Red Robin Gourmet Burgers Inc (RRGB) 2018 Q4 法說會逐字稿

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

Fourth Quarter and Full Year 2018 Earnings Call.

Please note that today's call is being recorded.

During the course of this conference call, management may make forward-looking statements about the company's business outlook and expectations.

These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today, and therefore, are subject to risks and uncertainties as described in the safe harbor discussion found in the company's SEC filings.

During the call, the company will also discuss non-GAAP financial measures.

These non-GAAP measures are not prepared in accordance with the generally accepted accounting principles, but are intended to illustrate an alternative measure of the company's operating performance that may be useful.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release.

The company has posted its fiscal fourth quarter and full year 2018 earnings release and supplemental financial information related to the results on its website at www.redrobin.com in the Investors Section.

Now I would like to turn the call over to Red Robin's President and CEO, Denny Post.

Good afternoon, and thank you all for taking the time to join us today.

I am pleased to have 2 members of our executive team with me on the call this time.

Guy Constant, who is of course not new to the team, but new to the role of our Chief Operating Officer; and Lynn Schweinfurth, who recently joined us to replace Guy as Chief Financial Officer.

You'll hear from both of them today on our operations plans and financial guidance for 2019, after I wrap up 2018 and speak to our priorities for the year ahead.

2018 was, in sum, a very disappointing year for us.

It brought a lot of hard-earned learning, which we are using to urgently set new plans to turn our performance around, as I will speak to shortly.

Q4's sales and guest trends continue to be soft, although we did see some improvement in operational metrics as we moved through the quarter.

Dine-in traffic was down by a total of 4.2% for the year, which clearly is not sustainable and undermines the growth of our off-premise business.

We market tested 3 new tactics to improve dine-in traffic, and will be implementing the most promising of them immediately.

We saw the gap widen between enclosed mall units and freestanding units, raising our urgency to reassess our real estate portfolio.

We continued to seek buyers for the regions that we have identified previously as refranchising priorities, and while we have nothing to announce on the call today, we have made good progress.

We have also decided to engage an outside firm to dial up the pace on certain markets and to support the sale of any future regions we may choose to refranchise.

With 2018 now behind us and all the learning that we gained, let's focus on what our key strategies will be to turn the business around in 2019 and regain momentum on our path to be both a destination and a source of craveable, customizable gourmet burgers served with attention and speed in generous portions that ensure guests get the full value for their money.

Today, the 3 of us will speak to our 2019 priorities, which are: first, to stabilize dine-in revenue with a more compelling value proposition.

Second, to continue to improve the guest experience, which Guy will address, as we seek to recapture the convenience Red Robin has always been known for, what we call the gift of time.

Third, to continue to build our to-go and catering businesses.

Fourth, to implement digital platforms and restaurant technology solutions that deliver a clear return on investment, and support dine-in service improvement and off-premise growth.

And last, to selectively refranchise and reassess our real estate portfolio.

Value has been critical to our winning formula for years and as recently in 2017 led to outperformance of our peers.

Here's why it remains critical today.

We served a core target of middle-income families, and it is important that we continue to evolve to meet their needs.

Value and convenience matter as much today as it ever has.

For most of the past 5 years, we have relied on a growing variety of Tavern Double burgers priced at $6.99 to successfully drive traffic.

That led to our creating a growing drag on PPA.

We have since dialed back the number available at $6.99 to just 2 burgers, raising the price on the other Tavern Doubles.

As a result, Tavern mix has moderated from a high of 17% in Q3 to just over 14% in Q4.

And we expect it to continue to move downward as we put greater emphasis on innovation in our gourmet line, such as the new El Ranchero burger we began advertising yesterday.

As I mentioned earlier, we recently market tested 3 new value tactics, 2 were winners.

One require some operational changes that we will need to sequence in and the other will be launched on air in limited high-penetration markets next week.

This offer is a $10 bundle, it's dine-in only.

It features a choice of 3 gourmet burgers, a choice of bottomless side and a bottomless beverage.

This drove incremental and profitable dine-in traffic in our test market.

If it is as successful on a broader scale, it will be in our national toolkit for Q2.

But as we all know, value is ultimately about more than price.

We are also working on a new advertising campaign to refresh our message, which has become decidedly functional and a bit generic over the last 2 years.

This new campaign strategy is based on fundamental research we have recently done about how to capture our differentiated value on a more meaningful level.

We expect to launch a new campaign no later than the end of Q2 that will return Red Robin to its unique place, among restaurant options for our core targets.

We have invested considerable resources to move our very successful Red Robin Royalty loyalty program to a new digital platform by midyear, which will make it possible to precisely target offers based on recent purchase behavior.

Our royalty membership base number is over 8.6 million members today, and it continues to be one of our most powerful marketing tool, warranting further investment to become even stronger.

In addition to stabilizing our dine-in business, which is the most critical and foundational element of near-term success, it is important that we continue to evolve to meet the needs of busy families by also offering a convenient to-go option.

By the third quarter, we plan to launch a new online ordering system that is far more intuitive than the one we currently use with the goal of increasing the volume of online orders and improving conversion.

We will be investing this year to improve our curbside service, and we are exploring new meal bundles that make it easier to see the busy family.

In just 3 years, we have grown our off-premise business from 5.4% in 2016 to 9.9% in 2018 as a percentage of food and beverage sales on a full year basis.

We believe that it can double again in the next 3 years.

Top line growth driven by stabilizing dine-in and incremental off-premise offers the potential for significant leverage, as we have been actively addressing rising labor costs through higher productivity to improve the middle of the P&L.

We are continuing to invest in tools which will make it possible for servers to care for more guests, prioritizing the rollout of handheld ordering devices in Q2 to the highest cost labor market.

We are also testing further menu simplification to improve Heart of House productivity and accuracy.

Our rapidly growing catering program, which has been very well received and successfully implemented by our operators, adds a nice layer of relatively high-margin sales.

We grew this business from just $1 million in 2017 to $11 million in 2018 and expect it to at least double in just 2019.

To further improve store-level economics, we are also addressing high-occupancy rates, having secured over $2.5 million in cumulative rent savings last year over multiple years.

We are targeting additional negotiated savings in 2019 and may take more aggressive actions on our portfolio.

Given the continued decline of enclosed mall units, including closures, where they make sense.

We expect to share more about this on our Q1 call in May.

All of these strategies are designed to improve 4-wall economics by driving top line and benefiting restaurant margins.

We expect to see it all come together in the back half of the year.

None of this can be accomplished without strong operating teams and a clear focus on quality service that delivers the "Gift of Time" to our guest at our restaurant.

That requires the right staffing, scheduling and focus.

At this time, let's turn to Guy Constant.

Guy moved into the role as COO, full time, just a few weeks ago after working side-by-side with me as I serve as the interim Chief Operating Officer for the last third of 2018.

Guy has a solid reputation with our operators as a straight shooter and an advocate for executing our top priorities with excellence.

Let's hear from him now on his new role about the focus in operations and how that will be measured as we seek to regain the trust of our last guest.

Guy?

Thank you, Denny, and good afternoon, everyone.

To build off what Denny has outlined, we are hard at work to improve the execution within our restaurant operations.

As we detailed last quarter, we had experienced some challenges that negatively impacted the guest experience through the middle of 2018 and the fourth quarter marks our urgent efforts to address not just the immediate issues, but also to lay the foundation for sustained and reliable performance for the future.

And the good news is that we, indeed, saw improvements.

Not just in the sales performance as the quarter progressed, but in some of the service underpinnings to drive ongoing improvement as highlighted by some of the leading metrics.

As we progressed through the fourth quarter, we saw steady reductions on the number of guests that were walking away, both versus what we saw earlier in the year and even compared to the fourth quarter a year ago.

And we saw steady decline in the number of guest complaints related to the time waiting to be seated and related to table cleanliness.

2 areas we are targeting as key metrics that require improvement.

And even as weekly guest counts increase through the fourth quarter due to typical holiday seasonality, we were able to hold kitchen time steady, and we were able to slow the growth in year-over-year wait times.

And in both cases, post numbers that were improved versus where they were earlier in the year.

All very positive initial first steps in the turnaround of our restaurant execution and done while generating some of the best restaurant labor productivity numbers we've seen, with overall 2018 hourly labor productivity improving approximately 9% versus what we saw in 2017.

But there's still a great deal of work to do.

While we've made some progress, we're still not where we want to be.

So as we get into 2019, our efforts are focused in 5 areas.

First is staffing.

While this remains a challenging labor environment in some markets, with shrinking unemployment and a tighter labor pool, we have improved our staffing situation versus where it was 6 months ago at both the hourly and manager levels.

This is the first critical plank in the foundation.

If we can't get enough people on staff, it will be difficult to continue to make progress.

Second is scheduling.

Once staffed, we're then able to schedule more proactively to ensure we have the right number of team members in place during peak hours to capture all of the business that's available, while more aggressively managing shoulder and nonpeak hours, so that we don't waste more expensive labor costs that can otherwise be used to capture peak traffic.

Third is simplification.

2019 will feature a number of steps that will be less about new things for operations to learn and more about taking the things already implemented and making them easier to execute with excellence.

This emphasis will have us work on doing fewer things excellently, as opposed to more things adequately.

Our operations team has seen a lot of change over the past year.

In 2019, we will bring them the tools to help them take that change and turn it into much better execution and performance.

Fourth is standards.

In order to observe the significant change they experienced last year, the operators were sometimes forced to get creative to try and deliver on our promise to the guests.

By putting them in this position, we drifted away from the consistency and standards that are the hallmark of high-performing operations-driven organizations.

By putting all new initiatives through a filter that places operational excellence first, we will return to a culture that values standards as the foundation of operational execution and performance.

And fifth is training.

In the more challenging labor environment that I discussed earlier, we are operating today with managers and team members that are less tenured and less experienced.

Both of which require a more disciplined approach to training.

As we look at our training and development programs, we're not necessarily looking to increase our investment but rather reprioritize our current spend towards trainings on the basics of restaurant execution for our team members and the fundamentals of restaurant leadership for our managers.

Whether that is training our host and off-premise specialist on managing the new dynamic of the multiple revenue streams at the front door or reinforcing the new skill sets needed for our servers or helping our Heart of House team members to adapt to the improvements we will introduce to our kitchens or teaching our managers to lead and coach to the new standards, training will be a key component of our operational turnaround.

I understand that what I've laid out may not be groundbreaking or exciting, but it's these basics and fundamentals that will help us to reinforce the trust that our team members and guests have placed in Red Robin and will help us to build the reliable, predictable and sustainable business that we desire.

Now I have the great pleasure of turning the call over to our new Chief Financial Officer.

While Lynn is not new -- while Lynn is new to the Red Robin team, she's not new to many of you, given her extensive experience in the restaurant industry and with the investment community.

I look forward to working with Lynn again over the coming weeks and months as we partner to return to the performance that we all expect in Red Robin.

Lynn, welcome to the Red Robin team.

Thank you, Guy, and good afternoon, everyone.

Let me begin by first reinforcing the intensity of focus we share in executing our 2019 plan to turn performance around and in preparing the company for long-term sustainable growth to deliver value to our shareholders.

As I walk you through the highlights of our fourth quarter 2018 financial results, please note we had an extra week in fiscal 2017.

In the fourth quarter of 2017, the extra week represented $24.3 million in restaurant revenue.

Q4 total company revenues decreased 10.8% to $306.8 million, down $37.1 million from a year ago.

Excluding the impact of the extra week in 2017, revenues decreased by 3.7%, down $12.8 million from a year ago.

Comparable restaurant sales declined 4.5%, driven primarily by a 4.4% decline in guest traffic and a 0.1% decline in average guest check.

Overall net pricing, after taking into account discounting, was 0.1% while mix declined 0.2% in the fourth quarter.

As a result of being off air for several weeks through the end of Q3 as we focused on operational execution, comparable restaurant sales were weakest at the beginning of Q4 and improved sequentially through the quarter, resulting in 2-year stacked traffic that was slightly better than competition as measured by Black Box.

Additionally, off-premise continues to have meaningful growth and in Q4 represented 10.6% of total food and beverage sales.

The fourth quarter restaurant-level operating margin was 19.4%, down 110 basis points versus a year ago, driven by the following factors: cost of sales of 23.6% was favorable 10 basis points versus a year ago.

Favorability in food waste is measured by actual versus theoretical performance and favorable ground beef costs were partially offset by higher steak fry cost and usage and higher dairy cost.

Restaurant labor cost of 34.7% were unfavorable 60 basis points versus a year ago, as higher wage rates and sales deleverage were partially offset by favorable productivity and lower manager bonuses.

Other operating costs increased 40 basis points to 13.6% due to increases in third-party delivery fees, utilities and supplies, partially offset by favorable repair and maintenance costs.

Occupancy costs increased 20 basis points to 8.7%, primarily due to sales deleverage.

General and administrative expense improved by 40 basis points to 6.0%, due primarily to the home office reset that was completed in late January 2018, and lower incentive and equity compensation costs.

Selling expenses increased 80 basis points as a percent of revenue to 5.7%, due to higher spending on local marketing and national media.

Preopening costs decreased $0.8 million, primarily due to the suspension of restaurant openings for the foreseeable future, as we continue our work on improving our 4-wall economics and developing our new unit prototype in 2019.

Q4 adjusted EBITDA was $28.4 million, down 20.8% versus a year ago.

Depreciation and amortization increased 80 basis points to 7.2%.

Net interest expense and other was $0.3 million higher versus prior year, due primarily to losses on our deferred compensation plan assets, offset by lower interest expense due to a lower debt balance, and we experienced a $7.3 million tax benefit in the fourth quarter.

Adjusted earnings per diluted share were $0.43 as compared to $0.78 in the fourth quarter of 2017.

During the quarter, we recognized other charges of $21.7 million, primarily related to asset impairment, smallwares disposal and litigation contingencies.

Now turning to the balance sheet.

We invested $10.4 million in CapEx in the fourth quarter, primarily related to expenditures for facilities improvements and investments in information technology.

Capital spending year-to-date was $50.3 million.

We ended the quarter with $18.6 million in cash and cash equivalents, up $0.9 million versus where we ended 2017, and we finished the quarter with a lease adjusted leverage ratio of 4.08x.

During 2018, we paid down $73 million on our revolving credit facility.

And at the end of the first quarter, our related outstanding debt balance was $192.5 million.

We bought back approximately 43,000 shares for a total of $1.5 million in 2018, consistent with our initial goal of offsetting the dilutive effect of the company's equity compensation program over the course of 4 quarters.

As Denny mentioned, we continue to work diligently on our refranchising effort.

As a reminder, our current refranchising focus is on markets that include approximately 100 existing Red Robin locations and include development opportunities for potential partners, taking our franchise mix up to 30%.

We continue to focus on improving the performance of certain challenge small locations through rent reduction and marketing and sales building strategies to improve profitability, as we continue to assess the viability of each location and related relocation and exit strategy.

In terms of 2019 guidance, we are currently expecting comparable restaurant sales growth of flat to up 1.5%, EBITDA of $121 million to $126 million, net income of $17 million to $22 million and earnings per diluted share of $1.30 to $1.70.

Guidance does not reflect the impact of refranchising transactions, and we will update guidance if and when a refranchising transaction is announced.

In addition, we do not expect a meaningful change to our expense recognition pattern, as it relates to the new lease accounting standard.

Selling, general and administration (sic) [administrative] expenses are expected to be $160 million to $164 million in 2019.

2019 general and administrative expenses are expected to increase compared to 2018, primarily due to higher bonus expense, wages and software costs and additional information technology resources and other costs that we believe will benefit our results in 2019 and beyond.

2019 capital expenditures are expected to be $50 million to $60 million and includes facilities improvements and investments to support our growing off-premise business.

Technology, capital investments, include among other things, improving the experience and usage of our website for desktop and mobile online ordering and improving hardware and software back-office stability that we believe will lead to less downtime, lower system maintenance cost, higher guest and team member satisfaction and better results once in place.

We are also investing in restaurant equipment to improve throughput, quality consistency and menu innovation initiative.

Before I close, let me recognized the efforts of Guy and our operators and the improvements they are making.

We believe continued progress will translate into improved guest satisfaction, and in conjunction with, focused and impeccable marketing, product innovation and technology enhancement will improve the trajectory of our traffic and business results during 2019.

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

Thank you, Lynn.

And let me join Guy in welcoming you to Red Robin.

You are a great addition to our talented executive team, and we know that you will be a refreshing change of pace from the old CFO.

In closing, let me reiterate what we know, that we know, what we need to do to get our momentum back and separate Red Robin from the pack again and to ensure that the brand is here to separate to serve generations of families to come.

We are moving with focused urgency and precision.

We recently held our leadership conference here in Denver with all of our GMs and field leaders in attendance.

Our breakout focused on many of the basics, many of the fundamentals Guy referred to, which are critical whether you have been in leadership role for 10 years or 10 months.

Our message from the stage was clear, we must turn around our performance and get back to winning.

Stabilize dine-in with superior service and we can, once again, gain share from competitors.

Then, drive off-premise, and we can set ourselves up for a high-growth future.

The vision is clear, now it's up for all of us to deliver with urgency.

With that, let's take questions.

(Operator Instructions) We'll go first to Gregory Francfort from Bank of America.

My first question is just on the pricing and the mix in the quarter and maybe how much of it was due to the changes around the value platform emphasis versus -- I think you'd say that pricing would be around 1% for the quarter and it came in a lot lower than, I guess, I'm trying to figure out what the delta was.

Yes, our pricing actually came in a little above that number, but it was offset by some discounting that we implemented during the quarter to invite guests back into the restaurant to experience the improvement in operation.

And then maybe on a go-forward basis, is the plan to run 1% pricing more than that?

Any rough framework for your expectations on that front?

While we haven't made all of our pricing decisions for 2019, we do believe that we'll begin the year with about 1% of price, and then we will potentially take pricing during the year 2% to 2-plus percent, depending on final decisions made.

And Greg, I can also say, as I share with you, we've test marketed some bundles that have proven to be profitable in driving traffic more so than perhaps what we did in fourth quarter.

And are also very focused on this overall value proposition and some other tactics that don't rely on the kind of deep discounting we did to drive traffic in those limited markets.

And maybe if I can sneak one more in.

Just on the mall performance, anything else you can sort of talk to there in terms of how much wider that gap is running than it's been in the past, and how much of a drag it was in the quarter?

Lynn, do you want to give him a highlight of the numbers, and then we can kind of speak to it.

Highlights of both...

Well, unfortunately -- yes, our mall performance was down about 5.5% in the fourth quarter, so that certainly was a difference of about 3.6% for our non-mall location.

We've seen this, Greg -- Greg, we've seen this get worse now 3 quarters in a row.

If you remember back earlier in 2018, we have seen a down quarter and up quarter or down quarter.

And in fact, the fourth quarter of 2017, as I remember it, kind of surprised us.

But now 3 quarters in a row of decline has us looking with greater urgency at that element of our portfolio.

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

I just wanted to circle back on the fourth quarter comps, and you said that they improved as the quarter progressed.

Then could you comment on how your gap versus the industry trended through the quarter?

And sort of how much of the improvement you would attribute to ops improvement versus broader industry trends that seemed to improve in December?

Well, I can certainly tell you that gap versus the competitive set improved throughout the quarter.

We did publish in a supplemental deck today that we were better on a 2-year basis, by 20 basis points.

And I might ask Denny or Guy to address the second part of your question.

Yes, I was going to say, I wouldn't say it was industry.

In fact, if anything, this relates back to Greg's prior question about the investment and some discounting.

We bought some traffic to a certain extent in Q4, that certainly helped us narrow that traffic gap somewhat.

But I also believe that it was important, as Lynn pointed out, to do so to have guests experience the positive improvements that our operations group has implemented, so that we see that benefit coming into Q1 and beyond.

So but we did see quite a change from the beginning of the quarter to the end.

I know we don't usually talk about period-by-period performance, but it was a significant shift.

Guy, you want to talk about what you feel like operations contributed?

Brian, I think we felt like the improvements we're making operations would have 2 sets of benefits or 2 streams of sales that could help us improve.

The first would be, if we executed better, we would just be able to take care more of the people that were on a wait during a busy holiday season.

As you know, this is the -- late in the fourth quarter is the time of the year where we have a pretty significant wait.

So if we do a better job with throughput and addressing wait time issues, there is traffic to capture.

The second piece is a little bit longer term, which is for those guests who may not have had a good experience in Q2 or Q3 when we weren't operating well, we'll take time to build up the trust that we can deliver on the promises of better execution and performance.

That, I think, is the second wave of benefit we'll receive from operating on a more consistent and more elevated basis.

Okay.

That's helpful color.

And back to the marketing spend and sort of weights.

I think in the third quarter, you highlighted that you were down year-on-year in the third quarter.

Can you comment on what your marketing spend?

How many weeks more you are on this quarter, overall weights were in the quarter on a year-over-year basis?

We did eliminate some of the marketing in Q3 and added back into Q4.

I'm looking right now for the exact numbers in terms of week over week or year-over-year numbers or weeks on air.

I think it translated more to a little more local marketing activity.

It was about $2 million more in investment that we slipped from 1 quarter to the other, so it wasn't so much incremental spend in year as timing.

What do you get for us?

Shift in timing, yes.

We have one more week.

Basically, it was one more week of national advertising.

Is that what you got, Brian?

One more week of national advertising in Q4.

Okay.

That's great.

That's great.

And if we could shift gears to the refranchising and it's obviously an initiative you've been working on now going on for 2 years, and can you just give us a little more color?

It seems like there's obviously clear demand for these units, and just sort of what the hangup is from a refranchising perspective?

Guy?

Yes, I don't know that I phrased it as hangup, Brian, but you we had some work to do.

Whenever you turn on a refranchising effort, there are some documents that you have to work on, any information that you have to prepare in order to make sure that you have the right disclosures.

And then starting up from scratch like you would even if you're starting to build new unit, there's a period of time where you have to get that on the move.

But we're certainly well into that now, we are speaking with some high-quality potential partners.

We continue to work actively on the effort, and we're making really good progress.

So nothing to announce at this time.

But certainly, it's still an active and ongoing strategy.

All right that's helpful.

Last one, I just have two questions on the guidance just to clarify.

On the SG&A guidance, could you break that down a little bit further between G&A and selling expenses?

I'm just trying to get a sense of I understand there's a new marketing plan that you're working towards, and trying to get a sense of how much ad spend might be up year-on-year in '19 versus '18.

And could you provide any more granular color on G&A versus selling that's embedded in the annual guide?

Yes, I would say just round numbers.

Selling expenses are about $64 million, and about the same percent of sales as 2018, with the balance being the G&A component.

Okay, great.

Great.

And then, last one -- I'm sorry, go ahead...

I was going to say we have a fairly backloaded plan.

To your point, we're not looking to spend necessarily more dollars, but we are holding back some weight and some investment for the new campaign.

Okay, okay.

And I guess last one for me on the labor front.

Where did wage inflation settle out for you in 2018?

How does -- what does -- what wage inflation are you expecting in '19?

And as an offset to that, I know you saw significant productivity savings in '18.

What level of productivity savings have you embedded in your annual EBITDA guidance?

Well, I would say for '18, as well as what we expect for '19, round numbers mid-single-digit inflation.

Now we did experience some productivity improvements, which we have incorporated into our plan for 2019.

However, in addition to those items, we're also expecting some initiative to help us to offset some of the wage increases we're experiencing.

So those initiatives include some menu simplification items and buy versus prep decisions to help again, offset some of the inflationary influences to the business.

And next, we'll go to Chris O'Cull from Stifel.

Actually Mitch on for Chris this afternoon.

Just a follow-up on the refranchising front, what level of AUV in-store cash flow margin are these stores operating at today, maybe relative to the company average?

Well, I think on balance amidst the market that we've identified are less about the ongoing performance of the existing markets and then they are about where we think, once we've improved our 4-wall economics and what to potentially grow in the future, would be markets that would be lower on the list for us to invest in at that time.

So allowing our franchisees to potentially pick up territory that would have some development upside while we're developing in one part of the country when we're ready to do so that we could allow our franchisees to develop along with us in those areas of the country where we would feel like wouldn't be as high a priority for us to develop in the future.

Okay.

And then on the new marketing program you expect to launch later this year, and sorry if I missed this, but how will that evolve or differ from the current program?

I think we are going to look at value, Mitch, much more from a standpoint of a differentiated value and the total value that Red Robin brings our core targets, so a more meaningful levels than just pure price.

We've been doing a lot of important consumer insight work to understand what particularly families value about us and the experience of coming to Red Robin, what that does for them.

And so I hesitate to describe it only as a more emotional connection, but that is clearly part of it, which is what is the total value proposition, not just the dollars and cents proposition of what we offer.

So that has always -- it's the things that have differentiated Red Robin traditionally from our competitors over the years and specifically with that core target of middle-income families that I think will make a difference.

Not yet prepared to say how it's coming to life, but we're encouraged by the initial work and looking forward to seeing more shortly.

Okay.

And then one more from me.

We've heard several companies quantify weather as an impact quarter-to-date, especially those located on the West Coast.

Have you all seen an impact from weather?

And just curious how that has played out.

I think it's fair to say we have seen an impact similar with our competitors.

One thing about weather is it affects us all, right.

Yes.

And that's for sure.

I'm hoping that Punxsutawney Phil was right and that an early spring is in our future.

And next, we'll go to Gregory Francfort from Bank of America for a follow-up question.

I just had a couple of quick follow-ups.

Just on that G&A step-up, I think Denny implied about $15 million -- but roughly $15 million of step-up on the nonselling side.

How much of that is due to the incentive comp reload versus planned investments?

And then maybe the follow-up to that would be how sensitive is that number to changes in comps?

So if you come in 1% above or below, where do you expect to come in on comp?

How much do that move the G&A line?

Right.

Well, starting with your first question.

Incentive-based compensation would represent about half of the increase that we're expecting in 2019.

And on the range of sales that we indicated, I mean we could see, give or take, $4 million in terms of a fluctuation of those expenses for the low to the high end of the range.

Got it.

So that's all sales driven, that range that you're providing?

That's correct.

Got it.

And then I think...

Yes, that's correct.

Yes.

Maybe just a follow-up.

I may have missed it in your prepared remarks.

But did you talk about lease accounting changes and the impact that's going to have in '19 as no impact on your P&L or is it sort of too early to make that call?

Well, she did, but we all fell asleep during that time, so lease accounting being so scintillating.

Yes, we didn't have a lot of, for instance, sale-leasebacks, due to history.

So as a result, our lease expense pattern will be very consistent going into 2019 as we've seen in the past.

So it will be just a balance sheet true-up and not really a material P&L impact?

That's correct.

(Operator Instructions) We'll go next to Howard Penney from Hedgeye.

I was wondering if you could talk more about the bundling that you did in terms of maybe not what you tested but the price points and how it works?

Yes, it's pretty straightforward, the bundle that I was referencing that actually goes on air next week, so I don't mind talking about it.

It's a pretty straightforward $10 bundle.

It's available only on 3 of our burgers, 3 gourmet burgers, so it's a limited selection, and it also includes bottomless fries and a bottomless beverage.

It is available all day, every day, and it is something that we had tested or run as just a lunch deal in the fourth quarter last year.

We expanded it to the all day, every day, and we're very pleased in what we saw in test markets.

That was what I was referring to in terms of what we're immediately implementing.

I mentioned some other bundles that I'm not in a position to talk about yet, but we certainly will when we got some test, Howard.

So if you -- if it's $10, if you take the fries [or with the burger anyway or load it with a burger], does the drink bring you above the $10 price point so there's a defined value?

It does because it's based on our gourmet.

Yes, because it does.

So you're right, it actually, in terms of that, it's not as if it were based on Tavern.

On Tavern, it would just represent an attachment strategy.

But because it is based on 3 of our best-selling gourmet burgers, or in this case, 2 in our newest burger to drive trial, it does lift that.

Now we aren't doing any in-restaurant marketing of this, so the prospect of trade down has been limited and what we're seeing is it is bringing guest in and again, the attachment of beverage, also it is a dine-in only offer.

So it also helps support that the dine-in traffic initiative that we're focused on.

So it is the value...

How big of a value is it?

Is it 10% better or 15%?

So it varies depending on which burger?

So the El Ranchero is $11.49.

Yes, so it's -- basically in our beverage is $3, so that's $14.49 down to $10.

It's pretty good deal.

But beverage is -- Beverage is -- yes, where does it mix?

We're not the same where it mix at this point.

We'll see if it repeats in broader markets, and we'll share it.

But we were pleased with what we saw, certainly.

And we have no further questions at this time.

I'd like to turn it back to Denny Post for any closing remarks.

All right.

Well, thank you all very much again for joining us.

And we look forward to speaking to you in May and may Punxsutawney Phil be correct.

Talk to you guys later.

And that concludes your call for today.

Thank you for your participation.

You may now disconnect.