we share our 2014 Q4 and full-year results.

Have a great day.

Thank you.

This concludes today's conference.

Thank you for your participation.