Texas Roadhouse Inc (TXRH) 2009 Q2 法說會逐字稿

Welcome to the Texas Roadhouse Inc. second quarter 2009 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would now like to turn the call over to Mr. Scott Colosi, Chief Financial Officer of Texas Roadhouse Inc. Please go ahead, sir.

Thank you, operator. Good evening, everybody.

By now, everyone should have access to our earnings announcement released this afternoon for the second quarter ended June 30th, 2009. It may be found on the website 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 for SEC for a more detailed discussion of the risks that could impact the future operating results and financial condition of Texas Roadhouse.

In addition, we may refer to non-GAAP measures; the reconciliations to such measures can be found under the Investor Relations of the website.

On the call with me today, as usual is G.J. Hart, our Chief Executive Officer, and Price Cooper, our Vice President of Finance. G.J. will provide some insights about the performance and direction of our business, and then just like last quarter, Price will give you the financial update, and then we will all be here to help answer any questions.

Now, I would like to turn the call over to G.J.

Thank you, Scott, and good evening, everyone.

As I am sure you have seen, we reported diluted earnings per share of $0.19, which is up considerably over the prior year, and slightly better than we anticipated. Earnings for the period were driven by better-than-expected restaurant margins, despite the fact that same-store sales continue to struggle, being down 3.7%. I can tell you it was nice to finally experience restaurant margin growth after seven consecutive quarters of year-over-year declines. The favorable commodity environment led the way, and we remain optimistic about commodity costs through the balance of this year.

During the quarter, we continued to generate a lot of free cash flow, and while we did pay down some of our debt, we also took a conservative approach and put a sizable amount of cash in the bank. In fact, we ended the quarter with close to $25 million in cash on the balance sheet.

In general, I would say trends for the first six months of the year were about the same from a sales perspective. However, from a cost perspective things were certainly better in the second quarter. As we look forward, one thing is for sure, the environment remains tough and uncertain. We continue to believe that we are doing the right things for the long-term success of our business, and I will get into more of that in a minute.

But first, Price will walk you through the financials.

Thank you, G.J.

During my review of the second 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 income statement for the second quarter of 2009 as compared to the same period in 2008. Total revenue increased 12%, with Company restaurant sales increasing 12% as well. Growth in Company restaurant sales was driven entirely by operating growth, as both comparable restaurant sales and average unit volumes were down from the prior year.

During the quarter we opened two new company restaurants, and our franchisees opened one new restaurant and closed one as well. 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 3.7% versus a decrease of 0.3% last year. For the quarter, the entire sales decrease was driven by lower traffic, as average check was flat. By month, comparable restaurant sales were down 3.2% in April, down 3.7% in May and 4.4% in June. In addition, as we reported in our release, comparable restaurant sales for the first four weeks of the third quarter were down 5.5% to 6%.

From an average unit volume perspective, those restaurants that are in our average volume base, but not our the same-store sales base, continue to perform a bit worse than the same-stores. Our average unit volume decrease for the quarter was 5.1%, compared to our same-store sales decrease of 3.7%.

As we have done in the past, I'll offer some color here. For the quarter, the 206 restaurants that are in our same-store sales base averaged $72,900 a week in sales. These restaurants have been open 18 months as of the beginning of the second quarter of 2009. There were 33 restaurant in our average unit volume base, but not in our same-store sales base, and have been open six to 18 months as of the beginning the quarter. These restaurants averaged $65,500 a week in sales. Our newest 17 restaurants, which were opened sometime over the last nine months, are not in our same-store or averaging unit volume calculations, average $82,000 a week in sales during the quarter. No big change in the trend here, although we have seen differences in volumes between our new stores and existing stores widen out a bit over the last few quarters; probably a function of both comparable restaurant sales being softer, and the fact that our new stores are indeed running higher volumes.

Franchise royalties and fees were $2.1 million. These continue to run lower than the prior year, due to our acquisition of 13 franchise restaurants throughout 2008, and the fact we do have a handful of franchise restaurants for which we have reduced and/or waived royalty fees. I will mention that at this point we have overlapped most of the acquisitions of the prior year, so we would anticipate royalties and franchise fees to be more in line with the prior year for the third and 4th quarters.

Restaurant-level margins for the second quarter as a percentage of sales were 10 basis points higher than the prior-year period, with commodities leading the way. As G.J. mentioned, it was nice to see margins finally not be down on a year-over-year basis. [Tafta] sales was down for the quarter, coming in 139 basis points lower, driven by beef, dairy and produce costs being favorable year-over-year, partially offset by higher chicken, bread mix, shortening and oil costs. Since last quarter, we have continued extending contracts, and are now 100% locked on our proteins for 2009. We continue to estimate food cost deflation of 2% to 3% for the year.

We continue to see pressure on the labor line, which was up 80 basis points. Labor costs were impacted by continued pressure on the average hourly wage rates from increases in various state-mandated tip and minimum wages, along with the continued effect of higher state unemployment tax rates this year. In addition, we experienced more cost pressure from newer restaurants, as they generally run higher for the first few months, and deleveraging associated with negative average unit volume growth pressured this line as well. Labor should continue to be a pressure point for us throughout the year, as minimum and tip wage increases continue, including another round of the Federal minimum wage increase, which just occurred last week.

Rent expense was up 37 basis points from the prior year. And as was the case last quarter, over 50% of the pressure resulted from the acquisition of the franchise restaurants. The restaurants acquired during last year as a group have a higher rent as a percentage of sales. The remaining amount of pressure resulted from leasing more sites than in the past, and deleveraging associated with negative average unit volume growth.

Other restaurant operating expenses were up 11 basis points versus last year. Despite the fact that natural gas costs were very favorable this quarter, a couple of larger items that offset favorable natural gas prices were higher credit card expenses, higher managing partner bonus expense, due to enhancements we made to the program at the beginning of 2009, and deleveraging associated with negative average unit volume growth.

Pre-opening expenses were $2.3 million lower than the prior year, due to opening two restaurants during the second quarter of this year, as compared to 10 openings during the second quarter last year. We continue to anticipate pre-opening costs for 2009 to be much lower than 2008, as we plan approximately 15 new Company restaurants in 2009 compared to 29 in 2008.

Depreciation and amortization costs is a percentage of restaurant sales were 21 basis points higher than last year, driven by higher costs on new restaurants and negative average unit volume growth. G&A expenses as a percentage of revenue were 26 basis points lower than last year. Nothing really unusual here, although I do want to make sure I mention that going forward, we expect an incremental $1.5 million to $2 million of additional expense in the back half of the year as compared to the back half of 2008, due to the fact we are on target to pay out higher bonuses this year.

The effective tax rate for the quarter of 31.9% was lower than last year's 35% rate, due to lower margins as well as various tax credits, primarily the FICA tip credit, representing a larger percentage of pretax income. For 2009, we are projecting our income tax rate to be approximately 32%.

Our weighted average diluted share count was 71.4 million, which was 900,000 higher than where we were at the end of last quarter, due to the increase in stock option exercises and higher average stock price during the quarter. We did not repurchase any shares during the quarter, so as of the end of the quarter we still had $18 million remaining on the our $75 million share repurchase authorization.

Now, let me touch briefly on our capital structure, balance sheet and cash flow. We ended the quarter about with total book debt of $127 million, as we paid down $3 million of debt here in the quarter. We drew our cash by just over $17 million during the quarter, and with projected capital expenditures of $50 million to $60 million this year, we anticipate generating a considerable amount of free cash flow. Our current plan is to remain conservative, and use excess cash to grow our cash balance and/or pay down debt. From a leverage perspective, we ended the quarter with an adjusted debt to EBITDA leverage ratio of just under two times.

Finally, I want to make a few comments regarding our estimated 2009 diluted earnings per share growth of up 5% to 10%. First, while the first half of 2009 has come in better than we had anticipated, we caution that sales remain uncertain, as evidenced by our July results. Second, I will remind you we won't be benefiting as much in the back half of the year from a lower share count, as we did in the first half. Third, I mentioned that we expect a one and a half to $2 million year-over-year increase in G&A from bonuses. Fourth, 2008 was a 53-week year, and we estimate the impact on the fourth quarter was an additional $0.03 per share in 2008. Finally, while we have not incurred any material impairment and/or closing costs during 2009, there always is a possibility of having one or both, especially in a declining sales and challenging cost environment.

So with that said, I would like to turn the call back over to G.J. to talk more about our plans going forward.

Thank you, Price.

We were pleased with our bottom line for the second quarter, despite disappointing top line results. As we reported in the release, July sales have started out rather soft. We are not really sure why; perhaps the fact that the consumer confidence continues falling. At any rate, while we are never happy with being negative in comparative restaurant sales, we are encouraged with how our operators continue running the business for the long term.

Times are definitely tough, tougher than we have all seen for a long time. However, we believe that if we continue running our business right, and deploying capital in a prudent manner, we will be stronger as the economy improves, thus continuing to create value for shareholders.

So, what are we doing to run the business right? It is actually easier to start by telling you what we are not doing. We are not looking for ways to decrease portion sizes, quality or service levels to our guests. While our operators are being prudent in how they manage costs, we believe that sacrificing quality or service for the short term negatively impacts sales in the long term.

Another thing we are not doing is following others down the discounting path. We continue -- we understand why there would be an impulse to do so, but we do not believe it is a good decision for us on a national level. We like to position ourselves as providing high quality, high value, and believe that once you start discounting, it is very difficult to stop. I can tell you that some of our operators might be doing some small discounting here and there, given the fact that they have the latitude on making business decisions, but it is not something we support on a Company-wide bases.

So what are we doing? In addition to staying focused on our four-wall execution, we are screaming everyday value with 20 meals under $10. We are ramping the intensity of our local store marketing efforts, with a greater emphasis on training and sharing best practices. We are utilizing our $7.99 early dine program, which generally runs from 4pm to 530pm or 6pm during the week, to further screen and raise the awareness of our value, while letting people experience our quality and to extend our day part.

From a capital perspective, we continue to maintain a conservative balance sheet and disciplined growth. We also continue to evaluate opportunities to further develop the Texas Roadhouse brand, including end-cap and conversion opportunities, in order to development costs and enable us to get back to growing at a faster rate. We understand a couple of things here as it relates to development. One, we need to get a return on capital we deploy. Two, costs have increased over the last several years; although we are hearing talk of softness, we haven't seen it yet in the deals we have done, but we do believe we will. The third thing we understand here is we definitely want to get back to opening more than 15 restaurants per year. Before that happens though, we need to see our costs come down, and the overall environment improve. It will be interesting to see how it the costs come in on an end-cap we have in the pipeline for later this year, and some conversions we have in the pipeline for later this year and into the first part of 2010, because that could factor into our development plan. For the short term, however, I don't expect our development plans to change much. But we are ready to get back to growing faster, when we see lower development costs and a better economic backdrop.

Before opening the call for questions, I want to make it clear that we remain committed to the basic fundamentals of the business, which is providing legendary food and legendary service. We remain committed to treating our employees and guests like we always have, regardless of the economic situation. If we do that, we will come out ahead. As always, I want to say thank you to all of our team members who make legendary food and legendary service happen each and every day.

That covers the prepared remarks. So operator, if you would, open the lines for questions.

(Operator Instructions). And we will take our first question from Jeff Farmer with Jefferies & Co.

Great, thank you and good afternoon. I was just curious if your Q2 cost of goods sold number saw the full benefit of that 2% to 3% deflation, or if things should get a little bit better in the back half of the year on the COGS line?

Hey, Jeff, it is Price. No for the first half of the year, we were actually running a little bit below the projected 2% to 3% deflation for the year. So hopefully we can see a little bit better benefit in the back half.

Okay. And then as relates to the G&A number you mentioned, Price, I think you said $1.5 million to $2 million; that was just for the back half of the year, correct?

That's correct, and pretty much equally over the third and fourth quarters.

Okay. And then final question. As relates to your pricing strategy, obviously you guys did a lot of testing of your price increase earlier this year, I think late last year. Based on what you've seen and what you are seeing in the marketplace right now, what do you think your pricing power looks like as you head into 2010?

Jeff, it is G.J. I would tell you that we are continuing to evaluate that each and every day, and I'm not sure I can comment more than that at this point.

Okay, fair enough. Thank you, guys.

We will take the next question from Steven Rees with JPMorgan.

Hi, thanks. G.J., appreciated the color around your capital deployment strategy as you look into the future, but can you just sort of give us some directional guidance on how you are thinking about 2010 at this point? I think you said, for now, you don't expect it to change much, but is there a possibility that the unit development is even less than the 15 you did this year in 2010?

Hey, Steven. From the standpoint -- I would answer it this way. We have the ability to ramp it up very quickly. But as I said in the comments, generally we have to see that first.

Okay. Then, just, as you think about the slowdown in July, and I know you said it is difficult to explain, but did you see any discernible trends by geography or average check, or sort of how the consumers are using the concept? And do you think more aggressive discounting by some of the competitors had any impact?

This is Price. There really wasn't any commonalities between -- you know, be it geographically, anything we are seeing on the check side of things; it was pretty much across-the-board. Could it have been more aggressive discounting by competition? Possibly, you know, we don't really know. But it was pretty much spread out.

Okay. Great, thank you very much.

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

Hi, good afternoon. Just a follow-up on the last question, with all the discounting that is going on in casual dining, how are your value scores holding up? And are you seeing any changes, I guess, on a relative basis in your own consumer research?

Hey, David, it is G.J. I would say -- I couldn't give you hard data in terms of how our value scores are holding up. I will just tell you that we have been there yesterday, we are here today, and we are here tomorrow in terms of what we provide from a value perspective. I would tell you that we haven't seen any significant trends relative to that amongst the guests that are dining with us now.

Okay, and -- that's helpful. A question on the guidance; what type of comp do you think you need in the back half to deliver the earnings guidance you've laid out for the year?

Hey, David, it is Price. You know, we can get there a couple different ways. You know, I don't know, to answer your question exactly. We haven't assumed things get much better throughout the year, is the short answer to that question.

And, Price, when you say not much better, are you talking about not much better from the July trend?

Yes, that's fair.

Okay. Thank you very much.

We will tech the next question from Jeff Omohundro with Wells Fargo.

Thank you. I just wanted to explore with you some of your initiatives around labor, perhaps initiatives or opportunities to manage through some of the inflation there without impacting the guest either through operational, or perhaps opportunities for investment that might help front-of-house or back-of-house scheduling? Any thoughts on efforts that you might pursue to manage labor inflation going forward?

Jeff, this is G.J. I will just start by saying that while we provide tools, and I think we have said this many times in the past, we provide those for our operators, benefit if they so choose to embrace those, and things like labor scheduling we certainly have all those things. Remember, all of our operators are paid on a big portion of their compensation on the bottom line, so it behooves them to use those tools to their benefit.

To that end, I will tell you that managing in and out times, when we schedule folks, bringing them in later -- remember, we are open only for dinner during the week, so we can bring people in earlier to get started -- sorry, later to get started, all those things our operators continue to do. And as you know, we continue to share those best practices around the system. I would tell that you our folks continually stay committed, but what we communicate to them is that, listen, we still want to run three table stations; we still want to run the proper staffing in the kitchen; we want to do those things right, because we believe if we do them right now, that as things get better, and they will get better, that we will continue to steal share from our competitors.

So we just don't want to make short-term decisions for the benefit of earnings, because we are in this thing for the long term.

Yes, I understand. And I understand you don't have hard data on relative value, but are there any more recent trends perhaps on mix? On some of the value opportunities you provide, such as the $7.99 early dine program?

Specifically on that, we are seeing -- what has changed -- Jeff, this is Price. What has changed is we've seen -- you remember before how we talked about more trading down from higher-priced steaks to lower-priced stakes was where most of our negative mix was coming from. You know, the difference we are now seeing is that has pretty much gone away, that trade-down; we are seeing more of a shift from combos to lower-priced items. So is that a result of early dine? I don't know if that is or not, but at least we are not seeing -- recently, we haven't been seeing as much of the shift down from the higher-priced steaks. I don't know if that's what you are getting at?

Yes, it is. Thank you, that's helpful. Appreciate it.

We will take our next question from Matthew DiFrisco with Oppenheimer.

Thank. I just want to, first, understand the G&A guidance. If I look at last year's fourth quarter, given you had an extra operating week, it looked like you also might have had a little bit larger of a G&A accrual in that quarter, if I am not mistaken, of the $11.2 million that you had there? Are you then saying both quarters are going to be roughly $700,000 to $1 million more on a year-over-year basis, or are you saying grow it like the first half of '09 plus an extra $1 million more per quarter, because of the bonus accruing going on this year?

Yes, more like the latter part, more like the trend and grow it by another $1 million or so a quarter, roughly $1 million a quarter.

Okay. That just seems a large, given an extra operating week from the fourth quarter that you're lapping, but I guess the accruals -- part of $0.03 earnings was because you didn't accrue so much out of those 14 weeks, but you just accrued 25% of the quarter -- 25% of the year for there?

I think -- I am not sure I follow your whole question, there, Matt.

No worries. I will talk to you off line with that.

Just to also clarify, as far as your comp trends a year ago in the third quarter, I had down in my notes that September was almost the beginning of the down 4%, so September was about a point lower than July of a year ago? Is that correct? So your comps get easier.

That's correct.

Okay, so July necessarily isn't reflective of how the rest of the laps look going on, especially looking at September?

You know, I have that July was down close to 3%, August down 2.7%, and as and you mentioned September closer to 4%.

Okay. Then just regionally, given your Texas exposure there has been some comments -- within [Malcolm Napp's] numbers on a regional basis that sort of Texas is falling back to the pack, and the edges of the country have sort of come -- at least Florida has risen a little bit. Have you seen -- so you are just saying that you're not seeing anything different within the Texas consumer, considering relative to the Midwest or the Southeast consumer that you see?

We saw things in Texas specifically get a little bit softer during the June period, but then come back. Historically, Texas has been -- or recently, Texas has been a pretty strong state for us, as well as you mentioned for others, I believe. We did see things get a little bit softer in the latter part of the quarter in Texas.

Okay. Then, last comment, just on the commodity costs and the COGS. Look at it on the basis of the sequential basis or a year-over-year? Historically, your third quarter has had seasonally higher relative food costs than the second quarter. How should we interpret the favorable trends going on, with plus the seasonality of your menu? Should you see it on a relative basis be higher than the second quarter, or are you seeing the drop-off or the deflation helping you to offset that?

Yes, I can talk directionally more so than specifically, but, you know, possibly given the fact that we are not you know, quite at that 2% to 3% deflation for the year, maybe that helps offset some of the seasonality. Where does that net out for the third quarter? I don't know if it is up a little, down a little, from a sequential standpoint. But somewhere in that neighborhood, I would think.

Helpful, thanks.

We will take the question from John Glass with Morgan Stanley.

Thanks. Just taking the topic of food costs, you talked about inflation or deflation through the first half not being quite at 2% to 3%, but what was it in the second quarter, and what could get better in the back half of the year of the things that are not contracted, that you are currently seeing favorable or some unfavorable trends in?

Hey, John, it is G.J. The things that could potentially get better for us are, first of all, produce and dairy prices have continued to stay in moderation from where it was a year ago. We do have our bread mix, and some of our seasoning contracts coming up, and I think we have indicated that those are favorable year-over-year. And I think that we feel a little bit better in terms of having locked in the balance of our beef costs at slightly better than what we did in the first half.

That's right, John - and this is Price. I don't have that specific number on where we are sitting at today deflation-wise, but as G.J. mentioned, we do anticipate it to pick up a little bit in the back half of the year. And if you remember, and particularly for us, last year we had a few items, namely potatoes in particular, that really spiked during the third and fourth quarters for us, that we haven't seen any indication that will follow the same path this year yet.

Got you. Then the other operating line, I know it was up year-on-year, but it was up less than the second -- first quarter. What was that? Was that utilities related, kind of like in the end, does that also get better in the third quarter at least, as we come into the cooling season?

Yes, hopefully it stays better. This is Price. It was utilities that was really the difference between the first and second quarter, specifically natural gas prices, and they were really high for us on into the fall and -- mid-to-late fall timeframe, even last here -- so hopefully some of that continues for us this year, favorably. I think we mentioned last time, we have actually extended some contracts there as well.

Great. Thank you.

We will take our next question from Paul Westra with Cowen & Co.

Hey guys, just a few follow-ups, some questions probably already asked. On the G&A side, you mentioned the $1.5 million to $2 million up year-over-year in bonuses; what were the bonus accruals up year-over-year in the first half?

I will look that up if you have more questions.

Sure, then just a quick question, the pricing on the menu currently was -- what if any remains on for the remainder of the year?

1.4%.

1.4% for the second quarter?

No, for the balance of the year.

The balance of the year. And what was the second quarter again?

Hold on here one second.

For the quarter, we had pricing -- it averaged out to about 1.6%, with negative mix offsetting that. I have for the first -- or for this quarter rather, bonus was up about $500,000.

Okay. So not too much off for -- on a year-over-year basis for the remainder of the year.

And then a question on your end-cap strategy. How many end-caps in the system now, and what is your general -- I mean, obviously, it sounds like that would be a good ROI -- or a prospective good ROI opportunity going forward. What are you looking for that maybe won't degredate the brand too much? Obviously, you would like the high profile, stand-alone sites, but I guess give us the pros and cons of what you are looking at, [DMA] end-cap and success going forward?

Well, in terms of the number of end-caps we have in our system, it is about five or six right now. And so we have done them in our history. In terms of the pros and cons, obviously we believe from a development -- overall development cost, it is going to be significantly less. In terms of the cons, the real challenge for us is to be able to get our trade dress, and we always used our building as a billboard, if you will, number one. And number two is that the real challenge is parking. As many guests as we are running through the building, to get a right amount of parks is pretty difficult for end-caps.

Okay. So the unique income opportunities that fulfill all your needs, you will be looking for those?

I am sorry, I didn't hear what you said?

That answers my question, thanks. I guess that's all my questions, thanks.

We will take our next question from Greg Ruedy with Stephens, Inc.

Thanks, good afternoon. You talked about some discounting by your operators; can you just give us some examples of what that entails, and what the approval process is for those discounts to be deployed?

Well, I will say this to you is that we highly discourage any significant discounting of any type to our operators. It is a consistent message, and has been in our history. In terms of the types of discounting, it is more centered around some unique opportunity in the community that they are serving. It could be something they are doing centered around their first-time guest program. These are small types of discounting they are talking about. It might be something that they decide because they have run a promotion in that marketplace. And typically, the approval process would be from the single-unit operator to their market partner, which is essentially multi-unit operator, up to the regional partner. Again, we don't sit there and try to mandate that, because they are a partner with us, and obviously it behooves them to minimize that as well.

So, would you characterize this as somewhat of a new development, or are there other past successes that you can point to that maybe you saw this success and deployed across the system?

I wouldn't talk about -- we have been doing this type of thing forever. So there is nothing new here. Our point there was -- is just we continue not to participate with discounting, but to be fair, occasionally some of our operators might do it, and if you're out and about in the country, you might see it somewhere and say, "Wait a minute, they didn't say that." So the reality of it is, it is something that has been around forever.

Price, I think you mentioned that something for our numbers in the second half to be mindful of is impairment. Is there a group of stores that are on the watch list? Or is that watch list growing at all, and any underlying characteristics that you can point to there?

Yes, Greg, it's Price. You know, we've historically had a handful of restaurants that are on, as you alluded to, kind of "watch list." You know, nothing overly -- no overriding similarities between them; just restaurants we continue to closely monitor.

Thanks, I will pass it along.

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

Thanks. I just have one quick one. Price, you may have talked about it, and I am sorry if I missed it, but on the free cash flow, I think you paid down a little bit of debt in the quarter; yet, interest expense was up sequentially. Can you explain that a little bit? And then additionally on the fact that the cash did build in the quarter, do you anticipate letting cash continue to build? Why wouldn't you look to use more of that to pay down debt, if that is your plan?

First, on the interest being up, it is more of a function of little less capitalized interest, because fewer projects are in development. So that is really why interest was up slightly sequentially. As far as what we do with the excess cash, as we sit here today, our minds would be more -- we would be more in the mindset of just putting it in the bank and be conservative, because the borrowing cost is pretty cheap on that right now.

But wouldn't also the -- whatever interest you're earning be fairly limited as well?

Yes.

Hey, Destin, it is Scott. You are right, I mean we are not earning hardly anything having the case in the back, but that's the point, it is in the bank, and we don't have to go to any folks in our bank group to get any money. And being that we've just lived through what we've lived through the past year, no matter what we read in the newspapers or see on TV, I don't know if we really know what the next step is in the whole, you know, banking world. So, God forbid things change really quickly. We would like to have access to some cash, that all we have to do is go to our bank account and get it, versus make a draw on our credit facility. The net interest difference is practically nothing, because our variable borrowing right now is -- I think it's LIBOR plus 62.5 or something, which is about 1% right now. So net/net, it is just about a wash.

That makes sense. Thanks, guys.

(Operator Instructions). We will go next to Keith Siegner with Credit Suisse.

Thanks. Just a quick question on -- if you can update us on the seat expansion strategy. We haven't heard about it lately, and I was just wondering is it still ongoing? Maybe what kind of returns you are getting on it? I'm just wondering, like, could this be a use for capital in an ongoing unit growth-constrained environment?

Keith, it's Price. Yes, we definitely continue moving down the path of seat expansions. We have about 34 that we have done over the last three years, and we have done 12 so far this year, with another 10 or so in the works. And you know, working on putting together our schedule for 2010 and forward on that.

You know, from a return perspective, it is pretty much a no-brainer financially. We are spending on average $100,000 to 150,000, and you can generate that, it is 1, 1 and-a-half -- it can be a one or a one and-a-half year payout. Our big concern is we want to move cautiously about it, so that we're not messing up the operations or the ambience, the feel, inside the restaurants that we're doing it in, but it is definitely, as you point out, a good use of capital, and a path we continue moving down.

Okay. Great. Thanks. One last question and just a little quick bookkeeping. Monthly comps for April, May and June last year, for some reason I can't find them. I was just wondering if you could remind us what those were?

May and June, I have got down 0.2% in April, up 0.8 in May, and down 1.7% in June.

All right. That's it for me. Thanks.

We will take our next question from Steven Rees with JPMorgan.

Hi, just a follow up on commodities. I think you mentioned that you -- a better beef buy in the second half was going to maybe lead to better commodity performance in the second half. Can you just talk about sort of your initial thoughts on 2010, what you are seeing in the beef market, and if you're able to lock-in the event in -- today?

Hey, Steve, it is G.J. In terms of the balance of the year, if you'll remember, there was a portion of the beef buy that we have floating, and we were able to lock it in at a lower price than what we had on the our quote, so averaging it out it should be better for the balance of the year.

In terms of 2010, one thing we have talked about is that we are starting our negotiations earlier. We are currently in some of those negotiations. As we speak, at this point, for competitive reasons, we are not going to really talk about when we are going to plan on locking it in, but suffice it to say it sort of gives you some color as to what we think that the markets might look at for 2010, given the fact that the uncertainty piece is supply -- I'm sorry, is demand, and on the supply side we are starting to see cattle numbers come back. That all said, we will let you know, and add a lot more color to this on our next call, and let you know where we stand.

Okay. Great. Thanks for the color.

We will go next to Jason West with Deutsche Bank.

Thanks, guys. A couple of things. One, you mentioned you would get some rent relief or royalty relief on some franchisees. If you could talk about what's going on there, and how many restaurants you are referring to?

And then separately, if you can talk about any menu initiatives you guys have planned for the back half? Any new items, or anything that you are doing to kind of address traffic issues? Thanks.

This is Price. And I will take the one on the royalty. We have got -- it is really only applicable to a handful of franchise restaurants right now, and our intentions are that it is a temporary deal. We are partners with these folks and, you know, we are working with them, and anticipate it only being temporary.

And this is G.J., Jason. In terms of -- we constantly test new items. Most the things that we are working on now are enhancements and/or improvements of existing menu items, and I will tell you right now there no -- some new and -- great new item we see coming down for the fall at all.

Thank you, guys.

We will return to Keith Siegner with Credit Suisse.

One last quick follow-up. You did mention earlier in the call the potential, or the possibility, of a write-down of some of the assets in the back half. I was just wondering, as you think about it, whatever you are willing to give us, how many units maybe you are running in cash flow negative, just to put some parameters around what we are looking at here, if you are willing?

Yes, Keith, it is Price. Yes, we have got basically a handful, as I mentioned, that we are watching. For the system, we have two negative cash flow restaurants, as we sit here today. For our Company restaurants, we've only got two with negative cash flows for a trailing 12-month basis. So we continue watching those, and one of those is actually one that we took an impairment on in the fourth quarter of 2008, is one of them.

Okay. Thanks.

Yes.

That will conclude our question-and-answer session. At this time I would like to turn the call back to you, Mr. Hart, for additional or closing remarks.

All right. We appreciate you joining us tonight. We look forward to updating you at the end of the next quarter. Good evening.

That does conclude today's conference. Thank you for your participation.