Red Robin Gourmet Burgers Inc (RRGB) 2016 Q3 法說會逐字稿

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

During the course of this conference call, the Company may be -- 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 on the Company's SEC filings.

During the call, the Company will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance in 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 third 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'd like to turn the call over to Ms. Denny Marie Post of Red Robin. Please go ahead, Ms. Post.

Thank you, Vicki, and thank you, everyone, for joining us on this lovely Colorado afternoon for our discussion of Q3 results and 2016 year-end outlook. Our Chief Operating Officer, Carin Stutz, and VP Finance, Ted Watson, will join us for Q&A after Terry Harryman and I finish our prepared remarks.

As we shared in our press release two weeks ago and in the final information released shortly before this call, Q3 revenue and earnings fell short of expectations. Terry will provide more detail shortly. While falling short is always disappointing, it is only part of a bigger story, one with quite a few positive elements.

As I laid out on the Q2 call, we knew we had to move quickly to improve our value proposition, to generate higher top-of-mind awareness and to reverse our declining speed-of-service trends. The value and awareness front -- on the value and awareness front, we made a decision to invest in reasserting our everyday value offerings beginning in Q3, consciously trading off average checks. We launched three new items in the Tavern menu, each at $6.99 and each served all day, every day with our famous bottomless steak fries. Where before there was only one choice at $6.99, now there are four.

This much-needed news on our Tavern platform moved us back to beating the competition on traffic as measured by Black Box. We have been steadily gaining ground since late last year, and we took a major leap forward in Q3, moving ahead of our competition by 120 basis points. It feels good to be ahead of the pack again. The vision -- or the view is better. But we won't rest until traffic is positive, and even then, we won't rest. Resting is not how Red Robin rolls.

To improve top-of-mind awareness, we continue to invest in select local market media (inaudible), and next week we will launch our new Let's Burger campaign on national broadcast television after having debuted it online two weeks ago. This new campaign asserts our burger authority while reminding guests of what makes Red Robin truly unique -- our one-of-a-kind, multi-generational, come-as-you-are and always-leave-happier environment.

Our goal for the new campaign is higher awareness to drive higher consideration, because we know when we are considered, we convert to visits at higher rates than the competition. Red Robin is a destination that everyone can agree on.

But, as we also well know, driving sustainable sales and traffic goes far beyond more effective marketing. It demands great execution at the restaurants. I am very pleased to report that under the leadership of our new Chief Operating Officer, Carin Stutz, we have made significant progress on operational performance.

We began measuring net promoter score, or NPS, at the server, shift and day-of-the-week level by restaurant about a year ago. In the first period of full system measurement, our NPS was 54. With heightened focus, our field teams have significantly lifted NPS to 68 as of last week by improving top box ratings and, even more importantly, by steadily decreasing detractors.

Earlier this year, we used the data to isolate the times of the week when we were underperforming our guests' expectations. Each location has visibility to their performance, and field leadership works with the teams to course correct, coaching teams and investing in incremental labor where warranted.

As of last week, 51% of our restaurants are already hitting our year-end NPS goals, setting a performance path for others to follow. The rollout of our kitchen display system, or KDS, is now complete, on time as promised. This most basic of operating systems, long delayed due to other investment priorities, is making a measurable and important difference in food to table. We are seeing a correlation between faster ticket times and higher NPS.

Mystery shops further affirm improvements to come, as those locations that have had KDS the longest have significantly higher percentages of shops, with food arriving at the table in under 11 minutes. The promise we saw in the pilot is coming to life across the system.

Operational improvement in speed of service and guest satisfaction fuels the dine-in business, where we must continue to drive a winning differentiated experience and everyday value. However, it is increasingly clear that today's guest is defining convenience as the option to choose whether to enjoy food at the restaurant, carry it out, or have that same food delivered to consume at home or over a meeting table at the office. Today's successful restaurant is both a preferred destination and a convenient source.

As we have shared, our current off-premise mix is less than half industry average. We simply have never focused on this opportunity. Now that we have KDS in place and our kitchens can handle higher peak volumes, we are set to move forward on growing our off-premise business via carryout, delivery and catering.

We are moving quickly on multiple fronts here. We are expanding our online ordering pilot to 36 locations next week. We have two promising tests under way in 20 locations with third-party delivery systems. We have new packaging in tests. We have a large-party carryout and catering menu developed and ready to selectively implement. Off-premise is our number-one priority, and we have committed dedicated resources throughout our organization to bring this opportunity to life effectively and efficiently.

We expect these tests to come together in a series of carryout, delivery and catering rollout by late 2017. With a shared engine of superior operations, we believe we can compete effectively on both dine-in and off-premise. Unlike those who pioneered the off-premise business, we do not have the challenge of creating a market. Rather, we have an opportunity to participate in its phenomenal growth. It won't be easy, and it won't be one-size-fits-all for our restaurants, but we expect it will ultimately make a material difference in our business. We plan to share more on test status as part of the 2017 outlook on the Q4 call.

Given the opportunity to reset direction, we have also chosen as a team to make some tough calls, the most difficult of which was the recent elimination of 17 primarily senior roles in our organization. Additionally, we chose to close 9 of 12 Red Robin Burger Works, including all the locations in Chicago and Washington, DC, high-cost urban sites with limited day parts, which had never met expectations and were losing money.

We also chose to impair two Red Robin Gourmet Burger locations and to announce the planned closure of our Canadian support office by the end of first quarter next year. We made these moves and will continue to make others as needed to reduce overhead and focus our leadership on fewer high-return opportunities.

Finally, as we are evolving our strategy, we are doing it with a keen eye on how to allocate capital into the business, including when it is best for us to return that capital to shareholders. With that orientation, and to maintain flexibility as we power through this category downturn while also testing and building the right formats for our future, we have chosen to significantly reduce new unit development.

We originally planned to open at least 30 new full-service units in each of the next two years. We are now slowing that development plan to no more than 16 units in 2017 and expect to do even fewer than that in 2018. This decision is part of a balanced capital deployment strategy moving forward, one which will evolve as the business strategy evolves.

With that, let's turn to Terry to share the details on quarter three and year-end guidance.

Thanks, Denny, and good afternoon, everyone. I'd 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.

Loss per diluted share in the third quarter was $0.10 on a GAAP basis. This differs from the loss of $0.23 per diluted share in our pre-release due to our revision in income tax credits. After adjusting for restaurant impairment and closure costs of $9.3 million that were recorded in the third quarter of 2016, as well as the revised related tax benefit, earnings per diluted share were $0.38, a decrease of 34.5% from $0.58 in the third quarter a year ago.

Adjusted EBITDA for the third quarter of 2016 decreased 12.6% to $27.3 million, compared to $31.2 million in the prior year. Q3 marked the fourth consecutive quarter of negative comp sales for the casual dining sector. Additionally, traffic for the sector has been trending down since the first quarter of 2015, and has been negative for six consecutive quarters.

Red Robin's comparable restaurant revenues declined 3.6% during the third quarter of 2016, compared to an increase of 3.5% in the prior year. Our traffic was down 2.4% in the third quarter, which was an improvement of 150 basis points compared to the second quarter of 2016.

Our efforts to close the gap in traffic relative to our casual dining peers from 150 basis points in Q4 of 2015 and 60 basis points in Q2 of 2016 accelerated in the third quarter as our traffic-driving initiatives began to gain traction. We took market share in Q3 and outperformed our peers by 120 basis points, according to Black Box.

As Denny mentioned, we continue to see an impact on average check as we invest in initiatives designed to deliver value to our guests and to drive traffic. During the third quarter of 2016, average check decreased 1.2%, compared to an increase of 3.6% in the prior year. The decrease was driven by a change in product mix as we focused on delivering everyday value to our customers partially offset by price taken earlier in the year.

Our third quarter restaurant-level operating margins were 18.6%, compared to 21.6% in the prior year, driven by higher labor and other operating costs, partially offset by lower ground beef costs. Labor increased 180 basis points, mostly due to minimum wage increases and, to a lesser extent, sales deleverage. We also invested in incremental labor to roll out our kitchen display system, which was completed by the end of the quarter.

Other operating costs were higher primarily due to repair and maintenance costs. Occupancy costs also increased as a percentage of restaurant revenues due to sales deleverage. As we continue down the P&L, general and administrative costs were down $3.4 million, or 14.3%, in the third quarter of 2016 compared to the prior year, primarily as a result of lower incentive compensation and, to a lesser extent, stock compensation and travel costs.

We recorded restaurant impairment and closure costs of $9.3 million, which included $5.5 million related to the closure of nine Burger Works restaurants. In addition, we incurred $3.8 million for the impairment of two under-performing Red Robin restaurants that are still operating. These restaurants were opened in 2014 and have had site and operational challenges.

Income tax for the third quarter was a benefit of $4.5 million, primarily driven by the net loss for the period. In addition, the Q3 tax benefit included a cumulative adjustment to lower the year-to-date tax rate to 5.3% due to lower pre-tax profitability, including the impact of the impairment, which had not been forecasted.

Turning to liquidity and capital allocation, we had $304 million outstanding under our credit facility at the end of the third quarter, with a lease-adjusted leverage ratio of 4.1 times EBITDA. The business remains healthy and has generated $148 million of adjusted EBITDA over the trailing four quarters.

We invested $41 million in capital expenditures during the third quarter, of which $14 million was invested in new restaurants, $10 million in brand transformation remodels, and the remainder in technology and restaurant maintenance. We expect to substantially complete the brand transformation remodels by the end of the year, which will provide an incremental increase in free cash flow of approximately $30 million in 2017.

New restaurant openings have been a core part of our strategy to grow EBITDA over the long term and provide value to our shareholders. However, as the operating environment has become increasingly challenging, the decline in sales volumes has begun to impact the returns on our new restaurant openings. And while we do continue to see some new restaurants that perform well, overall the returns are generally trending downward as the restaurant takeout model deleverages at lower sales volumes.

As a result, we are slowing down our development plans significantly for 2017 and 2018 while we focus on reducing our per-unit restaurant development costs and improving restaurant-level profitability. We plan to share more information about our 2017 development plans on the fourth quarter earnings call.

We returned $11.5 million of capital to shareholders in the third quarter through share repurchases, and have already acquired an additional $9 million in the fourth quarter. Our goal is to allocate capital to maximize value for our shareholders, and at current market prices, we believe our stock is a great investment. Our Board authorized $100 million for share repurchases at the beginning of the year, and we currently have approximately $60 million remaining under that authorization.

On our second quarter earnings release call, we reported that we were evaluating our real estate portfolio and exploring monetizing certain of those properties to create value for our shareholders through share repurchases. However, given our ongoing work in evolving aspects of our business model and the availability of capital from our decision to significantly reduce new restaurant growth in 2017 and 2018, we believe it's prudent at this time to hold off on those efforts. We will reevaluate that decision as our business strategy evolves.

Before I turn the call back over to Denny, I'd like to provide an update on our outlook for the year. Due to the challenges we continue to see with industry traffic, we are now expecting total revenues to grow around 4% for the year, with a growth rate of 4% to 6% in the fourth quarter of 2016.

While 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 continue to gain traction, industry traffic remains a headwind. We expect comparable-restaurant revenues to be down 1.5% to 3.5% in the fourth quarter, with traffic decreasing around 1% to 3%. Our industry traffic expectations are a decline of 3.5% to 4%.

Moving down the P&L, general and administrative costs are expected to be up to $22 million in the fourth quarter, while selling expenses are expected to be approximately 3.5% of total revenues. We plan to open five restaurants in the fourth quarter and estimate pre-opening expense to be approximately $2 million. We expect depreciation and amortization to be in the range of $21.5 million for the fourth quarter.

We expect our tax rate to be in the range of 2% to 6% for the year. However, the tax rate is fairly sensitive due to employment tax credits that amplify increases and decreases in pre-tax income. For example, a $1 million increase or decrease in pre-tax income will result in approximately a 1% change in the annual effective tax rate.

Given our performance for the first three quarters of the year and the likelihood of continued negative industry trends, we have reduced our 2016 adjusted EBITDA guidance to a range of $141 million to $145 million. As previously mentioned, despite the challenging industry headwinds and consumer environment, we are encouraged by the impact on traffic from our focus on value and speed of service. We're also making the difficult decisions in the near term that we believe will put us in a better position for 2017.

Now I'll turn the call back over to Denny before we take questions.

Thank you, Terry. To reiterate, we see our recent upturn in traffic and operating performance as validation of our decision to refocus on everyday value, top-of-mind awareness and improved food to table. Our operations teams are making strides, and guests are noticing. Further, we have made and will continue to make the decisions we need to make to improve profitability.

I receive a lot of messages, increasingly positive these days, from guests who reach out to me on social media. A few weeks ago, I received one on LinkedIn from a father who thanked me for many years of fun Red Robin meals together with his three now fully-grown boys. I thanked him for his loyalty, and I told him we looked forward to serving his sons lots of fun meals with their families in the years to come.

While we know we must regain market credibility through steady quarterly performance, as a team, we are equally focused on another measure of success -- being here to serve generations to come. I'm confident that with the continued hard work of our front line, we will be doing just that.

With that, let's turn to Q&A. Terry, Carin, Ted and I are all happy to take questions.

Thank you. (Operator Instructions). And we'll pause for just a moment to allow everyone an opportunity to signal for questions. Chris O'Cull, KeyBanc.

Denny, I appreciate the focus on improving traffic performance, but it does appear that the efforts are being a drag or a strain on profitability. Can you help us understand whether you believe the Company has over-earned in the past and needs to accept maybe a lower margin or whether you have a plan to really improve customer profitability once you get more guests in the door? And I have a follow up.

Yes, it's a -- no, it's a great question, Chris. I don't think we've over-earned in the past. I think bringing the Tavern Double menu more visible in our restaurant -- it has not traditionally been on our promotion promo card, and so we think this is an opportunity to get more guests aware of it, and we'll begin to see the benefit in greater frequency down the road as well as broader reach. It supports, of course, as I said, every day, all day, so with us being traditionally as strong at lunch as we were at dinner, it's good to have that $6.99 every day, all day value out there.

So I think we still have great opportunity. We're seeing, actually, highest ever mix on our Finest line on the other end, so we continue to have information there. So our Finest mix is strong, at over 9%, actually, and so we're doing really well with both Finest and Tavern. It's a nice balance on that barbell menu. So, no, I don't have a concern about that going forward.

We continue to have upside also, of course, in alcoholic beverage. For the first time this quarter, we saw a little bit of a stutter on that. We took about a half-point, 50 basis point, hit, and that was primarily due to our happy hour initiative, which we've now pared back to 175 restaurants that were managing it the most profitably. So I think we're finding our way through it, but I'll stand for everyday value all day, every day.

Should we expect it -- well, it sounds like in the fourth quarter, we should expect the average check to maybe be down a little bit, but how should we think about this going into 2017? Should we continue to expect flat to down average check for Red Robin?

We're still working on our full 2017 guidance, and we'll talk about that when we get together in February, and we have a number of things in test right now that will inform that. So I don't want to carry it into 2017, but I think you're on the right page for the fourth quarter.

Okay, great. I'll get back in the queue. Thanks.

(Operator Instructions). Will Slabaugh, Stephens.

I want to ask you about to-go. You've talked a lot about that and the EBITDA potential there over time. Can you give us a little more color on what you think the most important step is as far as getting there? It sounds like KDS is one of them. And then addressing sort of what you think the consumer demand is and why you think it is that strong there for Red Robin.

We have a wide variance right now in how well our to-go business does. We are in average, like I said, about half of the category, so less than 5% mix on to-go currently. We have some that are in -- some of our locations in double digits who have focused on it traditionally, put dedicated labor behind it, are well-located to take advantage of it. So -- and everything we've seen, even from third-party providers like DoorDash, tell us that burgers are one of the highest searched categories when people are looking for options, so we think there is a demand out there to be filled.

As far as steps to take, KDS was absolutely critical. Having Carin onboard is a great benefit to us. She was one of the pioneers with another concept a number of years ago, a lot of years ago, and so her expertise is going to make a big difference for our operating environment and how we understand how to manage it.

But we think, obviously, getting the online ordering, making sure our Red Robin Royalty is completely integrated with that, which is a real key advantage for us -- we'll be, we believe, one of the first to have online integrated with a strong loyalty program -- and then beginning to lean into it with finding just the right occasions to touch those guests. We think we have a lot of upside.

Got it. And then also, if I could, I want to ask you just a little more around the value proposition. You mentioned the everyday value working pretty well for you this quarter. Is that all Tavern that you're referencing now? And then as you think about your value prop right now, is it more of an expansion around the Tavern platform in the future, or is there something else that needs to be added to further enhance that everyday value proposition at the brand?

I'd say it starts with Tavern and more choices at $6.99, which certainly helps us, but, again our Tavern Double menu ranges up to $8.49 for some of our items, and so we're continuing to see good trial in all those areas. The next key component is our bottomless proposition, and we're measuring our tabletop media. We know that our guest wants to be asked if they want more fries, and even if they don't choose to take advantage of it, they want to make sure it's acknowledged, so bottomless continues to be a big opportunity. We've added some more items that are now in our bottomless offerings, and that helps a great deal.

And then beyond that, continuing, through Red Robin Royalty, to reward those guests that give us the highest loyalty is the way we want to go. We're not looking at any kind of broad discounting or propositions that we ran years and years ago.

Thank you.

Uh-huh.

Brian Vaccaro, Raymond James.

I just wanted to ask regarding the implications on the financial model related to your announcement to slow unit growth. As you think about CapEx into 2017, are there any projects or anything that we should have in mind that might impact that line? A rough first stab would seem to suggest CapEx could be down, maybe cut in half next year, maybe $75 million, $80 million. Is that a good rough start?

Hi, Brian. This is Terry. Yes, certainly our CapEx related to new restaurants is going to be cut in half. However, we're still working on our 2017 plan, and we'll be able to speak more freely to that on our first -- our call in the first quarter.

Okay. And Terry, as you think about deploying that free cash flow potentially, maybe speak to -- is there a targeted leverage range that you're comfortable with? I think your credit facility allows you to go up to 4.75. I think you said it was around 4, but is there a targeted range? Do you see yourself paying down some debt next year potentially, or are you comfortable where you are?

Yes, Brian, historically, I think we've targeted somewhere in the range of 3.75, somewhere in that range. Obviously, we're above that now. I think our first concern, obviously, is to make sure that we properly capitalize the Company, as we're in kind of a choppy environment here, so we certainly will look to make sure that we are focusing on that when we're looking at our capital allocation.

I will mention that we -- as I had mentioned in my prepared remarks, we are wrapping up BTI through the end of the year here, so that will free up about $30 million of CapEx as we go into 2017.

Right. Right. Okay. And then on the underlying G&A, you mentioned several savings initiatives there. Can you help quantify the magnitude of those potential savings, or maybe how should we think about G&A as a percent of sales as we go into 2017?

Brian, I think we're just -- we're not ready to talk to that first of 2017 at this point, but we'll be happy to give you an update on our Q4 call.

All right, fair enough. Shifting gears, just one, if I could, on the store margins in the quarter. Obviously, some pressure there, a couple hundred -- a few hundred basis points. I was hoping you could provide a little more color as to how much of that is due to some of the labor and local marketing investments that you made in the quarter versus maybe the impact of your shift in strategy towards value. Can you maybe provide a little more color on those labor and local marketing investments?

On the labor front, we had about $500,000 to $600,000 of incremental labor that we invested as a part of the KDS rollout, and on the local restaurant marketing front, I know we've made some incremental investments. I don't have that specific amount.

About another $400,000 to $500,000.

About another $400,000 to $500,000, yes, in the quarter.

Okay. All right. Very helpful. And then a last one for me. On the Burger Works closures, can you help quantify sort of the trailing 12-month sales? I think you mentioned it was a loss. Can you help provide some color on that, on the magnitude of that?

We're all looking at Ted, because he's the Burger Works expert here.

I'm sorry. Can you repeat that, Brian?

Yes, the nine closures, what was trailing 12-month sales and EBITDA or store-level profitability, however you'd like to address it?

I would tell you on the trailing 12 period lookout, those restaurants probably average $700,000 to $800,000 on the top line on an annual basis. And then looking at the impact to the P&L itself, they were certainly negative. What I would tell you is we're in the process of looking at re-subleasing out those sites, so there's still going to be some impact into 2017 from a lease cost. I would tell you just to go ahead and assume status quo at this point, and we'll have a better update in February.

All right, fair enough. I'll pass it along. Thank you.

Thanks, Brian.

Stephen Anderson, Maxim Group.

I just wanted to follow up on a question -- actually, follow up on the Red Squared initiatives announced earlier this year. KDS has been a part of that, and I congratulate you on the rollout of that, but is there anything else that we should keep in mind heading to 2017 under this Red Squared umbrella?

Well, I think you can definitely, because Red Squared, a large part of that, was pretty aggressive growth. That's where the 30 units per year or more target was first revealed. So I think you can anticipate as we review 2017 and talk about probably about a three-year plan when we get together in February, you'll see much more emphasis on growing four-wall volumes and improving our economics there before we move forward on any kind of aggressive development.

But certainly KDS is part of that. We'll know more in February about how well our tests are going on carryout, catering and delivery and have some better direction at that point.

All right. Thank you.

John Glass, Morgan Stanley.

This is Chris, actually, on for John. Could you give us a sense of what you're seeing in the overall competitive landscape, in casual dining particularly, as it relates to promotional intensity during this past quarter? Thanks.

Yes, Chris, there is a lot of -- I mean, I don't know that it's any stronger right now, except that I would say where you used to open an email and maybe see one offer, you're now opening and rolling down and seeing three and four being pushed forward on a weekly basis by some, and a lot of our competitors who do already have carryout propositions are also starting to market or incent those. I'm regularly getting 20% off offers to carry out from certain locations.

So I see a lot of -- oh, I don't want to call it -- well, let's just say a lot of baiting with low price, like a $5.99 starting at offer. They'll have one item around that, but most of the items aren't in that price range. We really pride ourselves on having held the $6.99 Tavern Double price point now for almost five years, and we think the guest gives us a lot of credit for that as well. They don't limit it to a certain day part. I see a lot of lunch only promotions right now. We see a lot of day of the week kinds of offerings, a lot of things that we've tried in the past and are no longer pursuing. So it's interesting to watch, but I think our everyday value proposition is what our guest is looking for.

Okay, thanks. That's helpful. And one follow-up, if I may. Are you seeing any changes in terms of day parts on your traffic?

No, not really. Earlier in the year, we saw some week part -- we saw some weekend degradation, and we really worked to improve our service on weekends. That was what I was alluding to with the NPS scores. But we're consistently in a 50-50 mix between lunch and afternoon versus dinner and late night, so we've always stood well with lunch compared to many of the other casual diners.

Okay, great. Thank you.

Uh-huh.

Stephen Anderson, Maxim Group. (Operator Instructions).

I just wanted to follow up on some of the labor costs. I just wanted to see what your hourly wage rate inflation outlook is for next year, if it represents any acceleration from 2016. Also, I wanted to see if you have any insight into the overtime regulations.

Stephen, this is Ted. Good questions. As far as the Q3 labor inflation impact, it ran at 5.6% for us. If you compare that on a year-to-date basis, we're up 5.2%, so a little bit of an acceleration. I would tell you to expect mid-5% for Q4, so much the same of what you've seen in Q3. Again, we've not given formal guidance for 2017, but what I would tell you is we would expect labor to continue to be pressured, probably with cost of goods helping to offset that.

Thank you.

Chris O'Cull, KeyBanc.

Just to follow up on that, Ted, how much was labor pressured in terms of basis points because of wages versus deleverage, sales deleverage?

So if you take the 5.5% that I just alluded to just purely from wage impact, and then you're looking at it as a percentage of revenue, I would tell you that probably half of that deleverage resulted from wages and the other half from sales deleverage.

Okay. Great. Thanks. And then given the change in development plans over the next couple years, has the Company changed its incentive comp measurement away from EBITDA growth?

No, we haven't made changes in our incentive comp plans at this point. However, as we're planning for 2017 and longer term, we are considering what impact that would have on some of those comp plans.

Okay. Okay. And what was -- I may have missed this, but what was the commodity deflation number in the quarter?

Cost of goods deflation was down 2.9%.

Great. Thanks, guys.

Yes.

You're welcome.

(Operator Instructions).

Okay. We're done.

And we have no further questions at this time, so I turn the call back over to our speakers for any additional or closing remarks.

Thanks again, Vicki, and thanks again to all of you for joining us today. We look forward to sharing more about our plans for 2017 and the years beyond on our call in February. Thank you all.

That does conclude today's conference. We thank you for your participation.