Texas Roadhouse Inc (TXRH) 2012 Q2 法說會逐字稿

Good day, and welcome, ladies and gentlemen, thank you for standing by. Welcome to the Texas Roadhouse Inc. second quarter 2012 earnings conference call. Today's call is being reported. At this time I would like to turn the conference over to Price Cooper, Chief Financial Officer. Please go ahead, sir.

Thank you, Cameron, and good evening, everyone. By now everyone should have access to our earnings announcement for the second quarter ended June 26, 2012. It may also be found on our website at texasroadhouse.com in the investor selection.

Before we begin our formal remarks, we 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 earnings release in our recent filings with the SEC for a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures. Reconciliations of the non-GAAP measures to the GAAP information can be found under the investor section of our website.

On the call with me today is Kent Taylor, our Founder and CEO, and Scott Colosi, our President. Kent is going to start the call off, after which I'll provide a financial update. Then Scott will provide some final comments. Afterwards, we will all be available to answer any questions. Now, I would like to turn the call over to our Chief Executive Officer, Kent Taylor.

Thanks, Price. Hello, everyone. We are pleased with this quarter's revenue growth and restaurant margin performance which led to a 28% increase in diluted earnings per share. From a top-line perspective, our results were good. We generated solid and consistent sales growth throughout the quarter. At the halfway point of 2012, both comparable sales and traffic growth are positive. Additionally, our new restaurants continue to open very well. We continue to see good flow-through from our February menu changes and pricing actions.

Price will talk about some of these details, but overall, our menu mix is running basically neutral. As of now, we do not have any price increases planned for the remainder of the year, however, we have started testing what amounts to an average increase of just under 2% in 16 restaurants. In the back half of the year, we will also be working toward our 2013 inflation expectations which will help us determine the amount of and timing of any pricing actions for next year. In terms of costs, restaurant margins came in stronger than we anticipated in the second quarter. Also, our operations continue to do -- our operators continue to do a great job of controlling costs in a year of high single-digit of pre-cost inflation.

Our second quarter results also benefited from lower costs relating to our annual managing partner conference. We remain excited about our business momentum. We recently met with all of our multi unit operators and shared best practices in many aspects of the business including operations, H.R., marketing and finance. We also spent time discussing our future growth plans and how to grow the right way. As always, we are very impressed and energized by our team, a solid group of people just like Mitch Harbaugh, our Managing Partner of the Year from Wichita, Kansas, who happens to be sitting with us in the room. Our success really boils down to hiring great people, finding good locations and staying focused on legendary food and legendary service. It is that simple, and keeping it simple has served us well through the years. Price will now walk you through our financial update.

Thanks, Kent. I'm going to touch on a couple of highlights for the quarter and then discuss our financial outlook. For the second quarter of 2012, revenues increased 14.6% as a result of a 9.8% increase in store weeks and a 4.1% increase in average unit volumes. Net income was $20.3 million, or $0.28 per diluted share, which represented a 28% increase from last year and was a few cents better than we anticipated due to better restaurant margin performance and lower G&A.

From a top line perspective, our average unit volume growth of 4.1% was slightly less than our comparable restaurant sales growth of 4.5%. While our newer restaurants continue to open strong as they move through the honeymoon period and as sales normalize, their base is slightly less than existing restaurants. However, we continue to see solid comp sales growth. Comparable sales were up 4.5% for the quarter, with our average check increasing 4% and traffic up 0.5 points. By month, comparable sales increased 4.8%, 4.7% and 4.2% for April, May and June respectively. On the margin side of things, restaurant margin profit dollars increased $10.2 million, or 20.4% versus the prior year. Restaurant margins on a percentage basis increased 91 basis points for the quarter compared to the prior year. While we continue to lose some leverage on cost of sales with food inflation of just under 7%, we were able to generate leverage in labor, rent and other operating costs as a 4% increase in average check combined with a 0.5% increase in traffic offset inflationary pressures in these areas. Below the restaurant level line, G&A came in lower than anticipated as a result of the expenditures relating to our managing partner conference coming in $1.2 million lower than last year.

Moving to our balance sheet and cash flow. Our cash and debt levels at the end of the quarter were similar with the first quarter as we ended the quarter with $77 million in cash and $52 million in debt. Through the second quarter of the year, we have generated $17.7 million of free cash flow compared to $27.3 million last year. While cash flow from operations has increased this year, so have our capital expenditures, driven by more openings as well as more CapEx being spent on existing restaurants. During the second quarter, we paid out our second quarterly dividend of 2012 which, if you recall, our board increased to $0.09 per share this year from $0.08 per share in 2011. We did not repurchase any shares of stock during the quarter, so we had $100 million still available under our board authorization.

Looking at the remainder of 2012, we moderated our comparable sales assumption for the year to be up 4% to 4.5%, which is at the lower end of our previous range of up 4% to 5%. We also slightly moderated our food inflation assumption to be at the low end of our previous range as we are now estimating -- now anticipating approximately 7% food inflation for the year versus 7% to 7.5%. These two items combined with better performance in the second quarter led us to increase our estimate for GAAP diluted earnings per share to $0.94 to $0.96 from our previous range of $0.91 to $0.93.

With regard to comparable sales, comp sales for the first four weeks of the third quarter are up 5.5%. This does, however, include a benefit from the timing of the July 4 holiday as it fell on a Wednesday this year as compared to Monday of the prior year. We estimate this positively impacted July's 5.5% comp by 1.5% to 2%. Our current comparable sales assumption includes being flat to up about 1% in traffic for the back half of the year. We expect our year-over-year average check growth to be more like 3% in the third quarter and 2.5% in the fourth quarter versus approximately 4% in the first half of the year, as we have overlapped more of last year's pricing actions. This will make it more difficult to gain margin leverage. In addition to this, there are a few credits in labor we will be overlapping in both the third and fourth quarters of about $600,000 per quarter. While it could be tough to leverage margins in the second half of the year, for the full year it is possible that overall restaurant margins could be flat compared to the prior year.

Final item I will mention for 2012, is we did increase our estimate for capital expenditures to approximately $90 million for the year from our previous guidance of $80 million to $85 million. We've seen an increase in capital expenditures associated with remodels, room additions and general maintenance on existing restaurants as we have encouraged our operators to spend in these areas. We believe that maintaining our assets is an important part of staying relevant and are pleased to see the slight increase.

I will end the financial summary with some thoughts on 2013. First, it is too early to provide a realistic estimate as to what next year's food cost inflation might be. We have started the process of meeting with our suppliers, and while we do expect to experience food inflation next year, it is just too early to provide an estimate. As we get more clarity, we will update you on our next call. We are testing some menu price increases right now and will continue doing so. And as we've done in the past, we will continue balancing short-term pressures with our long-term positioning.

And lastly, 2013 will be a 53-week year for us. As such, the fourth quarter of 2013 will have 14 weeks versus our normal 13. We anticipate that the benefit of a couple percentage points from the extra week will be largely offset by increased spending on our 2013 managing partner conference which is being held in Hawaii and marks our 20th anniversary. And with that, I will turn the call over to our President, Scott Colosi.

Thank you, Price, and good evening, everybody. We continue to be pleased with the direction of our business and our opportunities for future growth. As Kent mentioned earlier, our new restaurants continue to perform well on the top line. As of today, we are over halfway through our development plan for 2012 with approximately eight restaurants remaining to be open in the year. Furthermore, our plan for 2013 is right on track with at least 25 restaurant openings in the pipeline. It is also important to note that our development costs remain in line, thereby keeping our internal rates of return into the mid to high teens range. It is something we are very pleased with.

In addition to our domestic openings this year, we continue to make headway on the international front. After opening our first international franchise restaurant about a year ago, we expect our franchise partner in the Middle East to open a few more this year with more planned in 2013. On top of what is going on in the Middle East, we are working with a potential partner in Canada and may open our first Canadian joint venture location sometime in 2013. On the financial side of things, our balance sheet remains very strong, and we anticipate we will continue to generate significant free cash flow. In addition to evaluating new development opportunities, we plan to continue to return excess cash flow to our shareholders through consistent dividends and opportunistic share repurchases. In June, we paid our sixth quarterly dividend representing $0.09 a share, which is a 12.5% increase from where we started a year ago and represents about a 2% yield today. Our board will continue to review our dividend payout policy in conjunction with the growth in our cash flow.

Overall, we definitely feel very good about the state of our business. We're maintaining good discipline around our growth as it relates to identifying sites and hiring great people, and we are growing at a rate that is right for us. We will continue balancing our growth and staying focused on our people, always keeping in mind that we are a people business that serves steaks. We'll also have short-term pressures like we're experiencing now with commodities, just as we did a few years ago with all of the minimum wage rate increases. And just like we did back then and are doing so this year, we will manage through it and we will balance short-term pressures with the long-term brand positioning. We remain committed to this balanced approach and believe it is important to our continued success and our ability to create value for our employees, our guests and our shareholders. That concludes our prepared remarks. So Cameron, please open the line up for questions.

Thank you. (Operator Instructions) We'll take our first question from John Glass of Morgan Stanley.

Thanks. Just a couple of questions, maybe just first on the outlook of the consumer environment. I presume you were more cautious -- you were slightly more cautious view on sales is related to the traffic tranche you experienced this quarter. Can you maybe just elaborate on that? Did you see it happen throughout the quarter? Was it a little more recently as we've seen? I know you reported the full comps, but maybe you can elaborate on that. And also, what is explicitly, if you said it, I missed it, I apologize. What is the explicit pricing factor, it was in the mix or the check this quarter?

Okay, hey John, it's Price. As far as traffic for the quarter, it was fairly consistent, although it did get a little lighter throughout the quarter. We were up 0.8 points in April in terms of traffic, up about 0.5 a point in May and then up a 0.2 a point in June. So, they get a little softer, but pretty consistent throughout the quarter. And then the second question, with regard to check for the quarter, it was up -- check was up 4%. Overall, our average price increase was about 4.1%. So, we did have a little bit of negative mix, about 0.1 point of negative mix.

And I know you do not want to talk about or you can't talk about food inflation in '13 versus '12, but I wonder if you could characterize the conversations you are having with vendors now? Are they as perplexed as maybe the rest of us are about how this inflation is going to impact them? Would it be fair to say, directionally, at least, do you think inflation will be greater than '12's or less? Or is there anything even just directionally you can point us to on food inflation?

In general, we do expect it to be -- we do expect to have inflation next year. Really too early to know if it is going to be more or less than it is this year. But the general consensus is, and we believe it too, that you're going to have some inflation on the protein side. There are a lot of factors that come into play. In addition to decreased herd sizes, you have got a lot of other factors such as what is going on with retail demand, what will the corn yield be for this year, what is going on with exports, the value of the dollar. So there is a lot of -- just a lot of unknowns in general. But I think it is safe to say that we do expect there to be some inflation next year. And like we did last year and like we are doing this year, I think we will continue -- we feel confident we'll continue to balance the equation.

All right, good. Thank you.

We'll take our next question from Jason West with Deutsche Bank.

Yes, thanks. Could you guys give us what the pricing number would have been in the July comp and when that 1% rolls off, exactly?

The 1% rolls off -- just over 1% rolls off in July. I'm going to see if I can get you -- the check, Jason, for July, was up 3.5%.

Okay. And that was pretty much flat mix in there?

Yes. Close to flat mix. So, we had started -- last year our pricing increase rolled out throughout the month of July so that by the end of July we'll have about a little over 3% in our menu.

Got it. Thank you for that. And then just on the cost of goods sold line in the quarter, it did come in a bit better than us. I'm not sure if that line was better than your internal expectations, but if you talk about -- is there anything from like a timing standpoint or you were able to manage waste or other areas that kind of offset some of the inflation? Because that was a bit better than we would have thought on a 7% inflation number.

Good question, Jason. It came in actually a little better than we expected as well. Part of that is, as Kent mentioned, our operators are doing a very good job at managing costs in a high-inflation environment. And part of that is a little bit of menu mix within the entree category. We're seeing a little bit of a skew towards higher gross margin percent items, that's helping on the food cost percent as well.

So some of that is sustainable, but then you lose some pricing in the back half. And it sounds like the inflation will be similar in the back half as it was in the first half?

That's true.

Okay. Thanks a lot.

Thank you.

We'll take our next question from Brian Bittner with Oppenheimer & Company.

Thanks very much. So, your earnings guidance assumes a much different trajectory in the back half of the year versus the first half, and I'm assuming the majority of that is the less leverage on the restaurant margin that you kind of alluded to previously I guess as pricing rolls off here in the second half. But is there anything else? Can you go into the dynamics of the second half guidance a little bit further? Is it just pricing rolling off, is that really the only thing that's really going to be pressuring the margin versus the kind of expansion you saw in the first half? Or what is the other dynamics at work?

Brian, it is largely in regard to -- with regard -- it is the pricing. And of course the traffic, because the back half of the year assumes a traffic range of flat to up 1%, which if you are on the lower side of that, is lower than we've done in the first half of the year. We will have a couple of -- within the labor line, we have got a couple of credits that were overlapping from last year. But the biggest impact is in terms of just having less check in the back half of the year and the pressure that puts on restaurant margins.

Now, when will the decision be made whether or not to take this incremental pricing that you are testing now? Is that something you are testing for 2013, or is that something you are testing to implement rather quickly to offset some of the price net rolls off in the second half?

Brian, this is Scott. This is something -- it is all about 2013 at this point. If we were to do anything, it would be very late this year or into next year. We're totally moving on to 2013 at this point from a menu pricing perspective.

Got it. Just to be 100% clear, there is not optionality to take a little bit more price in the second half?

No. If we do anything, it will be late in the year, totally addressing 2013 inflation.

Got it. Thanks very much, guys.

We'll go next to Jeff Omohundro with Davenport & Company.

Good evening. Circling back to John's question, perhaps in a little different way, when you think about herd size, heifer retention, some of the longer-term dynamics in the beef complex, maybe share with us some of your thoughts about how the Company approaches it beyond pricing and certainly as a value leader, I believe anyways, that you have more pricing power. But are there thoughts, do you explore areas in terms of the protein composition in the meat, in the mix that you are running or are there other avenues? Thanks.

Jeff, this is Scott, we are very protective of what we have got on the plate. We are going to continue to be very protective of that. And if anything, we challenge ourselves internally on increasing the quality that is on the plate versus going in any other direction. So, we are fully prepared to deal with inflation as it comes.

Certainly we've looked at other lines on our P&L. We look at other things that we buy that are non-food related, and can we buy those more effectively? We challenge ourselves in how effectively we schedule and utilize our labor. We are doing a lot -- like a lot of companies do, on buying energy in our system. But we are not going to touch what is on the plate. We are going to continue to put pressure on our competition and give our managing partners a great value to provide our guests, longer term. That is what has worked for us forever, and we are sticking with that formula.

Thank you. And Price, just a follow-up, on the capital spending and the little higher remodeling costs, as we model out CapEx into 2013, is there any reason for the stepped-up rate not to continue?

No, no reason to -- no. I think it will continue to be in probably that $20 million to $25 million a year range for the short-term on the maintenance CapEx side.

That's helpful. Thanks, have a good evening.

We will go next to Will Slabaugh with Stephens.

A couple of quick ones. Wonder if you can give an update on the menu mix trends. I know last quarter you talked about you had been losing about 0.5% or so to alcohol mix, maybe making up a little bit of that through the porterhouse, the new menu flap. Anything to add there, or things you have been looking at doing differently to impact that number? I know you mentioned it was roughly flat this quarter, so curious on the benefits there?

Yes. No, Will, it's still -- what we are seeing is -- you're exactly right, seeing a little bit lower alcohol incidences, which is something we've seen for five or six years, basically, been a little bit of a headwind for us. And we have continued to make it up in really three areas. One is we still getting the benefit year-over-year from rolling out our bone-in rib eye throughout 2011. Secondly, we added the porterhouse -- 23-ounce porterhouse to our menu with our rollout in February, so we saw a full quarter's benefit of that. And then, as you mentioned, the pictures we added to the menu with our February rollout also are benefiting us a little bit. So, the big difference is in the first quarter we were down, I think it was about 0.3 in menu mix versus only being down 0.1 this quarter. And the biggest difference is we had a full quarter's worth of both the porterhouse and those pictures on our menu.

Got you. And if I could hit back on guidance, digging in just a little bit further there. You mentioned pricing already, but on traffic, that is positive in the quarter, which is impressive in this environment. But any thoughts around that trajectory, which did come down just a little bit from last quarter and how you are looking at the traffic driving environment for the back half of the year?

We've basically -- traffic is the biggest unknown in our business, so we basically said, hey, our guidance incorporates back half of the year traffic being flat to up one, which we think is reasonable when you look at the trend we've seen, what's happened in the first part of the year and as well as if you look on it on a two year or even a three year trend type basis, we think a flat to one is a reasonable assumption for the back half of the year.

Makes sense, and then lastly from me, on cost in your guidance, even assuming little to no leverage, it is still difficult for me to get down to your guidance, given the flow-through you saw this quarter. Any points in particular on the cost line that you would point us to and say we would definitely see limited leverage here? Or anything that would get us down in that guidance range on cost?

I don't think anything in particular. Do make sure our guidance is GAAP basis so it does include the $5 million charge that we had in the first quarter that we recorded in G&A. And then the only unusual item, if you would, that comes to mind is within our labor category where we talked about, we'll be overlapping a couple of credits each quarter to the tune of about $600,000 per quarter.

Got you. Thanks, Price.

We'll go next to John Ivankoe with JPMorgan.

On -- I forget what you call them, bump-outs, I guess, of the restaurants that you have, at least in my notes, we show that you are doing 25 to 30, if that is still right. And I was curious as to what the sales less experience has been maybe in the 2011-2011 class and what kind of an opportunity you may have to continue that in the system into 2013. And I have a follow-up as well.

On the bump-out, John, we are up to -- we've done just short of 90 in total over the last three to four years and actually, we may hit 30 or 35 in this calendar year, is what it is looking like. In general, when we've gone in to add those seats, you're adding anywhere from 26 to 35 additional seats within the restaurant. And we'll see within those restaurants a mid to high single-digit comp lift out of that.

From a financial perspective, it's a no-brainer as far as a return. What we really look for is from an operational perspective, are we changing the flow of the restaurant? In other words, do we have the kitchens operating at capacity so that we can service all of those guests and so that the ticket times really aren't expanding. So ultimately, I think part of your question is how many can we do? Don't know exactly right now. Probably -- we feel good about working towards at least half of our system and adding those extra seats too. And beyond that, do not really know at this point because again, we are going to be very careful of what that does to the overall experience and what you're doing to those ticket times.

And those decisions are primarily operations driven. We look at the operators that are excelling to make those decisions.

Okay. Great. Thank you. And another topic I just -- maybe I haven't asked you in a while or haven't heard you give the answer in a while, what do you guys think about weekday lunch, if anything? Is it in any stores? Is it an opportunity? Is it something that's especially if you were in a challenged -- not for you, necessarily, but an overall macro challenged sales environment, cost environment, might that be an opportunity for you to at least to think about over the next couple of years for some percentage of your system?

I'll take the answer as a short no. Thank you.

And can I ask you to just expand on that? I mean, in terms of just categorically saying it doesn't make sense in any locations as to what the obstacles of that might be?

Sure, I'll answer that. We make our salads fresh right before we open, and we are -- our food is really made right before we open the doors at 4.00. And the last thing I want to do is be like a lot of our competitors and have the food sitting there during the afternoon kind of not being as quality as it would be at night. And so I would like to not go down that road. And we would like our guests to eat at our competitors for lunch and then come to us for dinner.

Okay. Thanks for the answer.

We'll go next to Jeff Farmer with Wells Fargo.

Great, thanks. Just wanted to follow-up on some of the earlier questions. Really, first up is on some of the pricing. Was almost 4% menu pricing in the first half of the year, was that evenly spread throughout the menu? And then based on that answer, any lessons to be learned as it relates to potential pricing in 2013 in terms of things like elasticity across food, beverage, et cetera?

Jeff, this is Scott. Yes, the most recent price increases we have taken have been much more spread across the menu than we had prior to that. And that's going to be a continued strategy for us going forward. That said, we are always going to be very protective of our value price points, those price points that are below that $9.99 threshold, we're going to be particularly protective of those price points. And again, to maintain and to even strengthen, if you will, our competitive positioning as we see some of our competitors move a bit beyond that $9.99 price threshold.

Okay. That's helpful. And then coming back to traffic, it looks like according to my model, at least eight quarters of at least 2% traffic growth. And obviously, you finally slowed down here in the second quarter. But do you attribute the slowdown there to your own price increases, some of the increased promotional activity that's going on out there? Or even just a broader industry deceleration, if you had to earmark it.

Jeff, this is Scott. We do not even really think about it that way. One quarter does not have us rethink anything that we are doing. We look at it very long-term. Some quarters your traffic is up two, some it's flat, some it might be down one, some it is up three.

I think it's -- we just know if we continue to execute our mission statement, legendary food, legendary service at a very high level, that we're going to get new people in the door, we're going to keep those folks, we're going to keep people coming back into our restaurants. And we can't afford to mess around with the formula or deviate from the formula and that is what is kind of -- has kind of kept us going through all of these years and it is the reason we believe our average unit volumes are approaching 4 million and we are continuing to go down that road. And not try to over think a quarter where our traffic maybe as little bit less than it was in the prior eight.

And then final question for me and I don't know if there is an answer on this one, in terms of the sales mix, you have the early dine option out there. If things get more difficult for the consumer from an environment standpoint, do you tend to see that as a proxy for that, so do people sort of shift from sort of a typical dinner hour to that earlier -- early dine transaction for you? Do you see that happen in a rotation to early dine?

Jeff, this is Scott. We do not see that happening and we do not expect it to happen.

Okay. Thank you.

We'll go next to Jeffrey Bernstein with Barclays.

Great. Thank you very much. A couple of follow-ups, first on the pricing front. It sounds like there was no real pushback, at least on the 4% you've been running most recently. I know you had mentioned testing a little bit less than 2%. As you consider '13, just wondering if you saw the inflation levels at the 7% into 2013, whether there is any issue with -- whether maintaining that 4% would be realistic, or is there something that tells you 4% was a one year thing in '12, it's not likely to sustain into '13, even if the inflation is at that level.

Jeff, this is Scott. The 4% that we ran in the first half of the year was definitely an anomaly for us, and it was really more around the timing of when we took pricing in 2011. And so we had some number of months where we happened to have some pricing overlap. Generally, we're more around the 2%-ish annual pricing historically, and so we would expect to see something like that in 2013. I would struggle to see us doing a whole lot more than that for competitive reasons. And we are just going to focus harder on the cost structure and the efficiency opportunities that we had, legitimate ones that we have, in either the way we buy things or the way we run our restaurants.

Got it, and just the (inaudible) basket, or I should say the overall commodity basket, I think was up 7% for this year. Can you give any insight on what -- obviously, the protein is the biggest driver of that, what levels the proteins are roughly running for this year within that 7%?

Jeff, it is Price. Proteins for us, specifically if you are talking beef and pork, which are larger protein items, they are up double-digits for 2012.

Okay but we have -- you haven't ever narrowed that down, that double-digit, 10, 15, 20, or anything like that?

No.

Okay, and then just lastly, you mentioned the competitive environment on a couple of occasions and managing that $9.99 price point and what not. Seems like there has been an uptick in steak promotions despite the beef inflation, which has been somewhat surprising. But can you give us an update on the competitive environment? I know you're obviously focused on your own business, but are you surprised to see the increased competition around the steak category, or are you seeing any impact to your business?

I like -- this is Scott -- I like seeing people talking about steak on TV. I think it gets people thinking about steak, and all of those people want to come to Texas Roadhouse. So, I think that helps us in the long run.

But are you -- you think you are seeing that increased competitive environment around it, or is it just coming and going, but not like there is a meaningful uptick in that?

I would say it is just a coming and going.

Great. Very helpful. Thank you.

We'll go next to Conrad Lyon with B Riley & Company.

Hey, guys. Another question about '13 and the cattle herd. It is not so much price inflation that I'm concerned about but quality of beef. You hear stories about what ranchers are feeding their cattle. How do you think about that? Is that a concern, and might you have to pay up to get it --to maintain the quality that you are known for?

Conrad, it is Price. Part of that will be -- also, you have got to think about what will retail market bear, I think is part of it. So, direct answer to your question, do not really know. We did see something the other week where one of the major packers was actually importing feed from another country at this point. Don't know what that tells you other than the fact that maybe they are committed to continuing to try and have quality feed for the cattle. Don't know. But there is really just so many factors out there right now.

Yes, sure. Got you. Let me shift topics toward things like manager at the door or just managing traffic better. How is that playing out? Is that -- have you seen gains or any aid from that?

Well, Conrad, this is Scott. I think all of the key elements of what our operators focus on, I think you see the results in that we've been able to continue to grow sales year after year. And we have got quite a big GAAP versus the competitive averages over time for many years. Cumulatively, they've added up to a pretty substantial difference between our average volumes and those of most of our competitors. When we look at it as a whole package, everything needs to come together. It is a team effort, front of the house and back of the house, so from the door to washing dishes, the whole bit. It is a whole package of our people, and that's the way we really look at it.

Got you. Okay. Fair enough. Just a housekeeping, Price. Remind me, what was the impact in July? I think you said 1% to 2%, is that right?

It is about 1.5% to 2%, and that was from July 4 holiday moving from a Monday to a Wednesday.

Monday -- okay.

There was a benefit there.

Okay, so we are looking at what, like 3.5%, 4% ex- the 4th, right?

That would be right.

Got you, okay. All right, thank you very much.

We'll go next to Larry Miller with RBC.

Yes, thanks. I just had a question. If food costs are up again next year in 2013, is there anything you can do from a promotional standpoint or a mix shift standpoint? Is that anything you are considering that might help you alleviate some of that pressure?

Larry, this is Scott. We've traditionally run the business in a very consistent manner. We've got great value, everyday value on the menu. We've had a lot of success adding some of the larger steaks like the porterhouse and the bone-in rib eye, and we're going to stick to that same strategy of having a lot of value on the plate. We are not going to mess with the food, the portion sizes of the food, we're not going to mess with our labor standards, and we're just going to continue to go execute at a very high level of consistency and quality.

Okay. That was even, again, from maybe menu inserts, just to direct people around the menu?

This is Kent. I would say on our menu test we have tweaked the menu a little bit. Where things are positioned, and we're going to see how that changes our pre mix.

Okay, great. And then Scott, you mentioned some cost structure opportunities, the first time I think I've heard you guys really talk about that. Is that significant? Can you give us a sense of what you guys maybe are working on?

I don't know if I would use the word significant, but it is a lot of little things. I don't want to give too much away at this point, but there are a number of smaller items that when we combine our purchasing power together for some of these items, we believe we can generate some nice savings for us. And none of these are guest-facing items, so we are pretty comfortable tweaking the way we purchase some of these items throughout our system.

Okay, thanks, guys.

We'll go next to Keith Seigner with Credit Suisse.

Thanks, just a couple of questions. Scott, with CapEx spending on the existing store base going up a little bit, and it sounds like some if it is for bump-outs, if you'd just talk a little bit more about maybe where the money is going, what opportunities there might be, other things that you've thought about in terms of that spending? Just some more color on where the increased CapEx is going?

Well, yes, we've been, between Price and myself particularly, strongly encouraging the operators to spend money to maintain or improve the look of our restaurants, the functionality of our restaurants, whether that is replacing aged kitchen equipment, computer equipment, whether that's redoing landscaping, bathrooms, reskinning the restaurants, fixing parking lots, building siding. Whatever those things are, we want our folks to be pretty aggressive in making sure that we have got a very high standard in the way we keep the building to the way Kent designed the building originally.

So, typical restaurant systems, folks do not want to spend a lot of money generally on the assets as they age. And we've got a lot of restaurants in our system that are hitting sort of a 10-year mark, which is the mark that we believe our folks really need to be making sure that they fixed everything that needs to be fixed and kind of reimage the restaurant if it needs to be re-imaged to a way that is consistent with our look.

So, this fulfills that need, and there is not some imminent larger scale remodel program coming?

No, that's the idea. We don't want to let the guests form a different perception of our concept as tired or stale or something like that. And we budget for all this spending in all the pro formas that we do for all of our new restaurants. We expect to spend the money, and we continue to voice to our operators the need to spend the money.

One more question, actually. It is more of a housekeeping thing. So, you reiterated the guidance for 25 Company-operated unit openings this year, I think you said something about eight more. Were there two already opened this quarter that I missed? How should we think about that 20 --

Yes, that's right. We've had -- we had two open yesterday -- no, last week. A week ago Monday, the two opened since the end of the quarter, so we're at 17 now. And so we've got approximately eight more to open the rest of the year.

And we have got another one that opens in two weeks.

One more question for me then, just to really pound the beef cost issue. So, people we've been talking to have been saying that the vendors are really reticent to sign contracts and that the premium that you have to pay to get a contract right now is wide, if not wider than ever. Does it seem like that is the case to you? And as you go into the end of the year and you think about contracting, does this increase maybe your willingness to float on some of the beef? I know you have been doing something like 25% lately, but if the premiums really are high and stay high, will you float more into next year?

This is Scott, that very well could be the case. It is something that our purchasing folks are going to consider and like they've considered the last few years. When you have more volatility in the marketplace like we've had, everything you've said is true. Some of the packers, when you are sitting here in July and you're looking at a contract for January to December, they are going to charge quite a bit of a premium because they have got to cover their risk on their side. So, as the months roll on, usually you come up with opportunities that you can lock in some product with hopefully less of a premium. And if you can't, then you do have to consider floating some product, and we've done variations of that the last few years.

Okay. Thank you.

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

Hi, good afternoon. Just a couple of questions related to topics you've already discussed. But I wanted to revisit the question about the traffic trends slowing a little bit and ask if there is anything that you are doing on the consumer research side or the consumer feedback side about your value proposition and whether you think anything has changed following the price increases that you've taken over the past 12 months.

David, this is Price. We haven't done any official research, if you will. Of course, we look at some things we've talked about. We look at our traffic trends, we look at what is going on with menu mix as well. See if people are starting to trade off. We are not seeing the trade down to cheaper items per se. And our traffic trends overall have bounced around a little bit, but I would say in general have been pretty consistent, if you back out the impacts of the positive -- the positive impact of weather in January and February. They have been in a fairly consistent range throughout the year.

We've also -- typically, we've done a pretty big usage study every three years, and so that three years is coming up here later this year, so we'll probably work on something sometime in the fourth quarter, I would imagine. And that we would have a better idea of it early next year. Traditionally in those, we haven't seen much change at all in the consumer's perception of our concept, the value, our strengths and opportunities.

Okay. That's helpful. And then maybe a follow-up to that. Just wanted to ask how you're thinking kind of philosophically about the price increase as you enter next year? I know you have the tests of the close to 2% going on, but as you think about the macro environment, if you were to see traffic continue on this flattish to slightly positive level or even decelerate a little bit into slightly negative territory, would you think about the pricing more conservatively in that scenario? Or are you committed to taking some pricing to address the inflation?

David, this is Scott. You know us very well. We are going to think hard, very hard, about what we are going to do. And as always, Kent will be talking to all of our operators about what they are comfortable doing. It is very much a team effort on what we do or do not do and all of us together living with those decisions. So, we'll definitely be talking as a team as the year goes on and balancing the amount of inflation we think we're going to have with the traffic and with the pricing.

Okay. Makes sense. Thank you.

We'll go next to Chris O'Cull with Key Bank.

Thanks. Good afternoon. Scott, how many locations planned for next year have signed leases already?

Let's see here. For next year, we've already got eight stores that are already in permitting or been fully approved. Actually, one of them just started -- or is going to start construction next week.

We have four in due diligence on top of that.

Yes, and four in due diligence on top of that, and so we're pretty far along.

Yes, we are negotiating the balance of those stores that we plan to open next year. I'm actually already looking at 2014 sites.

Okay, great. And then how did you guys decide on the amount of the price increase to test?

This is Scott, it's historically around that 2% is what we've been comfortable as a management team and our operators comfortable in taking at any given time on the menu. There are exceptions or have been exceptions in the past, both to go higher. Some cases through minimum wage increases, some cases to not go as high, depending upon what our commodity situation is, the competitive environment, the overall economic environment with the consumer. But that 2% level is a level that we've been comfortable believing that would enable us to still be very competitive in the marketplace. It is also what we see most of our competitors doing, in that range. A lot of them will come out and state 2% to 3%, some will say 1% to 2%, 2%-ish, so we feel very comfortable that is a good place for us.

Okay, and then lastly, Price, I don't know, were there any geographies that varied in terms of same store sales performance during the quarter, either strongly outperformed or under performed?

Not materially. I would say in general the northeast has been softer for us for several years, and it was the case. But all areas of the Company were up and positive in sales.

Great; thanks guys.

We'll go next to Peter Saleh with Telsey Advisory Group.

Great, thanks, just wanting to ask about the new unit openings for 2013. Should we expect them to be a little more balanced like they are this year with the almost 50-50, or is it going to be more back-end weighted? How should we look at the cadence for next year?

This is Scott. We are getting pretty far along. So, they could be pretty evenly weighted throughout the year like it is this year, potentially.

Yes, I would say you'll have more evenness between third and fourth quarter next year than you have this year.

Okay, great. And then just on the marketing side or advertising, anything different that you are doing this year or anything that you plan to do over the next couple of quarters that may be just different from what you've done in the past?

Not that we would be willing to say publicly, for competitive reasons.

Okay. Thank you very much.

We'll go next to Steve Anderson with Miller Tabak.

You guys mentioned 2013 expansion plans. Right now you are looking at 25 for this year, did you mean to imply that you are looking at the same level of new unit development for next year or do you think you can bump it up by a few extra units above that 25?

Well, so far we've said at least 25 for next year. So, you can count on us for 25 and probably in our next conference call in three months we'll give you more guidance on maybe a narrower range of what that number might be above 25.

Okay. Thank you.

We'll go next to Phillip Juhan with BMO Capital Markets.

Thanks, guys. Just wanted to ask about G&A. Price, you had mentioned the additional spend on the operator convention in 2Q '11, and so that benefited you guys 30 or 40 basis points this year. Ex that benefit, G&A is roughly flat. Is that a good way to think about that in the back half of the year, sort of flat G&A on -- as a percent of sales? Thanks.

Hopefully we could get flat or possibly a little bit of leverage in the back half of the year. Generally speaking, on a longer-term basis, we hope to grow G&A at some percentage of our revenue growth, and we look at it as if we can get low double-digit type revenue growth and then grow G&A, say 70% to 75% of that, that works well with our model. But specifically on the back half of this year, hopefully we'll get a little bit of leverage.

Okay. Thanks, Price.

Thanks.

At this time we have no further questions in queue. I'll turn the call back to our speakers.

All right, well, thank you guys for joining us this evening, and if you have got any questions, feel free to call any of us back. Thanks, and have a good night.

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