Texas Roadhouse Inc (TXRH) 2010 Q1 法說會逐字稿

Good day and welcome, ladies and gentlemen. Thank you for standing by. Welcome to the Texas Roadhouse, Inc. first quarter 2010 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 like to turn the call over to Mr. Scott Colosi, Chief Financial Officer of Texas Roadhouse, Inc. Please go ahead, sir.

Thank you, Marvin, and good evening, everybody. By now, everyone should have access to our earnings announcement released this afternoon for the first quarter ended March 30, 2010. It may also be found on our website at texasroadhouse.com under the Investor section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today 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 risk that could impact the future operating results and financial condition of Texas Roadhouse. In addition, we may refer to non-GAAP measures. Reconciliations to such measures can be found under the Investor Relations section of our website.

On the call with me today, as usual, 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, now I'd like to turn the call over to our Chief Executive Officer, GJ Hart.

Thank you, Scott. Good evening, everyone. Well, we had a great first quarter led by positive comparable restaurant sales growth and margin expansion. Throughout the quarter, we experienced continued sales momentum, a trend that began midway through 2009. On the margin front, we continued to benefit from a benign inflationary environment. Food, labor and utility costs were all favorable on a year-over-year basis. Overall, comparable restaurant sales growth of up 0.4% and 218 basis points of restaurant margin expansion paved the way to 31% diluted earnings per share growth for the quarter, much better than we had anticipated.

During the quarter, we generated excess cash flow which we used to strengthen our cash position and pay down debt. We're pleased with our capital structure and have no problem being conservative on development until the returns justify an increased investment in growth. We believe we have a great brand with great partners that continue doing the right things for the long-term success of Texas Roadhouse. We further believe our commitment to food quality and guest service has paid dividends to better than industry average traffic. We're excited about the improvement we've experienced in sales trends thus far in 2010, and believe we're positioned well to take advantage of the tremendous opportunities ahead of us. I will get into more of that in a moment and Price will walk you through the financials.

Thank you, GJ. During my review of the first quarter, please note that many of the numbers I will mention are listed in a scheduled supplemental, financial and operating data that was included in the press release. Starting at the top of our income statement for the first quarter of 2010, as compared to the same period in 2009, total revenue increased 6%, driven by a 5.4% increase in company restaurant sales. Underlying this growth was a 5% increase in store weeks and a 0.2% increase in average unit volumes. During the quarter, we opened three company restaurants. For the year, we were on pace to open 14 to 15, and anticipate our franchisees will open one. I will remind you our development schedule for 2010 is very back-end loaded, thus we anticipate low to mid-single digit operating week growth for 2010.

Comparable restaurant sales at company restaurants were positive for the first time in over two years, increasing 0.4%. Guest traffic was down 0.1% for the quarter, while average check increased 50 basis points. By month, comparable restaurant sales were down 1.6% in January, down 0.2% in February, and up 2.6% in March. From an average unit volume perspective, we experienced an increase for the quarter of 0.2%. Not a huge number, but positive territory thankfully. And the gap between our comparable restaurant sales change in our average unit volume change continued shrinking. A little detail on our groups of restaurants. For the quarter, the 231 restaurants in our same-store sales base averaged $75,100 a week in sales. These restaurants were open at least 18 months, as of the beginning of the first quarter of 2010.

There were 24 restaurants in our average unit volume base, but not in our same-store sales base, that have been open six to 18 months as of the beginning of the quarter. These restaurants averaged $73,100 a week in sales. Our newest non-restaurants, which were open sometime over the last nine months and are not in our same store or average unit volume calculations, averaged $93,400 a week in sales during the quarter. On the restaurant margin side of things, we experienced another quarter of margin expansion with restaurant margins increasing 218 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 185 basis points from the prior year as we continue to experience food cost deflation.

Additionally, labor was down 18 basis points driven by positive sales and extremely low hourly turnover. For the quarter, our hourly turnover was below 80%. Pre-opening costs were down $1.2 million from last year, as we opened three restaurants during first quarter, as compared to nine last year. Depreciation and amortization costs as a percentage of restaurant sales were down 27 basis points versus last year. And actually, in terms of absolute dollars, they were down year-over-year. With moderated development, we have reached a point where we have more assets becoming fully depreciated than we are adding.

G&A expenses, as a percentage of revenue, were 36 basis points higher than last year. Higher bonuses, due to higher profitability, drove the increase. With low to mid-single digit store week growth, G&A will be tough to leverage without positive comparable restaurant sales for the year. The effective tax rate for the quarter was 33.3%, which was a little higher than we originally anticipated due to higher profitability. For the year, we are now anticipating our income tax rate will be approximately 33%. Our weighted average diluted share count was 72.2 million, which was 500,000 higher than last quarter, due to stock option exercises and a higher average stock price during the quarter. We have now lapped the timeframe where we benefited from repurchasing some stock.

As for our capital structure balance sheet and cash flow during the quarter, we paid down $12 million in debt and increased our cash balance by $7 million. Thus, we ended the quarter with total book debt of $89 million and cash of $54 million, implying a net debt number of $35 million. Throughout the balance of 2010, we anticipate continuing to generate excess cash flow and paying down some more debt. For full year 2010, we have increased our estimated diluted earnings per share growth from up 5% to 10% to up 14% to 18%. This is off our reported diluted earnings per share of $0.67 in 2009. In determining our estimated diluted EPS growth for the year, we try to base it on a reasonable assumptions to give you an idea of our estimate of the variability in our model. The most impactful of our assumptions is flat to up 1% comparable restaurant sales growth. In addition, embedded in our up 14% to 18% number is 14 to 15 company-owned openings, food cost deflation of 2.5% to 3%, and total capital expenditures of approximately $50 million.

While we do not provide specific quarterly guidance or estimates, a couple of comments relative to upcoming quarterly performance. First, we anticipate food cost deflation will be less for the balance of the year, as compared to the first quarter, based on the timing of our contracts. Actually, we anticipate food costs deflation will be the lowest in the second quarter, due to the way we purchased some of our proteins this year. A second comment I would make, is we anticipate that spending on this year's managing partner conference will be $1 million to $1.2 million higher than last year for a total of $3 million to $3.2 million. The vast majority of this is incurred during our second quarter, which is when the conference took place both this year and last year. On a year-over-year basis, this will be a headwind from an absolute G&A dollars perspective.

Our conference was in New York City this year, which while it is a great and fun city, it is a very, very expensive place. We anticipate that with our conference being in Florida next year, costs would be back down closer to the $2 million range from 2009. And finally, with regard to impairment and closure costs, I will remind you we have had anywhere from $1.7 million to $3 million of costs for this item each of the last three years. We typically have a handful of restaurants we are monitoring for impairment and/or closure, and we do have over $100 million in goodwill on our books. While we cannot specifically plan or accrue for impairment, we do incorporate the possibility of having these costs in our EPS estimates. Now, I'd like to turn the call back over to GJ to talk more about our plans going forward.

Thank you, Price. A great brand with great partners, a good place to start. A few weeks ago, we had our annual managing partner conference in New York City, where we recognized and rewarded our great operators. In addition, we spent time giving back to the community and bonding with one another. Our conference is always a great experience and a great opportunity for us all to come together as a company. It truly is a huge part of what sets our culture apart from others. Our conference and other events demonstrate our continued commitment to doing the right thing for our people, which leads to our partners doing the right thing for their employees and the end result is 40,000 team members doing the right thing for our guests.

In addition, we have remained focused on maintaining food quality and service levels for our guests and enhancing our food offerings and our service levels. To that end, we plan to roll out a new higher quality burger and bun, along with a new cooking procedure in conjunction with a new menu rolling out this month. And we are adding fried pickles, which we have been in tests for quite some time, to the menu. In addition, we are working on ways to enhance the guest experience from the moment they first walk in the door by proactively managing the entire wait part of the experience. Nothing revolutionary in any of these efforts, just basic blocking and tackling in an increasingly competitive environment. We continue to look at 2010 as a transition year for us. As you saw from our April numbers, we did get back some of the sales momentum, especially in the early part of the month during the Easter holiday season. Not really sure why this is, but the second half of April was much better than the first half.

Things do seem to be getting better in the overall economy, and we're optimistic the sales environment will gradually improve. And we're optimistic that as this occurs, we can continue to perform well and steal market share. In addition to sales, we continue to be in a transition with regard to development. We're working hard to refine our new restaurant economics, as we believe that we have a significant opportunity for continued growth of the Texas Roadhouse brand all across the country. We're doing many more locations this year that are what we call pad ready. That is, the developer has taken on the risk for the site costs in exchange for somewhat higher rent. In addition, all of our locations this year will include the new kitchen design, which is reducing development costs by $100,000 or so. And we have plans to open a few locations that are about 10% smaller in terms of square footage.

We're excited to see how these perform, as we're optimistic they will generate sales close to our standard prototype, while having a lower investment cost. The 2010 we believe our total investment costs for new restaurants could come down to $200,000 to $400,000 from the $4 million last year. And if sales are, at the very least hold steady, this would get us much closer to the 1.1 to 1 sales to investment ratio we are shooting for as a minimum. The $200,000 to $400,000 range is a little lower than the $200,000 to $500,000 range I mentioned to you the last time, due to the fact that our 2009 total development costs (technical difficulties) which is $100,000 lower than what we had anticipated. We will continue to monitor our development costs, as well as the overall economy, as we work towards determining what the appropriate growth rate is for us. In addition to what we are doing domestically with Texas Roadhouse, I'm excited to inform you that we just signed our first ever international franchise agreement. We have partnered with a great operator in the Middle East, Alshaya, for the development of Texas Roadhouse restaurants in eight countries over the next ten years. We are looking forward to the first international Texas Roadhouse opening by early 2011. As for the other international opportunities, we are taking a very targeted approach.

We have a handful of countries we're working on to grow the Texas Roadhouse brand outside the US. We intend to learn and grow from the experience, but over time, there is tremendous potential. In addition to what we have been doing with the Texas Roadhouse brand, we will also be opening two more Aspen Creek restaurants this year, in an effort to continue evaluating its long-term viability and potential. These will be in markets -- in different markets in regions of the country from where the one is here in Louisville. Too early to tell what type of potential might there be for Aspen Creek, but as we have said before, we like growth, and we want to find ways to continue creating value down the road. In summary, we continue focusing on legendary food and legendary service. The sales environment has improved in 2010. Costs remain under control, and we remain disciplined with capital while we continue working on our new restaurant economics. (Technical difficulties)

Thank you for holding. At this time, I'll turn the conference back over to Mr. Colosi. Please go ahead, sir.

Okay. Hey, folks. I apologize for whatever happened on the call. We got dropped as well, on the conference call, but took us awhile to dial back in, I think like many of you. However, we are back. I'm going to turn the call back over to GJ Hart, our CEO. GJ was ending up his script. He has a couple of paragraphs to go and then we will open it up for questions for everybody. Okay? GJ.

All right. Thanks, Scott. In summary, we continue focusing on legendary food and legendary service. The sales environment has improved in 2010, costs remained under control, we remained disciplined with capital while we continue working on our new restaurant economics. While our 2010 development plan is very back-end loaded, and it will be several months before we know exactly where our new restaurant economics shake out, we are confident we will be able to generate the necessary returns to fuel future growth. Long-term, we continue to view ourselves as a growth company as there continues to be great opportunity for the Texas Roadhouse brand domestically, and soon to be internationally. We thank you all the Texas Roadhouse team members, for making this a reality. With that, operator, that ends our prepared remarks. If you would, just open it up for questions.

Thank you. The question and answer session will be conducted electronically. (Operator Instructions) Our first question will come from Jeff Omohundro with Wells Fargo Securities. Please go ahead, sir.

Thanks, just two questions. When you say that there's been improvement in the second half of April, I wonder if you can quantify it a little bit further is my first question? And then the second, is on the new menu that's rolling out, what impact do you expect on average check and has there been much change in the total number of items? Thanks.

Hey, Jeff, it's Price. As far as April's concerned, we're not going to get into specifics on it, but I'll tell you I think it is pretty consistent with what some other folks have commented on. The first part of April, during the Easter overlap the first two weeks ,were a little softer for us. I think that's consistent with some others in the industry, what they have said as well. Not really sure if that was due to the timing of spring break, maybe more spring breaks hitting in latter March month or what that was, but it was a little bit softer for those first two weeks than the second two weeks for us. And your second question was on what kind of price increase on the new menu. There is no price increase in the menu. We are adding fried pickles, and we're taking off our larger blossom. We expect that the check to be somewhat neutral overall from what we're doing from a menu perspective.

Great. Thank you.

And our next question comes from Larry Miller with RBC Capital Markets. Please go ahead.

Thanks a lot. Hey, if I could just follow up quickly on the same question. Does that -- were you guys positive in the second half of April? Can you talk at least about that price? And then I did have a question, if you can update us on -- you said commodities would be most favorable in the second quarter. Can you give us a sense of how long your contracted on your major commodities? Thanks.

Sure. Larry, on your first question, yes, we were a little positive in the second part of April. As far as the commodity deflation, it's actually that in the second quarter, the deflation will be less, so we'll benefit a little less on food costs during the second quarter than we did during the first quarter. And as far as when we're contracted, on most of our proteins and the vast majority of our beef, we're contracted through 2010 on that.

Is there any thought to locking up -- some folks are concerned about rising beef prices and starting to see that. Any thought about going out a little bit further on that beef contract?

I'll take that one, Larry. It's GJ. I think it is a little early to talk about beef prices going into 2011. As he said, most of our contracts run through calendar year 2010. The market has, and it typically goes up for most of the cuts that we procure during this period of time. And so, if you're looking to hedge further out, they're going to go with a base that's higher than what the average is for the year. So, no, we have not, and we aren't considering that at the moment, but we will keep all doors open as we go into the summer.

Okay. Thanks, guys.

Thank you. Our next question will be from Matt DiFrisco with Oppenheimer. Please go ahead.

Yes, hi. This is Rachel Schacter in for Matt DiFrisco. Regarding your comps in the first quarter, can you quantify any negative impact you saw from weather?

Rachel, it's Price. We don't -- short answer is no. We don't keep up with how much we've think we lost by weather, just like on the flip side we don't calculate or project any kind of bounceback or benefit from that pent up demand either. Sorry. We don't have anything for you there.

Okay. And then as far as your increased seating capacity initiative, if you could update us in terms of how many units have been completed and what the outlook is for the remainder of 2010?

Sure. On the room additions, we've done 47 throughout the system thus far. We did four during the first quarter of 2010, and we'll probably do another six or seven for the balance of the year.

Okay. Thanks very much.

And our next question comes from Destin Tompkins with Morgan Keegan. Please go ahead.

Thank you. Price, just following up on the commodity question, obviously the year-over-year cost of sales favorability is pretty significant. Should we look at that on a sequential basis, maybe being a little bit higher than the first quarter, but still being maybe in that low to mid-32% kind of range?

Sequentially we should benefit -- we'll still pick up a benefit on the margin, but the food costs deflation won't be what it was in the first quarter. The first quarter actually ran a little bit higher than our 2.5% to 3% estimate for the year in total. Second quarter I would say would run below that. Part of it will depend on some of the floating produce costs. Then one thing we don't really know as much is what will check do during the second quarter, because check was actually up a little during the first quarter. And now here in April we're just overlapping our prior year price increase, so we don't know -- does that mean check will be flat, does that mean check may be down a little because of a little unfavorable mix?

Destin, it's Scott.

Yes.

On the last year when we had lower food costs, the first month of our year January, the food costs were still a bit higher because our beef contracts. Because of the aging of product and the inventory of product we don't typically see, when the prices renew, we don't see those in the stores until late January. So last year, for example, we had relatively higher food costs in January, but much lower in February and March. So, when we lapped that this year, we had substantial deflation in January, and deflation but less substantial in February and March. And then that's going to carry through onward into the second quarter. It may be a little bit less because some of our beef may cost a little more second quarter, portions that flow in the marketplace.

Okay. That's helpful. And then, on a clarification, the menu pricing, you rolled off some menu pricing in March, and do you have any menu pricing going forward?

We rolled off in April, so in April we had no pricing effectively in April, and we have no imminent plans right now to take additional pricing.

Okay. Great. And then one last one if I could. On the development picture, you talked about 14 to 15 slightly, maybe slightly lower than last time, and as you think about the fact that the gap between AUV's and same store sales is narrowed and you're seeing some improvement in the cost of investment. When would you have to make a decision to start maybe looking at some additional sites or accelerating the pace of development, and could that be something that we see in 2011 modestly?

Yes. It's Scott. We're doing that now. Those are conversations that you have to have now if 2011 is going to be a reality. I will say that we're very pleased with the development progress on two fronts. One, the sales of the new restaurants have been very strong. The ones we opened last year and the ones we've opened so far this year, we're very happy on that front. And then we're making substantial progress on the development costs coming down, so we ended the year at $4 million on average, which was a little bit below, but our forecast was at $4.1 million. And that's because the restaurants we opened at the end of the year in the fourth quarter came in a little bit below where they were planned originally because some of the changes that we made, whether it's site work or the kitchen design. That's continued on into this year.

So, the last six restaurants or so, those restaurants on average have opened substantially below the $4 million that we averaged last year. So, we're building confidence on both those fronts, the sales front, and the development cost front, and we're very comfortable saying that we're going to open up more restaurants next year than this year. The question is just going to be how many. We're talking through all of those facets right now, and of course, on top of that, as GJ talked about earlier, is the smaller prototype. And we won't get those opened, at the earliest, until late this year. A couple of those, but we're really becoming more, if you will, confident by the day that we're moving in a good direction from a development perspective.

Great. That's helpful. Does the 14 to 15 include the two Aspen Creek locations?

It does include the two Aspen Creeks, and I tell you we had talked about 15. The 15 are going to get built. The question is does the store 15 or store 14, you know, store 15, I should say, does that store open after December 31 or does it open before December 31, and that really comes down to the timing of permitting. We kind of go through this every year. In prior years we've had a bigger pipeline, so we've had more sites in the pipeline that we could pull into the current year or push to the prior year. We just have a few of those now.

One reason why we have a few of those is we want to lessen the potential to have debt deals. Sometimes when you decide to get out of the deal, it does cost you money, and we've cut that down dramatically as we reduced our development pipeline. So, therefore we've got a deal or two that are kind of flowing into December, based on their -- what we think the permitting is going to happen, how it's going to curve throughout the rest of the year, so the floor is going to get built. It's just a question of how many store weeks do we have next year from and it may be more in December and it may be a few less if it pushes into January.

Thank you. That makes sense.

And our next question comes from Bryan Elliott with Raymond James. Please go ahead.

Good evening. Just a couple clarifications, and then a question. First, talking about development, you talked about back-end weighting, so should we be thinking about second quarter store openings being sort of similar to the first quarter?

Bryan, it's Price. The second quarter will probably be fewer than the first quarter actually. We're probably looking more like 75% in the back half of the year.

Okay.

And a lot of that late, late third quarter beginning of fourth quarter.

Okay. And the pricing, just make sure I understood that, we rolled off April. We have a little bit, that flows through until we lap that and now we're going forward from here, we're at zero menu pricing, right, did I hear that correctly?

That's right. We really overlapped that effective the beginning of April.

Okay. Okay. All right. And then I guess I will try and wrestle with the food cost question. We don't have a baseline from which to quantify the rate of deflation. It's very helpful to get that. It's less helpful in trying to kind of come up with a range of cost of sales based on your guidance. I think Destin may have asked about comparing the absolute Q2 outlook given the timing you mentioned earlier against Q1, and is there a chance that Q2 food costs touch 33?

This is Scott, Bryan. I'd be surprised by that. I would expect that our food costs will be a little bit higher in Q2 than Q1 sequentially.

On a percentage of sales basis?

On a percentage of sales basis, a little bit higher. We can't see it getting that high at this moment. We've still got a ways to go in the quarter. We still have stuff that floats, produce and dairy being the two biggest pieces of that. But I can't see us getting close to that point at this point.

Okay. All right. That's helpful. On the -- also you said, I think did I hear you, it was breaking up before the call kind of blew up, did you say you're now 100% purchased on your beef for 2010?

We're really, really close to 100%, like mid-90s.

Yes. Okay. All right. Taking a shot at the uncertainty of 2011, given where beef costs have moved on the spot market here in the last couple of months or so, if that ends up -- if we contract it at current now -- current pricing now and lock those in for 2011, just hypothetically, give us a sense of what that might mean before any price increases through the cost of goods line as we're thinking about 2011 and looking back?

First of all, we wouldn't do it so we haven't looked to quantify that, Bryan. Sorry I can't do that for you right now. But, if you look historically this time of year markets move up. This year it was consistent with that, and probably, in addition to that increase, was due to the fact that the winter was pretty tough in certain parts of the country. I would anticipate that markets come back in the third quarter, fourth quarter, like they historically have done. And so we wouldn't even consider booking at these current cash prices. And I don't think we'll need to.

Okay. I guess, maybe step back and just sort of big picture it. Long-term, your food costs have typically been in the 35% range, say for a couple periods where we've had unusually low beef prices. As I think about your business model and as you guys think about your long-term business model and return on capital and things like that, is that a useful number to be thinking about? Or is that something that you think through pricing efficiencies, et cetera, that that 35% historical number is not necessarily in a normalized beef environment, what we should be expecting if we get back there?

Bryan, it's Scott. I'd say it's the latter. We consider all the factors when we're looking at building restaurants, knowing that some years food costs have been 35%, some years they've been 32%. Labor costs have been X percentage and Y percentage, and so have controllable or other operating expenses if you will, so we look at all of those and including pricing. So, we believe that over time, we can make assumptions for a certain level of margin performance when we're looking at our development performance.

I guess that really didn't answer my question, though. I mean, long-term is this a 35% food cost concept or do you think it's less than that on a long-term basis?

I don't think we can answer that question because we can't predict what the commodity markets are going to do long-term, and what our pricing strategy is going to be. So, in some ways they go together, and it also depends upon what kind of inflation you see in other aspects of the business, whether they be energy related, wage-rate related and so forth.

That's fair. I guess you've got to look at the whole package. Appreciate it. Thanks, guys.

And our next question comes from Jason West with Deutsche Bank. Please go ahead.

Yes, thanks, guys. Just wonder if you can clarify the pricing versus ticket and traffic in the first quarter? And did you see most of the improvement coming on the traffic line or did you see some average check pickup as well as you moved through the quarter? Thanks.

Hey, it's Price. For the quarter as a whole, traffic was down about a 0.1 and check was up 0.5 points. Check was pretty consistent throughout the quarter, so the change in the sales was traffic driven in the sequential sales was traffic.

Okay. And can you talk a bit about regional trends and times of the week and any changes you've seen there versus where we have been during the tougher days?

Yes. If you look at it versus fourth quarter, look at first quarter versus fourth quarter, really we saw all regions of the country improve. None stands out any more than any other in terms of regional disparity, and I would say that was the same from a days of week perspective as well, pretty consistent across days of the week.

Okay. And then just one last quick one. In terms of the international side, are you guys going to be investing a company capital there? Is it more of a franchise model or is it more 50/50 you're investing some and the partner's investing some?

The deal we spoke about in the Middle East is a franchise deal, so we will not be investing capital.

Okay. Great. Thanks, guys.

And our next question comes from Keith Siegner with Credit Suisse. Please go ahead.

Thanks. Just a little bit bigger picture question. If you think about some of the competition or the other restaurants now and increasing marketing efforts basically just getting a little bit more aggressive on the marketing front, and even some other ones actually coming out and announcing they're going take some pricing, when you think about investing in comps and how you're going to fight for that traffic, it sounds like you're not taking price or at least for right now. How are you thinking about promotional activity? Or is it maybe not using price how you're competing for some of that traffic? If you could just talk about how you're managing that price versus marketing to go for that traffic, that would be great.

It's GJ. I'll try to answer that question as best I can. I will tell you that if you compare us historically on how we've done through these more difficult times, we've fared pretty well. And our strategy has been very consistent, which has continued to drive our market share through our local store marketing efforts. It continues to be that we want our operators out in that community, serving that community and really doing it by goodwill and word of mouth and giving people a great experience at a great price and that's how we've continued to market the brand. As we go forward, part of what has happened, is people have discounted very, very heavily, which we did not participate in. And so as they roll off that discounting, additional marketing dollars are needed to drive that traffic. Fortunately for us, and our research told us, that is basically 9 out of 10 times, a new guest walking in the door will come back. We believe that it's a better return to continue to invest locally through those efforts and to gain that goodwill that way versus spending money on marketing or mass media, radio, television and the like. We continue to intensify those LSM efforts, and we continue to share our best practices and that's been successful.

Thank you.

One more comment as it relates to price. What we've said is we have no imminent plans for pricing. I think that the economy has not come back well enough to start to consider price. However, as we go and have more clarity as to what our cost structure will be into 2011, hopefully things will have continued to get better, which ultimately we believe will drive some commodities, that we will then make a decision on what pricing we need to take.

Thank you.

Our next question comes from David Tarantino with Robert W. Baird.

Hi. Good afternoon. Congratulations on a good start to the year. GJ, just a quick follow-up on that last comment related to pricing. Specifically, what are you doing to prepare for potentially taking a price increase as you move into 2011? Are you already testing that or are you going to wait until later in the year to start making those decisions?

David, we are not testing anything. And we have not made that decision yet. As you know, historically, we do like to test price, and I would guess that we would do that as well. But we haven't made a decision on when that might occur.

Okay. That's helpful. And then my question really is related to the development outlook and specifically the Aspen Creek concept. And was wondering if you could give some higher level thoughts on why you think it might make sense to look at a second concept at this stage, relative to just focusing on the Texas Roadhouse brand.

I'll try that one, David. First of all, I think through our message to you today, we had hoped that we would demonstrate that the Texas Roadhouse brand as the mothership will continue to be for a long time to come. That said, where we are at this point, we need to be looking out five years as to what will propel our growth at that point, as we become more mature as a brand in the US. And we've taken that approach by looking internationally which is the Texas Roadhouse brand. We just made that first announcement, and I think as I've always said, it's a three to five-year time horizon, and that's the way we still look at it. The last part has been the second concept. We have a phenomenal entrepreneur here as our chairman, and he's got great ideas, and this is one that we think that really starting from scratch, one that could be positioned for a future growth potential down the road. We're not in a hurry, don't need to be in a hurry, but we do need to test that whether or not this model -- this new concept works.

Okay. Very helpful. Thank you.

Our next question comes from David Dorfman with Morgan Stanley.

Hi. Thanks. David Dorfman for John Glass. Just want to dig also into the international agreements that have you in place. Can you give a sense of what the scale of the number of units that might be in the near term and also how that affects costs on the near term? Is that going to be a net negative to EPS until some of those open and you're in the agreement in development stage and does any of that have to do with why G&A was higher this quarter?

David, it's GJ. I will take a shot at that. No, it is not going to have a negative effect on G&A as we see it right now. The deal is a franchise deal. This is a company with a big infrastructure. The deal calls for 35 restaurants in ten years.

Hey, it's Scott. I want to clarify one thing that GJ said. He said it's not a negative to G&A. I think what he's really saying is going forward, as a result of signing this deal with Alshaya, there isn't an incremental G&A piece that we have to now if you will invest in. We've had some dedicated resources to the international effort, and there is some timing issues with their spending, so, for example, they took some trips in the first quarter. We're going to see some higher spending in the first quarter than we might in a different quarter, where they are here in the states and not taking a trip somewhere, and that did happen the first quarter. We had some spending related to international in the first quarter that we didn't have a year ago. And sometimes we'll see that, but going forward this deal there isn't a step up in spending, something that you would see as an incremental push to what's already in our run rate G&A.

Right. So, that's all in G&A, though?

Yes.

Okay. Great. Thanks very much.

Our next question comes from Peter Saleh with Telsey Advisory Group.

Great. Thanks. Just wondering if you could talk a little bit more about your capex outlook for this year? It seems like the capex is lighter than it was last quarter so you could tell us what changed? And then, on international are there other regions that you're considering besides the Middle East?

Yes. This is Price. I'll take the capex. We brought it down from I think $50 million, $55 million last year and this is basically in line with us reducing our new restaurant outlook from 15 to 14 to 15. Generally, the makeup of our capex is roughly $15 million. We project will be for maintenance type capex, maintenance and remodel capex and then the majority and then the balance really to cost of new restaurants developed this year and/or finishing some costs from 2009, and then also on what we'll spend this year on 2011 openings. And I'm sorry, your second question was on international?

Yes. If you can just talk about any other regions you guys are considering at this point?

I'll try that, Peter. It's GJ. We are taking a very targeted approach as we've commented on. The other regions we're looking at are Asia, looking more at a joint venture there, and in Mexico and we're looking at a joint venture opportunity there.

Great. Thank you.

Our next question comes from Greg Ruedy with Stephens.

Thank you. The labor per operating week's fallen for four quarters in a row. Should we expect that to continue or is that really just a function of an altered growth rate of late? And if it's not, can you talk about where you're getting some of the efficiencies?

Yes. This is Price. I think one of the things benefiting the labor per operating week is the fact that turnover now is below 80%, and then that's been a huge benefit. And also we've albeit a little -- check has been slightly positive, so I'd say two things there. I'm not sure I would project it to continue to decrease. Now, will it or could it, sure, it could. I don't think I would project it to because of the turnover. And also, I think we're starting to lap the time, if you remember us talking last year our operators had a pretty big push on the scheduling the in and out times of different employees, and so I think we're coming up on lapping some of that benefit that really started mainly in the second quarter of last year.

That's helpful. On the development outlook for 2011, if you were to ramp that up, should we think about that being spread evenly across geography and by market partners?

This is Scott. We definitely like to smooth out our development as much as we can. Somewhat from a training perspective, helpful for our training team, and also it will actually be spread out across the United States and across market partners similar to the way it's been in the past.

Last question, housekeeping is I believe you closed the unit to date here in the second quarter. Is that the impairment we're seeing in the first quarter? Is there any impact to the second quarter G&A?

No, no material impact to second quarter, and, yes, the vast majority of the 100 and I think it was 158,000 in the first quarter, 80% of that plus related to the restaurant we closed in late April.

Okay. Thank you.

(Operator Instructions) Our next question comes from immaterial Imran Ali with Jefferies & Co.

Hi, guys. This is Imran Ali on for Jeff Farmer. I just have one quick question. I think one of your peers recently mentioned some competitive pressure in the bar light night business recently. I think alcohol was only just 10% of your sales so I was wondering if you'd seen some similar pressures on your end?

I'll take this one. We're not a late night bar concept. We have seen our alcohol mix -- over the past several years, our mix has continued to go down as a percentage of overall sales. I don't think -- we're not seeing anything different trend wise, in other words, the rate of decline hasn't picked up at all. So I don't think that we can sit here and say that we're feeling any impact from that.

Okay. Great. That's all I have. Thanks.

Okay. Thank you.

Thank you. At this time, there are no other questions from the phones. Mr. Colosi, I'll turn the conference back over to you.

All right. Well, we sure appreciate you joining us today, and we look forward to seeing you all as we announce our second quarter results. Good evening.

This concludes today's conference. Thank you for your participation.