Texas Roadhouse Inc (TXRH) 2009 Q1 法說會逐字稿

Welcome to the Texas Roadhouse Incorporated first quarter 2009 earnings conference call. (Operator Instructions) I will now turn the call over to Scott Colosi, Chief Financial Officer of Texas Roadhouse Incorporated. Please go ahead, sir.

Thank you, Tom, and good evening, everybody. By now everyone should have access to our earnings announcement release this afternoon for the first quarter ended March 31,2009. It may also be found at www.TexasRoadhouse.com under the Investors Section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for 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 and Price Cooper our Vice President of Finance. G.J. will provide insights about the performance and direction of our business. And Price will be giving you the financial update. Many of you know Price. He's done an outstanding job for us, and having him on the call today is a reflection of the depth of the management team that we have here at Texas Roadhouse. I will still be here to help answer any questions that you might have. And that said, I want to be clear up front, that there is no imminent change in the senior management at Texas Roadhouse. And now I would like to turn the call over to our Chief Executive Officer G.J. Hart. G.J. ?

Thank you, Scott. And good evening everyone. As you saw in our release this afternoon, things got better for us during the first quarter. And it appears that was the case for much of the industry. Our diluted earnings per share of $0.20 was ahead of our outlook, and driven by better than anticipated comparable restaurant sales growth and better than expected costs below the restaurant margin line. Restaurant margins down 126 basis points, came in pretty much as we anticipated for the quarter. We did have a couple of calendar items that positively impacted sales, with New Year's holiday being in our January period this year, and Easter not occurring until our April period versus the March period last year. Both of these shifts helped our comps as they were negative 1.3% for the quarter.

However, even when you exclude these benefits, comparable sales would still have been down less than 3%, which is better than the trend we saw in the back-half of 2008. April has continued this trend with sales down 3.1%. March benefited from the timing of Easter, while April has been negatively impacted. Overall, we're pleased with our first quarter results, and while it is still early in the year, we are somewhat encouraged by the early trends in 2009. However, the environment remains challenging and we remained focused on the parts of our business that we can control, which all starts with providing legendary food and legendary service to every guest. That is what will sustain the company and continue moving us forward. I will talk to you in more detail about what we're doing in the current environment, but first Price will walk you through the financials.

Thank you, G.J.. During my review of the first quarter, please note many of the numbers I mention are listed in the schedule supplemental financial and operating data, that was included in the press release. So starting at the top of our income statement, for the first quarter of 2009 as compared to the same period in 2008, total revenue increased 17%, with Company restaurant sales increasing 17% as well. Growth in Company restaurant sales was driven entirely by operating week growth, as both comparable restaurant sales and average unit volumes were down from the prior year. During the quarter, we opened nine new Company restaurants. We remain on track for approximately 15 Company owned restaurant openings for 2009. As G.J. mentioned earlier, comparable restaurant sales at Company restaurants decreased 1.3% versus a decrease of 1.2% last year. For the quarter, traffic was down 0.6, and average check was down 0.7.

For the first week -- for the first four weeks of the second quarter, comparable restaurant sales were down 3.1%. A couple of things to mention as it relates to sales. Regarding the first quarter, we had two calendar shifts that positively impacted comparable sales. First, New Year's day fell in our January period in 2009, vs. our December period the year before. And secondly, Easter fell in April -- in our April period in 2009, as compared to our March period in 2008. We estimate these shifts positively impacted first quarter comparable sales by 1.5%. While a shift in Easter positively impacted first quarter's comparable sale, it has negatively impacted April, by an estimated 1.25%.

Finally, effective at the beginning of April, we took approximately 1.4% in menu prices. From an average unit volume perspective, those restaurants that are in our average unit volume base, but not in our same-store sales base, continue to perform a bit worse than our same-stores. Our average unit volume decrease for the quarter was 2.7%, compared to our same-store sales decrease of 1.3%. Over the last three to four years we have seen our average unit volumes about 1% to 2% lower than our same-store sales. As we have done in the past I will offer some color here. For the quarter, the 201 restaurants in our same-store sales base, averaged $75,700 a week in sales. These restaurants have been open at least 18 months, as of the beginning of the first quarter of 2009.

There were 31 restaurants in our average unit volume base but not in our same-store sales base and have been open 16 to 18 months as of the beginning of the year. These restaurants averaged $67,100 dollars a week in sales. In our newest 22 restaurants that were open sometime over the last nine months, and are not in our same-store or average unit volume calculation, averaged $83,100 a week in sales during the quarter. We continue to remain focused on generating returns in excess of our cost of capital. Franchise royalties and fees were $2 million, which as with the fourth quarter, was $600,000 lower than last year. The majority of this decrease is due to the acquisition of 13 franchise restaurants throughout 2008. On top of this, we do have a handful of franchise restaurants for which we have reduced, and/or written off royalty fees.

Restaurant level margins for the first quarter, as a percentage of sales were 126 basis points lower than the prior-year period. Cost of sales was down for the quarter, coming in 126 basis points lower, driven by beef and dairy costs, specifically cheese, being favorable year-over-year, partially offset by higher chicken, bread mix, shortening, oils and produce costs. As of now, we're still estimating food costs deflation of 2% to 3% for the year. As anticipated, we continued to see pressure on the labor line which was up 128 basis points. We're seeing continued wage rate inflation driven in large part by many state-mandated tip and minimum wage increases. Also we experienced more cost pressure from newer restaurants as they generally run higher for the first few months.

In addition, we experience increased state unemployment tax rates this year. Going forward, we expect labor to continue being a pressure point as there are additional minimum and tip wage increases forthcoming throughout the year, including another round of Federal minimum wage in late July. Rent expense was up 44 basis points from the procedure year. Over half -- prior year. Over half of this resulted from the acquisition of franchise restaurants in 2008, as the 13 restaurants acquired during the year, as a group, have higher rent as a percentage of sales. The remaining amount of the pressure resulted from leasing more sites than we have in the past..

Other restaurant operating expenses were up 80 basis points versus last year. The big drivers were repairs and maintenance, supplies, utility, and property taxes. We have seen the utility pressures subside recently. However keep in mind the other restaurant operating expense line is where our managing partner bonuses hit. And as we have mentioned on prior calls, we will be incurring an additional estimated $1.5 million for the year as a result of enhancements made to the bonus plan. Pre-opening expenses were $600,000 lower than the prior year due to fewer restaurant openings in the pipeline, during the quarter than in the prior year. We continue to anticipate pre-opening costs for 2009, to be much lower than 2008, with approximately 15 versus 29 Company openings -- Company restaurant openings planned.

Depreciation and amortization costs as a percentage of restaurant sales were 21 basis points higher than last year, driven by higher construction costs, and negative average unit volume growth. On the next line, impairment and closure costs, you will notice we had a credit of $86,000 this quarter. This was driven by the fact that we were able to settle the lease exposure on a restaurant we closed during the first quarter of last year, for less than we had accrued. General administrative expenses as a percentage of revenue were 28 basis points lower than last year. Nothing really unusual here. We just did a good job of managing our fixed costs and leveraging our infrastructure.

Next, I want to point out that the presentation of our income statement has changed slightly. Effective as of the beginning of this year, we were required to report minority interest slightly different, on both a balance sheet and the income statement. On the income statement, you will see that minority interest is now showing below the net income line. And the new bottom line number is now called net income attributable to Texas Roadhouse Inc. and subsidiaries. No changes here, other than the presentation, as minority interest is still shown pre-tax. So it is a little confusing when I tell you the tax rate for the quarter was 31.9%, as you have to divide the income tax provision, by income before taxes, less minority interest.

The 31.9% tax rate is lower than last year, due to lower margins, and various tax credits primarily the FICA tip credit, representing larger percentage of pre-tax income. For 2009, we are projecting our income tax rate to be approximately 32%. Our weighted average diluted share count was $75 million, which was $400,000 lower than where we were at as of the end of last quarter, due to share repurchases, during the fourth quarter. We did not repurchase any shares during the first quarter of 2009, so as of the end of the quarter, we had $18 million remaining on our $75 million share repurchase authorization.

Now let me touch briefly on a capital structure balance sheet and cash flow. We ended the quarter with total book debt of $130 million. During the first quarter, we paid down $3 million of debt, with projected capital expenditure -- expenditures of $50 million to $60 million this year. We anticipate generating a considerable amount of pre-cash flow. From a leverage perspective, we look at adjusted debt to EBITDAR ratio, and included in adjusted debt is lease debt. We ended the quarter with adjusted debt to EBITDAR leverage ratio of right at two times. Given the continued uncertainty surrounding the economic and lending environment our current plan is to use excess cash to repay some debt ,or put the money in the bank.

Finally, I do want to comment on our estimated 2009 diluted earnings per share growth of flat to up 5%, as compared to our 53 week 2008. First, while the first quarter did come in better than we had anticipated, it was primarily driven by comparable sales performance, and is too early in the year for us to determine if this will be a continuing trend. Second, we do still anticipate 2% to 3% food cost deflation for the year. And with that said, I would like to turn the call back over to G.J. to talk more about our plans going forward. G.J.?

Thank you, Price. Again we are pleased with our first quarter results. We recognize it is just the quarter, but it was a solid improvement as compared to the back-half of 2008. However, we are in this business for much longer than a quarter, or even a year. And that's why we continue investing in our people, our brand and our guests. For instance, earlier this month, we had our annual managing partner conference in San Francisco, which we consider an investment in our culture and the long-term success of the brand. We had some great speakers, we spent time giving back to the community as a group. And we took away a lot of great memories. But the most important thing we did was maintain and develop our great culture, by rewarding our operators and letting them network and socialize with one another.

We believe it is just as important to invest in our people in times like this, as it is to invest in the guest experience. It is a critical piece of what we do here everyday and how we, as a company, will continue to keep moving forward. When we last spoke, we announced that we had delayed any pricing decision as we continued to evaluate alternatives. As Price mentioned, effective April 1st, we did take an average of 1.4% in menu price increases, which I believe continues to be below much of the competition.. We are trying to strike that delicate balance between mitigating inflation, and the fact that our guests are in the midst of a very difficult economic time. While 1.4% is certainly not large number, we are very cautious when it comes to pricing. Our guests very much perceive us as a value proposition, and we don't ever want to lose that, or want that to change. The increased pricing has only been out there for four weeks so it is a little too early to tell you how much of it will stick but we are optimistic on flow-through based on what we have seen thus far, and the fact that pricing was spread amongst many more menu items.

Now a little about our $7.99 Early Dime program which the vast majority of our restaurants are doing in some form. Many of you might recall our Texas Two Fer's program, where we offer two entrees, generally between the hours of 4:00 and 5:30 for prices ranging between $13.99 to $15.99. We made a change to that program in late March when we began offering 10 different dinner entrees for $7.99. In addition to pushing the fact we offer 20 meals under $10, we want to scream value and drive more traffic at off-peak times, generally in that 4:00 to 5:30 timeframe in the early-to-midweek periods. The $7.99 price point like the old Texas Two Fer's program, is at a slight discount to our normal priced entrees but the real focus here is on our value.

We believe we're always a value and should continue to position ourselves as such, focusing on our four-wall execution and local store marketing initiatives to drive our performance. In addition to taking care of our people and our guests, it is about taking care of our business model. And that comes from generating returns on invested capital. To update you on a few things we're doing from a return perspective, we are continuing down the path of adding additional seats in some of our higher volume restaurants. To date, we have done this in 27 restaurants across the system since 2007. This year alone, we have completed the seating additions in five restaurants, and have another ten or so on the schedule. We continue to see improved sales performance from these primarily from being able to get more traffic through during our peak periods..

And, from a return perspective, with it only costing on the order of $150,000 per restaurant, it is a no-brainer financially as on average we have seen an excess of one-to-one sales to investment ratio on these. As we have discussed we're also focused on reducing our overall investment costs on new restaurants. In particular, we're evaluating the viability of inline and/or end cap type locations in strip centers, as well as the potential for conversion here and there. I will tell you that the inline and/or end cap type locations probably makes more sense. We have a couple that are scheduled to open in the latter half of this year, so we will know more then. But we are optimistic that this is one way to reduce our overall investment costs and generate higher returns. I do want to make it clear that while we are evaluating alternative structure types, we continue to apply the same trade area criteria that is population density and traffic count measurements, as we -- as we apply when targeting standard free-standing locations.

On the cost side, we are beginning to see a little more flexibility from a landlord's perspective with respect to operating leases, rental rates, as well as more flexibility with lease terms on new deals. While it is too early to tell what this might amount to in relation to our capitalized investment costs, we are optimistic that we will see some relief here. Finally, we continue challenging the design of our existing prototype building, to determine if there are opportunities to build it more efficiently. We are experimenting with a few things on restaurants opening later this year. As I mentioned on our last call, we need to get our initial capital investments down and that remains a focus of ours. Before opening the call for questions, I want to reiterate that we remain focused on providing legendary food and legendary service. We are not sitting around trying to figure out how we can cut back on portions, and/or service to the guests in the name of generating efficiencies. We continue to take a long term approach to our business, and believe that doing the right thing for our guests day in and day out is what leads to our long-term success. Thanks to all of our team members who make this a priority, and make it happen each and every day. With that, operator, that covers our prepared remarks. So please open the lines for questions.

Thank you.

(Operator Instructions)

We will take our first question from Matt Driscoll with Oppenheimer.

Thanks, it is Matt DiFrisco. Couple questions. First looking at the pipeline for 2010, and also with reference to the six stores or so, that the Company-owned ones still to open in 2009. What does the pipeline look like for 2010, given that we're in a slow economy, slow overall retail development? And then also, do you have that six on deck, are they signed already leases?

Hey Matt, this is Price. As far as 2010 pipeline it is a little early to get into specifics on what our plans will be for 2010. I can tell you, though, for the remaining part of '09 we're in good shape on our locations. And then probably -- probably looking at a couple of new restaurants each quarter for the remaining part of this year.

Okay. I guess just -- a little bit of color, though, if you can give us the context of this time last year, and this time in '07. Is the world that much different for Texas Roadhouse as far as positioning for growth in 2010? Or, do you see concerns as far as finding the sites? Or -- are they still available for what you're looking for?

Matt, this is Scott. Sites are available. Our real estate team is actively looking for sites. Our pipeline is starting to build for 2010. And you got to be out pretty far, in this process. So, we have already got a number of restaurants. I won't get into how many that are already on the slate, and are highly probable for 2010.

In fact, we have got management teams identified for some of those restaurants. So, it is really going to come down to -- a number of us in the senior management team, deciding at some point how many, and how aggressive do we want to be. But there is absolutely still sites out there. And there are a number of landlords that are certainly willing to negotiate a lot more than they would have, let's say two years ago. So we're looking at the economy in totality, and where we think that is going to be a year from now, 18 months from now. Because again, these are decisions you got to be basic basically a year to 18 months out in front of, if you're going to make these stores happen.

Okay. And then looking at the -- and thanks again for the granularity on the class of stores also. It is always helpful. I think it looks like, it appears as though, you narrowed from the gap there the stores between the 6 to 18 month class versus the same-store sales basis around 89%, now verse 86% of the comp in the first quarter. Is there anything you're doing there, as far as incremental labor in those stores or any associated costs? Or is it just better practices and trying to reap the rewards of just best practices being brought in there?

Hey, Matt, this is price. No -- nothing really that we're doing different between those, as far as generating average unit volumes. It -- as you point out, it is a little better than the fourth quarter. So some of that will bounce around a little bit, depending on the timing of openings and where certain restaurants are at during their honey moon period as well.

Okay. And then the -- the management conference in San Francisco. How does that compare in a lump sum dollar amount verse the budget that was incurred in 2Q '08? Should we look at a G&A boost or is G&A going to grow similar to what 1Q was on a comparable basis.

This is Price again, as far as the conference is concerned, it should be a similar amount in 2Q '08 as it was in 2Q '09, rather as it was in the second quarter of '08.

Okay, and then last question, given the slow start, it looks like it was associated with the Easter holiday, as far as the timing of the first four weeks of your quarter-to-date trend. Was that planned, so that it also correlated to that your labor costs and other controllables were kept in check, or was it somewhat of a -- was it a greater surprise, the contraction? I am just curious if there was any sort of margin head or could you plan for that as much as possible.

Matt, our guys they talk about when holidays fall and many of them are in anticipation of that. That said, our restaurants still do very high volumes, Easter or not Easter. And -- so a lot of our labor is highly fixed, meaning we're going to have so many servers on the floor, so many people at the back of the house, et cetera,, et cetera,. But definitely our folks talk about when we're going to have expected significant changes, in our sales volumes. Whether it be at a specific holiday-related -- or whether it be a certain time of year, let's say late summer, early fall, when you have a typical seasonal slowdown in sales, relative to the rest of the year.

Great. Thanks very much.

And we will take our next question from Jeff Farmer with Jeffreys & Company.

Great, thank you and good afternoon, guys. I was hoping to get a read on the flu impact on your business. And your thoughts on lapping the May 2008 rebate checks if you thought that would be a difficult lap for you guys in 2Q?

Hi, Jeff. It is G.J.. First of all, I think the whole flu thing, it is too early to tell if it has any effect on our business, but I will tell you that our perspective on it is is that it is -- it is something we're watching closely. But we're not over-reacting, too. We're over-communicating to our restaurants in terms of what they should be doing from a sanitation hand-washing, et cetera, if someone appears to be sick, an employee, we don't have them come to work. So we're certainly paying attention to it, but just as a -- as a reminder, I mean we don't want to get crazy about it. When you think about the amount of these cases that have been announced already, if you look at a place like Texas, there -- there is half as many as there is in the state of New York. So I don't want this thing to get overblown and, quite frankly, you see some of the news today, it seems to be waning a bit. So -- we're watching it but we're not overly concerned.

Okay. Okay, and then as it relates to lapping the rebate checks from last year, was that in your mind a meaningful benefit to your 2Q same (indiscernible) sales number last year?

Hey, Jeff. This is Price. I would say not meaningful. It is certainly tough for us to quantify how much of an impact it did or did not have, or potential delay in softening, perhaps. So it is not really something that we model or plan around.

Okay. And then final question for me. I am just trying to put all the pieces together as relates to your costs of goods sold. So you made comments as related to obviously the deflation, some price increases, still some mix shift that's out there. Putting all those pieces together, do you think your full-year cost of goods sold could be close to the 34% number we saw in the first quarter? Or do you think it could it get higher, lower, what's a good way to think about that?

Hey, this is Price again. It -- it could be, I -- I think -- a lot of that really depends on how much of a flow-through we get on this pricing. And then, keep in mind, we still do float our dairy, our produce costs, as well as a portion of our beef costs. So, all of that will kind of roll up the -- together, and combined with a flow-through we actually do or don't see from our pricing action. So I think -- I think it is a little up in the air now.

Okay. So I guess just to say it another way, would you imagine that the -- well, -- the deflation would be any greater, as you move forward? Or is this about as good as it gets in the first quarter?

This is Scott. I think as Price mentioned there are things that float. We're going to be lapping much, much, much higher potato costs later this year, most of the third, and fourth quarter. So that is going to help us in year-over-year comparison perspective. It's not really going to change things sequentially. And so, I think the key question is sequentially, is going to be what happens to dairy cost for us. What does happen to potatoes, do they have a spike like last year. What happens to the flowing beef prices that we have. What happens to the chicken that we're renegotiating at this point, because we have a six month chicken contract. There are still a lot of things up in the air, including the flow-through on the pricing as Price mentioned. But I think, overall, as we said in the release, we're still pretty confident that we're going to see overall deflation in our commodity costs of 2% to 3%. If that gets you to around your 34% level, then that is what we're talking about. But again, if we hit different end of that ranges that number will change a little bit.

I know I am beating a dead horse, but what was the deflation in the first quarter. Was it in that 2 to 3% range?

It wasn't totally 2 to 3 because most of the first month of the year, our beef prices hadn't gotten lower yet because the aging process for our beef. So the lower beef cost didn't really start until February and march. So -- a little bit less than that 2% to 3% for the year. But we're still forecasting that for the full year.

Perfect. Alright, thank you very much.

We will take our next question from Destin Tompkins with Morgan Keegan.

Thanks. My question is on the, I guess the menu price you took in April -- in the beginning of April. What was the culminative pricing for April year-over-year? I think you maybe roll off some pricing in May. Can you kind of update us on the timing of all those pieces?

Sure Destin, this is Price. Right now we have got close to about 2.9% pricing out there, with a 1.4% that we just recently rolled in the beginning of April. And then we roll off 1.5% in mid-May through early part of June. We overlap last year's 1.5% price increase. So then after that point, we will just have this most recent 1.4% price.

Okay. And then, will there be any other menu changes, that -- that may be potentially could impact menu mix? I know menu mix has been negative in the past somewhat. I mean, do you expect any material changes around menu mix?

Destin,this is G.J.. Firstly on the price increase we took April 1st, one of the other things we did, is we took off the third slab of ribs, that we added about a year-ago. And -- that could potentially offer some help, there because we did see some pretty significant shift as it relates to that. And then in terms of what we might do later in the year. It is undetermined at the moment. And as you know we continually test new items in a handful of restaurants. But at this point, it is really -- undetermined as to what we will do later in the year.

Okay. Great, thanks.

We will take our next question from John Glass with Morgan Stanley

Thanks, excuse me. If we could just first go back to -- I want to make sure I understand the dynamic in the April period, that you talked about, with comps down 3%, you had negative April -- Easter impacts, that backing that out you're down 1.8% or 1.9%, but you also took 1.4% pricings. Are we back to down 3%, if you exclude the pricing? Or did you roll something off simultaneously with adding that or -- or did you not roll it out all exactly in April 1st?

Hey, this is Price. The 1.4%, we didn't roll that all out, right on April 1st, number 1. And -- but you're right on the components of April was down 3.1, if you back out the estimated Easter impact, you're down 1.8% to 1.9%..

So I mean, if you looked at the underlying traffic trends and stripped everything out, how would you say those compared with the first quarter?

I would say, not -- you know overall, not -- not materially different than what we saw in the first quarter. With -- with an Easter flip-flop, you do have some changes in spring breaks which I think is probably tough to get a -- a real good handle on exactly what you're trying to get at, I guess if you will. is that core underlying traffic. I think it is tough with some Easter mismatches, and whatever spring break changes with that. So -- as I sit here I don't see a whole lot of change from the last few months.

Okay. Then your labor deleveraging is accelerating in the last couple of quarters, and I understand the components that you're talking about but a lot of your peers have seen improvements in labor ratios, even as comps have fallen and they are doing things to mitigate labor deleveraging through cutting of labor I presume. How do you think about that. Why is yours going one direction when the rest of the industry seems to be getting a little better. Do you have a philosophical difference in the way you staff your restaurants or could you do something differently to prevent the deleveraging in labor I will ask it that way. How do you think about that? Why is yours going one direction, when the rest of the industry seems to be getting a little bit better? Do you have a philosophical difference in the way you staff your restaurants? Could there be -- could you do something differently to prevent the deleveraging on labor?

I will start that one as well. I think -- you know couple of things. One is we -- we have been on the lower side of pricing as compared to our -- a lot our competition out there. And then secondly, we do things different. As G.J., I think mentioned in his script, we're not sitting an here rolling out new labor models, new labor schedulers, to try and force down on our operators to cut hours or cut costs. So I think that is probably a big difference between us and a lot of competition.

Hey, John, this is Scott. Our average check, is actually still a little bit down year-over-year, year-to-date. So even though we have taken some pricing, we have effectively given it all back in mix changes. A lot of that is because we have been enormously protective of the lower-end of our menu. And so, we think that has mitigated some of the potential traffic loss that we might have had. So even though we have had pricing, we haven't had guest check growth against (indiscernible). Most of our competition, most of our relevant competition. They've had some guest check growth, but they have had a lot of transactional loss in their business. And we're kind of making the statement, that we think it is better in the long run to maintain those traffic counts coming in, so when things turn around you're in better position to -- to handle the guests that are coming, in case do you have to take some pricing or inflation re-inserts itself on the food side.

Regarding the labor thing, and Price is exactly correct , and G.J. and I and others have continuously made this statement. We don't want folks to take any -- to nickel and dime the guests. We want to take care of our guests. We're a very long-term business. An that's the way we approach it. We're not interested in coming out with a new labor model that perhaps has fewer hours in it and so forth. That said, we do challenge our folks quite frequently to make sure they are managing their labor smartly or wisely. And as you know bringing people in when they need to be in, not bring them in too early, sending people home when they should and so forth, recognizing when our sales tend to move down, particularly again at the end of the third quarter and so forth. Making smart decision with our labor. Hiring great people. That kind of thing. We have lot of focus on turnover. Our turnover is down a little bit this year, like a lot companies, maybe some of that is the economy. But certainly we're heavily focused on that because we know it is a great way to improve your labor statistics

Okay. Just very quickly on the $7.99 Early Bird. Was that in the first quarter in its entirety? Or is there a risk that that has an impact on your food cost margin, as we try to think about how that line plays out in the next couple of quarters.

Hey, this is Price again. No, that rolled out in the mid-to-latter part of March. But keep -- keep in mind, before that, we had the -- the Texas Two Fer's program, where we had two entrees anywhere from $13.99 to $15.99. From a margin perspective, I wouldn't expect it to be a whole lot different than that program. A slight difference in it may be that we -- we do have more stores, more restaurants participating in -- in this program than we did our Two Fer.

Thanks.

We will take our next question from Jeffrey Omohundro with Wachovia.

Thanks. Another question on unit development, and really your willingness to lock up more real estate. I am wondering if you could maybe share with us some of your thinking around the decision factors driving the pace of development. Do you need greater visibility around macro initiatives impacting the consumer? Or is it more of a focus -- or as much of a focus on achieving results around some of the design work, the end cap, inline, landlord flexibility and so forth?

Jeff, I will take that. It is G.J. It is really a little bit of all the things you just said. And -- and really, we're trying to balance out all of this as we look forward. We want to -- a clear view of what is going to happen and we also realize that we need to get returns, that -- that we're happy with. And so all that said, we -- we -- it is all the things you just said, and I don't think it is one over the other.

Thanks.

And we will take our next question from Steven Rees with JPMorgan.

Hi, thanks. Just going back to the COGS. Could you just remind me how much of your beef is still floating -- I think it was around 10% if that's still right. And what your average beef cost is expected to be down in 2009?

Yes, hey, Steven this is Price. It is around 10% of -- of beef is floating, and beef we're still projecting kind of high single digit reduction in -- from an inflationary perspective.

Okay. And then have you -- have you been able to take advantage of the lower prices and perhaps move -- or extend your contracts into 2010 at this point?

Not on a proteins. Right now we're -- our proteins -- with the chicken is locked out right now through June, and then pork and beef, through December. We do have a -- a few non-protein items that we have done some of that, where maybe we have blended and extended, I am thinking through like possibly our butters and oils, some of those products. But nothing protein-wise at this point.

Okay.

Steve, this is Scott. What we have though, locked in some of our -- gas and electric contracts, for a number of our stores were able to do so, into 2010 in a number of cases. And yes, it is more than beef, but every little bit adds up. And we have been very aggressive, given we're see where natural gas prices have been typically the last few months, trying to take advantage of that. And we have been spending a lot effort, store-by-store renegotiating contracts, and many of those are going in for the full-year 2010.

What is sort of your initial outlook for beef in 2010? What are your suppliers telling you? Are they willing to have those conversations now, and I guess, when can we expect to you sort of to have some clarity there?

Hey, Steven it is G.J. I think it is too material to tell you about 2010, at this point. We're still early in this year. And we will start having discussions with our -- our partners early this year, compared to last year. And I would anticipate us to start having some of those dialogues in June, July, where we might have waited until later in the year. But it is just a little too early to tell.

Okay. And then just finally, are you seeing any stabilization in your weekday dinner trend or is that still -- are they still underperforming your weekend dinner.

This is Price, Steven. Weekends doing slightly better, than weekday dinner times. But -- I would say nothing -- nothing materially different between the two.

Great, thank you very much.

And we will take our next question from Jason West with Deutsche Bank.

Yes, thanks guys. I just want to clarify on the pricing, what was the actual menu pricing for the first quarter? And for the whole quarter, and then what was it as you came out of the first quarter?

Okay. As we came out of the first quarter, it was -- it is 2.9%, after the 1.4% in early April. As we did it for the quarter as a whole, it was in the 1.5% to 2% range. We rolled in with 2.6% from the end of last year. And then we overlapped about 1% in the January through February timeframe.

Okay. Thanks. And just big picture question on the overall environment. I mean we have seen a lot of discounting by competitors out there. You guys are doing the early bird dinner which you have done before, but any change in sort of the pace, or severity of the discounting that you're seeing? Anything out there that worries you, or maybe things you see in the press are not as accurate as kind of what you're seeing on a day-to-day basis?

Jason, it is G.J. I would tell that you our perspective is this. Is that, guests figure out if you're really have value or not. And I will remind you we have 20 meals under $10. And -- you're right, the Early Bird, we have had for a long period of time. We're continuing to scream our value proposition to our guests. And, quite frankly, as we have always said, the times like this offer us an opportunity to open our demographic, have some of those higher income folks give us a shot. And we have a pretty good repeat rate on -- once they come in. So, we see it as an opportunity to continue to steal share from our competitors, and are we overly concerned? No. I think some of them are over-reacting in terms of what they need to drive new guests in the building, whereas we're really focused on the fundamentals and daily operations, on running our restaurant more efficiently and more effectively and giving the guests a great experience.

Okay. And this last thing. Any thoughts on what do you think may have changed between the fourth quarter and the first quarter, just in your guys' view, with obviously the traffic still down, but not nearly as much so as what we saw in the fourth quarter?

I am not sure that I can comment too much on terms of what changed, but there was a pretty big shock in that now, in terms of the whole world turning upside down, versus now where things have settled down and albeit we have tougher economic times, I think that people are getting used to that and the shock value has worn off. And, quite frankly, I think people are getting tired of being sort of in their dugouts and waiting for things to happen..

Okay, thanks guys.

We will take our next question from Larry Miller with RBC capital markets.

Hey, guys. First I had a question on real estate. You said costs were coming down, or at least the landlords were being more flexible. And I am curious, might they come down enough where maybe you don't need to look at the inline real estate? And just how you think about the tradeoff that you're probably getting on the inline real estate, because you don't do any marketing? And that -- that pad location is certainly marketing, and so there is an implicit marketing cost in there, so how do you guys think about that?

Well, hey, Larry, it is G.J. In terms of the end caps and inlines that we're looking to do. We are being very selective and careful in terms of the kind of signage that we get and the exposure versus that -- that free-standing building. We're also being very careful in terms of parking, because that is an issue on a lot of these locations. In terms of what we might see going forward, the few that we have done, we haven't seen any drop off on sales so, we -- we think that there is a great opportunity there. In terms of real estate flexibility, more of it is really the type of things that that the developer will do for you, that they would not have done in the past -- a lot the infrastructure work, pad -- taking the pads to be complete envelopes, things like that, that they are being way more flexible on. I think it is fair to say that we need to be looking at both, as we continue to grow our system, and we build out some of these other markets. Inlines and end caps I think are probably something we need to really understand more.

Okay, great, thanks. I just had two quick sort of short questions. What sort of volume comes in that 4:00 to 5:30 hour? And I am assuming that the change from the Texas Two Fer is not, because it wasn't working, its just that you wanted to have a lower advertised pricing point. And then, you've in the past given us the quarterly same-store sales progression. I wonder if you can talk about that, and also fill in a little of the maybe regional color on same-store sales. Thanks a lot.

Okay. I will start off on -- I will take the monthly progression and regional sales, and then we will kind of pass it around. If we don't get them all, please come back, but on the monthly, January was down 0.3, February was down 0.7. March was down 2.5. And March -- okay. And then regionally, still a little softer in the southwest, and northeast. They have continued to be soft here for the last really 12 to 24 months. They have been softer, and we're continuing to see that. As far as volume in the 4:00 to 5:30 --

I will take that one, Scott. We're -- we're going to stay away from getting too specific on what our sales are per hour. One thing is they vary a lot by restaurant.

Okay.

And -- but suffice to say, they are a bit lower than what we're doing 5:30 to 8:30. And -- certainly the $7.99 deal is a great way for us to scream out some value to our guests. And that is an every day menu price for us, not -- we almost hate to discount, because it is what we sell it for every day, at that time period. So -- we think it is working very well for us.

And then that's a dinner menu not a lunch menu, right?

Yes, considering that we're -- dinner only, 95% of our restaurants that is right.

That's right, thanks guys.

And we will take our next question from Fitzhugh Taylor with Thomas Weisel Partners.

Hi, guys. Real quickly, just on the price increase, I know it is not monumental, but just curious as to what kind of change went through your mind from three months ago, when you decided not to do it at that time.

Well, -- I think we were being more careful and sensitive to what -- what the guests is feeling and -- really re-looked at every region of the country. In fact, we have more menu versions than we have ever had. We talk 1.4% the range is pretty wide from zero to 4%, around the country. And -- we really had each of our folks go back and analyze each of their markets, and -- give us the information that they feel, and what they had and -- and that is where we ended up.

And then, real quickly, just on the labor. When you have an unemployment environment like this, how much can that help wage rates and help offset some of the state mandated increases that you faced.

Hey, Fitz it is Scott. It is kind of a mixed bag, because the biggest inflation issue we have had on the tip wages and, most of our servers are tipped employees in those various states make the minimum wage plus tips. Well, minimum wage goes up -- we see 100% of that impact on us, regardless of what turnover is. So maybe it is more meaningful back at house, we already pay a lot higher than minimum wage back of house. So it -- it is -- it is difficult for us on the tipped employees' side to benefit too much from lower turnover. Where we do benefit tremendously is training. You have to spend a lot time training, on training hours for new employees. And certainly to the extent -- and let alone the impact on our guests of having longer-term people in our restaurants whether it is front of house or back of house. And many of our best performing restaurants, it is no coincidence that they have pretty low turnover. That seems to shine through clearly, and it has in most restaurant companies over the years. But the training piece can be a big thing, that is why what we talk about when we talk about the case for lowering turnover.

All right. Thank you.

We will take our next question from Chris O'Cull from Suntrust Bank.

Thanks, good afternoon.. G.J., my question is regarding the $7.99 deal. How are you guys communicating that to guests? And is it different than the communication you use for the Two Fer?

No, not really. We have over 300 local store marketers running around the country, out there in the communities delivering that message. So they are continuing to -- to scream that value proposition of the $7.99 price point. And again, we had a Two Fer program. It is really unbundling the Two Fer program. So the message is not dissimilar at all, other than its value. And we continue to communicate that message with things like banners in the restaurants, table tents, and just word of mouth of our servers. But again, our message is driven by our local store marketers, and we will continue to do that as we move forward.

All right. And then, G&A costs were down I think about 30 basis points year-over-year. And I think you guys were targeting it to be flat. What was the improvement due to.

Chris, this is Price. Well one, sale sales were a little better than we had anticipated. I would say that is the biggest part of the improvement. Because other than that, it was just that we did a good job kind of across the board. Nothing really stands out on any single -- on one single G&A line, if you will.

Okay. And then, last question, it looked like your debt balance, you said you repaid $3 million but the interest expense was significantly below what you had in the fourth. Is that really just due to lower rates?

It would be a combination -- this is Price again -- it could be a combination again, yes, of lower rates and lower debt balance.

Okay, great, thanks guys.

(Operator Instructions)

We will go next to Paul Westra with Cowen & Company.

Okay, thanks guys. Just a few questions on what your philosophy is of attacking maybe some average check, or going after some average check growth potentially, and talk a little bit about the alcohol and soft drink mix. Is that is still dropping and appetizer mix as well?

Hey, Paul, it is Price. On the alcohol side -- the majority of our negative mix has continued to be driven by the entree side. People just trading down from higher priced steaks in particular, to lower priced ones. On the alcohol side, we continue to see anywhere in the neighborhood of 0.3 to 0.5 of reduction there. And really, hadn't seen anything on the -- on the soft drink side, on the soft bev side. It has kind of held in there. Could you talk a little bit more then -- this probably related to the philosophy of removing the third rack of ribs?

Well, I think Paul -- this is G.J., I think we saw some pretty negative shifts in terms of the third slab. And we offered a great value with the half and half slab. We think that again we -- we're somewhat optimistic in terms of what shift and it will help the check. But again, it is too early to tell for sure.

And was that removed just on this latest menu here in April.

Yes, sir.

Keep in mind, Paul, it is Scott. We still have a rib appetizer. We still have a sidekick of ribs. So, we still have alternatives, to the half slab, and -- dinner as well.

Great. Thank you.

And we will take our next question from David Tarantino with Robert W Baird.

Hi, good afternoon. And congratulations on a nice start to the year.

Thank you.

I have a question about the guidance, which seems pretty conservative in view of what you did in the first quarter. Is there anything about the last three quarters that would cause the year-over-year earnings comparisons to be more negative, maybe other than the cycling of the extra week and maybe slightly lower comps?

Yes, hey, David, this is Price. We hit upon -- you hit upon the large one, is the fact that we will be cycling an extra week in the fourth quarter of this year. In addition to that, we -- we are picking up the benefit from an equivalent share perspective, we're getting a little front-end weighted benefit from that, in the first and second quarters as we did most of our repurchasing in second and third quarters last year. So we're picking up a little bit front-end loaded benefit from that. Then in -- third quarter, is -- typically when we have our -- our insurance true up on our insurance year, as it runs on a October 1st to September 30th. So If you remember last year we had about a $900,000 credit from that.. In addition, a couple other things, are the fact that this year if we stay on plan assuming we continue to be on plan, we will be picking up more bonus expense for the third and fourth quarters of this year as compared to 2008. So those -- those would be the larger timing items.

Okay, that is helpful. And just a -- question on the labor line as Scott -- or maybe Price -- you mentioned there were inefficiencies related to the new stores. Could you maybe quantify the year-over-year drag that the new unit openings caused on that line? And would you expect to get less deleverage on that line going forward, given that the year-over-year comparisons related to new units, get a lot better as the year goes on?

Yes, David, this is Price. Yes. I estimate that was probably somewhere in the neighborhood of 20 to 30 basis points of the drag on labor. Just because we were heavy on openings in the fourth quarter, and into the first part of this year. So yes, we would hope that some of that pressure would subside, given the fact we opened nine restaurants in the first quarter, as compared to planning two a quarter during second, third and fourth quarter. So hopefully to your point hopeful some of that deleveraged pressure would subside from that in particular.

Okay, thank you. And one last clarification on the April comp. Did you quantify what the average check was, in April?

No, we didn't get specific on that. You know we quantified that we have got 2.9% in pricing right now for April. For the majority of April.

Would you care to quantify what the average check was in --

Yeah, David it is Scott. I mean, our average check was a couple tenths positive, for the month of April.

Okay. Thank you.

And that does conclude our question and answer session. Mr. Hart I will turn the call back over to you for any closing comments.

Thank you very much. We appreciate you joining us this quarter, and we look forward to seeing you again with our second quarter results. Good evening!

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.