Texas Roadhouse Inc (TXRH) 2017 Q2 法說會逐字稿

Good evening, and welcome to the Texas Roadhouse Second Quarter Earnings Conference Call. Today's call is being recorded. (Operator Instructions) I will now introduce Tonya Robinson, VP of Finance and Investor Relations. You may begin your conference.

Thank you, Ashley, and good evening, everyone. By now you should have access to our earnings release for the second quarter ended June 27, 2017. 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. If applicable, 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 Scott Colosi, our President and CFO. Following our remarks, we will open the call for questions. Now I'd like to turn the call over to Scott.

Thanks a lot, Tonya, and good afternoon, everybody. Kent Taylor, our Founder and CFO, he's had some flight delays today, but we do expect him to be joining us in a bit for the Q&A portion of our call. We are pleased with the results for the second quarter, which included double-digit growth in both revenue and diluted earnings per share. Our comparable restaurant sales growth remained strong, with comps up 4%, including just over 3% in traffic. And the sales momentum has continued in the first 4 weeks of our third quarter, with comps up 4.6%.

This quarter, we successfully completed the rollout of new menus, which included a 0.5% price increase, the addition of calorie counts to our menus and 2 smaller-portion entrées. So far, we've not seen any meaningful negative reaction from adding calorie counts to the menu, and as expected, we've seen a slight increase in negative mix resulting from guests ordering the new entrées.

On the development front, we updated our full year guidance to reflect our current expectation of 27 to 29 company restaurant openings. We've already opened 16 company restaurants so far this year, including 3 since the end of the second quarter. However, due to construction issues, we pushed 2 Bubba's 33 openings into early 2018, and it is possible that a few of our late December Texas Roadhouse openings may also shift into the next year. Looking ahead, however, we are well underway in building a strong pipeline of new restaurants for 2018 and 2019. Our continued focus on consistent execution, providing everyday value to our guests and keeping it simple, is a huge part of our success. And I want to thank all of our operators for staying true to that mission. And now Tonya will walk you through our financial update.

Thanks, Scott, and good evening, everyone. For the second quarter of 2017, revenue growth of 11.3% was driven by a 7.9% increase in store weeks and a 3.3% increase in average unit volume. Strong top line growth and commodity deflation drove restaurant margin dollars up 9.8% year-over-year to $106.5 million. However, continued wage rate inflation mitigated the growth.

Below restaurant margin, the benefit of a lower income tax rate contributed to net income increasing 11.8% to $37.6 million or $0.53 per diluted share. Comparable restaurant sales for the quarter increased 4%, comprised of a 3.1% increase in traffic and a 0.9% increase in average check. Comparable sales during the second quarter were negatively impacted by approximately 30 basis points due to Easter shifting into the second quarter this year.

By month, comparable sales were up 2.6%, 3.7% and 5.1% for our April, May and June periods, respectively. April comp sales were negatively impacted by approximately 90 basis points from the Easter calendar shift. In addition, as Scott mentioned, comparable sales for the first 4 weeks of the third quarter were up 4.6%.

For the quarter, restaurant margin decreased 28 basis points to 18.9% as a percentage of restaurant sales compared to the prior year period. Cost of sales as a percentage of sales improved year-over-year by 106 basis points, benefiting from commodity deflation of approximately 1.9%.

On the labor side, wage rate inflation was approximately 6%, and included the impact from manager compensation changes made in December of last year. This drove total labor expense as a percentage of sales up 133 basis points.

For full year 2017, our guidance of mid-single-digit labor inflation remains unchanged, as does our expectation for full year commodity deflation of 1% to 2%.

Moving below restaurant margin. G&A as a percentage of revenue was 5% or 27 basis points better compared to the prior year period. The improvement was primarily driven by a decrease in cost related to our managing partner Conference of approximately $0.8 million. Depreciation expense increased $2.9 million year-over-year to $23.1 million or by 10 basis points to 4.1% of revenue.

Also, preopening expense increased $0.6 million on a year-over-year basis, driven by the timing of restaurant openings.

Finally, our tax rate for the quarter came in at 27.9%, which was lower than the 30.2% rate last year. Similar to last quarter, the decrease in the rate was primarily due to the impact of new accounting guidance related to share-based compensation, which went into effect at the beginning of 2017. As part of the new guidance, we've now recognized excess tax benefits and tax deficiencies from share-based compensation through the income tax provision rather than the balance sheet in the period in which the restricted shares vest. As a result, we are updating our guidance for 2017 as we now expect our tax rate to be approximately 28% for the full year.

Our balance sheet remains strong as we ended the quarter with $117 million in cash and $52 million in debt. For the first half of 2017, we generated $128 million in cash flows from operations, incurred capital expenditures of $74 million, paid dividends of $28 million and spent $17 million to acquire 4 franchise restaurants. As a result, our cash balance has increased $4 million compared to year-end 2016. We continue to project capital expenditures of approximately $170 million, excluding any cash used for franchise acquisitions. Now I'll turn the call back to Scott for final comments.

Thanks again, Tonya. We're certainly very pleased with our top line momentum through the first half of the year, especially with the traffic gains we have seen. While restaurant margins continue to be significantly impacted by labor inflation, strong sales and commodity deflation helped offset the impact. This led to a 1.7% increase in restaurant margin dollars per store week for the quarter and a 1.3% increase in restaurant margin dollars per store week for the year-to-date period. And taking a deeper dive on sales, our comparable restaurants, as well as our newest restaurants opened less than 6 months, continue to perform very well, with our comparable restaurants generating average weekly sales of over $98,000 and our newest restaurants generating average weekly sales over $105,000 in the second quarter.

Similar to recent quarters, the gap between our comp sales restaurants and our restaurants opened 6 to 18 months continued this quarter, with weekly sales at our 23 newer restaurants averaging just under $86,000 a week. We are encouraged by our latest analysis of returns for the last 4 class years, which shows improving returns each year following the year of opening. In addition, each year's returns have been well in excess of our weighted average cost of capital. Overall, we feel very good about the underlying momentum in our business, which is a testament to the strength of our operators who continue to work hard every day to attract new guests and to build guest loyalty in their restaurants. No doubt, we are very much a top line-biased company and will continue to be that way for the future. As always, we remain focused on doing the right things for the long-term success of the business. That concludes our prepared remarks. Ashley, please open the line for questions.

(Operator Instructions) We'll take our first question from David Palmer with RBC.

A couple of questions. The new store productivity numbers look like they've been improving quite a bit. In the last couple of quarters, those have improved. And as late as fourth quarter '16, it looked like the new store numbers were not as good. Have you made any adjustments? Is there just simply just some timing of certain sites going in and out of the base there?

Yes, David, this is Scott. It's just the timing of certain sites, and every class year is a little bit different. But we're not doing anything differently from a demographics, of where we're looking and where we're building restaurants. As you've mentioned before, certainly, it is tougher taking restaurant 501 than it was 101 or 201, but it's just more of the -- again, every class year is a little bit different. But we're very encouraged by the opening volumes and the great job our operators are doing in getting the guests to keep showing up.

No, those look good. The new menu, is that impacting sales in any other way other than just a modest negative mix? And what other feedback have you gotten?

We really haven't gotten any other feedback beyond that the items primarily, which is a smaller-sized salmon, a 5-ounce salmon and an 8-ounce New York strip, a smaller-sized strip for us, they are selling very well. Both those items weren't huge mix items to begin with. But having the smaller portion, lower price point item on the menu, we think is one of those things that, again, helps us stay relevant from a price competitive standpoint for years to come.

And just one quickie, on wage inflation, 6%. When you're seeing that, arguably, that's pricing power that is even there above and beyond what you would have if you had food inflation. Those are people making more money in those general vicinities, and perhaps even the types of consumers that you would like to have. How do you decide on a speed limit on pricing when you're seeing wage inflation like that? What's your philosophy there?

Well, philosophy is -- by the way, Kent is on the line. I just want to make everybody aware that Kent has now been able to join us on the call, and he may want to jump in. Go ahead, Kent.

I was just letting you know I'm on the call. I'll let you answer it.

So on the -- we never assume we really have, I will say, pricing power. It's kind of not in the DNA of our company. The power that we do have is to keep our prices very aggressive. And we just don't take the next day's sales for granted. And certainly, we see how tough it can be in the restaurant business, especially casual dining, when you let your prices get a little bit away from you. And even though your arguments may have a little bit of merit, i.e. there's pressure on wage rates because there's low unemployment and the economy's a little bit stronger, we just do not take anything for granted when it comes our traffic counts, our guest loyalty. And we want to try to continue to keep the pressure on. Historically, our operators have figured out ways to grow traffic counts to help us deal with inflation. And for the foreseeable future, that's the model that we're going to stick to.

And we'll take our next question from Brett Levy with Deutsche Bank.

Two questions, one is on the expansion that you're talking about. You talked about some shifting into '18. Does this change how you're thinking about unit expansion targets for '18 and '19? And also, would you be willing to share a little bit more detail on what you're seeing with the protos and the existing boxes for Bubba's, and just any additional learnings from what you're finding out from the guests?

Brett, this is Scott. From an overall development perspective, in the last few years, we've targeted to open roughly 30 company restaurants, that -- we believe that's sort of our sweet spot. Might that number go up a little bit in subsequent years? It could. Bubba's would be a big part of that number going up. Regarding Bubba's specifically, we're still kind of in learning mode. We do only have, I think it's 18, now open, somewhere in that vicinity. So we're still tweaking many different parts of the Bubba's model. The sales are coming in pretty close to where Roadhouse is. That's still the case. The margins are significantly better than Roadhouse, primarily on the food cost side. But the investment costs are still quite a bit higher. Kent and the team are really looking at everything, from the size of the parking lot to the size of the building, to the materials, to the equipment. And it will take us some time and some number of iterations, I think, maybe until we get it really wired in. It took us a little bit of time with Roadhouse as well in the early days, and that prototype did evolve and still evolves a little bit to this day. So it's a work in progress, but we feel confident enough with Bubba's that we could still continue to push forward, still continue to open Bubba's, still continue to hire people and get them in the training pipeline so we can open more of them in the years to come.

Two -- just 2 little follow-ups on that one. So as you're allowing a couple of units to slip into '18, does that mean that you would return back to your normalized? Or should we assume that the normal 30-plus units, plus whatever slips, is how we should be thinking about '18? And also, what are you seeing in terms of unit economic costs as, obviously, the slippage of units can lead to some additional creep?

This is Kent. Basically, the units that are going to slip are maybe going to slip just a little over a month. So as far as when you look at store weeks for 2018, I really don't see any big shifts.

So the other part of your question, Brett, so if we have 4 units slip, are we going to open 34 units in 2018? We might, we might not. We'll be able to give more clarity around that probably in our November call, our Q3 call, once we get more definition on where we are in permitting. Permitting seems to take longer and longer than it used to, and you got to have more sites in the pipeline than you used to have to hit certain targets, and things get pushed for all sorts of reasons. And so -- but we'll probably have more clarity in a few months on that.

And we'll take our next question from Brian Bittner with Oppenheimer.

This is Mike Tamas on for Brian. Obviously, your comps, very impressive momentum here. So I'm just wondering, on the quarter-to-date stuff, is there anything, from a calendar shift perspective, good or bad, we should keep in mind?

This is Tonya. The only thing would be the Easter shift that we pointed out. It was about 30 basis points negative on the quarter in Q2. Heading into Q3, I would say I don't think there's really anything there. Fourth of July, some people have talked about that, it's a pretty limited impact on that, so we're not expecting much there. And then looking down, I think the next biggest one is kind of Christmas, which moves from a Sunday to a Monday. So that should be a pretty big positive impact.

Got you. And then just on the COGS environment, is there anything you can talk about, maybe as we think about '18, just any early preliminary thoughts here?

It's too early at this point. Again, we'll have a lot more to say at our call in November, but it's just too early.

We'll take our next question from Will Slabaugh with Stephens.

I want to follow up on the beef question. We did see the spike in the live cattle market here recently. So I'm just curious what you've been seeing, what percentage of your basket you're locked in on right now for this calendar year? And then just in general, what you've been seeing in that market lately.

Yes, Will, this is Tonya. So we're still about 66% -- 65%, 66% locked on the full commodity basket for all of 2017. But I'll tell you, if you look at the breakdown of that, we were probably a little more locked on the first half of the year than we are on the second half of the year. So that's kind of how the quarters play out a little bit. We don't want to get into a lot of detail on that or get into the numbers specifically, but I can give you that, a little color on that. And in Q2, yes, you're right, the beef prices did kind of spike up a little bit in Q2, but the market pricing just didn't seem to have any really big impact on us in Q2. A lot of that's just because the amount we did have locked on beef versus floating this year and last year. For that reason, we just didn't see much of an impact on the market pricing.

Got you. And one more quick question, if I could, on the cost side. If you break down the 6% wage inflation, was that an hourly wage inflation number? Or is that mixed between hourly and managerial?

It's a mix of both. So it has about 1%, we’re seeing, is what we're estimating as relating to the managing part -- I'm sorry, the manager comp change that we did in December of 2016. So that's built into the 6%.

We'll take our next question from David Tarantino with Baird.

I have a couple of questions. First one is on the comps that you're seeing. And the numbers in June and July are very strong in relation to perhaps what we're hearing from others in the industry. So I guess, the first question on that is do you think in your business you've seen an inflection point? Or is this just more related to comparisons, in terms of the acceleration you saw? And then secondly, is there anything inside your numbers that you're looking at that would explain the strength that you're seeing from an internal perspective?

David, this is Scott. I would say there's no -- nothing we're talking about internally that is -- represents an inflection point, if you will, on sales. We're just doing the same things that we've talked about for many years now, which is just focusing on the basics. I mean, that's what we do. And I mean, when I say the basics, it is staffing, it is the food, it is the service model, pricing, I mean, local store marketing, it is the basics that we talk about. And we just continue to -- what we don't do is -- we just try to get stronger at everything, we don't try to cheapen anything. And sometimes, we take it on the chin with margins every so often, but we're protecting the business, in some cases, strengthening the business. And that's just paying off with more people coming in.

Got it. And then on the labor line, the labor dollars per week, at least, in my calculations, that was up almost 8%. And I heard the 6% inflation. I know you have traffic growth. But just thinking about the second half of the year, do you have comps that are similar to what you're running or what you ran in Q2? Do you think you'll see this similar type of labor growth per operating week in the second half of the year?

Yes, I think so. It's entirely possible. It doesn't seem like any of the inflation is really abating when you're thinking about market pressures or anything like that. Yes, so I don't see any reason why that would change.

Great. And last one, Scott, you mentioned being encouraged by some recent return analysis. Can you elaborate on what you meant by that? And then I'll pass it on.

Sure. So we go back each year after the June quarter, and we go back and look at the most recent class years that at least have 18 months of sales history, so they're completely past the honeymoon. So I believe we were -- talked about 4 class years, it was 2015, and then going back 4 years and looking at how those stores have been doing. And so the 2012 class year, for example, you might have had an internal rate of return of -- I don't have the numbers all in front of me, but might have been 14%, and it went up to 15%, then 16%, and now it might be at 17%. Again, those aren't the exact numbers, but it's that kind of directional as they've gotten either better sales, margins, that kind of thing, from what they were doing in year 1. Some class years are just stronger than others, so we might have a class year where the IRRs are in the high teens or close to 20 right out of the gate and then growing from there. But all those class years, I can tell you, are significantly above our cost of capital, which we assume our cost of capital is 10% to 11%. We kind of look at a long-term WACC. I know some of the reports we see will show WACCs in the single digits, but we don't sort of think in that term. We think of more in the 10% to 11% range as our weighted average cost of capital. So we're comparing ourselves to that. And in most cases, the returns are mid-teens or higher, what we're seeing.

And we'll take our next question from Peter Saleh with BTIG.

I just had a question, coming back to the labor line. Labor as a percentage of sales, it was the highest that we've seen. So can you just talk about any initiatives you guys may have on the labor line to try and mitigate some of this 6% wage inflation that you're seeing?

From a company-wide perspective, there's no like major program to get labor out of the restaurant, I will tell you that. As a matter of fact, we're actually challenging our operators on how well they're staffed because it is a very tough labor market, and we're asking them maybe they should staff with more people, more people on the schedule. And that could mean running 2-table stations at 3-table stations, you could talk to servers. It could be just more schedule flexibility for the employees that we do have. That's a big hot button with them, is having the flexibility to have time off when they need time off. So sometimes, hiring more people, which is more training cost and so forth, adds to that labor line, but makes us stronger in the long term. I say all that, but we still do a lot of reporting, internal reporting, on overall productivity, sales per labor hour, guest checks per labor hour. There's a lot of competitiveness around the country amongst our operators on who could perform at a very efficient level with the labor that they do have. We're constantly putting reports to them now that demonstrate how efficient they are in comparison to their peers throughout the country. But we're very careful that we don't want to lose any momentum in how well we believe we're taking care of our guests and growing our business.

All right. And just staying on that theme, can you give us an update on where your hourly turnover is today in comparison to where it was maybe 2, 3 years ago?

It's just short of 120 today, and -- which is still quite a bit higher than what it was 3 years ago, which was probably between 100 and 110. I don't have that number in front of me, but I'm probably not too far off on that. And so that is one of those numbers, the hourly turnover, where we're definitely not happy at that level. And even though it might be average for the restaurant business, we don't want to be average at anything. Our management turnover continues to go down in a big way, and it's already one -- amongst the lowest in the industry. Our total management turnover is in the low teens, which is really strong, and we're hopeful to get it below 10%, which would be a huge accomplishment. And we're going to be really attacking our hourly turnover and have been talking about it more than we ever have, probably in the history of our company. So I wouldn't be surprised that number starts to head downward over the coming years, even if the economy continues to be running at a strong clip.

We'll take our next question from Jeff Farmer with Wells Fargo.

Your adjusted G&A dollars look like they were up less than 5% in the first half of '17, so I'm just curious what that means for the back half of '17.

Well, like we mentioned in the call, some of that in Q2 is due to our G&A -- our Management Partner Conference cost being lower than they were last year. So that's a little bit of the reason that, that's going in that direction in Q2. So I would kind of expect to see that be probably a little bit -- we won't have anything like that, that we're lapping in Q3 or Q4 for the rest of the year. So I think you may see that return a little bit to normal. A lot just depends, obviously, on comps and things like that and where those come in at.

Okay. And then the 28% tax rate guidance for '17, if we sort of extrapolate what that might mean for '18, is there a story there?

I think it may be pretty consistent in 2018. A lot depends on where things kind of land with any changes on the tax front. But right now, I don't think there's any reason to think that will be too different from what we're seeing right now.

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

I hate to harp on the labor, but just one more question. If your wages are going up at 6%, inclusive of the manager overtime now, and the per store number is running closer to 8%, is the difference new store inefficiencies? And if that's the case, is that Bubba's, Texas? Or how do you explain that difference, and maybe by brand if there's a difference or -- and it's relevant?

John, this is Scott. Some of that difference would be traffic growth. Very little would be new stores, because as a percentage of the base, the new stores aren't where we were years ago. But a lot of that is traffic growth-related, some percentage of 3% traffic growth adding into that number. And in addition, just to us really challenging ourselves on our staffing levels and challenging our operators on how many employees they have on their teams today and are they staffed in a way that's healthy for their business from a turnover perspective and scheduling flexibility and running at a maximum 3, and even sometimes maybe more 2-table stations in our restaurants.

Yes, John, I'll add to that, too. When you look at the 6% inflation, that's just on core labor wages. So that's going to include payroll taxes and some other things like that, that are contributing a little bit, too, to that overall growth number.

That's helpful. And a quarter or 2 ago, you were asked the question about delivery, and I think actually Texas at that time was the only company in the universe that actually hadn't done or thought about delivery, at least from a testing standpoint. And I think your answer was we want to keep our restaurants full, and that's not what we do. Have your -- has your thinking evolved at all on that as some of your competitors have done delivery and maybe you've had a chance to look at their results or hear about their results? Or you're still in the camp that, that's not a strategy you want to pursue?

This is Kent. And we encourage all of our competitors to do as much delivery as they can so they can deliver lukewarm food to their people that order it, and we will stick with our guns on this.

Got it. And then finally, Kent, you were working on a new -- you're reducing some cost on the prototype of Bubba's. Have you gotten that -- it's only been a quarter, I guess, since you last talked about it, but have you made progress on that? Do you think you've got -- or is it going to take a couple of quarters to really figure out what the right smaller size is or cutting down on parking space or whatever you talked about last quarter?

Sure. We've done a lot of those things. A lot of the equipment has been taken out of stores that will be opening in 2018. However, you have to get in front of permitting and those things, so we really won't see those stores open till the end of Q1 in '18. And then we'll really see their P&Ls and what they're doing in second quarter of '18.

We'll take our next question from Alexander Mergard with JPMorgan.

This is Alex on for John Ivankoe. Can you give us an update on the progress of the rollout of the mobile app? How many units it's in? Any differences in purchasing habits between users and non-users? And also, just any early thoughts on what this can mean longer term, whether for this or other technology initiatives?

Well, the app is in just over 200 locations today. And again, the app, our app has 3 main features. One is you can get on our call ahead list, that's I suppose, the most exciting feature, I would say, given how busy we are and how taxing it is to get through on the phone. So call ahead, you can order to-go on the app and then you can pay your bill on the app. And so we're still learning a lot about guest acceptance of the app -- of a restaurant app. But we're excited that we're already halfway through the system, and we'll probably be nationwide, first quarter next year, somewhere in that vein. And then as far as to-go specifically, we now have online to-go ordering in almost the entire system. So we're pretty close to the entire system. We have seen a consistent uptick in to-go sales for some years now with us. And we do know that when we -- at least when we look at it, the increases in online to-go have not come at the expense of dine-in sales, so we watch that very, very closely. And we also know that the online to-go customer does tend to spend a little bit more money than the regular call-in to-go or stop-in to-go guests. So we're excited about having the online to-go feature to make it easier, again, for the guests to access us.

We'll take our next question from Andrew Strelzik with BMO Capital Markets.

Just a couple of questions. First, following up on what you just said about to-go and kind of contrasting that with your view on delivery. You said that to-go is mostly incremental, higher spend. It seems like there may be some overlapping demand with kind of the delivery usage. So I'm just wondering, is it really the execution of delivery that you think is the negative? You don't think that actually to-go is taking people out of the stores, maybe delivery would be the same. So what is it -- is it really the execution, the operations side that you don't like about delivery?

On the to-go, we don't advertise to-go either. I mean, it's -- we do it. We want to do it right. We want to do a nice job for the guests. We don't want to shut people out who are trying to call us to to-go. And I think at the end of the day, we believe we're very much a hospitality-driven company. And so we much prefer you to come in and dine with us and get that hospitality. If you want to order to-go, you still get hospitality from our people with to-go. Delivery, there's a number of things with delivery. And of course, it's what does happen to the food as it's being delivered, number one. Number two, most people are going to call for delivery between 6:00 and 8:00 when we're our busiest and our kitchens are already at pretty high capacity at those hours on a Friday night or a Saturday night or a Thursday night. And so, I'm not sure operationally would be the best thing for us to be advertising, certainly, delivery, given how busy we are already. Easy for a restaurant company who's underutilizing their kitchens and just have a lot of negative traffic for the last 5 to 10 years that you want to add the delivery. We're just in a different position.

Yes, This is Kent. Plus, when you do delivery and you have to package everything, it takes about twice as much time to get that food out of your kitchen. And then that would, as Scott just mentioned, kind of hurt, negatively impact the people that are dining in.

Got it. I appreciate the color on that. And just a question on Bubba's, which I appreciate still, at this point, is a smaller piece of the pie. But we're coming out of an environment more broadly, kind of keeping beef aside, where commodity deflation seems to be going away, we're moving to a bit more of an inflationary environment on the margin. So I guess I'm wondering, with Bubba's more diverse food basket, does the way that you manage the food costs -- obviously, you referenced that with respect to the better margins -- does the way you manage the food cost at Bubba's differ from the way you manage at core Texas Roadhouse?

This is Kent. I would say we don't know what people are going to order, but it is skewing a little more burgers, which has a lower food cost than steaks. And then when you add pizza and appetizers as a larger percentage then, obviously, you would see at Roadhouse on the appetizers specifically, then you do get more items that have a lower food cost at Bubba's than you would at Roadhouse.

I guess what I'm really asking is do you lock more prescriptively on the Bubba's side? I know it's still small from a number of units perspective, but is that the plan? Or would you let it float the same way as you would see at a Roadhouse across-the-board, more so?

That's a Tonya question, if you want to take that, Tonya?

Yes, I don't think there's much difference there, Andrew. I mean when we talk about 65% of the basket locked on the full year, that includes Bubba's. There's really nothing significantly different when you're looking at those commodities versus the other commodities at Texas Roadhouse.

Bubba's probably, longer term, has more food cost, or I should say delivery distribution efficiencies and purchasing efficiencies as it continues to get larger. So right now, our Bubba's are very dispersed, and the distribution component of it is much less efficient than Roadhouse. So in theory, longer term, Bubba's continues to grow, we may gain some purchasing and distribution efficiencies which would further help food costs on the Bubba's side.

Okay. And then just one more, if I can squeeze it in, did you -- or can you quantify how the smaller-portion entrées mix at Texas Roadhouse, or what that mix impact was on the comps?

Andrew, it's probably a little too early to say because we just implemented that in May, so it wasn't even in for the whole quarter. So I think we'll be able to talk more about that in November. We'll have a full quarter with that implemented and able to take a little bit more of a look at that.

(Operator Instructions) We'll take our next question from Karen Holthouse with Goldman Sachs.

Congratulations on another just fantastic quarter of traffic growth, particularly in the environment. And just curious when you're looking at it, given that you really do operate pretty close to capacity during peak periods, where do you think you're getting? Maybe help us to decompose that traffic growth. Are you getting -- are you benefiting from quicker table turns or anything like that at peak? Are you really growing the shoulder periods? Are you seeing more demand during maybe lower-volume weekdays? Just where is that coming from?

This is Kent. We have [500-some] stores so it's all across the board, depending on what store and what part of the country and what time frame you're talking about.

And we'll take our next question from Jordy Winslow with Crédit Suisse.

This is Jordy on for Jason. Just had a question on the Northeast. I think you have been seeing some softness for at least a couple of quarters there. Has that abated at all? Or if not, when do you lap that?

Yes, it really hasn't abated. I mean, we're still seeing positive comps in the Northeast, but it just tends to be a little bit softer than maybe what we see in the rest of the country, so I wouldn't really call out any difference there from what we have been seeing.

And we'll take our next question from Brian Vaccaro with Raymond James.

Just a quick bookkeeping question for me to start. The components of comp in the quarter, Tonya, can you revisit those? Traffic was up 3.1%, what was price versus mix?

So on the 3.1% for the quarter, let's see, pricing was about 1.5% and mix was about 0.5 to 60 basis points negative.

Okay. All right. And Scott, you mentioned that you've completed an analysis of the returns over the last few years and understand that the IRRs have improved as each class has matured. But can you provide some context on how the class of '15 compares with '14 versus prior years?

Off the top of my head, I want to say '14 was particularly strong. I just can't remember -- '14 was like the strongest we've had. And again, every class year is a little bit different. But -- and some of it's sales-related, some of it's cost-related and how the numbers change between the different class years. So I don't have it in front of me. I could certainly -- we could share more of that with you all, but we're very pleased with the returns overall.

Okay, all right. And assuming you have some pretty good visibility on the class of '18 and the '18 pipeline, is there any light at the end of the tunnel on the investment cost side? Or do you expect the class of '18 to still be in that $5 million-plus range on all-in investment cost at the core Roadhouse concept?

Yes, no, it's going to be over $5 million. It's really getting tough, particularly building construction. And we're constantly hearing all over the place, meaning other businesses, of there being shortages of a lot of the trades that go into the construction business in general, whether it's framers or mechanical folks or plumbers or whatever. And so they're commanding top dollar, number one, to work in those jobs. And number two, the owners of those companies are commanding top dollars to bid out their services. So that's definitely something that's very concerning and something that's just a reality for us right now. Now of course, like some folks have said earlier, you kind of have this type of economic pressure. I think it's benefiting us on the sales side. So yes, we're paying up more to get our buildings built, but at the same time, we're winning a little bit more on the sales side. And so one comes with the other. And I guess it's a good problem to have if you're suffering, in part, good sales growth because of inflation in the economy. So we'll take it.

All right. And just one last one if I could, on Bubba's, can you remind us where the targeted ROI on that concept is? And I think the all-in investment cost has been in sort of the mid-6s range. Where does that investment cost need to settle out in your mind to hit your targets?

Well, we definitely would like the investment cost to definitely be below 6. How far below 6 will be influenced by how high we think we can get sales and margins over time as we learn more about the concept and execute the concept at a higher level. But definitely, below 6 would be the target, maybe significantly below 6. And we're just going to keep working at it and plugging away. That is all solving for mid- to high-teens IRRs. That's always our general return parameters when you're talking new restaurants, which are sort of the riskiest investments in that you don't know what the sales are going in, versus if we were acquiring a franchise restaurant, we'd be comfortable with lower returns just because there's less risk, we know what the sales are, there's a track record, that kind of thing. So mid- to high-teens IRRs is what we're solving for.

And it appears there are no further questions. I'd like to turn the conference back over to Tonya for any additional or closing remarks.

Just want to thank you all for being with us tonight. If you have any other questions, please feel free to give us a call. Thanks. Have a good night.

And once again, that concludes today's presentation. We thank you all for your participation, and you may now disconnect.