Texas Roadhouse Inc (TXRH) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Texas Roadhouse Incorporated third quarter 2010 earnings conference call.

One note, that today's call is being recorded. (Operator Instructions).

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 third quarter ended September 28, 2010. It may also be found on our web site, 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. Reconciliations to such measures can be found under the Investor Relations section of our web site.

On the call with me today is G.J. Hart, our CEO, and Price Cooper, our VP of Finance. G.J. 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.

Now I would like to turn the call over to our Chief Executive Officer, Mr. G.J. Hart.

Thank you, Scott, and good evening, everyone.

Well, the third quarter was very good for us. We were pleased to generate positive comparable restaurant sales for the third consecutive quarter, as we ended the 13-week period up 4.3%. We were even more encouraged that the increase was driven by positive traffic of 4.5%. Sales growth combined with continued restaurant margin expansion also paved the way for another quarter of diluted EPS growth, as EPS grew 28%, putting us on pace to deliver approximately 20% diluted earnings per share growth for the year.

In addition to same store sales momentum, we have continued to experience improving trends at our newer locations. If you will recall, last quarter was the first quarter in over five years that the growth in average unit volumes was equal to our same store sales growth. Well, this quarter our average unit volume sales growth surpassed our comparable restaurant sales growth, reflecting the continuous strong performance of our newer restaurants.

On the development cost front, we are still confident that our average all-in per unit cost will come down this year by $200,000 to $400,000, to between $3.6 million and $3.8 million. This range includes capitalizing the rent and pre-opening costs. Based on this and the momentum in sales trends across our entire portfolio, but particularly at our newest locations, we are pleased to announce our intention to add approximately 20 restaurants next year , which reflects a substantial increase from the 14 planned restaurants for 2010.

We will get more into our plans going forward, but first I will have Price walk you through the financials.

Thank you, G.J.

During my review of the third 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 with our income statement, for the third quarter of 2010, as compared to the same period in 2009, total revenue increased just over 8%, while company restaurant sales increased 8.5%. The growth in company restaurant sales was driven by a combination of a 4.6% increase in average unit volumes and a 3.6% increase in store weeks. Our comparable restaurant sales growth of 4.3% was comprised of positive guest traffic of 4.5%, with check being down a few tenths. Comparable restaurant sales were positive each month, with July up 3.1%, and both August and September up 4.7%. Additionally, for the first four weeks of our fourth quarter, comparable restaurant sales were up 3.5%. As G.J. referenced earlier, our average unit volume growth this quarter of 4.6% actually exceeded comparable sales growth of 4.3%. This means the restaurants we've opened over the last six to 18 months have higher sales than our previous groups. This is the first time we've experienced this in quite a while.

As we have done in the past, I will provide a little more color here. For the quarter, the 243 restaurants in our same-store sales base averaged $70,100 a week in sales. These restaurants were open at least 18 months as of the beginning of the third quarter of 2010. The 17 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, averaged $2,000 more per week at $72,100 a week. While our newest seven restaurants, which were opened sometime over the last nine months and are not in our same-store or average unit volume calculations, averaged $84,500 a week in sales during the quarter.

In terms of restaurant margins, we experienced another quarter of expansion with margins increasing 79 basis points over the prior year period. Once again, cost of sales led our improvement as it was down 69 basis points. We did not benefit quite as much this quarter from food cost deflation as we had previously anticipated, due to certain produce and dairy costs being higher than anticipated. As such, we have slightly moderated our estimates for food cost deflation to approximately 2.5% for the year, versus our prior estimate up 2.5% to 3%.

On the labor line, positive comparable restaurant sales growth resulted in 62 basis points of leverage, in spite of costs being up on a per operating week basis. I will remind you that during the fourth quarter last year, we had a $1.2 million credit, relating to favorable settlements associated with state unemployment insurance rate changes that had taken effect throughout 2009. As a result, we would anticipate some deleveraging here in the fourth quarter, as we anticipate costs on a per operating week basis will be up year-over-year.

Partially offsetting the leverage from food and labor was 58 basis points of pressure in the other operating line, driven primarily by two items. First, as has been the case throughout the year, we experienced pressure from higher bonuses for our operators, as profitability at the restaurant level has improved due to higher sales and margins. This accounted for 24 basis points of pressure. The second item impacting this line relates to our general liability insurance expense, which was $800,000 higher this quarter as compared to the same quarter last year. This increase, which accounted for 27 basis points of pressure, was primarily driven by an increase in our ultimate claims exposure, as we are partially self-insured and must make adjustments to our reserve each quarter based on actuarial analysis.

Moving down through the income statement, there are a couple of other items to point out. The year-over-year growth in G&A was relatively benign, as bonus expense for this quarter was $600,000 lower than last year, due to some catch-up expense being recorded in the prior year period. Our effective tax rate continued to come down, as we continue to anticipate higher tax credits. We now expect our effective tax rate will be approximately 32.4% for the year.

From a balance sheet perspective, we continue to be conservative with cash, using excess amounts to pay down debt. As such, we ended the quarter with $7 million in net debt, as compared to $19 million at the end of the second quarter. We did not repurchase any stock during the quarter and thus, as of the of the end of the quarter, we had $18 million authorized under our share repurchase program. For the full year 2010, we now estimate that our diluted earnings per share will be up approximately 20% from reported diluted earnings per share of $0.67 in 2009. This is at the high end of our prior guidance of up 16% to 20%, and is due to better than anticipated sales, partially offset by lower projected food cost deflation.

The following assumptions are incorporated into our 2010 estimates. First, from a comparable sales perspective, for the balance of the year, we are projecting sales based on a similar two year trend, which takes into account a modestly negative impact in December, with Christmas shifting from a Friday to a Saturday. We estimate this will negatively impact the quarter by approximately 0.3%. Second, as I mentioned, we do anticipate losing leverage on the labor line in the fourth quarter as a result of the $1.2 million credit in the prior year. And lastly, we have incorporated the possibility of incurring $2 million to $3 million of impairment and closure costs for the year, based on the fact we have had anywhere from $1.7 million to $3 million of costs for this item in each of the last three years. We do our annual testing for much of this during the fourth quarter. There are numerous assumptions that must be made to, in essence, estimate the future cash flows of individual restaurants. At this time, we are unable to predict what, if any, amount of actual impairment costs we might incur. And in general, we typically have a handful of restaurants that we are monitoring for impairment and/or closure, and do have over $100 million in goodwill on our books.

Now on to 2011. While we are still finalizing our plans for the year, we currently project that if comparable restaurant sales were to grow 2% to 3% for the year, diluted earnings per share growth would be in the range of 5% to 10%. This is based on the following assumptions. First, approximately 20 company owned openings. I'm sorry, EPS would be in the range of 5% to 15%. And this is based on the following assumptions. First, approximately 20 company owned openings. Second, food cost inflation of 2% to 3%, and finally, total capital expenditures of approximately $60 million to $65 million.

A couple additional items to mention as it relates to 2011. First, as was the case this year, our development schedule is very back-end loaded for the year. Thus, we anticipate around 80% of our openings to incur in the second half of the year. So we are looking at mid-single digit type operating week growth next year. Secondly, as it relates to our comparable restaurant sales assumption, while we do anticipate taking some pricing by the end of the first quarter, we have not yet determined what amount that will be. This was a large part of the reason for the broad range of 5% to 15% EPS growth for the year. The lower end assumes we do not price enough to offset inflation and thus lose some restaurant margin, whereas the higher end assumes we price enough to at least offset inflation.

And with that said, I would like to turn the call back over to G.J.

Thank you, Price.

With 2010 largely behind us, we feel very good about what we have and will accomplish this year. We are on track to deliver approximately 20% EPS growth with the addition of only 14 new restaurants. Additionally, we are generating improved sales at our newer restaurants as compared to the system and are seeing lower overall development costs. Both of these items position us well as we head into 2011. Given our track record this year in terms of sales and income growth, as well as the volumes we are generating at our newest openings, we feel very good about increasing our development plan to approximately 20 restaurants in 2011. As we have discussed before, we did not lay off anyone during our moderation of development, so we still have the same number of personnel necessary in real estate, legal, and training on hand to manage our reacceleration. Of course, we will incur higher pre-opening costs on an aggregate basis, but we will not have any incremental costs associated with ramping staffing levels back up.

Operationally, our operators have done a tremendous job staying focused on food and service to drive topline results as opposed to micromanaging costs to drive bottom line results at the expense of future sales. Although we anticipate both labor and commodity cost headwinds next year, we will not cut our standards for the sake of margins, and instead will continue to distance ourselves from the competition. As always, a big thank you to our teams and their commitment to the Texas Roadhouse brand.

As Price mentioned, we currently anticipate food cost inflation of 2% to 3% for 2011. We believe we have some pretty good visibility here, as we have locked in pricing on approximately 80% of our proteins, and overall we have about 50% to 60% of our total cost of sales locked for the year. Keep in mind, we typically stay on the market for 15% to 20% of our costs, namely produce and dairy. In addition to fixed price contracts, we have ceilings and/or floors on a couple of items as well.

On the pricing front, as Price mentioned, we do anticipate taking some amount of pricing sometime before the end of the first quarter of 2011. However, we do not know exactly what amount that might be, and/or exactly when we will take it. This is the reason we have such a large potential EPS range next year. Sitting here today, we believe we have pretty good visibility cost wise into next year, and definitely believe we will have low single-digit type inflationary pressures. We are currently testing a 2% price increase in 25 restaurants. To date, we have not seen any big negatives from the price tests, however we do recognize the test has only been going on for a few months. Additionally, we do not have as good a vision on what the overall consumer environment will be like as we enter the next year. As a result, we have not yet determined exactly what our pricing will be. We understand this results in a decent size range in terms of what next year's earnings could be. We apologize for that, but we want you to be rest assured that any decision that we make, we are committed to doing what we think is in the right direction for the long-term success of Texas Roadhouse.

In summary, 2010 has shaped up to be a much better year than we had originally anticipated, driven by continued sales improvement and margin expansion. We are pleased with what we are seeing on the development cost front ,and are glad to resume more normalized restaurant growth next year. We do anticipate seeing some inflationary pressures, but believe we will be able to manage through them.

Finally, before opening the call for Q&A, I do want to announce that we will be hosting an analysts' day in New York City on Wednesday, February 23. In conjunction with this, we will have a reception on the evening of Tuesday, February 22, which is the same day we will release results for the fourth quarter of 2010. Additional details will follow in the coming weeks.

That covers our prepared remarks, so Operator, please open the line for questions.

(Operator Instructions).

We'll go first to Larry Miller with RBC Capital Markets.

Hello, guys. Nice work there. I first had a clarification. Can you tell me off of what base you are using for the 5% to 15% price?

That would be off our, up approximately 20% on top of the $0.67 from last year.

That's what I thought. Thanks.

And then, just to get a sense, because maybe you could help us with your guidance,because I think a lot of people are probably going to ask about it. But other than the back-end weighted opening schedule, it seems like you're embedding a pretty significant amount of margin expansion. Can you help us think about what are the drivers of that margin expansion and, as you are answering that question, can you talk about maybe the range of pricing that you are comfortable with? You said you are testing two, but it sounds like, in your prepared remarks, that you are saying something between zero and one. So that would be helpful, just to give us a sense of how this is all shaking out.

Thanks.

Okay. Larry, this is Price.

I'll take the first part of that. For next week, in essence, we are assuming kind of a mid-single digit type operating week growth. And then if you assume two to three percentage points in comparable restaurant sales growth, 2% to 3% at the high end, overall sales growth. So then it boils down to what we end up doing pricing wise, so our range there is really based on do we fully price to inflation or not. In the lower case, in the 5% case, it would be a situation where we didn't price to inflation so we gave back a little margin. Then on the higher end, the 15% top end there, basically assuming we at least price to inflation.

Larry, this is G.J.

I'll just take a little bit on that pricing question. While we are testing 2% right now, and while we haven't seen any material negative impact on that, as you well know, you will not necessarily get 100% flow through on that pricing. So there is a lot more knowledge we need to gain relative to that.

Please understand that we continue to hold value near and dear to our hearts, in terms of where we are positioned. We feel like we are positioned very well, but that value position is imperative for us to continue to grow guest counts. As always, we are going to be very conservative on our approach. All we're saying to you, at this point, is we are going to take some pricing in the first quarter.

Okay. Thanks, guys.

And from Robert W. Baird, David Tarantino.

Good afternoon. Congratulations on great results.

Price, I have a question about your guidance that you laid out for Q4. You mentioned that you were assuming a stable two year trend for the balance of the quarter, and I'm just wondering why you think that's the right way to think about the business, given that that metric doesn't look like it's been very stable for the last several months.

Well, thanks David.

As we sit here today, basically we've got results for the first ten months of the year. We have been running up about a percent, for the last two months anyway, on a two year trend basis. So we just thought, you know, it was reasonable to at least assume that for the back half of the year, which gets you to that approximately 2%.

Okay. That's helpful.

And then, a question G.J., on the pricing. I guess, as you make your decision, could you maybe talk about the scenarios on your pricing tests that would lead you to maybe not take the full 2%? What is it that you would see in the pricing test that would make you want to pull back a little bit?

Well, the short answer to that is if you start to see some big changes in fee mix, would be something that would give us some concern. As we've indicated, we haven't necessarily seen that at this point. And as I said earlier, pricing is something that we have continued to be careful about, and that's why you are seeing the traffic growth that we have had. We are going to continue to be cautious. I think it's too early to tell at this point, in terms of where we really will see the results of the overall price test when it's 25 restaurants and it's only a been short period of time.

Okay. Fair enough.

Maybe a bigger picture question on the longer term development outlook. Is your move to ramp up unit growth in 2011 maybe the first step in maybe ramping it even faster as you move out into 2012 and 2013? Maybe if you could just give us some idea of what the long-term growth rate of the company might look like as you sit here today.

Clearly, we want to grow new units. That's how we drive much of the value of this organization and we'd want to continue to be a growth restaurant company. This year we are gearing it back up for all of the things that we've talked about. Development costs being down, feeling a little better about sales, feeling a little bit better about the environment, albeit still somewhat uncertain since the Election Day is tomorrow.

So it is our hope that we will continue to drive great returns on capital, and we would hope that we can continue to grow more than what we are planning to do in 2010. But it's too early to really say what that is.

Okay. Thank you. Good luck.

Destin Tompkins with Morgan Keegan has our next question.

Thank you.

G.J., you mentioned the improvement that you've seen in the cost of new stores. As you look at 2011, do you think you can maintain those savings as -- what is your confidence in keeping that lower cost of new development?

And then, as it relates to the pipeline, given how back end loaded it sounds 2011 is, is there a likelihood that the pipeline is building such that maybe 2012 wouldn't be as back- end loaded as what it sounds like 2011 is, at this point?

Yes. We feel pretty good about the cost reductions that we are seeing for 2010 being able to carry us into 2011. We haven't seen any significant pressure on real estate prices, per se. That would be the one catalyst, if something were to change dramatically, which we don't anticipate in 2011. So we feel real good about where those costs are.

In terms of the second part of your question, yes. As we geared it back up, clearly it takes a long time to get deals in the pipeline, and we would hope that it would be much more evenly spread in 2012, and that's exactly what we're shooting for.

Okay. Great.

And then a follow up, Price. The operating expense pressure that you mentioned, I think half of it was related to the general liability expense. Is that something you expect to continue or is it just hard to predict?

It's a little tough to predict because of the fact we are self-insured. So it will vary a little bit by quarter, depending on how actual claims are coming in and how those get developed out.

Overall, as you look at 2011, is there any reason why you would expect a significant amount of deleverage, given that your assuming 2% to 3% same store sales?

No. Not because of the insurance.

What hit us this year on that line was, in essence, last year we had about a $400,000 credit during this quarter. This year we had about a $400,000 hit, additional expense from it. So the combined of those two was what really led to the pressure this quarter.

Great. Thank you.

Next we will hear from John Glass with Morgan Stanley.

Thanks.

A couple of questions around inflation. First, when is the last time you guys experienced 2% to 3% food inflation? Is there a time you remember when you actually did see that?

Let's see --

Trying to understand a relative order of magnitude. Is this the greatest amount of -- I went back and looked at my own notes, and I couldn't see -- you didn't always talk about it every year, or at least I didn't write it down. But it seemed like, even in years where a lot of commodities were inflationary, maybe you caught a break in the beef market, for example.

No, I think we've actually had higher inflation than that, probably 3 or 4 years ago. In fact, I know we did.

Okay. That's helpful.

When you look at the labor in the third quarter, is there anything that -- is this the amount of labor leverage one would expect in this environment for the comp you reported? In other words, if we are looking into next year, and you think you can do a low- to single-digit, or call it a low single-digit comp, should there be about a 50 or 60 basis point improve in labor, based on that comp?

This is Price.

It really depends on where that comp comes from, be it more traffic driven or pricing. Next year, I think with modest increase in comps we should be able to leverage that line a little bit. Maybe something in between this and -- or where it's at, flat and where it's at. We do have some states going up on their wages in the beginning of 2011. But overall not a whole lot.

We have been fortunate in the fact that, from a average wage rate perspective, it's been relative benign for the last couple of quarters. So I think part of your question depends on what the macro economy is, and what the overall job situation is like.

But you are not paying, for example, the bonusing of the restaurant level worker is not exaggerated or understated this quarter, relative to kind of what it would be next year in a normalized sales environment is what you are saying.

No, that's correct.

Okay.

How about inflation elsewhere in the P&L? Have you guys talked to your insurance carriers, for example, on medical? Is that going up? Have you looked into or have any views on utilities or any other sort of underlying inflation in the P&L next year?

Yes. Along those lines, on the utilities front we have locked in actually a lot of the rates, where we can, for natural gas and electricity, and a lot of those situations we've locked in some savings in those areas. On the insurance front, yes we would expect some inflation there. I don't, at this point, know exactly what it will be. But nothing that we are overly worried about.

I think, overall in answer to your question, I think there could be a little bit of inflation on the other part of the P&L. Probably not to the 2% to 3% that we expect in the food cost area.

Okay. Thank you.

From Deutsche Bank, we'll move on to Jason West.

Thanks.

A couple of things I want to clarify. One, on the pricing, I think you guys are running no price right now, I believe that rolled off in April, just wanted to make sure I have that right.

You have that right.

And then, just the outlook on the fourth quarter, food costs, you took the -- changed the guidance a little bit there. Should we see some leverage on cost of goods sold in the fourth quarter? Or is that going to start to flatten out now?

Should continue to see that in the fourth quarter, probably similar to where we are at in the third quarter.

Okay.

And then,just last thing, bigger picture. Going back to the unit openings, just wondering how you guys came up with the 20 number. Is that where you wanted to be going into 2011, or were you running into some head winds around availability of good sites and other issues, or is this where you guys had really targeted?

This is Scott.

Essentially the 20 is right where we want to be. So it's where we are most comfortable taking a step forward and doing it in a somewhat conservative fashion. So, we are pretty bullish that we are going in the right direction, but again we are not going to go too far too fast.

Okay. Thanks, guys.

Moving on to Keith Siegner with Credit Suisse.

Thanks, guys.

Quick follow up. Thinking about this quarter, with the average weekly sales growth getting back to growing ahead of same store sales, which is really encouraging, can you remind us how many of those new units might be smaller footprints, if any? Then when you look at the 20 units for next year, how many, if any of those 20 units, are the smaller footprints? I think there were a few planned for some of the less competitive markets. If you could clarify some of that, that would be helpful.

Keith, it's Scott.

Right now, zero of the units that we've opened that are running higher volumes than the system average are smaller footprint. And actually later this year we are going to open one slightly smaller prototype, about 10% smaller, and then we currently have one on the books for next year. And that's as far as we are going so far.

Okay. So it doesn't sound like there needs to be a major impact on that, on the rate of difference between average weekly sales and same store sales from a smaller unit.

Yes, no.

Okay.

One other question. This is kind of a nitpicky, or silly one. If you look at the franchise system, with 71 units in the 13-week quarter, the number of operating weeks doesn't match. Were there some closures of franchise units temporarily during the quarter? Is there anything going on there, and would that potentially continue into fourth quarter?

Hang on just a second here, Keith.

Sorry for asking.

We had -- one thing it could be, and I would have to get back with you on this. We did have one that burned last year and was rebuilt. So that's playing in the numbers a little bit. It re-opened during this quarter. So I can't remember the exact timing on that one. But it definitely re-opened during this quarter.

Okay. Thank you.

And from Jefferies, we'll hear from Andy Barish.

Thanks.

Two quick questions. On the higher new unit opening volumes, what do you guys kind of attribute as the key success factor to that, as we sit here today? And then, secondly on your guidance, what are you kind of thinking about in terms of free cash uses for 2011?

I will take first one, Andy. This is G.J. here.

In terms of these volumes, I think it's a combination of things. Number one, I think the brand continues to get better recognition as we get larger in scale. Number two, we've continued to really focus our training efforts around our managing partners and keeping them in our system upwards to a year and through our selection process, making sure we are hitting all the key attributes we think will make a successful managing partner. Then thirdly, in terms of opening our new units, we've done some things around, I will call trail trainers, or trainers that stay in the units longer, to support the new restaurant opening. Where they may have stayed a week, it's significantly longer now, and I think we are seeing some success from that.

-- take the second part.

Andy, it's Scott. I will take the cash flow question.

Okay.

Certainly, we are going to have probably a lot of free cash flow next year, despite us increasing our development numbers. We've got the same options that we had this year ,which are continuing to strengthen our balance sheet, potentially make a franchise acquisition or two, that opportunity still exists, and then lastly, we've got a share buy back program that still has $18 million left on the current authorization. So, all those ideas would be part of the mix for next year.

Okay. Thanks.

And from Oppenheimer, we'll move on to Matt DiFrisco.

Thank you.

With respect to the guidance, I just want to clear up also, the $0.67 number from a year ago, if I'm not mistaken, had $2 million or so in impairment charges and your 20% guidance also includes a comparable number of $2 million to $3 million impairment in the fourth quarter, correct?

Yes, actually last year's number -- 2009's number had $3 million in impairment. And yes, this year's we said we were assuming $2 million to $3 million. Yes.

Right. I was looking at the net number. Sorry about that.

Okay.

So, if we are looking on a recurring earnings basis, you are talking about adding back anyway about $0.03 of earnings on the basis.

Yes, for last year.

And for this year, considering you are using the same amount. Of impairment.

It's a little lower,a little lower than $0.03, math-wise, but yes, somewhere in that neighborhood.

Yes.

Of the 20 openings in 2011, how many of them are Aspen Creeks?

Zero.

So then the December North Carolina store will be number three, and then you are not going to open any for 2011?

There is the potential to open one in 2011, however that's not incorporated into our current guidance for next year.

Is it too early to talk about the tale of two cities? What do you see different in Louisville and Irving,Texas? Are we to assume that there's some level of consistency, why you're going ahead with a third store in North Carolina, that this is starting to look like a valid growth brand, potentially.

I think that the North Carolina store is going to be a good indicator of where we are going with the concept.

What was the store before? Is this potentially a store that could go potentially go in to some underperforming Texas Roadhouses, or is this a brand that needs to have a better location and isn't so much of a destination shop, it needs to be more so on a pad on a strip?

I think --

This is G.J. To further answer the question, it's way too early. We want to take a very slow, methodical approach, and see what we have. And there is still a lot of learnings. We've got two open, as you indicated, and each one of them has different attributes, relative to real estate. We're opening a third one, which is again a different market for us. And we are going to really sit back and evaluate what makes the most sense. We are getting good foot traffic through these restaurants, but we are not going to be over exuberant about growing something until we really understand what the long-term results might be.

Appreciate that.

When you mentioned the commodity outlook, just last question here, on the contracting, you said 80% locked in on the proteins. Is that 80% throughout the full year or does it sort of get higher as we get to the back half of next year or so? Maybe 100%, first half, and then it starts to get 60% the back half. I'm just curious how one should look at that.

Matt, it's Price.

It's pretty much for the full year. What we've done is in the majority of our proteins for the full year.

Great. Thank you very much.

And from JPMorgan, we'll hear from John Ivankoe.

Hello. Thank you.

Just a couple of follow ups, if I may. Firstly on development, is there any particular markets where your need of development is concentrated in 2011? In other words, are there some markets that are particularly receptive to development of restaurants, is the first question.

Secondly, just thinking, the brand in the US next year will be, call it $1.3 billion, $1.4 billion, round numbers, are there other venues of advertising or marketing that begin to be more open to you, more efficient as you continue to grow larger?

There are no specific areas of concentration in our development program, largely because its driven by our people strategy first. We've talked about that in the past, and we continue to stay down that strategy.

In terms of your second question, relating to marketing slash advertising, we will never say never, but that's something, in terms of multimedia or mass media, is not something we are taking a hard look at, at this point . We don't think the return on investment is there. We don't think we have the concentration of restaurants to do it and we haven't had to, given the fact we've got a very loyal guest base once they try us, with an 89% repeat rate. We are going to continue to drive our business, as our results have shown, that our current local store marketing efforts have proven to be pretty successful, as you compare us to the competitive set. So we are going to continue down that strategy for the foreseeable future.

Great. Thanks.

And next we'll hear from Conrad Lyon with B. Riley and Company.

Yes. Good afternoon.

Maybe G.J., how difficult was it to line up some of these sites for next year , the 20 sites, and along those lines, what kind of rents might we look at, is it something a little bit more favorable these days, or no?

If you ask our real estate guys it's always difficult to find sites, but the reality the bigger challenge was just ramping back up the development schedule.

In terms of pricing, particularly on leases, as we've indicated in the past part of -- we paid a little bit more in rent to offset some of the risk factors of the site development costs. So net net, we haven't seen a break in the overall lease cost of land. And really, you might think there might be some, but there is always someone looking for those good locations. So we haven't seen much at all.

You also mentioned earlier that you are spending a little bit more time with training, so what can we expect for pre-opening next year, per store?

This is Price.

I think something in that $400,000 to $450,000 per restaurant is still a good number to use. Some of that will depend on kind of where our 2012 pipeline shakes out, the timing of those. But on average, we are still seeing something in that range of $400,000 to $450,000.

Okay.

Last question, the menu price increase that you are testing, is that going to be, maybe it's too early to answer this question, but -- across the menu?

The menu test that we are testing is much more across the menu than we what we've done in the past.

Okay. Fair enough. Thanks.

Moving on to Bryan Elliott from Raymond James.

Thank you.

Actually that was my last question, that just got asked.

But let me just state for the record, for people reading transcripts down the road or whatever, that I just want to commend you for your -- the depth and specificity of the guidance and the commentary. You are the most user friendly restaurant company out there. Thank you.

Thank you very much.

Next we'll move on to Peter Saleh with Telsey Advisory Group.

Just a quick question on the inflation guidance for next year. Does 2% to 3% inflation, does that assume that dairy and produce remain at these levels?

This is Price.

We are not going to get overly specific on what is embedded in all our assumptions. In general, we have built in the possibility for those to be up some next year.

Great. Thank you.

Thank you.

And from -- Paul Westra from Cowen and Company.

Hello, guys. Good afternoon.

One last quick question on your G&A. You mentioned your bonus accruals picking up, seems like at the store level, but your G&A seemed to be flat on a nominal basis in the third quarter. Is it safe to say you shouldn't be expecting any bonus catch ups on that line going forward, and lately, looking out at 2011, what should we be thinking about the inflation rate on the G&A line?

Paul, it's Price.

The G&A this quarter, last -- it wasn't up that much because we did have some catch up last year, so now we are kind of on parity, year-to -ate. So you are correct in the fact that there shouldn't be any timing differences going forward as we move in to the fourth quarter.

As far as G&A outlook for 2011, we do expect to get some leverage on the G&A line, driven in large part by the fact that we would project our conference expense to be down $1 million to $1.5 million next year.

Absent that, you said body counts are obviously pretty much ready for the 20 unit development pace. Just nominal real dollar growth and some inflation adjustments. Mid-single digit.

That's right. With the core G&A growing in that mid-single digit range.

Okay. That's helpful.

Thanks, guys. Congrats.

Next we'll hear from Jeff Omohundro with Wells Fargo Securities.

Thanks. Curious about and issue that's on the service side and through put, just wondering if there are opportunities there you might be considering to further enhance the customer experience.

Thanks.

Jeff, it's G.J.

The name of the game for us is table turn, so we continue to work really hard at improving table turns but not sacrificing the guest experience. In addition to that, the first and last impression is at the host stand. We continue to drive our efforts around the host stand and making sure that guest walks in the door, and gets treated very well from the beginning to the end. But that also helps us to manage and get through put through the building because it will help our overall table turn experience. And beyond that on the normal stuff that we've talked about in the past, we are not sacrificing anything around service. If anything, we just want to make sure we continue to improve that guest experience and then we benefit from the additional table turns that we might get. And that's really it.

Thanks G.J

(Operator Instructions). From Stevens, we'll go to Greg Ruedy.

Thanks. Good afternoon.

In the past you had a slide in the investor presentation that talks about three buckets of trade off, just wondering given the recent traffic strength, if you can kind of highlight it. Are you getting trade back up, but you're keeping the BMWs in the parking lot, so to speak? Just meaning anecdotally there.

Greg, it's G.J.

I think that what we've talked about in the past is we tend to see, I don't know if it's BMWs, I think people dressed with sports coats and maybe not ties, more so in our restaurants. I think, just anecdotally, we've continued to see that presence there. So I don't know that I can give you specifics around it, but we do believe we have widened our demo a little bit through this recession.

Thanks.

We will take a follow-up question from Larry.

Thanks.

Just two quick follow ups. The return on new stores. Are you guys with the $200,000 to $400,000 of cost taken out in that 1.1 to 1.2 sale investment ratio or better that you have been targeting?

Larry, it's Price. With those amount of costs out we are not up to the 1.2 yet. We should end this year at about a 1 to 1 sales to investment ratio although if sales continue directionally the way we are going forward we would be a little bit above that, more in the 1.0 to 1.1 to 1 range. Still, returns well in excess of our cost of capital.

Thought is with maybe the smaller box that you might be able to get to the 1.2 range, is that right?

Yes. More into that 1.1 to 1.2, because although it's 10% smaller, we are not necessarily assuming, we don't know yet, but we are not assuming we will necessarily do 10% less in sales.

Okay. Great. Thanks.

And then, I know you said you didn't want to get too much into the commodities, but you did say you had proteins locked. Can you give us some sense of what proteins you are locked on, specifically beef, if you have that contracted? And then, I don't know, sometimes you talk about the notion of going out even longer than a year. Is that something that you have given any thought to? I know it's early in this period, but given where corn and some of the protein prices are headed, does that make any sense?

Larry, it's G.J.

Again, we don't want to be specific, but remember, beef is the biggest protein that we buy. So obviously, having 80% of our proteins bought, you can back in or at least guess that we've got a lot of our beef purchased.

In terms of the second part of your question which -- in terms of going out longer than a year, yes we would love to go out longer than a year on some items, but that's pretty difficult to do because, particularly in the protein area, because the producers won't do that. So it's just not something I think that is even in the cards in at the moment. There are some non-protein items, if we can do longer term contracts we will. There is nothing I could be specific about right now.

Okay.

Then with pork being the second largest, I think, is that right? Is it the second largest, you probably have a good amount of that contracted as well, is that correct?

I think it's safe to say, Larry, without being overly specific, we have parts, if not all, of each protein bought for the year.

All right. Thanks, guys. Sorry. Take care.

There are no further questions at this time.

Mr. Colosi, I will turn the conference back over to you for any closing or additional comments.

All right. Well, thank you all for joining us this evening,and we look forward to talking to you at the next quarter. Take care.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.