Texas Roadhouse Inc (TXRH) 2014 Q2 法說會逐字稿

Good day, and welcome to the Texas Roadhouse, Inc., second quarter 2014 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I would now like to introduce Tonya Robinson, Director of Financial Reporting and Investor Relations. You may begin your conference.

Thank you, Stephanie, and good evening, everyone. By now you should have access to our earnings release for the second quarter ended July 1, 2014. It may also be found on our website at TexasRoadhouse.com in the investors 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 Investors section of our website. On the call with me today is Kent Taylor, our Founder and Chief Executive Officer, Scott Colosi, our President, and Price Cooper, our Chief Financial Officer. Following their comments we will open the call for questions. Now I'd like to turn the call over to Kent.

Thanks, Tonya, and good evening, everyone. We are pleased to report solid results for the quarter starting with healthy revenue growth from a combination of continued growth in new restaurants and comp sales. Although we did get back some margin percents, we generated solid profit growth which is pretty cool especially in this environment.

While we are pleased with our continued momentum, we don't take our success for granted. Our operators regularly challenge themselves on ways to drive traffic, tighten processes, and improve execution, all while improving the guest experience. One of our main objectives to provide the resources to help them meet their goals through continued investment in our people and infrastructure. We recently met with all of our market partners for two days of collaboration where we shared best practices and discussed ways we can raise the bar on legendary food and legendary service. It is evident to me that our team's commitment to our guests and their passion for Texas Roadhouse continues to make us even stronger.

Switching to development, our new restaurant openings continue to have good results. As you might have noticed in our release, we have modified our new unit expectations for 2014 to approximately 25 units as we have had a few deals slip back into early 2015. Looking ahead, we are in good shape at this point to open another 25 to 30 restaurants in 2015, and our international pipeline, while small overall, continues to build.

Overall, I'm very proud of our results and what we are accomplishing at Texas Roadhouse. I want to say thanks to everyone on the team for continuing to make legendary food and legendary service happen. Now, I will turn our call over to Price who will walk you through our financial update.

Thanks, Kent, and thank you all for being on our call today. For the second quarter 2014 we reported a double-digit increase in revenue and earnings growth. Costs associated with our annual managing partner conference were much lower year-over-year which did help on the earnings side.

Starting at the top, our revenues increased 12.3% as a result of a 9% increase in store weeks, and a 2.4% increase in average unit volume. Average unit volume growth was again outpaced by comp sales growth of 2.9% during the quarter. Comp sales were split about 50/50 between traffic and check growth as traffic increased 1.5% and average check was up 1.4%.

By month comparable sales increased 1.6%, 3.4%, and 3.7%, for our April, May, and June periods, respectively. Recall April comps were a little way down by the shift in the Easter period. Also, as we reported in our release July comps increased 4%. Restaurant operating profit increased 9.6% or $6.2 million for the quarter compared to the prior year, a little less than our sales growth. While restaurant margin dollars grew both in total and on a per-store week basis, restaurant margin percents decreased 45 basis points for the quarter compared to the prior year.

As we anticipated, we lost some leverage on both the cost of sales and labor lines this quarter. Food inflation of 3.8% outpaced our check increase of 1.4%. Our food inflation in the second quarter as compared to the first quarter was driven by beef, dairy, and produce costs being higher year-over-year. Some of this was the result of how we contract certain items. We expect that food inflation in the second quarter will be the highest that we experience for the year. Overall, we continue to expect low single-digit food inflation for 2014.

On the labor line, higher healthcare costs and the reclass of some costs from other operating drove margin compression. We're seeing average wage rates increase basically in line with our average check increase, however, we expect that it will be difficult to leverage labor in 2014 with the ongoing combination of healthcare costs and increases in the reclass.

As we did in the first quarter, we gained leverage on the other operating costs line. The improvement versus the first quarter was driven by deceleration and utility cost increases versus the prior year. We expect to leverage this line for the full year; however, the third quarter is much more difficult as we overlap a $1.3 million general liability insurance credit from the prior year.

Preopening costs were up $215,000 this quarter as compared to the prior year. We opened one less restaurant this quarter, however, we continue to see higher preopening costs on a per-store basis. We did slightly modify our store openings expectations for this year; however, we do not expect any real benefit on the preopening line as the delayed openings were just pushed back until early 2015. We will still have many of the preopening costs hit this year.

Depreciation costs were up $2.2 million this quarter compared to the prior year, primarily due to depreciation on new restaurants. G&A costs were down $500,000 or 80 basis points as a percentage of revenue versus last year. Costs associated with our annual managing partner conference came in below expectations and were $2.4 million lower than the prior year. Thus on a reported basis, we showed considerable leverage on this line. Factoring out the change in conference expenses, which was about 70 basis points, the leverage was more modest as we continue to invest in supporting our business.

The income tax rate for the quarter came in at 29.8%, which is higher than the 29.2% rate last year primarily due to the expiration of the Work Opportunity Tax Credits at the end of 2013. We continue to expect our full-year rate to be 30% to 31%, which is up from the 2013 rate of 28.9%, in large part due to the expiration of the same tax credits. We ended the quarter with $77.5 million in cash, a decrease of $13 million from the end of the first quarter.

During the second quarter, we generated $36 million in cash flow from operations. We spent $31 million on capital expenditures, $10.5 million on dividends, and $7.6 million to repurchase 300,000 shares of our common stock. With the 1.7 million shares of stock we have repurchased over the course of the last 12 months our total share count was down on a year-over-year basis. As we discussed last quarter, we have continued to allocate a portion of our free cash flow towards share repurchases and plan to do so going forward.

Finally, on the development front we continue to expect our capital spending to be $100 million to $110 million with 2014. With that said, I'd like to turn the call over to our President, Scott Colosi.

Thanks, Price, and good evening, everybody. We're very pleased with our results for this quarter, particularly our strong comp sales results which have continued into the third quarter. Solid sales performance at our new restaurants is also very encouraging, and we continue to generate targeted returns even with increasing average development costs.

As of today we've opened 14 Company restaurants this year and expect another 11 openings for the remainder of the year. While we target 25 to 30 Company restaurant openings each year, issues with permitting, construction, or weather can push openings during the year. These delays are short-term and do not reflect any change in our long-term development strategy. It's just the nature of the development process.

In general, our goal is to continue driving double-digit top line growth and solid earnings growth for the foreseeable future. We expect to maintain a healthy balance sheet and generate more than enough cash flow to provide new store growth and the maintenance of our existing store base. Additionally, we'll continue to balance the return of our excess cash flow through a combination of dividends and share repurchases.

Lastly before we open it up for questions, I want to thank all of our operators for their continued commitment and performance. Stephanie, you may now open the line up for questions.

(Operator Instructions)

Brian Bittner, Oppenheimer & Company.

Thank you. Hi, guys. Good afternoon. Your traffic continues to be very impressive, and aside for the legendary food and legendary service which obviously is working very nicely, is there anything else that you can point to that may be driving the traffic? Has there been any capacity improvements within the stores or bump-outs within stores in the system that's helped, or anything else you can point to on the traffic side?

Hi, Brian. This is Price. I'll start with that. We definitely continue adding seats. We call them bump-outs, as you mentioned. We continue doing that in our restaurants. We're up to about 130 restaurants where we've added seating capacity. That's certainly helping out a little bit on the sales front, and as you mentioned, I think a lot of it is just really that intense focus on the operational side of the business. We also, as I think you're aware, are very involved in our local communities, and our community involvement and local store marketing while it's tough to quantify exactly what that is we believe that's part of what continues to drive our traffic.

Okay, and then a quick follow-up, and then I'll be done. As you look into 2015 and think about the labor line, do you think that's a leverageable line item in 2015, if you see similar comp sales that you are generating in 2014? A little more color on maybe the incremental puts and takes on that labor line in 2015.

This is Price. It could be, Brian. Hopefully, it will depend on what we do pricing-wise, and as you mentioned what overall sales are. If you're thinking about the puts and takes on that line, we do have another round of the healthcare rolling out, so we'll expand that down to those employees working 30 or more hours. That will be another couple million dollars we estimate of impact similar to what we are experiencing this year.

Then we'll continue to have more and more states. I think we're up to now, there's 20 states which we operate in that have their own tip and/or minimum wage increases. We'll have that working against us again next year. With all that, depending on what level of pricing, and ultimately overall sales, it could be a line that you could hold margin on anyway. Part of why we're losing some this year is a little bit of a reclass between other and the payroll line which is about a 15 or 20 basis headwind a quarter.

Thanks.

Andrew Charles, Bank of America Merrill Lynch.

Thank you. It looks like July sales decelerated a bit on a two-year basis for May and June, and I was wondering if you just talk about what you experienced in July?

Andrew, this is Price. Overall, July and overall at up 4%, with two and half points of that being traffic, we'll definitely take that any of the week. Nothing big. We probably did lose out a little bit on July 4. We had a little bit of a calendar shift in the timing of when July 4 is that impacted us a little bit. Overall we'll definitely take 2.5% traffic and 4% overall comps.

Sure, no, it's no discredit to yourselves. Obviously, a very stellar July. I appreciate the commentary. Also, it doesn't sound like you're testing any price this summer. I know it's something you've done the last two summers, so I just wanted to know what changed in the mentality for it?

This is Price. You're right; we don't have any official test out there although we would remind folks that we've got between 10 and 15 different menu price tiers out there in general in our system. In essence, we are always testing different price barriers, as we've taken pricing on those different tiers over the course of the last several years. We'll be looking at that data over this fall time frame as well as continuing to get a clearer picture on what we think the overall inflationary environment will be like into 2015, specifically on the commodity side of business to help us dial in on what we do pricing-wise during the latter part of this year.

That's helpful. Thank you.

Jeffrey Bernstein, Barclays.

Great. Thank you very much. Two questions. One maybe looking at throughput, I know you talked about the bump-out for the adding of seats. That obviously helps meet the demand. I'm just wondering if there's any update in terms of the capacity constraints that the broader system is facing, stripping out bump-outs, whether you look at it that way in terms of the percentage of the system that has opportunity from a capacity standpoint, whether you're testing tablets or handhelds or other initiatives to ease that pressure? Then I have a follow-up.

This is Kent. We've got units that do over $7 million with the same prototype is our other units, so I think we've got plenty of capacity left.

Got it. Is there any update? I know you were talking about different means of technology, whether the servers or the people seating people, or anything along those lines?

Hi, Jeff. This is Scott. Yes, we are, in a couple of our stores, we've been testing either some version of a handheld ordering device with a couple of our servers, online ordering for carryout. We're dipping a little toe in the water on a few things. As I think most of you know we've experimented in the past with pay-at-the-table devices. We're not doing anything currently, but we are watching a lot of what other folks are doing and attempting to learn from the experiences of some of our competitors in the business.

We've been expanding the reach of our guest manager system which is a host guest seating system which we're putting in more and more of our restaurants to automate more of that process as well. We'll continue to see that expand across our system as the years go on. I think it's at about 60% of our system today, something like that, 60%, 65% of our system today. I anticipate that will continue to grow and reach as the years go on.

Just related to that, the opportunities to mitigate the margin pressure, I know in the past we've talked about, it's like $2 million to $3 million in 2014 of cost savings. I'm just wondering whether that's something we should assume can be sustained in future years, maybe what the biggest buckets are, if that's still an opportunity to do that in 2015 and beyond?

Hi, Jeff. This is Price. We definitely think that's sustainable for the next few years. We're estimating we can get somewhere in that $3 million range this year. A lot of that early on here between last year and this year, and even heading into next year is around supplies, chemicals, services at the restaurant level, a little bit on the procurement side, and some efficiencies there, on gaining maybe a little bit better purchasing power as it relates to certain items like, say, produce in particular. We feel like we've still got some room there to continue to help offset a little bit of that margin pressure, even going forward into next year.

Understood. Helpful. Thank you.

Jonathan Komp, Robert W. Baird.

Price, first, if I could just ask a clarification on the cost of sales ratio. I think you mentioned in the prepared remarks that the third quarter could have the highest food inflation year-over-year. I just want to confirm what that might mean for the cost of sales ratio. Do you think it could be approaching the mid-35% range or even higher than that? What's the thinking there?

Jon, just to be clear there, we were expecting second quarter to be our highest inflationary quarter in terms of food inflation, not the third but rather the second.

Okay. Got it. Thank you. If you look to the back half of the year, do you think it could be in the 35% range, or as a percent of revenue? How should we think sequentially as you look at the balance of the year for the food inflation?

It's tough to say exactly what it'll be, Jon. Certainly mathematically you could get there on a low single-digit, but it depends on what that low single-digit ends up being, to be honest with you.

Okay. That actually was a follow-up question I had. You held full-year guidance for low single-digit food inflation. Has your thinking within that band which is fairly wide changed at all versus a couple months ago? What are you thinking in terms of your expectations there?

It's really not a whole lot different from our expectations were last time we spoke to you. We were expecting the second quarter to come in at the highest. Part of that had to do with the way we had contracted certain proteins in last year. Certainly that's what's proven out thus far, is that the second quarter definitely came in higher. We've already seen some of those costs subside. Some of that's driven by seasonality pricing. We still feel good about that low single-digit food cost inflation for the year.

Got it. Then with the recent movement in live cattle futures market and some of the other beef indicators, if the current prices for some of the market indicators would hold, could that portray possibly more inflation as you look into next year? How should we think about that in that scenario when you potentially look to taking more pricing than you typically have in the last couple of years? Any thoughts there?

Hi, this is Price. As we think about next year, it's a little too early to speculate on exactly what that means. As you alluded to, definitely it's a tight supply out there. Sitting here today, we would definitely expect inflation of some amount for next year. Exactly what that is, we don't know. We'll be talking with the packers and some economists as we approach the next few months here, and certainly that'll be a factor in helping us determine what ultimately we end up doing pricing-wise in the latter part of this year.

Okay. Thank you very much.

Thank you.

Will Slabaugh, Stephens, Inc.

Thanks, guys. Two quick clarifications if I could, Price, as far as the commodities go can you update us on how far your lock on beef, if you gotten very far into 2015, if at all, at this point? Then second question there is just to clarify, I think you said of us in the call, you were at 25 to 30. Now you're 25 stores for the year. You said that was all third-party issue, and out of your control, correct?

Correct on the stores. Basically, we had a few slide into ultimately the early part of 2015. On the beef, we do have some contracted through the balance of this year, and as we talked about last time, I'm not going to get specific on exactly how much that is, but we do have some locked up through the balance of this year.

Great. Thank you.

John Glass, Morgan Stanley.

Thanks. On the unit growth, understanding that there are things outside your control that happen, some companies land bank, or said in another way, somehow they get more sites in the pipeline than they actually need, in case those eventualities happen. Do you typically do that, or not do that? Did everything just really break the wrong way this year, and that's why you ended up at the bottom of the range?

This is Kent. Sometimes we have third-party approvals. The landlord will tell us it's going to take a month, and next thing you know, it takes five or six months. We have absolutely gotten more aggressive for next year trying to get on the front end of it because we continue to have more issues like that in the last two years. I would say that we're going to be a little stronger the next two years as we get ahead of things.

John, this is Scott. I would tell you also in addition to what Kent said which absolutely we see happening and pushing some of the deals, we're also trying to balance on the preopening side. We're really trying to control our growth, if you will, but at the same time, not have so many sites where we're paying for a lot of folks for a lot of longer period than we have to on preopening end. We're trying to balance that and be reasonable in how large we're letting that pipeline build up to.

That actually makes a lot of sense. When you think about the labor line longer term, the things you mentioned let next year, whether it's state minimum wages, whether it's healthcare, those don't go way. They'll probably get worse, in fact, I would think over time. I know you've been reticent in the past to reduce labor in any way, and maybe somewhat reticent to use technology to reduce labor in the restaurant. Are there new ways you're thinking about that if this is going to be kind of a perennial challenge, balancing labor costs?

Hi, John. Price. Part of next year, will be the healthcare. I think you're right in the fact that we'll continue to experience some amount of healthcare insurance inflation going forward, but part of what's hitting us this year as well as next year is the fact that we're rolling out coverage to a larger group of team members. We wouldn't expect necessarily that you would have that every year. As far as on a go forward basis, we haven't talked about reducing our servers to table ratio for taking labor out of the stores yet. In fact, that's part of what we think is helping to drive the solid same-store sales results. That's not to say that if the overall backdrop didn't change entirely, we'd have to talk about what that meant to us. As it stands right now, we're very committed to the service levels that we have, and so that's a big part of our overall value equation and sales driver.

This is Scott. I would say that sometimes we may have folks that want to sell us on the idea that if you buy a labor system that you can reduce number of people you have and still provide great service. As somebody who's in the hospitality business, I feel very comforted by the fact that we still have the same staffing levels that we've had for a long time. Someone asked earlier about, how do you keep growing traffic? I would say that a large part of that is we continue to staff our restaurants with a lot of folks to give great service, both friendly service and fast service, on the speed piece and the back of house.

Thanks very much.

Andy Barish, Jefferies & Company.

Hi, guys. Just on the sequential food cost, I look back historically and 2Q is usually a down period of food cost from the first quarter. Is there something different that's gone on, sequentially in this quarter? You mentioned contracting a couple times. What's change there?

Andy, Price. Seasonally, a couple of our cuts of beef are seasonally higher during the second quarter of the year. Last year, we had more fixed price contracts in place for our beef needs. That leveled that out, and so as you're more on the market, say, for beef you're paying those higher prices during this quarter. Does that make sense to you?

Yes. That makes a lot of sense. Then I guess I know it's too early on 2015, but am I wrong in thinking that you guys are advantageous to the market this year, after being disadvantaged last year? The logic seems like it's going to be tougher to contract at an advantage next year? Is that the way this process works?

We don't know about next year, but what you say about this year is definitely right. If you look at, for instance, what beef's been up, the market basket of our goods is up considerably more than our overall beef costs are, if you're talking beef alone this year.

Sure.

I don't know about how that plays into next year, but your logic makes sense in the fact that you would think that we would be closer to the market on the beef side of things.

Okay. Thanks.

(Operator Instructions)

Jason West, Deutsche Bank.

Hi, guys. Just more on the labor side, there's been some talk that maybe we'll get a tip wage increase at some point. Just wondering if you could talk order of magnitude, how important a tip wage move is versus just minimum wage, which we tend to see more frequently at the state level. If you could just talk about that, it be great.

Hi, Jason. This is Price. Not getting in the specifics of it, but as you well imagine for us and anybody in the full service industry, a tip wage is definitely more of a direct and meaningful impact because it's a typically dollar-for-dollar change on a lot of your front of house employees.

We have faced that before in a number of states, I think Colorado, Arizona, Ohio, and maybe a few others in there, that went up quite a bit four, five, or six years ago, on their tip wage from $2.13 upward close to $4. It's a big change because it impacts every employee at that level unlike the regular minimum wage which doesn't necessarily impact every employee overnight. We'll get through it, if that was to happen. We'll deal with it like we've done before.

It looks like Andy's line has disconnected from the conference.

Alton Stump, Longbow Research.

Hi, guys. It's Brittany Whitman on for Alton today. I just wanted to see if you guys had any thoughts on new products coming up? I know it's been a while since there's been a major product launch, and just wanted to wrap my head around that.

This is Scott. Yes, we're typically very consistent and steady on our menu, and we're always meeting with our food team and looking at new potential items or revisions to any current item. Currently, we don't have any plans for any real big changes to our menu.

Okay.

This is Kent. We always are testing some items, but we have a philosophy that if you add one, you take one off. We've been testing quite a few things, but nobody can find something to take off to add it.

Okay. That makes sense. Then, do you guys have any color on the competitive environment you're seeing, particularly if any steak house competitors are getting more rational on discounting, given higher meat costs lately?

This is Kent. Go ahead, Scott.

I would say we haven't really talked about anything substantially different from the competition. Maybe we've seen a little less of the extreme discounting from some of the casual diners, but it's still a very, very competitive industry. We've got to be very careful on our own side on our own pricing and the options that we have in our menu.

Okay. Great. Thanks guys.

David Palmer, RBC Capital Markets.

Congratulations. (inaudible)

David, we're having a hard time. We can make out what you're saying, David. I don't know if you on speaker.

Can you hear me better now?

A little bit better. (multiple speakers)

I'd appreciate (inaudible) management system, where is the benefit to your (inaudible) that you're getting from that?

I think he's talking about them guest management system in the throughput we get on that system. That really varies by store and how much each individual managing partner and their team are using all aspects of the system. It definitely helps our folks keep track of really two sets of guests, guests that are calling ahead, and putting their name on the list remotely, and guests that are walking in off the street and putting their name on the list. Certainly, we think it has the potential to contribute to a little bit faster turns in our system. Certainly, it creates a lot more stability at a place in our restaurant that can be very chaotic on almost any night of the week.

You mentioned that you also had a recent meeting with your managing partners. What were some of the best practices (inaudible), what are some of the key initiatives that you were talking about at that meeting?

This is Scott. At our market partner meeting some of the best practices we talk about are real estate sites with our market partners, in addition to leveraging some of the infrastructure we've invested in to help us on both the food in the service side as well. We talk about specific programs, and the people we had to help, whether it's with training, education, various means of support.

Thank you very much.

Steve Anderson, Miller Tabak.

Good afternoon. I decided to jump on the call a little bit late, but I wanted to get the monthly breakdown on your same restaurant sales.

Sure, Steve. This is Price. In April, May, and June, up 1.6% up 3.4%, up 3.7%.

Great. Thank you.

Robert Darrington, Wunderlich Securities.

Clarification on one item, Price, is the menu pricing for the second half of the year, could you give that to us for Q3 and Q4. I apologize if I missed that.

No problem, Bob. We took a little over 1.5% last December. That's basically what we'll have in effect for the third and fourth quarters.

Okay, all right. It'll be the same. Secondarily, Scott, could you help us for a second on the loyalty program that you have at Texas Roadhouse? How many folks participate within that? What kind of trend have you seen? Is it growing? Any kind of color would be helpful.

It's an email database loyalty program. I believe we have about 6 million folks signed up now, and our restaurants have the ability to communicate individual messages to their specific databases. They take advantage of that all the time, and there are all sorts of different deals. Then, we can also leverage it for some of our more national programs, if you will, which would be like a Valentines Day, or gift card season, Mother's Day, those types of things.

That's helpful. One thing that I noticed, I think recently you had maybe a contest for a trip, maybe it was to Hawaii, if I remember correctly. I think more recently there was another one that you had come out. Does the participation and the interest vary depending on what kind of an offer you provide?

That's something I don't know how varying that's been. Certainly a trip to Hawaii's going to get more interest than some other contest that we have, but a lot of it depends on the local practice of each restaurant. What specifically they're giving away is going to dictate typically how much interest is involved. We do have a pretty high opening rate on our emails that go out, so we're pretty encouraged by the database itself and the effectiveness we think that it has with our guests.

Bob, this is Price. That is an opt-in program and as Scott mentioned, it can be local. It can be set up localized at individual store level, individual market level, overall Company levels. That's why we don't always know at any given point in time exactly what the message is for a specific store.

In other words, if you had a lapsed user the message might be a little bit stronger than otherwise?

It could be. It wouldn't be as driven for that specific user, as it would be for that specific location.

Got you. Terrific. Thank you. I appreciate it.

(Operator Instructions)

David Carlson, KeyBanc Capital Markets.

Hi, guys. Price, quick question for you, I think you said that commodity inflation was 3.8% for the quarter. I apologize if I missed this. Did you spell out what beef inflation was?

No, I'll tell you, beef was up a little more than that. I didn't spell it out, but it was up a little bit more than that, like mid-single digit range for the second quarter.

Do you think that that may have also peaked in the second quarter, or any expectations for that?

Yes, we think that's what drove our peak in food inflation. Yes, we would expect that to be the highest in the second quarter.

Okay. Then one additional question on preopening expense, it crept up a little bit. I know you guys said it's costing little more to open each unit. Should we anticipate something $700,000 range plus on a go-forward basis, as opposed to traditionally, it's running in the $600,000 range, $650,000 range?

Right now, it's running about $600,000. For modeling purpose, you could have more than that hit in any given one year depending on the timing the opening.

Sure. Okay. Thank you.

John Ivankoe, JPMorgan.

Hi. Thank you. I was hoping if I could be reminded on your use or opportunity around actual versus theoretical food costing. We've heard other companies that have had some success and putting it in. They anticipate having some success putting it in. With your Company concept in particular that hand cuts each meat in-store, just wondering how much variance there may be in terms of your actual food cost relative to what the specs may suggest. Thanks.

Hey, John. This is Scott. There are two sides to that. One is certainly there's a variance which could imply an opportunity to make the food with less waste if you will, but there's also the opportunity to make sure that we're executing the recipes correctly. Our recipes have a lot of pieces to them with everything being made from scratch, and so it's a great check sometimes to make sure that we're using the right amount of all the correct ingredients in our recipes as well as it is to mitigate waste in our stores. It's both angles that we look at that.

We do have a variance. It's not a huge variance over the theoretical, but we're a very decentralized Company, so we let our individual operators use those reports as they see fit. Some may be using it more than others. Some may be pushing a little harder than others, just like some may invest more in local store marketing than others or community involvement or other things, as best as they see fit for their restaurant. It's really across the board and quite varying depending upon which operator or market that we're operating in.

It does sound like the system is in place to the most of its ability. It's something just for the measurement that already exist and isn't necessarily a wholesale opportunity from here?

We just rolled a cloud-based version of our back office product, of which the food costing piece is a big part of that, and literally just in the last couple of weeks we hit the last few stores with that. It's quite a bit rollout. You're talking over 400 restaurants for us to do that, and so a lot of our operators have gotten more engaged than they ever have before because we've had more training than we've had before with the rollout of the new cloud-based system for them. I anticipate will see a little bit of improvement I think in how well we are able to use the system.

Interesting. Thank you.

Peter Saleh with Telsey Advisory Group.

I just wanted to ask about the international units being opened, and how does that pipeline shape up for the rest of this year and into 2015? Should we expect that to ramp up at all as we go into 2015?

This is Kent. We might have between three and five next year, so nothing insignificant.

Okay. Then just on the G&A investments for international, are most the G&A investments already made and are already there, or should we expect more G&A investments as you guys add more restaurants in 2015?

This is Kent again. We're really actually making money internationally when you look at our cost of the people involved versus the income coming in. We added maybe a couple of people a year. That's about it. We're franchising most of our stores internationally.

Thank you very much.

There are no further questions at this time. I'd like to turn the call back over to the management group.

We want to thank you all for joining us, and have a great night.

This concludes our conference. Thank you for your participation.