Red Robin Gourmet Burgers Inc (RRGB) 2017 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Inc.

First Quarter 2017 Earnings Call.

Please note that the contents of this call are being recorded.

I would now like to turn the call over to Terry Harryman, VP of Finance, Planning and Investor Relations.

Please go ahead, Mr. Harryman.

Good afternoon, everyone.

During the course of this conference call, we may make forward-looking statements about our business, outlook and expectations.

These forward-looking statements and all other statements that are not historical facts reflect our 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, we will also discuss non-GAAP financial measures.

These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate an alternative measure of our 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 our earnings release available on our website.

We have posted our fiscal first quarter 2017 earnings release and supplemental financial information related to the results on our website at www.redrobin.com in the Investors section.

Now I would like to turn the call over to our Chief Executive Officer, Denny Post.

Thanks, Terry.

Good afternoon, everyone, and thank you for your continued interest in Red Robin.

I'm joined today for prepared remarks by Guy Constant, our Chief Financial Officer; Carin Stutz, Chief Operating Officer; and Terry, whom you just heard from, who will also be available for Q&A.

As we closed the chapter on Q1, on the whole, we deem it a quarter of solid progress in our quest to separate ourselves from the casual dining pack.

Total revenues rose 4.1%, fueled by new and acquired restaurants.

Our same-store sales declined 1.2% for the quarter.

As a reminder, our quarter 1 is 16 weeks long.

And as such, we experienced both the upside and downside of the Easter shift in this quarter.

Although comp sales were negative year-over-year as we expected, we once again outperformed the rest of our peers on traffic, beating them by 120 basis points according to Black Box.

Our performance relative to peers was particularly strong in the mountain plains and western markets.

The renewed focus on Everyday Value at $6.99, which we began again last fall, now includes 4 great Tavern burger choices, with last week's launch of the new Sriracha Tavern.

We reversed and stabilized value perceptions last year and we expect, based on traffic trends and menu mix, that we are gaining momentum in value perception this year.

Being viewed as the affordable choice for every day is one way we can win.

We are prepared to invest for the foreseeable future in Everyday Value, including our bottomless fries, sides and beverages.

Our Chief Marketing Officer, Jonathan Muhtar and his team invested in a variety of media and messaging tests in Q1 which will help guide our marketing investments going forward.

We are investing to bolster awareness in high-penetration company markets using incremental local media.

The new Let's Burger/Red Robin Yummm!

campaign showcases what we do best, in fact, arguably, better than anyone else.

We serve customizable gourmet burgers fast with bottomless value in a high-energy, fun, come-as-you-are, full-service dining environment that meets the needs of all ages, 2 to 92.

Guests tell us over and again that this combination sets us apart.

While we continue to fight for dine-in traffic every day, the growing demand for off-premise is beginning to show up in our business.

Online ordering via Olo is now available in all corporate locations.

Franchisees will add this service once they install the Kitchen Display System, or KDS, which is integral to accuracy and throughput.

As of our last media flight, our television ads now carry a get it to-go at redrobin.com graphic, and all digital and Red Robin Royalty messages include a very prominent Yummm2Go order now link.

At the end of Q1, after just 6 weeks, 15% of all to-go orders were coming through online, and those orders average a slightly higher check than those called into the restaurant.

We are also seeing some early wins in the 98 locations where we have moved call-in ordering to a centralized call center.

Given our level of customization on gourmet burgers, we find that most guests still prefer to speak to a human to ensure their unique instructions are captured accurately.

The call center improved answer time, usually by the third ring, and accuracy by sending orders directly into the integrated KDS system via Olo.

We are slowly expanding reach of the service to ensure quality experience, adding up to about 50 locations at a time while measuring the financial impact as we go to ensure that the investment in a call center is worthwhile.

So far, we are encouraged.

We also have 10% of the system now offering curbside pickup and expect to reach 25% of corporate locations by midyear.

Guests tell us, particularly those moms with little kids, that they prefer we bring their orders to their car.

By midyear we will designate to-go specialists in all corporate locations and add clear signage whether it's a curb or in the lobby to make the process of pickup as seamless as possible.

Seamless is not how I would exactly describe our experience with the 3 third-party delivery services we currently engage to collectively cover 138 of our company restaurants.

While we certainly appreciate the opportunity third-party delivery provides to our brand, it comes with distinct financial and service challenges.

Some of the friction we are experiencing is related to the ordering process itself as none of these service providers is yet integrated into our POS system.

This causes us to have to transcribe each order at least once, which takes additional time and undermines accuracy.

In addition, we have become aware of too many cases of promised delivery times not being met, which is frustrating both to us and to our customers.

In view of these factors, we are evaluating how best to proceed, weighing the relative volumes and profitability stemming from each of these partners with an eye toward giving preferential treatment to the strongest player in each region.

But before we could consider expanding coverage, we must be certain that the delivery process is being executed in a manner that reflects our highest standards for guest orders.

And in improving the delivery model, we are open to any and all better solutions.

I foresee us taking a variety of approaches based on common needs and conditions across different markets over time.

So what's the bottom line on the very hot topic of off-premise?

Well, we are moving smartly on new revenue streams, but it will be the second half of the year, as we said, before we see a material lift in top line as we begin to actively promote the new offerings, reach new guests and drive incremental occasions.

Other wins for Q1 came from the middle of the P&L, some sustainable and some related to timing.

Guy will break the various components down in his remarks.

From my part, I want to give a shout-out to Carin Stutz and our operating team -- today is Carin's 1-year anniversary by the way -- who have made sustainable progress on reducing managerial labor costs, food waste and generally tightening margin controls at the restaurant level.

I am confident we will continue to see progress as they work through the elements they control with even greater GM awareness and incentive to manage costs.

While we have had the benefit of lower cost of goods for some time now, we know this will not sustain, and the hourly labor costs growth remains a major headwind.

That said, when the wind is not at your back, you better get out a paddle, and I can assure you that Carin carries a very big paddle.

What makes me most proud is that the front line team is continuing to improve the guest experience as measured by our Net Promoter Score and food-to-table.

Thank goodness I didn't double down on my tattoo bet or I'd be on my way to a full sleeve by now.

As it stands today, our NPS is hitting new highs at 70 or above with less than 7% detractors, significant and meaningful progress from when we started in September of 2015.

And our NPS was in the mid-50s with double-digit levels of detractors.

I am further encouraged by our speed of service as measured by mystery shops as we have cut in half the number of guests who wait 16 minutes or more for their food since the national launch of KDS last fall, following the same trends we experienced in the pilot.

We will continue to reach for 0% over 16 minutes while delivering the majority of orders under 11 minutes.

That is the ultimate goal, both in drive-in -- dine-in and to-go.

The teams are working closely across our organization on further off-menu and equipment improvements to support this effort.

The off-team, combined with the field HR group, are also bucking the trend on turnover.

While the casual dining industry is experiencing some of the highest rates of turnover in history, Red Robin turnover is down to our lowest levels in years.

Retention means more consistent high-skilled team members capable of delivering higher sales per labor hour.

That's a win all the way around.

We have many innovations in the works on menu and service, some of which we will be sharing with those joining us in Denver beginning Monday night for our analyst meeting.

All in all, I sum up Q1 as a solid start and characterize our prospects for the year as achievable.

No doubt, the sales environment and rapid changes in consumer demand make it challenging week to week, but we are determined to be nimble and capture what we can in upside while controlling what we can in cost to achieve our goals.

I look forward to sharing more about our progress as we move through the year.

I have one more topic to address before we hear from Guy.

As you no doubt saw in our press release today, law enforcement officials have made us aware that cyber criminals are actively targeting restaurant companies, including Red Robin.

We are investigating whether our guests have been impacted.

Our practice, which we have published in our privacy policy on our website and is shown here in the supplemental is to share information about security incidents impacting our guests only when we have complete and accurate information.

With that, let me turn the call to Guy for the financial performance details of Q1 and the impact on our 2017 EPS outlook.

Thank you, Denny, and good afternoon, everyone.

As I walk you through the highlights of our financial results for the first quarter, please note that the numbers I present are on a recurring basis, excluding special items.

As Denny outlined, the first quarter of 2017 represents a solid first step for Red Robin as we seek to separate ourselves from the overall casual dining category.

There are a handful of outstanding peers who have already created that separation, and their performance is indeed differentiated from the rest of the category.

We seek to join them in that separation.

And while we will share much more on how we will do so at our Analyst Day next week, this quarter is a positive first step towards that goal.

And while the Red Robin brand holds the position that is differentiated and advantageous to the category more generally, we have much work to do to capitalize more fully on that positioning.

As Denny referenced in her remarks, Q1 total company revenues increased 4.1% to $418.6 million, up from $402.1 million a year ago, driven primarily by new and acquired restaurants, partially offset by a 1.2% decline in company-owned comparable restaurant sales.

The 1.2% decline in comps was comprised of a 1.7% decrease in guest counts and a 0.5% increase in average guest check.

Overall price, when taking into account the impact of discounting, increased 1.6% in the quarter, mix decreased 1.1%, primarily driven by the expansion of our Tavern value menu which occurred in the third quarter of 2016.

Franchise and other revenue decreased $250,000, driven by a lower number of franchise locations as compared to a year ago.

Overall restaurant capacity as measured by operating weeks was up 5.3% in Q1 as compared to the first quarter of 2016.

Noncomp revenues, primarily the 2016 class of new restaurant openings, generated revenues that were about $2.5 million below our expectations, limiting our overall revenue growth.

However, during the first quarter, we opened 5 new Red Robin locations, and their initial performance is more in line with historical norms and our overall expectations.

First quarter restaurant-level operating margins were 20.7%, down 180 basis points versus a year ago, driven by the following factors.

Cost of sales improved 40 basis points to 22.9%, driven primarily by deflation in both poultry and ground beef and improved waste management.

However, recent sharp increases in beef prices will likely increase our food costs approximately $1 million more than originally projected in Q2, and we will be watching closely over the coming weeks to see if the beef market will normalize or maintain its elevated position.

Restaurant labor costs increased 170 basis points to 35.2%, driven mostly by minimum wage increases, higher restaurant bonuses and sales deleverage, offset by improvements in management labor expense.

Other operating costs increased 70 basis points to 13.2% due to higher local restaurant marketing expense and higher repair and maintenance expense.

Occupancy costs were favorable by 20 basis points due to the benefit of lower general liability claims.

Depreciation and amortization increased 70 basis points to 6.7% related to new restaurant openings, acquired restaurants and the remodels associated with the brand transformation initiative.

General and administrative expense improved 60 basis points or $1.1 million to 7.4%.

Most of the year-over-year favorability in G&A was due to timing and will reverse in future quarters.

Selling expenses were up 20 basis points as a percent of revenue at 3%, and preopening expenses were down 20 basis points due to the timing of restaurant openings.

Q1 adjusted EBITDA was $45.8 million, down 6.3% or $3.1 million as compared to a year ago.

Our first quarter tax rate was 20.1%, at the lower end of our annual expectation and 320 basis points lower than a year ago.

And earnings per diluted share were $0.89 as compared to adjusted EPS of $1.27 in the first quarter of 2016 or a decline of 29.9%.

Now turning to the balance sheet.

We invested 25 -- $24.5 million in CapEx in the first quarter, primarily related to new restaurant openings, restaurant maintenance capital, investment and technology projects and remodels.

As we outlined in our annual guidance, the company did not repurchase any shares in the quarter and does not expect to do so in 2017.

We ended the quarter with $22.2 million in cash and cash equivalents, up about $10 million versus where we ended 2016, and we finished the quarter with a lease-adjusted leverage ratio of 4.23x.

In the first quarter, the company completed an amendment to its credit facility that provides for a higher leverage ratio covenant through the second quarter of 2018.

This amendment does put some additional limitations on restricted payments and other uses of cash during the prescribed time period as well as increased interest rates at higher leverage ratios, but the company has the right to revert back to the original covenant and cash deployment flexibility at any time during the relief period should it choose to do so.

We appreciate the support of our bank group to this amendment process and appreciate their partnership.

Our projected borrowing, coupled with the new provision to the credit agreement, will result in 2017 total interest expense of about $10 million or approximately $2 million higher than our original expectation.

Lastly, we now project our 2017 earnings per diluted share to range from $2.80 to $3.10.

This represents growth of flat to up 11% versus adjusted EPS of a year ago.

As we outlined in February, with the lapping of our value emphasis not coming until the third quarter and the benefits of on-demand skewed more to the back half of the year, we expect to earn approximately 45% of our 2017 projected EPS in the first half of the year and 55% in the back half of the year.

I want to also thank the operators in our restaurants for delivering a great guest experience in our restaurants while also being good stewards of our company resources over the first quarter.

As we stated earlier, the first quarter represents a positive first step, but we still have a great deal of work to do to reach the performance goals we expect for our organization.

And we believe we have the team that can deliver a great experience for both our team members and our guests as the cornerstone for a high-performing organization.

As we committed in our remarks in February, as the company planned its investments and activities going forward, be they capital or operating investments, we will prioritize that spend based on the incremental returns on capital that these investments will create.

Whether these priorities drive sales, improve margins, reduce expenses, generate EBITDA or distribute capital to shareholders, the overriding filter will be the expected return of that incremental capital or an improved return on the capital already invested.

We will not grow for growth's sake, rather we will focus on growing our overall returns as this is what is most highly correlated to overall improvements in total shareholder return.

We look forward to providing more color on these priorities when we get together next week for our Analyst Day in Denver.

With that, I'll turn the call back to Denny for a few final comments before we take your questions.

Thanks, Guy.

To reiterate, we see Q1 as a positive first step to a full year of improving top line and profit, still weighted toward the back half of the year as our new revenue streams take hold and we begin to implement more cost-savings initiatives, many currently in tests.

The entire Red Robin leadership team looks forward to hosting those who are joining us next week for our analyst meeting on behalf of the 29,000 great team members who deliver on the Red Robin promise of making everyone better for being here every day.

Thanks again for joining us.

With that, Carin, Guy, Terry and I will take questions.

(Operator Instructions) We'll first go to Alex Slagle with Jefferies.

So nice to see the sales driving and ops initiatives really starting to click here.

Just want to -- had a question on the Everyday Value, and if you could provide some more granularity on what you're seeing in terms of the guest response to new additions to the Tavern menu and, perhaps, what they're mixing now as a percentage of sales.

And are you comfortable with -- that you can kind of keep that incremental frequency going and not cannibalize your more premium offerings?

So far, through our testing and then what we've seen in our national launch, it's playing out pretty much as we expected.

So Tavern mix as a percentage of guest is now up about 250 basis points to just over 10%.

That's, of course, with the 3 that we had through Q1.

As I mentioned, we just launched a fourth, which is the Sriracha Tavern.

We have some expectation that, that might drive mix somewhat higher.

But again, with that, we have also tested and seen increased traffic.

So overall, we continue to believe there's value in news.

With the 4 that we have now, we probably covered pretty much every flavor spectrum that you can and will continue to look to see whether or not we might have either LTOs or other things that we can move in and out of that price point.

But $6.99 remains a compelling price point.

It does bring guests in, and then there's ample opportunity for them to explore other items that we now have displayed on our promo card.

We are trying to regularly carry a piece of news in Gourmet as well as in Finest, and we see the guest shopping across that entire barbell spectrum.

Does that help?

Yes, that does.

And one last question, on your prepared remarks you talked about record low turnover and just want to get some more color on how you see that you're driving that.

Carin, do you want to share?

Yes, would be happy to.

We're really excited about -- I think that's one of the things that those of us who've been in this industry for a long time when someone says, "What keeps you up at night?" You always talk about retaining your top talent.

And so it's a focus that I've had and I know that Denny shares.

And we really spend a lot of time with our top talent.

And I think some of the differentiators for us, as Denny talked about this better for being your culture, is that we don't stop at training like a lot of brands do.

We really invest in continued development of our team members to really help them become better leaders.

And again, I think that really starts to make a big difference and people feeling like -- that there's growth within the positions that they're in, right?

That I can be a General Manager for a restaurant, but I'm still growing personally and professionally.

And I think that makes a big difference for us.

And that certainly creates better culture at the restaurant level.

And that's where we're really seeing advances.

We'll next go to John Glass with Morgan Stanley.

First, can you maybe just talk a little bit more about what you mean by invest in value and how that might get reflected on the P&L?

And I guess, specifically, looking at your mix this quarter, it wasn't down -- I don't have it a year ago, but the last 2 quarters, mix was down more.

So what was the dynamic that mix actually -- even though you've invested more in value, your mix was actually less of a drag this quarter, at least in the last 2 quarters.

There are some related to certainly a bit of pricing that we took coming into the quarter and then again continuing to have that balance of news in Finest and Gourmet, our add-ons across the board.

We're seeing that.

I think the biggest watch-out for all of us as we move forward is as to-go comes up, you definitely do not see the beverage sales associated with to-go or carryout.

Our alcohol PPA has also maintained year-over-year, which helps us definitely -- or alcohol PPA has actually improved, our mix has maintained year-over-year.

So it's -- there's a lot of moving pieces within this.

I think we'll see, as to-go starts to take a greater role in our business, what we see there because of managing so far what I've seen in third-party research is telling me that delivery in particular skews to a single occasion.

I'm home alone eating, therefore, I want something brought to me, and that tends to be a smaller overall check than what we see in the restaurant.

But even at that point, what we see in delivery and to-go is people then adding on items sometimes to reach a minimum they may need to achieve or et cetera.

So a lot of moving parts here.

But I think in terms of your essential question, which is how do we continue to invest primarily by continuing to reinforce our bottomless value and making sure that we're delivering on that at the restaurant and offering guest refills, et cetera, by investing on making sure people are aware of our $6.99 offerings and coming into the restaurant for those and then just kind of keeping that mix right in terms of the various items they see in terms of promotional items and news.

Okay.

And then you mentioned to-go and in the prepared remarks, you talked about online being 15% of to-go.

So how much did to-go grow this quarter?

How much is it a percentage of sales, for example?

And is that online percentage?

Is that an incremental layer on the to-go?

Or is that just substituting what would have been maybe a phone order?

How do those 2 play out?

We're seeing growth overall.

I can't really parse it with regards to whether or not online is trading out from a to-go order or a call.

I'll tell you that we want to get another quarter under our belt before we're real clear because, in some cases, there are promotional items and other things that are being offered.

So I'll -- we'll have a much better view for that to share with you, with John, when we get to the Q2 call.

Great.

And then Guy, is G&A still $100 million for the year?

I think that was your guidance.

Is that still right?

Or is it -- I know it's shifting, but it is also the same number?

It is the same number, John.

We'll next go to Gregory Francfort with Bank of America.

Guys, can you break down the $0.39 of upside, I guess, versus what you'd expected?

How much of that was driven by operating performance?

And then how much of it was driven by what, I guess, will be transitory G&A issues?

So the G&A is about $0.07, Greg, so we expect that to flip into future quarters, primarily the second quarter, so that was that component of it.

The balance of it was operating performance and really, for the most part, across the board, which I think is a testament to the work that Carin's team has done as well as the efforts of the people in culinary as they work on the menu and design the recipes that I think, really, across-the-board: food costs, labor, other operating expenses, we really had small beats across the board that all contributed to the end result.

Got it.

And then just going back to John's question on the average check during the quarter, I think improved quicker than I'd expected because you guys lapped the big declines in the third quarter and the fourth quarter.

Should we expect that to improve as we go throughout the year?

Or do you expect to take more pricing?

How are you thinking about just the cadence of check throughout '17?

Well, we -- this quarter, Greg, we took pricing a little bit earlier than we did a year ago, so that contributed to, I think, a higher price -- higher component of the overall comp sales result being comprised of price than we expected to be as we go forward here for the next few quarters.

So we did benefit a little bit from the change in time.

You kind of had a few weeks where you had the effect of 2 price increases basically benefiting price where you would have seen that similar timing only one.

So we would expect later in the year, obviously, we will be looking at price early again next year as we look forward, but we would expect the pricing benefit to be lesser in the coming quarters.

Got it.

And then maybe if I can sneak one last one in, can you talk about the profitability of delivery versus to-go versus in-store?

And then are there minimum checks that you need to have on the to-go side or the delivery side to make it a profitable order?

How do you think about that?

Guy and I are both looking to each other.

We think about this -- we're thinking about this every day.

So the third-party delivery services, and this is part of why it's really hard to -- we have to be cautious about proceeding with them is their moving around right now on the percentage that it's -- that we're having to pay them as well as the minimums that they're requiring from the guest and the prices they're charging from the guest.

Our flow-through is definitely better on an online order than it is on a third-party delivery.

I can certainly assure you of that.

And we're believing, as we start to ramp up our online ordering and overall to-go, we get great efficiency from a to-go specialist who can turn and do multiple orders in an hour.

So we're learning about that.

Guy, do you have more commentary in terms of how we compare these?

No, I agree with what you said, Denny.

The only piece, I guess I'd add is we're probably more willing to live with that lower flow-through than the higher the incrementality of that delivery occasion is.

And so that's really, I think, the key to this discussion.

If we're simply trading out somebody from an in-restaurant or carry-out experience to a delivery, then we don't love the economics on delivery.

And so far, we're not seeing really -- we don't see it -- that it's being trade out, but the question is how long...

Yes.

All the data points stood being highly incremental, but it's early.

And I think we'd really like to understand that better as well as addressing the other operational issues that Denny mentioned earlier before we decide that we really want to go after this with the same sort of aggression we want with the other parts of our business.

Do you have a number on that incrementality?

Is it like 80, 90 sort?

I guess, what number would that be?

When you look at the data, it is very high.

But again, I think we're looking at those numbers with a healthy skepticism just to make sure we understand it well and understand the source of where that data comes from before we make sure we buy into that number.

We'll next go to Peter Saleh with BTIG.

I just want to ask about the marketing expense on the -- it looks like it went up a little bit this quarter versus this time last year.

So just talk about the cadence on the selling and marketing expense throughout the year, how you see that playing out for the rest of the year.

I can talk to -- in the quarter, I think our expense was up about 12%, but we actually had fewer weeks on air.

So what we're looking at is more concentrated spending in the weeks that -- in our national advertising and then more localized spending which definitely investment -- I think we reached about -- what did we say, Jonathan?

Between incremental television, outdoor, radio, digital was about 40% of our restaurants got some...

45%.

45% got some added effort.

We're looking at how that's going to play out over the year.

But we have gone to higher ways in more concentrated fashion versus where we've been in prior years.

Yes.

Peter, as you know, even holding the percent of revenue flat, just simply growing revenue by 5% would imply that we're going to see growth in our marketing spend for the year, and so we do expect to add new units.

And the revenue associated with that helps fuel the opportunity for incremental marketing spend.

Right now we don't anticipate any sort of unique growth or decline in any particular quarter, but we certainly expect overall that we'll spend more on marketing simply because of the percentage of a higher revenue base.

And we do have a bit of a commitment to a fourth quarter investment or if we slid a bit of the national marketing in the fourth quarter because that's also when we'll be really leaning in, in the -- feeling really great about to-go as a message.

So we'll have the news to share there.

But that's only on a national basis, local will move at around quite a bit.

Got it.

Okay.

And then on the delivery, I think you said, if I heard you correctly, 138 units with delivery.

Just wondering if you guys could give us a sense of where you think the delivery is working best maybe regionally or type of store?

And will you be delivering -- I'm assuming not out of, call it, mall stores.

Just any sort of insight on that would be helpful.

So I can't tell you -- I don't know exactly in 138 that are currently reached.

I can tell you we've had some really good success in our very well-penetrated markets like in Seattle, for example.

We've done very well with Amazon in that market and, specifically, location -- we have a unique location there that is down the water urban location, and the volumes there have been -- have exceeded our expectations.

And I think it's largely folks accessing us and excited to be able to access Red Robin who would never make the effort to come down to the waterfront to dine, whether it be lunch or dinner.

So we're serving -- broadly serving that urban area and doing so very effectively.

We've also seen it though in Seattle, up on -- in our Northgate location, up in Alderwood, some suburban locations are doing very well with it as well.

Beyond that, our other 2 partners is GrubHub and DoorDash.

I'm not sure I know of any specific outstanding cases.

I know DoorDash did well in Northern California for us for a while.

But again, we're digging in to understand where they're each really doing well and why because that could indicate a lot of things for us about growth and new models in the future.

We'll next go to Brian Vaccaro with Raymond James.

Just had a question about that guidance.

Obviously, the EPS guidance was raised by $0.10 despite a little higher interest expense.

But in your prepared remarks, you talked about some issues with the third-party delivery, and then Guy talked about a little more pressure on COGS.

I guess, I was just curious, have the under -- at some of these underlying factors, have anything -- has anything changed beneath the surface in terms of your core comp and food costs and labor cost inflation expectations for the year?

Not materially, Brian.

The biggest difference between what we saw in the first quarter and the balance of the year was the interest expense that you mentioned and the G&A timing.

In terms of the challenges with delivery, I think we understood what the economics of the delivery were going into the year.

We still don't love it, we understand it.

And so we were able to account for that in the model.

Now if at some point we decide to change based on our experience with delivery, that could impact the model.

Then the only other factor that I cited was the recent spike that I think everybody has seen in beef prices which, just given the dislocation in that market, we're not sure it's sustainable.

But at least for now, given that we can't forward contract on ground beef, we do expect some impact to that in the second quarter.

And we could update that if this dislocation lasts longer than we expect it to.

At least right now, we are only projecting that to be a Q2 additional expense for now.

Okay.

All right, that's helpful.

And I guess as a matter of policy, if there's not a specific update on a certain line item in your guidance, we should just assume that the most previous or most recent guidance you provided is still in place by line item.

Is that fair?

That's fair.

Yes, Brian.

Okay.

All right, great.

And then a couple of clarifications on the comps in the first quarter.

Can you give us some color on the cadence that you saw through the quarter and maybe talk about it as well through sort of the lens of your relative performance versus peers as you move through?

Yes, we're not keen on giving a lot of in-quarter guidance.

I'll remind you, though, that I gave Jonathan the gift, when he arrived last year, of the Double Tavern Double Plus, which was our one foray into bundled meal which we began last year with.

And while it was not very profitable for us, it did deliver significantly on traffic, particularly when we messaged our own guest.

We didn't get a lot of guests coming in from the television, but we got a lot from our Red Robin Royalty group, et cetera.

So we had a tough row to hoe in the first part of the quarter.

But again, we're excited about the news we've got on $6.99, the guest is responding to it as they did in test market, and we'll continue to see that as we play out some more product news over the course of the year.

Okay.

And then Denny, you also mentioned your relative performance was particularly strong in the mountain plains and the Pacific Northwest.

To what do you attribute that stronger outperformance?

I think, overall, if you look at the performance -- Carin, you'd say this as well -- so it really was California, the Northwest and the mountain plains, and those are the areas that are doing their very best on our Net Promoter Score and service.

Do you want to talk to that, Carin?

Yes.

If you follow our trajectory on the NPS metrics, it's amazing how correlated the markets are performing based on what the guests are telling us.

And so the West Coast and the Pacific Northwest, boy, they're just charging hard and really providing a great guest experience, and we're recapping and recouping the benefits of that.

I think the other thing is that many of those are the most highly penetrated markets where we went to invest first with localized investment.

So we couldn't afford it everywhere.

It's funny to call L.A. a local market, you can't afford to do much there.

But you can do well in some of those other California markets and the Northwest.

And so we did make some incremental investments there that paid off.

Okay, that's helpful.

And then last one, I just wanted to ask about the menu pricing.

Can you talk about -- I understand you took earlier this year than you did last year.

But how much did you take in the period and sort of how was that implemented?

Was that across the board or perhaps concentrated in some higher-wage inflation states?

And then how should we think about menu price factor year-on-year in Q2, Q3, et cetera?

We took 1.9%.

It was a few weeks earlier probably because we just had the opportunity to take a menu change and do some things.

In terms of -- we are now operating 5 tiers -- somebody correct me, 4 or 5 -- 5 different tiers of pricing sort of -- yes, we're working that.

So again, we try to price particularly, and with Carin's support, where our cost of doing business are the highest.

So we try to tax those folks a little more heavily than the rest.

Looking forward, we'll watch basically cost of sales and cost of goods.

And if we see continued increase, we reserve the right to take pricing later in the year.

But right now, I think we're pretty well set for the year.

And we looked back when we took this 1.9%, I know we looked back.

And overall, compared to our peers, we have not taken as much pricing.

It's something we'll talk about a little bit at Analyst Day.

But contextually, we've been more conservative than most.

And that's paying off because our guests wants them to be affordable.

So as much as we can say on that affordable end, I'm so glad we got the barbell because that makes all the difference.

Okay.

So you took 1.9% and then -- I wanted to ask about -- when you originally provided guidance, was that the level of pricing that was originally embedded in your expectation for the year?

Yes.

Yes, it was.

We'll take a question from David Carlson with KeyBanc.

Guy, looking at the occupancy costs line, it really showed a lot of improvement despite the negative comp trend.

Is there anything particularly you'd call out about that?

Or that rate of decline is something we should expect to continue or potentially decline even further if comp trends show improvement?

And I have a follow-up.

I wouldn't expect it to decline further, David.

I mean, we did see a decline in general liability claims which hit that line.

And then obviously, we had some store closures last year.

As you might imagine, the stores that certainly have the highest occupancy as a percent of revenues tend to be the ones that are higher on your list for store closures.

So that benefit will continue.

But no, I don't see that accelerating from where it was in Q1.

Okay.

And I heard you comment on the -- I think, it was the 4.23x lease adjusted.

I think it's down from 4.35x.

Can you remind us what the targeted lease-adjusted leverage ratio is?

Is that unchanged?

We haven't actually set a target.

We will talk about one on the Analyst Day, so we will announce that next week.

But I think, as I've talked with many people over the past few months, we have talked about targeting somewhere in the neighborhood of 3 to 3.5x on a lease-adjusted basis, so that would be consistent with what to expect.

We'll next go to Will Slabaugh with Stephens Inc.

I wanted a read on the carryout, if you would.

Can you give us an idea of what that growth rate was of to-go for the quarter and what seems to be working there, what the opportunities are and then kind of taking from what you've seen, what we're banking on that growth to do in the back half to hit your expectations.

Well, if you remember, we started, from when we started measuring, like 5, 5.5, somewhere like that, really low.

So we're really low compared to the category.

The category as we can measure is at about 14%.

It's really hard to tell how much of that is pure to-go and which has catering mixed in, et cetera, so we're striving for that kind of double-digit growth over the course of the next couple of years that we can achieve it.

We just barely turned on online order in the quarter.

I mean, we got 6 weeks of it.

So we did see an uptick on to-go overall with the minimal effort that we've made.

But again, as I said before, we want to wait until we've got a full quarter under our belts to talk about the growth to make sure it's sustained.

We have done nothing more than the messaging I mentioned, which is of super -- or graphic on the television ad.

It now occurs as a -- it shows up as a link in our email messaging and much of our digital.

Right, Jonathan?

Yes.

But we have not done any active promotion.

We've tested some trial promos in a couple of markets that we will be using in the coming quarters.

So the only other place we'll look to invest in kind of discounting aside from our Everyday Value, which is not a discount, and our Red Robin Royalty program, which is an earned discount, will be into drive trial on to-go.

But we're gearing up for all of that midyear before you'll see a lot of activity here.

Got you.

And if I could shift to G&A quickly.

That came in, as you mentioned, I say lower where we expected.

Can you talk about the improvements you made their recently?

And any more commentary around what's sustainable in terms of improvement and what specifically is rolling on to 2Q or beyond?

Well, specifically in Q1, the improvement was, as I mentioned in the prepared remarks, more related to timing.

So project work that, in the original plan, we expect that will occur in Q1 that we're now expecting to occur in Q2 or later in the year.

But overall, clearly, G&A is a focus for us.

Our intent is to manage that line -- the growth of that line at a level that's much lower than revenue growth, so that we have the opportunity to leverage that line while revenue is growing, which I think is an important way to manage that line.

And essentially, where we're going to get to long-term, Will, is the point where you'll be happy to see G&A growth because that will mean we're paying out a bigger bonus which means we have good results.

And if we have significant declines in G&A, it won't be a good news story because it will mean we paid out poor bonuses because we had poor results.

So it is an active line that we're managing, but I would not attribute the Q1 beat to significant changes that we made in that line just yet.

Understood.

And lastly, on the labor model.

I know you mentioned the pressure you're seeing as well as everyone else in the industry.

Does it make sense to think about a complete revamping of how you're doing things, maybe toward a shared services model or something similar, or simple tweaks here and there that make more sense.

And any (inaudible) to what you're working there to make that line more efficient will be helpful.

This is Carin.

We are working on really several front-of-the-house tests that we're going to talk about at the analyst meeting next week.

But we're watching this trajectory on this line, and we know that it's just not sustainable to see these type of increases.

Where I will give credit is to the teams in the restaurant, they are managing productivity.

I mean, just really, I can't ask for more from them with the labor model that we have.

Our labor model's fairly sophisticated, it's an activities-based labor model, so everything that our teams do is really accounted for.

So I think a couple of things we're looking at is escalation of wage rates, especially at the hourly level right now, that's where Jonathan Muhtar and I really team together to think about, is menu simplification, prep simplification and those type of things that are ultimately going to make a difference because the real pressures are in the hearth of the house, and that's where I think we still have opportunity throughout the year to try to make a greater impact.

.

I agree.

I think we all enter the phase that there's going to have to be a breakthrough here for us to separate.

And the nice thing is that there's a generation coming up who will have a different view of what service means and what they expect.

And so we're really trying to tap into that and start to figure out what do they want to control.

Pay at the table is a great example.

I mean that was the last opportunity we really had was when we gave them the opportunity to pay at the table via Ziosk and that worked very well for us.

So we'll continue to look for those opportunities.

(Operator Instructions) We'll next go to Steve Anderson with Maxim Group.

I wanted to ask about the adjusted EBITDA guidance, just the guidance you've given in the most recent few quarters.

Last time, between $145 million and $150 million, so I think there's been any change to that.

And I have a follow-up.

No, Stephen.

We still expect the EBITDA to fall in that range that we guided to 3 months ago.

Okay.

And in terms of the off-premise percentage at the end of 2016, it was 4%.

With the increased (inaudible), you've gone to accelerate online ordering, has that overall off-premise increase, off-premise percentage increased at all?

It did increase.

But again, we'll share more about that.

And we've got -- what's our -- (inaudible) know exactly kind of where we model for our goal for the year-end.

I'm trying to remember exactly.

I should remember this.

We didn't exactly disclosed.

Yes, we didn't disclose.

Okay, so we haven't shared that in guidance.

Thank you.

That would be the nondisclosure part.

But again, between where we started and '14 as a target, we'll share where we are on that track at the end of Q2.

It appears there are no further questions in the queue.

At this time, I like to turn the conference back to Ms. Post.

Thank you all for joining us this afternoon.

Again, we appreciate your interest in Red Robin, and we look forward to seeing hopefully most, if not all of you, next week, and we'll have some really interesting discussions and some great, great food.

So we look forward to it, come hungry.

That concludes today's conference, and thank you for your participation.