Texas Roadhouse Inc (TXRH) 2015 Q2 法說會逐字稿

Good day, and welcome to the Texas Roadhouse Incorporated second-quarter 2015 earnings conference call. Today's call is being recorded. (Operator Instructions) I would now like to introduce Mr. Scott Colosi, President and Chief Financial Officer. You may begin your conference, sir.

Thank you, Blake, and good evening, everyone. By now, you should have access to our earnings release for the second quarter ended June 30, 2015. It may also be found on our website at TexasRoadhouse.com in the investor section.

Before we begin our formal remarks, we 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 prefer to non-GAAP measures. And, if applicable, reconciliations of the non-GAAP measures and 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 Senior Director of Financial Reporting and Investor Relations. Following our remarks, we will open the call for questions.

Now I would like to turn the call over to our founder and CEO, Kent Taylor.

Thanks, Scott, and good evening, everyone. We are very pleased with our top-line performance for the second quarter, as increasing discounts and strong operating lead growth drove 15% revenue growth for the quarter. Second-quarter comps were up 8.2%, including a 6.5% increase in guest counts, and for the first four weeks of the third quarter has started off well, with comps up 7.6%. While the strength and consistency of our sales growth remains strong, our second-quarter profit did not keep pace. To exhibit food cost inflation of 9.4% driven by higher-than-expected beef costs more than offset our strong sales results, which resulted in profits being down 8.5%.

On the development front, we continue to be pleased with the results from our new restaurant openings. We have modified our new unit expectations for 2015 to approximately 30 Company-owned restaurants, and we are well on our way to achieving that goal with 12 Company-owned restaurants opened in the first half of the year, including three Bubba's 33 restaurants and one Jaggers location. The third quarter will be a busy one for us in terms of development, with 14 openings expected as well as one franchise restaurant opening.

Looking ahead to 2016, our development pipeline is shaping up very well. Our target remains to open 25 to 30 Company-owned restaurants next year, with most of those sites already selected.

Now I will turn the call over to Tonya, who will provide the financial update.

Thanks, Kent. Diluted earnings per share in the second quarter of 2015 decreased 8.5% over the prior year to $0.30 per diluted share, as strong revenue growth during the quarter was more than offset by a decline in restaurant margin driven by higher food costs. Revenue growth at 15% during the quarter was driven by an 8.2% increase in average unit volume along with a 7.4% increase in store weeks. For the quarter, comp sales increased 8.2%, comprised of 6.5% traffic growth and a 1.7% increase in average check. By month, comparable sales increased 8.1%, 7.2%, and 8.8% for our April, May, and June periods respectively. And as Kent mentioned, comps were up 7.6% in the July period.

Restaurant operating profit increased 2.8% or $2 million for the quarter, compared to the prior year. Restaurant margins as a percentage of sales decreased 193 basis points, and restaurant margin dollars per store week were down 4.3% in the quarter. While we were able to generate leverage in labor events and other operating costs with strong average unit volume growth during the quarter, food cost inflation of approximately 9.4% far outpaced our pricing action.

Food cost inflation was higher than we expected, driven by beef costs, as we were on the market for a significant portion of our beef needs. While we continue to expect lower inflation in the back half of the year, we had raised our full-year inflation expectation to 4% to 4.5%. This full-year guidance implies food cost inflation of 1% to 2% in the back half of the year.

On the labor line, we gained some leverage with strong average unit volume growth, but that was somewhat offset by higher average wage rates and health care costs. We are currently seeing a bit more wage rate inflation than the 1.5% to 2% we were expecting at the beginning of the year.

Below restaurant margins, G&A costs were $23.6 million, up $2.3 million versus last year. As a percentage of revenue, G&A decreased approximately 20 basis points to 5.2%. Depreciation expense increased $2.4 million to $16.8 million versus the prior year and was flat as a percentage of revenue at 3.7%. We continue to expect our full-year depreciation and amortization expense margin to be higher in 2015 due to the increase in our capitalized cost on new restaurants as well as an increase in the level of reinvestment in our existing assets.

Reopening cost increased $0.5 million on a year-over-year basis primarily due to the number of restaurant openings this quarter compared to the prior year and the timing of those openings. With 14 Company-owned restaurant openings expected by the end of September, our pre-opening costs will be up significantly in the third quarter compared to last year.

Our tax rate for the quarter came in at 29.7%, which was in line with the rate last year. We continue to expect our full-year rate to be 30% to 31% depending on the reinstatement of the work opportunity tax credit in 2015. We ended the quarter with $71 million in cash, and during the quarter we generated $37.1 million in cash flow from operations and spent $64.4 million primarily on capital expenditures, dividends, and share repurchases. We have increased our expectation for 2015 capital expenditures by approximately $10 million to $145 million to $155 million based on the increase in new restaurant openings, the relocation of 2 restaurants later this year, and our continued investment in our existing assets.

Now I'll turn the call over to Scott for final comments.

Thank you, Tonya. We continue to be very pleased with the direction of our business and our opportunities for future growth. Our sales have been great all year. Certainly, food cost inflation has been a huge hurdle to date, but this should have less of an impact on our results for the second half of the year. And like other restaurant companies, we will have our share of minimum wage and health care cost increases to contend with for the remainder of this year and on into 2016.

And we have begun evaluating the timing and amount of any menu price increases we expect to take in the fourth quarter of 2015. As usual, the discussion will be focused on many factors including the inflation outlook for 2016 for both commodities and labor. And more importantly, we will continue to focus on balancing the short-term pressures we face with the long-term positioning of the brand. Fortunately, we continue to generate more than enough cash flow to provide for new store growth and maintenance of our existing store base and the return of capital to shareholders.

As Tonya mentioned, we have increased our capital expenditure range for the year. Part of that is a result of opening a few more new restaurants, but we've also identified several other opportunities including the relocation of a couple of our existing restaurants, buying additional parking at some of our locations, and buying land rather than leasing it for a few of our 2016 openings.

Before I close, I would like to thank all of our operators around the country for their continued hard work and commitment. They are doing an outstanding job of staying true to providing legendary food and service to our guests, all the while incurring significant inflationary pressure on their bottom-line results.

That concludes our prepared remarks, so Blake, please open the line for questions.

(Operator Instructions) Will Slabaugh, Stephens.

Wondered if you could walk through what happened with the food costs in the quarter. I know you mentioned this was supposed to be your highest inflationary quarter of the year. It seems like it came in quite a bit ahead of where you thought it would end up. So could you talk about where you were locked and where it maybe surprised you, and why do we have more confidence for the back half of the year?

Will, this is Tonya. I can tell you that we haven't really talked about where we are locked or what we're doing from that perspective this year. But I can tell you we are floating a significant portion of our beef costs, and that's kind of where we saw those costs coming higher -- a little bit higher than we expected. We expected it to be high in Q2, just not quite where came in.

This is Scott, Will. We're floating a lot of product, and at the same time, our sales were quite high in the quarter. So it was kind of we paid more for our beef and we bought a lot more of it. So it was -- it really cost us a lot more than we had anticipated.

Got you. And one quick follow up if I could. You mentioned you opened a Jaggers in the quarter and then a couple of Bubba's. So curious on update there. You mentioned you may have a little bit more data to provide this quarter on the Bubba's brand. And then any sort of initial read on Jaggers?

This is Kent. Yes, the Bubba's -- we're still very pleased with the results. A lot of these stores are fairly new, so you can't really judge where they are going to be in six months. And the Jaggers is also very new, so we will probably have more information for you on the call in three months, but it's too early to tell at this point.

Got it. Thanks, Kent.

David Tarantino, Robert W. Baird.

Congratulations on the sales strength that you're seeing. My question is more about the margins than the sales here. I guess the first question I have is on the beef cost outlook. It assumes, I guess, some moderation and the inflation in the second half of the year. And my question is, one, is that something you are already seeing, or is that by nature of the comparisons? And then, secondly, do you have any view as to what you might be looking at for next year at this stage?

Hi, David, it's Tonya. I can tell you as far as what we're seeing right now, some of that is just what we're lapping because beef inflation was higher last year in the back after the year. But we are seeing a little release in the prices currently. It's a little early to tell, but we are encouraged by what we're seeing so far.

David, this is Scott. For next year, it's really just too early to make any calls on that. Certainly, we read things that people publish that say, hey, maybe supply is starting to grow again in the cattle world. I think -- we don't have any biz in hand that says what we're going to pay next year, what we're not going to pay next year, so it's really just too early to tell at this point.

Okay. And then maybe a quick follow-up on the margin side. I think you previously said that you would be able to potentially hold restaurant margin percentages flat for the year if you add a mid-single-digit comp, and now you are guiding the mid-single-digit comp. So do you think it's reasonable to still expect that you can hold the margins flat, or will that higher inflation outlook now require a higher level of comp to hold the margins flat?

It will be tough at the end of the day with our second quarter coming in a little bit worse off on the margin side than we anticipated. It will be a stretch to get there for the full year.

Great. Thank you very much.

John Glass, Morgan Stanley.

One more beef, and then I want to talk about maybe Bubba's. But on the 1% to 2% in the back half, how certain are you of that? Have you changed courses during the year and locked in more food so you've got better visibility, or is that something that you are just basing on the market price of those commodities?

Hi, John. This is Scott. We've been floating quite a bit of product all year, so I would tell you that there's a bit of risk in that forecast to the good or to the bad, and it looks like it will stay that way probably as we continue throughout the year.

Okay. So Bubba's is now going to be nearly 20% of unit openings this year. So I'm wondering if -- I know last couple of calls, there's been questions but maybe not as much clarity on the unit economics of this business. So maybe can you talk a little bit about where you think those are going to look and if they are going to be substantially different than Texas Roadhouse, in what ways? When you think about 2016, might we see the same number of Bubba's? In other words, another 15% or 20% of your openings in this concept? Could it be larger? What is your thinking, I guess, over the next year or so, and what do the economics of this business look like?

John, this is Scott. The unit economics for Bubba's, generally they cost a little bit more than a Roadhouse, a little bit larger, a little bit more parking. On the other hand, sales typically comparable to or better than a Roadhouse, margins substantially better than a Roadhouse. So the returns, even though the investment is a little bit higher on the Bubba's side, the returns should be as good or better than the Roadhouse side.

In terms of your overall thoughts about plans of opening in 2016, is this something you -- likely will be a larger percentage of your openings in 2016 than it was in 2015?

Too early to really comment on at this point. I can tell you you might expect us to do a handful of Bubba's in 2016, and we will give you an update from that on the next call.

Okay, great. Just one more on that. Is the economics, I presume, at volumes are the same or better but the margins are a bit better? It's all about the food cost -- it's a much more favorable food cost model, or is there just some other piece to it?

The food cost is definitely more favorable. Much higher alcohol mix as part of that with Bubba's, and just the menu of the burgers and pizza versus steaks.

And we see some of our competitors on the line here, so we'd kind of like to not give you all the facts at this point.

Got you. All right. Thanks very much.

Brett Levy, Deutsche Bank.

If we could spend a little bit of time talking more about labor, obviously last quarter you gave us about $5 million to $6 million, and you have already said -- of health care costs, you've already said that wage rate inflation is trending above the 1.5% to 2%. What are you seeing in terms of turnover? And is the new -- is the 7% growth that you have seen in the last quarters per store, is that the new norm, or do you think we could see some improvement?

And also, just a follow-up to that is are you looking at any research about the consumer that gives you the feeling that you might have more room to take pricing in the latter portion of the year than you normally do?

Hi, Brett. This is Tonya. I'll just answer the first part of that question on the labor piece. I will tell you that we are seeing a little more hourly turnover. It's up probably 5% or so, I would say, versus last year, so that is playing a part on our inflation. It's probably trending more in that 2.5%, maybe a little higher than that, even before the health care insurance. The health care has trended in just like we expected, in that $5 million or $6 million range. So that was fine. But though, the average wage rate of inflation is up a little bit, and I think that's what we're seeing on the labor line.

David Palmer, RBC.

Just a quick follow-up on the beef costs, I was a little surprised by the amount of inflation on steak, even given the fact that you are floating. Is there some way for you to describe or just give a sense of maybe the cuts? Or perhaps you were locked in last year and you're not this year -- to make us understand why the inflation might be a little higher than what we see in some of the earner-bearing numbers or some of the other published stats? Thanks.

Well, Dave -- this is Scott. We were floating quite a bit of product last year. And last year, seasonal changes were pretty benign last year. So this year, sort of normal seasonality; prices tend to peak in the second quarter. And so we knew we were going to have probably our highest inflation of the year in the second quarter because of that, and it turned out to be the case. And it's virtually in all the cuts of beef that we sell.

All right. Thank you.

Jason West, Credit Suisse.

Was there anything that surprised you guys on the non-beef inflation? Just wondering -- or if you could talk about at all what those numbers are looking like outside of beef.

This is Scott. No big surprises. Seafood is looking pretty favorable, and chicken is looking pretty stable for us. So nothing that's very surprising outside of just the magnitude of beef.

Okay. And then going back to the pricing decision, I recognize you guys probably haven't made a decision yet there that you want to disclose anyway. But as we looked at the run rate over the last few years, is there -- as you have seen a lot of beef inflation as well over the last few years, is there any reason to think the pricing decision would be materially different from the run rate that we have been on? Or other factors like wages that are really going to weigh more heavily that we've seen on maybe the beef side in the last few years?

Wages would weigh a lot more heavily than food costs would since food costs for the most part are of cyclical nature. We put a lot more weight on minimum wage, wage rate related things, health care that sort of impact everybody, at the same time versus commodities, which is much more selective.

Okay, that's helpful. Thank you.

Karen Holthouse, Goldman Sachs.

So in last quarter there was a couple -- or actually in the past couple of quarters, there's been some different technology trials that have been talked about, better management at the wait in the restaurants, the potential for service to have handheld devices. It's a pretty rapidly changing playing field out there, so just thinking about is there anything incremental to talk about on that front?

Hi, Karen. This is Scott. There's nothing incremental on our end. We continue to explore or look very hard at many different options. Well aware of what others in the industry are doing and getting a lot of feedback on how those processes work and how well they are received by those companies and their employees. But we are looking very hard at what we think might work for us and also know that the technology is changing so fast that we're going to be pretty diligent about the direction we're going to go.

Great. Thank you.

Jeffrey Bernstein, Barclays.

Two questions. Just one, a follow-up on that prior question related to pricing. If I understood it correctly, we all know that food is somewhat volatile, but labor only goes up. So in that scenario, I think you said food inflation in the back half is only going to be up 1% to 2%, and you go into early 2016 and obviously you're lapping the tremendous inflation we are experiencing right now.

So in that type of scenario, food was flattish to down a little bit, but labor was at these elevated levels. You'd be more inclined to take more than the 2% in 2016, again, being driven by labor and less by commodity inflations? Is that how you weight the two of them?

Jeff, this is Kent. We're getting ready to sit down in a week, and I go through calls with our operators or our area managers, that'll be about 50 people, and we discuss the pricing in their individual market plus a pricing per individual item. And then we come out of those calls with some ideas on which parts of the country are more comfortable raising prices maybe less than 2% or more than 2%, and I think at that point we have a better idea of where we are going to end up with our pricing.

Got it. And then as you look at the restaurant margin -- or I guess it's obviously closely correlated to AUVs. But can you talk about a range of the highest to lowest quartile or -- I don't know how you bucket those, but I'm just wondering what are the common themes maybe of the weaker restaurant margin markets versus the strongest. Just wondering how you bucket those things as you analyze the portfolio.

This is Scott. I'm not understanding what you're trying to get at with your question.

Obviously you have a wide range of AUVs across your system. I'm just wondering whether it's very directly correlated in terms of the restaurant margin in the best markets versus the worst markets, if they follow a similar trend, or whether there's something else that might drive some of the weaker-margin markets other than AUVs. I'm just trying to think about how you look at your portfolio in terms of performance of the different markets.

Well, there's no doubt it starts with sales. So lower sales typically mean lower margins. And there are exceptions in higher wage-rate states or what would be your higher or other cost of doing business, whatever it is in a certain state. But for the most part, it's sales driven. It's guest-count driven. But we've got very high sales in -- all over the country. So we've got strong markets all over the country. It's really we're just talking select stores.

Got it. And lastly, it just seemed like -- is there any update on the CFO position? I think -- I don't know if, Scott, you're likely to hold both titles for an extended period or whether the search is still ongoing.

Search is still ongoing, and we're talking to a number of people and got a pretty wide reach, and hopefully we will have some news on that as the year goes on.

Great. Thank you.

Keith Siegner, UBS.

Thanks, and great quarter. Scott, if I could just ask you about -- a little bit about the traffic in the top line. These are busy boxes. Long lines a lot of nights of the week. To put up that kind of guest-count number is really impressive. I just wondered if you could talk about where is the traffic coming from. Is this increased throughput at peak? Is it shoulders? Other nights? Are the minutes per party trending down? If they are, how you getting those minutes per table down? Just if you could talk a little bit more about that traffic would be great. Thanks.

I think it starts with our partnership program and the way we pay our operators. And they are partners in the business, and they own 10% of the profits in their restaurants. And so they have a great incentive to find ways to run their restaurants in a way that gives them the best opportunity to grow traffic. And whether that is adding seats inside the four walls, bumping out their restaurants, turning tables a little bit faster, using certain technologies, the way they staff their restaurants, local store marketing efforts -- but it really starts at that partnership program and the baseline incentive.

In combination with a great -- not messing with the food and not messing with the labor standards, and you heard Kent talk about the pricing strategy for us, which has always been very conservative. And we like to say internally, we talk -- have you tried our steaks lately? And so we think that's just a big reason why people keep coming back and visiting us.

So just little bits and pieces coming across the board of options, it sounds like.

Yes.

Thank you.

(Operator Instructions) Alton Stump, Longbow Research.

I just wanted to ask follow-up questions on the margin front. Beef costs obviously makes sense given the Q2 result. But I look back at your comp performance, which obviously was once again quite positive over 2Q and to date in the third quarter. How do you keep that going? Obviously you're going to be lapping some awfully difficult comparisons in the back of the year. And specifically on the new product front, it's been a couple years since your last major launch of porterhouse, I think, in fall 2012. Is there anything planned to get back after this year or next year on the new product front, and/or how are there other ways that you could help to offset some of the comps being more difficult on the same-store sales front? Thanks.

This is Kent. No big products on the -- in the pipeline at the moment for the rest of this year or next. We think it's just basically doing what we've done for a lot of years: taking care of our people that end up taking care of our guests. So we let others try to figure the new gimmick, and we just stick to our guns and do what we've always done.

Okay, that's all I have. Thank you.

Paul Westra, Stifel.

Just another follow-up on your cost of goods sold. So I guess the outlook -- just want to confirm a 1% to 2% outlook on a -- I assume that's a year-over-year basis. That is right around pricing. Is there any reason why you would not see flattish to down year-over-year cost of goods sold in the second half?

It's definitely possible, yes, I mean, with the amount of pricing we have in the menu, to your point. Yes, and it looks like it will be -- we believe it will be pretty evenly spread over Q3 and Q4, so we're not expecting to see the volatility that we've seen in the first half of the year.

All right. If that's the case then, from a seasonal dollar standpoint it sounds like -- so it's safe to say 2Q dollar costs seasonally can be -- whether it's 3% to 5% higher than the second half of 2015 in order for the cost of goods sold to come back over 37%, closer than it did last year's 36% range.

Are you talking percent of sales?

Yes, yes. I'm just trying to picture how -- clearly, you mentioned seasonality is up in 2Q. Just trying to see how much on a maybe dollar basis you expect your dollar purchases to come down the second half in order to --

We ran over 37% in Q2. We'd have to run a little bit below 36% probably to be at 1% to 2% inflation.

Okay. And what is beef now as a percentage of total cost? Your basket now that it's inflated so much?

It's about 46%.

Okay. And the other 55%, again, is relatively benign in the low singles range or so?

Are you talking inflation, all those items?

Yes.

It's pretty -- as a basket, it's pretty small overall. Most of our inflation is driven by beef inflation.

Okay. And maybe one more follow-up on Keith's question. We've seen a lot of competitors of yours having a pretty -- I guess bigger increases in your menu mix impact. I know you tried to stay true to keeping the check as low as possible. But any thoughts on the moving parts in the average check number? Any possibilities of maybe pushing -- I don't know whether it's more desserts or moving people up the menu?

This is Kent. Nothing right at this time. Our guests have a wide variety of menu prices they can choose from when they look at our menu, so they decide whether they want to eat something more expensive or less as they visit us.

Fair enough. Congrats on a strong top-line performance.

Andrew Strelzik, BMO Capital Markets.

You mentioned some of the things you are reading that can point to a potentially more positive outlook for beef in 2016. So I'm just wondering if we were to see that type of environment, does that offload to the bottom line or is there anything from a spending perspective maybe pent-up that would mitigate that flowing through? Or how should we think about that?

This is Scott. Certainly we've had some pretty good years in the past when there was beef deflation in the market. So you certainly hope a lot of that would flow and we would get some margin -- overall margin back that we've given up the last few years and protecting the average check for us. But to quantify exactly how much what that range is, that's just something that we are just not able to provide you at this time.

Okay. And then a question around capital deployment. Obviously the share repurchases slowed from last year and the stock has been doing very well. So I'm just wondering how we should think about that going forward. You had mentioned wanting to do some franchise acquisitions if those present themselves. Is there anything on the horizon from that front, or are you just looking to be more opportunistic around share repurchase and capital deployment?

I would say beyond our dividend, we will be very consistent with the dividend and an increasing of that dividend, share repurchases, franchise acquisitions would be very optimistic.

Okay, great. Thank you.

John Ivankoe, JPMorgan.

Obviously, you've involved the operators and the district managers very, very closely in the pricing decisions that are being made at the store level with a lot of input, Kent, that you described. I think that conversation happens in a week ago. So the context of the question is when your operators are seeing much higher than expected increases in COGS and they are starting to see an uptick in labor in the beginning of this quarter -- in the second quarter, is there any thought of allowing them to do an off-cycle pricing? Like to do a pricing, for example, when you start to see problems that you price than April 1 or May 1 or whatever it is as a -- just bringing that a little bit faster to market as cost in their overall store profitability might actually dictate?

Hey, John. This is Scott. We might do that if it's a wage rate challenge. We have actually where you've got, let's say, Alaska or California, maybe in New York, where you've got mid-year pretty big wage rate changes, we might do something in those states. And we might do it in multiple parts. We might do it in one whole swing. It varies. In the past, we've taken multiple price increases throughout the year if the cost structure changes in a certain way. But if it's something where we think the prices of some item like beef are coming back down throughout the year and if we are floating a lot of product, we might not take the price increase sooner, if you will, to offset that. We'll be patient and let that play through. And so -- which means maybe our guys are losing a little bit in Q2, maybe are winning a little bit more in Q3 and Q4. So we will look at all the angles on that stuff.

Thank you.

Kurt Moeller, Calvert.

I apologize if this is a redundant question, but I am still puzzled and trying to figure it out. Why exactly are beef costs rising so much faster at Texas Roadhouse that at competitors?

I would tell you it depends on how they bought their beef last year. Were they locked in? Were they floating? It also depends on how they are buying it this year. Are they locked in? Are they floating? You sort of can't look at just one quarter. I would look at what their full-year forecasts are for inflation in those commodities.

And then lastly, I would tell you are they using the same cut of beef year to year, or have they changed the type of beef that they are buying or something in their process.

And I would reiterate what Scott just said. I think you'll find that some of the competitors that maybe used to be selling choice steaks are now selling select.

Would it be fair also to say that as Texas Roadhouse is buying a higher percentage of this spot market than at least some of your competitors, that that differential is contributing to the differential in beef cost increases?

It could be, depending upon what the cuts are.

All right. And finally, how do we get credibility in the beef forecast for the second half of the year given what's happened in the first half of the year?

I think anytime you are floating your beef, there's going to be some short-term volatility to it. And I think that's just something we are comfortable with. We are comfortable with that volatility on a short-term basis, and we feel like that's the best choice to make.

Does this imply that the pricing increase was just frankly too small back in the fourth quarter of last year, and it should have been higher?

Wow, I wish I had a crystal ball to forecast what beef would be a year from now, but we really don't. We go to the suppliers, and they will give you a contract for next year right now, but it would be significantly higher versus what we think we are going to pay for the overall year, so it's really tough to know. Say three out of four years, we win the way that we play the game. And then maybe one year the way we play the game, we don't really hit it like we thought we would. But that's how we've done it over the last 10 years, and in general we do quite well with it.

Yes, I think it's just sometimes we know going into the year we're not going to take enough pricing to offset inflation. And so we're going to need to grow traffic quite a bit dollar for dollar. We're going to make up that difference, and we've grown traffic quite a bit. And we think based on our sales growth, we are doing a lot of the right things. Sometimes you take a little bit on the chin in the short term to keep things going great in the long-term. And our average unit volumes now are going to pass $4.5 million this year. I think it's more than $1 million more than most of who you would consider to be our steak competitors. So we think we're doing some things right with this long-term approach we're taking to balance the equation of pricing versus the cost of running the business.

Yes, sales have been fantastic. That's been great to see.

David Carlson, KeyBanc.

Just real quick, just to piggyback off that last question, we are really only a third of the way into the quarter at this point. You indicated that you are still floating a lot of your needs. That was the case last quarter. Is it -- are you any -- do you have any better visibility this quarter incrementally than you had last quarter to what that cost is going to be? Are you incrementally more locked than you were in the last quarter? Or -- I'm just really trying to get a better handle on really this confidence in the back half, which is a pretty dramatic shift down.

Yes, we're not going to give exact numbers on how much we're locked or how much we're floating except to say we're floating a lot of product. And so there is some risk there. There is a lot of seasonal history in where beef costs go. And there has already been a pretty dramatic change even from where beef prices peaked back in mid April, down quite a bit. So we are believing that those trends will continue as the year goes on and you get past the Fourth of Julys, the Labor Days, and that kind of thing. So we've got a very experienced buying team in our Company, and we're standing behind their forecast right now.

Thank you.

Brian Vaccaro, Raymond James.

Most of mine have been already answered, but I wanted to just go back to the third quarter. I understand obviously the drivers in the pre-opening shift. But just maybe if we could get a little -- tighter help on the third quarter versus fourth quarter pre-opening time just to get everybody on the same page given the magnitude of the shift, I think that would be helpful. Thank you.

Sure. No problem, Brian. Yes, I would say just with 14 openings during the quarter, we're going to see a pretty big increase. You could call it $1 million, $1.5 million versus what we saw this year I think is what we will be seeing probably in Q3.

Okay. Thank you.

And there are no more questions in the queue. I will now turn it back to Tonya Robinson for closing remarks.

All right. We thank you all for being on the call, and have a great evening. Good night.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.