Texas Roadhouse Inc (TXRH) 2008 Q1 法說會逐字稿

Welcome to the Texas Roadhouse Incorporated first-quarter 2008 earning's conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will have a question and answer session. (OPERATOR INSTRUCTIONS) I would like to turn the call over to Mr. Scott Colosi, Chief Financial Officer of Texas Roadhouse Incorporated.

Thank you, Margaret. Good evening, everybody. By now, everyone should have access to our earnings announcement released this afternoon for the first quarter ended March 25th, 2008. It may also be found on our website at texasroadhouse.com under the investor section.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements. These are not guarantees of future performance and undo reliance should not be placed upon them.

We refer all of you to our recent filings with the FCC for a more detailed discussion of the risk 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. will provide general comments on the business and then I will walk you through the financial. Then, we will open it up for questions. G.J.

Thank you, Scott. Good evening, everyone.

Well, we had a respectable start to 2008, especially in light of the overall environment. When we last talked to you on our fourth-quarter call a little over two months ago, we had lived through two months of restaurant-level inflation of around 4% year-over-year.

On top of that, we saw the consumer environment get materially softer. Not a great combination for the bottom line. As we analyze the the situation, we decided to do what we have always done and focus on our execution rather than a short-term emotional fix centered on price increases and/or heavy discounting.

This dedication to delivering value through Legendary Food and Legendary Service has historically carried us through tougher times and further distances ourselves from the competition. That is one of the greatest strength of our ownership mentality system. It also provides the opportunity and the drive to do what is best for the overall business.

Let's spends a few minutes talking about the first quarter, which I would say was characterized by consumer uncertainty and some degree of inflation in food, labor and utilities.

However, thanks to the experience and dedication of our great managing partners, we had a solid quarter. For the quarter, diluted earnings per share increased 5% from the prior year to $0.17. I will point out that this included a $700,000 pre-tax charge relating to the closure of one location.

Relative to our plan, earnings per share was right in line as a slightly better restaurant-level margin offset slightly lower total sales. With regards to sales, first-quarter comparable restaurant sales decreased 1.2% with our average check basically flat at positive .1%.

Therefore, traffic was down 1.3%. The weather may have been worse this year, and we do see a negative effect from Easter being in the first quarter, as compared to the second-quarter last year.

I have want to assure you our goal is to always create positive traffic. On the check side of things, we gave up just over a point due to negative mix shift. A little more than half of this is entree driven with the remainder attributable to alcoholic beverages.

Regarding pricing, we currently have slightly more than 1% pricing in our menu. That will be there for the remainder of 2008. On top of this, we are planning to take another 1% to 1.5% in pricing during the month of May.

Which, like some of our previous increases, will be spread among more items. In the past, we have tended to raise prices on higher-end items versus lower-end items. That has been a contributor to some of the negative mix shifts in the past. On the margin side of things, restaurant margins were 97 basis.lower than last year's first quarter which was slightly better than anticipated due to the benefit resulting from floating a portion of beef costs. We float 25% of these costs for the year.

That is a benefit compared to the long-term contract price but there is a lot of volatility in the commodity markets, so we will continue to see how this unfolds through the balance of the year.

On the development side, we opened 6 new company restaurants during the quarter and remain on track to open approximately 30 for the year. Overall, average weekly sales for this year's openings continues to be strong. Averaging in excess of $90,000 per week for the quarter.

I will touch on the plans for the remainder of 2008.

We are leaving the diluted earnings per share growth goal for the year unchanged at 5% to 15% based on flat to plus 1 comparable restaurant sales growth, as we recognize and knowledge uncertainties in the market.

While inflation remains a concern, we have been a little more fortunate recently relative to the beginning of the year and the end of 2007.

Food inflation has eased with the benefit from floating beef and year-over-year improvement in produce.

However, there are question marks surrounding where commodities are heading driven in large part by the corn and beef markets.

Labor inflation has not been quite what it was in 2007, although it is definitely there. One area of concern is utilities, where we are seeing steady increases.

In general, the inflation picture changes daily.

We encourage our operators to do what is right for the long-term as opposed to cutting corners and jeopardizing the guest experience. Besides continuing our focus on formal execution, what else are we've doing given this environment?

First, in response to the continued inflation we are experiencing, we are rolling out a menu in late May that we estimated will have 1% to 1.5% of pricing.

Secondly, in response to continued inflation our guests are experiencing, we are including a couple of value-oriented items on the menu. We are adding a one-third slab rib entry, that is served with two sides, a smaller version of cactus blossom appetizer, and a couple of combo-entrees around our pork. Much of this has been in test for over the lat few months in one form or another and we have received positive guest feedback. Also, this approach is in line with our long-term strategy of high-quality value-oriented food offerings.

We are very proud of the fact that effective with this menu release, we will have 19 entries, excluding burgers and sandwiches, priced below $10 in vast majority of markets. I don't believe there are many in the industry offering a similar level of food and overall experience that can say the same.

Lastly, before turning the call over to Scott, I want to give you a quick update on capital allocation for 2008. We plan to open approximately 30 new restaurants. With this we project positive free-cash flow.

In addition, as we discussed last quarter, our Board has authorized a $25 million stock repurchase plan as a means to return capital to the stockholders. As you saw in the release, we repurchased over a half million shares of stock this quarter and will continue to be opportunistic as it relates to these repurchases.

On top of this, we continue to talk with various franchisees about acquiring restaurants. We recently announced at the beginning of the second quarter, we acquired 3 restaurants for approximately $8.7 million.

We believe this is a good use of capital for the stockholders. Given the internal rates of return, we are comfortable taking on some debt to acquire restaurants from franchises.

I will now turn the call over to Scott to review the financials. Scott.

Thank you G.J.

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

Starting at the top of our income statement for the first-quarter of 2008, as compared to the same period in 2007, total revenue increased 18% with company-owned restaurant sales increasing 19%. The growth in company-owned sales was driven by operating growth as comparable restaurant sales and average unit volumes were down from the prior year. As G.J. mentioned, comparable restaurant sales of company-owned restaurants decreased 1.2% versus an increase of .9% last year. For the quarter, our average check increased .1% while traffic was down 1.3%. From a restaurant sales perspective, I will offer more color on the average weekly sales.

For the quarter, the 156 restaurants in our same-store sales base averaged just below $80,000 per week in sales. While the 32 restaurants that in our average unit volume base but not in the same-store sales base averaged just over $72,000 a week in sales.

The 21 restaurants that have been opened over the last nine months and thus are in neither same-store nor averaging at (Inaudible) calculations averaged just over $77,000 per week in sales during the quarter.

While our newer restaurants are averaging less than the older ones, in terms of volume as a group, as a group we anticipate the returns will be well in excess of cost of capital. Franchise royalties and fees were $2.6 million which was 300,000 lower than last year primarily due to the acquisition of 9 franchise restaurants during the third-quarter of 2007.

In terms of margins, we continue to get back a little. However, not quite as much as during the fourth quarter. As percentage of sales, restaurant margins were 97 basis points lower than last year for the first quarter.

Let me touch on the specific lines. Cost of sales up 45 basis points. During the quarter, the benefit provided by floating a portion of beef cost was more than offset by higher dairy and non-protein related food costs. As G.J. mentioned, we continue benefiting from floating a portion of our beef and we are cautiously optimistic this will be the case for the year.

Dairy costs were high last quarter and have continued on that trend. On the non-protein related food items such as bread mix, shortening and frying oils, the cost remain up for us.

Restaurant labor costs were up 49 basis points, while negative same-store sales growth certainly did not help, we continue to feel some pressure on labor from state mandated increases in minimum and tipped wages.

We expect to continue to experience wage rate inflationary pressures. Although, not to the extent we saw in 2007.

Rent expense was essentially flat with the prior year. Other operating expenses were basically flat, up 4 basis points versus last year. With sales and margins down year over year, we saw lower manager and market partner bonus as a percentage of restaurant sales. Off setting this was increased utilities, supplies and other costs due to inflation and the deleveraging associated with negative comp sales.

Pre-opening expenses were $750,000 less than last year, due to four less restaurants being opened during the first quarter this year as compared to last. Depreciation amortization costs were 32 basis points higher than last year driven by the cost of new restaurants.

With regard to impairment and closing costs, we incurred $703,000 charge relating to closing a restaurant during the quarter. The largest part of this cost was a noncash charge recorded in conjunction with setting up a lease reserve for the restaurant we closed during the quarter. We do not have plans to close any additional restaurants given the size of the system, we anticipate more of these costs as we proactively manage our real-estate portfolio.

G&A expenses as percentage of revenue were flat last year. We did is have higher share-base compensation costs resulting from stock unit awards for our officers and board members. Negative 2.8% averaging at volume growth prevented us from achieving leverage on this line.

Our effective tax rate for the quarter was 35.0%, which was lower than last year due to hirer tax credit primarily the FICA tip credit, which is higher partially due to the increased tip wage in numerous states.

For 2008 we estimate the income tax rate at 35%.

Finally, our weighted average diluted share count was 76.4 million that was $300,000 lower than the fourth quarter due to the almost 535,000 shares of common stock we repurchased at an average price of $9.24 during the quarter.

Now on a full year 2008 guidance. As noted in the release and as G.J. mentioned earlier, our 2008 guidance is unchanged at diluted EPS growth of 5% to 15%, which includes the positive impact from the extra week we will have during the fourth quarter of 2008. Our forecast continues to include the following two assumptions. First, we will open approximately 30 company restaurants, which when combined with 2007 openings and acquisitions, we estimate we result in over 20% operating growth.

Second, will generate comparable restaurant sales growth of flat to up 1% for the full year.

Before I turn the call over to G.J., I want to make a couple more comments regarding the forecast. G.J. and I both recognize the 5% to 15% range is wide. I have a couple of comments around that.

First, I think everybody knows there is a lot of general uncertainties in the marketplace. Just look at $120 oil. Who would have thought at this point today?

Secondly, I will walk you there the variables in our forecast starting with sales, and show you the differences between the 5% case. What might make up the 15% case. If we take the sales assumption, when we say comps of flat to up 1% for the year, it would breakdown in this case. Our pricing assumption.

We are estimating that we are going to have average pricing for the year of about 2%. That is both in the 5% case and for the 15% case. We believe we are going to have negative mix shift. We have been trending about negative one and that will continue when we are from the 5% case or 15% case. So that kind of leaves you with traffic as the key variable.

On the lower end of the spectrum, we would expect to see traffic down about 1% and for us to get to the higher end of the range, we would need traffic to be flat for the year. You add up 2% pricing, negative 1% mix shift and traffic being flat, we are down 1 that is a sales growth assumption - a comp sales growth assumption of 0 to plus 1.

On the restaurant margin on the high end of the range, we might be able to get where margins are down only 50 basis points for the year. On the low end more like 80 to 100 basis points for the year. We are basically 100 basis points down year over year in the first quarter.

The key factors are sales, deleveraging or leveraging sales growth and just floating beef and also floating dairy and produce costs. There is a ton of uncertainty. We have 8 months left in the year.

Finally, if we incur or do not incur any additional impairment foreclosure charges the rest of the year that would help us get to the higher end of spectrum from the earnings perspective. And then if we do incur closing costs that would lend us more towards the lower end of the range. I will turn it over to G.J. for closing comments.

It continues to be a tough environment for restaurant operators. We remain committed to doing what is right for the long-term success of the business. We believe this has paid and will continue to pay huge dividends as we work towards 2009 and beyond.

I can telling you from spending time with our operators they are as committed as ever to growing this great brand.

We just had our annual managing partner conference in Florida last week. Over 1,000 of us, including spouses and vendor partners all got together, spent time together reminiscing about where we have been, celebrated achievements, and talked about the future.

We celebrated the fact that Texas Roadhouse has now completed 15 years. We talked about what it will take to complete another 15 legendary years. As always, our managing partners conferences are a great forum to gauge the pulse of our operators.

For our shareholders they are an experienced group. I can tell you they are fired up and commit to delivering another 15 plus years of legendary food and legendary service.

At the end of the day, that is what wins.

As each managing partner does his or her job every day, we will do ours to provide the support that they need to run great operations. Also, we will direct the allocation of capital to develop great locations, evaluate the purchase of franchise restaurants where appropriate and continue to evaluate opportunistically repurchasing shares.

Before opening the call up for questions, I want to once again take the time to thank all of the Texas Roadhouse team members for continued support, effort and commitment to offering legendary food and legendary service to each and every guest that walks through our doors .

It was great to see all of you last week. I hope you are carrying the excitement back to our restaurants. Operator, if you would open the lines for

Thank you Mr. Hart. (OPERATOR INSTRUCTIONS) We will take our first question from Jason West, Deutsche Bank.

Thank you, guys. I want to talk about the development plan a little bit. In '08, is the 30, is that a net or gross number? How you guys are thinking about '09 now, given the environment and the longer term, as well?

This is Scott. The 30 is a gross number. We will open 30 restaurants. If you subtract the one that we closed that would be a net of 29.

Then if you add back the3 that we acquired, that would be 32. It would be additional Company stores by the end of the year. As far as 2009, we are not prepared to say anything about 2009 at this point.

Thank you.

Next we go to John Glass with Morgan Stanley.

Can you hear me? Given your comments in the inflationary environment - have you thought about ways of cost of building new units as a way to increase returns.

In terms of?

Lowering the capital costs of building. I assume the volumes have come down slightly.

John, this is G.J.

Every year we get together to look at everything related to our development costs and see what we can do. This was the first year.

We mentioned it on the last call that we actually got cost out of the building. It wasn't significant.

We continue to evaluate those alternatives all of the time. In terms of our prototype, we have not done anything at this point.

You mentioned, Scott, a worst case minus, I think, a minus 1% traffic in guidance which would presume traffic would get better from here? Could you explain a comparison issue? What is it? Is it a current run rate of traffic that gives you confidence that gets better?

To end up with flat traffic versus down one?

I think down one was the worst case?

Down one we think is the lower end of what we are going to see. I think G.J. talked about weather and some other issues that we had. For Easter the timing.

We are more optimistic to get closer to flat. Flat is the upper end of the range. Somewhere in between is where we are most comfortable.

Our next question comes from Jeff Omohundro with Wachovia Securities.

I just have a couple.

Maybe you talk about the May menu. About the development process and how much of the menu is going to be new and how much testing behind those items?

Jeff, it is G.J. We always have ongoing tests on the menu.

The items we are talking about have been in test over the last several months. Particularly, the third slab of ribs and the baby blossom. The pulled pork and the variety of combos is something we put the pulled pork on awhile back, so this is a natural progression to hit some value price points.

Those price points with a combo of chicken at $10.99. If you put it with ribs, it would be $12.99 . Again, trying to achieve real value on the

Do you think there would be much of an average check moved as a result of that?

We don't know is the short answer.

You touched on the beef situation and we see cattle on feed numbers dropping and futures contract pricing up.

I just wondered if you could talk a little bit about what this means, maybe, as we go into the end of this year and next year. How you might manage through a more challenging beef environment?

Well, I think the other side of that coin is what I talked about in the past. That is the demand side. There is quite a bit of pork and chicken out there. From a protein perspective, there is plenty of product available.

That combined with the macro economic environment is going to continue to hamper demand at the high price levels and we have seen some of that. That balances itself out in the near term from here to the rest of the year.

That said, the numbers are going down. The food service industry is going through a challenge. Then retail. In terms of the retail consumer is going through a challenge.

How that balances out is unknown. Through the the balance of this year, we feel like our 25% floating was a good decision.

Last question. On store development.

Has there been any in in the timing of the expected openings this year? I thought it would be more balanced.

This is Scott. It is going to be spread out through the year. We are going to have half stores open by the end of the second quarter.

We are at 9 right now. 15 are under construction. We have 6 to go to finalize.

We feel very, very good about the development plan for this year.

Thank you.

Next question from Matthew Difrisco from Oppenheimer.

Thank you. Can you help us see how the trend went throughout the quarter?

Hey Matt, we can't hear you?

Can you hear me now? Can you help us look at how the trend was on the comps throughout the quarter. I know you give a statistic of the first six weeks of the current quarter.

Looking back, it looked as though you had a heavier comparison toward the back half of the quarter. I am curious how it is trending in relation to that?

January was down 0.5, February was down 1.7 and March was down 1.3. We are lapping a 1.8, 0.8 and 0.1.

In the first six weeks of this quarter?

First six weeks - it was four weeks of this quarter was down 0.2. That was on top of positive 3.7.

You are seeing on a two year basis an improvement coming into this month?

You could say that technically. I don't know how far much stock to put into that to be honest with you. You are right technically.

On the labor line, can you help us think about how that looks going to the next couple of quarters. I know on the volume basis on an average weekly sales basis, it looks as though 2Q and 1Q are pretty close.

Your labor costs should be in line with what you are running at right now versus the sequential jump - or D leverage you had last year that you have experienced despite having a stronger comp in 2Q than you did 1Q. Is it correct to think of the range of the relative cost of labor in 1Q could be maintained with this that range to 2Q?

Before I have answer that. We are not prepared to give out specific line item guidance except for what I gave earlier on the total sort of margin line. In theory, you are right. Our sales volumes are pretty close, first quarter and second quarter.

There are other thing has impact the labor line. The biggest one is workers comp. We do get a report every quarter.

To the extent we are favorable or unfavorable. Given what we currently have reserved. We have to look up to that or look down to that number so that gives away the numbers a little bit. I believe we had an adjustment this last quarter. On the workmans comp line. That is for every quarter.

That is what I guess I was indirectly asking. Was there a favorable thing in 1Q that might have helped you?

No.

Thank you.

Next question comes from Destin Tompkins, Morgan Keegan.

Good afternoon. G.J., I thought that I noticed that on of the local Texas Roadhouse restaurant was now opening for lunch on Friday. Is that something new? Are you testing something with lunch?

No, we are not testing anything with lunch.

The Friday lunch option is something that has been around for the last few years, and the Tennessee market has been a franchise market and that market is one of the few markets that we do have lunch available.

There are some variations in that particular marketplace. We have a handful of these restaurants open for lunch. Given where you are, that would be my suspicions there.

Thank you. Scott, it looked like depreciation was flat with Q4. Any help where we should expect that to continue for the rest of the year?

I will tell you as a percent of revenue what we have 53 weeks over 52 this year. That is one thing.

It will grow a little bit because of the amount of capital we are putting on the books. It won't grow as fast as it has been growing. We have having more depreciation on fall off the books. More equipment packages reach their depreciable life and fall off the books.

So I suspect depreciation will be up slightly as a percentage of revenue by the end of the year-over-year over year.

Thank you.

Next Larry Miller, RBC Capital Markets.

A couple of my questions have been answered. But I just wanted to clarify something. You guys are contracted in all the other commodities other that the 25% of beef, dairy and produce. Is that right?

We are not contracted on produce. We have floor and ceiling on potatoes. We are not contracted on dairy. We are on butter and margarine, but we are not on cheese and that is a big one. Almost everything else we have a form of contract on except the beef.

How about some of the flour and stuff you would use for the yeast rolls?

We are are contracted on bread mix products.

I think one time you said check was flat then you said down 1%. Did I miss hearing you?

We said check was flat and pricing was up 1.1% but we had negative mix shift.

That makes sense.

Can you guys give us an update on the technological initiatives you are working with? I might have missed that.

Well on the guest manager system is what you are talking about with regards to the host stand. That is in task. We are expanding that. We are excited about the potential of that system.

We have a ways to go on that one, and I think our expanded test will be in 10 restaurants very soon. That is the biggest thing that is going on right now. We finished rolling out the labor product back in the fourth quarter. A lot of guys are just getting started on that, a piece of it. That is pretty much it at the moment.

The food cost has been done.

It has been out a couple years now. Thanks, guys.

Next is Steven Rees with J.P. Morgan.

I appreciate the color on the unit average weekly sales. Have you seeing discrepancy between new markets that are less penetrated verses some of the units you are adding in the more mature markets?

This is Scott Colosi.

No, there hasn't been a statistically relevant difference between new markets or existing markets relative to stores doing higher or lower than average volumes.

I know you guys spent a lot of time testing price increases recently.

Can you talk about what you learned and how price sensitive your customers today versus a couple of years ago?

I will take this. This is G.J.

The testing we have done around the country, quite frankly, even with surveying our servers. We haven't seen any negative responses. I mean, almost to a restaurant there might have been one complaint.

Is that the best gauge? I am not sure, but from the extent where we came down from the 1% to 1.5%, we feel comfortable based on the different tests we had going. Having said that, how elastic is our pricing?

I will tell you the standard answer is, we want to give the guest the best experience and best value that we can and pricing is the last resort for us and it will continue to be so. We are very sensitive given this macro environment, we need to be careful as to what we do. Under no uncertain terms will we decrease our value compared to our competition.

You have talked about pulling from pretty broad diner base 25% from lower-end family dining, and 50% from mid-scale traditional casual and 20% from higher-end concepts.

Have you seen any evidence of a shift in this sort of mix? Perhaps you are drawing from a wider range of customers given the overall situation.

Other than to the extent if you walk into Texas Roadhouse today around the country, you will see more folks in coats and ties and the like.

We make that assumption. Other than that, that would be it.

Thank you.

Next question comes from David Tarantino, with Robert W. Baird.

Hi, good afternoon. The question on the price increase, G.J. How confident are you that you will be able to get the full benefit of that price increase?

We feel relatively confident or cautiously optimistic.

We did take the increase over a much broader base than we typically have done. So we feel like in the previous ones we may have telegraphed a little more to the guest how to trade down.

We feel more comfortable that is the case in this pricing that we are a little better position than we were in the past. Having said that, we are cautiously optimistic.

That is helpful. Scott, just a question on the guidance.

It seems like you might be able to do a little bit better on the restaurant level margin side - given what you did in the first quarter and given that you will have a little more pricing going forward.

Is there something about the cost comparison that I am missing for the balance of the year or could you just help me understand that?

Last year third quarter, I think we had a favorable insurance adjustment. At the same time I think as G.J. talked about, we are rolling out some lower priced items, the four-bone rib slab below $10. The baby blossom aggressively priced.

Some of those items while we believe they are great values for the guests, they make our margin depending upon what they cannibalize or don't cannibalize. There are still some question marks out there about where our margins are going to shake out. We take dollars to the bank not margins. We are looking at the best return at net that we can get from a dollar's perspective.

On the last call you were working on initiative to sharpen specifications on some of the cuts of rib eyes.

Could you give us an update on that initiative?

Yes, the real benefit, or lack there of if you will, or any benefit is yet to be seen, because quite frankly, we didn't get the beef once it was aged into our system until February. Mostly late February.

I think it is still a little bit early to tell. Having said that and been in many restaurants in the last quarter, the product itself looks terrific. I am again, cautiously optimistic, we will see that benefit.

Thank you.

We will go to Bryan Elliott with Raymond James.

Good evening. A couple final questions.

Scott, on the labor costs, did you indicate there was a positive swing in the worker's comp this quarter?

There was not.

What was wage inflation, roughly?

It was about 4% for the quarter.

Was there a big swing in the -- well, the manager bonus stuff is down. This labor per store week was down meaningfully.

Our guys were a little bit more productive Q1 this year than they were last year.

Would that likely be the tools you gave them or the labor scheduling you have mentioned?

I think it is more just their focus as the economy continues to get tougher.

They are looking at everything in their business at all angles and making sure they are being as controlled as they can.

Without impacting the guests. I want to reiterate in the message from G.J. and I, we are not sending out reports to cut labor or, you know, under portion food or anything like that. I think it is our guys taking it upon themselves to be good business partners and manage labor as tight as they can.

Scott, you expect to be free cash flow positive after cut backs.

After CapEx and preshare repurchase.

Is the capital budget still 100 or 105 is that still a good number?

Yes.

Next is Paul Westra with Cowen and Company.

Good afternoon. My questions were answered. Can you give some geographic color on the traffic? The April trends will be better.

Is that broad-based? Do you have weaker markets or are you seeing any markets that are weaker?

Hi, Paul. This is Scott.

I would tell you that we remain a little bit weaker in the northeast and the south. Those are the two weakest markets. Stronger in the south west.

Those sounds like the first quarter and fourth quarter.

If you saw a slight improvement in traffic in the last four to eight weeks that means it is more broad-based?

Our changes are broad-based when we have had changes in traffic throughout the system.

It is not a question on the beef outlook . Clearly, you are happy with the 25% on spot. Doesn't look like you want to change that any time soon. Are the suppliers willing to talk or shall we expect if you were going to make a decision, it could happen sooner or is it uncertain that nobody wants to lock in on the other

Lock in for 2009?

The remainder of 2008 or 2009.

You mean the remainder of the 25% that is floating?

That's right.

We are watching that closely. I don't think the time is right this minute.

Another follow up on the mixed question. You have three or four new products.

Were all of those in the single market test before and have you looked at the mixed number? Are you seeing more add on for the baby blossom and some trade downs on the entrees or is it kind of a push?

I will tell you the test was done in numerous markets and based on the categories in terms of the ribs and the blossoms, the total category in total went up. I wouldn't be prepared to tell you how it was split out.

Thanks.

Next question from Barry Stouffer of BB&T Capital Markets.

Can you quantify the impact of Easter on the comps for April and the first quarter?

I would tell you that we thought maybe Easter was worth a point in March, but that is as far as we will go.

So you got a benefit so far in in the second quarter.

You could say that is the case.

What is the effective interest rate on your outstanding debt balance?

Over 3% which is 95% of our debt.

Were you trying to say your overall beef costs are lower in the first quarter because of the 25% you are buying on the spot or just that portion is favorable.

It is that portion that is favorable to what we would have been paying and we contracted that beef out.

Your overall beef costs are higher than last year?

Hang on. We are looking it up.

Our cost of meat is lower. That includes other things besides beef. I would guess it is probably a little bit lower.

Thank you.

We will go to Chris O'Cole, SunTrust.

Scott, just a follow up. Could you quantify the year-over-year benefit of the floating beef?

We are not going to give out those numbers for competitive reasons. We keep what we are contracting close to the vest, or the price that we are contracting at. So we would rather not get into that.

We are happy so far with the benefit that we have gotten.

Is my read on the spot market correct? We should expect that similar trend in the second quarter for the beef?

That is uncertain. If you look trendwise historically that would not be the case.

Typically, you will see it lower first quarter, go up in the second quarter . Typically, lower from the second quarter to third, and balance out in the fourth.

This is not a typical year. That is why I would tell you it is

Just turning to new unit performance.

Are you seeing smaller or shorter honeymoons for new units as a result of difficult environment?

The honeymoon is larger. We starting opening stores with higher volumes than we had three or four years ago. The honeymoons have grown a little bit. It used to be 10, 15%. Now it is 15 to 20%.

It is a very wide range. Everything from zero to 30. It is a very wide range. It is very location specific on that.

Lastly, just with regard to management turnover, could you update us on the trends that you have seen in turn over including managers in training.

Manager turnover is slightly better than what it was at this point last year.

[OPERATOR INSTRUCTIONS] : We will go go to Keith Siegnor, with Credit Suisse.

Just one quick follow-up question. In the past, you have always had a policy, one item on the menu, one item off, to keep the menu nice and simple. With the new items coming on, can you tell us what is coming off?

That is a great point.

The way we looked at this if you look at what we have done in these items, the blossom essentially from an operational perspective is smaller.

We can get actually one more -- two more in the fryer. So we look at it as the same item, just presented a little differently.

On the ribs, it is similar. We pre-portion those. It is the same item. On the combos, we already have the pulled pork. We already have the chicken. We already have the ribs. So we don't look at that as new menu items.

There will be more line items on the menu?

That's correct.

That is it.

Mr. Colosi, we have no further questions. I would like to turn it back to you for closing remarks.

Thank you for being on the call. We very much look forward to seeing you after the next quarter.

That concludes the conference.