Red Robin Gourmet Burgers Inc (RRGB) 2017 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Red Robin Gourmet Burgers Third Quarter 2017 Earnings Conference Call.

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

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

Please go ahead, Mr. Harryman.

Thank you, Sophie.

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 third 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'd like to turn the call over to our President and CEO, Denny Post.

Thanks, Terry, and good afternoon, everyone.

Thank you for joining us.

We have a lot to share today as we continue to shift our focus away from a traditional approach to growth to a greater emphasis on finding innovative new service models to meet the rising tide of labor costs and the rapidly-changing needs of our guests.

In addition to Terry, we are joined today on the call by Guy Constant, EVP and Chief Financial Officer, who will address the details of Q3 and speak to our revised and more cautious earnings outlook for total year.

We are also joined by Carin Stutz, EVP and COO, who will speak to the progress being made on new labor models and our growing off-premise business.

Q3 same-store top line came in 0.1% down versus last year, certainly disappointing versus our expectations, but still well ahead of our competitors.

Without Harvey and Irma, we'd have finished up 30 basis points, accounting for closures and those inevitable rebound days.

Even with their impact, we finished the quarter 400 basis points above all casual dining on traffic, making this our fifth straight quarter of taking share.

We also outpaced the industry on sales by 230 basis points and are now competing with best-in-class casual dining chains, as reported in Black Box.

We attribute this outperformance to two factors.

First, our continued emphasis on everyday value.

By expanding our Tavern menu to nine items, with three choices at $6.99, we are able to avoid discounting our finest and gourmet offerings.

And of course, our guests always enjoy the tremendous value of bottomless steak fries or other sides choices.

What's the second secret to our outperformance?

Our off-premise business, growing every day, ended the quarter at 7.6%, up 41% versus last year.

These two factors, Everyday Value and a growing off-premise business, combined to ensure that Red Robin remains affordable for dine-in and carry-out guests alike.

Everyday Value has helped us hold PPA flat, which is an investment we believe is worth making.

Affordable abundance is a true (inaudible) differentiating factor for Red Robin that we will not cede to competitors who are new to the value game.

As to Q3 profitability, the top line shortfall created de-leverage, somewhat masking our progress on labor cost reductions.

Carin will speak to her team's progress and the choice we made to slow down the pace of labor model changes to ensure they land well and do not undermine the progress we have made on guest satisfaction since we launched KDS just over a year ago.

As with the Maestro labor initiative, which removed expediters, our goal is to make every change a win for team member and guest, not just an improvement in the middle of the P&L.

We are making strides on cost control and know we have to keep testing, learning, and advancing the best solutions.

As an industry, we are facing, clearly, some very challenging forces.

Minimum wage increases already on the books in some of our most penetrated states are, frankly, staggering.

Guest demand is shifting to off-premise, particularly via home delivery, more rapidly than any of us might have anticipated.

This option blends guests' dining choices between quick service, fast casual, and full-service restaurants, independent and chain, like never before, without consideration for convenience of location or that perfect corner.

We are addressing these forces with creativity and urgency.

Consistent with the need to reconsider what has traditionally worked in the past, we recently decided to pause new unit development as of the end of next year.

We will still open nine new corporate units in 2018, but will hold beyond that for now.

This will give us 18 to 24 months to sort out what models best meet the needs of our changing guest base, allow us to profitably broaden our reach to more guests, all the while reducing construction and labor costs.

As we shared at our Analyst Day in May, we know that just maximizing what we have, while very critical, is not sufficient to achieve the growth we all seek.

We must rapidly pilot transformational changes which will alter our existing model, while also conceptualizing revolutionary new approaches for the future.

While our choice on today's call is to only speak about our efforts to maximize what exists, you can be assured that we will share more about innovation on future calls.

With that, let me turn the call to Carin.

I cannot imagine a better leader to guide Red Robin operations today and into the future.

Over to you, Carin.

Thanks, Denny.

As Denny indicated, we're expanding our strategy and model with a stronger eye to the future, and appropriating the resources for the next generation of Red Robin.

Now, while that work is incredibly exciting and innovative, our operations team continues to focus on our core business and maximize our existing business to fund our future.

And as Denny indicated, we now have three teams focused on our current, near-term, and future business that we've titled Maximize, Transform, and Revolutionize.

Leading the Maximizing team, I'm so proud of our team members who continue to earn top service scores from our guests.

Another quarter in the books of our highest scores in guest satisfaction, food safety, and restaurant operations play a key role in our results relative to the industry.

We believe that delivering a consistently good experience with an exceptional value drives guest satisfaction and traffic.

And all of this is occurring while we're making rapid changes in our off-premise business and our labor model.

A quick update on both.

As Denny said, we delivered a 7.6% mix in off-premise in quarter three.

We are almost complete in our rollout as of early October, with all company restaurants having online ordering available, and 98% now have call center support.

We have curbside delivery available in over 50% of our locations, and we see that maxing out into the low 60%s due to lease restrictions in the near future.

One of the benefits we're quickly realizing with off-premise [and] our loyalty program is the ability to reach our guests on holidays, where they might not be coming to us to dine in.

For the first time that we can remember, we enjoyed positive sales on Halloween.

At the end of quarter three, third-party delivery was available in close to 50% of our restaurants, with anywhere from one to three providers.

Work is being done with each provider to better integrate into our POS and KDS systems and ease the complexity in our operations teams.

We have commented on the fact that this is not the most profitable way to get food to our guests when and where they want it, but it is providing additional visibility to our guests that they can get Red Robin to go.

Third-party sales have almost doubled this quarter, counting for about 110 basis points of the 7.6% in off-premise sales.

While we like the visibility, we are piloting self-delivery and will learn about it as quickly as we can.

On top of this, we launched our first venture into a catering platform with the Red Robin Gourmet Burger Bar.

While it's only available for pickup at this time, we are seeing these as a delicious option for offices, home parties, sports teams, and tailgating.

Like the reference before, the Burger Bar has opened us up to participate in what would traditionally be a group gathering at a guest's home or office.

And while we're just getting started, it's great to have the ability to deliver a large off-premise order.

Two recent examples were a call center for 450 guests, and an office party for 200.

And we've never been in that consideration set for these type of events.

We continue to study and learn from our operators, and we'll adapt as we go.

And recently, we began to gather feedback on our off-premise business from our guests, as well, which will help us shape future enhancements, including packaging, optimizing prepayment, and pickup areas that streamline the process for both the guests and for our team.

A top area of focus for us has been managing labor cost.

The minimum wage and general regulatory environment is growing at an unprecedented rate, especially on the West Coast, where we have our strongest and largest footprint.

Hourly wages are up again this year in the mid-single digits, and we know there's no appetite by today's consumer to spend more to cover this.

Absorbing these increases with higher pricing is not an alternative for us.

The good news is we did complete the rollout of the more efficient Maestro service model.

We staggered the rollout beginning in August, and you should now see a 5% drop in labor hours used in quarter four over last year.

We attempted to stretch and go for a 7% reduction, but our first markets told us rather quickly that we were moving too aggressively, and we pulled back to get this right.

Again, we're making sure that any changes we make land right and will stick to continue to protect the guest experience gains we've achieved.

Change lands best when paced properly.

We continue to test the next round of service model improvements, and we'll update you in the future, as we're determined to further improve our productivity.

With all of this change in our restaurants, our restaurant managers and hourly team members received our highest team member voice scores, which is our measure of engagement.

And the company that measures our team member voice tells us our scores are at the top end of all companies they measure.

This inspires me and gives me a great level of confidence that our field leaders and general managers understand the why behind the need to change.

They truly get it.

And our partnership with our home office teams, who continue to optimize and simplify operations with call centers, technology solutions and simplification of prep items, are all working together and making us more productive.

And with that, I'll turn it over to Guy to share our financial results.

Thank you, Carin, and good afternoon, everyone.

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

The third quarter of 2017 showed a continuation of our significant traffic and sales outperformance versus the casual dining industry, and as Denny outlined, the third quarter represented doing so for the fifth consecutive quarter.

We were also able to significantly outpace the overall restaurant industry, and we compared favorably to best-in-class casual dining competitors.

As a result of the great work of our marketing, culinary, and operations teams, we have successfully separated ourselves from the pack and joined a sustained group of outperformers in the industry, and look forward to building on that in the future.

However, as we've said for a number of quarters, relative outperformance is not enough.

We strive to be a good business, not just a better restaurant business.

We need to have strong absolute performance, and for that reason we need to introduce the type of change that is necessary to make our business truly successful.

We are making, and will need to make, tough choices about our business, and we will need to innovate in a way that allows us to fully capitalize on the differentiated position that Red Robin holds with the restaurant consumer.

Our goals will be to return to absolute and consistent earnings growth, and to put ourselves into a position to provide growth and returns that one would associate with high-performing organizations.

Now to the specific results.

Q3 total company revenues increased 2.3% to $304.2 million, up from $297.3 million a year ago, driven primarily by new restaurant openings.

Comparable restaurant sales were down 0.1%, comprised of flat guest traffic and a 0.1% decrease in average guest check.

Overall price, after taking into account the impact of discounting, increased 1.5% in the quarter.

Mix decreased 1.6%, primarily driven by heavier guest usage of our Tavern Value menu.

Overall restaurant capacity, as measured by operating weeks, was up 1.3% in Q3 as compared to the third quarter of 2016.

Third quarter restaurant level operating margins were 17.4%, down 120 basis points versus a year ago, driven by the following factors: cost of sales increased 20 basis points to 23.8%, driven primarily by higher ground beef costs.

We also project that, beginning in Q4, the cost of our steak fries will rise due to constraints on industry processing capacity.

We now project that cost of sales for the full year of 2017 will be slightly worse than a year ago.

Restaurant labor costs were unfavorable by 50 basis points to 35.3%, driven mostly by higher restaurant incentive compensation and minimum wage increases, offset by reductions in management labor costs, reduced benefits expense and lower project-related labor costs.

This continues the narrowing of the gap that started in Q1, and with the Maestro program now fully implemented as of the end of October, we expect year-over-year labor costs to be favorable as a percent of revenue in Q4, and full year 2017 labor expense to be up approximately 50 basis points.

This favorability, however, will not be as great as originally expected, as we have stopped the rollout of labor savings associated with the change in how we handle the off-premise business in our restaurants.

This will result in approximately $2 million less in Q4 labor savings than we originally anticipated.

As with any change we make to the labor model in our restaurants, if we believe the team member or the guest experience is at any risk of being compromised, we will not move forward with those changes.

Consistent with Denny's comments earlier about the need to think differently about our business, we continue to test some more significant changes to the in-restaurant service model, and we are excited about what benefits that could provide to the guest, the team member, and the company in 2018.

More to come when we discuss our 2018 guidance in February.

Other operating costs increased 40 basis points to 14.9% due to higher local restaurant marketing expense and restaurant technology investments, partially offset by lower repair and maintenance expense and lower utility costs.

Occupancy costs were unfavorable by 10 basis points due to higher real estate taxes.

General and administrative expense improved by 70 basis points, or $1.8 million, to 6.1%.

The year-over-year decrease in G&A was primarily due to lower salaries and benefits and lower professional services expenses.

Selling expenses were up 50 basis points as a percent of revenue at 3.4% due to the timing of national media spend, and pre-opening expenses were down 30 basis points due to a smaller number of restaurant openings.

Q3 adjusted EBITDA was $25.5 million, down 4.7%, or $1.3 million as compared to a year ago.

Depreciation and amortization improved by 20 basis points to 7%.

Interest expense was $2.2 million, an increase of $400,000 versus the prior year, driven by higher rates on our revolving credit facility.

Our third quarter tax benefit was 34.1% compared to a 77.8% benefit in the prior year, mostly related to asset impairments and restaurant closures a year ago.

We would expect the rate to approximate 10% to 15% for the balance of the year.

Adjusted earnings per diluted share were $0.21 as compared to $0.38 in the third quarter of 2016.

Now to the balance sheet.

We invested $19.2 million in CapEx in the third quarter primarily related to new unit openings, investments in technology projects, and restaurant maintenance capital.

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 $15 million in cash and cash equivalents, up $3.3 million versus where we ended 2016, and finished the quarter with a lease-adjusted leverage ratio of 4.2 times.

While we've made significant progress on reducing our debt levels in 2017, our leverage ratios remained fairly flat throughout the year.

Beginning in Q4, we would expect to make progress in reducing the ratio, and we expect that progress will continue into 2018.

There are a number of factors impacting the casual dining consumer, and traffic trends remain volatile.

While we fully expect our traffic outperformance to continue, there exists less and less visibility into when or if casual dining traffic will sustainably recover.

While industry trends have improved in the past weeks, we've seen short-term bumps like this two or three times in the past year and a half, only to then see the trends turn back quickly.

That, along with the fact that the majority of Q4 volumes come late in the quarter, will cause us to wait on a more sustained period of improvement before we would suggest that a category recovery has begun.

As a result, we project that we will see both positive comp sales and traffic for the fourth quarter, and we now believe full-year 2017 comp sales will be flat to up 50 basis points.

And as I mentioned earlier, we now project approximately $2 million less in labor savings than we did a quarter ago.

These two primary factors cause us to now project our Q4 earnings per diluted share to range between $0.45 and $0.60.

Full year earnings per diluted share is expected to range between $2.16 and $2.31.

Even in our position as a sales and traffic outperformer, it remains difficult to generate acceptable earnings results considering the factors affecting the casual dining consumer and ever-rising labor costs.

Our traffic numbers are at the top of the industry.

Our net promoter scores have never been higher.

Our off-premise growth is exceeding our expectations.

Our restaurant execution is best-in-class.

And we are making significant progress on a new and different service model for this space.

Yet, we simply can't be satisfied with this level of financial performance despite the outstanding efforts of our team members and the incredible loyalty of our guests.

The future will look much different than it does today, and frankly, it needs to.

So I echo Denny's urgency to double down on innovation and assess what the future of casual dining will look like.

We look forward to leading the way.

Before I close, let me, once again congratulate our operators and our marketing team for another quarter of differentiated performance.

You've taken great care of our guests and our team members, and have again been good stewards of our company resources, all while absorbing significant change to the service model.

As we've repeatedly committed to in our remarks since the start of 2017, we continue to prioritize our capital and operating investments 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 capital already invested.

We've halted traditional unit growth as of the end of 2018, and we'll continue to focus on growing our overall returns, as this is what is most highly correlated to overall improvements and total shareholder return.

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

Thank you, Guy.

I can tell you that adding you to the team was a smart investment for sure.

You've upped our game.

Before we take questions, let me remind you all that Red Robin has a set of unique, differentiating strengths that set us apart from others in the industry.

These differentiating factors are deeply embedded in who we are, and they have legs for the future.

They translate across all access modes, be they human or virtual.

Our guests tell us three things matter most.

Number one, we stand for something: craveable, customizable, gourmet burgers and amazing fries.

Guests know to come to us for the best.

Second, we have a well-earned and now bolstered reputation for attentive service at appropriate speed, which meets the needs of multi-generational guests from two to 92.

By the way, this includes, and always has, millennials.

They love us.

And three, we have best-in-class value perception.

We will continue to put affordable abundance first via our bottomless promise and reasonable prices, with burgers starting at $6.99 available every day and to every day part, not just occasionally.

We can and will leverage all of these and build on them as we drive innovative new service options and incremental revenue through investments in guest-facing technology, improved equipment, and even novel partnerships as needed.

We move forward today with deep gratitude to our team in the field and here at the home office.

Red Robin has the highest-ever team member engagement per our most recent survey, and lowest, best-in-class turnover, which tells me that our team is up for the changes ahead.

Now, let's take some questions.

(Operator Instructions) Gregory Francfort with Bank of America.

Just one quick one.

Can you unpack (inaudible), just on the full-year comp guide, can you tell us what that implies for the fourth quarter for the comps?

Yes.

As I said in my remarks, Greg, it implies that we'll have positive sales and traffic in the fourth quarter.

And just in terms of the mix that happened in the third quarter, going against 140 basis points easier comparison, it picked up 60 basis points.

What's the strategy going forward in mix?

Is it to keep it negative for the sustainable future to try and keep driving on the value side?

Or should we expect maybe that to start moving a little bit higher as we move through the next few quarters?

And then, tied into that, is off-premise a headwind or a tailwind to the mix component?

I would think it would be a tailwind, but maybe that's a wrong assumption.

Yes, Greg, let me add to a couple of those questions.

So, first of all, we think affordability is an issue in casual dining.

The efforts that have been going on in the space for some time now to drive PPA higher has simply resulted in a corresponding decline in traffic.

And so we've avoided doing that for some time now, and as a result, given the traction that we get and the positive perception of value that we get at the Tavern Menu, I think we're okay with seeing that mix in the Tavern Menu expand.

Where perhaps traditional casual dining strategy would be to offer those kinds of value components, but try to keep the mix down.

We're not really trying to do that right now.

And we think it's a big part of the reason why we're seeing such outperformance in traffic as we move forward.

In terms of off-premise mix and how it impacts overall, the average check for off-premise is lower, which is almost completely due to the lower beverage incidents that you see with off-premise.

So actually, overall, it results in a lower average ticket than you might see for dine-in traffic.

But we do see overall -- Greg, this is Denny -- that off-premise user, while that beverage component is definitely there, as Guy referred to, if you put the right things in front of them, they are more likely to order add-ons in some of those components, because they're kind of taking in the total meal.

So that's one of the things we think we have a chance to dial in, both with our online ordering and with our call center, over time.

(Operator Instructions) John Glass with Morgan Stanley.

First, just if I could sneak in a follow-up.

Is the lower check on off-premise incrementally even worse when it's a delivery, or is delivery in overall off-premise similar in terms of check?

Well, it depends a little bit on delivery, John, because some of the delivery players require order minimums that can sometimes drive the overall check up.

But even still, overall, the average PPA is lower again because of the beverage incidents, and the average party size is a little bit lower, as well.

Okay, that's helpful.

And then my two related question is, is the pause in the labor, the labor in the Maestro system, is that a one-quarter pause, in your view, and you think you can get after it fully in 2018?

And maybe can you just think about, other than the discussion around unit reductions after '18, has your thought process changed on '18 generally?

In other words, is there going to be incremental investment needed as you start to prepare for this new phase of casual dining?

Maybe some high-level thoughts about investments needed in '18.

I know you're probably not guiding today, but framework.

It's Carin, I'll take the labor question.

Yes, I'm really proud of the restaurant operators to get 5% reduction.

That's a lot of hours per day and per week.

And I honestly believe we could have gotten the whole 7% if you would look at the workload.

I think if we had done that in absence of a lot of other initiatives at the same time, we could have probably gotten there, but there were some other things that we needed to do to roll out, whether it's janitorial or catering or Burger Bars, a lot of other things that were going on that shifted the focus from being able to get it all.

But we're committed and determined to get that next year.

John, on your question around investments for 2018, I would expect to see some G&A investments around driving innovation.

But as I think we've talked about before, that's more around shifting resources in G&A.

As you move away, for example, from developing as many units, you don't need as many of the resources associated with driving that development, and so we're able to repurpose some of those dollars to focus more on innovation.

So I don't see necessarily an overall increase in G&A when you factor all of that in.

On the capital side, it's very hard to imagine we could spend a lot around innovation in 2018 in terms of capital.

But certainly, if we identify the opportunities that we believe we can with the G&A work that we're doing, it could mean that capital will uptick in 2019.

But in 2018, by building less units, as we plan to do in 2019 not building any units, we certainly free up capital to be able to make those investments.

Alex Slagle with Jefferies.

Wanted to actually clarify on your prepared remarks, if you could comment on whether your traffic outperformance level versus the peers held steady into October, or did you see some of that momentum tail off, tempering your view on the fourth quarter a bit?

A: Alex, you know we don't talk about in-quarter events, so as Guy called out, our caution is based more on history.

I remember some exuberance rolling into the calendar Q1 in the industry this year, which did not realize itself over the totality of the quarter.

So again, not commenting in-quarter.

This is more historical -- historical and hysterical, perhaps -- experience with the past that causes us to just be a bit more cautious.

Understood, that's fine.

And then just interested in an update on whether you think the media campaigns and overall strategy focusing on investing incrementally in the most penetrated local markets.

Is that working out as well as you expected?

And if you have any further refinements planned for the fourth quarter or '18?

Yes, we certainly learned from Q3 to affect Q4.

I will tell you, we had all the regional Vice Presidents in the office today, and those that are benefiting from local restaurant marketing are very appreciative.

But we continue to look at whether that investment is the smartest versus incremental national weeks.

And also, I got to shout-out to our media team.

They found a way -- I'm told that there was a Game 7 of a World Series recently, which I happened to miss because I guess it's not my sport, but we were in that by virtue of some really smart buying.

Certainly didn't pay full freight for that spot, I can assure you.

So we're trying to raise our overall profile and do so smartly, but I feel really good about how the team has dialed in our media.

Will Slabaugh with Stephens.

What I'd ask, again on 4Q, is just to clarify your comments that you made.

It sounds like as far as the comps go, the expectation there is still roughly the same, still the midpoint of your guidance implies somewhere north of 1, and then you've noted positive.

So outside of the labor savings being slightly less than you were originally thinking, is there anything else to point out there, or is that pretty much the shortfall versus your original expectation?

Well, obviously we were pretty excited when we saw what happened in Q2.

As I think we discussed on this call last time, we probably outperformed versus our expectations in Q2, which created expectations, not just externally but internally here, about how well we could perform.

And Q3 didn't go as well as we had hoped, clearly.

So I think that's more the issue than anything we've seen so far month-to-date, or anything we're seeing relative to the industry.

The combination of slightly lower sales expectations, which manifested itself in our guidance moving from 50 to 150 basis points before to flat to up 50 basis points now for the full year, that combined with the lower labor savings expectations are what resulted in the guidance being lower.

Got it.

And I wonder if I could dig on the comment you mentioned around stopping the labor savings initiatives.

You mentioned possibly it could have been the guest experience, or the team member experience being compromised.

Could you talk a little bit more about what you saw there and why you stopped the labor savings initiatives, and what that means as we look to 2018 in terms of 2018 labor versus 2017 labor?

We have, like I said, completed the Maestro rollout, which we talked about, which was the service model test that we selected with the six tests that we originally started with.

We have two other ones in test right now that we're really excited about, and think that's going to continue to add value.

Again, my point is simply this.

I think if we'd just been working on those two areas within the restaurant without any other noise or other rollouts, we perhaps could have gotten there, but it was just a matter of prioritization and really just learning the behaviors and the changes in the restaurant takes a little bit of time.

So I think we'll come back strong next year with those additional $2 million in savings, but right now, we do have the $8 million for a full year in the books right now.

Will, I know we've talked in the past, and I know when I've had this question before, and people ask us what concerns us the most.

And I would say what concerns us the most is the amount of heavy lifting that we're asking our operators to do.

When you're making the type of change that we're envisioning in this business, so much of it hits at the restaurant level, and it's incumbent upon our operators, or we ask them to take on that burden, and we're asking them to do a lot.

We just have to be really, really careful about how we pace it out to them to allow them to absorb it.

I have no doubt that they can accomplish what we lay in front of them, including what we have planned for 2018.

We just always have to be careful about how quickly we pace it to them.

Jeff Farmer with Wells Fargo.

And so I've got one more on labor.

I know we're beating that one pretty good, but what gives you guys confidence that there's not more pushback to come from these existing labor initiatives?

And what could this mean, meaning the pushback that you've already seen, what could that mean to your pursuit of incremental labor savings that you guys had pointed to in '18?

As I indicated, we have two other tests going, and we do believe we've got a long-term solution for that.

We just want to give it a little more time and really try to understand the nuances of it before we implement those.

But we're confident we'll get those other savings.

Jeff, this is Denny.

I'm the one at the table of the three of us who was here the last time we took a pretty significant whack at labor, and we did it associated with our Ziosk rollout at the time.

And we lost ground, and so we were very much ear-to-the-ground.

You can test these things in isolation.

It's when you stack them all up that you start to see the total impact.

And there just isn't enough time in the world to get all those iterations done.

So we listened closely.

We heard it.

We pulled back.

But we have not lost any confidence in our ability to continue to make changes toward our ultimate goal

Okay, that's helpful.

On the last call, you did note that your confidence in delivering on that 4Q EPS guidance number was going to be largely driven by an expectation for I think it was healthy growth in your off-premise revenue, is how it was worded.

I understand that there's the cost pressures that you guys have called out.

But in terms of thinking about this moving forward, what is your level of confidence now in terms of growing that off-premise business?

I know it's only been one quarter, but are you as excited about the opportunity as you have been, or do you think it's maybe a little bit harder to win share with off-premise?

Candidly, I think I have not lost any confidence in our ability to win share with off-premise.

What I think is startling all of us is how solid or not the base dine-in business is in the category in totality.

So again, I think we have an advantage in the sense that we're building our off-premise business.

All of our research is telling us that the guest who carries out would not be one who would necessarily come and sit down.

So we've talked about the definition of incrementality.

It does not appear to be cannibalistic.

But the underlying factors for dine-in are shakier than one would have thought, and that's not just us.

That's everyone.

So, I haven't lost, and I don't think as a group we've lost any confidence around that.

We've actually hit or beaten almost every single one of our marks and milestones on off-premise, and believe we'll continue to do so.

And as Carin pointed out, we talked about Halloween.

Halloween we usually grin and bear it and get through it, and this year was a different circumstance.

So with that, I guess I would just say that we're confident about off-premise.

It's the dine-in occasion that causes us all the most concern.

But we don't see anything specifically with regards to day part or day of the week, or anything else that we can point to, and we'll all see how that holds up.

Chris O'Cull with Stifel.

My question was just a follow-up on those comments, Denny, about the dine-in business.

If you look at the to-go contribution to the comp for the quarter, and then it does seem like the dine-in business may not be performing much better than the segment.

And so are you considering any changes to the value message, or any opportunities to improve dine-in performance relative to the segment?

No.

Again, I think our Everyday Value, it may be buffeted somewhat by people who do temporary things, I guess is what I would say.

So when you stand for something in Everyday Value, you can be temporarily dislocated by an off-the-charts offer, but it doesn't knock us off our stride.

We know what our guest values in that $6.99 offering, and we've continued to see the mix be very strong there.

So I guess from that standpoint -- and Guy, I guess I'd turn to you with regards to the exact declines in the various segments.

Do you want to speak to that?

Yes.

We've seen about a 2.5% decline in dine-in versus a 40% increase in off-premise.

And the off-premise is actually outperforming our expectations, to some extent.

So the dine-in is not as strong clearly as the off-premise, but still outperforming what we assume to be the Black Box in that measure.

It's hard to, of course, discern because we don't report.

There's no reporting for dine-in or Black Box only.

But if we just look at the overall sales and traffic performance for the third quarter, even if you assume others are flat on off-premise, which is probably a pretty conservative assumption, we would still be outperforming the category in dine-in, but clearly not to the same extent we are overall.

Okay, fair.

Guy, how much did the phase one labor savings help the third quarter labor cost?

We rolled out about 25% of the system each month in the third quarter, and then of course finished the last 25% in the first month of this quarter.

So it was a contributing factor.

As Carin said, it's about an $8 million savings, the Maestro program, overall.

And if you just take the weighted average of that, we might have seen about a third of one quarter's worth of that savings in the third quarter.

Brian Vaccaro with Raymond James.

Just following up on the third quarter comps, can you provide some color on the cadence that you saw through the quarter?

As you looked at your business and you talked about comps coming in below your expectations, was it something that happened as the quarter progressed, or was it something that you saw through the quarter?

And was it external, or was it how the -- maybe the guest was navigating the menu that was a bit of a surprise with mix not stabilizing like you thought?

Just any perspective there would be helpful.

I think overall, the quarter performed pretty consistently.

More of our media was skewed to the front half of the quarter than it was to the back half of the quarter, so it might have performed a little bit better.

But generally speaking, I'd say the quarter performed pretty consistently from a comps point of view.

And also sticking with the third quarter, on the cost side of things, was the miss versus your expectations primarily on the comp, or were there also certain cost lines, whether it be labor, other OpEx, et cetera, that might have run a little hotter than your expectations?

And also, if that is the case, did that have an impact on your fourth quarter guidance, as well?

No.

Given our expectations of being $0.20 to $0.30 at the start of the quarter, really the entirety of the miss was pretty much associated with the sales issue.

And again, about half of that being related to some of the weather things we saw in the quarter.

So no, that didn't have an impact on our fourth quarter guidance.

Really the biggest cost impact to our fourth quarter guidance was the fact that we didn't roll out one aspect of the labor changes that we were expecting to.

So that's the primary change for fourth quarter cost expectations versus what we saw three months ago.

Okay.

And then just one more if I could.

On the guidance, I appreciate the updates that you provided, but I'm curious what your updated guidance would be in terms of G&A guidance, and also CapEx.

CapEx we expect to be at the low end of the original range that we guided, so not quite as high as we expected at the start of the year.

And G&A will definitely run below the range that we guided at the start of the year.

(Operator Instructions) Peter Saleh with BTIG.

I wanted to ask about the multiple delivery partners.

It sounds like you expanded beyond just one delivery partner to multiple in some of the restaurants you added in the third quarter.

Any thoughts on what kind of same-store sales benefit you are getting from going from one partner to two or three in the restaurants that have it?

We've definitely seen a little bit of an uptick overall.

We have anywhere from, like you said, one to three providers in a total of 191 restaurants.

So some of those have been recently added.

Perhaps we can comment a little bit more, going forward.

But like we said, we know that that off-premise third-party business definitely doubled from quarter two to quarter three.

Yes.

It hasn't really extend -- so our unique reach now was, as of the end of quarter three, at 191.

We don't have that many where we've got multiples, but we are reading that.

And every bit of research we've seen from the guest side says they tend to have an affinity with a GrubHub or a DoorDash in our case, or Amazon.

And so, again, it should definitely be adding.

But we are looking at that and weighing that versus the operational complexity of having to manage at this point two, or in a rare case, three tablets.

Got it.

And then just on the menu pricing going forward, given what you're seeing right now in the overall environment, does that change your thought process on menu pricing?

Will you take less, more?

How are you thinking about your menu price over the next year or so?

I think it confirms what we believed, Peter, which is we're going to be extremely conservative on menu pricing, moving forward.

Again, there's 10 years of industry data out there that would tell you there's negative 1 elasticity to taking price, so I think the jury's in on that one.

And so, as a result, we're going to be pretty conservative on price.

And I think we've said, when asked this before, that it's likely that our pricing is going to be in the 0% to 1% range, going forward.

It appears there are no further questions at this time.

I'd like to turn the conference back to management for any additional or closing remarks.

Great.

Thank you again, Sophie, for orchestrating the call, and just thanks to everyone for staying focused on the things that are going to make a difference for us in the long-term.

So have a good day, a good week.

And this concludes today's conference.

Thank you for your participation.

You may now disconnect.