Red Robin Gourmet Burgers Inc (RRGB) 2017 Q4 法說會逐字稿

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

Fourth Quarter 2017 Earnings Call.

Please note that today's call is being recorded.

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

Please go ahead, sir.

Thank you, Christie.

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 fourth 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.

Good afternoon, everyone.

We're looking forward today to sharing our fourth quarter and 2017 year-end results as well as our outlook for the year ahead, which, remarkably, is already 13% behind us.

Time flies when you're having fun, and at Red Robin, we are all about bottomless fun.

In fact, it's the first of our BURGER values, B equal bottomless fun.

Last quarter, we talked about our commitment to leverage our brand and organizational strengths to stay strong in the near term while we make the necessary changes to achieve continued long-term success.

I'm pleased to report that we made excellent progress.

We closed 2017 stronger than we expected and are generally very pleased with trends and our team's success at controlling what we can.

Even more importantly, we believe we have the fundamentals in place to carry us through 2018.

For the first time since I've been here, we closed the books on a full year with positive traffic up 40 basis points, that's 300 points plus ahead of the casual dining category, which, of course, was down again for the year, according to Black Box.

This annual outperformance was the best in over 5 years, and our fourth quarter marks 6 quarters in a row where we have outpaced competition and taken share.

I consider this traffic outperformance even more meaningful today as consumers have more options than ever to choose from.

I also believe the winners in this category over time will be defined by their ability to continually connect with guests in the ways they prefer, with a strong brand that can bridge different occasions and modes of access.

Red Robin's performance last year benefited from both our multigenerational brand relevance and our agility to meet different guest needs while making changes to the operating model that benefit the middle of the P&L.

Our operators continue to step up their game in on-premise dining service as measured by Net Promoter Score, taking the dramatic improvements they made in 2016 even higher to an average NPS of over 70 with under 7% detractors for 2017, not missing a beat with the guest while dropping the expediter role or what we call Maestro.

They accomplished this while significantly growing our off-premise business via carry out, third-party delivery and catering, which combined, were up 45% year-over-year to an 8.3% mix in Q4.

We deem this as good start toward our goal of mixing on par with others in the low to mid-teens.

Our marketing team continue to fine tune messaging and media spending, targeting markets where we have the best unit penetration with incremental corporate investment.

They also continue to smartly segment and leverage our best-in-class Red Robin Royalty program, which is now in its eighth year with $7.4 million registered members, up about 1 million members again last year.

The combination of improved operations and smarter marketing added up to a positive same-store top line sales of 2.7% in Q4, exceeding our expectations, particularly in a higher-than-anticipated 53rd week.

As the first major step in changing our labor model and controlling mounting costs, our restaurant team successfully implemented Maestro in Q4, over-delivering on controls and leveraging the top line growth.

This resulted in labor at 34.1% for the quarter, down 100 basis points versus prior year.

This is the level of executional precision and collective effort that we will need moving forward to successfully implement other service model solutions that work for our guests, our team members and our shareholders.

We continue to promote Everyday Value via our $6.99 Tavern Double menu, which, of course, is always served with your choice of bottomless sides, though I don’t know why anyone would go beyond the fries, which moved to 14% menu mix by year end.

We made a choice thoughtfully, informed by research in Q4 2015 to extend the Tavern menu to regain our edge on value.

As you can see, we made have progress.

Best in value equal tops and likelihood to recommend, equal best-in-class traffic growth.

We will not cede leadership on this measure.

We will continue to drive affordable abundance as a key differentiator.

In sum, 2017 set us up to maximize profitability via further productivity improvement while continuing to build same-store sales and traffic, primarily through off-premise channels.

We know we must improve returns to earn the right to grow again.

We do not necessarily believe that the traditional unit prototype is the best means through which to grow in the future, which is why we pause unit development beginning in 2019.

Full service, as we have always defined it, likely won't hunt in the changing cost and operating environment ahead.

We are actively exploring new ways for guests to experience Red Robin, and we'll be ready to invest to capitalize on new opportunities if and when they are proven.

To ensure we have sufficient resources to focus on that new future while also delivering on our in-year commitment, our leadership team came together recently to reset the organization, streamlining home office and field structure to free up resources to fuel dedicated transformation activities and reduce our committed expenses by over $14 million year-over-year.

Organizational resets like this are never easy but they are critical.

Structure must follow strategy.

We reset ours to be more nimble going forward.

We've also chosen to invest about half of the projected 2018 tax savings to accelerate several initiatives, which require one-time use of outside innovation resources.

So 2018 is shaping up to be a year of maximizing what we have already put in place and creating and piloting 4-wall transformations for the immediate future.

We are committed to delivering positive traffic again this year and continuing to outperform our category.

We are committed to aggressively growing our off-premise business.

We will measure ourselves against the best-in-class in our business, not just casual dining, on everything from team member engagement, to guest satisfaction, to traffic growth.

And we will set ourselves up for the model changes needed that will allow us to grow again in the future.

With that, let's all turn to Guy for the details on Q4 2017 year-end and our 2018 outlook, or as we know it around here, the annual Guydance.

Thank you, Denny, and good afternoon, everyone.

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

As Denny outlined, the fourth quarter of 2017 extended Red Robin's run of significant traffic and sales outperformance versus the casual dining industry, outperforming our peers by 360 basis points.

We have also continued to expand on our 2-year outperformance versus our casual dining peers, now tracking at 580 basis points as measured by Black Box.

You may also recall that last quarter, we introduced that we have developed an additional benchmark that compares us to top quartile best-in-class competitors for the entire industry, not just casual dining.

For Q4, we outperformed this group as well, generating a positive traffic gap of 100 basis points.

Congratulations to our operations, marketing and culinary teams for continuing to deliver significantly differentiated performance.

However, as we have said for several quarters, relative outperformance is not enough.

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

And the fourth quarter of 2017 demonstrated the start of the kind of results up and down the P&L that will help us deliver on that promise.

As we have commented on in past quarters, a great deal of foundational work has been put in place over the past 2 years, and we are now seeing the results from the differentiated thinking we brought to the industry and the hard work on those new ideas.

For the full year 2017, Red Robin made notable progress in a number of areas.

Our team members turned negative comp sales to positive.

Our team members delivered full year positive traffic, one of only a very small number of restaurant industry players to do so.

Our team members reversed margin declines from earlier in the year to margin improvements at the end of the year.

Our team members dramatically improved restaurant productivity and are poised to do so again in 2018.

And our team members delivered the significant positive cash flow necessary for a healthy and stable business.

Yet to sustain the strong performance in the current casual dining environment, we need to introduce the type of changes necessary to make our business truly successful.

We are making, and will continue to make, the important choices around business investments, 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.

These actions support our intention to first return to absolute and consistent earnings growth, and then put ourselves into a position to allow us to provide growth and returns that one associates with high-performing organizations.

Now to the specific results, keeping in mind that in 2017, we featured a 53rd week versus 52 weeks in 2016.

Q4 total company revenues increased 17.5% to $342.4 million, up from $291.5 million a year ago, driven primarily by the 53rd week, strong comp sales and new restaurant openings.

Comparable restaurant sales grew 2.7%, driven by a 1.9% increase in guest traffic and a 0.8% in average guest check.

Mix decreased to 1.8%, primarily driven by heavier guest usage of our Tavern and Value menu.

Overall price, after considering the impact of discounting, increased 2.6% in the quarter.

This higher level of price was due to a change in timing for the price increases compared to a year ago as we took the price increase in October versus January.

We would expect to be at our expected price level of 0% to 1% starting this quarter and moving forward, consistent with our focus on driving traffic through greater affordability for our guests.

Fourth quarter restaurant level operating margin was 20.5%, up 70 basis points versus a year ago, driven by the following factors: Cost of sales increased 90 basis points to 23.7%, driven primarily by higher cost of steak fries and higher ground beef costs.

As Denny mentioned, restaurant labor cost decreased 100 basis points to 34.1%, driven by decreases in management labor costs, improved hourly labor productivity and health insurance cost, partially offset by an increase in restaurant manager bonus cost.

The Maestro program reached full implementation in Q4 and our restaurant managers delivered on all targets related to the program.

Earlier this year, we made significant investments to improve the payout levels of our restaurant manager incentive programs.

These improved payouts were predicated on a successful pivot to improve labor productivity and to generate better restaurant level economics while driving improved comp sales.

We're happy to say that these changes, combined with improved operating results, produced full year 2017 restaurant manager bonus payouts that were nearly $8 million higher than in 2016.

Other operating cost decreased 50 basis points to 13.2%, primarily due to decreases in repair and maintenance costs and lower utilities, offset partially by higher third-party delivery costs and restaurant technology expenses.

Occupancy cost decreased 20 basis points due to lower real estate taxes.

General and administrative expense improved by 10 basis points to 6.4%, due primarily to sales leverage and despite an increase of $3.3 million in performance-based compensation versus a year ago.

Selling expenses were up 60 basis points as a percent of revenue to 4.5% due to increases in local marketing spend, national media spend and higher gift card costs.

This quarter features a change in how we classify selling expense with all marketing activities, including both national and local marketing and media expenses, now all represented in this line.

The local marketing cost moved out of the other operating expense line.

We believe this change, which is reflected for both this year and last year in the numbers, will provide better transparency to the true marketing expense and activity for the organization moving forward.

Q4 adjusted EBITDA was $35.8 million, up approximately 22.5% versus a year ago, aided by the 53rd week, higher comp sales and improved margin.

Depreciation and amortization improved by 120 basis points to 6.4%.

Net interest expense and other was $2.5 million, an increase of $500,000 versus the prior year, driven by higher interest rates on a revolving credit facility.

Our fourth quarter adjusted tax rate was 7.2% compared to 8% a year ago.

Adjusted earnings per diluted share were $0.78 as compared to $0.35 in the fourth quarter of 2016.

And the 53rd week generated $29.8 million in restaurant revenue, contributed approximately $4.7 million EBITDA, $4.1 million in net income and $0.39 in diluted earnings per share.

During the quarter, we recognized an impairment charge of $5.3 million related to 9 existing restaurant locations.

And in addition, due to the U.S. government's enaction of comprehensive tax legislation, the company recorded a decrease related to our deferred tax liabilities, which provided a onetime tax benefit of $2.8 million.

Now for the balance sheet.

We invested $22.5 million in CapEx in the fourth quarter, primarily related to restaurant maintenance capital, investment in technology projects and new restaurant openings.

We ended the quarter with $17.7 million in cash, up $6 million versus where we ended 2016, and finished the quarter with a lease adjusted leverage ratio of 4.04x.

We paid down a total of $70 million of debt in 2017, and our leverage ratio has improved a little more than a quarter turn, allowing us to materially derisk the business.

We continue to press forward towards our ultimate goal of maintaining a lease adjusted leverage ratio of 3x.

As we move into 2018, I wanted to share with you our expectations for the coming year.

And again let me point out that our 2018 fiscal year will return to its normal 52 weeks versus the 53 weeks this past year.

The company expects 2018 revenues to range between a decline of 50 basis points and an increase of 50 basis points as compared to the 53-week 2017 revenue total.

This will include a decline in operating weeks of about 1%.

Comp restaurant sales are projected to grow between 50 basis points and 150 basis points.

Cost of sales is projected to increase from 50 to 100 basis points versus a year ago due to higher steak fry cost and a return to a moderately inflationary commodity environment.

At the end of 2017, approximately 60% of our 2018 food cost spend was contracted.

Restaurant labor costs are projected between an increase of 25 basis points and a decrease of 25 basis points, driven by minimum wage increases in more highly penetrated markets and restaurant manager bonus as planned at target levels, offset by the effects of improvements in labor productivity.

Other operating expenses are expected to be flat to down 50 basis points, due primarily to lower repair and maintenance costs.

Depreciation expense is projected to be approximately $95 million.

G&A expense is projected to be $85 million to $90 million.

This includes a $3 million year-over-year increase to reset bonus to target levels.

In addition, Denny mentioned earlier that we recently reset the organization to streamline our home office and field structure and free up resources still out for reinvestment.

About $10 million of those savings will be realized in the G&A line, offset partially by investment in the transformational and technology projects that will lay the foundation for the future growth models for Red Robin.

Selling expense, which includes both national and local marketing activities, is expected to be up slightly as a percent of restaurant revenues, and preopening expense is estimated to be approximately $3 million due to fewer new restaurant openings.

Our income tax rate is projected to range between 0% and 5% for 2018.

As Denny outlined, we expect to invest some of the tax savings in 2018 to accelerate initiatives to enhance the guest experience, put technology in our team members' hands to improve their work experience and further improve productivity, and to identify the next growth models for Red Robin as mentioned earlier.

Earnings per diluted share is projected to range from $2.40 to $2.80 which represents an increase of 14% to 33% versus a year ago when normalizing 2017 for the 53rd week.

We expect Q1 earnings per diluted share between $0.60 and $0.80, reflecting both a challenging start to 2018 for the industry and the loss of 1 high-volume revenue week versus a year ago due, again, to the 53rd week.

Overall CapEx is projected to be between $65 million and $75 million as we shift capital investment from lower return new unit opening to higher return restaurant technology and kitchen investments that will increase revenue and improve productivity.

We expect to open 3 to 5 new Red Robin restaurants in 2018, net of closures, and we expect to use excess free cash flow after CapEx to pay down outstanding debt.

While we can look back on 2017 as a year of significant transition, what is most important was the work our team members did to put the company in a position to both further improve our existing business and to aggressively and rapidly reinvent Red Robin for future growth.

Our traffic numbers are at the top of the industry.

Our NPS scores are reaching record levels.

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.

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

We'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.

We will 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, as it is the focus on overall returns that is most highly correlated to overall improvements in total shareholder return.

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

Thank you, Guy.

In closing, I'd like to give a hearty shout out and a Red Robin YUMMM to our entire team, here in the home office and in the field, for stepping up to redefine our business and lead us through the critical changes we've made.

We recently hosted all our general managers and regional operations directors from the U.S. and Canada as well as many of our franchisees and business partners at our annual leadership conference, where we laid out the case for urgent change.

The energy and commitment to continue to excel and separate ourselves from the casual dining category was palpable.

Our collective goal is to ensure Red Robin is here to serve generations to come.

We are, and will be, the model of resilience.

Accepting realities, staying strong and adopting a growth mindset informed by new ways of being for the future.

Now let's take some questions.

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

A question on your 4Q performance.

I just want to kind of get a feel for how big the Tavern menu was in terms of being a driver versus off-premise and other drivers, and then how far you're willing to let that Tavern Double menu mix grow as you sort of balance the traffic with loyalty metrics with the lighter check that comes with that.

Well, we think Everyday Value is a place that we can win long term, Alex, so I'm less concerned with absolutely where the mix goes.

As we said, for FY '17, I think we ended up about 430 basis points year-over-year compared to the prior year on Tavern mix.

We made that choice deliberately, and continue to kind of focus on that.

It's hard to parse the difference between Everyday Value as it shows up in off-premise versus dine-in, but there is no doubt that the off-premise occasion is the one that's growing the most rapidly.

Is that helpful?

Yes, that is.

And then maybe if you could provide some color on the dine-in trends that you've seen and kind of where you see that heading into '18?

They were better in Q4 than what we've seen in Q3.

So certainly, again, not being certain which one is the trend and which is the up and down with regards to dine-in.

So we were off about 0.5 point in dine-in traffic, more than offset by, obviously, our growth in on-premise.

And for the first time, honestly, we saw our mall locations not do as well, our in-line and mall locations not do as well as we had in the prior years.

So certainly, that continues to be a relative drag on our business.

So again, we've only got about 17% of our locations that are in that group.

Great.

And one final question, just on the first quarter, I don’t know if you altered your media spend at all with the Winter Olympics.

I recall a couple years back, you had sort of moved that around a little bit.

Yes, we did some things around messaging a few years ago.

And we continue to try to make sure that we're trying to drive our guests in more for lunch.

I'm glad the Olympics only come once every 4 years.

Let's put it that way.

Viewership is down, but, I don't know.

And next we'll go to Gregory Francfort from Bank of America.

Maybe just first a clarification.

I think in the prepared remarks, Denny, you had said you are generally pleased with trends to start the year, but Guy, you were highlighting part of the reason why you gave the first quarter earnings guidance is because of a challenging start for the industry.

I guess I'm trying to reconcile those 2 comments.

You filled in a blank I didn't fill in.

I said we are generally pleased with the trend's coming out of last year.

I did not say in this year.

Got it.

Understood.

So yes.

Greg, you filled in a sentence I didn't state.

No, I hear -- I guess I'm hearing -- I may be hearing things.

We don't comment -- yes, it's okay.

I understand because I know, some have, we don't comment in quarter where -- our continued commitment is to outperform the set, and we want to do that.

Understood.

And then just how do you think about the average check going forward?

I mean clearly mix continues to be about 150, 200 basis point drag, and now you're starting to take more pricing against that.

Do you expect mix to start to turn more or start to contribute sort of a meaningful portion of the comps as you move into '18?

Yes, Greg, on the pricing, we had the unique circumstance this quarter where an annual price increase that we may typically take in January, we instead took in October this year.

So what you had in the fourth quarter was the benefit of the pricing we took last January, plus what we took in October.

That will correct itself here in Q1.

We won't be taking price this January, we just took it early.

And so we would expect our pricing to be flat to up 1% as a rule of thumb going forward.

So we're definitely not pricing to try and offset the mix.

In terms of the -- what we think about PPA and mix going forward, if the guests desire and the way we can drive value, as Denny said, is to allow the Tavern mix to extend, I think we're okay with that.

I think as we talked about, affordability and values are very important component for us.

So we're not necessarily trying to push hard to drive our PPA higher.

We want to make sure we maintain affordability for the guest.

And of course, the best way to do that is to do the work in fixing the fundamental business model so we can continue to offer that profitably.

Got it.

And then maybe one last question.

I think you talked about excess free cash -- excess cash flow going to paying down debt.

When do you start buying back stock?

Is that towards the latter half of '18?

Or is that more of a '19 focus?

Yes, our belief, Greg, is that we'll reach the point probably in early 2019, where we'll feel comfortable to blend both share repurchase and debt repayment.

We don't have to get all the way down to our 3x goal before we start doing that, but we're not yet at the point, we believe, in 2018 where we think we're ready to reintroduce the share repurchase.

And we'll go next to Peter Saleh from BTIG.

Denny, can you guys just go over the rationale behind the change and the timing of pricing?

Why did you take the pricing earlier versus your traditional timing?

Honestly, we had some menu changes we were making, and it was a way to save some money on having to reprint menus.

So candidly, it was a cost avoidance for us.

Okay.

Fair enough.

And then on the investments that you're planning to make this year, can you give us a sense of the cadence?

Will it hit more in one quarter than in others?

How do you spread it out throughout the year?

I know it just makes a pretty sizable difference in the model as we model it out.

Yes.

The new unit spend will be skewed more towards the front of the year.

Peter, you'll recall that when we decided to pause the traditional unit growth, those that were already, kind of, in the pipeline we had to continue on with.

And we were able to stop those that were off further into the future.

So the new unit spend will more consistently -- or most of it will occur in the front half of the year.

In terms of the balance of the investment, probably a little skewed to the front half, but generally, pretty consistent over the entire year.

Okay.

And then just on the loss of the -- the 1-week loss in the -- and the first quarter that you said was a high-volume week, can you give us a sense of maybe how much in EPS that may have impacted?

Or maybe how much that benefited last year and didn't impact this year?

Well, so for example, we did give some detail in the prepared comments.

And in the release, Peter, you'll see on what the 53rd week benefited us in the fourth quarter.

It was $0.39 of EPS.

As we look to Q1, one of the issues, as you consider modeling, is while there -- it's a 16-week quarter this year as it was last year.

The first 2 weeks of the quarter last year were the week after Christmas and the week after New Year's which are 2 of your highest volume weeks in the entire calendar year.

This year, of course, because of the 53rd week, took us through to the end of the calendar year.

This year's first quarter will only have the week after New Year's in it.

So when you're modeling, if you just use last year's Q1 base, you're probably overstating the absolute benefit as we move now into 2018.

And we'll go next to Will Slabaugh from Stephens Inc.

This is actually Hugh on for Will today.

My first question is around off-premise, and specifically, what percent of restaurants are currently offering delivery, and if you could just give us some more color around the incrementality or profitability impact that you're seeing from delivery?

Yes.

So about 240 of our locations or roughly half of our corporate locations have 1 or more tablets and partners in delivery.

We continue to see it as highly incremental.

There seems to be a unique guest going to those sites, and are open to the possibility of adding more of this year.

We'll see how it goes.

But as it stands, it's grown from, I guess, we've added about 10 more so far this year, but about 240 as of right now.

Okay.

That's great.

And we've heard on other calls about concepts seeing a recovery in consumer spending.

Are you all seeing the same thing, and if you noticed any geographical pockets to note there especially strong or soft?

Well, Hugh, we won't comment on what, if anything, we've seen in the first quarter.

Although all of you are looking at the NAP and Black Box metrics to kind of get a sense of how those things are impacting the restaurant industry.

And of course, there's some speculation as to what the changes in the tax legislation will mean for individuals moving forward.

But through that, we wouldn't want to speculate how that's impacting us.

In terms of geographies, we certainly look at those, and in the markets where we're most penetrated, Pacific Northwest, West Coast, Mountain states, we did very well.

Some of our highest gaps to Black Box were in those states.

The states, where we perhaps had a gap that wasn’t quite as large are the states where we're much less penetrated, which I think potentially does say something to you as well.

That where we can be penetrated and well known and can leverage our local marketing ability, we're able to drive exceedingly higher gaps to the rest of the industry in sales and traffic.

Yes, because we in the fourth quarter, we outperformed 10 -- in 10 out of 11 of the regions on traffic and 8 out of 11 on sales.

So outperformance is where we're focused.

And next we'll go to Stephen Anderson from the Maxim Group.

So saw the strong performance coming out of Q4.

I mean, starting with the mix coming from the Tavern program by -- see a dramatic pull back from Q4 and basically over the full year we see not much incremental improvement from 2017.

And what do you see coming out of that?

I mean, do you factor in any kind of a pull-back in terms of traffic?

No, other than what I've mentioned, Stephen, is that the first quarters are a little bit of apples and oranges to try and compare because we lose one of those high volume weeks.

What we're lapping to is the factor for the industry as a whole.

January was a pretty strong period, last year for the industry, and then it weakened again in February and March.

But no, I don't think there's anything that would cause us to think differently about the factors that are impacting the consumer from the third, fourth quarter into the first.

And we'll go to Howard Penney from Hedgeye.

I have 2 questions.

First, it feels like the phrase, alternative service style, is new but it's not new.

I understand you were looking at sort of different ways of growing the business.

But I'm just curious if there's anything new in your thinking along those lines?

I know you're testing a store, but it just feels like you're looking at something new.

And then the second question, more specifically, Guy, is the delta in returns from a low margin unit to high margin or a high return -- or a low return unit to a high return, other investments into improving your store performance?

I'm just curious of what the difference in the returns are, if you've seen those.

Yes, Howard.

I mean, yes, alternative service models, and I put an S on the end of that, so I think what you're referring to is the 1 location that we've opened that's currently just delivery and third-party carry-out or third-party delivery and self-delivery out of our Chicago location.

We're continuing to look at ways that we can address the rising labor costs and find new ways in our existing 4-walls to help the guest.

And so you'll hear a lot of that.

That's what we consider transformation.

And we've got a lot to focus on that right now, a number of different things we're looking at.

But as we bring those forward, expand them beyond very initial pilots, we'll share our results at that time.

Yes, and maybe just to add to that before I answer your other question, Howard, we were leaning heavily into the technology investment.

We're in the process of expanding the technology capacity in our current restaurants.

We're doing an upgrade to our current point-of-sale software and our food cost management system.

We're putting catering software in our restaurants.

We're going to put technology in the hands of our servers to improve their productivity, improve the guest experience.

So we feel like improving those 4-wall economics, which does lead into your second question, is an important focus of ours.

Rather than building new 4 walls, we need to make the 4 walls that we've got operate much better.

In terms of the delta between returns, I mean, I don't know that I'd want to get into the specifics, but we've got units, as you might imagine, that do north of 6 million in volume on an annual basis and we've got some that do 2 million.

And so as you can imagine, the return profile is dramatically different between those 2. As we think about refranchising the system, those factors enter in to our equation as we think about would we earn a better return with those models being franchised as opposed to being company-owned.

Which is why we set the goals around increasing our franchise mix.

And of course, any of these initiatives we're working on to drive comp sales or invest in technology and improve labor productivity will -- sort of will be the tide that lifts all the boats in the system.

And so that's where we're focused on right now, improve the 4-wall economics.

Doing better with the investments that you've already made is always going to provide a better return than trying to search for new ideas to try and drive those returns as we move forward.

And improve those economics without making trade-offs to the guest experience.

That's why it's challenging.

Absolutely.

Guests and team members.

Can I get you to potentially tier the investment that you're making by returns?

Or -- what's the most -- what's the highest return...

That's how we do it internally, Howard.

We look at the course of ideas that we have, and the ones that generate the highest return are the ones that rise to the top of the ladder.

And those could be and are, in fact -- and I know you've been in our kitchens and you've seen them, some very simple kitchen investments that may not be high dollar amounts but provide great returns.

But that's exactly how we do it.

It's stack-ranked to returns and make the investments in that order.

And we'll go next to Robert Mollins from Wells Fargo.

First question.

Can you guys talk about curbside pickup is performing versus delivery?

And are you guys seeing a difference in the average check between the 2?

Curbside is actually not -- again, curbside, we've only been able to implement in a percentage of our locations.

And I'm looking for somebody to tell me exactly the number, but yes, we're limited by, I want to say maybe 60%.

Curbside uptake, I think, is not as high as perhaps we had expected initially.

Delivery is definitely the growing category.

Third-party delivery is huge and growing rapidly.

And for the fact that it's only in about half of our locations, it's over-representing right now in terms of growth.

In terms of difference in check average, really not much difference in check average.

The biggest challenge with anything in off-premise is the loss of the beverage sale, but the guest does seem to get more food even though the average eaters per check is lower.

So they embark, they take advantage of getting more food but don't get the beverage.

But curbside has not been the dramatic growth piece that we expected.

A lot of folks are still walking in.

We're seeing about equal balance between online and call-center orders, and continue to see one of the largest components is folks just walking in to the restaurant, which is what we've been doing for years.

Great.

And then do you guys have any learnings from the self-delivery test that you guys were doing?

Not to share yet, but we're looking at it very carefully.

Okay, great.

And now one more if I could.

What are your thoughts around wage inflation for 2018?

We expect it to be mid-single digits, so not that different than what we're experiencing today.

But as you saw by the guidance, we expect to be able to offset it with the productivity improvements that we're making.

(Operator Instructions) We'll go next to Brian Vaccaro from Raymond James.

Just a couple of questions on the guidance if I could.

In terms of the menu pricing, could you remind us when you lapped price increases as we move through '18?

Or just give a clearer picture sort of on the pricing cadence as we move through?

We lapped some price increase in January that we took a year ago, Brian, and then we lapped the balance in October.

Okay.

Could you give us a sense of the magnitude you lapped?

I just want to say that about -- of the overall price increase for the year, I want to say about 60% of it was in the earlier price increase and about 40% of it in the October price increase.

Okay.

All right.

That's helpful.

And then on the food cost side, you said modest inflation.

Could you provide some more color on the puts and takes within that line, what you're expecting in terms of ground beef and other moving pieces?

Yes.

Ground beef, we're expecting moderate inflation, Brian.

And then steak fries is the other one that we called out as being fairly significant.

Those are the 2 primary drivers of the food cost inflation that we're expecting for the year.

No other real unique issues to point out that are material.

Okay.

And then on the labor productivity initiatives.

I wanted to ask about just how the teams have adjusted to removing the bussers?

And has that initiative now been fully rolled out to the system?

So we didn't -- aren't commenting specifically about what's been done in quarter, Brian, but the Maestro, as I mentioned on my comment, the Maestro had gone well.

All the targets were hit.

So I think there's a lot of momentum coming off of that.

And we did -- we made those changes in a quarter, where our comp sales and our traffic were very strong.

So I think that's building confidence in our operators that we can make these kinds of changes, and that we're making them with an eye towards making sure that the guest experience is at least as good, and in many cases, hopefully better than what we saw before.

And getting momentum on these kinds of changes and seeing that they can work and be a positive for the guest experience is helpful for us to get other changes done in the future.

The team service approach is obviously an important one for us to get the year started but we have other things in the queue as well.

Okay, so just to be clear, the team service changes though, they are going in during the first quarter as we speak?

Yes, again, we don't want to give any of the specifics, Brian.

But we are making labor changes, we have, as of the start of the year.

We're seeing productivity improvements continue.

Okay.

And then just one last one on that.

Can you quantify, as you think about your labor outlook for 2018, can you quantify the labor savings between the Maestro and other initiatives that are embedded in that guidance?

Or have you just embedded the Maestro at this point and there could be potentially more to come?

Can you give us some perspective there?

Oh, no, we have other changes embedded in the guidance because the Maestro is worth about $8 million, you will recall, Brian, and we started that in the fourth quarter.

So call it 3 quarters of that benefit or $6 million of the improvement will come from Maestro.

And for us to offset mid-single-digit inflation on our labor basket, we obviously need a lot more than the Maestro program in order to get to that down 25 to up 25 on labor as a percent of revenues.

So we are definitely assuming some other changes in that guidance.

Technology [of] your guidance.

Yes.

And we'll take our next question from Gregory Francfort from Bank of America.

I just had an extra question.

Just in terms of the quantification of the shift in the week.

I think from what you've given us, the extra week from 2017, there's probably 15% to 20% higher than a normal week, which if I do the math, sort of suggests the $5 million move from the first quarter to the fourth quarter.

And so we should be like removing $5 million from the first quarter and then adding that on to the fourth quarter.

Is that roughly the right way we should be thinking about kind of the math there?

Yes.

I think that's roughly correct, Greg.

That if you take into account how much higher the 53rd week is than a typical week, and obviously you have to think about it in a typical Q1 week, that's probably a reasonable assumption as to how you should move the dollars around.

And we'll go next to Will Slabaugh from Stephens Inc.

Just wanted to do a quick follow up on the tax rate if I could.

On the 0% to 5% guide, I wanted to make sure that was a sort of a sustainable number as we think about '18 into '19.

Is that a number we can count on kind of going forward?

Is there anything to point out in '18 that might be a little bit different than what we might expect in future years?

No, I don't think so, other than just the normal factor in our industry, Will.

As earnings rise, tax rate tends to rise, and as earnings go down, tax rate goes down.

But assuming the numbers that we guided to, that's a reasonable rate to assume going forward.

And at this time, I'd like to turn the call back to Denny Post for any closing remarks.

That's it.

We thank you all for your interest today, and look forward to talking to you individually on the follow-ups.

Take care.

Thank you.

And that concludes our call for today.

Thank you for your participation.

You may now disconnect.