Red Robin Gourmet Burgers Inc (RRGB) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers Incorporated fourth-quarter 2014 earnings call.

Today's call is being recorded.

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 anticipate, continue, plan, expect, intend, should, will, and other terms with similar meanings.

These statements include but will not be limited to statements that reflect the Company's current expectations with respect to the macroeconomic and competitive environment, the financial condition of the Company, results of operations, plans, objectives, future performance including the Company's traffic and revenue driving initiatives and strategy pricing, sales growth operating margin and operating weeks, costs, expenses, expense management, deployment of capital, restaurant development, and remodels, integration and performance of acquired restaurants, and other expectations discussed within 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 on 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 upon 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 risks and uncertainties and other factors that could impact the Company's future operating results and financial condition.

The Company has posted its fiscal fourth-quarter and full-year 2014 press release and supplemental financial information related to the quarter's results on its website at www.RedRobin.com in the investors section.

Now, I'd like to turn the call over to Mr. Steve Carley, Chief Executive Officer of Red Robin.

Please go ahead, sir.

Thank you, Evelyn, and hello, everyone.

Thanks for joining us this morning.

I'm here with Stuart Brown, our Chief Financial Officer, and Denny Post, our Chief Marketing Officer.

We'll kick off by each sharing a few brief comments, and then we'll open it up for questions.

The key take away today on the op side is that we continue to take market share in Q4 by focusing on a great Red Robin guest experience in restaurant.

On the marketing front we intend to stay the course by executing on those initiatives that are working so well for us in this very highly competitive environment.

On slide 2 of our supplemental deck we have provided quarterly highlights.

Comparable restaurant revenue grew 3.6%, which exceeded our guidance and lapped over revenue growth of 3.7% from the prior year.

And we are happy to report that the 3.6% included positive guest traffic of 1.2%.

Check rose 2.4% which was comprised of both pricing and favorable menu mix.

We have now outperformed the industry in guest traffic in nine of the last 11 quarters.

Our Q4 sales results were driven by a return to positive traffic, trade up to premium products, effective marketing that balanced everyday value on air and our finest line of burgers in restaurant, traction in holiday gift card sales, and growth at Red Robin Royalty.

Denny will address these particular items in more detail during her prepared remarks.

In addition, we continue to leverage consumer research, competitive analysis, and a growing understanding of where we win with our guests and where we can improve so we can capitalize on our two biggest ongoing opportunities, driving consistent positive guest traffic and average check growth that relies on our guests deciding to trade up or add on.

And while sustaining positive traffic, the real goal here is to make sure that it is sustainable.

And to be sustainable it needs to be profitable.

With this in mind, please note that our comp sales were once again leveraged at the restaurant level.

This was accomplished by leveraging fixed costs and approved labor scheduling and deployment -- simply having the right people in the right places at the right time to serve our guests.

In 2015 we will be enhancing our guest experience a step further and are therefore pleased to announce a new partnership with Ziosk to bring their tabletop devices to our entire system in late 2015.

Most of you are probably already familiar with Ziosk, and we believe incorporating their tablets into our service model will further enhance and customize the Red Robin guest experience with the added convenience of paying at the table, the speed of service improvement, and the option for on-table entertainment.

Turning to slide 3, we have completed 104 brand transformation remodel projects to date and you'll hear us refer to that as BTI.

This total exceeded the 95 remodels we had targeted for completion on our Q3 call.

The transformation of our restaurants to a more contemporary look and feel enables our guests to enjoy Red Robin in a manner best suited to their needs on that particular visit, whether it is a date night for family time with booster seats and highchairs or watching the game at the bar.

These remodeled restaurants are a far cry from what one guest once labeled our big noisy barns of yore.

As important are these as these [remodels] are, they have enhanced the guest experience but they have also been a catalyst to excite and engage our team members who are eager to be working in an updated environment.

This year we plan to complete at least 125 of our new brand standard and remodels, and we target completing all company stores by the end of 2016 and all franchised locations by the end of 2017.

The returns being generated at the remodeled restaurants have met our expectations and serve as the basis for a full transformation of our system as soon as possible.

During Q4 we opened six company operated Red Robins and had one of our franchisees open one as well.

We opened one Burger Works in Washington, DC and we closed a Burger Works and Columbus Ohio.

We concluded 2014 with a system count of 514 locations of which 415 are corporate locations.

As you know we have multiple formats for real estate development.

In addition to our 6,000-square-foot standard Red Robin we have a 4,000-square-foot midsize unit that is doing very well and will play the primary role in our development going forward.

And of course, we've got the 1,800-square-foot Burger Works.

Speaking of Burger Works and turning to Slide 4, we are very encouraged by initial sales volumes at the most recent openings in Chicago and Washington, DC, which are all off to promising starts.

Our fine-tuned real estate strategy targeted dense urban areas is enabling us to bring Red Robin to tread areas that we can never penetrate with a big box.

The efficiency of their kitchens is allowing us to deliver customized gourmet burgers and hot crispy fries with service speeds to meet the needs of the time-pressed guest.

This year we plan to increase Burger Works presence in existing markets while looking to open a fourth market as well.

With that, I'll past it over to Denny to briefly discuss our Q4 marketing and menu activity.

Good morning, everyone.

As Steve highlighted in his introductory remarks, the momentum we saw in sales and guest traffic late in Q3 continued throughout Q4.

As you can see on slides 5 and 6, in Q4 we continued to advertise our $6.99 everyday value offering of Red's Tavern Double with bottomless fries on television.

Our promotional holiday menu featured The Big Sky Finest burger, priced at $13.99 with bottomless fries.

A limited time only offered chosen as our winner of the 2014 South Beach Food & Wine Festival Best of the Burger Bash Award.

Finally, we promoted a free burgers and movie ticket offer tied to the last film in the popular Hobbit franchise, along with our traditional holiday bonus bucks online and in restaurants.

This combination of advertise everyday value a popular movie tie-in and a Finest burger feature continued to drive, traffic maximize PPA, and reinforce our burger authority.

As a result we continued to steal share from our competitive set.

Almost anyone can buy traffic; driving profitable traffic is more challenging.

We managed to drive profitable traffic in Q4 while weathering 25% fewer Tavern Double Tuesdays triggered by our sports teams this year versus last.

We did so in part due to our burgers and a movie tie-in, which led to higher gift card sales.

Sales which require a future visit to the restaurant.

We were also pleased with our continued progress in building alcohol beverage mix of 10 basis points year over year and significantly more profitable due our every day, every hour adult beverage pricing, with beer starting at $3.50, wine at $4.50, and margaritas for $5.50.

We also continued to grow Red Robin Royalty at adding over 1 million new members this year -- last year, to whom we sent occasional offers to maximize incremental visits in addition to the base frequency reward program.

For 2015 we have ambitious goals as we seek to generate even higher returns from the same level of media year over year.

Moving forward, we will continue to optimize our mix of value, PPA drivers, and promotions.

This combination is evident in this week's launch of the second promotional window of the year as shown on slide 7, featuring a limited time Wild Pacific Crab Cakes Finest burger which starts price at $14.29 with bottomless fries, time to capture Lenten seafood sales.

In-store and online only we are featuring a movie ticket tie-in to the latest movie in the Paul Blart: Mall Cop series, which, you should know, ranked very highly with family in our movie screening research.

While we continued to promote and drive trial of Red's Tavern Double via television advertising.

We will assess the incremental impact of our sports sponsorships postseason as we do every year before recommitting.

One partnership we remain fully committed to is our highly rewarding national ongoing fundraising for Alex's Lemonade Stand Foundation.

Let me speak briefly to the Canadian business which I have the honor of leading.

We saw strong top-line results in the majority of our locations in Q4 with weaker trend in the Edmonton market.

The team is highly focused on improving guest service and profitability across the board.

Last week, we streamlined the home office support staff, eliminating redundant roles.

We have concluded our initial consumer research on competitive strengths and gaps, and are hard at work on refreshing our equity with kids and families.

This year, we'll implement the Watson labor management system and make investments in marketing and market menu items to drive traffic.

We will also transform at least two locations to BTI standards adapted for the Canadian guest.

Overall, we fully expect to make progress in Canada similar in pace and scale to the Project Red implementation a few years ago here in the states.

With that, I'll turn it over to Stuart.

Thank you, Denny, and I hope everyone is having an incident-free Friday the 13th.

Before getting into the details of our quarterly performance, let me touch briefly on our annual results.

Our 2014 comparable restaurant sales increased 3.1%, which exceeded the casual dining industry average of 0.3%.

While industry guess counts last year decreased 2.2%, we outperformed our casual dining peers by 160 basis points for the year according to Black Box.

Our restaurant level operating margin decreased 30 basis points in the year to 21.4% due mostly to the mix of the impact of the 36 units we acquired last year.

Excluding these acquired restaurants, annual margins increased 10 basis points to 21.8%.

Further, adjusted EBITDA increased 12.7% to $122.9 million and adjusted earnings per share increased 12.2% to $2.66.

As you can see on page 9 of our supplemental in the fourth quarter both our comparable revenue and restaurant margin exceeded our expectations as our marketing programs and guest engagement initiatives resulted in larger guest count increases than projected.

Adjusted earnings per share increased to $0.66 while adjusted EBITDA increased $5.4 million or 20.8% to $31.1 million.

The average guest check increased 2.4% in the fourth quarter resulting from both price and mix improvement and was in line with our expectations.

The growth for mix, though, slowed in the fourth quarter as we lapped over the November 2013 launch of our Finest lineup.

Guest counts increased a solid 1.2% on a comparable basis which outperformed our casual dining peers by 180 basis points.

Favorable Q4 sales leveraged nicely on our fixed operating costs, particularly labor, resulting in restaurant level operating margins that exceeded our guidance.

Excluding acquisitions, margins increased 50 basis points.

Further, restaurant of profit dollars per restaurant increased over 5% or $8,000 in the quarter on a comp basis.

Food costs were largely in line with our expectations with a significant increase in ground beef costs, as anticipated.

Year over year, margins decreased 40 basis points to 21.3% in the fourth quarter due to the impact of acquiring the lower margin franchise restaurants midyear as well as COGS and labor rate headwinds.

We opened six corporate Red Robin locations in the fourth quarter while opening one Burger Works and closing another.

We are pleased with the new store performance, and the sales of the recently acquired restaurants are largely on track.

Total operating weeks increased 15% in the fourth quarter reflecting the 22 restaurants we've opened over the past year as well as the addition of the acquired restaurants.

While depreciation selling and other costs were largely in line with expectations, general and administrative costs were about $1.5 million higher.

Half of this variance was due to higher incentive compensation, a portion of which is tied to the guest count increase.

The remaining variance resulted from a number of smaller items including higher relocation costs of our regional directors, training costs, and legal and other professional service fees.

Even considering these extra costs and excluding the $1.6 million special bonus recorded last year, fourth-quarter G&A as a percentage of revenues decreased 90 basis points from a year ago.

The impairment we recorded in the fourth quarter of $8.8 million was due primarily to write-off of capitalized costs associated with the development of Oracle's Fusion supply chain management and human capital management modules.

We agreed to be a member of Oracle's early adopter program on this product, and the attempted implementation of these two models did not satisfy our functional, operational, or technical requirements.

While we have successfully implemented Fusion financials, it became clear that the other Fusion modules as designed and developed were not capable of meeting our needs or original requirements.

We were forced to recognize the investments and these modules are a sunk cost and write off what we've spent, while seeking the best path forward with other providers.

We will pursue our available remedial actions with both Oracle and the other companies which provided implementation services on these elements of the project.

As it is critical to replace our legacy payroll system, we have contracted with Workday to be our service provider for payroll and human capital management systems and are moving forward on an expedited basis to implement the new payroll system in the first quarter of 2016.

Touching on the tax rate, the 22.2% annual rate was favorable to guidance due to the impact of the impairment as well as tax credits related to the extension of WOTC.

Excluding WOTC and the impairment, the annual tax rate would have been about 26%.

For the year, adjusted EBITDA of $122.9 million reflected an increase of almost $14 million from 2013.

Likewise, cash from operations increased $10 million to $123.6 million.

We deployed $155 million of capital of which $48 million was related to the acquisitions.

The remaining $107 million was comprised of $52 million for 22 new restaurants and one relocation, $37 million for remodeling in the 74 locations and $18 million for restaurant maintenance, hardware, and systems.

Looking at the balance sheet, our leverage remain prudent at the end of the year debt to EBITDA of about 1.3 times calculated per our credit agreement which we refinanced favorably last July.

We had $138 million drawn on our $250 million credit facility as of year-end.

Looking to 2015, we are going to continue our investments to enhance our guests and team members' engagement it in Red Robin.

We plan to invest $140 million, which includes 125 brand transformation remodels, 20 new Red Robins, and five new Burger Works.

Further, we anticipate investments in our human capital management systems as well as Ziosk tabletop devices.

We do not anticipate any meaningful changes in our debt balance in 2015 as our EBITDA should approximate our capital needs.

We expect total revenues to grow 12% to 13% comprised of about 10% of increased sales from new units and acquisitions as well as 2% to 3% of comparable sales growth.

We would of course be disappointed if we were not in the top half of that comp range.

Restaurant level operating margins are expected to be relatively flat, at around 21.4% of restaurant revenue due to the continued headwinds of ground beef and labor inflation, both of which had pronounced increases in the middle of 2014.

The impact of these as well as the acquisitions are expected to result in some margin compression in the first half of 2015 as well as less earnings growth in the first half of 2015 relative to the second half.

Remember also that we'll cycling over our 2014 first quarter when our positive traffic growth exceeded industry traffic by over [300] basis points.

General and administrative expense is expected to increase modestly to between $97 million and $98 million due to the additional regional management needed to support growth as well as cost of new systems, but should decrease as a percentage of revenue as higher sales are leveraged on fixed costs.

We anticipate that selling expenses as a percentage of total revenues will remain relatively flat at approximately 3.2%.

Further, we expect depreciation and amortization will increase about $12.5 million to approximately $77 million reflecting the acquisitions in 2014, new units, and brand transformation remodels.

The overall outlook for casual dining seems to be improving, and we understand that investors are looking for a reason to be optimistic given the reported industry data demonstrating a strong start to the year.

As most of you know, we take a cautious view of the consumer's ability and willingness to increase spending but the early trend is clearly positive.

Our outlook contemplates a broader broad but limited improvement in industry traffic relative to the 2.2% decrease casual dining had 2014.

As Steve articulated, we remain focused on driving long-term and profitable market share and guest engagement through continually improving service, leveraging our unique loyalty programs, and completing our brand transformation remodels to make Red Robin a better place for our guests and our team members.

Let me hand the call back over to Steve for some final remarks.

Thanks, Stuart.

In conclusion, we capitalized on the momentum coming out of Q3 with effective marketing and menu strategies and delivered strong comp sales which were further enhanced by restaurant level margin improvement.

BTI remains our rallying cry and is the lens to focus our teams on enhancing the guest experience in restaurant.

Together with the physical changes we are making in the restaurants themselves, we are getting better and better at delivering on everyday value, innovation, burger authority, and engagement.

This year we will continue to learn and reinforce these attributes while extending the BTI program to an additional 125 restaurants.

We also recognize the growth potential of our brand and the flexibility we have in approaching development with three different prototypes.

We are going to open 20 to 25 restaurants this year, including 20 Red Robins along with a handful of Burger Works based upon the real estate strategy I outlined earlier.

Our runway is significant, and we will continue to make progress in realized Red Robin's potential.

Finally, let me express my appreciation to our talented team for their hard work and commitment and execution in upholding our Red Robin brand promise.

They are dedicated and energized and eager to deliver for both our guests and our shareholders.

With that, I'd like to thank you for your time.

And we will now turn it over to questions.

Operator?

(Operator Instructions)

Joseph Buckley, Bank of America.

Thank you.

I'm going to ask one nitty-gritty numbers question and then something a little bit bigger.

Stuart, just on the work opportunity tax credit, did that come into play here in the fourth quarter?

And just what was the impact of that?

Yes, that did -- since that get approved in the fourth quarter, we recorded that as well as the service fees we paid to the Company when we --they take a percentage basically, so the WOTC tax credit I think was about 50 basis points impact on the tax rate all by itself -- and that would be on an annualized basis.

If you look at it on a net income basis it was probably $800,000 to $900,000 after the fees.

Okay.

And then a little bit bigger picture question -- on the Ziosk -- the decision to go with Ziosk -- I know that some of your franchisees has been involved with this for a long time.

I know you guys have tested for a long time.

Two questions -- what is kind of game plan?

Will you let guests order everything on the Ziosk or will it be limited?

And what has been the franchisee experience or your test market experience in terms of check or traffic impact?

Joe, this is Steve.

We just completed this contract with Ziosk in the last week or two, and so we are right in the middle of planning our implementation and execution.

Our franchisees that have had the Ziosk tabletop device in their restaurants for almost two years now are very pleased, very pleased with being able to address a key guest pain point, which is pay at the table.

And they are also happy with their entertainment and incremental revenues they are getting.

We tested multiple devices and we are pleased with the Ziosk from the standpoint of its reliability and its stability, and the fact that the restaurant team members were much more excited about that device, which was very important to our final decision.

So, we think we'll be in a better position to give you a little more idea on implementation and execution the next time we talk.

So that's what I plan.

Okay.

Thank you.

Alex Slagle, Jefferies.

A question on same-store sales, as there's probably still some level of apprehension out there about sustainability of your same-store sales on the summer of 2014 shortfall.

Is there any additional color you can provide, just to give us a sense of trends in the first quarter are holding up or any unusual external shift to think about?

Alex, this is Stuart.

Let me start off by saying we obviously had a really strong quarter both from a sales and a guest count impact and that as we said on the last earnings call we started the fourth quarter that way and that continued all the way through the fourth quarter, both from the marketing and using Red Robin -- the loyalty.

If you look at the start of the year -- and a lot of people reported pretty strong starts to the year, you've got to remember that last year there was a lot of weather impact.

We said a year ago that it didn't really impact us much in the first quarter.

So while a rising tide to some degree lift all boats, so we won't have the same weather cycling that a lot of the others have in Q1.

Denny, is there anything you want to add?

Yes I would just remind you, Alex, that we definitely learned from our misses last summer and have taken that into account, not only in our return to momentum late last year but in our planning for this year.

Great.

That's helpful.

Thank you.

Jeff Farmer, Wells Fargo.

Thanks.

Stuart, it looks like 125 BTI remodels planned for 2015.

Just curious if you could share sort of a ballpark expectation for what the same-store sales contribution might be from those remodeled restaurants in 2015?

Again, we are targeting to get the returns that we need, we getting about a -- need about a 4% sales lift on those.

They will be a little bit backend weighted and we are actually targeting -- I've got 125 in our capital guidance.

We are targeting to get at least that done.

There won't be a lot more than that.

So if you sort of do the math out of the ones that we are cycling over from 2013 -- sorry, that completed in 2014 and the cycle impact of those, it will be somewhere around a 1% impact on traffic and sales.

That is helpful.

And then, Steve, just recognizing the Chicago and DC Burger Works units are, I think, literally just got on the ground in the last few months, but I'm still curious to hear about the timeline for, I guess, your evaluation period -- how you think about monitoring those restaurants and understanding whether or not you are going to get more aggressive in terms of development moving forward in the future.

Again, any color on that one would be helpful, too.

We are very excited about the early returns on the restaurants we are opening in metropolitan Chicago.

It's actually within the Loop.

And then a focus on Washington, DC in that dense downtown area.

We think from a real estate strategy standpoint we are finally landing where we need to be.

We think from a branding standpoint where we are doing a lot of learning, we are pretty close to the answer there.

We are very, very pleased with the kitchen and the heart of the house and its ability to turn out customized, hot gourmet burgers with hot crispy fries in a time that meets and exceeds guests expectations, even in that service environment.

And so, we are cautiously optimistic that we've yet a great runway.

We are going to build out the Loop in Chicago this year.

We are going to continue to penetrate Washington, DC.

We may have an opportunity in Denver where we've already got several in the ground.

And we are going to look to a fourth market.

But we are gaining some good momentum there.

That's helpful.

And, Stuart, just to push my luck here a bit, a lot of moving pieces to the 2015 guidance, so just curious if you are willing to break it down for us in terms of maybe an EPS growth range?

It looks like it's still sort of a low double digit rate -- just plugging the numbers real quick to the model.

But anything you can offer it there?

(inaudible) to your point, consistent with what our long-term guidance is and EBITDA growth it will be a little bit higher than what our long-term target is because of the impact of the acquisitions.

But really focused on EBITDA as well as your EPS.

Thank you.

John Glass, Morgan Stanley.

Thanks.

First, a number of companies have reported recently seeing real wage -- tightening of the labor markets and real wage rate pressure.

It sounds like you are not seeing that based on the leverage you are seeing.

So can you just talk about, are you seeing wage inflation, what your view is on 2015 in that, and maybe the overall labor line, not just the wage rates, as well?

John, we are experiencing significant pressure and compression on labor, both as the broader economy improves and give folks an opportunity to move from the heart of the house to go back and installing drywall to government city state and federal government mandated increases in minimum wage in addition to benefit mandates.

We are seeing that.

We continue to do a better and better job with our labor scheduling and deployment technology that we put in place, enrolled nationally last year.

That's really where we saw the benefit.

And do you have a number (multiple speakers) for what the wage rate inflation actually was?

I don't -- our guidance includes wage rate inflation overall of that 2% for 2015.

Okay.

Thank you.

And just one other question, you talked about some everyday low pricing on the alcoholic beverage program.

I'm not sure if that's new, or if you said before and I just didn't hear it before.

How impactful is that?

How innovative is that versus the market?

How much below, let's say, the average bar tab are you?

And is that really one of those comp drivers that we are seeing now?

John, we did this last year -- I'm trying to remember exactly.

I think it was --

February.

February of last year.

So we had been running more traditional varied happy hour programs.

Took a look at that and decided that for us to move forward we want to focus more on everyday pricing, everyday low-cost pricing for all the seats, all of hours -- every restaurant, every place.

So I think it's making a difference.

Certainly it's a more profitable strategy for us.

and with beer starting at $3.50 and three-quarters of those who drink alcohol willing to drink a beer, it presents tremendous upside for us to start the conversation.

So, again, we see a lot of potential for this moving forward and I don't know -- from an innovative standpoint, certainly not doing happy hour was a little bit controversial for us, but I think within our system we are pleased with how this is working.

And we have an opportunity to continue and drive mix.

Thank you.

William Slabaugh, Stephens Inc.

Thanks, guys.

On the comp guide I wondered if you can talk about what your traffic assumptions were for the broader casual dining group that's baked into that guide?

I ask because it looks like this might imply an acceleration for your business and a widening of that gap to the industry.

So I'm just wondering if you might provide a little bit more color on what went into that assumption.

Will, if you look at casual dining overall for the last five years or so the industry has been down plus or minus 2% on traffic.

I have a hard time drawing a line from the dot that we have in January, and is that going to continue are not?

But if you look at some of the positive momentum that you are seeing out there just in sentiment it's going to be probably somewhere around 1.5% to 2% it feels like on a decline in traffic for the industry.

So if you use that as sort of our baseline and we build off of that.

Great.

One cost question I had -- I wondered if you could help us out a little bit more on the restaurant level cost.

You touched on the labor earlier that came in quite a bit lower than we had anticipated the then some of the operating costs being higher, apparently due to the acquisitions.

So I wonder if you can give us a little bit more color on those three line items that go into that 21.4% margin guidance?

And then any thoughts you might have on the cost inflation as well?

No.

I think overall the other operating costs lines came in line with our expectation, and we were able to leverage labor on the occupancy side, get the impact of the acquisitions and the new units.

So some of it may be also the fact that the waving of our store openings in the fourth quarter was probably a little bit lighter than what people expected.

So you've got the expenses you have opening a new store with higher labor and things like that, but you are not getting it out of the full flow one flow-through on those -- could be maybe what's driving a little bit of disconnect.

I'm sorry -- what was your last question, Will?

On the food costs for next year.

Yes, for cost inflation -- again, Q4 inflation was about 4.5%, with ground beef up actually about [20%].

Inflation -- we've get inflation next year of about 4% built into our guidance with ground beef up for the year about 12%.

Obviously the first year will be up we expect the first half of the year to be up much more than the second half.

Great.

Thank you.

Brian Vaccaro, Raymond James.

Good morning and thanks for taking my question.

I was wondering, Stuart, if you could just give us a little more color on the composition of the average check in the fourth quarter, between price and mix?

In the fourth quarter we had about 1.6% of price in the fourth quarter.

We took 1.2% the price mid-November, so that's the inflation that we will be starting the year with -- starting 2015 with about 1.2% of price.

Okay.

So it will be starting with 1.2%.

Can you talk about plans to raise prices?

We've talked a lot about food cost inflation, labor inflation running around 2%.

So are we thinking maybe we will be at the top end of your kind of historical range?

Maybe in the high ones, or do you think we will kind of stay in the low- to mid one range on pricing for the year?

You know we will evaluate that as we get through the year.

We are trying to do what we can, again, to take cost out of the business and not pass on cost to customer.

So our guidance has got -- if we had to cover the inflation that we just talked about on the expense side that would take about 1.5% of price.

Again, we started with 1.2% so it implies we would take a little bit more.

And the other piece of the comp guidance is really just traffic and mix together -- about a 1% increase.

Okay.

And then I'll just take another shot at the quarter-to-date comps.

I understand you historically don't give much color on that but everyone is looking at a 5.5% comp and trying to gauge relative to what the industry is looking like -- obviously quite a positive trend.

But is it fair to assume that you expect positive comps in each quarter in 2015?

Taking it maybe a slightly different direction, right, the impact of our brand transformation remodels is having -- we are expecting a meaningful impact from that to -- the guest engagement from that has been terrific.

And that's been one of the things helping drive our outperformance in the industry.

So we are going to keep working on that.

If you look, yes, the industry had a strong start to the year, but we are sticking to our guidance right now.

All right.

Thank you.

Chris O'Cull, KeyBanc.

Thanks.

Good morning, guys.

Denny, can you talk about the margin improvement expected at the Canadian stores, Maybe the expectation that's reflected in the 2015 guidance?

And then also just whether currency exchange has inhibited your ability to take price there or recover some of that margin?

I will speak first to when we took up the business, the business had not taken pricing in quite some time, so we did take price increases across the board late last year.

I think we implemented them in October -- September or October of last year.

No plans to take further -- we adjusted to the market.

We were a bit behind.

In terms of margin improvement consistent with Project Red goals, we are looking for about 200 basis points in the middle of the P&L and hoping to achieve at least half or more of that this year.

We have aggressive goals to do that, and I think pretty good line of sight to how to do that.

There are some unique challenges in the Canadian market.

For the ForEx question I will flip it to my friends over here who know more about that than I do.

On the foreign-exchange fees that does but some cost pressure on in Canada because, again, some food not just for us but overall food is imported from the US.

So we are watching that; that doesn't seem to be an issue today.

And just to build on what Denny just said, because even the acquisitions that we've done in the US which was half of what we did last year, even some simple things from a distribution standpoint going back and looking at the case pack sizes, for example, that they were using.

We are able to improve their COGS by just improving some of the stuff back of house to reduce waste and improve the purchasing.

So we will get some margin growth on both sides.

Okay.

And then my last question, Denny, you mentioned that gift card sales were up year over year during the holidays.

Have you seen an increase in the gift card redemptions in the first quarter?

I can say we grew our overall gift card sales last year by 16%, and a significant part of that as I shared came from our burgers and a movie Hobbit tie-in and our bonus buck promotions toward December.

So I'll let you draw your own conclusions about how those guests may or may not be flowing back into the restaurant.

Okay.

Fair enough.

Thanks.

Robert Derrington, Wunderlich Securities.

Two questions, if I may -- on the revenue composition during this past quarter, obviously -- I'll direct this to you, Stuart.

You've got three different pieces of business that generate different average unit sales.

Obviously, given what you reported versus, I guess, Street expectations, there must be some confusion on that.

You've got your acquired restaurants, you've got your baseline Red Robin restaurants, and you've got your Burger Works.

Any kind of color you can provide us so that we make sure and understand and do a little bit better job in factoring what the ultimate average weekly sales for the entire Company is?

I think, Bob, I think there's just one thing I'll caution people on is, right, just to remind people that -- and we talked about it even the last couple of quarters.

On the acquisitions, right, the units that we acquired -- again, some of them are in smaller markets -- their AUVs are lower than the corporate, so they generated somewhere -- the acquisitions in total generated somewhere over $41 million, $42 million in revenue for the back half of the year.

So because of that they are going to be lower AUV and that's also why you are getting the lower margins leveraging some of those costs.

There will be some impact I think of foreign-exchange, right?

The way the Canadian dollar probably moved in the fourth quarter and the way that flow-through may have impacted the way that rolled off on a dollar basis as well.

And then obviously the Burger Works -- you may or may not be ready to give us any kind of a bogey to think about as we model those stores, but I would expect they are considerably less than what the typical Red Robin is -- half as much?

Less than that?

Yes.

The typical fast casual 1,800/2,000 square feet is doing, you'd call it, $1 million, $1.2 million, depending on what the market is.

It could be included a little bit north of that as well.

But about the same -- we'll the about doing the same operating margins over time, once we build a critical mass.

Those are obviously just based on the size are doing much less.

And the way we are building them, right, I did say, designed to be a dense urban area focused on high-quality food at lunch, so speed of service is important so they are going to do 70% of their business 11 to 2. A number of the locations are also doing -- have got a nice breakfast program, so they are building up the breakfast program and some dinner and a little bit of weekend depending upon the location.

Terrific.

And last question if I may, on the movie tie-ins, Denny, as we look out to 2015, obviously everyone knows what a disaster the box office was this last year.

Any kind of color you can provide us on either some of the movies you are going to tie in with or the number of tie-ins that we should look for, and why do you think it's going to be better than last year, if you do?

One, I think overall the Hollywood scenario is much more bullish this year.

There are a number of franchise films coming out or continuations of strong franchises versus last year, so there are a lot to choose from this year.

We are not prepared to make any announcements on a go-forward basis about what we are doing but I can assure you that this burgers and a movie proposition is a high value one for our guests.

It makes a lot of sense for our business.

As I referenced, we are doing a in-line and in-store only tie-in right now, and the choice of that film was based on consumer research so you can trust that we will be doing research going forward to ensure that our guest is interested in the films we choose.

Terrific.

Thanks, Denny.

Peter Saleh, Telsey Advisory Group.

I wanted to ask about the remodeled units.

I know the bar was a pretty significant focus in the remodels.

So can you give us a sense relative to the rest of the system where the alcohol mix is for some of the remodeled restaurants versus the rest of the system?

Hi, Peter.

Let me talk about that a little bit.

The one thing you've got to remember that the remodels focus on the entire restaurant.

60% of our guest space are adults only occasions, and so while we are filling up the bar first and doing a much better job at sorting out the door and creating a unique environment in the bar and improving that side of it, at the same time as we are doing the remodels we are bringing in guests who maybe haven't tried Red Robin for a while, who are improving the overall guest count.

So it's not just about the bar, and we are getting a bit of a central tendency theory where guests are coming in who haven't been into Red Robin before, see the changes and are going to be center of the menu.

So we are seeing an overall lift in gourmet burgers as well as kids meals.

So you are seeing it sort of equally across.

There's not a big alcohol mix difference in a remodeled restaurants versus other ones.

We think that will grow over time, but we are not focused on that day one, we are focused on driving it an overall better experience.

And again, Peter, the new branding is Gourmet Burgers and Brews, and so you can look to us to be doing more and more to elevate the beer business through those brand transformations as well as across the board.

Great.

And then just on the exterior remodels, are you guys saying incremental lift?

Where do we stand on the number of restaurants that actually have the full exterior remodeled as well?

Because I know the 4% number that you guys have been talking about has been kind of ongoing now for a little while.

But I know there are facelifts on the fronts have just started.

So is there anything new or anything incremental you are getting from the exterior remodel?

To be clear, the 104 that we referenced, all had completed their facelifts by year-end.

We have a few from the very original pilot that still have yet to get the new identity, but did have a different identity placed on them.

So but the 104 all have facelifts and, again, our overall target for the investment [range now] 4%.

So we are -- this year moving forward, it will all get done at the same time, which last time I checked is the way it's supposed to get done.

All right.

Thank you very much.

(Operator Instructions)

Steve Anderson, Miller Tabak.

Good morning.

I wanted to ask with regard to your franchisees have you have any indication on how many they plan to open during 2015?

In terms of franchise openings we've got one or two in the pipeline -- two in the pipeline.

Obviously the will get their timetable done with their permits and everything, and also a number of them are starting their brand transformation remodels as well.

And we will give more color on that as we move through the year.

Thank you.

Joseph Buckley, Bank of America.

Thank you.

Denny, you covered a fair amount of this in your formal remarks and answering other questions.

But I think you mentioned the mix of media -- the mix of marketing planned to be about the same.

You referenced the NFL team tie-ins and that sounded like it may be wasn't as effective, and maybe that's kind of the nature of the games and the triggers for the different promotions.

But could you talk a little bit more about maybe the sports tie-ins, and just kind of the game plan again for 2015?

Sure, Joe.

You know I'd say we do pretty well at picking teams.

All four of ours made it through to the playoffs.

So, our team selection is good.

Each of those teams have has a unique trigger, so when I refer to 25% fewer activations of Tavern Double Tuesday in Q4 it was because in some cases, particularly one of our teams in the Southeast did not win as much as they could have and didn't trigger quite as well as they could have.

But, no, you should not read into that any disappointment with that.

We just are very thorough in our analysis to ensure that it's driving incremental traffic and profitable traffic for the investment.

So we'll be going into that here in February, and we have some -- one that is an ongoing.

We have an ongoing contract with Seattle and the other three are up for either renewal or renegotiation right now.

Okay.

And from the TV standpoint, are the plans for 2015 similar to 2014?

Yes.

Okay.

Thank you.

It appears there are no further questions at this time.

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

Thanks, Evelyn.

We appreciate everybody's time.

Have a great, safe Friday the 13th and a great weekend and we'll talk to you here at the end of the first quarter.

Thank you.

And that does conclude today's conference.

Thank you all for your participation.