Texas Roadhouse Inc (TXRH) 2012 Q4 法說會逐字稿

Good evening and welcome to the Texas Roadhouse fourth-quarter 2012 earnings conference call. Today's call is being recorded. All participants are now in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions )

I would now like to introduce Mr. Price Cooper, Chief Financial Officer. You may begin conference, sir.

Thank you, Joyce, and good evening, everyone. By now, everyone should have access to our earnings announcement for the fourth quarter ended December 25, 2012. It may also be found on our website, at texasroadhouse.com, in 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 earnings release and 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 will provide a financial update; then Scott will provide some insights on our performance and business direction. Afterwards, we will all be available to answer any questions. Now I'd like to turn the call over to our Chief Executive Officer, Kent Taylor.

Thanks, Price, and good evening, everyone. I'm pleased to report that we finished 2012 with strong revenue and earnings growth. Our operators continue to do a great job building sales, providing a legendary dining experience for our guests, and maintaining margins in the face of high beef costs.

During the fourth quarter, comps increased 4.4%, leading to our second straight year of 4.7% comp sales growth. And 2012 was our third consecutive year of positive comp sales and positive traffic. Additionally, over the same three-year period, we are pleased that we have been able to increase our diluted earnings per share by just under 15%. That's awesome.

On the cost side of things, beef will again be a headwind this year, as it was in 2012, but we expect beef costs will be up another 15% or so this year. We have locked in prices on over 80% of our beef needs for the year, so we feel like we have good clarity around food cost inflation. In response to some of the inflationary pressure, we implemented a menu price increase of approximately 2% in early December. As part of this rollout, we added the 23-ounce Porterhouse steak in the remaining two-thirds of our restaurants. We believe this provides additional variety for our guests willing to spend more money.

On the development front, we expect to increase the number of restaurant openings for the third straight year. We continue to have a solid runway for unit growth, and we will continue to focus on developing domestic Texas Roadhouse restaurants and building our international pipeline to provide opportunities for our people and increase value for our shareholders. Domestically, we will be entering a few new markets for 2013, including Alaska and Oregon; while on the international front, we anticipate opening as many as four more locations.

Finally, I would like to note that our holiday gift cards season, which runs through November and December, was a big success again this year with over $52 million in gift card sales, an increase of 21% compared to last year. So I want to give a big shout out and a big yee-haw to our people that made that happen. Yee-haw. Now, Price will walk you through our financial update, and then Scott will provide some additional comments.

Thanks, Kent. During the review of the quarter, many of the numbers I mention are included in the schedule of supplemental financial and operating information included in the press release. Our fourth quarter, and thus 2012, results came in better than we had expected, primarily due to better-than-expected sales and slightly lower food inflation.

In the fourth quarter of 2012, revenues increased 11.9%, as a result of an 8.7% increase in store weeks, and a 3.5% increase in average unit volumes. Net income was $13.9 million, or $0.19 per diluted share, which represented a 12% increase from last year. For the year, revenue increased 13.9% and net income was $71.2 million, or $1.00 per share, representing a 13% increase over 2011.

For the fourth quarter, comparable sales growth continued to exceed our average unit volume growth, increasing 4.4%. This was comprised of an average check increase of 3.1% and traffic growth of 1.3%. By month, comparable sales increased 2.9%, 4.3%, and 5.5% for October, November and December, respectively. It's worth noting that December comps were positively impacted by 1.5% to 2%, resulting from Christmas occurring on a Tuesday in 2012, as compared to a Sunday in 2011.

On a dollar basis, restaurant operating profit increased 16.8%, or $7.8 million year over year for the fourth quarter, and 16.2% for the year. Each of these was higher than our sales growth of 12% and 14%, for the quarter and year, respectively, as we were able to leverage margins. All in all, we were able to leverage overall restaurant margins by 74 basis points for the quarter, compared to the prior year; and for the year, margins expanded by 37 basis points.

Margin expansion for both the quarter and the full year was driven by leverage on the labor and other operating cost lines, also by deleverage on cost of sales, as inflation out paced our pricing actions. Food cost inflation came in at 6% for the quarter, leading to approximately 6.5% food inflation for the year. Beef was the main driver of our inflation, and we expect it will be for 2013, as well.

On the labor and other operating lines, we were able to generate leverage most of the year. The timing of openings and impact from being largely self-insured on some of our insurance programs, including workers compensation and general liability insurance, created some timing differences; but overall, we were able to leverage each of the lines for both the quarter and the full year. We believe this will be the case in 2013, as well. However, much will depend on comp sales, particularly as it relates to labor, given we will likely have less year over year pricing in our menu in 2013, as compared to 2012.

Looking at costs below the restaurant level line, G&A came in a little bit higher than we had originally forecasted for the quarter. A large part of this was driven by performance-based bonuses, as a result of our stronger overall profitability for the year. For the year, reported G&A was up as a percent of revenue, as a result of the $5 million legal settlement charge in the first quarter. For 2013, we expect to leverage reported G&A.

Shifting over to the cash flow and capital side of things. During the fourth quarter, we deployed some of our excess capital as we repurchased 1.8 million shares of stock for $29 million and spent another $4.3 million to acquire two previously franchise-owned Texas Roadhouse restaurants. Despite these cash outlays, we ended the year with $82 million in cash, as we generated additional cash from the gift card sales that Kent mentioned in the fourth quarter.

As we move forward, we will continue to evaluate opportunities to deploy some of our excess capital toward dividends and share repurchases. In fact, in conjunction with our fourth-quarter release, our Board authorized a 33% increase in our regular quarterly dividend payment, to $0.12 per share from $0.09 per share last year.

Looking ahead to 2013, while we did not provide a specific range for earnings expectations, we reiterated many of our expectations from the prior quarter and dialed in on a few others. We still expect positive comparable restaurant sales growth and continue to plan for approximately 28 company restaurant openings.

Based on over 80% of our beef costs being locked, we now estimate food cost inflation of 6% to 7% for the full year, compared to our previous range of 5% to 8%. We did lower our expected income tax rate in conjunction with the retroactive reinstatement of the WOTC program and the extension of this credit through 2013. As such, we now estimate our tax rate will be approximately 31% for 2013.

A few other things to point out, timing wise, for the year. First, we do expect our development schedule to be back-end weighted. As such, we expect that up to two-thirds of our openings will occur in the second half of the year. Secondly, I want to remind everyone we expect the cost of our annual managing partners conference, which is in the second quarter, as it was last year, will be approximately $2.5 million higher than in 2012, as we will be celebrating our twentieth year anniversary in Hawaii, where airfare alone will be quite a bit more expensive. It's somewhat fortuitous, as this occurs in a year when we have 53 weeks, as the higher cost practically offset the benefit of the extra week in the fourth quarter of 2013.

Finally, our first-quarter income tax rate will be lower than the rest of the year, due to the impact of the retroactive WOTC adjustment. We expect the first-quarter rate to be approximately 29%, compared to our expectation of 31% for the full-year rate.

As we have done in the past, we will continue to focus on driving traffic and maintaining our position in terms of food and service, and we will continue investing in our restaurants. During 2012, in addition to incurring $14 million of repairs and maintenance expense that directly hit our P&L, we spent another $29.5 million in capital expenditures on things such as maintenance CapEx, remodels, and adding seats in restaurants. We will continue making this investment, as taking care of our assets is part of taking care of our business.

As Kent mentioned, we did take a 2% price increase in December to help offset some of the expected inflation; however, even with this amount of pricing, we anticipate margin will be under pressure. In terms of sales, for the first 55 days of the year, which goes through yesterday, comp sales have increased approximately 2.2%. Comp sales have been a little choppy recently. Our January period sales were up mid single-digits, while February period sales have been down a few points. Fortunately, the net of the last two weeks has been positive.

We continue to remain focused on things we can control, like providing legendary food and legendary service. As we overlap some of our toughest comparisons from 2012 with positive comp sales, we remain confident in our ability to drive positive sales going forward.

Lastly, let me comment briefly on the fact that we did not provide a specific EPS range for the year. Being an 80% company-owned system, small changes in assumptions can have a very meaningful impact on our annual earnings. While the impact on cash flow is much smaller in percentage terms, assumptions can meaningfully impact EPS. Thus, it is generally difficult for us to provide a meaningful range of expectations for EPS, because things like traffic and, to a lesser extent, food inflation, can greatly impact annual results.

For instance, a1% change in traffic equates to a little over 5% change in EPS; and even a 1% change in commodity inflation can have an approximate 4% impact on EPS. So our objective is to provide you with our expectations for the things we feel we have more clarity around, such as the number of openings we expect, what we have done from a pricing perspective, the tax rate, and a range on food inflation.

With that said, we expect to drive positive traffic, year in and year out. In general, we believe that if traffic is flat to up 2%, we can drive positive EPS growth likely in the range of a low single- to low double-digit increase over 2012, although this will somewhat depend on food inflation and does not assume any additional pricing actions for this year. And with that said, I'd like to turn the call over to our President, Scott Colosi.

Thanks, Price, and good evening, everybody. We're pleased with our 2012 results, as we grew diluted earnings per share double digits, while investing in 25 new restaurants, reinvesting in and taking care of our existing restaurants, and returning $54 million in capital to our shareholders in the form of share repurchases and dividends. And heading into 2013, we will remain focused on doing the right things for the long-term success of Texas Roadhouse.

As Kent mentioned earlier, we see a healthy opportunity of growth ahead of us. We expect to open approximately 28 Company restaurants in 2013, and we've already started filling the pipeline for 2014 and beyond. Additionally, our new restaurant returns remain solid, driven by strong sales and development costs that continue to be a few hundred thousand dollars lower than they were several years ago.

On top of growing our core business and continuing to lay the groundwork internationally, we are in the envious position of having excess cash flow and plan to continue returning that to shareholders, which will position us to continue driving long-term shareholder value.

Challenges, whether consumer- or inflation-driven, have and will always exist to some degree; and we will continue to deal with them head on, as we have done in the past. It all starts with keeping our nearly 400 managing partners at the center of our universe. As long as we continue doing the right things for them, they will continue doing the right things for their teams, who in turn will continue doing the right things for our guests, thus keeping us on the path of legendary food and legendary service.

We all look forward to celebrating our 20-year anniversary this year. And thank you to all our operators for continuing to drive Texas Roadhouse forward. With that, we've concluded our prepared remarks. So Joyce, please open the lines for questions.

Certainly.

(Operator Instructions)

Brian Bittner with Oppenheimer and Company.

Congratulations on a great year. Just a clarification question. As far as -- the reason you did not give EPS guidance, is it really because of the uncertainty around traffic? Because it seems as though most of the other things seem like you have a pretty good idea of these other assumptions, like food cost, pricing, unit openings. Is that really the main reason for not doing it this year versus last year?

I would say it's really a combination of a couple things, but with traffic certainly being one of them. It's always hard sitting here this time of year -- any year, be it last year or this year or any year, to be able to provide you guys a meaningful range of EPS, given the fact that we are an 80% company-owned system. And so I think, as I mentioned, small changes in traffic, a 1% change in traffic is 5% for the year on EPS. And even with a tighter range, if you will, on commodity inflation of say, 6% to 7%, that 1% alone is close to a 5% impact on EPS, as well. So, just tough for us to really dial in on a meaningful range.

Okay. And then for 2013, as far as the first quarter, I think you had -- just correct me if I'm wrong -- you had 4% pricing in the first half of the quarter, then it falls to 2%, and if you don't take any more pricing, it's 2% for the rest of the year?

That's correct.

So your effective pricing for the first quarter will be around 3%-ish?

Yes, probably a little bit lower than that, given the fact that we overlap last year's pricing actions in the early to mid- part of February.

Okay. And then last question. You mentioned repairs and maintenance costs that hit the P&L in 2013. Can you tell me what that number was again and compare that versus last year?

This year, it was right at $14 million. Let me get you a number on last year, Brian. Do you have another question while I'm digging into last year's number?

No, no. That's it. You know what? You can give me that later. It's not a big deal, Price. I appreciate it.

Okay. It's $12.6 million last year.

Great. Thanks.

Keith Siegner with Credit Suisse.

First question is on labor. And obviously, the nearly 5% comp provides you a lot of leverage in terms of levering up against that line item. Are there any things going on in labor outside of the changes in insurance and the sales leverage? Were there any actions to try to save any costs there? And similarly, moving into '13, is there any effort there, or is it simply just a function of where the sales end up verses where the insurance claims wind up?

I can tell you, in general, it's simply a function of where the sales end up, and on our unknowns around things like insurance, because we are not looking to reduce service levels to our guests in any way or reduce the level of service we are providing.

Okay. Good. Thanks. My next question is on franchise acquisitions. This is something we used to talk about all the time several years ago. And you know, it's been, what, three years since you've had any acquisitions. Is this something that might pop back up into the scene moving forward? And when you think about these two units that you just acquired, I know they didn't have any impact on the quarter, but how do you think about the impact of those on '13, in the broader scheme of whether or not we will see more of these going forward? Thanks.

In general, as far as the acquisition front, we will look for opportunities where we can negotiate deals with franchisees. We think it's a -- a couple reasons. One, we think it's a good deployment of excess capital when we can make what we feel like are good overall returns on it. And plus, sometimes it can help us from the people and growth side of things, as well. So we will continue to look for those. Don't have any scheduled right now for 2013.

And specifically on these two restaurants, just being two restaurants and the fact that when you acquire these, you have to record some costs on re-acquired franchise right costs that are non-cash, but they do get amortized in over the year. So don't expect any EPS accretion from them this year. But certainly would -- a small amount going forward. And in general, we think it's a good internal rate of return on our cash.

Thanks, guys.

Will Slabaugh with Stephens Inc.

This is J.R. Bizzle on for Will. Congrats on the quarter.

Thank you.

With respect to the consumer trends, and you talked to choppy sales throughout the industry -- or, throughout the quarter. Just wondering if you could talk about how your customers are using the menu, maybe are you seeing a change in pattern, or more specifically, are you seeing them trade up for certain items or down for certain items?

No, we haven't seen any real differences in menu item preference, any differences in shifts and p-mix, nor have we seen any real differences in terms of days of the week. It's pretty consistent across the board.

Perfect. Switching gears and going back to an earlier question about labor costs, and maybe in the savings initiatives, the opportunities you are seeing there, maybe around the operating line or any other savings you see?

We're working on what we would term some non-guest interfacing savings in those areas, such as a few things like supplies, chemicals, some of our labeling systems. It would be more things like that versus looking for opportunities to take service or food quality. We are not looking for ways to reduce either one of those. It's all built around non-guest interfacing items.

Thanks, guys.

Jeff Bernstein with Barclays.

Hello, guys. This is Ashwin Shandilya on for Jeff. I was wondering if you could give us a little more color on the competitive environment and whether that's caused any of the volatility you're seeing. We've been seeing a lot of value-focused take promotions from your peers. And given that you're already known as a brand for offering value, are you vulnerable at all to those type of competitive promotions? And how do you plan to respond to that?

They've been doing that for quite a few years and we've never had an issue with it.

And then, just for your 2013 outlook, we've been hearing from a lot of peers about higher taxes to gas prices. What's your confidence on the guidance for positive comps? Are there any other levers that you can pull, if the broader category starts to deteriorate further because of changes in consumer spending?

Generally, a lot of that is unknown, obviously. But we feel pretty good about the fact that we're sitting here today, we are up over 2% in comps year to date, on top of being up about 7% last year. So it's lapping some pretty high numbers from last year. Ultimately, that's the thing we don't know. We don't know about the overall consumer environment. And for us, we're not relying on advertising. We don't have any secret levers, per se, to pull. It's all about grassroots marketing and continuing to drive that four walls execution, and within that five-mile radius of the restaurants.

Okay. Great. Thank you.

Jonathan Komp with Robert W Baird.

Price, just one clarification, going back. I think this might have been asked in different ways. But looking at the labor line, specifically, in the fourth quarter, were there any timing differences that hit that line in the fourth quarter, or was this 60 basis points of leverage year over year really reflective of the pricing and the traffic gains?

Really more reflective of the pricing and the traffic gains. There was nothing that really stands out, as far as being unusual year-over-year. One thing I will point out is sometimes the timing of when we open different restaurants can play into that. We do have a little bit of percentage-wise inefficiencies, if you will, early on in the opening of restaurants. So sometimes on a year-over-year basis, that can play a little bit of a difference.

Okay. Thank you. And then just one more clarification. Thanks for the color on the quarter-to-date trends, in terms of the same-store sales that you've seen. It is a little hard to tell, just to break out exactly the timing of the pricing that you're cycling. So would you mind breaking out the traffic that you've seen for the period so far, and to be a little bit more specific there?

We're, overall year to date, we are down about -- a little over 1% in traffic year to date.

Okay. And then I know we touched on this a little bit, but as you look for the balance of the year and the expectations for positive comps, is it really just a function, as you look forward and see the easier comparisons coming up, do you think the easier comparisons alone will help comps improve, or is it a couple of factors, like the Porterhouse being added to two-thirds of the restaurants? What do you think in terms of how to get to the positive comps for the year?

Well, we're positive right now. We're up over 2% right now. And in general, as I think Kent mentioned in his script, we've had three years of positive traffic gains. I think we all feel like we've got a lot of momentum in the business. While we can always execute better, we feel pretty bullish about how we're operating and how we're executing.

As long as we don't have any more big blizzards.

Knock on wood for that one. Okay. That's good perspective. And then just last the question for me. As you look at restaurant margin for the year, Price, you talked about a little bit of pressure there possibly mostly looks like food costs. If I go back to this time last year, I think you also were talking about pressure for the restaurant margin for 2012, and it looks like you actually expanded margin for 2012. Can you talk about, as you look forward, are you incorporating a healthy degree of conservatism? Are there any other puts and takes that might not be obvious to us, or what are you seeing there?

I think we're being realistic in what we're assuming. Last year we did get a little benefit from -- in particular, putting the pictures on the menu, for the first time we had that. You know, we didn't know what kind of impact that would or would not have. That helped us a little bit on the margin, for sure, last year. And then sales came in higher than what we expected sitting here at this time last year. So both of those were real drivers -- a couple real drivers of really helping on the margin side in last year.

Okay. That's helpful color. Thank you.

Jason West with Deutsche Bank.

Going back to the trends we've seen year-to-date, I know there's been a lot of discussion about what's going on with the consumer these days. I know it's probably hard to tell, less than two months into the year. But are you able to tell if some of the weakness more recently has been more weather-related, looking regionally what's happening, versus a broader slow down behind things like the payroll tax increase?

I would say the weather definitely had an impact. We don't quantify it. But yes, we've had restaurants close, especially when the snow storm came through a few weeks ago. That's definitely an impact. Don't know exactly how much that was.

As far as the payroll taxes and the delay in refund checks for federal taxes, we hear a lot about that. We just don't know. We just don't have that kind of data, that real-time data that really answers that question for us.

Okay. Fair enough. And then on the guidance, Price, you were going through kind of quickly, but you sounded like you said based on some of the components that you've laid out, you think that low single-digit to low double-digit EPS growth is a good number to work with. Did I hear that correctly? And I'm assuming that's off the $1.00 number, or is that excluding the $0.05 charge? And you think you can grow at that rate?

Anything we talked about would be off the $1.00 number. Yes, and did say to help give you guys some type of range of sensitivity, if traffic was flat to up 2%, we think we'd be in the low single- to low double-digit EPS growth range. I would mention, too, part of that would depend on where does inflation comes in at. Because that will provide a little bit of variable in that number.

Right, right. Okay. I got you. I'm just having a tough time getting numbers that low, given the strength this quarter on the restaurant margins. As people have alluded to, the labor line, but the cost of goods sold is only up about 20 basis points. Is there anything going on there in the quarter that helped you that wouldn't be continuing? Because we have to assume some pretty significant cost of goods sold pressure to get to your numbers, if you have some leverage on the line. Just don't know if the fourth-quarter number is not a good number to use going forward?

Yes, a couple things there is one, we did have our pricing rollout in December, which certainly helped a little bit in the fourth quarter. Produce was a little bit lower for us in the fourth quarter than what we're experiencing now. And then we are still getting -- we are still getting the benefit of having those pictures roll out on the menu, which last year will help us through January of this year, but up through that period. It's probably helped us to the tune of 40 basis points -- 40 to 45 basis points on that line.

Okay. That's helpful. Maybe you guys can refresh those pictures and maybe keep that going. (Laughter).

Jeff Omohundro with Davenport and Company.

Thanks. Just another question on consumer behavior around the menu. I think you indicated that you haven't seen preference shifts. What about the mix around the early dinner, the early bird special? And also, add-on sales and beverage alcohol.

As far as on the early dine, I haven't seen a big shift there. We've seen it up a little bit over the last say, six to eight weeks, up slightly. In general, on the mix side of things, we're still losing about 0.03% on menu mix, and that is pretty consistently coming from a little bit year-over-year alcohol sales.

And it was addressed in the last question a little bit, regarding the pictures on the menu. When do you anticipate the next significant menu update?

Probably not until next year. I would guess actually the end of this year. We did it late November this year. So I would guess late November again.

Very good. Thank you.

John Ivankoe with JPMorgan.

First a clarification, and then a question. Price, I think it was you that mentioned something about February same-store sales down a few points, but the last two weeks have been positive. Is that what you meant to say? Was it just the first couple of days of February were terrible?

It was the first couple of weeks of our February period were down for us. And then here the last few weeks, we had -- Valentine's Day for us hit in a different week year over year, but the net of those two weeks were slightly -- was positive.

Okay. It seems like we're not that far into the month, but okay. That is what you meant to say, so I'll just take that for what --

I'm sorry, let me clear up something, because our accounting cycle ends -- our January period ended about January 22, is when our period ends. So I was speaking more in terms of on our cycle.

Okay. That's helpful. Thank you. I realize there's a lot of things that happen year to year with new unit openings, but looking, with the great disclosure that you give, on the units that have been open I think less than nine months and the newer units that have been open more than that but not in the comp base, it seems like there is a little bit of slippage, at least relative to the trend, relative to the average unit volumes for the units in the comp base. Was there anything particular about the 2012 opening class relative to the 2011 opening class that we should be sensitive to? And how should we be thinking about 2013 relative to 2012, as you guys look at your pipeline?

The 2012 class year, you're right. Actually, some of the numbers when we are reporting stores in the AUV not in the comp base, those include some 2011 openings, as well. But they're a little bit lower than our system average, but they're actually right on our pro formas. So we know it's tougher to open the next 400 stores than it was the first 400 stores, most likely, and so we plan accordingly. There isn't as much low hanging fruit when you're picking sites.

That said, any time you're opening new stores and they're below your system averages, you're asking yourself questions, are we doing all the things we should be doing in supporting our openings? So we are asking those questions. But that said, they're still doing very healthy volumes for those stores.

The most recent openings, the biggest thing there is really just timing. So our plan was a lot more front-end loaded in 2012, and so some of the stores that are in the newest category of stores have already eclipsed their honeymoon base, and that's why their sales are a little bit lower than what we would normally have in our newest set of restaurants.

Okay. That does make sense. And just thinking about 2013, would you expect more or less stability in those lines year over year, as the building blocks for the model? Or is it that -- you made a comment that the next 400 stores will be more difficult, or do you think that you're firmly in that trend where it's going to be tough to sustain the year-over-year new unit volumes?

I think we would never be satisfied unless all the new stores were doing what we're doing as an average of the system. But I can tell you that when we're doing pro formas, we model the sales a little bit below the system average. And we're modeling out to mid-teens IRRs, and that's what we're getting out of these stores that are opening, just based on the sales of what we have so far. So we're going to continue to go down that road.

Every class year is a little bit different. And so if you go back and you were to look back the last 10 years, we've got some class years are higher than others. And we don't know yet if the 2012 year may be a little bit lower than the most recent two or three years. It's still a little bit early. Time will tell. But we are still very confident in the quality of the openings that we're having. And we see it, because they're still doing great sales, we're still on long waits, even at these sales volumes.

Great. Thank you.

Conrad Lyon with B Riley Caris.

Thanks. First question, regarding gift card sales. I think you mentioned that they were up pretty solid. Any color you can provide as to what the redemptions look like in January, year-over-year? Perhaps that might have been driving some of that strength in January?

Yes, Conrad. Price here. Gift card redemptions were up a little bit year over year. It's been consistently up year over year for all of the weeks of 2013.

Oh, it has. Okay. Got you. Helpful. Different question about the earnings expectation for the year. Obviously, the fourth quarter is going to be big. Any insight, as you can provide it, as to the distribution? Looks like the first quarter looks okay. Obviously, you are going to have the big hit in the second quarter with the conference. But any ballpark estimate as to where you think the growth is going to look like throughout the year, say flattish early on and come in big improvement in the fourth quarter?

We're not going to give out quarterly expectations. In general, I did want to remind everyone that, as you alluded to, the second quarter is impacted a little bit by the conference being up probably $2.5 million, and then the fourth quarter does have an extra week.

Okay. Last question, in terms of driving sales. Is there anything really different that you may employ that you haven't discussed? I know there's some talk about higher-priced items on the menu. But is there something that you're more excited about than any other that you could potentially use to really get traffic going?

We're going to continue to focus on our overall speed initiative. It's been a focus of ours for a year and a half, and so we continue to ramp up the intensity. I think we're building some momentum there. We will continue to do things like we'll add seats in another probably 30 restaurants this year. Beyond that, it's just continue to do our blocking and tackling, getting incrementally better at not just execution, but also our local store marketing, and then how we're driving in new guests.

Got you. The seats that you mention that you might add, in general, is that roughly -- is there a percentage you can talk about, say 10%, 5% more seating?

In general, they add -- somewhere in that neighborhood. Let's see. It would be about 10%, probably 10% to 12% more seating capacity in a restaurant when we do that.

Okay. Helpful. Okay. Thank you very much.

David Dorfman with Morgan Stanley.

It sounded to me like when you were talking about the P&L going forward in 2013 that other than cost of sales, you were expecting leverage on most of the other lines, labor and other ops and G&A. I wanted to see, was that what you said? And does that leverage happen in that 0% to 2% comp range you were talking about for your EPS bracket that you were vaguely talking about? And then specifically, if you could dig in a little bit more on what you expect for G&A, because that was a little bit higher than I thought for this year. I just wanted to see how you thought that may play out in '13, as well.

No problem. On the leverage, the labor -- we would expect to get leverage in other, even on flat comp sales, given the cost savings that we're talking about finding. And then on labor, it will depend a little bit on what traffic is. Labor could be tough. If you're talking flat traffic, labor could be tough to leverage.

And then on G&A?

On G&A, we do expect to get some leverage on G&A. We're continuing to invest in things like -- as Kent talked about, building our international pipeline. We're continuing to invest in that. We're continuing to invest in technology and in other areas of the business. But overall, we think we can do that and still be able to get some leverage out of G&A.

Okay. And then one last question. When you think about your longer-term business model, I'd say it seems like in years of high beef inflation, you're going to under earn it. But I suppose you should be getting that back at some point, if you keep running the model and beef comes back down, you'd have an outsized benefit year. As you look at beef markets and how you contract with them, when do you think that might be? It sounded like this could be a sustained issue for '13, '14, maybe into '15. And I'm not saying year over year over year high, high inflation, but when might it come back down, in your view?

We don't really know. We're hearing the same things you are, as far as on the supply side of things, that it is projected to be a tight market for the next -- certainly, this year and on into '14. Partially offsetting that, the cows themselves -- the animals are larger now, and then demand is down a little bit. Certainly another thing working against us, besides the supply/demand on the beef itself, is the whole ethanol and the fact that such a high percentage of the corn now goes to support ethanol versus being able to be used as feed.

Is that a fair characterization of your model, though, that you -- you control what you can control, but there's only so much you can do in the face of significant beef inflation, but the flip side is that you'll have an outsize year at some point?

In general, and you've seen that in the past, back in '09 and '10, I believe it was. Because under our model, when you've got 15% beef inflation, we're not going to fully price to the inflation, generally. And on the flip side, when we've got some commodity deflation, we're generally not going to be reducing prices. So yes, it results in just what you're talking about.

But would you generally like to have a longer-term 2% pricing through good times and bad, rather than the sort of flat and then 4%, and then 4%, and then 2% -- have a more consistent pricing model going forward?

You never know, because there are so many other factors that go into it other than just what the commodity market's doing. It depends on overall the consumer environment. In general, you'd love an economy that's growing at a couple percent a year, and consumers are making more money and spending more. And that is consistent. Unfortunately, that doesn't always happen.

All right. Thank you so much.

(Operator Instructions)

Peter Saleh, Telsey Advisory Group.

I was hoping you guys could give us an update on your most recent thinking around the healthcare initiatives coming into play next year.

Well, as we understand it, we're going to be offering healthcare to a lot of people next year, as the way things stand today. There's still a lot of things in flux with it. We've got an internal range of potential impacts for us that we've developed. It's not that big of a deal for us, is what we would tell you, especially when you start comparing it to beef inflation, what we had last year or this year. Those numbers are quite a bit smaller.

Part of the flux is how many of the people that we offer health insurance to will take the coverage. Some percentage of employees that would qualify will end up going over to Medicaid, the expanded Medicaid program. Some will be able to stay on their parent's plan. Some simply won't want to pay the premiums or the deductibles that go with any offered coverage, and will pay the $95 penalty, in effect. So with all that, we've got various scenarios and ranges of outcomes that we're very comfortable with telling you we'll just deal with it and move on.

Would you consider raising prices more aggressively later in the year if you get a little bit more clarity? Or are you thinking adjusted labor hours, or how would you deal with it?

We're not touching anybody's hours. I can tell you that. Pricing for us is what's going on competitively. Part of it -- what does our gut tell us? Part of it is what other inflationary items do you have in the business? There's a lot of pieces there for us. What have we most recently done? What are our trends? There's a lot of pieces that go into that. And the healthcare thing, at least as it stands today for us, from what we know, isn't that substantial that we're spending a lot of time talking about it, other than the administrative piece of actually getting all the people enrolled and managing the dollars going back and forth between employees and us.

Great. And my last question. Are there any other calendar shifts that we should be aware of for 2013?

Nothing material, Peter. Everything is in the same period.

All right. Thank you very much.

Chris O'Cull with KeyBanc.

I apologize if I missed this, but did you quantify the impact of the mix shift on gross margin?

Mix shift. We talked about the fact that the pictures on the menu that we just added last February, we think they probably helped us to the tune of 40 to 45 basis points on the food costs.

And that went in in the summer?

That went in last February. So we just overlapped that right now.

Okay. And then, was the bonus accrual during 2012, was that at the high end of the range that you were expecting?

Yes.

It came in -- are you talking in G&A?

Yes.

It came in actually higher than we expected, because our earnings were higher than we'd expected for the year.

Right. But next year, in 2013, are you accruing at a level below what you accrued in 2012?

Maybe slightly.

Okay. And then just longer term, Kent, given capacity utilization as an opportunity to improve throughput during peak periods, have you guys made any changes to the new store prototype design to address that issue?

Yes, our kitchen, we've made some changes to make it quicker to get the food out. And then at the front door, as we've talked about our speed initiative, we're operating a little differently at the host stand to get people to line up for their tables quicker.

How many stores have the opportunity for the bump outs, and how many new stores have you addressed that already?

We've done over 100. And then, as Price said, we're looking at about 30 this year. And we can do a couple hundred more, as we feel the sales justify doing so.

Okay. Great. And then, what percent of non-beef commodities are hedged?

Price has got that specifically on a piece of paper here.

I don't have the exact percent. I can tell you we're over two-thirds locked in on all of our pricing for next year -- or this year, rather.

80% of beef.

And 80% beef. The biggest part of what would not be locked at this time would be some produce and dairy items that we're typically on the market for. And that can be -- produce and dairy in total are 15% to 20% of our food costs.

Chicken and pork are locked in?

Majority of it is.

Okay. Great. Thanks, guys.

Steve Anderson with Miller Tabak.

You mentioned the restoration of the tax credits for 2013, assuming 29% is the rate for Q1, maybe a little bit higher rate for the remaining course to make a 31% rate. A question on the tax credits. Is that just for one year, or is it extended beyond that?

Right now, it's been retro' ed back to 2012, and that's what's creating a little bit of a lower rate in first quarter, because all that catches up during this first quarter. And then right now, it only applies through 2013. So it hasn't been extended beyond that.

Okay. Thank you.

Larry Miller with RBC.

I just had two quick clarifications, Price. The food cost inflation outside of beef, I know you said that you were roughly two-thirds contracted. What was that again?

Outside of beef, net-net is about flat.

Okay. Perfect. And then, when you said you were going to be able to leverage G&A in 2013, that includes the managing partner conference expense?

Yes.

Okay. Thank you. That's perfect.

And at this time, there are no further questions. Mr. Cooper, I'll turn the call over back to you for any additional closing remarks.

No problem. Thank all of you all for joining us this afternoon. And if you've got any questions, please give us a call. Thanks. Have a great night.

This concludes today's conference. We thank you for your participation.