Texas Roadhouse Inc (TXRH) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Texas Roadhouse Incorporated fourth quarter 2009 earnings conference call. One note that 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 your questions. At this time I would like to turn the conference over to Mr Scott Colosi, Chief Financial Officer of Texas Roadhouse Incorporated. Please go ahead, sir.

Thank you, Sarah and good evening, everybody. By now everyone should have access to our earnings announcement released this afternoon for the fourth quarter ended December 29th, 2009. It may also be found at our website at texasroadhouse.com under the investor section.

Before we begin our formal remarks I need to remind everyone that part of our discussion today 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 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 reconciliation to such measures can be found under the Investor Relations section of our website.

On the call with me today as always is GJ Hart, our CEO, and Price Cooper, our Vice President of Finance. GJ will provide some insights about the performance and direction of our business and Price will give you the financial update and then we will all be here to help answer any questions. So with that, I'd like to turn the call over to our Chief Executive Officer, Mr GJ Hart.

Thank you, Scott and good evening, everyone. We had a very good fourth quarter with sales, restaurant margins and profits coming in better than we had anticipated. On the sales front, excluding the impact of calendar shifts, we experienced sequential monthly improvement throughout the quarter. Margins continued their trend, coming in 237 basis points better in the fourth quarter of 2009 versus 2008, driven by the continued favorable commodity environment. And, as I am sure you saw in the release, diluted earnings per share were up 40% for the fourth quarter.

From a balance sheet perspective, we paid down $25 million in debt, and put over $10 million in the bank during the quarter. We are very proud of our conservative balance sheet and plan to keep it that way. We were also very pleased to have persevered through a difficult 2009 as our ability to remain focused on legendary food and legendary service, along with our value message to or guests, enabled us to drive market share gains and ultimately drive earnings per share by 29%. For 2010, we look forward to a strengthening economy, and we're very excited about the progress we're making on the development cost front. I will get to that in just a moment, but first Price will take you through the financials.

Thank you, GJ. During my review of the fourth quarter, please note that many of the numbers I will mention are listed in a schedule of supplemental financial and operating data that was included in the press release. Also, recall that the fourth quarter of 2008 was a 14 week quarter for us compared to our usual 13 week quarter, and in 2008 contained 53 weeks as compared to 52 weeks for 2009.

So starting at the top of our income statement for the fourth quarter of 2009, as compared to the same period in 2008. Total revenue was actually down 3% driven by a 3% decline in Company restaurant sales, due in part to one less operating week in the fourth quarter, relative to 2008. During the quarter, we opened five Company restaurants. In addition, we acquired one franchise restaurant. So for the year, we opened 17 Company restaurants, acquired one from a franchisee, and closed two. Of the two we closed, one was a cash flow loser, and the other was a situation where we were able to sell the real estate at a gain. We subsequently built a new restaurant in the area, so it was essentially a relocation at no P&L cost to us. During the year, our franchisees opened three restaurants, sold one back to us, and closed an under performer. Comparable restaurant sales at Company restaurants decreased 2.6% for the fourth quarter. Negative traffic continued to be the driver as average check was only up 20 basis points. By month, comparable restaurant sales were down 2.3% in October, down 1.8% in November, and down 3.4% in December. While December's results were lower, excluding the negative impact of the shift in Christmas this year, comparable sales trends improved sequentially each month during the quarter. And as we stated in our release, comparable sales for the first seven weeks of 2010 were down 1.2%. From an average unit volume perspective, the decrease continued to slightly outpace our comp sales decline as average unit volumes were down 3.2% for the quarter.

For the quarter, the 220 restaurants in our same store sales base averaged $66,900 a week in sales. These restaurants were open at least 18 months as of the beginning of the fourth quarter of 2009. There were 32 restaurants in our average unit volume base, but not in our same store sales base that have been opened six to 18 months as of the beginning of the quarter. These restaurants averaged $63,500 a week in sales. Our newest eight restaurants, which were opened sometime over the last nine months, and are not in our same store or average unit volume calculations, averaged $88,200 a week in sales during the quarter. Franchise royalties and fees were $2.1 million, which is in line with our recent run rate. On the margin side of things, we experienced our third consecutive quarter of margin expansion, with restaurant margins increasing 237 basis points over the prior year period. The year-over-year improvement continued to be led by the cost of sales line, which was down 240 basis points from the prior year, as we continued to experience food cost deflation.

Labor was actually favorable for the quarter. However, this was driven by $1.2 million in favorable settlements relating to state unemployment insurance rate changes that had taken effect throughout the year. Excluding this benefit during the quarter, labor would have been up as has been the case throughout the year, with negative average unit volume growth and wage rate inflation. Rent continued to be a pressure point for us, driven by negative average unit volumes and the fact we continue leasing a higher percentage of our restaurant sites.

With regards to the other operating cost line, it was basically flat in terms of a percentage of sales, as favorable utility costs were offset by higher managing partner and market partner bonuses, due to profits coming in higher. As has been the case throughout the year, preopening expenses continued to run about half of what they were in 2008, due to the fact we had about half the number of openings in 2009 versus 2008. Depreciation and amortization costs as a percentage of restaurant sales were basically flat with last year. This was driven by the fact that 2008 was a 53 week year, thus, one year of depreciation was spread over 53 weeks, versus 52 weeks. This was the reason depreciation was actually down in terms of dollars on a year-over-year basis.

Regarding impairment and closure costs, we incurred $3.3 million of cost during the fourth quarter. Over 70% of this related to two restaurants, one of which is one of our two negative cash flow restaurants on the Company side. The other restaurant we incurred impairment charge on is one that while is generating positive cash flow, we are electing to not renew the lease at this time. So it's more of a situation where we are proactively managing our real estate portfolio, similar to how we elected to sell one restaurant during the year and rebuild a new one in the same market.

G&A expenses as a percentage of revenue were 27 basis points higher than last year. The driver here was an incremental $1 million in bonus expense resulting from earnings exceeding our targets for the year. Partially offsetting this was the fact we had $400,000 in expense in 2008 that wasn't there in 2009. This $400,000 related to reserving amounts for two underperforming franchise restaurants in that period. The effective tax rate for the quarter was 36%, and for the year the effective tax rate was 33.1%. Both of these were higher than anticipated, due to higher profitability and a higher non deducibility of certain officer compensation. For 2010, we are projecting our income tax rate to be 32% to 32.5%. Our weighted average diluted share count was 71.7 million. Which was 100,000 higher than last quarter. As has been the case all year, we did not repurchase any shares during the quarter.

As for our capital structure, balance sheet and cash flow, we ended the year with total book debt of $101 million, which was $25 million lower than the third quarter. In addition to paying down debt, we increased our cash balance by $11 million during the quarter, primarily due to gift card sales. For 2009, our excess cash flow from operations less capital expenditures was $70 million, which we used to pay down some of our revolver debt and to build our cash balance. From a leverage perspective, we ended the year with an adjusted debt to EBITDAR leverage ratio of 1.8 times.

Now on to 2010. We estimate diluted earnings per share growth will be in the range from up 5% to up 10%, based in part on the following assumptions. First, negative two to flat same store sales. Second, approximately 15 Company owned openings. Third, food cost deflation of 2.5% to 3%. And fourth, total capital expenditures of $50 million to $55 million.

A couple of comments I would add to our guidance. First, our 2010 development schedule is very back-end loaded with over 70% of our restaurants projected to be opened in the second half of 2010. Thus, we are projecting low to mid single digit operating growth for the year. Second, with continued lower development, we do anticipate a sizable amount of excess cash flow from operations, less CapEx, probably ranging from $50 million to $60 million. And now I'd like to turn the call back over to GJ to talk more about our plans going forward.

Thank you, Price. 2009 turned out to be a much better year than we had initially anticipated and we were pleased to see some underlying sales improvement in the back half of 2009. And while it has been a challenging to get a good read on sales here at the beginning of 2010, particularly with weather related issues, it certainly does not seem like things are getting any worse, which in and of itself is a good thing.

Last quarter we talked about the fact we believe 2010 would be a transition year in a couple of areas. First, we believed it would be a better overall environment. Secondly, we believed that it would be a year in which we would be able to reduce our overall investment cost and, thus, potentially work towards growing more than 15 or so restaurants per year. In terms of the environment, we're hopeful that the unemployment picture will improve somewhat as the year rolls on. But regardless of that, the current stability gives us confidence in our ability the to grow market share, due to our historically conservative stance on menu pricing and our dedications to operations and ultimately the guest. We continue encouraging operators to do the right thing to drive sales for the long term and we believe we are doing just that.

As for reducing overall investment cost, it's really about improving our new store economics, primarily on the investment side. For existing prototype, we believe our average total capitalized cost will be lower this year for two primary reasons. One, is lower site costs as landlords are more flexible and the risk they are willing to take on themselves, in exchange for a slightly higher rent stream. Secondly, building costs will be lower due to some changes we have made to the design of the kitchen. Between the two of these items, we believe we can reduce our overall investment cost by $200,000 to $500,000. If we can do this and start to see some leveling off of sales and/or improving sales, then we can get back to a 1.1 to 1.2 to one, sales to investment ratio which creates a much more attractive model for restaurant growth. In addition to anticipating savings on our existing prototype, we're also working on plans for a smaller prototype. It would be about 10% smaller in terms of square footage and seating, but we anticipate total capitalized development cost could be down even more than 10%. We plan to test a couple of these late in the year and we're optimistic that they could enable us to go into more markets over the long term.

We definitely believe that we will see our new store investment model improve. As the year plays out, we will get a better handle on exactly how much costs come down and what that does to our overall investment model and our growth plans going forward. We certainly have the cash flow and want to be growing more restaurants per year, but want to make sure the returns are there to justify that growth. In addition to our new store economics, we will be evaluating potential uses of excess cash. As Price mentioned, we had a good amount of excess cash flow for 2009, and anticipate another $50 million plus in 2010. In the short term, we plan to pay down debt and/or build cash. In addition, we still have $18 million remaining on our share repurchase plan.

And in summary, we understand it is our job to determine the best use of our cash flow and the right growth rate and we are working on just that. Make no doubt about it, we believe the best way for us to continue creating value is to grow more restaurants. We have the desire, the people, and the infrastructure to do so. Based on the performance of our new restaurants, we believe there is a tremendous demand for our concept. Combining this with with the fact that a number of players in the industry are three to four times our size, based on system-wide sales, we believe that we have ample opportunities for growth. We just want to ensure that such growth is profitable for our investors, and our partners. As we progress through the year, we will get a better handle on where investment costs shake out and, thus, what type of growth rate is appropriate for us. As always, before we open up the call for questions, I do want to take the time again to thank the Texas Roadhouse team members that make legendary food and legendary service happen each and every day. With that covers our prepared remarks, so Operator, if you would open the lines for questions.

Certainly. (Operator Instructions) We'll go first to Jeff Omohundro with Wells Fargo Securities.

Thank you. I guess first, GJ, I think you mentioned there might have been some weather in that quarter to date number, perhaps you could quantify that. And also, maybe help reconcile the sales outlook, given the quarter to date performance that's been released. You're facing easier comparisons throughout the year. I'm having trouble reconciling this comp guidance with that, unless you're expecting some deterioration in the macro or competitive environment. Thanks.

Hey, Jeff, it's GJ. Certainly I'll start on the first piece. We really don't quantify what weather does to us. Our point was there's still a lot of uncertainty and certainly weather has played a part of that so far in the first seven weeks. So really that's the answer to that question. We don't have that answer.

And Jeff, it's Price. On the second part, as far as the reconciling with the guidance going forward, our goal is always to give you a range of earnings per share based on some assumptions and we thought it was prudent to give you a range, include in that range same store sales of negative two to flat.

Thanks.

And from Morgan Keegan we'll hear from Destin Tompkins.

Thank you. Wanted to follow up on sales a little bit. GJ, as you look at the improving sales trends you have seen over the last three to four months, is there anything you could point to that you are doing, maybe Company specific, that you think is driving that, or do you think it's an overall improvement in casual dining or something to do with less discounting maybe going on? Is there any kind of color you can provide there?

Well, I'll start off by saying that the short answer in my opinion is just our continued focus on our operational efforts and doing the same thing and staying focused. Now, during this time in the fourth quarter, sequentially our numbers got better. And while there was much or heavy discounting continuing to go on. I don't think that that would necessarily be the case. I do think that as we continue to stay focused on our execution, that ultimately we'll win this battle and I think I've said that before. So that would be the one thing that I would point to.

Okay. Great. That's helpful. And then on the commodity outlook, I know you mentioned the 2.5% to 3% deflation. Can you update us on how much of that's locked in at this point?

Yes.

Hey, Destin, it's Price. We have as we sit here today close to 70% of our commodities locked in for next year. Keep in mind, the biggest part that we float annually is produce and dairy. So about 15% or 20% we never have locked in. But as we sit here today we've got close to 70% of our costs locked in for this year.

Okay. Great. And then lastly, on your guidance, as you look at things like G&A and your restaurant level margin, how much leverage opportunity do you have, G&A specifically, as a line that maybe you haven't gotten as much leverage on over the last couple of years. What's your outlook there?

It's Price. On G&A, I think a lot of that will depend on what do sales do. If sales are on the higher end of where we're at or better, possibly you get some leverage there. If they're not it may be tough to leverage it given the fact that we don't have a lot of store growth this year.

Makes sense. Thanks.

Next we'll hear from John Glass, Morgan Stanley.

A couple questions. First, just on the labor line, what do you think you need in terms of comp to date to leverage that line? In other words, you're not really deleveraging labor much with the down two to three. So is labor leverage possible actually like on a flat comp, in your view?

Yes, it's Price. John, it's possible. We wouldn't necessarily plan on that. There still are some hurdles. Our wage rate, we still are seeing wage rates increasing by about 3% a year. A lot of that's due -- turnover is down which is good, but on the flip side of that it means wage rates are going up. Also you have more states increasing the state unemployment insurance rates annually. Also, you've got pressure from health care costs. So in general, all things being equal, I would say you need some positive comps to leverage wage.

John, it's Scott Colosi. I think it also comes down to what our pricing is and we haven't talked about pricing much, but we've got about 1.4% that's rolling off in April and we don't have any -- haven't made any decisions beyond that and so to the extent that you have labor inflation, it really depends on how much pricing we have or don't have which will enable us to leverage that or not.

Okay. That's helpful. And then some casual diners have been talking about seeing a positive mix currently, people trading back up on the menu and that's one of the drivers on the improved comps. Have you seen that?

Hi, John, Price. No, we continue to see negative mix of about 1%, which has pretty much been the case for us for the last 12 months now, and that's stayed about the same.

Okay. Then the last question is this new prototype you're talking about, I always envisioned you as already being in fairly small markets with your current prototype. Is this to get into even smaller markets or do you think of this as an urban prototype where you can get into more costly markets in a more cost effective way.

It's really being able to leverage even smaller markets than what we defined historically as secondary and tertiary markets. Also, I think over the years our expectation, at least our operator's expectations has continued to increase where average unit volumes hurls in their minds as being something higher than really what the were awhile back. We think this prototype potentially has the ability to get back to some economics we had a few years ago.

From Robert W Baird, David Tarantino.

Hi. Good afternoon, congratulations on great results and a tough backdrop. GJ, just a follow-up on that last question about the small prototype. Is this really something you're viewing as incremental to the opportunity you might have had before with your existing prototype or are you sort of designing the box smaller to justify a higher sales to return in similar markets? Can you clarify that?

I would tell you that it's probably a little of both, but the latter being the more important one. And that's how I would answer that.

Okay. That's helpful. And then when would you make the decision to ramp unit growth? As you look through the balance of this year, there's a long lead time on development. What are you looking for specifically? Are you waiting to see how the openings work this year with the newer cost backdrop or are you looking for sales environment to get better or both and should we expect any sort of acceleration in 2011, given your approach?

Well, I would tell you that it's all the things you just mentioned and I think we've been pretty consistent that we're hoping that these costs will be -- will come down as we're anticipating and as we see that, number one, that would give us a reason to increase growth. Number two, we would want to feel better about the economy in general. And number three, we want to see what the sales levels are so that the ultimate returns get back to the mid to high teens. All that said and that's why we said we wouldn't be able to given your right, it's a long lead time, you really wouldn't see increased growth if we were to make that decision until the end of 2011 and into 2012.

Okay.

David, this is Scott. To sort of tag onto GJ's comments, organizationally, we have not made any changes. We've got the same real estate team, the same training team, the same legal team. We've got a lot of market partners out in the field. Everybody's ready to go to build a lot of restaurants. It is by far the number one thing we would like to do with our cash flow and so we would like to get there sooner than later, which is why this year we're going to do a few end caps, if if you will, and we're going to do a few of these smaller prototypes. We're trying to figure out what's the best way with the Texas Roadhouse brand to grow as fast as we can because we think the opportunity's there as GJ talked about earlier.

Okay. That's helpful. And then last question on guidance for 2010, does your comp or earnings range assume that you take some level of pricing when it rolls off in April, May time frame?

Hi, David, it's Price. Given the fact that we haven't decided exactly what we will or won't do, that's in part why we just provided a range of sales in there, embedded in there.

So you have not assumed a level of -- ?

I guess directly I'm not going to get specific on what we have or haven't assumed. Our guidance is based on same store sales of down two to flat.

We've given you guidance of negative two to flat and that guidance ultimately is going to incorporate some combination of traffic, pricing and mix and we're not prepared to be any more specific than that. But it's obviously some combination of the three of those.

Okay. Fair enough. Thanks.

Next we'll hear from Keith Siegner with Credit Suisse.

The current fleet of products and promotions, ie the early dine, have obviously been successful helping you gain share, especially as we've come through this tough environment and even through the beginning of stabilization or even improvement. Do you think you need to make any adjustments to the products or to the promotions, things like the early dine, if we get into a recovery or do you think this will continue to work well or are there any other changes you think might be necessary.

This is GJ. I'll take this one. In terms of promotions I wouldn't suggest that our early dine program was a real promotion in the sense of what many of our competitors have been doing. So we don't look at it that way. And really, I would tell you that in this environment or even as the environment gets better, it continues to be about guest loyalty and how do we continue to increase that guest loyalty. I think we've made great strides, particularly on our guest loyalty program. We've increased by three quarters of a million guests that have registered with us this past year in a very difficult environment. Our strategy to continue to execute and hopefully out-execute our competitors combined with the fact that we have very loyal guests and they see that will continue to allow us to grow and that's really how we look at it and I'm sorry to say hasn't changed one iota from what it has over the last few years.

That's great, thank you. One other question, the managing partner conference this year, just wondered if you could give us a quick update on the timing and if there's going to be any change in the cost. In the past sometimes it's moved around a little bit so any update there would be helpful too.

Hi, Matt or -- it's Price here. It's in our second quarter this year and was as well for last year. So there won't be any timing difference from that perspective.

Okay. Thank you.

And next we'll hear from Matthew DiFrisco with Oppenheimer and Company.

Thank you. You're clairvoyant there, Price. I was actually going to ask that question. I'm glad that was asked about the timing of the conference. With respect to openings, not to beat a dead horse here though, but you're certainly insinuating that 15 isn't the number to get used to. How long of a pipeline do you need to get -- you said the team's still in place. You haven't drastically changed the development team and how you go about your business. If we were to look at 2011 looking more like the growth rate we saw in 2007 and 2008, is that out of reach or would you have to start talking about that in mid-year 2010 getting sites lined up for 2011 to make that larger mark? Or do you have that sort of that pipeline on deck if you needed it?

Hi Matt. It's Scott. We would have to start thinking about that mid year. And I don't think that's -- that's probably a low probability at this point. Certainly if we start looking at it the second half of the year we could absolutely do more than 15 restaurants next year. I struggle to see how that would be 30. But certainly something in between the two numbers would be very appropriate.

Right. So like a run rate of that sometime throughout 2011 getting back to that pace?

Again, I'll say we could do more, definitely do more in 2011 and we hope that's going to be the case. In the 15 that we targeted this year, hopefully we would be on our way up to a higher level, maybe something similar to what we were doing back in 2006 and 2007. But, I think even then we're going to have to just see what's going on in the world at that point. It's all going to be about the returns that we're getting. For both our investors and our managing partners as well.

Matt, let me take a shot at that as well. I think it's important that we continue to manage this business in a prudent fashion. We don't want to just build restaurants to be building them. And the things that I talked about earlier need to be apparent to us to be able to step up that growth. Our whole point is we want to grow restaurants. We have the ability to grow restaurants and we have the team and the infrastructure to do it. So all we're saying to you is, and your question is certainly appropriate, but all we're saying is we need a few things to happen for us to really ramp it up.

Okay. And then just lastly, typically when other concepts have talked about a smaller prototype it's sometimes either meant to sort of appease or excite or get a little bit more franchise development growth. I know you haven't really been on that path in a couple of years now and then also it's also sometimes considered more of a market saturation strategy where you might be able to backfill and get more market share in a certain area that might then follow with media efficiency. Is there -- it might be a longer term question certainly, but I'm just wondering is there a desire or a positioning maybe where you're looking to get into certain parts of the country, maybe as a franchise story as well as a smaller prototype, something that could allow you to backfill some markets, not just urban markets, but even contiguous smaller markets that you might not have gone into that maybe you could reach with advertising as well?

I'll start with the first part of your question, whether or not we're doing this from a franchising opportunity the answer is no. The second part of your question, is it to get media efficiencies, the answer is no. The real opportunity here is to get better returns and also there's some markets that don't necessarily meet our hurdle rates in terms of what we're looking for that we potentially can test this out and see if it will be successful or not and potentially as I said earlier may provide some additional opportunity long-term for us in terms of number of units.

Okay. Thank you.

Next we'll hear from Steven Rees, JPMorgan.

Hi thanks. GJ, you mentioned a couple times you're gaining market share and I think it's evident given your comp trends versus the competition, but considering all the sub price points that we saw in bar grill and then some significant discounting out of Outback, who does your research tell you you're gaining share from? In the past you talked about 25% trading up from lower price concepts and another quarter trading down from higher end concepts. Is that still the case or where do you think the share is coming from?

I think it is coming from a little bit of everybody and I would tell you that we still believe that that model that we show in our presentations is accurate, 50% coming from the bar and grill, Applebee's, Chili's, Friday's, Ruby Tuesday's and those likes and 25% from Outback and some of the steak players and even the fine diners and 25% from the dinner houses. That really hasn't changed. So pretty difficult for us to tell you specifically who we're getting it from and that would vary based on regions of the country as well.

Okay. And then just specifically to the steak segment, as you progress throughout 2009, would you say the level of discounting subsided? Are you comfortable with what you are seeing out there? Is it getting worse? Getting better?

I don't know that we know the answer to that. Certainly some folks have said that they're going to cut back on discounting. Yet to be seen what that effect will have. As a general statement, I would say that the level of discounting and what has happened over the last year has put an expectation in the consumer's mind. That does worry the casual dining segment, at least from my perspective. Again, we haven't participated, don't plan to. Will continue to stay the course and I think that has been beneficial and I think that will continue to pay us dividends as we go forward as the economy recovers.

Okay. And then just finally on the -- I think there was an initiative where you added some seating capacity in certain units. If you could update me in terms of how many units that's been completed in and what the outlook there in 2010 is?

We've completed 20 in 2009. The outlook in terms of how many more we'll do is uncertain. We're really trying to define at what level sales volume is appropriate for us to do those build-outs and it really depends in terms of what's happening on sales on the weekends. So that's yet to be determined.

Okay. Great. Thanks.

From Raymond James, Bryan Elliott.

Good afternoon. Just actually one remaining question I have. Probably a Price question. Could you remind us what the base investment cost was in 2009 and is that 200k to 500K reduction investment cost reduction target you mentioned earlier off of that actual 2009 base?

Yes, yes, the total capitalized cost for 2009 was just over $4.1 million on average. That includes capitalizing a lease at 10 times and the cost of building, preopening and FF&E. And yes, you're exactly right, that $200,000 to $500,000 we're talking about is off of that $4.1 million base.

Okay. So to get sales to investment ratio back to north of one, one, one, particularly, one, two that you're targeting, then we need to hit the upper end of that range as we move forward, right?

That's right.

That's right.

Okay. Thank you. That's all I had.

From RBC, Larry Miller. Mr Miller, you may be on mute.

Sorry about that. Hi. Quick follow-up on Bryan's question. What's the cash investment on that, Price?

Cash would be about a million less than that on average, about 3.1. Our capitalized lease stream's about $1 million on average. And that includes $400,000 of preopening, so from a CapEx perspective, it would be $400,000 less than that if that's what you're getting at.

Okay. Thanks. That's helpful. And then I guess what I lot of folks are asking and maybe you could help maybe put some parameters around it the best you can, I realize what you said all day is that you don't know yet what the store investment model looks like. But we're all -- I think we're all trying to get a sense of what is the right unit growth range, if you could even provide that, over the longer term? How do you see that? Maybe in percentage terms or just store terms.

Larry, it's Scott. There's no single point of unit growth that we're targeting. We're kind of taking it one step at a time and the first step is getting that sales to investment ratio back up to between 1.1 and 1.2. I think at the same time, looking at what does the economy look like, what does the environment look like, we're definitely going to take a more cautious approach. Not a lot of wishful thinking, if you will, on development as we've done the last few years. So we still think we've got an 800 unit plus potential for the concept.

Really, the question is how fast do we get there. And I think that's the main question I think that we're talking about internally again is how fast do we get there and to get to 800 we're going to have to go into a lot of pretty small size markets. That's one reason we're talking about the smaller prototype and we may have to also get into some of the urban markets. We made a decision to enter the California market. We've got four franchise stores up north and we decided to make a push into the south from a Company development perspective and open that market up to us and eventually I'm sure we'll get into the northwest as well. We feel like we've got the team and the resources to make that happen and we know what the risk is that we're getting into because of the performance of the franchise restaurants that we have.

So again, I don't want to get into a single point of development target, but that said, we still very much consider ourselves a growth company and certainly growth companies have very lofty goals for earnings per share growth, consistent earnings per share growth year in and year out. And again, we want to refrain from getting too defined until we have a clearer picture of what the world looks like.

Okay. That's fair. And then maybe a little bit more closer in, you have -- you had some really good margin performance in the back half of 2009, helped by food costs. How should we think, without obviously being very specific on your quarterly guidance, but generally how should we think about your ability to hold on to that margin as we lap it? Is it realistic?

It's Price. On margin, a couple things. One, on food cost in particular, we have benefited from a deflationary environment and we expect to continue to benefit from that. We said 2.5% to 3% on the food cost side of things. Another thing that we kind of benefited from margin-wise during 2009, was kind of the trade down, the negative mix from an entree perspective. Because part of that is folks were trading into lower food cost percentage items. Now, as we start to overlap that, I don't know that we'll benefit as much year-over-year. We'll have to wait and see there. But that was certainly part of the benefit from the food cost. So we're saying on food costs in general, between that 2.5% to 3% range.

On other items in general I'd say labor I think's tough and occupancy's a little bit -- other operating, a little bit of a question mark depending on which way utilities go. We had a good utilities year in 2009 and we've locked in a lot of those rates for 2010. But still, little bit up in the air and will depend somewhat on sales and then in addition to labor being a pressure point, in general I'd tell you rent will be a little bit of a pressure I would suspect depending on sales again, but driven from the fact that we continue to lease a higher percentage of our restaurants.

Okay. Thanks.

Without getting too specific, that's at least some directional comments on margins.

That's helpful. Thanks, Price.

Next from Deutsche Bank we'll hear from Jason West.

Yes, thanks. Just a couple more on sales. You mentioned on the monthly trend in the quarter, December would have been better sequentially, but it was down 3.4 versus 1.8. Can you explain exactly what the trend or what the calendar impact there was? Why it was so big?

Sure. In December, Christmas day for us moved from a Thursday to a Friday. And we are closed on Christmas and Friday for us is a much bigger day than Thursday. So actually that impact alone from that shift we estimate was a little over two percentage points. So excluding that, you would have been down a little over 1% in December, around 1.2%.

Okay. I got you. And then just the overall trends through the quarter and into 2010, if you could talk a bit regionally what you're seeing. Texas obviously a big market. Heard some comments that that's been struggling a bit more than some other areas lately. And then just during the week, you're starting to see things pick up earlier in the week which had been a slow time of the week in the past.

Okay. Yes, Texas for us has been a little bit softer dating back to the Summer time is when it got a little bit softer, but not materially softer. Other than that, regionally the Southwest continues to be a little bit softer as well. Other than that, no noticeable differences regionally. As far as days of the week, we've seen pretty -- we've seen it be pretty consistent among days of the week, excluding the calendar shift, calendar shift items, like for instance a Christmas moving from a Thursday to Friday or Halloween back in October, from a Friday to Saturday, been pretty consistent days of the week.

Okay. Thanks.

Matthew DiFrisco with Oppenheimer and Company.

I just had a follow-up. I think you said weather obviously you didn't give exactly how much it affected, but you said it did impact you. Could you give us what days closed might have been. Obviously for us up north, snow happens, but does it happen that much in Dallas. When it happens down in Texas, have you closed more stores this quarter and even in the beginning of January, if you could give us some detail on that.

We can't give you the absolute number, but we've definitely had more closure days this year than certainly I can remember in all the years I've been here. We didn't spend a lot of time quantifying what that is, but it's definitely impacted us this year. Particularly, we do have a lot of stores in the Dallas area. We also have a lot of stores in Pennsylvania, Maryland, Delaware, that part of the country as well which took obviously some big lumps with a couple feet of snow in the DC area. We didn't quantify it exactly, but we know it had an impact on us.

If you could also give us whatever you feel comfortable, how much detail on the gift card program, how that left the fourth quarter and what you stand as far as balances, just the trend year-over-year comparison, more or less than you had in the prior years?

Well, I'll start and I'll let Price finish. Gift cards, we felt good about for 2009. And they were up over 2008.

And then as far as from a redemption perspective, in the first part of this year the redemption's been up commensurate with the the amount of gift card sales increase. In other words, it hadn't been extraordinarily higher or lower. It's been basically right in line with our gift card increase.

Okay. Great. Thank you.

(Operator Instructions) Johnson Rice and Company, we'll go with Amol Desai

Hi. I was looking at even after including that $1.2 million number on labor, your labor costs are still lower and that trend's been pretty good the last few quarters. Can you talk about any sort of specifics as to what your operating partners are doing on the labor side?

This is Price. Throughout this year, the operators have had a real good focus more on in and out times, when they're bringing the -- when folks are clocking in and when they're clocking out to make sure that we've got the labor in the restaurants when we've got the guests in the restaurants. So I think our operators have done a really good job on kind of managing that side of the business.

I would just tag on to that and tell you that we are not by any stretch of the imagination trying to reduce labor, as Price said, during operating hours. We continue to stay focused on providing a legendary guest experience and we will continue to do it. It's really being prudent in terms of the front end and the back end and that may have given us a little lift, but certainly not what some of our competitors have done in terms of cutting service standards.

Okay. And then I think you mentioned in part of your script, the newest stores I think the average weekly sales are much better than at least when compared to system. I guess what are the attributes that are different?

Well, this is Scott. Basically those stores are still in their honeymoon period and so those sales are somewhat typical of our restaurants over the first three to six months. They do quite a bit higher, 10% to 20% to 25% higher than what they're going to settle in at. So it's encouraging that they're doing those kind of volumes, but I do want to mention that that's typical of our restaurants in our system and we would expect those sales to come down a bit over time.

Got you. Thank you.

Mr Colosi, there are no further questions at this time. I'll turn the conference back over to you for any additional or closing comments.

Well, thanks everybody for being on the call. We'll see you next quarter.

Ladies and gentlemen that does conclude today's conference. We thank you for your participation. You may now disconnect.