Texas Roadhouse Inc (TXRH) 2013 Q4 法說會逐字稿

Good day, and welcome to the Texas Roadhouse Incorporated fourth quarter 2013 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I would now like to introduce Tonya Robinson, Director of Financial Reporting. You may begin your conference. Thank you, Cameron, and good evening, everyone. By now, everyone should have access to our earnings release for the fourth quarter ended December 31, 2013. It may also be found at 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 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 Scott Colosi, our President, and Price Cooper, our Chief Financial Officer. Scott will provide some insights on our performance and business direction, and Price will provide a financial update. Following that, we will open the call for questions.

Now I would like to turn the call over to Scott.

Thank you, Tonya, and good afternoon, everybody. We are pleased to have wrapped up another year of solid sales and profit growth. And while we were challenged during 2013 with 7% food cost inflation, our operators continued to stay focused on, and committed to delivering legendary food and legendary service to our guests each and every day.

For the year, we generated a 3.4% increase in same-store sales, which included a 1% increase in guest counts. Additionally, for the fourth quarter, we increased comps sales by 2.1%, and we have now delivered 16 consecutive quarters of positive comp sales growth.

For the full year, our sales growth, combined with various expense savings initiatives as you have heard Price talk about over the past year or so, enabled our average restaurant to hold their total margin dollars flat to last year. Pretty remarkable, given the 7% food cost inflation I mentioned earlier.

On the development side, in 2013 we opened 26 company restaurants, and our franchise partners opened four restaurants, including two outside of the United States. Our new Company restaurants continue to open strong, and are delivering very good financial returns for us.

For 2014, we plan to grow our company store base of 25 to 30 openings. Our development pipeline is in very good shape, and we plan to enter our 49th state, Alaska, during the first half of this year. In addition, we expect our franchise partners to open four to five restaurants in 2014, one to two in the United States, and the balance outside of the US.

We recently signed our second international area development agreement, which provides for the development of multiple restaurants in Taiwan over five years. We are excited about the international opportunities for Texas Roadhouse, yet we will be disciplined in our approach.

Overall, we feel very good about the direction and underlying momentum in our business. A big contributor to our success has always been our value proposition, which we believe is as attractive as ever and is reflected in the consistency of our comparable sales growth. We did implement a price increase of approximately 1.5% in mid December, based in part on our continued outlook for low single-digit food inflation this year.

Like many in the industry, our sales have started off a little soft this year, however, our comp trends remain positive, and we still expect to achieve another year of positive comparable sales growth in 2014. We also feel very good about the strength and flexibility of our balance sheet, and intend to maintain a fairly conservative approach. We hope you are excited about the increase in the dividend, and we remain committed to buying back our stock over time.

Before turning the call over to Price, I want to thank all of our operators and partners listening out there for a very profitable 2013. It is absolutely a privilege and an honor to work with all of you. And last week, we celebrated our 21st birthday as a Company, and we are really happy now that we are finally legal.

With that, I would like to turn the call over to Price.

Thanks, Scott, and good afternoon, everyone.

For the fourth quarter of 2013, we reported revenue growth of 21%, and diluted earnings per share growth of 22%. Both of these measures were positively impacted by an extra week in December or 14 weeks in the fourth quarter of 2013, compared to 13 weeks during the fourth quarter of 2012. We estimate the extra week positively impacted diluted earnings per share by $0.03 to $0.04 for the fourth quarter, and by approximately $0.04 for the year.

Additionally, during the quarter, while we benefited from a $1.8 million gain reported in conjunction with the sale of the Aspen Creek concept, the majority of this was offset by two things. First, we incurred $700,000 of employment separation costs, which was included in our G&A expense. Second, we incurred an incremental $700,000 of amortization expense relating to certain leasehold life adjustments. This amount was recorded in the depreciation and amortization expense.

From a top line perspective, comp sales increased 2.1% during the quarter, and average unit volumes increased 1.4%. Comp sales growth was comprised of flat traffic, and a 2.1% increase in average check. By month, comparable sales increased 3.4%, 3.5%, and 0.3% for our October, November and December periods, respectively. Furthermore, comp sales for the first seven weeks of 2014 increased approximately 1%.

December and year-to-date sales results have certainly been negatively impacted by inclement weather, but it is really difficult to quantify. At the end of the day, temporary things like weather disruptions do not impact how we run our business for the long-term.

In terms of restaurant margins, dollars per store week grew slightly in the fourth quarter, primarily as the result of the flow through on the extra week. Restaurant margin percents continues to be down year-over-year, as commodity inflation outpaced our pricing actions. For the year, restaurant margin percents contracted as well, however, restaurant margin dollars per store week were flat in spite of 7% food inflation.

Moving below restaurant margins, pre-opening costs continue to be up on a year-over-year basis, as they were up $2.5 million in the fourth quarter. Part of the increase is due to the fact that we opened 12 restaurants during the fourth quarter of 2013, compared to 7 in a prior year period. However, in general, pre-opening costs continue to run higher on a per store basis, as we have experienced more situations where the timing of the openings have shifted for various reasons, including permitting, and/or ensuring we have the managers in the system that are fully-trained well in advance of the store opening.

Depreciation costs included the extra $700,000 in the quarter I mentioned a minute ago. Please note the depreciation expense on a 52 week basis was spread over 53 weeks in 2013. Plus our weekly run rate on depreciation for modeling purposes will be higher in 2014 than it was for 2013.

For the year, we began excluding the impact of non-controlling interest when calculating our income tax rate, which effectively lowered our rate by about 1% to 28.9% for the full year. To be clear, in calculating our tax rate, we simply divide the provision for income taxes by income before taxes, so we no longer a factor in the non-controlling interest line. Overall, our tax rate for 2013 came in on the lower side of our prior guidance.

Moving to the balance sheet and cash flow, we ended the year with $95 million in cash, up about $13 million from last year. In 2013, we generated $173 million in operating cash flow, of which $111 million went to capital expenditures, and $47 million went to dividend payments. In addition, during the fourth quarter and for the year, we repurchased 462,000 shares of stock at a cost of $12.8 million.

We plan to continue to allocate excess capital towards paying a growing dividend and repurchasing shares of stock. In conjunction with our fourth quarter release, our Board authorized a 25% increase in our regular quarterly dividend payment to $0.15 per share, from $0.12 per share in the prior year.

Looking ahead to 2014 as Scott mentioned, we feel very good about the momentum in our business. Comp sales remain positive, and from a new store development perspective, we are on pace to have roughly half of our 2014 openings occur during the first half of the year, with a good number of those planned to be opening during the second quarter.

Beyond that, we do have a few give and takes for the year to mention. First, 2014 will have 52 weeks compared to 53 weeks in 2013, so we will lose the approximate $0.04 per share benefit from the extra week.

Second, despite recent all-time high prices as it relates to locked cattle prices, we continue to forecast low single-digit food inflation in 2014, due in part to the fact we were locked in at a higher than market prices for the majority of our beef needs in 2013.

On the labor side of things, it will be more difficult to leverage this line in 2014, as we expect our healthcare costs to be up $2.5 million to $3 million, primarily as a result of rolling out coverage to more of our hourly employees. However, we continue to gain traction on identifying opportunities to reduce non-guest interfacing costs. In 2013, we reduced our operating costs by $3 million to $4 million, and believe we can get another $3 million or so in savings in 2014.

Given our expectation on inflation, we did take an average of approximately 1.5% of pricing in December, and currently, we are seeing a little over 1% flow through in terms of increased check. Income taxes will be a headwind for us in 2014, as the Work Opportunity Tax Credit expired. Overall, we expect our tax rate for 2014 to be up 100 to 200 basis points to 30% to 31%. And finally, we expect to continue generating significant free cash flow, even after $110 million of capital expenditures.

In addition, to the previously noted increase in our quarterly dividend, we will continue to evaluate repurchasing shares of stock as we have done over the last six years, with a goal of at least offsetting the dilutive impact of stock grants. Beyond offsetting dilution, we will look to be more opportunistic, as it relates to repurchasing shares of stock.

Thank you for joining us this evening. As Scott mentioned, a huge thank you to our operators for making it happen day in and day out. You all rock. At this time, Cameron, you may open the call for up questions.

Thank you.

(Operator Instructions)

We will take our first question from Andrew Charles with Bank of America Merrill Lynch. Please go ahead.

Thank you. I just wanted to dig into the commodity guidance a little bit.

You mentioned that you took a lot of the pain last year, in terms of beef inflation. But we have recently have seen beef costs spike, as well as dairy, and presumably produce, given the California drought. ¶ So can you just talk about your assumption for beef inflation within your guidance, as well as how much of your needs are contracted for 2014? (Audio difficulties). So are you still there?

The lines are still connected.

Okay, I am sorry. Am I there?

Yes, sir, you are.

Okay.

Overall, we have got about one-third of our beef needs for this year contracted; and we are expecting to see some inflation in our overall beef basket. And we are expecting the market for beef to be up, but certainly we are expecting the market prices to be up more than our price.

Because of the fact that really last year, we were at 13% to 14%/ Our beef was up 13% to 14% in 2013, which was considerably higher than the market.

On the dairy side of things, we do have a portion of our dairy needs locked up. Overall, our commodities, we are sitting here today at roughly 35% to 40% of our commodity needs locked up.

So sitting here today, we feel pretty good that overall commodity inflation will be in that low-single-digit range.

Okay. And would you say it is feasible to see lower year-over-year cost of goods then in 2014?

It could be. It will depend on where that low-single-digit shakes out to be exactly.

But, yes, they could be flat to down slightly, depending on exactly where that low-single-digit is.

Got you. That is helpful. Thank you.

Thanks.

We will take our next question from Alton Stump with Longbow Research. Please go ahead.

Yes, thank you. Good afternoon.

Hello, Alton.

Just a quick question.

I certainly understand that it is very difficult to try to break out how much the weather impacted. But I think you mentioned that the month of December was only up very slightly versus your 2.1% comp for the full quarter.

So it is pretty clear, at least based on that read, that it did indeed have a meaningful impact on comps in the fourth quarter?

I think if you are asking the question if there was a meaningful impact of weather in December, certainly, I guess, there could have been -- probably was. We, just historically haven't spent much time trying to calculate what we think that impact is.

Remember, there was always bad weather a year ago as well. So when you are looking at it, it is not just about what is happening this year. It's sort of it was what was the weather last year.

And none of that changes what we do in our business, day in and day out, short term, long term. So we just don't spend a lot of time trying to get to a number on it.

Okay, thanks. And then just one quick follow-up.

We had heard from some of our checks that there was a portion of restaurants, that there was increased focus on the bar effort. Is that widespread? And is that an area of your restaurant that you would like to see grow, as a percentage of sales?

Alton, we would love to at least hold where we are on that. It has been an area where us and others in the industry have seemingly lost a little bit over time. And the fact that our alcohol as a percentage of our total sales has continued to come down a little bit year over year.

Currently, we are at about 11% in terms of alcohol mix. So, yes, certainly we would love to at least hold onto what we have got or grow it slightly. But our business is still about the food, and the made-from-scratch food.

Okay, great. Thanks, again.

Thanks.

And we will take our next question from John Glass with Morgan Stanley.

Thanks.

First, Price, can you just talk about the cadence of the food inflation for 2014? Does it drop right down to that low-single-digit the first quarter? Or do you kind of feather in over the year, as the contracts come due all over?

It is tough to know exactly, John.

But right now, today we would expect our second quarter inflation to be modestly higher than the rest of the year. It does not come in exactly in the first quarter because of the aging process on our beef.

So for instance, typically our January commodity inflation will be the highest. And then by quarter, it looks like, sitting here today, that our second quarter will be a little bit higher than the other quarters, more so due to the timing on the beef side of things.

All right. That's helpful.

And on the health insurance that you are offering, do you know yet, or are you getting people to take you up on this? Is this an estimate?

There have been other companies who have offered it, and they have not seen the response that they had expected. Therefore, their costs were lower. Or is this already commitments from employees that are taking it up?

Hello, John, this is Scott.

We have offered it to the folks working 35 hours and up for us. So we didn't go all the way to 30. And a smaller percentage -- I am not going to get too specific -- of folks accepted the coverage. However, some of those folks accepted more expensive coverage than we would have forecasted.

So at the end of the day, we ended up fairly close to where we thought we might be. But there is still a long ways to go on it.

I mean, this is still a new thing for a lot of people. And we are just kind of scratching the surface, I think, from an experience standpoint, just being really a month and a half into the new year.

Okay. Then the last question is on your dividend policy and your philosophy there.

It seems like you are, if I am doing this right, your payout ratio is well over 50%, which is large, I think, in the context of other casual diners. How do you think about what the right payout ratio for your business is?

Is this a signal that much more of your capital return is therefore dividends and less share repurchase? It would seem that it would have to be that way, at least in the short term.

Hello, John. This is Price. I will start on the first part of that.

But our payout ratio, we look at it more so in terms of cash flow. And right now, our payout ratio, we are paying somewhere in the neighborhood of 20% to 25% of cash flow in the form of a dividend.

And I think that is something that you have seen grow a little disproportionately early on, to our growth in cash flow. And I think sitting here, we think we can continue to grow that, at a little bit of a disproportionate rate earlier on.

We don't have a set target per se, as far as what percentage of cash flow we necessarily get that to. But we look at it much more in terms of cash flow versus EPS.

All right. Thank you.

We will take our next question from Will Slabaugh with Stephens.

Yes, Thanks. [Jerry Arbiggle] here on for Will.

Digging deeper into the comp here, I wonder if there were some regions you could point out that maybe were stronger or weaker than expected? And I guess, in even more detail, did you have more door closures year over year in December than you did the year before?

This is Price. I will take the last part of that first.

I don't know exactly how many store closures we had because, as Scott mentioned, we don't track it.

Now, on the regional side, I can tell you that in December and certainly the first part of this year as well, both the Midwest markets, as well as the stores in the Northeast, their same-store sales growth was much slower than --much lower than it was prior to December.

So in other words, both areas were running positive up until that December time frame. And then come December and since then, both of those areas are now negative as compared to the rest of the markets.

Great. Yes, that's great detail.

And switching gears, this new cloud-based back-of-the-house system that you all talked to and that front-of-the-house management system, I am wondering, given you've had a few more months with that in place, do you see any quantifiable data there around speed of service, throughput, comp lifts -- around those line items?

This is Scott.

On the back-of-house system, it is not out yet. It is only in a couple markets, so we have got a long ways to go on that piece of it.

On the front-of-house systems, our guest management systems, we certainly believe that it makes it a little bit easier for some our folks to manage so many of the parties that we have coming into our restaurant. Because there managing a walk-in party -- a lot of the parties are walk-in.

They are also managing a lot of parties that call ahead. And so you are balancing these two lists at all times. And we just went through a very, very busy Valentine's Day weekend where those systems get tested to the hilt. And so, a lot of our folks are very, very happy that we have that system.

We haven't quantified at this point what the sales lift, if any, is specifically from that particular system. There are a lot of things going on in the restaurant besides just that -- in any restaurant, whether it is what our competition is doing, what the weather is doing, and so forth. And so, it is hard to factor out one specific thing.

We kind of really look at, when we look at these type of systems, do our people like them or not, and do they believe they add value to them? So that is kind of the way we look at it.

And it is only in about half of our stores, is the guest system. So we don't mandate it in our restaurants. And if it proves to be that big of a hit, then you will see more of our operators asking for it.

All right. Thanks.

We will take our next question from David Palmer with RBC.

Good evening.

It looks like your new store productivity metrics improved somewhat. Could you perhaps talk about what you are seeing with new store AUV and perhaps the honeymoon effect?

Well, this is Scott.

Yes, I mean, our new stores, actually it has been fairly consistent. The gap between the stores, in the AUV calcs, in comparison to the stores in our same-store sales calcs.

I think we laid it out in the last report, I believe, they are about $7,000 a week or $8,000 a week difference. And that is not too far off from where they been most of the year.

I can tell you the last couple of class years, the 2011 year and the 2012 year for which we now have 12 full months of data of those class years, they are doing quite a bit better than our pro forma sales estimates. And we are generating very good financial returns, really in the high teens IRRs level for those store years.

2013 in the stores have started off pretty strong, but it is way to early to tell how those stores are going to shake out once they get past their honeymoon.

Our honeymoon really hasn't changed a lot in the last couple years. It has been fairly consistent. I mean, it does bounce around within a few percentage points, relative to the first month that we are open. But I think what you are seeing is just sort of a little bouncing around effect.

And one just follow-up. A lot of companies out there that may not have done a lot of conventional marketing/advertising on TV have been exploring ways to do things on a more local or perhaps digital basis.

Are you testing things differently that way? Or is there any changes in the way that you are thinking about marketing?

There is no change in the way we are thinking about marketing. Our approach has been forever to be very locally-based.

We do have a very big presence within Facebook and Twitter, and in other forms of social media. And we are quite aggressive at leveraging that.

But our approach has always been a very grassroots marketing approach. And we think that works really well for us, and we are going to continue down the road.

Thank you.

And we will take our next question from Jeff Farmer with Wells Fargo.

Great, thanks.

Just following up on that unit productivity question. I am curious what your development is going to look like this year, in terms of new markets versus existing markets? And I guess, more specifically, does that make a difference at all in terms of your new unit volumes?

Hello, Jeff. This is Scott.

Historically, it really hasn't made a significant difference in our average volumes for a particular class year. Really, the only new market that we have is Alaska.

Otherwise, we are kind of somewhere not too far away from where we are building restaurants. And as is typical for us, they are spread out all over the country.

But we have the same discipline process, including Kent visiting every location before a deal becomes a deal. So the pipeline this year is in great shape.

Folks are well on their way to next year's pipeline, wrapping that up. So we do feel very, very good about the momentum we have in our new stores.

And admittedly, part of that is from opening 25 to 30 stores a year and not 50 stores a year. And we think by limiting the number of stores that we do open, we end up on average with better quality in light of quantity.

All right. That is helpful. And just one more.

I am curious if you have sort of drilled down on what you expect the total investment cost per unit to be, sort of the unit level economics cost of the box in 2014? And can you just sort of compare that to what 2013 came in for us?

Well, 2013 was around $4.1 million. And again, for us, that includes 10 times the first year's rent and also includes pre-opening, which we have a very, very fully loaded pre-opening number relative to some other folks. And that will probably go up $100,000 to $200,000 in 2014.

Some of that is just what the cost of real estate, and some of that is just the cost of equipment. Building a couple stores in Alaska, it costs a little bit more to get those stores built up there.

I think we have a deal or two on Long Island that was a little bit more expensive. So we have got a few deals a little bit more expensive, and just plus general inflation.

But we are comfortable with those numbers relative to our AUVs, which of course have continued to go up over time. And we feel very, very good about what we are modeling and the chances that we have to continue to get very good returns on our new stores.

Great. Thank you.

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

Great. Thank you very much. Two questions.

Just first, on the cost side. I think you mentioned from a labor line perspective, healthcare was what you focused on. I think you said $2.5 million to 3 million.

And then from a cost saving perspective, you said roughly $3 million-plus. I am just wondering if you can give a little bit of color, at least on the labor side, how minimum wage might come into play. And on the cost savings side, what the biggest buckets are that are contributing to that $3 million-plus?

And then I have a follow-up.

Sure, Jeff. It's Price.

On the cost side, it is really to early to tell if you are talking the minimum wage that may come into effect at some point. Now we do operate in -- we have got 13 or 14 states where the minimum and/or tip wage increases or can increase every year. In a lot of those cases, it is tied to the CPI index.

And so from that, I think it is about $1 million impact for this year. But it would have been roughly that for last year's increases as well. So that is just kind of a general headwind that we have every year in terms of labor inflation in those states.

And then on the cost side of things -- on the savings, the non-guest interfacing costs -- most of our savings in 2013 really came from various supplies or paper products or certain services.

I think if you look toward 2014, most of the savings that we will see there will be on it either the other operating expense line. Or some of that may be in the food costs line, as it relates to our supply chain, and getting some better synergies and purchasing powers that might relate to produce or dairy.

But most of it in that other line would be for supplies, again, or various contractual services at the restaurant level.

Got it. And then just because you are still generating positive traffic and it seems like speed of service is your biggest opportunity, I am just wondering. I think you had mentioned in the past there is a fast casual model in test?

And I am just wondering, any kind of early learnings from something like that? How you might adopt it to casual dining, or whether there is some incremental technology you are using -- whether it is table tablets or the server handhelds -- to kind of improve the speed of service?

Well, Jeff, we have got two stores open in Oregon that have a modified service concept.

It is very similar to Texas Roadhouse. You just order food a little bit differently. You wait in a queue and you order food at a counter and then we run it out to you.

But it is more similar to our regular Texas Roadhouse: big footprint, lots of tables and so forth, and different. We are still reading the results. There are only two. Who knows where this thing will go with regard to that.

As far as the tabletop technology stuff, we have tested some things in the past. Our main vendor is NCR. We have purchased Radiant, we have purchased Aloha way, way back in the day.

And so we are pretty attuned with what is available, what is going on. And we are watching very closely to see what transpires with a number of our competitors that have announced they either have gone to tablets in some form or are ordering devices or payment devices on tables in some form.

Nationally, we are just watching those folks very closely and seeing how things go. We are very protective of the server/guest face-to-face interaction and relationship. The legendary service is the second part of our mission statement.

So again, we are a very relationship-based concept. So we are going to be watching the technology piece very, very closely to see how well it might be good for us or not.

Understood. Thank you very much.

And our next question comes from David Tarantino from Robert W. Baird.

Hello. Good afternoon.

First, a question on the pricing that you mentioned. I think you said you took 1.5%, but only 1 percentage point of that is flowing through.

So just wondering maybe what you are seeing in terms of the flow through there, and why you are not getting the full 1.5%? And then I have a follow-up related to that.

No problem, Dave. This is Price.

We did take approximately 1.5%. But in conjunction with that, we kept the price points on some of the entry-level, the lower-priced items in certain categories. So largely as a result of that, we are expecting to experience either 1% or maybe a shade more than that on the flow-through side of things. And that is exactly what we are experiencing, at least year to date on that.

Okay. Understood.

And then as you think about that level of flow through and the inflation guidance you have given netted against the cost savings -- I think last time on the call, you said you might be able to hold restaurant margin percentages flat if you get a little bit of traffic growth.

Is that still the case? What type of traffic growth might you need to hold percentages flat in 2014?

Hello, Dave. Yes, flat would be out of the question. It will depend, as you have mentioned on traffic growth for sure.

But also, it will be depend on exactly where does the low-single-digit food inflation come in at and, to an extent, on exactly where do the labor costs come in at. But with all that said, flat margin percents would not be out of the question for sure.

And hopefully, we will be able to certainly continue to grow those margin dollars. Because that is what our folks are paid off of, and that is what ultimately flows through to the bottom line and the shareholder is paid off of.

Great. That's very helpful. Thank you.

Thanks.

We will go next to Jason West with Deutsche Bank.

Yes, thanks. Just a couple housekeeping questions first, and then a bigger-picture question.

On the quarter, Price, can you tell us where the pricing averaged out for the full quarter? I know you took some pricing in December. I just want to get the number on the average for the full quarter.

Yes, the average was right at 2%.

Okay, got it.

And then the revenue number was a bit higher than we had modeled, even though the comp was a little lower. So I don't know if there was a timing issue at the stores.

Maybe some of the new stores opened early in the quarter, or maybe the extra week was a higher revenue number than we had modeled? I don't know if you had that number?

Yes, Jason, the extra week was a $90,000-plus dollar week, as compared to more like a $78,000 to 80,000 dollar week. So that would have accounted for a large part of the higher sub.

(Multiple Speakers). Somewhere on the order of $30 million -- $32 million.

That's helpful. Thank you.

And just back on the pricing question, I know you are looking at low-single-digit food inflation today, but some variability still left in that number. Just wondering how you are thinking about pricing over the rest of the year?

Are you already testing something for later in the year? Are you planning to stick with the strategy of the last year, which was wait till December on that?

Jason, right now, we are not currently testing anything. We will begin testing stuff, pricing, as we move into this year. But we will probably sit where we are at pricing-wise for 2014.

And then as we get more understanding of what the commodity markets in particular, and other costs side of the equation looks like for 2015, we will begin dialing in those expectations.

Okay, helpful. Thank you.

And we will go next to Brian Bittner with Oppenheimer & Company.

Thank you. So if you stay with the plan for 2014 as it is today for pricing, what would the full-year price impact end up being?

The full-year pricing we would have in our menu would be right at about 1.5%. But again, not expecting all of that to necessarily flow through. We took that 1.5% in the middle part of December, so it would be right about that 1.5%.

So I guess that would imply food cost inflation would definitely have to be underneath that 1.5% to get any leverage out of the COGs line, unless you are expecting some type of mix benefit this year? Is that correct?

Correct. The only caveat to that would be some of the cost savings. Some of the cost savings side of the equation could fold into the supply chain side of the business, which would hit that food cost line.

And then we do have some variability in the food costs in terms of yields. So as our yields change and can hopefully increase over time since we do our own cutting of our meat in our restaurants. As we get better and better in that regard, that can also help food costs as well.

Okay. So net-net, the improved supply chain benefits and the yield, how many basis points do you think that is for a benefit?

Brian, we don't have any idea on that. I just mentioned it as those are a couple of things that can go into play there.

Okay. All right. Thanks.

Thank you, though.

(Operator Instructions)

We will go next to Keith Siegner with UBS.

Thank you. Just two quick questions for me.

The first one. In the past, in a couple of the years of big inflation, you have had some interesting ways to help deal with the margin impacts, from select menu item replacements. You had the year where you put the photography on the extra flap to help steer people's attention towards certain products.

If the USDA is right, that we might not see beef production increases until 2017, meaning so we still have a couple years of beef inflation to go, have you thought about other things like this? ¶

Any other adjustments to the menu? Maybe doing some other things like those photography? Have you thought about anything like that? Thanks.

Hello, Keith. This is Scott.

I think we are always thinking about stuff like that as these markets continue to evolve and the world changes. Whether it is corn-related -- changes to the prices of corn -- or whether it is beef-supply related or anything else that is going on, we are always looking for an edge, if you will.

And we will continue to do that. But one thing we will be is very protective, as we have always been on: made from scratch, the quality of our food, hand cutting steaks, a very intensive service, high labor service model. And we won't let any of that change.

But things like the pictures and certain focuses on certain items, absolutely, we will continue to look on that. And you may see us add some things to the menu or remove some things over time, as we have done over the years.

We are always, always looking at that kind of stuff.

Okay, thanks. And then one other quicker question.

So Aspen Creek is gone. It looks like there is still some commitment to BUBBA's 33. Could you just remind me what the approach is or what the party line is for how you are thinking about other concepts in the portfolio? Thank you.

We would love to have something else or some things that we could grow, in addition to Texas Roadhouse. We are passing 400 stores.

We talk about the potential for Roadhouse being 700 or 800. Could it be more? Maybe. Could it be 700 or 800? Maybe. We don't know until you get there. But you don't want to wait til you get there to start thinking about other concepts. And it is so important for our people.

We could certainly raise the dividend or buy back more stock. But this is really about our people, and having opportunities of growth for our people. We recognize there is always a risk when you go to multiple concepts. It gets talked about a lot. We think that risk is well worth looking at.

Whether we start one, buy one, buy two, whatever it is -- concepts, we would always be looking to have them be consistent with the Texas Roadhouse partnership model: scratch-based food, high level of service, high level of energy and fun. Those types of things would all be things that we would think about if we were going to do something else.

Thank you much.

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

Thanks. Just a couple of questions. First, the health care plan that you put in that you referenced earlier. Just curious, is that fully ACA-compliant with respect to the benefits?

Yes, absolutely, fully ACA-compliant -- offers four different plans in our case that our folks can sign up for. So starting with the minimum they have to have, to the minimally affordable that we have offer.

Okay. And just to be clear, you said that you didn't necessarily have a higher percentage of takers. But those that did accept the offer, actually bought up at a higher rate than you would have expected.

Is that a correct summary of the earlier remarks?

Yes.

Okay. All right.

And then just briefly, Price, why is the depreciation per week going up? Is it just a little bit of bounce in the cost of build, or is there something else going on that we should think about?

If you are talking specific to this fourth quarter, we had a $700,000 dollar kind of catch-up in there included in Q4.

No, I am sorry, I was referring -- and maybe I misheard it. I thought, when you were talking about items, puts and takes for 2014, that one of them was that the depreciation per week will be rising.

It will be rising from the standpoint that given the fact we had a 53 week in 2013, in essence what happened is we had 52 weeks of depreciation spread out over 53 weeks of results. And so on that virtue alone, when you shift back to a 52-week year, your weekly run rate on depreciation increases.

It should only affect fourth quarter though, right? Because the first three quarters will be 13 weeks against 13 weeks? You just said 13 weeks of depreciation in a 14-week quarter in Q4? Correct?

No. Because when we have a 53-week year, we take 52 weeks of depreciation and spread that evenly over 53 weeks --

Wow. That is -- (Multiple Speakers).

Versus having a free week, if you will in the fourth quarter. (Multiple Speakers). So I want to make sure that you all were aware that from a weekly run rate perspective when you are modeling, that that's going to increase in 2014.

Okay. Well, that is pretty complicated. (Laughter).

Not just -- accrue the extra -- ignore the extra week and not worry about it. But okay, thank you for that clarity. That's helpful. (Laughter).

Thank you, Bryan. (Laughter).

All right.

And we will take our next question from John Ivankoe with JPMorgan.

Hello, thank you.

We haven't talked in a while about some unit development opportunity that you may have, kind of let's say within the city rings, especially in some of your better markets where you are very successful with maybe a lot of customers that maybe live in more expensive real estate areas, haven't had access to your brand?

So what is the thinking? Are you testing that? Is it still on the table?

Hello, John. This is Scott.

We have been going a little more in that direction. For example, we just opened in New Rochelle, New York, at the bottom of a Trump building.

And so it was quite the adventure to get the restaurant opened. But we did get it opened, and that is almost as urban as it gets for us. We had opened another store out in Long Island.

And so we are looking in a number of different places that are more urban -- Chicago would be one -- that we are starting to go maybe inside some of the loop highways that go around the bigger cities, where it is a lot more expensive real estate, more expensive wage rates, and obviously requires maybe a little bit higher pricing for us to make it all work.

And that is interesting. So you would have different pricing? I mean, I guess, you just alluded to that.

But I would also think that maybe things like pre-opening per store could actually be lower, especially if you could be training from a store in an existing market, maybe get a manager from that existing market.

So it seems like there would be some positives. Maybe some negatives, but probably more positives than negatives in pursuing that.

So can you give a sense of what percent of that pipe of development is for 2014? Or do you not want to be that specific?

I would tell you, it is very low percentage. I mean, just a couple of deals I would say. And also it depends -- what's your definition of urban even.

The nice thing about some of these like a New Rochelle, there are so many people within just a couple miles of the location.

We are opening in Miami later this year, kind of in a very highly populated part of Miami just west of the city that we are very excited about -- a lot of people within just a few miles of the restaurant. But again, expensive real estate.

Thank you.

And that concludes today's question and answer session.

Ms. Robinson, at this time I will turn the conference back to you for any additional or closing remarks.

I would like to thank everyone for joining us tonight, and please give us a call if you have any additional questions. Have a great night.

Thank you.

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