Red Robin Gourmet Burgers Inc (RRGB) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Incorporated, second-quarter 2016 earnings call. Today's call is being recorded.

During the course of this conference call, the Company may make forward-looking statements about the Company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect the Company's beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion, found in the Company's SEC filings.

During the call, the Company will also discuss non-GAAP financial measures. These non-GAAP financial measures are not prepared in according with the generally accepted accounting principles, but are intended to illustrate an alternative measure of the Company's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the Company's earnings release, available on its website.

The Company has posted its fiscal second-quarter 2016 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 would like to turn the call over to Mr. Steve Carley of Red Robin. Please, go ahead, sir.

Thank you, Lauren, and thanks everyone for joining us today.

We have a unique setup for our call today, based on last night's announcement of my retirement, and our President Denny Post being named as the new CEO of Red Robin. Before turning the call over to our Chairman, Pattye Moore, I would like to thank the Board of the entire Red Robin team for six great years with the Company. I have had the pleasure of assembling a fantastic, talented team at Red Robin over that time period. Today, we have a deep bench of exceptional executive talent. And we have worked -- worked hard, had fun, and I'm so proud of what we have accomplished.

Of course, part of my responsibility working with the Board has been executive succession planning, to identify and plan for the next CEO of Red Robin. And I couldn't be more pleased to say there is no one that I believe is better suited to succeed me then Denny. She has a true passion for the brand and a deep understanding of our guests' wants and needs. Since joining Red Robin in 2011 as Chief Marketing Officer, she was promoted to Chief Concept Officer in 2015 and then promoted again, to President of the Company in February of this year. She has proven herself as an effective leader, knows how to set goals for the entire organization and achieve them -- all while fostering collaboration and motivating and inspiring others. I wish her the best in leading this very special Red Robin brand.

It's been a pleasure working with you all. I would now like to turn the call over to Pattye Moore, our Chairman.

Thank you, Steve, and good morning.

On behalf of the Board, I would like to take a moment to thank Steve Carley for his passion and commitment to Red Robin. During his six years as CEO, Steve led brand transformation and market share growth and brought enhanced discipline and accountability to his Company. One of his greatest accomplishments, however, has been people development and succession planning. Steve has assembled a strong senior executive team, with deep industry leadership experience. The Board has also worked closely with Steve over the last couple of years on developing and implementing the succession plan we just announced. Steve, we wish you all the best in your retirement.

I also speak for the entire Board in expressing how delighted we are in Denny taking over as CEO and joining the Board, effective yesterday. Denny has proven that she is an innovative and transformative leader, and we absolutely believe that she is the right person to guide Red Robin's growth and ensure we are meeting consumers' ever-evolving needs. No one knows the Red Robin brand better than Denny, and no one is better suited to innovate in what is a challenging and disruptive climate.

We're also pleased to announce the appointment of Kalen Holmes and Steve Lumpkin to the Board of Directors. Kalen brings us deep experience in people development, having most recently served as an Executive Vice President of Partner Research Resources at Starbucks prior to her retirement in February 2013. And Steve brings strong industry strategy and financial expertise, including having served as Executive Vice President, Chief Financial Officer, and a Director at Applebee's until his retirement in 2007. We believe their strategic leadership and financial expertise will enhance our corporate governance and reinforce the skill set in our boardroom. We welcome them to the Red Robin family.

I would now like to turn the call over to Denny.

Thank you, Pattye, and thank you to the Board of Directors for your confidence and support. I'd also like to welcome Kalen and Steve. I also want to thank Steve Carley for his coaching, leadership, and advocacy. I've had the opportunity to work with some of the best leaders in the industry, and you, Steve, are at the very top. I know I speak for the entire Red Robin team by wishing you and Lois a wonderful retirement. We look forward to getting texts of beautiful sunrises from that deck in Idaho.

I step up to CEO after five years here with the good fortune of a very talented leadership team: EVP and Chief Operating Officer, Carin Stutz; Chief Marketing Officer, Jonathan Muhtar; Chief People Officer, Cathy Cooney; Chief Legal Officer, Michael Kaplan; CIO, Michael Furlow; SVP Development, Les Lehner; and our acting Chief Financial Officer Terry Harryman, who joins me on the call today. Together, we're charting a confident course forward, with the support of our home office, field, and franchise teams in the United States and Canada.

We can and we will regain momentum and take share again. We will do so by setting a new pace for innovation and service models, menu, and experience. These are challenging times for restaurants overall, and casual dining in particular. But we have faced challenging times before, and we have prevailed. As a team, we are up for this new challenge. Red Robin is at an inflection point, requiring objectivity and openness, as we consider innovative new approaches to everything we do. We will focus on addressing our known shortfalls, the things we can control; and on getting better, smarter and more inventive every day in the key areas that matter most to our guests.

Red Robin has tremendous brand advantages to leverage. We are the burger authority, having passed much larger casual dining chains to become number one in burger servings over three years ago. And need I remind you, burgers are still the number one menu item. We're also the home of bottomless fries and bottomless fun. No one -- no one -- serves the needs of families, be they friended, blended, or extended, better than we do. We have a great brand, a great team, and a future full of possibilities, with lots of room left to grow.

While we have much to be proud of, and much to build on, we also have a lot of work to do. In the last two months, we did deep-dive research with potential and loyal guests, and identified three immediate areas for improvement. First, we have to improve our speed to table and total dining time. We have addressed the pain point of payment through our on-tabletop device we call Robin, and are getting credit from our guests for putting them in control at the end of the meal. But we have lost reliability as the place to go for a quick lunch or dinner on the run. Carin and the entire operations team are focused on fulfilling that promise, using the kitchen display and table management systems to improve throughput and seating efficiency. Experience reigns supreme, and our guests count on Red Robin to be friendly, fun, and fast.

Second, value. Value as a guest defines it -- quality, quantity, and price. Families are facing higher demands on stagnant incomes. Our PPA has increased as our guests have opted into our finest burgers, which are now mixing at our highest levels ever. To attract new guests and increase frequency of use, we need to bring everyday value back to the forefront, to take full advantage of our barbell of burger options, from $6.99 up.

The third area for improvement -- marketing breakthrough. When guests think of us, when we are top of mind, we convert to a purchase at a rate others would frankly kill for. We must improve our top-of-mind awareness. We must up our game across all media vehicles to increase timely reach. When we are considered, we win. We have to increase consideration; we have to break through the clutter.

All three opportunities relate to our traditional business of full-service dining. But restaurants are shifting from dine-in destinations to source of food at home. The pace of change is picking up quickly. We have to get ahead of that curve. Over the past five years, we've had to catch up on fundamental systems and technology after a decade of zero investment. We have prioritized non-guest-facing foundational systems, such as labor scheduling, human capital management, kitchen display, and table management. The new food costs and supply chain management team is now in a single-store pilot, and is the last key fundamental investment. All of these tools -- all of them -- are critical to streamlining the daily workload for our restaurant managers, so we can get them out of the office and onto the floor, where they can interact positively with guests and coach team members real-time.

Now that the foundation is set to support staffing, service and speed, we can turn our attention to guest-facing technology. Recent research tells us today's Red Robin guest wants the option to control the dining occasion by choosing first whether to order online and carry out, or dine in. And if they choose to dine in, they want the certainty that they can be seated and potentially even order their meal ahead. The days of waiting patiently with a buzzer at hand outside the front door of a crowded restaurant are long gone. We are moving quickly and with the full power of the organization behind us, to not only catch up, but ultimately lead in this arena. Just listing our carry-out mix to average in the category -- just average -- will generate the organic sales growth equivalent of over 25 new locations.

So, the bottom line, we are going to immediately refresh and update our equities in speed and value. We're going to go al- in on multiple to-go catering and delivery pilots to set ourselves up for next year. And we'll support it all with targeted higher impact marketing. It will take a few months to fully regain momentum. But I'm pleased to say that we've taken steps already, steps that I will share after Terry reviews Q2 and updates guidance for the remainder of the year.

Terry?

Thanks, Denny, and good morning, everyone.

I would like to start by referring you to our earnings release and supplemental package for complete information on our results, as I will only be hitting the highlights, discussing key trends and other business matters in my prepared remarks. Earnings per diluted share in the second quarter were $0.55 on a GAAP basis. After adjusting for a restaurant impairment charge of $3.9 million that was recorded in the second quarter of 2016, earnings per share were $0.75, a decrease of 3.8% from $0.78 in the second quarter a year ago. Adjusted EBITDA for the second quarter of 2016 decreased 1.6% to $34.5 million, compared to $35 million in the prior year.

Q2 marked the second consecutive quarter of negative comp sales for the restaurant industry as a whole, which hasn't happened in over two years. Additionally, traffic for the casual dining sector, which has been trending down since the first quarter of 2015, has been negative for six consecutive quarters. Red Robin's comparable restaurant revenues declined 3.2% on a constant currency basis during the second quarter of 2016, compared to an increase of 2.9% in the prior year. While our traffic performance improved 20 basis points compared to the first quarter, we were still down 3.9% in the second quarter, which was softer than we expected. Relative to our casual dining peers, we underperformed 60 basis points in the second quarter according to Black Box, although we continued closing the gap with a 30 basis-point improvement compared to the first quarter of 2016

Average check increased 0.7% during the second quarter of 2016, compared to 2.4% in the prior year. We did see an impact on average check as we continued to invest in initiatives designed to deliver value for our guests and drive traffic. These included bringing back happy hour, increased offers for our Red Robin Royalty members, and taking less price in the second quarter. Our second-quarter restaurant level operating margins were 20.9%, compared to 22.5% in the prior year, driven by higher labor and other operating costs, partially offset by lower ground beef cost.

We have and are continuing to invest in additional labor as we focus on improving our service and enhancing the guest experience. We believe this investment will pay dividends as our guests consider Red Robin for future meal occasions. We also invested in incremental local restaurant advertising, which is a component of other restaurant operating costs to test new initiatives and local markets.

As we continue down the P&L, general and administrative costs were down $3.1 million or 13.3% in the second quarter of 2016, compared to the prior year, primarily as a result of lower incentive compensation, and to a lesser extent, stock compensation. However, we also realized savings in travel, professional services, and other areas which accounted for 30 basis points of the reduction as a percentage of total revenues. We remain committed to taking cost out of the business and have a great track record of achieving this through our long-running blueprint program, in which we engage our team members to help identify and implement cost savings.

Pre-opening costs increased $0.9 million compared to the prior year, primarily due to an increase in the number of restaurants under construction versus a year ago. We expect these costs to increase in the third quarter on an absolute dollar basis before moderating in the fourth quarter, as we plan to complete most of our 2016 new restaurant openings by the end of the third quarter.

We recorded a impairment charge of $3.9 million, primarily related to two restaurants that we continue to operate. These restaurants were opened in 2014 and have had site and operational challenges. The second-quarter income tax rate of 15.4% was favorable to our outlook, mainly due to lower pretax profitability, including the impact of the impairment, which had not been forecasted.

Next, I'd like to spend a few minutes focusing on liquidity and capital allocation. The business is healthy and has generated $152 million of adjusted EBITDA over the trailing four quarters. We invested $44 million in capital expenditures during the second quarter, of which $19 million was invested in brand transformation remodels, $18 million in new restaurants, with the remainder in technology and restaurant maintenance. As we substantially complete the brand transformation remodels by the end of the year, we will see an incremental increase in free cash flow of approximately $30 million in 2017.

New restaurant openings are a core part of our strategy to grow EBITDA over the long term and provide value to shareholders. While the operating environment remains challenging, we continue to see bright spots that reinforce our belief that there is room to grow the brand and demonstrate there are opportunities to wisely invest and generate attractive returns on invested capital. We're achieving just under 30% cash-on-cash returns and driving toward an 18% IRR with our 2015 restaurant class; and while it's still early in the year, our 2016 class gives us continued confidence in our restaurant opening plans. We continue to be very selective and disciplined about restaurant development.

We also continue to think critically about our capital allocation. Our goal is to remain flexible and adjust our allocation as markets warrant, to return more capital to shareholders when it provides a better return, like we did in the second quarter with $20 million of share repurchases. Our Board authorized $100 million for share repurchases at the beginning of the year, and we currently have $80 million remaining under that authorization.

At the end of June, the Company entered into a new credit agreement with our bank group. The new five-year agreement provides a $400 million revolving line of credit and, subject to lender's participation, gives us the ability to increase the amount available by up to an additional $100 million if needed. We appreciate and thank our banking partners, as this new agreement gives us the ability to increase leverage as needed and be responsive to opportunities to return capital to shareholders as they arise.

In addition, we have evaluated our real estate portfolio and believe we can create more value for shareholders by redeploying our capital to investments that provide a better return and are accretive to earnings per share. We currently own 36 properties and plan to monetize properties that make sense from a strategic perspective and have a high tax basis, which would allow us to maximize the capital harvested from the transactions.

Before I turn the call back over to Denny, I would like to provide an update on our outlook for the year. Due to the challenges we've seen in the first half of the year, we are now expecting total revenues to grow around 5% for the year, with a growth rate of 7.5% to 8.5% in the latter half of the year. The third quarter will be challenging, as we comp over a strong 3.5% in comparable restaurant revenues in the prior year. We expect comparable restaurant revenues to be down almost 2% in the third quarter, with traffic decreasing between 2% and 2.5%. However, we anticipate improvement in Q4 as we cycle over softer comparable restaurant revenues and initiatives, such as our value menu, kitchen display system, and the new marketing program, began to gain traction. For the full year, we expect comparable restaurant revenues to be down almost 2%, with traffic decreasing in the range of 2.5% to 3%.

Our industry traffic expectations remain at a 3% decline, and we now anticipate that it will take longer for our meaningful outperformance, relative to the industry, to return. However, relative performance should continue to improve as we move through the second half of the year.

We expect restaurant operating profit margins to be around 21% for the year, primarily due to continued pressure in labor, due to increasing wage rates and training to support restaurant initiatives. Labor cost as a percentage of restaurant revenue should peak in the third quarter, as we invest in training to deploy our kitchen display and table management systems, and pilot our new food cost system.

We're also planning for increases in other operating costs as we invest in local restaurant marketing. We continue to believe that the benefit we've seen from commodity deflation, particularly ground beef, will moderate and become inflationary as we cycle over the large decrease in prices at the end of Q3 last year.

General and administrative costs are expected to be between $94 million and $96 million, while selling expenses are expected to be approximately 3.2% of sales. Pre-opening expense is expected to be around $8.5 million, and depreciation and amortization is projected to be between $83 million and $85 million. We expect the tax rate to be in the range of 20% to 21% for the back half of the year. However, our tax rate is fairly sensitive due to employment tax credits that amplify increases and decreases in pre-tax income for the year.

Given our performance in the first half of the year, and the likelihood of continued negative industry trends, we've reduced our 2016 adjusted EBITDA guidance to a range of $145 million to $150 million.

Despite the industry trends and a challenging first half of 2016, we believe we will finish the year with a solid fourth quarter, which will carry over into 2017, based on the strong lineup of tactics and initiatives that Denny will now describe.

Thank you, Terry.

Here are the immediate steps we have taken to impact the remainder of this years and set us up for 2017. On the value front: last Monday, we launched three new Tavern menu items, each priced every day at $6.99 with choice of bottomless sides. This is our first news at that price point in four years. It's anchored by the amazing new Buzz Mac & Cheese Tavern Double, and the lineup was tested successfully in Spring. We have more value menu news and tactics cued up to follow. Guests are demanding value and menu news, particularly at lunch. We back-loaded the majority of our media in Q3 to September to increase weight behind this new news, and are adding media weight in Q4 in select high-penetration markets.

Next on the value front, we introduced happy hour in over half of our locations to further incentivize off-hour visits, with a dollar off our everyday value pricing on beer, wine, and mixed drinks, and half prices on some of our most popular appetizers. We're monitoring this carefully to ensure we're getting the profitable incremental traffic we need before we expand or extend it.

Third on value: we continue to deliver value via Red Robin Royalty. We now have 5.8 million registered members, and still growing. We're also successfully segmenting the base on usage and affinity. As just one example, we honor active and retired military members and their families with special offers all year long. Red Robin Royalty remains profitable and impactful.

And fourth on the value front: we have renewed our focus on bottomless fries or broccoli or one of the other great sides we currently offer. And bottomless beverage delivery to ensure that every guest gets offered refills, and those that want more get more and get them fast. We are now measuring delivery of this promise at the server and shift level. Despite numerous competitive attempts at limited time, quote, endless offerings, our guests continue to give Red Robin credit for originating and keeping bottomless sides and beverages as a key part of the value proposition.

In addition to those four steps on value, we have also taken two steps to improve service. We began investing in incremental labor in Q2 and we'll continue to do so in Q3 to lift peak hour performance on high-volume weekend days. We have seen week-over-week improvement in our guest voice ratings and in peak-hour volumes. Modest, but steady and building in the right direction, as we head into fourth-quarter peak seasonality.

The kitchen display rollout will be complete by the end of August. We saw a dramatic improvement in speed to table at our pilot locations, and we're targeting and expecting similar improvement nationally. While it's hardly sexy, I cannot reiterate enough how important this system is to speed of service, order-ahead, carry-out, catering, and delivery down the road.

We are also, on the last front, improving our marketing efforts. One fun example: when we were recently cited by Tech Crunch as the best at capturing the Pokemon Go craze, with our quick turnaround -- and I'm talking less than 36 hours -- social media offer. We have a new agency partner, KBS New York, and a new campaign, which will begin to air in Q4, backed by the incremental media we mentioned earlier. We have also selected a new media buying agency that is now hard at work in concert with KBS and our Team on a high-impact plan for 2017.

Improvements in value, speed and top-of-mind awareness are all coming together now through the end of Q3 and into Q4, as we expect to regain traffic and sales momentum. We will be simultaneously innovating and testing multiple to-go, catering, and delivery programs to ensure we remain relevant for guests who prefer to dine at the office or at home.

As I stated earlier, we've successfully prevailed in challenging times before and we will do so again. We know what we need to do to get our winning edge back. Last, I want to reinforce one of Terry's key messages. We will be disciplined in allocation of capital to ensure we're building shareholder value. Our strong cash flow gives us the opportunity to invest and to improve performance, and continue to open new restaurants, while also investing in innovation for the future.

With that, let's turn to Q&A. Pattye, Terry, and I, are happy take questions, and we've asked Ted Watson, VP of Finance, to join us as well.

Thank you.

(Operator Instructions)

Will Slabaugh, Stephens Incorporated.

Thank you very much, and congrats to Denny and Steve. A question on those changes at the C level, can you talk a little bit more about the progression there? This comes fairly quickly after Stewart's departure, which I know is unrelated, but now we're seeing two additional Board members along with the CEO change. So I'm curious if there's anything internal or external that may have contributed to, what at least from the outside looks like a fairly quick change, or if this is something that's been in the works for a while?

This is Pattye Moore, and this really is the culmination of a multi-year succession planning effort, so it has been in the works for a while. The final pieces of that effort were ensuring that Denny had a strong team to support her with the hiring of Jonathan Muhtar as CMO earlier this year, and most recently, as Carin Stutz as the Chief Operating Officer, both of who are experienced industry executives.

The final pieces of that plan were together. And we felt it made sense to move forward, we have strong bench in the financial area with Terry as acting CFO, and the timing with the kickoff of planning and strategy sessions made a lot of sense. The Board believed to move forward at this time also makes sense for Denny to take the lead on the CFO search.

Great. Thank you.

And as a quick follow-up there on the comments on labor. Are you able to quantify the labor investments that you've already made or will be making, and what that might look like on an annualized basis?

Yes, it will. This is Ted.

As far as the label investments are concerned, we've had a particular emphasis on focusing on investing in the weekends and making sure we're providing the service there. From a dollar standpoint, you're probably looking in the neighborhood of a couple hundred-thousand dollars a quarter, give or take

Great. Thank you.

Joseph Buckley, Bank of America.

Thank you. Denny, congratulations, and Steve, I wish you the best.

A couple of questions, the plan has a lot of action-oriented parts to it. But one of the top things it seems for you to achieve, given your marketing budget, is top-of-mind awareness. Can you talk a little bit about that, how you are going to call attention to these changes to make it more effective?

Absolutely. Thanks, Joe.

First, we're going to be using the same creatives that we used in test market, which is very successful and made a real difference there. We're sticking with the plan.

We also have moved weight, as I mentioned, to increase our media weight behind the announcement of these post-Olympics. While the new items are already in restaurants, we will not begin promoting them until the Olympics are over and will do so at higher levels than we have traditionally used.

Then third, we have decided to invest in key markets. As you well know, we have some high-penetration, high-opportunity markets, so in addition to the national plan, as a Company, we are investing behind those with local restaurant marketing in Q4. So, the combination will drive up the overall media levels and awareness, and we're also going to be using tactics that we've tested successfully earlier this year to draw attention and draw new guests into the restaurant.

Okay. And going in a different direction. On the capital allocation front, you mentioned you think it still makes sense to open restaurants, but as you think about 2017, do you think that opening pace will slow, and will you shift more capital to share buyback?

We certainly have that option. We've looked at the possibility, depending on what happens with industry trends, et cetera, of taking our foot off the pedal a bit.

That said, our new restaurant openings are continuing to perform to our expectations, and even in a world where guests are using restaurants as source of food as opposed to destination, getting kitchens closer to guests is pretty important for us. So, there's a lot of white space left out there, and as long as we continue to see the returns on the selections we are making with real estate, no reason for us to back down.

Okay. Thank you.

John Glass, Morgan Stanley.

Thanks very much. Just on the speed of service question, one of the core equities of the brand over the years was this notion of the gift of time, what happened to that? Has the speed of service gotten slower? Or have the peers gotten better, and if it's gotten slower, has the source been sort of menu expansion, or how to identify what's happened with the speed of service?

Great question. No, the peers have not gotten better, we've gotten slower.

This is something that we're keenly aware of. With Carin's arrival, she said she used to have speed envy when she was a competitor of ours.

What we did is, we added not -- we had gourmet burgers, if you remember, five years ago. Basically, that was the center of our menu and everything was a gourmet burger.

We, in expanding the barbell to things that cook faster and cook longer, we put a lot of pressure on the [harnet] house to be able to deliver those all to the table in the same period of time. And we've suffered for that. We also, as Ted mentioned, have looked at some strategic investments in terms of bringing some labor back into the restaurant to make sure that we're able to get those things out to the guests promptly.

But the key here is the kitchen display system. I can tell you that in pilot, we went from four and ten of our items being delivered over 16 minutes to zero. 0% over 16 minutes. Kitchen display is a key to our getting our speed back.

Okay. That's helpful.

And just on the value, maybe this relates to the same question. On the value front, I think it's been no secret that your check has gone up much faster than the industry's for a long time, and I think the question has come up multiple times, is that too much and the answer's been no, and now it's yes.

So does a check have to come down, do you think you actually have to manage the overall check down versus just maybe working on value? And do you think part of that is just eliminating some of those more expensive items on the menu in order to create a better perception of value? How do you achieve the better value?

Yes. Great question, again. We've been cautious, and when you look at the check increase, it hasn't really been about pricing. We've taken only 1.5% last year, and less than 1%, as we mentioned this year.

Our PPA has increased significantly over the past couple of years, because the guest has opted into the Finest burgers. And also some of the add-ons, like dessert and appetizers that we've added.

I think you will see some PPA decline as we drive more traffic in on average for $6.99 offers, but I don't see the need for us to take any of those Finest burgers off the menu if they're doing very well. In fact, our latest LTO, the Mad Love, is so popular, it may as well earn its way onto the menu.

We have more of a challenge of making sure that once the guest is in the restaurant, we don't obscure the value that exists there by only promoting Finest. You're going to see a much more balanced merchandising of everything from $6.99 through our gourmet burgers, up to our $14.99, and we believe showing that range will recapture the perceived value, and still allow the guests to make sure the choices they are going to make.

Okay. Thank you.

Brian Vaccaro, Raymond James.

Thanks. Good morning. Steve, congrats on your retirement, wish you all the best on the next chapter. And, Denny, also congrats on the promotion. Just a follow-up on the speed of service improvement that you've seen in test, Denny, can you give us a sense of sort of the overall improvement you've seen in average table turn and believe can be replicated across the systems?

You know, one of the things Carin has observed as she's been in the restaurants is the importance of having a targeted table time for whatever's ordered for that table. If you have a couple of Tavern Doubles, you should be able to get your food to the table in less than six or seven minutes. If you're ordering a couple of Finests, it's going to take a bit longer.

I really appreciate her focus on what's the right table turn for that order at the table. But again, as I mentioned, we've seen a complete takeaway of anything over 16 minutes, which is certainly egregious, and over 75% of our meals in the KBS units are now being delivered in less than 11 minutes.

So again, rapid improvement, and that's a dramatic improvement versus where we were prior to rolling this out. Again, this will take a little time to build, those were the pilot locations who had the program in for a while.

The impact, Steve has shared I know when we were together at ICR, about the impact of speed and how much upside we would have in terms of our turn, and it's significant. If we can bring our table turn time down from an average of 55 minutes to 45, and better utilize the seats we have, because this isn't just KBS, it's also table management. If we could take that up from 70% to 80% at our peak hours, that could be worth upwards of $50 million, as we share in her presentation. We're very focused on both seating utilization and speedy table turn.

All right. Shifting gears to the comps, if we could. Can you talk about day part trends during the second quarter, anything that might shed some light on the competitive or broader consumer backdrop? And Terry, could you also remind us the menu pricing that was in the second quarter and how we should think about pricing in the back half of the year?

Hi, Brian. Our mix really remain pretty constant, at about a 50/50 mix between lunch and dinner. In terms of menu pricing, we took 50 basis points in February, so in Q1, and another 50 basis points in Q2, so 100 basis point so far this year, and we have no further planned price increases for the balance of the year.

All right. And just one last one, if I could, appreciate the third-quarter comp guidance, I think you said of down almost 2%. Obviously that's improvement versus the second quarter trend, the question, I guess, is that consistent with what you're currently seeing or does that assume an improvement with a new media spend coming, I think you said in September after the Olympics wrap up?

Brian, we don't have the habit of giving any quarter guidance. I think we have given you about as much we're going to.

I will tell you that we have been tracking Black Box, and if you'll remember, fourth quarter last year, we were down 150 basis points, relative to competition. First quarter we were down 90, second quarter we were down 60. We watch that carefully and we're intense on going positive again.

All right. Fair enough. Thank you.

Thank you.

Jeff Farmer, Wells Fargo.

Thanks. Again, congratulations to all, and yet another question on speed of service. But on this one, I'm just curious, what percent of your sales occur during capacity-constrained periods? And is that the right way to think about it, that ultimately in terms of increasing throughput, it is really only going to be an opportunity in those time periods where you have a wait, or am I thinking about that incorrectly?

I understand why you're approaching it that way, and certainly there is greater upside when you have guests on late, and it's hard for me to say what percentage, because it varies tremendously by location, time of year, et cetera. We do know that we skew toward weekends, not surprisingly, families do come out on weekends, which is why as Ted mentioned, we've been investing against our service and our guest experience, particularly on weekends, to make sure it is great.

But I guess I would say, the bigger opportunity is for us to get, if I would call it our mojo back, and for guests to be able to trust us, particularly at lunch, to be able to get in and out in less than 45 minutes or even shorter, and that will take some time. I don't see us doing any kind of public guarantee, but that is something that guests will come to know us for again as they come in to try the $6.99 new items and realize that they're able to enter, get fed, close out their check on Robin on the tabletop, and be back out the door in a very prompt period of time.

And I think Joe asked about slowing unit developments, but I wanted to take a chance to ask about potential re-franchising. At least to the best of my knowledge, you guys have acquired roughly 50 restaurants over the last two and a half years, having actually sold company restaurants in a very long time if at all, so I'm just curious if that's on the radar for the Management team and the Board, is that a conversation that you guys are willing to have?

Hey, Jeff, we don't really have any plans to re-franchise any Company restaurants.

Okay. Keep it simple like that.

And just a final question on the balance sheet. I heard you on the increase facility, but I'm curious what your adjusted debt to EBITDA ratio was at the end of Q2, or whatever leverage metrics that your facility lender looks at, curious what that ratio was, and how much more room you have on that in terms of borrowing capacity.

Yes. It was 3.8 times at the end of Q2, and our threshold is 4.75.

Okay. You very much.

Peter Saleh, BTIG.

Great. Congrats, Denny and Steve.

I just wanted to ask, given the slowdown that you're seeing, I know there's lots of restaurants have talked about this, but where do you think the customer is going? Are they eating more at home? Or where is the customer going, given that traffic is down so much?

You know, it's so hard to say. I'm not sure I'm going to have a lot to add to the other restaurant leaders that have commented on this and spoken to it on their calls. It does seem to us that the consumer has gone home and has pulled the blanket over their heads.

You can blame stagnant incomes, you can blame when they've gotten increased big-ticket purchase debt, politics, whatever it is, but it's really clear that the economic recovery has been far from even across the population. Particularly, the middle-income guest who has traditionally driven casual dining is disproportionately affected by that.

I would say that even the winners in this quarter, they've driven top-line more through pricing than traffic. It's something that we've been trying to avoid so that we can stay a good value.

We're turning to a strong value news message we believe bring some of those guests back out. That also said, there's a lot of activity going on and off premise, and we are not actively participating in that, and that's one of our opportunities for the future and one that we're getting after immediately.

Can you give us a little bit more detail on what you guys are going to do on delivery or takeout in the back end of the year, and what we should expect into 2017?

Well, we're going to have multiple pilots going on. I'd say it's way too early to discuss or comment on delivery. As you all know there is a number of merging approaches to this.

We're looking at all options, we've got at least three cued up to pilot, from a delivery standpoint. Beyond that, we're going to focus on getting our online ordering up, and we've taken the time to make sure our online ordering system is completely integrated with Red Robin Royalty.

Red Robin Royalty is, again, the little engine that could for our business. And if a guest has earned a free burger, they don't want to hear that they can't redeem that online. It's been important for us to work closely with our provider to get that done.

We will have a 32-store pilot up and running no later than November for our online ordering and carry-out. And we're looking at a number of ways to make sure that the guest has the same great experience they have inside our restaurant when they carry out from us.

Great. And just last question on labor. How is your labor turnover recently versus historical, have you seen an increase in labor turnover?

Yes, Peter, this is Ted. Great question.

I'm sure you've heard it through others in the industry, but certainly a tight labor market, we have seen turnover tick up a little bit. And we've talked about labor pressure of being 5%, some of that is due to overtime hours and staffing, so the short answer is yes.

Great. Thank you very much.

Chris O'Cull, KeyBanc.

Sorry about that. I was on mute. Good morning, guys.

I had a few questions regarding the additional advertising. First, can you help put, Denny, can you help put in the additional media in perspective for us, in terms of just maybe the additional weeks that you're going to be on air versus last year? And then are you can concerned at all about launching this campaign in the fall, alongside with the presidential election competing for advertising?

The way that we are going at this, Chris, the national media, again, from what I've seen traditionally in politics, it's become a state-by-state battle. So, we're actually staying out of local investments up until November, so the incremental investment you'll see will be post-election. I don't want to disclose exactly which weeks or how many dollars, but I will tell you that it's been proven in test marketing earlier this year that this type of investment, be it in television and other vehicles, will make a difference in terms of bringing new guests in.

We're also continuing to invest incrementally in Hispanic marketing, which is beginning to make a difference, and we're supporting that with just having rolled out our full Spanish-language website. It's a variety of tools, but again, we will avoid the election in terms of investment in local markets, because our high-penetration markets often overlap areas where the election will be heavily contested.

Right. That's helpful. How does the push of $6.99 burgers affect profit contribution?

The good news is all of these burgers have been built with very excellent margins, I guess I would say, from that standpoint. So, we are not discounting down other items to a $6.99 price point, we're offering menu items that we have created to be profitable at $6.99.

Just as we did when we dropped Tavern Double into the market four years ago, I think you'll continue to see that the guest takes the option of enjoying $6.99 and often adds some other things to it. It also supports our beverage marketing and other efforts along that way, so we continue to feature beverages on our promo part as well.

The $6.99, the focus on the $6.99 platform, though, does it have a similar margin percent profile as the other items? Just a lower margin dollar profit contribution?

It had a similar profile. Anything you want to say, Terry, you want to go further?

No, no. It did have a similar profile. While we may see some decline in our PPA, we're expecting an offset in that will drive incremental traffic.

Okay, great. And lastly, do you expect media spending to be up next year, and will it or will it be more evenly distributed next year than it was this year?

We're still in the process of planning 2017, we'll talk more about details on that when we talk to you in the next call, and of course the one going into next year.

Fair enough. Thanks, guys.

Thank you.

Stephen Anderson, Maxim Group.

I've got a quick question on the to-go program, and you've been hearing it a lot in the industry, particularly in casual dining, about some of these participants, ramping up their to-go efforts, and what do you see in your program that stands out among the peer group?

Well, first, we are the burger authority. Some of the third-party groups that we're aware of told us that the second-most searched item behind pizza is burgers. We think we can stand apart there.

We also have done research with our guests to tell us that a carried-out Red Robin burger is like as much or even better than one that they may have chosen to come into the restaurant for, because they love the option of enjoying our burgers at home. So, we're confident about our product quality. And lots of opportunities there in terms of being the leader in burgers for carry-out, catering and delivery.

And have you done any testing with it in terms of keeping the product fresh through delivery?

Yes. Through delivery, we actually have a restaurant in the Bay Area that's doing $17,000 of pure history door dash, and we haven't done anything with them, and I can tell you, we've been tracking them and our guest is just as happy with that as they are through other things. Again, guest expectations around something that's delivered to them are a little bit different than what they expect to get at the table in the restaurant, but there's no reason to believe that there's any detriment to the quality of our product.

Thank you.

Thank you.

That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Ms. Denny Post for any closing or additional remarks.

Thank you, Lauren, and thank you all for joining us today. I also want to thank the entire Red Robin team for your support and for continuing to work so hard to get our mojo back by meeting the needs of our guests, our team members and our shareholders.

Together, we are going to set a new course forward that is optimistic, objective and open. I look forward to sharing more details about decisions and plans, which will drive 2017 on our next call.

Have a great day, everyone, and I suggest you go have a $6.99 Buzz Mac 'N' Cheese Tavern Double. I can assure you, you will not go home hungry. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.