Texas Roadhouse Inc (TXRH) 2013 Q2 法說會逐字稿

Good day, and welcome to the Texas Roadhouse Incorporated second-quarter 2013 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 Price Cooper, Chief Financial Officer. You may begin your conference.

Thank you, Elizabeth, and good evening, everyone. By now everyone should have access to our earnings announcement for the second quarter ended June 25, 2013. 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. Afterwards, I will provide a financial update, and then Scott will provide some insights on our performance and business direction. Afterwards we will all be available to answer any question. Now, I would like to turn the all over our Chief Executive Officer, Kent Taylor.

Thanks, Price. How you all doing? We are pleased with the momentum we continue to experience at Texas Roadhouse. Revenues were up 10% for the second quarter, leading to a solid 10% increase for the first half of the year. Also, comparable sales increased 4.5% for the quarter. While we grew restaurant-level profits, bottom-line results for the quarter are impacted by our continued investment in our people.

As most of you all know, in May, we celebrated our 20th anniversary by hosting our Managing Partner conference in Hawaii. As we do every year, we recognized and awarded the best of the best, and came away reenergized regarding the future of Texas Roadhouse. I want to give a big shout out to a couple of very special people. Mike Schmidt, our Managing Partner of the Year from Corpus Christi, Texas, and Gustavo Jimenez, our National Meat Cutter of the Year, from Pelham, Alabama. Congratulations to both of you all, and deserved recognition, for sure. And congratulations and thank you everyone who attended our conference this year, including our great vendor partners.

On the development side, we opened seven restaurants this quarter, bringing our year-to-date total to ten, and we are on track to open approximately 18 more by the end of the year. Looking ahead at 2014, our development pipeline is shaping up very well. We are initially targeting to open 25 to 30 restaurants next year, with most of those sites already selected, and more front-end loaded than this year. To our operators, I look forward to seeing you all this fall, as we make our way across the country, visiting with all of our Managing Partners, to share ideas and looking for feedback on how we can continue to be bigger, stronger, and faster. Now, Price will walk you through our financial update.

Thanks, Kent. During the review of the quarter, many of the numbers I mention are included in the schedules of supplemental, financial, and operating information, included in the press conference. For the second quarter of 2013, we earned $20 million, or $0.28 per diluted share. From a top line perspective, revenue increased 9.9%, as a result of a 6.4% increase in store weeks, and a 3.7% increase in average unit volumes. As has been the case for the last few years, our average unit volume growth was less than our comparable sales growth. Our newer restaurants continue to open strong. However, as they move through the honeymoon period and their sales normalize, their sales typically settle in right around the system average, before they begin to comp positively. With that said, we are still very pleased with the overall returns that our new restaurants continue to generate.

Comp sales increased 4.5% during the quarter, and were comprised of a 2.2% increase in traffic and a 2.3% increase in average check. By month, comparable sales increased 5.7%, 4%, and 3.7% for April, May, and June periods respectively. And as we reported in our release, July trends have softened, but remained positive, with comps increasing 1.9%. In terms of restaurant level profitability, on a dollar basis, restaurant operating profit increased 7.2% or $4.3 million for the quarter, compared to the prior year. On average, we continued to make more money on a per-store basis as the growth in restaurant operating profit dollars outpaced our store growth.

Our restaurant margin dollars grew, restaurant margin percents decreased 47 basis points per quarter, compared to the prior year. We were able to leverage labor and other operating costs through a combination of traffic growth and a 2%-plus average check. However, it was not enough to offset the headwind from just under 6% food inflation during the quarter. Throughout the balance of the year, we expect margin pressure from food costs to outweigh any leverage we are able to obtain from labor and other operating costs combined. In fact, restaurant margins in the back half of the year are likely to be under more pressure, since we had a higher average check and lower food cost inflation in the first half of the year, versus what we expect for the remainder of 2013.

In addition, as Kent mentioned, we have about 18 more openings to go this year, so we will likely experience some margin in efficiency, specifically relating to food costs and labor as a percentage of sales. For 2013, we expect food cost inflation of 6.5% to 7%, with the third quarter coming in at 7% to 8% and the fourth quarter in the range of 6% to 7%. There is still some flex in these numbers, given the fact we are on the market for about 20% of our beef needs, as well as the majority of our produce and dairy needs. The good news is while it appears we are weathering our second straight year of 6%-plus food inflation, we feel much better about 2014 at this time.

For next year, we do expect continued inflation. However, at this point, we do not expect it to be near the magnitude of what we are seeing this year. As we move through the balance of 2013, we will continue dialing in on what we believe is a realistic expectation for overall inflation. At the same time, we will be testing a price increase to help determine what we might do pricing-wise later in the year, as we get a handle on what the overall 2014 picture looks like.

Shifting back to the quarter, below the restaurant margin line, we lost leverage on G&A in the quarter, driven by a $2.3 million increase in costs related to our annual Managing Partner Conference Kent mentioned. We expect our 2014 conference costs to return to a more normalized level, which would be $2 million less than this year. Pre-opening costs increased approximately $1.5 million, compared to the prior year. While we opened the same number of restaurants during both the second quarter of this year and last year, pre-opening was up, as a result of having more stores in the pipeline, and the fluctuation of the timing of openings. We continue to expect pre-opening costs in 2013 to increase at a greater rate than our 2013 development, primarily due to the fact we expect 2014 openings to be much more front-end loaded, compared to this year. The income tax rate for the quarter came in at 30.1%. We expect our full-year rate to be 30% to 30.5%, to slightly lower than our previous estimate of approximately 31%.

Moving to our balance sheet and cash flow, we ended the quarter with over $100 million in cash, which is more than we had at year-end, and as of the end of the first quarter. This is partly due to the timing of our development, as well as the fact we did not repurchase any stock during the quarter. For 2013, we anticipate spending $100 million to $105 million on capital expenditures, and based on our development timeline, we expect this will be very back-end loaded. We also remain commented to returning capital to our shareholders in the form of dividends and share buybacks.

Finally, while there is nothing imminent at this point, we have spoken with some of our franchisees about potentially purchasing all or a large portion of their businesses. We keep you updated as to any further developments, as we continue to explore productive means to deploy our excess capital. At this time, I would like to turn the call over to our President, Scott Colosi.

Thanks, Price, and good evening, everybody. We are pleased with our top line momentum through the first half of the year. And while the third quarter has started out a little softer, we are encouraged that our sales remain positive, while overlapping one of our highest comp periods from last year, as comp sales increased almost 6% in July of 2012. More importantly, we are pleased that our operators continue running the business for the long term. And they do that by staying focused on our four-wall execution, and by being fully committed to both our mission of legendary food and legendary service, and our value proposition. We are truly blessed to have the best operations partners in the business.

As Kent mentioned earlier, our development pipeline for 2014 is in very good shape, not only from a site perspective, but also from a people perspective. In order to continue recruiting and retaining high-quality team members, we are always looking at opportunities for future growth. However, our chief goal is to grow our core brand of Texas Roadhouse restaurants, and that is what we continue to focus on each and every day.

I'll end by echoing Kent's comments regarding our conference. The time spent with all of our operators and vendors solidifies our culture of partnership and passion for Texas Roadhouse, and I can assure you the investment is well worth it. We have a ton of positive momentum in our business, and are looking to the future with a lot of excitement and optimism. So, Elizabeth, you may now open the line for questions.

(Operator Instructions)

We'll take our first question from Brian Bittner with Oppenheimer. Please go ahead.

I want to drill into the back-half earnings growth or EPS a little bit more. When you think about incorporating the extra week, which you can quantify if you'd like, but when you think about that, and when you also kind of balance the potential restaurant price margin pressure you're going to see, do you think you can grow EPS positively on a-year basis in the next six months? If so, what type of traffic number do we need to get there?

Brian, this is Price. We are not going to get specific on guidance per se, because it does depend on traffic in large part. And to a degree, it depends on where overall food inflation comes in at. But definitely, it gets tougher in the shorter term just with the margin pressures, from having a little bit higher inflation than what we've experienced. And then another thing to think about in the short-term as well is, we expect pre-opening to continue to be up on a year-over-year basis, which is a good thing long term, because it means we are developing more restaurants. However, it hurts you a little bit from a year-over-year earnings growth perspective, in the shorter term.

And what was the pricing factor in the July 1.9% comp, and what's the pricing factor we should expect in the third and fourth quarters?

Right now our check is running just over 2%. And that would be the same, basically through the middle part of December.

Okay. And then the last one is, you mentioned in your prepared comments that 2014, through the lens that you have today, is the not going to be close to as bad as this year was from an inflationary standpoint. Is there any -- I am not looking for a number, or anything like that. I am trying to understand what is it that you are seeing? Is it just beef costs aren't going to be as bad as they were this year, in 2014? What exactly is going on with that?

That's exactly -- sitting here today, we are not expecting beef costs to be quite as bad as they have been this year or last year, driven by the fact that I think demand has proven to be a little lighter than people would have thought, headed into the year. And another factor on that is that corn prices have really pulled back from, say, where they were say, about $7 here a year or so ago, to where the futures are down below $5, which is a positive.

Okay. Thanks.

We'll take the next question from John Glass with Morgan Stanley.

I wonder if you could maybe just talk a little bit about what you think is going on with the sales environment right now? First of all, did July just step down and stayed at this 1.9% level, or is it a deteriorating trend, where it may be, you're currently running below that now? And maybe why -- is there any way you can explain what's going on? Because it seems we have experienced this, but there isn't any good explanation for what it really is tied to.

John, this is Price. If you look at it from a traffic perspective, I would say May and June were very similar in traffic for us, and up 1.5 points or a little more each of those months. Then, of course, July was down 0.1% or so in terms of traffic. Don't really know what it is specifically about July. Seems like it's been a consistent theme with a couple of folks anyway that have reported. There were a few headwinds, if you will. Gas prices spiked up in July. For us, the July Fourth holiday negatively impacted us a little bit. At the end of the day, it was just a little bit softer in July. Some of that -- and lastly, I would say, milder weather. Not at hot as last year. I don't know if that played into us, or any of the others. But for whatever reason, July was just a little bit softer than the trend had been.

And, Scott, you talked about the development pipeline being robust for 2014. Maybe more front-end loaded. Is there anything that's unusual about it? Are there new geographies, for example, that you are entering, or they're more urban, or closer to urban markets? Is there anything that's different, for example, in 2014 than in the prior years?

No. It's similar type sites as to what you are accustomed seeing from us. It's just us continuing to work very hard on building the pipeline. So sometimes there is like ebb and flows in the timing of when sites get open, and sometimes you have some years that are more back-end loaded. Some years are more front-end loaded. It kind of varies. Just like comp sales, sometimes bounces around a little bit. As well, like we're seeing maybe in July.

And on that note, you go back to February. We had a negative month in February. Could that be weather-related? I guess it could have been. But then we bounced back positive. So there is ebbs and flows in our business, and this development pipeline thing is just one of those.

We are opening, too, in Alaska next year. So that's a new state for us.

All right. Awesome. Price, the last question, on the extra week, is there any expense item that you accrue quarterly that you don't accrue either -- or monthly that you wouldn't accrue weekly? For example, depreciation or interest. Is there anything that levers more than a extra week of sales would provide?

Yes, John, the one item would be rent, they accrue monthly.

Okay. So occupancy gets leveraged. The rest of the P&L gets the benefit of the extra week?

Yes. So mathematically the extra week is -- one week is roughly 2%. It's a little bit more than that, when you get to lever some rent.

Thank you very much.

Next we'll hear from Will Slabaugh with Stephens.

I wonder if you could give us just a quick update on the recent new stores you've opened, and you mentioned some positive comments in your opening remarks about those. From a performance standpoint, and I know, historically, you talked about some of the returns initially might not have been what you wanted them to be. But it sounds like today, you are pretty pleased with those. A little bit more color around that would be helpful.

Will, what we've seen going on with our new stores is, in general, they continue to open up at higher and higher average weekly sales for that first week. That's been a consistent trend we've seen for the last three are four years. We have also seen that they are falling off in terms of their honeymoon sales. So the first five or six months, where they start off higher initially and fall off, if you will, over that five- or six-month period, has been a little bit higher in terms of percentage. But they are settling in on similar dollar volumes after a five- or six-month period to the stores that are one or two years older than them. So when you combine that with the fact the development costs are down $200,000 from, say, two years ago or four years ago, and the fact that we've been able to continue to grow margin dollars at the store level, that backs you into returns that are consistently good, and within what we're comfortable developing stores at.

Got you. That makes sense. Just a quick clarification on a previous question, to make sure I have this right. Just wondering what sort of comp you feel like you need to be able to get leverage on that restaurant-level margin in the back half of the year? You mentioned a number of things that are going to be headwinds. Wondering how to think about that restaurant-level margin on a year-over-year basis as we move towards the back half of the year.

I think it's tough. We are not going to get specific on it. In terms of percent, it's tough to see, being able to leverage restaurant margin lines, when you have somewhere on the order of 6% to 8% food inflation in the back half of the year.

Fair enough. Thank you.

Doesn't mean you couldn't potentially grow dollars. But it's tough to leverage percent.

Got you. Thank you.

We'll take our next question from Andrew Charles with Bank of America-Merrill Lynch.

Can you give us an update on speed of service and any new processes or technology you are utilizing to aid throughput?

Andrew, this is Scott. There is really no new technology that we're utilizing right now. We're sticking to our guns as far as a pretty labor-intensive business. So we continue to staff to win, whether it's our three-table station model, whether it's a lot of hosts and bussers and food runners and so forth in our system. So we continue to do that and turn tables and feed guests, and that's really what we're more focused on, than we are in any particular technological system.

Okay. And, Kent, I wanted to ask you about Bubba's 33. Where did the idea for a sports bar originate, and what have you learned from the first two months of being in operation?

We had an Aspen Creek that wasn't doing so in the location that you're talking about. So we thought we would try something since we were stuck paying rent for the next eight years. So we just gave it a shot. It's only been open a couple months. It's a restaurant/sports bar with a varied menu, featuring killer burgers and food is made from scratch, as usual. It's hard to tell. We opened one Aspen Creek a few years ago in 2009. Then we opened a couple more. Didn't really hit the numbers we looked for, and didn't become a big deal. It's too early to tell at this point.

Okay. Great. Thank you.

We'll hear next from Jonathan Komp with Robert W. Baird.

Going back to the question on the recent sales trends, sounds like maybe you are at a little bit hard to explain kind of the slowdown you have seen in July or the slightly softer trend that you've seen. I guess if you look at the next few months, is there anything that gives you confidence that comps can stay positive, and maybe what your thoughts are there?

I would say -- to phrase it, we are certainly not panicked. The thing that gives us confidence in our business long-term is that we've got the best of the best operators out there. I think those two are the most important things. We are not panicked. We are not changing anything. It's one month.

As Scott mentioned, we have had months before where things get soft, or they bounce back, or whatever. We are still doing everything the same way we always have. It probably is worth mentioning that comparisons, for what it's worth, get much easier as we go into the back half of the year. July was a very strong month for us in terms of both comp sales, as well as traffic. So it does get a lot easier as you move throughout the year.

Okay. Thanks for those thoughts. And maybe just a little different topic, but looking at the restaurant profit and the restaurant-level margin line for the back half, I know the question was asked about overall restaurant margin. But maybe just looking specifically at the labor and the operating lines, at the operating costs. What type of traffic you might need to get any leverage on those two lines, specifically?

Yes. We're just not going to get specific on lines. We've been able -- I think we have provided some directional comments, what you have seen on us being able in the front half to drive a little bit of traffic. We've been able to get a little bit of leverage on both of those lines. So I hope, I know it can be frustrating, but I hope the directional comments are informative and helpful, but just not going to get specific comment on individual lines.

Okay. Understood. And then just the last question, broader on the unit development outlook for 2014. I think, if you reach 25 to 30 next year, understanding it's early still today, but that would be the third year in a row that you are in the 25 to 30 mark in terms of new company units. Is there anything about that level specifically that you think is a cap, maybe on the number of unit openings that is prudent? Or can you provide some broader thoughts on why 25 to 30 is the right number for next year?

This is Kent, by the way. I think 25 to 30 is a good number for us based on the people pipeline, more than the real estate. We don't want to mess up on the people side as well as we don't want to mess up the real estate side. I absolutely want to have sites that I can still turn down and not feel the pressure to accept mediocre sites, and actually grow stores in an area where we don't have the people yet.

That makes sense. Thanks a lot.

We will take the next question from Jeffrey Bernstein with Barclays.

A couple questions. Just first in terms of the food cost that obviously sounds promising, I think you said the cost inflation may not be near the magnitude that you saw in that 2013, which I guess, we're in that 6.5% to 7% range. Then you followed that with comments about testing pricing. I'm just wondering, as you go to the back half of the year, if that inflation basket was, well, I guess below that 6.5% to 7%. Would that imply that you'd consider less pricing on that 2% when you think about the current traffic environment, or are we not supposed to read into that comment?

No. I think that's fair. I tell you right now we are testing about a 1.5% price increase. So I think you're in line with our thoughts. If inflation can stay lower, we would always rather take less pricing than more.

And the pricing of 1.5% that you are testing, I know you have tested 2% or 3% and you have historically said we don't take as much as we test. If the basket of commodity stays the way you are seeing it now, it's possible you may only take 1% next year, which might aid the traffic softening of late?

It could be possible. It's way too early. We just started testing. In addition to what we see the price test itself as well as inflation, there are be other things that come into play like -- not the least of being what kind of shape is the overall economy in. But yes, you're exactly right. It could be lower.

That's driven by the steak, which I know this year was up like 15%. Is 15% the right number for this year, and would that imply next year maybe steak isn't up double digits?

Yes to both.

Got it. And then to follow up, the comment you made in the prepared remarks about looking to buy units from franchise -- or the remaining units from franchisees. I know in the past, that's been discussed, and it seems like franchises are very happy doing what they are doing, and making the money they are making, so there was really no interest in selling. I don't know if anything has changed now that they might be interested, or what you might be willing to pay, what you are willing to do to get them to want to sell these units now versus a year or two ago?

In some cases that's still the case. Everything is always evolving. You have got some people that at some point want to move closer towards some form of retirement or scaling down. So with us sitting in the type of balance sheet position we're in, we're having more of those conversations with them.

But it doesn't sound like you are going to change anything on your end. It's more of a regular conversation that you are having that you probably had last year and the year before?

That's probably fair.

Okay. So we shouldn't expect the likelihood of all of sudden you being able to buy all these franchise units, if you weren't able to do it last year, without some sort of special incentive --

I don't see us coming back to you next quarter and saying we bought in 70 franchises.

Got it. I won't bet on that then. Lastly, is there anything -- you in the past have downplayed competitive environment in terms of steak, and whatnot, and we are seeing your varied menu peers get aggressive on steak. Is there any reason to believe they might having an impact on your trends of late or you don't see that shift from yourself to peers?

I don't see any big changes. We are one of the few people that cuts our own steaks in house, and I don't see a lot of our competitors doing that.

Thank you very much. Very helpful.

We will hear next from Jeff Omohundro with Davenport & Company.

A bit of a follow-up to Jeff's question relating to the level of promotional activity out there, and declining trends, and NAP check in the industry. I know you have moderated check growth, but it's still about double where NAP is now. We are seeing significant price-driven promotional activity in the category. I am just wondering, given your traditional position of everyday low pricing with limited promotions, the early dining special, for example, I am wondering, if this environment continues, would you consider exploring something on the promo side?

This is Kent. I would say the answer will be no.

And then, Price, on the pre-opening step-up, I think you are running around $450,000 a unit. I am just wondering, in thinking conceptionally about the magnitude of extra spending in Q4. Can we quantify it a little bit in terms of, are you going to be pre-spending on one or two units for 2014 that we'll see in Q4? Any more granularity on that would be helpful. Thanks.

Thanks, Jeff. I would tell you, Q4 will probably be our highest pre-opening spend for the year because, as Kent mentioned, we do have 18 more openings this year. Those are heavily weighted towards the fourth quarter itself. When you combine that with the fact that, as you mentioned, Jeff, we will be opening more units earlier in 2014, when you combine those two facts, I think it leads us to thinking that Q4 will be our highest pre-opening quarter.

Thanks.

Our next question comes from Andy Barish with Jefferies.

So on the pricing, I mean, I guess it's -- you're anticipating not doing anything until you lap last year's December price increase? Is that a reasonable assumption?

That is a reasonable assumption.

And then what was going on with buyback in the quarter other than, I guess, the stock price? Or was that really the answer?

Yes, that's really the answer. Nothing prohibits us from buying back any stock. We still have over $70 million authorized.

Okay. And then just finally on the international, can you give us a quick update there? Is that business fully built out in terms of overhead, where it's -- I don't know if it's making money. Obviously, it's a small number of units. Just how you see that progressing over the next year or so.

No, we feel good about it. We will definitely be opening some more units in the Middle East next year, and we're in discussions on two other -- or three other countries right now that we don't want to discuss at this point, that could come to fruition next year or the year after.

Thanks.

We will hear next from Jeff Farmer with Wells Fargo.

Just following up on some of the promotional environment questions. Last week we did receive what looked like to be a two for $19.99 e-mail offer from looked like one of the Boston Roadhouse units. I am just really curious how that works. If those offers are sent from national, or is it a market-by-market situation at the discretion of the market partner? How should I think about how that promotional effort works?

I would say that's a rogue store in our system. If you could tell me who it is, I would like to make a phone call after this discussion.

Fair enough. And then one more quick follow-up on margins, and you touched on it. But with the accelerated piece of unit openings, I am curious if you could ballpark, if you looked at it yourself, quantifying the margin headwind that you are seeing from new restaurant inefficiencies in coming quarters, and what you have seen in recent quarters. Is that a material number?

No, it's not a material number, Jeff, but it is a little bit against us in the back part of the year.

Okay. Thank you.

We will hear next from John Ivankoe with JPMorgan.

It does sound like you would like to take in some of your franchises, buy in some of your franchises. I wanted to strategically understand kind of how franchising plays into your strategic thinking. I asked this question in a couple different contexts. Kent, you mentioned opening in Alaska. That seems like that might be a perfect market for a franchiseee to open and operate in, just from a logistical managerial perspective. We don't have to talk about that market specifically, but let's talk about franchisees opening in what might be considered, broadly in the industry as non-core, difficult to do business in, markets. If I may, in this context of franchising, talk about either increased franchising or decreased franchising, as the case may be. As it might influence your decisions on the balance sheet. Rates have backed up a little bit. But they are a free cash flow generative company without any really on-balance sheet debts. Talk about whether you can begin to use the debt side of the balance sheet to drive equity returns at some point.

Yes, as far as franchising, the only area we are really growing franchise stores at the moment is California, and then we are looking at franchising international locations. That's pretty much the only areas we are looking at, at this point.

And there are more markets or than just California that are difficult to do business in, whether regulatory or the cost of doing business, what have you. What's the thought of not using that vehicle more aggressively? I assume there will be many operators that would love to be associated your brand.

We are pretty heavy in the 48 states as far as our growth. It's coming up in the future. So really, other than our Northern California stores and some international locations, we really couldn't offer that many locations for a franchiseee.

John, it kind of bleeds over -- this is Price. It bleeds over into your balance sheet question as well, because we are in a fortunate position where we do generate solid cash flows. We have money, and we're very comfortable owning and operating restaurants. So to the extent we can get comfortable, we like investing in restaurants and owning them, and generating a good return on those. If you are asking -- to follow up a little bit on your question on leverage, you will continue to see us stay more on the conservative side from a balance sheet perspective, because of just that. Because today, we recognize that we have an 80% company on system. And inherently, within owning restaurants, comes more leverage, although it may not be on your balance sheet, per se, but you have got leverage in terms of changes in sales or margins, for that matter, on any one year. So I think you will continue to see us err on the side of being a little conservative than not, in terms of the balance sheet.

Okay, fair enough. Thank you.

We will hear next from Jason West with Deutsche Bank.

Just, I want to clarify a few things. Price, you mentioned the check growth in the quarter. Was that -- a mix neutral in that or was there any mix up or down?

Mix was roughly neutral. Down just barely. Like 0.1%.

Okay, got it. And did you say, Price, you are unlikely to get labor leverage in the second half, or did I mishear you on that one?

I said we were unlikely to be able to overcome the food impact with a higher inflation through the leverage we get on labor and other.

Okay. But you weren't commenting whether labor would be up or down, I guess, are in the back half?

Not directly. But I guess indirectly we did, because we said we wouldn't be able -- we are expecting to get some leverage on those lines, but not enough to offset the food.

Then the pre-opening, it's tough for us to model that without knowing how much of the cost is coming from next year's stores, and we don't have all the timing yet on that. So would you be able to provide a little bit more of a point estimate or a range on that number for the year, whether it's $15 million, $16 million, some kind of ballpark there for us?

I guess something within that area is reasonable for the year.

Okay. And then, lastly -- sorry. Go ahead.

My best guess today.

Right. And then the July Fourth impact in the month, could you quantify that at all?

I don't know that I have any --

We haven't quantified it, how much it is. I don't know.

Okay. But it was a little bit -- (multiple speakers)

Probably a couple of -- I don't know exactly how much it was. It wasn't several points by any means.

Okay. All right. Thanks.

Our next question comes from Conrad Lyon with B. Riley & Co.

A question about G&A. As we go into next year, and let's say, you open up the same number of units as did you this year, do you think you will be more efficient with G&A, given your experience?

I don't think it really changes what we're spending in terms of pre-opening. G&A -- and that's what's tied more with opening the restaurants. Right now we are making a little bit of investment in G&A in areas like international, as we continue to grow that business a little bit.

Okay. Any color on what you think the managing partner conference will be next year? Should we expect the same level of spend next year?

Not at all. It will be $2 million less. It will be more in line with what we spent in Orlando the year before.

Got you. And in terms of the growth of people, Kent, you mentioned something about the fact you are more concerned from a person standpoint. Is that because of the talent out there? There is not as much talent? Or is it the facilities you have for training --

I think we have a great talent base. We have a lot of great service managers, kitchen managers, and we are able to get a lot of folks from other restaurant chains. Maybe they are looking our way. We just don't want to give our market partners too many stores in one year, to where they are not able to focus on the one or two stores they are opening.

Okay. All right. Great. Thanks.

We will hear next from Steve Anderson with Miller Tabak.

Looking at your commodity cost structure, are you looking for food costs actually to accelerate in the second half of the year before actually things start to level off in 2014? What do you think are the commodities -- I mean, besides beef costs, have caused the most margin pressure to you recently?

I would say as we get into the back half of the year -- is that what you are asking about?

Yes.

What is going to cause it to decelerate a little bit?

Exactly.

We have extended our chicken and seafood contracts, they don't run on a calendar year, they are off of a calendar year, and they are up a little bit from what they were. And also we are floating on about 20% of our remaining beef needs for the year. And seasonally, that tends to get a little higher in the back half of the year.

So it's seasonal. In terms of seafoods, is it mostly catfish?

We sell catfish and shrimp. And a little bit of salmon.

Yes. Thank you.

(Operator Instructions)

We will take our next question from David Carlton with KeyBanc.

A real quick question. Do you have a level in mind in terms of average weekly sales for justifying new store development? Especially as you look to open more stores in higher labor cost markets.

This is Scott. Yes, absolutely, we do. And our new stores continue to exceed those levels. We don't give out those numbers publicly, but typically, it's going to be close to what we're currently running from an average unit volume perspective. We are running above $4 million average unit volumes. We know that we've got to do close to that. We don't have to do that level to support from a return perspective the deals that we are opening. It has to be fairly close to what we are doing on average.

Perfect. Thank you.

We will take the next question from Peter Saleh with Telsey Advisory Group.

A quick question. Can you talk about the bump out, the seat additions you have been doing? Where do we stand with those, and how many do you plan to finish this year and into 2014?

Sure, Peter. This is Price. We have done over 110 so far in total to this time. We have done 11 so far this year, and we plan to do maybe another 20 or 25 this year. And then we're continuing to evaluate just how deep into the system will we go with that. So I would imagine we'd do another slew of restaurants next year, and then continue to evaluate it on a go-forward basis, just where does the volume make sense to do it in. Maybe at some point it makes sense to do it in half of our restaurants or so. We will continue to see.

Great. Thank you.

We'll go next to Paul Westra with Stifel.

A couple of follow-ups. One maybe specific question on the near-term environment. Can you recall last year if the Olympics caused much disruption in your monthly trends and maybe, if not directly, maybe some of your competitors' media spend? Do you recall?

Sure. The Olympics were in August, I believe, last year?

Yes. Paul, this is Price. I don't recall being able to identify any change in trends associated with the Olympics or promotional activity or this or that. There is always so much stuff going on out there that it's really tough to identify anything along those lines.

Okay. And then one more follow-up on the franchise. Can you just give us an idea again the character, I guess the average stores per franchiseee? I know four or five years ago you thought about one or two year periods. It seemed to be the two -- one, two, three transactions. Is that roughly what you should be thinking about when you get more pick-up in activity?

I think our franchises average between four and eight per operator.

Yes. And at this point, I think we said it in our prepared remarks, we don't have any imminent deals. To speculate on how many could be done this year or even next year we're just not in a position to be able to do that.

Lastly, on the pricing of those transactions, some of that would predetermine the price (technical issues) --

The pricing we would offer the franchisees was his question.

Sorry, Paul. What was the specific question on the pricing?

Yes, the pricing that you would offer franchises.

Typically, we have paid them on the multiple of EBITDA. And every deal is negotiated. But we would bet on very much in line with how we do new store returns, and make sure that we're getting a return on the capital that we're deploying.

Great. Thank you.

And with no questions remaining, I'd like to turn the call back over to management for any additional or closing comments.

All right. Thank you all for joining us this evening. If you got any questions, please reach out to us. Thanks. Have a great night.

That does conclude today's conference. We thank you for your participation.