Texas Roadhouse Inc (TXRH) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

I would now like to introduce Scott Colosi, President and Chief Financial Officer. You may begin your conference.

Thank you, Kevin, and good evening, everybody. By now, you should have access to our earnings release for the fourth quarter ended December 30, 2014, that 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. The 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 Tonya Robinson, our Director of Financial Reporting and Investor Relations. Kent's going to give you some general comments about the business and Tonya is going to follow up with the financials. Following our remarks, we will then open the call up for questions. Now, I'd like to turn the call over to our founder, Kent Taylor.

Thanks, Scott. We are pleased to finish 2014 with significant comps sales growth momentum. Comps during the fourth quarter increased 7% at our Company restaurants and included an increase an traffic of 5%. For the full year, our comps increased 4.7%, of which 3.2% was an increase in guest counts.

I want to take a second to thank our operators who continue to do a legendary job of taking care of our guests and building sales, especially in the face of continued inflationary pressures. On a full-year basis we achieved double-digit revenue growth for the fourth quarter in a row and grew diluted earnings per share almost 13%, excluding the impact of the extra week in 2013.

Our solid comp performance has continued into 2015, with comps up 12% through the first seven weeks of the year. Tonya will talk more about those numbers in a moment.

For 2015, we remain focused on doing the right things for the long-term success of Texas Roadhouse. Ongoing food cost pressures and higher healthcare costs will be a hurdle for us this year. Challenges such as these will always exist to some degree, and we will continue to tackle them head on.

In response to some of these inflationary pressures, we completed the rollout of an average menu price increase of 1.8% in late November. While this pricing action will not be enough to completely offset inflationary pressures this year, our goal continues to be balancing short-term profit growth with protecting the long-term positioning and value of Texas Roadhouse. We believe that has served us well in the past and will continue to do so in the future.

On the development front, we opened 22 Company-owned Texas Roadhouse and 2 Bubba's 33 restaurants in 2014, as well as 6 franchise restaurants. Five of the franchise openings were international, including our first location in Taiwan.

Our pipeline for 2015 is in great shape, as we expect to open 25 to 30 new Company restaurants, including as many as 5 Bubba's 33 locations. In addition, we expect our franchise partners to open four to six restaurants, with as many as four of those outside the US.

Our primary focus is and will continue to be Texas Roadhouse, where we have significant opportunities to grow both domestically and internationally. We realize that the development of Bubba's 33 is important, not only for the long-term growth of the Company, but also for the growth opportunities it brings to our people. Now Tonya will provide the financial update.

Thanks, Kent. Before I begin my discussion of results, I want to remind everyone that 2013 included an extra week, which added $32 million in revenue and an estimated $0.03 to $0.04 to diluted earnings per share for both the fourth quarter and full year of 2013. Both revenue and earnings growth for the fourth quarter and full year of 2014 were negatively impacted by lapping the extra week. My discussion of our results will be based on reported results, which include this negative impact.

For the fourth quarter of 2014, net income was $18.6 million, or $0.26 per diluted share, which is a 10.9% increase over the prior year. Overall, revenue growth of 7.6%, along with lower G&A costs and a lower income tax rate, helped offset the impact of higher food cost inflation.

Revenue growth during the fourth quarter was driven by a 6.7% increase in average unit volume. In addition, we continued to see strong sales performance at our newest locations. On a 13-week basis, comp sales increased 7% during the quarter, comprised of 5.5% traffic growth and a 1.5% increase in average check. By month, comparable sales increased 7%, 5.8% and 7.9% for our October, November and December periods, respectively.

As Kent mentioned, trends have remained positive during the first seven weeks of 2015, with comps up approximately 12%. We did have some positive benefit in early 2015 due to the New Year's Eve shift between years.

Restaurant operating profit increased $2.8 million, or 4.5% for the quarter. While restaurant margin dollars grew both in total and on a per-store-week basis, margin percentages were down 47 basis points for the quarter and 26 basis points for the year, as commodity inflation outpaced our pricing actions.

Food cost inflation was 4.5% for the quarter, leading to full-year inflation of just over 3%. On the labor line, strong average unit volume growth during the quarter more than offset the impact of higher healthcare costs, wage rate inflation, and the reclassification of some costs from the other operating line.

Below restaurant margin, pre-opening costs were lower on a year-over-year basis, primarily due to fewer restaurant openings this quarter compared to last year. That was somewhat offset by higher pre-opening costs on a per-store basis.

We have experienced more situations where the timing of store openings have shifted for various reasons leading to increased pre-opening costs. Much of the increase relates to management team costs, since we hire new managers well in advance of the store opening.

Depreciation costs were up $800,000 this quarter compared to the prior year. The impact from new restaurants, along with increased CapEx spending at existing restaurants, was partially offset by overlapping a $700,000 increase in amortization expense related to leasehold life adjustments in the prior year. In addition, the pro rata allocation of depreciation expense last year, due to the extra week, helped comparisons this quarter.

G&A costs were down $366,000 in the quarter, primarily due to an extra week of costs in the prior year, as well as overlapping approximately $700,000 of one-time costs from last year. These impacts, along with strong guest traffic growth, helped us leverage G&A costs by approximately 48 basis points in the quarter.

The income tax rate for the fourth quarter was 27.7%, which was lower than the 29.3% rate from last year, due to the retroactive reinstatement of the Work Opportunity Tax Credit at the end of 2014. For the full year, our rate came in at 30%.

Moving to the balance sheet and cash flow, we ended the year with $86 million in cash, down about $9 million from last year. In 2014, we generated approximately $192 million in operating cash flow, of which $124 million went to capital expenditures, $31 million went to dividends, and $43 million went to share repurchases. In total, we repurchased 1.675 million shares in 2014.

Looking ahead to 2015, we feel very good about the momentum in our business. As Kent mentioned, we are targeting 25 to 30 Company openings and expect to continue to drive positive comparable restaurant sales growth.

The cost of beef remains a pressure point for us, as cattle supply continues to be low. As such, we currently anticipate 3% to 4% food cost inflation for 2015. Given how food cost inflation played out in 2014, with less than 1% inflation in the first quarter, and then rising throughout the year, our current estimates assume that we will see our highest inflation in the first quarter of 2015. This means that food cost inflation in the first quarter of 2015 could exceed the high end of our full-year range.

On the labor front, we expect our healthcare costs to be up $5 million to $6 million, with a further expansion of coverage to employees working 30 hours or more. In addition, we expect some headwinds from ongoing state minimum wage increases.

As Kent noted, in anticipation of these expected pressures, we took approximately 1.8% in menu pricing in late November. In addition to the benefit from pricing, some of the cost pressures we have discussed will be partially offset by our ongoing focus on cost-savings initiatives, where we believe we can save another couple of million dollars.

Below the restaurant margin line, I will give additional color on a few items. First, we expect depreciation and amortization to be up in 2015, as a percentage of revenue, due to an increase in our capitalized cost on new restaurants, along with an increase in the level of reinvestment in our existing assets.

Our average development cost for new restaurants was $5.1 million in 2014, which was up about $1 million from our 2013 average. A large part of the increase was due to higher building cost at certain locations, including two restaurants in Alaska and one in the New York City area.

G&A costs will be impacted by approximately $4 million due to the renewal of our Officer and Board contracts at the beginning of 2015. The higher cost relates to stock compensation, as the amount of expense recorded depends largely on the share price, which was just over $34 on the recent grants, compared to approximately $15 on the previous grants in 2011. Lastly, we expect our 2015 income tax rate to be 30% to 31%, depending on whether the Work Opportunity Tax Credit is reinstated in 2015.

From a cash flow perspective, we expect to continue to generate significant free cash flow, even after $135 million to $145 million of capital expenditures. In addition, we plan to continue allocating excess capital towards repurchasing shares of stock and paying a growing dividend.

In conjunction with our fourth-quarter release, our Board authorized a 13% increase in our regular quarterly dividend payment to $0.17 per share from $0.15 per share in the prior year. Now, I'll turn the call over to Scott for final comments.

Thank you, Tonya. We certainly have a lot of positive momentum on the sales front. This is a tribute to the outstanding operators we have on our team. Our operators continue to do a legendary job of balancing all the inflationary pressures we have, with providing our guests with a legendary food and service experience.

We also believe we are maintaining discipline around new unit growth and will remain vigilant on achieving our return targets associated with new restaurants. We also remain committed to having a balanced approach for how we allocate our cash between new restaurants, remodels and refurbishments, dividends and share buybacks.

Having a balanced approach to how we operate our restaurants has served us well in the past. And we believe a balanced allocation of our financial resources is an important [piece] of our strategy to create value for our employees, our guests, and our shareholders. So with that, Kevin, please open the line for questions.

(Operator Instructions)

David Palmer, RBC.

Hey guys, congrats on the momentum in the business. Wanted to ask a question just with regard to the beginning of this calendar quarter, the first quarter. Are you seeing a divergence in your trends that seem to be dramatically associated with weather? For instance, is the middle of the country doing a lot better than perhaps the East and Northeast as we would expect?

When it comes to comps for 2015, I would say it's been pretty consistent across the regions in the day parts. We really just don't talk a lot about weather, good or bad. So we feel like we are on track. And you have to believe there's probably some weather impact, just given what's been going on. But we lap some pretty bad weather from last year, too.

Yes. Is there anything with regard to the day parts and meal parts and menu parts that give you an insight into how the consumer's feeling? For instance, are you seeing any trading up within the menu or any other behavior that would otherwise tell you that the consumer mood is brightening, other than the sales trends themselves?

We really haven't seen anything from that regard. No.

Thank you.

Brian Bittner, Oppenheimer and Company.

Thank you. Congratulations also on the momentum you are seeing. Question about the operating leverage in the business. The 7% comps you put up in the fourth quarter were obviously strong, and on the labor line the same-store labor costs were up about 7% as well. So I'm just trying to get a better sense of how the labor tracks throughout the quarter because my guess would be, if comps were up, say 5%, I don't think that labor line would have been up as much.

When we see this momentum going into 2015, should we assume that the labor line builds similarly? Or I know you talked about healthcare cost and things like that, but just trying to understand how we can get some leverage out of that, or maybe use the fourth quarter as a talking point.

This is Scott. I think one thing to keep in mind is -- or actually two things. One is, there's a lot of inflation out there. Whether it's minimum wage-related, because you do have so many states, that minimum wage goes up every year. That's a piece of it.

And then we started the whole healthcare thing early. We offered healthcare to employees that work 35 hours and up -- well, it was last year. That was a few million dollars as well. And then we were reclassifying some of the expenses between other operating expenses and up into labor. That also impacted our labor line.

Okay. You're seeing double-digit comps. I know you're not really wanting us to extrapolate for the whole quarter, but it would be safe to assume, and I know you're going to feel pressure, but whether it'll get more leverage out of the labor line on a double-digit comp than say, high single digit comp like we saw in the fourth quarter?

You would absolutely expect there to be some leverage on the labor line with double-digit comps almost in any scenario. I would tell you that from an extrapolation standpoint, we're lapping our easiest comparisons of 2014 this first quarter of the year. So they only get tougher, particularly the second half of the year.

Secondarily, we do have more minimum wage increases this year. And then going to 30 hours from 35 on the healthcare piece, our healthcare costs are going up quite a bit, $5 million or $6 million, I believe, is what our current estimates are. And it could go higher, could go a little bit lower depending upon what happens later this year, but certainly those are some big numbers to overcome.

Okay, thank you. Congrats, guys.

Thank you. Thank you very much.

Andy Barish, Jefferies.

Hey, guys. Can you give us an update on Bubba's? I'm a little surprised that the ramp-up -- is there some swapping of some real estate that maybe you thought was going to be Texas that you're going to use for a Bubba's now? And how are you addressing some of the cost increases on the investment side at the Texas Roadhouse build-outs?

Hey, this is Kent. The Bubba's 33 is, like Texas Roadhouse, is a partnership-based concept. Bubba's 33 is a family sports restaurant that serves appetizers, burgers, sandwiches, and beer. Just like Texas Roadhouse we make the food from scratch.

We also provide our guests with a cool service as well as a great vibe and energy level through the restaurant. And pretty much we've found for the first three restaurants that we can locate near a Texas Roadhouse and not affect the sales of the Texas Roadhouse since the menu is so different.

So with that said, on the real estate front we're really not stealing sites from Texas Roadhouse. We are actually pretty much targeting locations where Texas Roadhouse does well, but not typically going next door. In some cases we are, in most cases we are not.

I think -- Andy, this is Scott. On the development cost piece, we did average just over $5 million. We had three locations in particular that really were expensive. Two of those deals were the two stores we built up in Anchorage, Alaska. And of course the sales were quite a bit higher up there in that part of the world.

Then we had one in New York City that ended up costing quite a bit of money. And you back those out, your average gets back down in the $4 millions. So it's still a bit higher than where we were in 2013. Part of that's pre-opening expenses.

We have had, it seems like, just taken us to longer to get the sites open through permitting, through construction. We're talking a lot about that internally; work on those numbers.

We did add to the length of time that we would like some of the management teams to be in the system before they open a Texas Roadhouse. We had -- managing partners always been at 12 month but we wanted some of the assistants to be with us for 12 months versus 9 months was the old standard. Just to increase our ability to be successful and run such huge volumes that we are doing in the system.

A little bit of that increase is related to building costs. Some of that's from us experimenting a little bit in a handful of sites where we may be adding a second bar or adding some garage doors. Or just took some things that we've seen around the industry and made some small bets in certain stores. And that pushed us up a little bit.

Too early to read the results in those particular restaurants. We don't have any of those current in the plans for this year. We do think our average investment cost will be comparable to last year, but without the big outlier sites. So below $5 million, but probably above $4.5 million. So it's somewhere between $4.5 million and $5 million.

Now all that said, given where our average sales points are in our margins, we're still very comfortable with mid-teens IRRs with those numbers. So having a slightly less than 1-to-1 sales investment ratio, we're still in that mid-teens level.

We'd love to be at a 1-to-1 level. And keep in mind we do take a pretty conservative approach to pre-opening. And with pre-opening, when you -- you get the tax benefit right up front on pre-opening. It's time zero, effectively, tax benefit for pre-opening whereas building depreciation's over 39 years, those kinds of things.

So the pre-opening hurts our returns a little bit less than building construction cost. So we're still very, very comfortable with the returns that we're getting, but we are watching and talking quite a bit about where we think development cost might be going down the road.

Thank you.

Keith Siegner, UBS.

Thank you very much, and congratulations on the quarter. Scott, if I can ask the first question just to follow-up on that a little bit. If we look at where the CapEx guidance was last quarter to this quarter, coming up a little bit there; we just talked about maybe not having quite as many of the outliers on the new unit expense like Alaska, New York City. Can you help us bridge that gap a little bit? Is this reimaging, a little more reimaging? Is it maybe because there's more Bubba's, are they a little bit more expensive? Maybe what changed on that CapEx, please?

Well, we're definitely doing -- or definitely spending more money on our existing asset base, no question about it. We're doing more bump-outs. We have a bar reimaging program that we're doing, and we may get through our whole entire system within a couple years.

So we're pretty excited about that. And we're pushing pretty hard on that. And just to keep our concept relevant.

The Bubba's cost a little bit more. The buildings are a little bit bigger, but they're not too far off from Texas Roadhouse. Sometimes it comes down to what -- for the real cost as well. So for the first few Bubba's, the real estate tax was in on the lower side, and the building cost being a little bit higher. And we are netting out close to Texas Roadhouse.

The sales in Bubba's, pretty strong comparable to Roadhouse. And the margins are somewhat higher, given that the alcohol mix is quite a bit higher at Bubba's.

And the food cost is lower.

And the food cost is a little bit lower, given the menu at Bubba's is not so steak-y, of course. Encouraging so far, which is one reason why we're willing to move a little faster on the Bubba's front.

All right, that's very helpful. Then just as a follow-up. Look, traffic is very impressive, to say the least, what the brand's been putting up. When you think about capacity, how much capacity do you think there is in the system for more traffic?

Is there room at peak? Is there more room in the shoulders? Is this what the bump-outs are about? How do you think about the capacity for continued traffic gains? Thanks.

We don't believe there's a limit. Our restaurants have not shown us that there is a limit. Our highest volume restaurant continued to grow sales Every day of the week.

Lunch and dinner, it's on weekends. They continue to grow sales, and some of it, of course, is guest check going up. Some of it is speed on the fringes. Some of it is earlier in the week or earlier in the day or later in the day. All on the edges.

But our highest volume restaurant, they continue to grow sales. Typically, they grow them more than our lower volume stores. Certainly to get that kind of volume usually you have some of your best managing partners in the system. Maybe they have the best relationships in their community, the best strongest marketing teams, the stronger teams all around. And they continue to find ways to grow the business.

That's really helpful. Thank you.

Jeff Farmer, Wells Fargo.

Thanks. Scott, you did touch on it, but what was the quarter-to-date same store sales lift from the New Year's Eve shifting into Q1? I think I missed that if you said it.

On the quarter on Q4 it was about 1%, Jeff.

Okay, So Q4 and then -- okay. Then just Scott, looking to take another crack at understanding the potential sales leverage in the model, understanding there's a lot of moving pieces. But I think this guidance was about two years old, but at one in time, you guys were saying that a 1% change in traffic drove approximately a 5% change in EPS. Does that relationship still approximately hold? Is there another way we should be thinking about how the earnings matrix works?

That's the way we look at it. About 5%.

Okay

For every 1 point in traffic.

I wasn't sure what the labor and some of the other moving pieces if whether or not it was still that clean, but sounds like you are still comfortable with that?

Yes, that assumes of course no weather changes and inflation. That assumes nothing else changes in the business. We would tell you, based on the assumptions we gave you, was the food inflation and labor inflation, we would probably need mid-single-digit comps, total comps, to hold margin percentages flat.

Okay, that's helpful. Thank you.

Jeffrey Bernstein, Barclays.

Great. Thank you. Two questions. One, from like following a relatively stable fourth quarter comp. There was a nice uptick in the first quarter, which you're not alone from an industry perspective. I'm just wondering, other than the New Year's shift, has it seemed like the macro has changed so meaningfully? I'm just wondering, it seems like it's a broader industry thing and not a Texas Roadhouse-specific thing, but to what you might attribute just the most recent acceleration for you guys to hitting these double-digit type comps?

This is Kent. One of the things we do in the fourth quarter is we sell a lot of gift cards around the Christmas season, and we sold more gift cards this year than we typically do. So it is possible that some of these are getting redeemed right now at a higher rate than they were last year. So that might be part of it.

Okay. (Multiple speakers)

I think, Jeff, in addition to what Kent said, certainly it's a lot of the things out there. Maybe our tailwinds, whether some of it is weather or of course lower gas prices. In our case adding seats, as we like to say, have you tried one of our steaks lately? We just continue to execute better on the food.

We're taking things to the next level. We've got some very cool service initiatives we've been working on and investing. Some of our G&A, and more support for some of our operators in the field, as well.

So just to raise the bar on what legendary service at Texas Roadhouse, and I think we are just on offense in both in the kitchen and in the front. Combined with the other things, it just really enables us to move a lot of people.

And as beef gets more expensive in the grocery stores, then people can come to Texas Roadhouse. They don't have to go out to the grocery store to buy it, they don't have to cook it, they don't have to clean up. They can come in, have a great experience, and pay the same low price at Texas Roadhouse. I'm getting hungry right now.

I was going to say, Kent, I'm sold as well. I had one other question, more from a cost standpoint, actually. Scott, just to clarify, you said the mid-single digit total comp would be needed in this environment to hold the margin flat. That's assuming the 1.8% price you've got in there and the [cost] and labor inflation that you are assuming?

That's correct. Yes, that's correct.

Are you seeing any uptick in looking at labor? We are hearing others talk about maybe uptick in turnover, whether it presumably in conjunction with an improving macro that there's alternatives to the labor?

Yes, our turnover has been drifting upward on the hourly basis, been drifting upward. So that adds a little bit of pressure. Certainly you saw what Walmart, everybody so what Walmart came out and announced, and I'm sure there's many, many reasons behind that.

But I'm certainly they're seeing lower unemployment and if you're fighting more for great people to work in your restaurants, absolutely there's some pressure there. But there's also, again on top of that, minimum wage. On top of that, healthcare.

So it's in full swing. Again, it is like on the sales, a lot of little things add up to great sales. A lot of little things add up to a lot of inflation sometime on the cost side.

Got it. Thank you very much.

Andrew Strelzik, BMO Capital Markets.

Good afternoon, everyone. You are obviously able to narrow the input cost -- the inflation on the input cost range pretty meaningfully. I'm just wondering, have you been able to lock in any beef for 2015, or where do you stand on that?

Hey, Andrew. It is Tonya. We really don't want to comment on where we are from that standpoint. I will tell you, we've locked some items in our commodity basket for sure for 2015.

We've talked about those a little bit before. Things like shortening, mixes, some dairy products, things like that, a little bit on seafood.

So don't really want to comment on the beef side of things. But I can tell you that the 3% to 4% range we are talking about is -- there is beef inflation in there, and that's really part -- probably the biggest significant driver of that.

On the last call, last quarter, you talked about being open to raising prices again if there was more meaningful labor inflation than you had previously expected. I'm just wondering if you're still open to that, or how you're thinking about that at this point, given particularly how strong the traffic is?

This is Scott. I would tell you that with these kind of traffic trends, certainly less likely for sure. It's always open, but we are going to stay very, very aggressive on our pricing. Served us well for many years. So things would have to get pretty tough, particularly on the food cost side, for us to re-look at pricing.

Okay, thank you.

(Operator Instructions)

David Tarantino, Robert W Baird.

Hi, good afternoon. I wanted to come back to the question on the unit growth outlook and the decision to increase the number of openings for Bubba's 33. Just wondering if you can talk us through your logic on why now is the right time to accelerate the growth of that concept. And then maybe on a related question, the number of openings for Texas Roadhouse, the core concept, is sliding downward this year, at least according to the plan relative to what you did last year. So why fewer openings for the core concept and why more openings for Bubba's 33?

This is Kent. A lot of it is people-related. And the same people that may open a Texas Roadhouse now are asking to open Bubba's. So overall, we're still opening at the same pace as we have been in the past couple of years. But we want to make sure we provide a future for our people.

And we tried the Aspen Creek thing. It did okay, but it didn't seem to be a national concept. Bubba's 33 is doing very well. So we're going to step it up a little bit, why not?

Is this, Kent, in your mind still a pilot phase on Bubba's 33? Or it is full-steam ahead in terms of a rollout? I guess, how are you thinking about it based on what you've seen so far?

It's too early to tell. I would say we are in the Phase 2 of our pilot phase.

Got it. And then your comments suggests that the returns are quite appealing on Bubba's 33. How would you frame those up relative to a Texas Roadhouse?

I will let Scott answer that because he knows more big words than I do.

Yes, David. The returns are comparable to Texas Roadhouse and could be a little bit better, just depending upon where we end up in sales and margins. So Bubba's model, with so much alcohol relative to Texas Roadhouse and lower food costs, has the potential to do a bit better than the current new Roadhouses right now.

So far in the few Bubba's we have open, the sales have been pretty strong and we go to margins on top, the returns are a little bit better than average. But again, it's three and we have a long ways to go. So nobody is celebrating any victories here.

We're trying to plant some seeds, and we've got three seeds in the ground and we're going to plant five more seats. And doesn't make a whole field but we're planting some more seeds to hopefully have a brand that we can grow pretty substantially in the future. It's for the benefit of our people as much as anything else.

Great, thanks for that clarification on that. And then one quick modeling question. Are you expecting that you will get G&A leverage this year? Maybe I missed this in the commentary, but I know you called out an extra expense related to stock compensation. But would you expect to get leverage on G&A this year?

I think that additional expense that we talked about could make it a little tough to get leverage on that line. A lot will depend on where traffic comes in, things like that. But I don't think it's out of the realm of possibility, but it could be a little tough.

Okay, thank you very much.

Joe Buckley, Bank of America/Merrill Lynch.

Thank you. Have a couple of questions. Just a clarification on the New Year's Eve comment. You said it had 1% negative impact in the fourth quarter, and would that translate into something greater than 1% positive for the first quarter? And maybe a couple points on the first seven weeks, perhaps?

Yes, it looks to be over 1.5% on that first seven weeks in 2015. So it's going to be a little bit higher impact on Q1 then it would be on the negative impact on Q4.

Okay. That's helpful. And then can you give us an update on where you are in bump-outs? How many you did last year, how me think you might do this year in Texas?

We did approximately, I think, between 25 and 30 bump-outs in 2014. That's the pace we've been on for a little while. I believe we've done around 140 or 150 maybe at this point since we started that program.

So I think that 25 to 30 is a good number for us to do going forward. We just continue to look at the stores where we think that's a possibility. That number gets a little bigger every year.

And it seems like a great program. The costs are great on it. So kind of a no-brainer in stores that can take that on.

What is the impact of sales, or maybe the impact on seats? I'd prefer to get sales, but if not, seats for a bump-out?

It adds about 25 to 30 seats in the restaurant. So it is probably about a 10%, maybe close to that bump on comps for that one restaurant.

Okay.

Let me tell you on an -- overall, though, it probably is only like a 10 bip or15 bip impact overall on comp.

It helps a lot on the weekends, but if we're not full like Monday, Tuesday, Wednesday it really doesn't add anything on those days.

Right. One last question. I read the release on my (inaudible) out of the office, but was there one other opening in the fourth quarter besides the Bubba's or the Texas Roadhouse that I saw? If so, what was that?

It is another one of my experiments out there that we're not talking about at this point.

Okay.

We will just say it's another restaurant that I'm toying with, but we will see how it works and let you know when you all need to know, I guess.

Okay. All right, thank you.

I get bored sometimes.

David Carlson, KeyBanc.

Thank you. Hey, was wondering if you guys could discuss any changes to the menu or new menu items you guys might have, maybe plans for new menu items this year? Just trying to really gauge the opportunity for check growth as we move through 2015.

This is Kent again. We've got no specific -- we always have a few items and tests in maybe 10 to 15 stores, but nothing at this point that we are ready to roll.

Okay. One follow-up on the Bubba's 33. Looking at the economics from the partner standpoint, does it require the same or similar equity investment from the partner? And is their share in the operating profit of the restaurant is similar to what it is at Texas Roadhouse?

Identical. This is Kent again. It's identical to Texas Roadhouse.

Okay. Thank you, guys.

John Glass, Morgan Stanley.

Thanks. Just a couple of follow-ups. One is, where is your current thinking in the outlook for the beef market, right? It seems like you're holding out at some point for getting this relief, and every year it seems to be a little bit further out. Do you think 2016, from what you know now, is that year yet, or have we pushed it out once again?

Hey, John. This is Scott. Great question. It just seems recently in the last month, for the first time, we've seen a few reports come out with some claims that maybe cattle in some stage of the process is up 1% or 2% versus down 3% or 4% or 5% or 6%. So maybe that's the start of herd sizes beginning to be rebuilt.

But I think we'd like to see a lot more on that front. If that continues, maybe 2016 we start to see some relief. And we're hopeful of that, but I think it sounds like you feel, we believe it when we see it

So none of your discussions with your vendors in 2015 lead you to believe that any of that pricing gets embedded this year though, is that correct?

I think we're feeling from all of our discussions there's still a lot of pressure out there.

Then just one more on the margins. When you talk about the mid-single digit to lever your margins, you are talking about the operating margin of the business? As I look at your operating margins, they've been on a downtrend, modest downtrend, over the last several years. And your comps have been mid-single digit.

So what would bend -- why would that not be the case in 2015 and beyond, given everything you said? Are you saying mid-single digits is maybe north of 5% and you've been, on an annualized basis, less than 5%? I'm just trying to square mid-single digits with what we've seen, and historically we've seen margins go down.

We've got a little bit less inflation with food inflation of only 3% to 4%. Some years I think we had 6% or 7% food inflation. That's a pretty big difference. Would be one thing.

We've got pricing of 1.8%, and for the most part it seems like its sticking. Where some years we might have had a negative mix, we might have had lower check growth because of that.

And certainly it's been a uphill battle for the last five or six years, just given, beef going from something like $0.90 a pound to $1.70 at one point earlier this year, at the end of last year. It's just been really challenging for us on the margin side.

Hopefully we are hitting the lower end of our margin range in terms of percent of sales here coming up where we are now. And hopefully we're ready to start moving up a little bit.

Got you. All right, thank you.

John Ivankoe, JPMorgan.

Hi. Great. (Technical difficulties). At this point, I think just for me, the question is on new unit volumes. And I think it's really been since the second half of 2013, at last for your newest stores which continued all throughout 2014, that you've really had some great store openings.

And maybe some of that is New York and the Alaska stores, and maybe some of that is Bubba's 33 as well that sounds like it has some higher average unit volumes than the overall concept. But I just looking for a little bit more color as the averaging of volumes have been moving up.

Yes, they've been moving up with the investment cost, but they have been moving up. If it's possible to give an outlook into 2015, if you expect new unit volumes to continue to increase?

John, this is Scott. We're -- absolutely we're expecting continued progress on the new unit front. When we look at how our stores are opening out of the gate, they continue to do a little bit better each year.

Again, our guest check is a little bit higher each year. We are typically building the restaurant a little bit bigger than we did maybe five years ago with a few more tables and seats in those restaurants.

Part of that's driven by the success of the bump-out program and knowing that we can handle the seats and the tables in our restaurants. We've been, for a long time now, we've been -- we hire people very early in the process. New managing partners, management teams and they get a lot of exposure to the business because we are one of the higher volume, transactional volume, concepts which a lot of folks take some getting used to to deal with that kind of volume.

We've held people, like some of our training staff, in our restaurants longer after we open to help us deal with the huge honeymoons that we have out of the gate. We're hopeful that trend continues and we have a smaller gap between our newest stores and the stores in our same-store sales space like we've seen for the past [four] quarters.

To follow-up on that, is there any sensitivity that the new stores, since they do open so well, maybe don't contribute to the comp base as much as they may have in previous years?

You mean when they hit their 18 months and get in the comp base?

Yes, just because the volumes are higher relative to the average, or you don't think that matters?

I don't think that matters. And I think each class year, because we haven't increased the size of the class year that much, certainly in the last couple of years not at all, as a percentage it's a smaller percentage of the same-store sales group. So by that definition, it has less of an impact.

Okay. All right, thank you.

Billy Sherrill, Stephens Incorporated.

Yes. Thanks guys, and congrats again on another quarter. I think most of mine have been answered. If I could real quick on beef cost again. Not necessarily cost as a percent of sales. I believe part of your total basket, it's roughly 40%, correct me if I'm wrong. I realize that check growth was a small part of the comp, but are you seeing any discernible trend as far people spending extra money in their pockets by trading up to more expensive items on your menu preps? Somebody that was ordering chicken is now ordering steak, or they get the ribeye and not get the fillet? Just trying to get [an idea] as that percent of -- has beef as a percent of COGS changed at all?

Beef hasn't changed as a percent of COGS but we have been very successful in some of the larger steaks we've introduced over the last year, particularly our bone-in ribeye has done very well and continues to do very well. We've actually got the bone-in ribeye on more pictures in our menu, in that there's a panel on the right-hand side of the menu and we've added the bone-in ribeye to more of those pictures.

So we're selling more of those and selling more combos as well, a few more combos as well on the menu. That's all helping. Other than that, our [P] mix has been traditionally pretty consistent over time. Part of it is because we don't do a lot of LPOs, limited time offers, or couponing or stuff like that. And by its nature our P mix is relatively -- I'd say, very consistent.

Great. Thanks, guys.

Paul Westra, Stifel.

Great. Good afternoon. Just a couple of follow-up question. First our pricing of 1.8%. Where did you take that? And maybe if you were going to revisit additional pricing, when might that be as we go through 2015?

The 1.8% pricing back in December, Paul. That was in many items on the menu. However, we're still very protective of some of the lowest items on our menu, especially our 6-ounce sirloin item which is still $9.99, and just about everywhere in the country and still remains a great value for us.

Any geographic taking more or less to match some of the minimum wage hikes, for instance?

Yes, we do a little bit more in the states that have higher wage increases, just to cover the labor.

Some of that still depends on what the market partners, the operators want to do. Kent still has a call with each one of our market partners and gets their feedback and listens to that feedback because some of them are more comfortable, let's say, taking a little bit more price. Some would rather take less price and are betting they can drive more traffic in their stores. Just that simple example I gave you, sometimes is a big part of our success in growing sales, because our guys in our stores really own it and their voice is absolutely heard in the business.

Great. And then (inaudible) looks like you kept it pretty much in line to what you told us before. Was there any changes? Is beef a little bit worse, some things a little bit better, or is it pretty much as you expected from your last guidance?

Not really. Pretty much as expected.

Great. Lastly you had a 500 basis point top here on your comp here in the first quarter of 2015. Maybe one question to ask is the health of the consumer. Is that 500 basis point bump up, is that evenly balanced between traffic and check maybe, or is it going to be mostly the traffic side? In other words, are people spending a little bit more here in January?

Yes, Paul. We really don't break out those interim comps into traffic -- we don't get into the traffic and check makeup of those comps.

(Multiple speakers) We've only got 1.8% pricing in the menus, and we told you our mix hasn't changed very much.

There you go. Okay, congrats.

There are no further questions at this time. We would like to turn the conference over to management for any additional and/or closing remarks.

Thank you all very, very much for listening. We feel very fortunate to have had such a nice sales run in our business.

And obviously our challenge is to continue to keep it going, continue to lap what will be tougher comps second half of the year. And our operators just keep doing it. So again, big thanks to our operators for making it happen every day for us. Thank you all, talk to you next quarter.

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