Red Robin Gourmet Burgers Inc (RRGB) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Incorporated first quarter 2016 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 of similar meaning.

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 conditions of the Company, results of operations, strategy, objectives, and future performance, including the Company's traffic and revenue-driving initiatives, sales growth, operating margin and operating weeks, costs, expenses, expense management, deployment of capital, restaurant technology, development and remodels, performance of remodels and acquired restaurants, new technology, devices, systems and service offerings, 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, 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 upon facts and expectations 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 FY16 first quarter press release, and supplemental financial information related to the quarter's results on its website at www.redrobin.com in the Investor section.

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

Please go ahead, sir.

Thank you, Hannah.

Good morning, everyone.

With me on the call are Stuart Brown, our Chief Financial Officer, and Denny Post, our President.

After we deliver our prepared remarks, we will be happy to take any questions you might have.

I'd like to start by saying that during the first quarter, we were pleased to achieve higher year-over-year revenues and adjusted earnings per share, and we were encouraged by the sequential improvement in our performance versus Q4 of 2015.

That notwithstanding, we are disappointed that we did not gain more traction on same-store sales, and our guest counts certainly did not meet our expectations.

As you know many of our casual dining peers were similarly challenged by the shifting consumer landscape and intense discounting.

But our goal at Red Robin continues to be to consistently outperform our peers, and significantly grow our business in the long-term.

As recently as our call in February, we shared with you our plan for achieving this, and doubling EBITDA by 2020.

This long-term strategic plan, which we have dubbed RED Squared focuses on revenue growth, expense management, and efficient capital deployment.

To strengthen our top line performance, we're working on a number of operational and marketing initiatives to increase the rate of revenue growth over the coming years.

One powerful example of this is our focus on improving ticket times, table management, and seating efficiency.

We've made great progress on this, with our kitchen display system and table management software, which we're targeting to implement by the end of Q3.

This initiative will further elevate our food quality by ensuring our great burgers are always served hot, and our guests can get in and out faster, reducing wait times and growing four-wall revenue.

Another example of our future growth is the potential upside with to go and online ordering, and we'll be piloting this capability in the second half of this year.

On expense management, we still have ample opportunities to reduce our costs, operate more efficiently, and improve margins without compromising the guest experience.

Here too, we're making progress, with our recent deployment of a new cloud-based facilities management application that has improved our management of restaurant repair and maintenance costs.

Other key investments in technology include our migration to new supply chain management software, targeted for launch in 2017 that will help our restaurant managers better control inventories, reduce waste, and lower cost of goods.

During the last few years, we've established a terrific track record and cadence on continuously improving our operating margins, with cost savings through our Project Blueprint initiative.

We're ahead of our initial targets for 2016, but that isn't stopping us from pursuing even more cost reduction opportunities.

We believe we can reduce expenses by about 20 basis points a year as part of our five-year strategic plan.

And finally, on capital deployment, we'll be wrapping up our brand transformation initiative with the completion of company-owned remodels by the end of this year.

The consumer feedback that we receive continues to reinforce the fact, that guests across the spectrum really love our remodeled restaurants.

This is a great example of an investment that from day one, has not only elevated the guest experience, but has also contributed to top line benefits.

During the first quarter, we also acquired 13 very well-operated franchise Red Robin restaurants and all the development rights in Texas, giving us a solid base to accelerate our growth in this key market.

We'll also continue to expand our footprint, both in newer, underpenetrated and established markets, too.

We couldn't be more pleased with how well our new full-service restaurants are performing.

With two-thirds of the growth in our strategic plan coming from new unit openings, this remains a key contributor to top line expansion, and will be a significant contributor to EBITDA over the next five years.

On top of the 25 new Red Robin restaurants we're planning to open in 2016, we expect to open 30 new locations next year.

We believe adding to our Red Robin Burger Works locations further enhances our ability to further leverage Red Robin's burger authority, by growing in urban environments and other non-traditional Red Robin settings.

We'll continue our disciplined deployment of capital, investing in opportunities that we believe will build the business and generate attractive returns to shareholders.

Before I turn the call over to Denny, I want to reiterate our confidence in the strength of our long-term strategic plan RED Squared, and our laser focus on revenue growth, expense management, and efficient deployment of capital.

We're making progress in all of these areas.

In the near-term, we're also encouraged by the sequential improvement in our business in the first quarter versus Q4, and what that portends for the balance of 2016.

Our guests keep telling us that our great burgers and differentiated dining experience are creating Red Robin fans for life.

It's our continuing challenge to execute at the highest levels in our restaurants.

With that, let me turn it over to Denny to give you some more insight on what we did with guest engagement during this past quarter.

Thank you, Steve.

While quarter one did not turn out as we expected, we did gather key learning that has already impacted our marketing plans, and we did see modest sequential improvement quarter-over-quarter.

Our fundamentals, our menu, our culture, unique brand promise, and guest loyalty remain strong.

Guest research consistently bears this out.

Our priority opportunities are, one, to cast a wider net to increase our guest base, two, to recapture our competitive edge on guest engagement and service time reliability, three, to reinvigorate elements of everyday value, and four, to find new and more effective ways to go-to-market.

We have selected a new advertising agency partner who will be announced soon, and we have begun working aggressively on a new playbook, which will impact the second half of 2016.

It is time for us to redouble our innovation pipeline, and strike a new direction in our go-to-market plans.

As to what happened in quarter one, well, frankly, not content to stand back from the competitive fray coming into the new year, we launched a limited time meal deal tactic, the $15 Double Tavern, Double Plus Meal for Two that had tested very well in concept, and was well-received by our Red Robin Royalty members.

However, it failed to break through on television to a broader audience to meet our goals.

It played out as a me-too offer, with high misattribution to other bar and grill concepts.

We were reminded that, however tempting, playing in the sea of sameness does not support our very special brand.

We are not going to win long-term by temporarily discounting to drive traffic.

We will leave that to others.

Our formula for success is built on rewarding those who are most loyal, and reaching new guests with compelling everyday value, bottomless sides and beverages.

When we focus on what we do best and inject our unique personality, as our CEO did when we brought back Bottomless Mac & Cheese for kids, we win.

Being the innovative burger authority is our game.

Speaking of innovation, we have some compelling and attention-getting product news to start and end the quarter.

Both the Wedgie burger and the Red Ramen burger generated tremendous press coverage and built PPA, along with new appetizers such as Voodoo fries and Fried Pickle Nickels, complemented by limited time gold winning beers -- gold award-winning beers, discovered from our partnership with the Great American Beer Festival.

We continue to see guests trade up to the Marco Pollo finest chicken burger launched late last year.

One last word about regaining our competitive edge.

There is no doubt that we have stressed our can-do operating culture with incremental complexity to support innovative menu additions.

They have muscled through without needed tools.

As Steve mentioned, we are addressing this with the upcoming launch of the kitchen display and table management systems.

We are also providing database guidance to support better field level decision-making on staffing to ensure a great guest experience.

Most important, we are adding a senior operations leader who has a proven track record of positive team leadership in high growth concepts.

We are very pleased to have Carin Stutz, a well-respected leader with deep casual and fast casual operations experience joining us as EVP, Chief Operating Officer this week.

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

Thank you, Denny, and appreciate everyone for joining us today.

I'd like to start by referring everyone to our earnings release, and supplemental package for complete information on our results, as I will only be discussing key trends and business matters in my prepared remarks.

Our first quarter EBITDA increased 8.5% to $51 million, adjusted to exclude the impact of the litigation contingencies, restaurant impairment costs, as well as last year's benefit from changes to our gift card breakage estimates.

Earnings per diluted share in the 16-week first quarter were $1.03 on a GAAP basis.

After adjustments, earnings per share were $1.27, an increase of 15.5% from $1.10 in the first quarter a year ago.

As you've already heard, the casual dining environment has remained challenging on two fronts.

First, the consumer has pulled back spending in casual dining, despite generally good news in areas like wages.

Second, the competitive environment has remained highly promotional.

Denny already talked about the first quarter actions we took to bridge to new initiatives that we can own and control to improve traffic.

While our relative traffic performance improves 60 basis points sequentially according to Black Box, our absolute comparable restaurant traffic was negative 4.1%.

We underperformed peers 90 basis points in the first quarter, but this was still better than the 150 basis points in the fourth quarter of 2015.

Compared to a year ago, we invested more in discounts and value promotions, while at the same time had lower media weights.

Average check increased 1.5% which was mostly price, resulting in comparable restaurant sales of negative 2.6% on a constant currency basis.

The tactic of delivering value to our guests through deals resulted in some mix trade-down, but as a means to bolster traffic in the quarter was muted by the widespread discounting and heavy advertising amongst our peers.

Our first quarter restaurant level operating margins were 22.5%, as lower ground beef costs help offset the sales deleverage we experienced in labor, operating and occupancy costs.

In addition, we lapped over the benefit from lower workers' comp and healthcare claims we realized in the first quarter of 2015.

Adjusting for this change in benefit claims costs, operating margins increased 30 basis points, despite the lower comparable sales.

This results in a -- from a company-wide effort to capture the profitability of the sales we had, by effectively managing indirect costs.

As we continue down the P&L, depreciation in absolute terms was in line with our expectations.

General and administrative costs, excluding the $3.9 million of litigation contingencies, declined $3 million or 90 basis points compared to last year, primarily due to lower incentive compensation and lower travel costs.

Selling expenses were also lower than a year ago, as we delayed our investment in marketing and advertising pending a review of our media plans in creative, and instead focused on delivering value to our guests through our loyalty program and other initiatives.

While we made progress in closing the traffic gap this past quarter, we have further marketing and operations initiatives in the pipeline, that we are confident will improve our performance as we move through the year, and further differentiate Red Robin from our competitors.

Pre-opening and acquisition costs increased $1.4 million compared to the prior year, due to an increase in the number of restaurants under construction versus a year ago, and the $700,000 of costs to acquire the 13 franchised restaurants that closed on March 21.

The integration is on track, and the restaurants are performing well.

We recorded impairment and closure costs of $800,000 related to a Burger Works that was relocated during the quarter, due to ventilation constraints at the original location.

The first quarter income tax rate of 23% was favorable to our outlook, due mainly to lower pretax profitability, including the impact of the litigation contingencies and impairment, neither of which had been forecast.

We anticipate that our tax rate will remain near this rate for the balance of the year.

Turning to capital deployment, we invested $92.1 million during the first quarter, of which $40 million was to acquire the franchise restaurants, $23 million for new restaurant construction, $22 million for brand transformation remodels, and the remainder for technology and restaurant maintenance.

The acquisition of the franchise locations included the land and buildings of four locations that are valued at around $15 million.

Our capital expenditures guidance for the year has been increased because of the acquisition to around $190 million.

Guidance does not include the impact from any sales of real estate, but we are marketing some of our 37 properties, given strong current investor demand for quality real estate with our credit profile.

Given our first quarter performance and prospects of continued negative industry trends, we have reduced our adjusted 2016 EBITDA guidance to be between $150 million and $155 million.

The reduction is driven almost entirely by reduced revenue expectations.

We expect organic revenue growth of around 6% for the year, with an additional 2% of growth from the acquisition.

We have reduced our industry traffic expectations by about 100 basis points to a 2.5% to 3% decline in casual dining traffic.

We also reduced our planned pricing, and now anticipate that it will take longer for our meaningful outperformance to return.

However, relative performance should continue to improve as we move through the year, and roll out the initiatives that Steve and Denny discussed.

Adjusted EBITDA will not decrease as much as our reduced revenue would suggest, due to a number of initiatives to reduce indirect operating costs and overhead.

Despite the first quarter setback in sales, our goal to double EBITDA over the next five years remains firmly in place.

Steve mentioned with RED Squared that we expect over $90 million of additional annual EBITDA from new locations alone.

When you consider the $36 million-plus opportunity from growing our to-go business, plus margin expansion from our new food cost system and other initiatives, we believe we have a clear path to add $150 million of annual EBITDA for 2020.

We have a strong team of terrific individuals working on additional ways to operate more efficiently, and plan to offset future cost pressures while improving value to guests.

With that, let me turn the call back over to Steve for some additional comments before we take questions.

Thanks, Stuart.

To wrap up, while we did not meet expectations for the first quarter, we remain confident in the strength of our strategic plan.

We know what we need to do to improve the business, drive the top line, and return to results that consistently outperform our casual dining competitors.

We're making progress, and believe we're on track to reach our long-term goals for building the Red Robin brand, achieving operational excellence, and growing our business.

As Denny mentioned, we are designing an entirely new go-to-market strategy.

We continue to make the necessary investments in resources and tactics to expand our base of loyal Red Robin fans, and reignite the top line.

And as we drill down deeper with our guests, we've also identified areas of opportunity in our operations execution, and we are diligently working to address them.

On that front as Denny mentioned, we are very excited to welcome Carin Stutz, an experienced and well-seasoned operator and senior leader.

Last but not least, we've got great teams across the enterprise, and are extremely proud to have been recently named one of America's Best Employers by Forbes.

This award demonstrates our commitment to our team, and our dedication to making our Company better every day for all of our stakeholders.

As always, I want to express my deepest appreciation to all of our team members for their hard work and commitment.

At this point, operator, let's open the call for questions.

(Operator Instructions)

And we'll go first with Will Slabaugh with Stephens, Incorporated.

Yes, thanks, guys.

I wonder if you could just talk a little bit more about your value platform as it stands today, the Tavern platform?

And then, however else you think you [create] value to both your loyalty guests, as well as your TV guests?

And if we think that needs to be revamped in a way, or how we might need to readdress those two different audiences, in order to break through a little bit more effectively?

Just sort of any way you want to wrap around the whole value conversation would be helpful?

Thank you.

Well, thanks, Will, for calling out value, because that's clearly, I think the way that we're going to win over time, and there's resident value in our Bottomless proposition, so redoubling our efforts to ensure that every guest gets offered the opportunity to have more of our great steak fries, and some other things that will help us at the restaurant level.

Secondly, with our most loyal guests, we continue to see strong responsiveness to our segmented offers, and we'll continue to use those.

I think those have continued to be a bright spot, and our guests that are most engaged there, are seeing the resident value in our ongoing loyalty program.

The third area is the one that's probably been the trickiest for us without a doubt, and that is creating enough news around value, everyday value, not discounting.

And I -- looking back, I think that the discounting is the thing that took us into the realm of meals for two, took us into the high level of misattribution, and engagement with our competitors.

Everyday value is resident or is represented by the Tavern platform.

We have the opportunity for news there, and you can look forward to seeing that.

Got it.

Thank you.

And then just really quickly, if I could, whenever you look at the EBITDA for this quarter, which came in actually above consensus, and I'm assuming above internal projections as well, can you talk about what led to that guide down?

Was it just top-line driven, or was there something else going on there as well?

No, I mean, the guide -- this is Stuart, Will.

No, the guide down is really the again, industry traffic.

So it's really revenue, as well as in just our -- the time it's going to take for us to really come out of the trough that was happening in the fourth quarter.

We talked in February, that it would take us a little while to get the new creative and the new media.

Denny mentioned the new ad agency that we expect to announce soon.

So we're working on some things to sort of bridge us through that.

But it's going to take us a little bit longer than we thought, given the competitive environment.

Got it.

Thank you.

Next we'll go to Chris O'Cull with KeyBanc.

Thanks.

Good morning, guys.

Good morning, Chris.

On the last call, you guys stated that selling expenses would be flat year-over-year, and that you were not going to cut back on advertising, and it sounds like you clearly called an audible here in the first quarter.

But do you expect -- how should we think about advertising levels, I guess for the remaining quarters of the year?

Hey, Chris, this is Stuart.

The word I used in my script was delayed.

Again, we would rather lean in to media and advertising with the new creative.

And so, we've delayed some of the media spending, so we did have a little bit lower TRPs in the first quarter, and we still expect for the year to be spending the same percentage of sales.

Okay.

When I think about value in the interim here, Denny, will coupons or discounts or any kind of any kind of, I guess, e-mail system -- the e-mail distribution system you guys use, will that be used more aggressively here in the interim?

No, it's not any kind of broad couponing or discounting.

We continue again, to segment offers to our Red Robin loyalty members, and I envision us using that consistently throughout the year.

I mean, we have some opportunities coming up this year, much as we did four years ago with things like Olympics, and other things we need to focus on.

So we'll use it very strategically, but there is certainly no intent to do any kind of print discounting or any of that kind of effort.

Okay, great.

Thanks, guys.

Next we'll go to Imran Ali with Wells Fargo.

Hey, good morning.

Thanks for taking my questions.

Can you just talk about what commodity deflation you saw in Q1, and what your quarterly commodity inflation expectations are for the year?

Imran, so you've got the COGS deflation in the first quarter was around 4%.

And we talked about how really it's going to be front half loaded.

So for the year, we've got COGS deflation expectations now are a deflation of around 1%.

So we've definitely got some inflation expectation for the second half on ground beef, as we start to cycle over last year's big drop late in the summer.

And then the flip side of that question, has really been probably on the labor side, and the labor inflation that we're saying, or we have in guidance is about 4.5% or so, 4.5% to 5%.

Got it.

These very helpful.

Just a clarification question, which I might have missed earlier, what level of stock-based comp are you assuming your updated adjusted EBITDA guidance?

Say one more time?

In your adjusted EBITDA guidance, do you have a level of embedded stock-based comp that you're assuming?

Yes, the stock-based compensation is in the supplemental.

There's a breakout that shows the full reconciliation.

Oh no, I was looking for your revised 2016 guidance for your EBITDA look?

There won't be any significant change in stock comp guidance year-over-year.

(multiple speakers)

Okay, got it.

And if I could -- okay.

If I could squeeze in just one more.

Can you just talk about what your menu pricing plans are, as you go through the year?

Yes, I mean, pricing that we had in the first quarter was about 1.3%.

We've actually taken -- I think last quarter, we talked about taking pricing north of 1.5% for the year.

We've brought that guidance down, again with lower COGS, we're not going to take as much price.

And so price for the full year will be somewhere around probably 1%, 1.2%, 1.3% flow-through.

Got it.

All right.

Thanks very much.

Next we'll go to Joe Buckley with Bank of America Merrill Lynch.

Thank you.

A quick question on the thoughts you shared on the casual dining segment, and then the full-year guidance, with flat to slightly negative comps.

And in conjunction with your answer to that pricing question, talk about the visibility or the game plan to get the traffic counts back, to get to that full-year comp guidance?

Yes, in terms of that, as we said, we've seen sequential improvement quarter-over-quarter and continue to see some progress internally.

I'm certainly not going to tip our hand to exactly what we have planned for the back half of the year.

But I'm confident, with the assistance of a new partner that we have an opportunity to go-t-market differently, and we are revisiting every element of our plan.

So that, coupled with continued product news, continued innovation and product news, which continues to support our brand very effectively, we feel like we're in good stead to reach what we've set out today.

And, Joe, again, those are both marketing and operations initiatives that we've got in the pipeline.

And again, we don't want to go into them, because there's a lot of people going to school on each other, figuring out how they can outgame each other.

But the guidance does assume that guest traffic -- that guest counts stay negative in the back half of the year.

So while, we over the next couple of quarters expect to move back out performance in light of where the industry is, we think we'll be negative for the year.

Okay.

And then you mentioned the casual dining competition.

Do you think the QSR competition is having an impact on you, as they have all gotten so much more aggressive?

There might be some impact there.

I haven't seen -- certainly, you're seeing some growth there, that's been unusual for the last few quarters.

It's no doubt, between retail and restaurants, the guest behavior is changing, and they are staying home.

They are ordering from home.

They are taking food home, and that is an arena that we don't play in right now at all, or on a very minor basis.

So again, just pointing forward as Steve called out, piloting online ordering and to-go for us is going to be important, because that's really the only growing segment in the casual dining category right now.

So it points to upside for us down the road certainly.

But I'd say -- I don't know that QSR, we haven't seen any major shift in our day parts at all, and if anything, you would expect to see that in lunch, and I know some of our competitors have called that out.

We simply haven't seen it.

Okay.

Thank you.

Yes.

Next we'll go to Peter Saleh with BTIG.

Great.

Thanks.

I just wanted to ask about 1Q, and if there were any kind of one-time items in terms of weather this year, versus last year that may have impacted the comp a little bit?

And/or, if there's any regional disparities you guys can talk about?

Peter, I think it's impossible to call weather ever as one-time since you have it every year.

So we don't ever really talk about it, or use it as an excuse.

I mean, and because of our 16-week first quarter, we don't have some of the holiday shifts that other people have to deal with.

So if you look at sort of market by market performance, I would say that we're -- our performance has been stronger in the southern market, southwest and southeast, and where we've underperformed a little bit relatively is more in the northeast.

So as we continue to build on our brand recognition up there, and get the remodels completed, we got an opportunity to lean into some of the markets that we're underperforming in, and pretty confident that we'll improve those trends.

Great.

Then on the -- Stuart, you mentioned the delay in investment in the marketing advertising.

How should we think about that for either 2Q, or is there going to be more in the back end of the year, or is it going to be spread out between the next three quarters?

Well, first, I'd remind you that our marketing spending compared to our competitors is very low.

So it's not a, necessarily a market mover in that sense.

I think our solid operations, returning to our base, and rewarding our loyal customers, and then driving news will be the most important.

So it was -- certainly we did push some out of Q1 year-over-year.

But we'll be investing that back against new campaigns and new approaches as those emerge.

So as I said, you'll see that probably in the second half of the year before we'll really be able to have an impact there.

And then lastly, can you give us an update on where you stand with the alcohol mix?

Yes, we're up about 20 basis points year-over-year.

So we continue to make modest progress.

We're encouraged by our initiatives, particularly around beers, as I mentioned.

We have a multi-year partnership with the Great American Beer Festival.

We've brought some of those forward this year.

Craft beer is where it's at in terms of growth, and we're continuing to move forward to improve our offerings there, increase our tap lines, and do other things that will support our burgers and brews promise.

Great.

Thank you very much.

Yes.

Next we'll go to Brian Vaccaro with Raymond James.

Thank you, and good morning.

Just wanted to circle back to the first quarter comps, if I could.

Obviously, the intense competitive environment.

But wanted to ask, is there anything to parse from your day part trends, as to where you're seeing most of the impact on your business?

Hey, Brian.

This is Stuart.

Actually the day part trends have not changed that much, and we've hung in there at essentially 50/50 lunch/dinner business.

That may tie back to QSR question a little bit, which some people may have reported as hurting their lunch business, we have not seen that.

Okay.

That's helpful.

And also I'm curious, are you seeing a material difference in performance of units that are located near malls?

Sort of traditional malls?

It's interesting you asked that.

Yes, it's -- while it's historically sort of bounced around a little bit mall versus non-mall performance, we saw that widen in the -- I would say, mall and sort of -- which would include pad sites near malls, underperform non-mall locations a little bit more in the first quarter.

So it's not enough of a data point to say this is a real trend.

But it is something we're watching, and something that I think would be consistent with what you saw from a lot of the apparel retailers who didn't see traffic.

So it could be that mall locations have just got less foot traffic in the first quarter, is that -- because people are shopping more online, or is that weather, other things, our goal is to keep drawing people into Red Robin.

Yes.

Okay.

All right.

And just one more, if I could.

Back to the advertising, can you help us with the magnitude?

How many fewer weeks or TRPs on TV were there in the first quarter on a year-on-year basis?

It was about 15%, 17% lower TRPs in the first quarter.

Again, Denny always likes to remind us that we don't, we don't have that many TRPs to begin with, but it was 17% lower.

That's the marketer in me.

Yes.

I'm sorry.

I have to keep reminding.

(multiple speakers) It played out as fewer weeks on air.

Okay.

And I guess, just to make sure we're on the same page on sort of the next few quarters, last year in the second quarter, your ad spend or your selling costs as a percent of sales were by far the highest in the second quarter.

It sounds like we should expect second quarter to be down year-on-year pretty meaningfully, as you delay, and you work towards launching the new creative with your new ad agency, and that the back half of the year would be up year-on-year.

Did I hear that correctly?

Well, I would say, we do buy in the upfront, so we're committed quarter by quarter.

So actually you won't see a material difference quarter-over-quarter.

It's more how we're timing it, and how we're flighting it.

And with that, I'm not going to say anymore.

Yes.

And so the other thing, so the other thing year-over-year is just to remember, too, Brian, is actually on the pre-opening costs.

We're getting much better at getting restaurants opened earlier in the year, so you'll see an increase in the pre-opening costs in the second quarter from a year ago.

Okay.

Very helpful.

Thank you.

Next we'll go to Steve Anderson with Maxim Group.

Just a question on the revised EBITDA guidance.

Does that reduced guidance take in to account the $4.7 million in charges that you took for -- for the litigation, as well as for the write-downs, the asset impairment charges?

Right, they adjust to the -- the adjusted EBITDA guidance, so it takes those -- so it excludes those, or it adjusts for those.

Okay.

And just going back to what you saw with the reduced healthcare claims in the first quarter of 2015, what effect is this in terms of basis points?

It was about 60 basis points year-over-year -- year-over-year change, because we had such a favorable number last year.

Okay.

Thank you.

(Operator Instructions)

And we'll take our next question from Will Slabaugh with Stephens Incorporated.

Thanks, guys.

Just wanted to circle back if I could on the sales front.

Can you help us out a little bit more, with what you saw as the quarter went along?

Did you see anything in the monthly trends that gave you confidence as the quarter passed, or is it safe to assume that you saw a similar pattern of sort of the March slow down everyone else talked about, and then April softness that the industry numbers have reflected?

I mean, would say that our relative performance generally improved as we moved through the quarter, but it was volatile.

I mean, I think overall, when you look at the industry trends and our absolute performance, it was, it was pretty volatile as we moved through the quarter.

And my personal conclusion is, is the consumer continues to remain skittish, and very careful about how they're spending their money.

And whether it's going more towards rent or healthcare costs or savings, whatever it is, you're continuing to see them focus on value.

Which means we've got to be giving -- continue to give a great experience on the operating front, make sure we've got Ramen burger, and really great products that resonate with them coming in.

Yes.

And I just want to reinforce what Stuart is saying, on the operating front, that is so much a part of the value.

It's not just the price you pay.

And we have traditionally, and continue to want to reinforce that we provide a unique experience for families and kids, now for adults in the bar.

And with Carin on board, we're really looking forward to reinvigorating our work to make sure that we stay a unique dining experience for those guests.

Thank you.

And that concludes today's question and answer session.

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

Thank you, Hannah.

We appreciate everybody's attention this morning, and look forward to talking to you here in the next quarter.

Have a great day.

And this concludes today's conference.

Thank you for your participation.