Texas Roadhouse Inc (TXRH) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your quarter four 2005 Texas Roadhouse earnings conference call. (OPERATOR INSTRUCTIONS). At this time I will turn the call over to your host, Mr. Scott Colosi, Chief Financial Officer.

Good evening everybody. By now everyone should have access to our earnings announcement release this afternoon for the fourth quarter ended December 27, 2005. It may also be found on our website at www.TexasRoadhouse.com under the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance, and therefore under reliance should not be put upon them. We refer all of you to our your recent filings with the SEC for a more detailed discussion of the risks that could impact the future operating results and financial condition of Texas Roadhouse.

On the call with me today is G.J. Hart, our CEO. G.J is going to provide some general comments on the business, and then I will walk you through the financials, including an update to our 2006 forecast. Then we will open up for questions.

Thank you. Good evening everyone. I'm pleased to report that our fourth quarter comps significantly improved from the slowdown we experienced in and around the September hurricane season. Our same-store sales were up 3.6 for the quarter, with about 1.5% growth in transactions. In November and December, when all hurricane affected stores were back open, comps averaged approximately 4%, including a net pricing impact of 0, as our last price increase was at the beginning of November 2004. We did take a 1% price increase in mid-January of this year, and I want to emphasize that we left our lowest priced items unchanged.

At the end of the fourth quarter we had a great gift card season and achieved all of our sales goals, and the goals we set relative to same-store sales. Certainly we're benefiting from increased industrywide acceptance in usage of gift cards, but our operators have been a tremendous job with this segment of our sales through a variety of programs.

For the first seven weeks of 2006 same-store sales have increased approximately 6%, including almost 4.5% growth in transactions. As I mentioned earlier, we took a 1% price increase in mid-January, and may or may not take another small increase later this year.

On the margin front the story is similar to what you have heard from other companies that utility costs seem to be the big story. Utilities were 70 basis points higher than last year, and that was split almost evenly between electric and gas. We expect to experience quite a bit of utility inflation for at least the first two-thirds of the year.

On that commodity front, we are experiencing -- expecting a little less than 1% deflation in 2006. We locked in our beef costs for the year, and expect that line item to be flat. We had hoped for some deflation in beef costs, but the market took a negative turn during the second half of the quarter. Produce and dairy are the key items that affect our forecast for the remainder of this year, although we do not see anything adverse to our forecast at this time.

In terms of development, in the fourth quarter we opened seven Company restaurants, bringing our year-to-date total to 20, which was right on track with our plan. For 2006 we expect to open 23 to 24 Company restaurants. Of these, one restaurant has already opened and 17 others are either in permitting or under construction. On the franchise side, we continue to expect that our franchise partners will open three to four restaurants in 2006.

On the franchise acquisition front, we completed our first round of acquisitions on the first day of fiscal 2006. This transaction will add approximately $0.02 of ongoing EPS to our business. We learned a lot about the process, and are certainly much better prepared to execute future transactions.

We have been in negotiations with other franchise partners on other transactions, but at this point we do not have a specific deal in process. We know many of you are concerned about the issuance of stock in these deals, so our negotiations will explore payments in cash or a mix of cash and stock for any future deals.

From a 2006 earnings forecast perspective we have not changed our guidance of $0.52 per share prior to acquisitions and stock option expense. Certainly, we are well ahead of our sales plan year to date, but simply put, we have been long way to go and cost inflation is still a big concern to us.

So in summary, 2005 was a challenging year for us, given the hurricanes and store utility costs, combined with the fact that it was our first full year as a public Company. Despite all of this, we increased revenue 26% and income from operations by 22%. In addition, to financial performance, however, Texas Roadhouse still maintains its niche in the marketplace, and we believe our competitive positioning has never even stronger. We remain very focused on improving the day-to-day execution of the operational basics and keeping the business as uncomplicated as possible. As a result, I'm confident of our financial prospects for 2006 and beyond.

With that, I will turn it over to Scott to walk you through the fourth quarter financials.

During my review of the fourth quarter please note that many of the numbers I will mention are listed in a schedule of supplemental financial and operating data that was included in the press release.

Starting at the top of our P&L for the fourth quarter of 2005 as compared to 2004, revenue increased 21%, and Company owned restaurant sales increased 22%. Company owned restaurant operating weeks increased 19%, and comparable restaurant sales, as G.J. mentioned, increased 3.6% on top of the 6.5% gain achieved last year. Of the 3.6% growth, about 1.5.were attributable to transactions and about 2 points to price and mix. Note again that we had zero net pricing in November and December.

Average unit volumes increased 2.8% for the quarter, and weekly sales averaged just below $72,000. Franchise royalties and fees increased by $240,000, or 10%, to 2.6 million. This increase was driven by about a 13% increase in the number franchise restaurants open, as well as comparable restaurant sales growth of 1.6%. These increases were partially offset by us lapping about $160,000 in initial fees that we earned last year.

In terms of cost as a percentage of sales, restaurant operating costs were 10 basis points lower than last year. Last year's costs included a cumulative adjustment for a change to our accounting practices for leases which also impacted many other restaurant and retail companies. Excluding last year's adjustment, restaurant operating costs were about 130 basis points higher than last year. And G.J. mentioned earlier, our margins were significantly impacted by higher utility costs, which alone represented 70 of the 130 basis points. The trend, though not quite as bad, has continued into 2006.

The credit card transaction fee accounting change we made in the third quarter, and was more fully described in our third quarter call, cost us another $200,000, or 20 basis points, in the fourth quarter. Because of this accounting change for the year, we have recorded 13 months worth of credit card fees which amounted to about an extra $800,000 of expense. We will lap this in 2006, as we will only record 12 months of expense in 2006 and beyond.

Cost of sales was about 20 basis points higher than last year, due primarily to higher rib costs. Restaurant labor costs were 20 basis points higher than last year. Some of this is due to wage inflation, and some to hurricane closures back in October. And remember again that we had zero net pricing in November and December.

Preopening expenses were up about $500,000 quarter over quarter. Some of this was related to the timing of restaurant openings, and some was related to having new managers in our system longer before they open an restaurant. G&A expenses as a percentage of revenue was slightly below last year. We are now lapping increases in G&A related to becoming a public Company, and we expect G&A as a percentage of revenue to fall over time.

This gets us to the income from operations line. Income from operations increased 19% for the quarter. Excluding the lease accounting change that we may last year, income from operations was essentially flat year-over-year.

Utilities, the credit card charge, hurricanes and higher preopening all had a significant impact on the quarter. When you back out these items, including last year's accounting change, income from operations would have increased by about 20%.

Interest expense was significantly lower than last year due to the elimination of most of our debt with proceeds from the IPO. Our year-end balance sheet reflects about $7 million of debt. As a result of the franchise acquisitions, which I will review later, we added about $17 million in debt. Minority interest expense increased to $145,000 of income from $305,000 of expense in the fourth quarter of 2004.

We opened two joint venture restaurants late in 2004, and these restaurants booked net income losses in 2004 because of preopening expenses. Equity income from unconsolidated affiliates was $43,000 of income, up from $18,000 of income in Q4 of 2004. And this increase was driven by additional restaurants that have opened over the past year.

Our effective tax rate for the quarter was 33.6%, which is lower than our forecast of 35.3. We trued up our estimate for deferred taxes from the IPO, and this had a onetime slight benefit for us. Weighted average diluted shares were about 73.5 million. The bottom line for the fourth quarter of 2005 was just over $6 million in net income, which on a diluted share count of about 73.5 million results in $0.09 of earnings per diluted share.

Now on to full year 2006 guidance. As G.J. noted earlier, our earnings per share forecast for 2006 is unchanged at $0.52 per share. This forecast excludes any acquisition related impacts and stock option expense. Some of the other key assumptions in this guidance include that we will open 23 to 24 Company restaurants, and our franchisees will open three to four restaurants. We are expecting same-store sales growth of approximately 3%, as a slight increase from our previous guidance of plus 2 to plus 3.

Restaurant operating cost as a percent of restaurant sales should increase approximately 50 basis points versus last year, mostly driven by food costs. We're still forecasting a significant increase in utility costs, however. G&A as a percent of revenues should fall between 20 and 30 basis points next year. Our effective tax rate should be around 35.3%. Weighted average diluted shares should be around 75.5 million. And we expect capital spending to be between 65 to 75 million, which we should be able to fund with operating cash flow.

We do not give quarterly guidance, but I do want to mention that our annual conference will be in the first quarter this year versus the second quarter last year. This will create a G&A difference of about $2.25 million that is going to shift into the first quarter of this year from the second quarter. I do want to reiterate again that the assumptions I just reviewed exclude any impacts related to franchise acquisitions and stock option expense.

Regarding the franchise acquisitions, G.J. talked about the completion of our first round of acquisitions in December, which included 11 restaurants in total. We outlined the impact to our P&L in the press release, and expect the deal to add about $0.02 of earnings per share from an ongoing concern perspective. In addition, we expect to record an $800,000 onetime non-cash pretax charge in accordance with EITF 04-1, accounting for pre-existing Relationships between the parties to a business combination -- is the concept that we described in our third quarter press release.

As for the potential of future deals, we have been in negotiations with other franchisees to acquire additional restaurants, as G.J. touched on. Our negotiations will explore payments in cash or a mixture of cash and stock for any future deals. We actually paid a mixture of cash and stock in the first transaction. In total, we issued 2.5 million shares for the restaurants, and paid about 17 million in cash to acquire real estate which we financed with our credit facility.

Now on to stock option expense. We now expect the impact on diluted EPS from expensing stock options in 2006 to be $0.08 to $0.09. This range is $0.03 higher than what we previously told you, and it is entirely due to the deductibility, or lack thereof, of the expense for tax purposes. Our pretax estimates have not changed. The revised expense amount -- estimate includes an increase of approximately 280 basis points to the Company's effective tax rate resulting from the potential nondeductibility of certain incentive stock options. As you may or may not know, we grant both incentive stock options, otherwise known as ISOs, and nonqualified stock options.

All employee compensation expenses related to the exercise and sale of nonqualified stock options are tax deductible for Texas Roadhouse. But for ISOs the employees compensation expense is deductible for Texas Roadhouse only if the employee exercises the options and sells the shares within a year. For the ISOs that are being expensed in 2006, we don't expect the employees to be exercising and selling many of these options until 2007 and beyond. Hence, for 2006 we have to assume that none of the expense related to the ISOs will be tax deductible.

As these as ISOs are exercised, say in 2007 or 2008, and if they are exercised and the shares are sold within a year -- and actually we expect the majority of ISOs will be exercised and the resulting shares sold in the same day as a cashless exercise. Again if these ISOs are exercised and the shares sold within a year, we will get to deduct the compensation to the employee for tax purposes. This will provide us with future tax credits that could significantly lower our tax rate, and as a result our stock option expense in future years could fall well below the $0.08 to $0.09 and we have estimated for 2006.

Another way to say all this is to say that the deductibility for effective tax rate purposes of stock option expense related to the majority of ISOs will likely be delayed versus permanently lost. Needless to say, I expect to get a lot of questions on this topic.

Where does this all leave us? For 2006 we're forecasting earnings per share at $0.52 for the base business, plus $0.02 from the ongoing operation of the acquired franchise restaurants, less $0.01 for the onetime charge, and less $0.08 to $0.09 for stock option expense. This gives you to an all inclusive forecasted bottom line reported number of $0.44 to $0.45 of diluted EPS for 2006.

Backing out the non-cash $0.01 onetime charge and stock option expense, our EPS forecast would be $0.54, which is 29% above the more comparable $0.42 EPS number for 2005. This really reflects the underlying health of the business and our operations. And with that, I would like turn the call back over to G.J.

Looking ahead we feel very good about our prospects for continued strong earnings growth. By hitting our development plan in 2005 we set ourselves up for solid earnings growth in 2006. Our 2006 development plan is on track, and we have already identified virtually every site for 2007. Our new restaurants continue to perform very well. We have firmly protected our most aggressive price points on our menu, and continue to focus on the day-to-day operational execution of our business. We believe we have a very strong foundation from which to drive continued earnings per share growth in excess of 20%.

That covers our prepared remarks. Operator, if you would please open the lines.

(OPERATOR INSTRUCTIONS). Jeff Omohundro of Wachovia.

I wonder if you could maybe start with -- by giving us an update on the transition on the 11 new restaurants, how is that proceeding relative to your expectations?

It is G.J. It is proceeding very well. As you may or may not know, it is part of our process in acquiring these restaurants is really looking at people and future development. The people in that market are all very good. They have integrated very well. And I would tell you that every managing partner in that group without exception is excited to be a part of Texas Roadhouse, if you will, parent company.

When you look at your store opening costs, I wonder if you can give us some details on what is going on with those cost trends?

This is Scott. Actually, the cost to us to open a restaurant was pretty similar in 2005 as it was in 2004. And we have seen a little bit of inflation each year prior to that. But the sites that we chose a little lest heavily weighted maybe to the Northeast from a real estate perspective a tiny bit less. But generally they were very close year-over-year. We forecast a little bit of inflation every year in all the costs associated with building a restaurant, whether it be land, equipment packages or the building costs. But we have not seen, even since the hurricanes, much of a market come out of inflation in the cost of opening restaurants.

On that pipeline, the timing breakdown in new market composition, how does that tee up?

The timing is still two-thirds -- I'm sorry, one-third of the store is first half of the year, two-thirds second half of the year. We have really only gone into one main new market this year that we would call a new market, and that is upstate New York.

Andy Barish of Banc of America Securities.

Just a question on the other commodity items. You did walk lock beef flat. Can you just us a quick review on ribs and chicken? And you talked about commodities down just slightly. Does that incorporate any additional pricing, or maybe if you were to go that route, maybe you could get a little bit more leverage on the back half of the year on that line?

On the chicken we were down about 10%. Ribs, closer to mid single digits. That is -- with that with beef being flat, that is about 55% of our food costs. We have a number of other contracts, whether they be Coke or the beer companies and spices and oils and so forth that all have -- some have a little bit of inflation, some have no inflation. So there is still 35% of our food cost are in the mix. And then there is produce and cheese, which we don't have any full year contracts on, which we always assume a little bit of inflation, particularly in produce because it has been kind of crazy. Even tomatoes were going nuts back at the end of December and early January for us. We have assumed a little bit of fuel surcharges this year. All that has kind of kept our deflation, if you will, below that 1% number.

Anything menuwise -- I know last year the New York strip rolled out with some good success. Anything on this year's mid-January menu rollout, or maybe what areas -- I know you guys kind of focus on core menu items that you always look to improve and kind of upgrade. Anything on either of those fronts that you would care to share with us?

It is G.J. In the January price increase in menu that we rolled out we chose not to do any change in menu at that point in time. We are continuing -- I think we may have mentioned this in our last call -- we are continuing to test some pork items, some shrimp items, some combination items. And we will make a decision on that probably to do that roll around April to May.

Destin Tompkins from Morgan Keegan.

I was wondering if we could get maybe your thoughts on the current consumer environment? Obviously your sales trends look pretty good, quarter to date, up 6%. We have seen a lot of companies report pretty good January trends. But even I guess today we have seen some companies reporting February trends that have fallen off pretty considerably. If you could just kind of walk us through maybe the weather benefits, the gift card benefits, as we mentioned to February some of the other moving parts, more severe weather, Winter Olympics -- how we should look at sales going forward, given the trends you have reported quarter to date?

Sure. In terms of the trends in general, I think I've stated this before, that when you come through some tough economic environments or anything tough in the economy, i.e., the most notable here are the hurricanes, typically as consumers get a little more conscious about the dollar, if you will, it provides an opportunity for us. And that has been the case post 9/11. It has been the case -- we have seen that same thing happen here at the hurricanes.

We see it as being kind of our time to shine. I think have gone on record and said we believe we're like the Southwest Airlines of the steak. We are in the value proposition, and during these times we end up getting some of the higher income folks who come down and try us and stick with us. So we feel very good about the environment in terms of how we are positioned within the environment.

Clearly I would think it is fair to say that against last year that in January certainly weather has been somewhat beneficial to us. I think for those that have reported their February numbers, I am sure that, as you all know, that through to Valentine's weekend there was some challenge with weather, particularly on the East Coast. We don't report monthly comps, and in terms of our trends I would just talk you that we feel very good about where they are and where they're headed.

Thanks. And then, Scott, on the franchise acquisitions, I believe on the last press release you had mentioned a second round of acquisitions in the first half of '06. Has there -- any change in your thinking around those acquisitions?

I would just say we are in negotiations with franchisees. And it is a constant topic that we are working on. We learned a lot from the first transaction. We are using that to help us create more efficient and effective transactions going forward. I think that is all we're really prepared to say at this time.

Lastly, if I may, as we look at the $0.02 of accretion from the first 11 acquisitions, can you help us us -- as we think through that, is that -- did you guys assume essentially just kind of the current run rate of profitability from those stores? And is there any opportunity to gain efficiencies from those, and could that be better than $0.02?

The short answer, I would say, we have not assumed any efficiencies in the stores. Some of the stores are pretty high-volume stores and some are lower volume stores. I guess on an average they are pretty close to our average, maybe a little bit below in total, but not too far off. We've got a lot of great managing partners out there. I don't think we're under the assumption that just because we're running them within a few months sales are going to take off in those stores. We certainly haven't assumed that. It is certainly gravy for us if that comes, but I think that would be farther off in the future for us.

Jeff Farmer of CIBC World Markets.

Just quickly, how do you guys look at your capital return hurdles for acquired franchise restaurants versus the Company developed restaurants? And I guess more specifically, it it looks like you guys are paying a high single digit cash flow multiple on the acquired restaurants while you are probably paying closer to a single digit multiple for the restaurants you build yourself.

This is Scott. I will take that one. I think in this first deal we really wanted to get a deal done to learn from it, to know all the ins and outs, which has definitely happened. Certainly at the time we did the acquisition our stock was 15.80 something I think is what the price was at the time. Based on that, we were paying about oh 8.5 times EBITDA, 8 to 8.5 times EBITDA, something in that realm. I think longer term it is probably going to be lower, a multiple of EBITDA lower -- I mean a lower multiple of EBITDA as we know farther. But I think we really wanted to get a first deal done to learn from it and set us up for the future.

I guess sort of a follow-up to that, in terms of your long-term franchise rollup strategy, where do you see that going?

I think we're taking it deal by deal. I think we are for the most part focused on the general business, opening up our 23, 24 stores, running the rest of the Company stores -- restaurants that we have. Certainly we know the franchise acquisitions are an opportunity, but they are by far and away not the main strategy for us. So I will just leave it at that.

Last question in reference to a modeling question. What P&L line item or line would you actually expect to see the stock-based comp expense show up on? It was $0.08 to $0.09 I believe. Where do you expect that to show up on the P&L?

I don't know. I would think it would be its online, stock option expense.

That is your plan, to break it out as its own?

I am sure we would break it out. Absolutely.

[Kahn Beheem] of Cowen & Company.

First question on the utility expense outlook. Can you outline exactly how that has changed since last call specifically? Has that worsens, and do you think the duration of that is going to be longer?

This is Scott. I will tell you that certainly in futures -- natural gas futures have come down. It impacts us maybe more than most companies because we have higher percentage of our stores in Texas. The utility electric plants run off of -- gas powered. So you kind of get double hit when natural gas prices go up. And that has been a factor for us.

January, looking at January, we still had quite a bit of inflation on the gas side, much less so on electric side. So we're a little bit optimistic, maybe things won't be as bad take going forward. But what we don't know is how much each local utility has asked from a rate increase perspective. Because they still may have gotten hit pretty hard last year and asked for rate increases that may be independent of where the futures markets are going. So it is still for a large part a big TVD until we get halfway through the year.

Have you guys ever reviewed in the recent time looking at network cable advertising for your system? I know you guys are -- do a great job with local store marketing, but has that been on the table recently?

It is G.J. The short answer to that is no. We do do and allow our managing partners to do some local cable or some local media, if they so desire. But I will be very candid with you, we're doing less and less of that as we move forward. Again, we continue to drive our focus about -- through local store marketing, being the local hometown favorite. All the things that we continue to drive home -- our local store marketing. Representatives in every restaurant continue to get stronger and stronger. Our training get stronger and stronger. And I think you're seeing that in what is happening with our sales.

Just one other question on the acquisitions. Scott, you said there was $17 million of cash for -- and how many properties did that represent?

I think that was 8.

Eight properties. Okay, thank you.

Matt Difrisco of Thomas Weisel Partners.

It is Matt Difrisco actually. Regarding a couple of bookkeeping questions first, Scott. On -- I think you said the conference falls into 1Q out of 2Q. That is a net impact of $0.02 of a shift, is that correct?

About 2.2 million.

Right, and the EPS $0.02 per share about?

Yes, about that.

And then also just to put to bed I guess the concerns about trends going forward, your guidance -- you have a 6% quarter to date of the first seven weeks. Is there anything abnormal that happened towards the end of the quarter in that you had a strong boost in the comp in 1Q of '05 that we should be cognizant of, or are you just being somewhat conservative as far as the 3% for the full year?

We always like to think we're being conservative. I think 2 to 3 for the rest of the year is somewhat our standard assumption. Keep in mind, we have only got 1% pricing, and we are lapping two years of significant comp growth for the business as a whole. Hopefully, we're being conservative but I think we're just being prudent at running the business in a way that says, we are only going to get 2 or 3% comps the rest of the year.

So then that is in your guidance. So if you are to do say a 6% or a 7% comp, or something of that nature for the first quarter, that is not in your guidance currently for the full year?

That's correct.

Can you elaborate a little bit on the acquisition here? I guess on the back of the envelope I had the share count and how many that was going to go up, and what your stock was trading at at the time. But the 17 million in debt, did you say that was associated with land -- is that capitalized leases you are assuming?

That is land and buildings.

That is land and building. Okay. It seemed a little high for the land. So the average cost has been about $5 million is how you look at it?

Per store?

Yes.

If you assume that the value of the stock is what was paid at that time, yes.

Thank you very much. (inaudible).

If there was a question that was just asked, we didn't hear it.

No, I was done. Thanks.

Steven Rees of JP Morgan.

How should we be thinking about new unit volume trends in 2006? Should we expect them to open pretty much at the system average, just like premium or just like discount? And then how many new markets did you enter, just to remind me in 2005, and how many will you enter in 2006?

We model new stores over time to come in at the system average. We are pretty close to that right now. The last two class years are very close to the system average. The first three months we modeled in to have sales that are approximately 15% higher than their steady-state. So there's a three-month honeymoon period. After that three-month honeymoon period, they kind of fall into the average amount of sales.

From a -- new markets last year we opened up in Maine, we opened in North Dakota, Connecticut, we wouldn't really consider Maine to kind of get to be a new market because we already opened stores in Massachusetts and New Hampshire, but -- nope, we have mentioned North Dakota. I think that is it.

Okay so about three. How many are expected to open in 2006?

Upstate New York. And we're going to open in Little Rock soon -- Arkansas.

And then real quick come on the franchise comps is there an easy explanation of why those were lower in the fourth quarter? And then have you seen a commensurate acceleration there as well in the first quarter to date?

Their closer to us in the first quarter than they were in the fourth quarter. There is really no particular reason on the franchise side why they were a couple of points lower in the fourth quarter than the Company's stores were. They're very close in the fourth quarter.

(OPERATOR INSTRUCTIONS). Jason Whitmer of FTN Midwest Research.

Scott, can you clarify your guidance and operating costs? It actually looks a little bit more favorable this quarter than what you gave last quarter? And maybe if you can address some of the controllable items within the cost framework for 2006?

Yes, we were just able to tighten up almost all of our estimates since we last spoke -- a little bit more in food, a little bit more on labor, rent expense. And we feel a little bit better about the potential on just the utility front and other operating costs. So it is really kind of across the board.

I guess if you translate that into your earnings guidance, I'm a little confused as to why that is still the same, which is where we were before?

Keep in mind you've got G&A expenses, which are out there. You've got depreciation, which is not in the number as well. So you have got a preopening cost. You've got a few other things that are in the number.

Was there a material impact from any Hurricane Rita related closure costs in this quarter?

I wouldn't say it was material in the fourth quarter, much more so in the third quarter.

And then a last housekeeping question then, any dollar or percentage items that you can provide us on gift cards?

No, except to say that we were very happy with the season. We hit all of our goals, as G.J. mentioned, both in total and same-store perspective. And we have seen significant redemptions like we have historically have through this time of the year.

One more, if I may. G.J., you mentioned briefly you are tightening up your opening price points. Obviously, there has been some movement from Outback specifically and in the Midwest to mirror your price point for their sirloin and Outback Special. Did you get any feedback yet on that rollout from your operators and the response from that?

I think it is a little bit early -- that we would tell you that is early in terms of if any effect -- and if you look at our comps by region, we would tell you the answer is no. However, I would also tell you that we are already fully entranced through the value menu. As I mentioned earlier, we haven't changed our lowest cost items. Our 6 inch sirloins is still the same. And we're going to continue to stay entrenched in that space. I would tell you that it is yet to be seen what it will do to us, but we feel very good about where we are and what we will continue to do.

[Uli Golman] of BB&T Capital Markets.

Most of my questions have been answered already, but just a couple. What kind of minimum wage inflation did you have in Q4 and are you assuming going forward?

Our wage rates were up about 2% in the fourth quarter in total versus a year ago. That is a little bit of an acceleration from where we were the first three quarters of the year. And kind of based on that, we have modeled 1.5% inflation for the whole year this year, which is similar to what we have seen in the prior three years. We're actually 1.4% for the year in 2005, 2% in the fourth quarter. The 1.4 for the year, we're modeling 1.5 for this year.

What is your turnover?

Our management turnover, high teens. All management hasn't changed a whole lot, not in the past year. Our crew turnover is about --.

I will answer that. It is just north of 100%.

There are no questions at this time. I will turn the call back over to the presenters for closing remarks.

Thank you very much for participating, and we will see you all in early May.

Ladies and gentlemen, thank you for joining us on the call today. You may now disconnect.