Brinker International, Inc. (EAT) Q2 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Brinker International Second Quarter 2012 Earnings Conference Call. (Operator instructions.) It’s now my pleasure to turn the floor to your host, Mr. Tony Laday. Sir, the floor is yours.

Thank you Everett. Good morning, everyone, and welcome to Brinker International’s Second Quarter Fiscal 2012 Earnings Call, which is also being broadcast live over the Internet. Before turning the call over, let me quickly remind you of our safe harbor regarding forward-looking statements. Through our management comments and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts. These such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. On the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. Reconciliations are provided in the tables in the press release and on Brinker's website under the financial section of the Investor tab. Consistent with prior practice, we'll be silent on intra-period sales or other key operating results yet to be reported as the data may not accurately reflect the final results of the quarter referenced. On our call today, you will hear from Doug Brooks, Chairman and Chief Executive Officer; Guy Constant, Chief Financial Officer; and Wyman Roberts, President of Chili's Grill & Bar. Following their remarks, we will take your questions. Now I will turn the call over to Doug.

Thank you, Tony. Good morning, everyone. I’m going to briefly share with you our company results for the second quarter, how our strategies continue to yield wins for our guests, team members and shareholders, then turn it over, as usual, to Wyman and Guy for a deeper dive into Chili’s and the results at Brinker before we answer your questions. As you saw in our press release this morning, we reported an adjusted second quarter earnings per share of $0.47, a 24% increase year over year. Brinker comparable sales during the quarter increase 1.7% on a 1% gain in traffic. That is our fourth consecutive quarter of positive growth. These results demonstrate how we’re delivering on our promise to strengthen our overall business model with a balanced approach that drives top line sales, improves operational efficiencies, and increases shareholder value. Our top line strategy of providing everyday value is attracting guests to our restaurants and allowing us to continue to outperform the industry in traffic growth. So, our primary value platforms, again—first, Chili’s $20 Dinner for Two; second, our lunch platform at Chili’s; three, Maggiano’s classic pasta; and fourth, our latest offering at Maggiano’s, Marco’s Meal for Two continues to be important and appealing to our guests. And, we continue to bring new news to these offerings to keep them relevant and fresh. At the same time, as you know, we’re focused on improving our operating margins by 400 basis points. The initiatives we implemented last year gave us an impressive start towards achieving that goal and we continue excellent initiatives along with new initiatives in pursuit of our goal. These initiatives are delivering results because we’re taking a disciplined approach that ensures everything we do improves our margin and positively impacts our guests, our team members and our shareholders.…

Thanks, Doug, and good morning, everyone. As you heard from Doug, we’ve just ended another really solid quarter at Chili’s. Our comp sales were up around 1.5% every period during the quarter as we continue to take share and outperform that for the third consecutive quarter. The primary driver of the sales improvement was an increase in traffic, which is a key component for sustainable sales growth. We achieved positive guest counts every period, beating that by more than 2% in comp traffic for the quarter. That speaks to the strength of the Chili’s brand and the strategies that deliver value for our guests. Even though during the entire second quarter we were up against the introduction of Two for $20 from last September, and we took two additional hiatus weeks, we still grew dinner traffic and sales while we continued strong improvements at lunch. That’s indicative of a business that’s focused on the fundamentals, not one that’s being driven by the ups and downs of limited time promotions. As I’ve shared with you before, our strategy is built around a few key pillars—strengthening our base menu, staying fresh and relevant, and focusing on key day parts, and we’re continuing to work that strategy. For example, one week ago, we rolled out a new menu that includes a revamped steak offering. Why steak? Well, steak makes up a major menu category in bar and grill and we’ve historically under-penetrated that category. So, we upgraded our steaks with products we’re extremely proud of and we’ve structured the offerings in a way that allows us to be very price competitive. We’ve upgraded our ten ounce top sirloin and our twelve ounce rib eye and we now have a six ounce top sirloin on the menu at around $10 depending on your location.…

Thanks, Wyman. As Doug mentioned, our second quarter earnings per share before special items was $0.47 versus $0.38 in the prior year. These results demonstrate that our balanced approach to providing everyday guest value and restaurant level profitability is driving ongoing shareholder value. Brinker’s second quarter revenues were $682 million. Total company-owned comp restaurant sales increased 1.7% on a 1.2% price increase and 1% traffic offset by negative mix of 0.5%. Capacity was slightly negative with less than 1% impact and weather had no impact for the quarter. Franchise royalties and fees increased 2.5%. This is due primarily to 22 net international franchise openings in the last 12 months, as well as an increase in international franchise comp sales of 4.8% and domestic franchise comp sales of 1.7%. Cost of sales increased by 40 basis points from prior year to 27.1%. The increase was driven primarily by unfavorable commodities by 90 basis points stemming from higher oils, meat, produce and dairy costs. This was partially offset by 50 basis points impact from menu pricing and other items. Currently, about 75% of commodities are contracted through the end of fiscal ’12 and about 45% are contracted through the end of calendar ’12. As a result, we project commodity inflation to moderate in calendar ’12, averaging approximately 3%. The first half of the year will start higher than 3% but the second half of the year will be lower. Restaurant labor improved 40 basis points to 31.4% driven by 50 basis points of hourly labor savings, primarily due to changes in our kitchen prep procedures. Management expense was slightly unfavorable. As you’ll recall, we commenced the rollout of the new prep procedures in the second quarter of fiscal ’11 and completed the rollout in the third quarter, so on a year-over-year basis,…

Thank you, sir. Ladies and gentlemen, the floor is now open for questions. (Operator Instructions.) Our first question today comes from the line of John Glass from Morgan Stanley. Please proceed with your question. John Glass – Morgan Stanley: Thanks. I wanted to start, maybe, just a couple of top line questions. Just as a broad question, I think your goal this year was 2% to 3% comps for the year on a blended basis. Given where you are quarter-to-date or year-to-date, is that still a reasonable expectation? And then, more specifically, as you get into Chili’s, will you just remind us when you launched the lunch promotion? Are you actually cycling it now, or is that still something that you’re anticipating? And then, talk about, maybe, the media plan and how you plan to address driving traffic through media. I know you’ve been more selective this year and being dark in periods where the traffic isn’t as great. Are you going to, therefore, put more media at this important quarter as you lap some of those early sales initiatives?

Sure, John. Thanks for those questions. Let me see if I can tackle them. This is Wyman. First, the guidance we have on 2% is still our guidance, so we are still confident with the initial guidance that we gave at the beginning of the year, so we’re still holding to that comp number. With regard to the lap of lunch, we introduced lunch last year on January 10th so we are now lapping lunch in this quarter, so we have lapped lunch, and as you know in my prepared remarks, I talked to our strategy of how we are going to continue to grow lunch as we lap the introduction. And then, with regard to media, media is interesting. The first half of the year, we took five additional hiatus weeks this year versus last year and we did that for a couple of reasons I shared with you last time. One was just seasonality. As we looked at the business, we do a lower volume in our first quarter and second quarter than we do in the back half, and so we wanted to align our media more appropriately with when our business is, so we’re doing that. As we look forward, the plan for the back half of the year is to have the same number of on-air weeks as we did last year, so we will not be dealing with additional hiatus weeks in the back half of this year as we have in the first half. John Glass – Morgan Stanley: Great, and if I could just follow up with one other question on the margin, Guy, you talked about the anticipated benefit now on the margins as coming from the kitchen equipment, and you said it will deliver as expected. Can you just remind me what you did, say, in the past about what you thought the expected gain is from this rollout, which line items it impacts, and what order of magnitude, do you think?

Well, John, we haven’t specifically outlined what we thought the kitchen initiative would provide to us, however, we have referenced it to be team service-like in terms of size. If you recall, we got about 100 basis points of improvement from team service, so our belief is the rollout of line equipment will be similar in nature. Most of that will come on the restaurant labor line. We will see some benefit in utilities and we also think the new line equipment will help us reduce waste, which should help a little bit on cost of sales, but most of it will come on the labor line. John Glass – Morgan Stanley: Thank you very much.

You’re welcome.

Thank you, ladies and gentlemen. Our next question comes from the line of Joe Buckley with Bank of America-Merrill Lynch. Please proceed with your question. Joe Buckley – Bank of America-Merrill Lynch: Thank you. Good morning. Can you talk about gift card sales, how you did during the December quarter in terms of gift card sales year over year?

Joe, this is Wyman. Let me take that one for you. Gift card sales this year have been a little soft for us, really, all through the year, obviously, the bulk of them taking place in the second quarter, but as we walked through our first quarter and looked at our gift card sale trends, we noticed they were down and so we really evaluated what it was going to take to aggressively go after those sales. We opted to not change strategy and actually not go after that business as aggressively as some, primarily because it was going to require a bigger investment than we thought was prudent or was really in line with what we’re working on, so we opted to invest our resources in other places, if you will, to grow the business. We were down single digits in the gift certificate business this quarter. I think one of the things that I’ll just address now, because I’m pretty sure it’s going to come up, was our December sales number. I just want to bring up one point with regard to December sales at Chili’s. Well, actually, two things. First, our fiscal month ended on the 28th, so whereas most of the concepts reporting in go all the way through the 31st, so missing those few days probably had a significant difference in terms of results because they’re such important days, New Year’s Eve being one of those days, obviously. The other thing was that there was more weather in December than we’ve seen recently, and while we try not to bring weather into the conversation very often, it was notable in December. When you look at our franchise system, their comp sales in December were up over 4%. Now, most of those restaurants are in the weather-related areas, and so with most of our company-owned restaurants in the not-as-impacted weather states, we didn’t necessarily see that within the company-owned Chili’s world, but the franchise wrapped on that and had a very successful December, up over 4%. Joe Buckley – Bank of America-Merrill Lynch: Wyman, just to clarify that, the point you’re making on weather is that the company base was not that negatively impacted in December 2010 so you didn’t get the year over year favorable benefit that --?

Correct, and franchise world was and they saw that benefit to the tune of up 4.2% in December. Joe Buckley – Bank of America-Merrill Lynch: I just want to follow up on the initial question on same store sales. I understand you’re maintaining the guidance. What gives you the confidence to maintain that guidance when you’re not in that 2% range for the first half? The comparisons obviously get a lot more difficult going forward.

Well, again, I think the comparisons, Joe, the way we look at them aren’t that much tougher. I think everyone keeps going back to two years ago when we were doing Three for $20 and you’ve got to look at that, as of January, and that’s now, we’re talking three years ago. That’s what everyone’s kind of focused on. The big hurdle for us was getting past Two for $20 and growing dinner off of that. That was what we introduced last year, and then growing off of the introduction of lunch combos, which we have now done, and have now wrapped on that. Those were the big improvements we needed to do. One of the things that we have also experienced with the shift with growing our lunch business, one of the headwinds we faced was mix and we don’t have that headwind now that we lapped, so one of the favorable things about lapping is we don’t have that mix issue to deal with anymore, so our pricing flows through at a much higher percentage, and the initiatives that we have brought to the table, like the new steaks program and the additions to the lunch combo, continue to strengthen those businesses. We’re not dealing with promotional spikes. These are fundamental business changes we’ve made so the trajectory is much more projectable, and then we have much more confidence in it because our guests are also telling us these things are more appealing to them than what they were getting in the past. So, that’s why we have confidence in our plan. Joe Buckley – Bank of America-Merrill Lynch: Okay, thank you.

Thanks, Joe.

Thank you ladies and gentlemen. Our next question comes from the line of John Ivankoe with JP Morgan Securities. Please proceed with your question. John Ivankoe – JPMorgan: Great, thank you. Actually, a follow up on that. Wyman, it seems like you’re kind of talking about what might be a fairly abrupt shift from negative mix to positive mix. Do you think we’re in a -- which would be great for the industry, a positive mix environment, that customers are on the margin trading up? Maybe it’s buying less of the promoted items or the value items, I should say, on the menu or buying more steaks, buying more alcohol. How much of a basis point shift might that be from, call it calendar 2011 to 2012? And if I may, I think your current price that you’re running is on the lower end of what you’ve talked about in terms of what might be pricing for calendar 2012. What might be some timing on price and do you think this is an environment where you can take it?

Okay, two great questions. First, with regard to mix, John, I’m not talking about the industry. I’m talking specifically about Chili’s. The mix impact we felt when we introduced lunch was negative, as you would expect as we grew the lunch business, which has lower checks than dinner, but grew it enough to absolutely increase sales and increase profitability, but there was some negative mix involved in that. We don’t have that as we lap lunch. You lose that mix impact, so for us, we don’t have that, so the pricing we now take flows through without that headwind up against it. That kind of leads to your next question. On mix, also, we are starting to see, I don’t know, again, how broadly it’s being felt in the industry. We know that as we get smarter with our bar business, for example, as we shared, and we bring better products to our guests, and our operators get more attuned and our reimages promote a better bar environment, we can sell more alcoholic beverages, and that’s what we’re focused on. So, most of my comments are really specific to the Chili’s world. With regard to price, we are still maintaining a very conservative approach toward pricing. That 1% to 2% is all we’re looking to take. We did take a price increase with this menu that I mentioned we just introduced last week, and we are probably going to be, for the next little bit, on the top end, the higher end of that, but incorporated in that menu change are several key improvements to the quality of our products. I talked to you about steaks. We’ve also improved the quality of our fajita beef. We’ve also improved the quality of our salad mix. So, we’re making investments in the quality of the product, which shouldn’t significantly impact cost of sales, but are going to be covered in a little, maybe more aggressive, pricing. And then we wrap on some pricing later in the year that’ll probably bring us back to that moderate part of that 1% to 2% range. John Ivankoe – JPMorgan: Great, thanks. And, if I may, just one more. As you begin to really roll out kitchen of the future, obviously it’s a major focus for the system in calendar ’12, how long are you seeing it take for that system to become fully productive from a labor and cost perspective? I guess what I’m asking is is there a sum period of weeks, or maybe months, where it’s actually a cost as opposed to a benefit as you integrate the system into the stores?

John, it’s Guy. No, we don’t see it as a cost as opposed to a benefit. We regularly do training and, really, what we’ve done is just shifted our training now to focus on the rollout of the new kitchen equipment, so there’s not an increase there. In terms of your question about timing, we’d say it probably takes about a month. What we do is we increase the expectations, and not the month following the implementation, but the month after that, is when it now starts going into people’s plans and they have to hit those numbers if they want to get paid on bonus and hit incentives, so our expectation is in that four or five week timeframe they should be able to hit the labor productivity goals that are expected as a result of the rollout of the new kitchen equipment. John Ivankoe – JPMorgan: Great, thank you.

Thanks, John.

Thank you, ladies and gentlemen. Our next question comes from the line of Michael Kelter with Goldman Sachs. Please proceed with your question. Michael Kelter – Goldman Sachs: I wanted to ask about the promotional intensity in casual dining. From the outside in, it kind of appears to be picking up. I guess I’m curious. Do you perceive the same pickup in promotional intensity from your competitors and have you had to adapt? How do you intend to differentiate yourself in that environment?

Well, Michael, obviously, we track the industry and the competitive set. I’m not sure that, based on MPD data and what we’re seeing, if the deal rate, if you will, has jumped up that much more, so from a consumer perspective, if consumers are feeling like there’s more deals out there than before. So, it seems like after a peak, a year or so, it kind of leveled back down a little bit and it’s kind of been tracking in that range. Obviously, when certain people come out with the offers and they have a lot of media weight, it gets our attention, but I think overall in the category, it’s kind of leveled off. How we plan to differentiate ourselves is just like we’ve said. We plan to continue to work on the fundamental strength of the business, creating a better base menu with stronger value propositions that execute day in and day out at a higher level. Changing promotional strategies or putting promotions in every six to eight weeks is confusing to operators, it makes it very difficult for consumers to understand what your value proposition is every day if it’s significantly different with a promotion than it is on a day in, day out basis, so we’re working on fundamental structural changes to the base menu and to the operations that provide that value on a day in, day out basis. We’ll take opportunities to leverage some media or some targeted segments occasionally, but that’s really our strategy. Michael Kelter – Goldman Sachs: And, one other thing I wanted to ask. You said no more company restaurant closures, planned closures, but this is several quotas in a row now where some of the franchise units have started to decline. I guess I’m curious. Is there anything specific that’s going on that was discreet about the last couple quarters and that’s not an ongoing trend, or is there any reason to believe that some of the franchisees will be closing doors over the next 6 to 12 months?

No, Michael, there’s no reason to believe that the franchisees would see any difference in closures going forward versus the company. I’m not even sure, what’s the basis for that first comp? Michael Kelter – Goldman Sachs: It looked like the number of net units for US franchises was down 8 units, which is 2% of the franchise base in the last two quarters.

Going forward, Michael, we don’t expect the franchisees to have any different closure pattern than the company. Michael Kelter – Goldman Sachs: Thank you very much.

Thank you, ladies and gentlemen. Our next question comes from the line of Bryan Elliott with Raymond James. Please proceed with your question. Bryan Elliott – Raymond James: Thanks. A couple, I guess, clarifications, really. First, on the pricing, did I hear you right that you’re that you’re running, with this new menu you just put out, a bit ahead of the 1% to 2% full year range?

Yes, slightly, but in that 2% range. Bryan Elliott – Raymond James: Okay, and then we lap April, May? You said we’ll lap some from last year, then, just refresh my memory on when that is.

March, April. Bryan Elliott – Raymond James: March, April. Okay. And, the advertising, you said we were off five weeks less or we had five weeks less in the first fiscal half?

Correct. Bryan Elliott – Raymond James: And we’re going to be equal on a weekly on versus off basis in the second half of fiscal ’12?

Correct. Bryan Elliott – Raymond James: Are we spending less as a percent of sales?

No. Bryan Elliott – Raymond James: Okay, are we spending the same, I guess I should have said, similar? Not materially different?

Similar, not materially different. I would just say, Bryan, obviously we could change that. I wouldn’t see us getting more aggressive with hiatus weeks, but we reserve the right at any point in time to buy more media exchanges and media plans, so I’ve kind of given you what we see right now as the future, but obviously, we saw an opportunity to really put a message out there with more the way we would do that, if that made sense for us. Bryan Elliott – Raymond James: Sure. Alright, and the last question, maybe helpful to understanding the sales trends a little better, given this lapping of the lunch introduction, et cetera, so maybe one way to get at that would be disaggregate the mix change, maybe in the fourth quarter or in the calendar fourth December quarter, maybe over the last several quarters, to maybe isolate it to dinner only or something like that. And, give us a little more help on understanding the impact of the lunch program on overall mix and, I guess, traffic, would be helpful, also.

Mostly all of the mix line, Bryan, was related to the rollout of lunch year over year, so that was what Wyman’s point was earlier, that now that we’re lapping lunch, we shouldn’t see that negative impact of mix related to just having more traffic coming from lunch than we did from dinner. Now, all day parts are growing. Lunch just happened to be growing faster than other day parts in terms of the traffic, which is why it was driving some of the negative mix, because, as Wyman said, the ticket was lower, but now when you get into mid-January, we don’t have that impact of the new lunch rolling over, not having that lunch program the prior year. We now have lunch over lunch changes going forward. Bryan Elliott – Raymond James: Was dinner mixed, particularly given the alcohol increase? I don’t know if you count the bar business independently or not, but when we look at dinner specifically, what did mix look like in the December quarter at the dinner day part only?

Well, we can say specifically as it relates to alcohol, Bryan, we’re up about a half a point in terms of alcohol mix. Now, most of that happens at dinner, so it certainly helps our dinner mix when that’s the case, but dinner mix was up over that time period. Bryan Elliott – Raymond James: Okay, and I guess, is the alcohol mix happy hour? Are new people coming in and just grabbing a drink and maybe an appetizer, or is it people sitting in the restaurants ordering dinner? A little of both?

Yeah, it’s a little of both. It’s been an emphasis, Bryan, so we’re focusing on both the bar business and drinks with dinner. Bryan Elliott – Raymond James: Okay, great. Thanks.

Thank you, ladies and gentlemen. Our next question comes from the line of Jeff Bernstein with Barclays Capital. Please proceed with your question. Jeff Bernstein – Barclays Capital: Great, thank you very much. A couple of questions. First, on the commodity and related pricing side, Guy, I think you mentioned now you think the basket for, I believe calendar ’12 was up 3%. It seems like it’s gotten a little bit more favorable. I know you mentioned that the commodity basket is locked for 45%, I think, of calendar ’12, but you thought it would get better through the year, so I’m just wondering if you can give some granularity in terms of what the assumptions you’re making on the products that you’re not locked, the other 50-some odd percent that you’re not locked, the back half. What assumptions are you using to come up with that kind of 3% and would the 1.5% or so pricing that you’ll be on be enough to protect the margin on that inflation? And then I had a follow up.

Sure. So, you’re right, just to clarify. So, 45% of our items contracted now through calendar ’12, 75 through fiscal ’12, and we do project 3%. You may recall, we said for this fiscal year we thought it was going to be approximately 4% to 4.5% inflation range. We kind of still see that in the front half of fiscal ’12. Maybe a little bit better, or, sorry, this back half of fiscal ’12. We really see the improvement come in the back half of calendar ’12 on a number of items. For us we have poultry, favorability in poultry. We believe the dairy market will continue to ease and that is one of the items. Currently, half our cheese is riding the market. We’re not locked in on that contract and we believe it will get more favorable. So, we have a number of items along with just the general commodity environment that appears to be easing. We’d love to have a deflationary environment. We’re not expecting that, but we think this lower level of inflation, it will be much more realistic now to expect pricing would cover that inflation in the future, as opposed to this past fiscal year where it’s been tough to get enough pricing to cover the higher commodity inflation. Jeff Bernstein – Barclays Capital: So, at this point, with the 2% now, but likely to be a little lower than that starting in March, April, you would think that you would be able to get some cost of sales leverage as we look to the back half of calendar ’12?

Yeah, I think as the year goes on, our hope would be we would get a little cost of sales leverage. Jeff Bernstein – Barclays Capital: And then as it just relates to broader fiscal ’12, I know we’re halfway through now, and I believe in the past you’ve mentioned that no reiteration or mention of fiscal ’12 guidance implies that that’s unchanged. I’m just looking to clarify. I believe it was for 18% to 28% earnings growth for this fiscal year. I know you don’t give quarterly numbers, but in the first half of the year, you guys beat consensus expectations. I’m wondering, was the first half of the year completed already, was that above your own internal expectation, and trying to gauge as we’re halfway through the year, the second half outlook. It’s tougher in comparison. I’m just wondering whether you’re assuming a [defileration] in earnings growth, or any kind of update on the trend throughout the year.

No, you’re right, Jeff. It was 18% to 28% was the implied percentage range for our $1.80 to $1.95 guidance and at the start of the year we indicated that we thought the percentage growth in EPS year over year would be pretty similar throughout the year, and the first two quarters have tracked with that and our expectations haven’t changed. We think it’ll continue to be similar EPS growth each quarter through the year. Jeff Bernstein – Barclays Capital: So the first half of the year was presumably above your own internal, not for guidance, but above your own internal expectation?

We don’t want to really refer to the internal expectation, Jeff, but we’re really happy with how the first half of the year went and we believe that we’ll see consistent performance through the rest of the year. Jeff Bernstein – Barclays Capital: Okay, and then just lastly, as you look out, now that we’re close to the fiscal ’13, I know in the past you talked about if you gain some traction on these new initiatives, that in fiscal ’13, you could see EPS growth above, I believe your long term is 10% to 12% guidance based on some of these initiatives starting to kick in. Is that still reasonable on the path to the doubling of EPS by fiscal ’15, that the fiscal ’13 EPS growth would be above that long term range?

Yes. Jeff Bernstein – Barclays Capital: Great. Easy answer. Thank you.

Thank you, ladies and gentlemen. Our next question comes from the line of David Palmer with UBS. Please proceed with your question. David Palmer – UBS: Thanks, guys. You mentioned the weather noise in nearest effect as being dragged in your numbers for December, and that sounds reasonable that we should maybe think about that when considering your momentum, but I think I would love to still dig into why you have confidence in driving that 2% type same store sales in the second half, and I have a feeling there will be something instructive you could tell us about it. One of the things that I think about is you have these sales value combo meal facts and how you think about those. For instance, a year ago, you add the lunch value and you’re lapping that. Are you coming into that period in a way that when you look at your dollar sales, even on a weekly basis, that you’re thinking you’re going to [compositively] there with some adjustments in new news? In other words, will these combo meals type value menus prove to be sales layers? That’s question one. And question two is maybe there’s some other things that you have in the hopper, or that you see playing out, that will have increasing benefit to sales. For instance, the ovens turning tables faster, reimaging, these happy hour initiatives that I think you’re working on. So, if you could maybe be more explicit about these two things, that would be helpful. Thanks.

David, absolutely we have confidence in the plan that we’re pursuing. You touched on a lot of it. I’ll reiterate. It was in our points. First it goes by day part segment. At dinner, we’re working the value platform, the layer, if you will, the Two for $20. We’re bringing new news to that and steak is a big opportunity for us. That’s something that we didn’t have last year that we have this year that’s going to be an important part of our business going forward. Lunch, we’re leveraging the platform and bringing new news and the trends that we have, the momentum that we initiated in the third quarter of last year, we haven’t lost. So, we’re not walking into the third quarter with a big hole. And, the bar business is that third piece of the business and the day part that we’re working on, we’ve talked about the success we’re having there. There are several other things we are working on, but obviously, we’re not going to, on a conference call, talk about all of the new and exciting things that we’ve got working and how we’re going to grow the business, continue to strengthen and grow the business going forward, but there are other things that we are working on, in both culinary and in marketing and in operations that we think will continue to grow our business and allow us to take share in this market. We are getting confidence that we can do that, also, by just the metrics that we look at, so when we look at our test scores for ideas that we have out in market and when we look at our consumer feedback, they all indicate that we’re doing the right thing, that we’re getting better and stronger results with our guests and with the consumer and that’s a good indication that you can see some positive momentum continuing through the future. So, that’s why we have confidence in the numbers that we’ve shared with you. David Palmer – UBS: Thank you very much.

Thank you, ladies and gentlemen. Our next question comes from the line of Mitch Speiser with Buckingham Research. Please proceed with your question. Mitch Speiser – Buckingham Research: In the first half of this year versus last year, can you drill down to the second quarter, the number of weeks that were advertised less in the second quarter versus a year ago?

Yeah, we were off air two additional weeks this year than last year in the second quarter. Mitch Speiser – Buckingham Research: Can you give any more color on what months those advertising mismatches came in?

I don’t have that right in front of me.

Mitch, I think it was one October and one November, but I don’t have that in front of me, either. Mitch Speiser – Buckingham Research: Okay, I could follow up on that. Thanks. And, separately, can you talk about the franchisees and how they’re viewing all the equipment upgrades? Are there any on board just yet, and where do you see that timetable for them to adopt all the initiatives that you’re putting into the company stores?

Mitch, it’s Guy. Our franchisees, they see the returns. They see the productivity gains that we’re getting on the company side so they are excited about the opportunity to make changes to the kitchen as well. And, of course, they see the innovation opportunity, which is normally how these types of things are sold to franchisees in the broader space. Put new equipment in and the franchisor will innovate and be able to draft off that. The beauty of what we have with the kitchen is not only can we give them those innovation opportunities, but we can also give them a return on the labor productivity, so we feel like with both sides of the equation, that’s what’s driving a lot of the excitement with franchisees. Now, we’re in the process of rolling them all out to our company-owned locations and it’s going to take until the end of the calendar year to do that, but our expectation would be that many of the franchisees will get on board when that’s complete and also have their equipment as well. Mitch Speiser – Buckingham Research: Great, thanks. And my final question, just on capex, which indicated will be lower than what you previously thought, is it safe to assume that those incremental dollars might go into share buyback?

That’s a safe assumption. Mitch Speiser – Buckingham Research: Great. Thank you very much.

You’re welcome.

Thank you, ladies and gentlemen. Our next question comes from the line of Brad Ludington with KeyBanc Capital Markets. Please proceed with your question. Brad Ludington – KeyBanc Capital Markets: Thank you. Good morning. I wanted to ask Guy on a couple of things that you went through. Can you quantify what the lower credit card fee benefit was in the second quarter? And then, also, just looking at repurchases, should we assume that it’s at a similar rate in the back half of the year as we saw in the second quarter?

Let me answer your second question first. We’re going to use all excess free cash flow. As you recall, Brad, we’ve indicated on a few occasions that once we finish capex, once we pay out our 40% dividend, once we do our $25 million loan amortization and once we keep $50 million on the balance sheet, everything else is going to go to share purchase, so results, timing of capex, as Mitch asked earlier, all factor in to share purchase, so we will continue to use all excess cash to do that. In terms of predicting what that’ll be as we go on through the back half of the year, really, I guess it’s going to depend on what you’re modeling in terms of what you estimate we could do, but clarity around what the use of that cash will be. I’m sorry, I’ve forgotten your first question now, Brad. Can you repeat that? Oh, debit card. Sorry, your debit card question. It’s not as much as we thought it was going to be when the legislation first rolled out because when the implementation of that legislation came through, there were a lot of scale backs of what the initial thought was, but all in all, we think it’s maybe a 10 or 15 basis point good guy for us going forward in terms of order magnitude. Brad Ludington – KeyBanc Capital Markets: Okay, and then Wyman, as many questions as you all have gotten on mix going to positive in the coming quarters and everything else, is it a safe assumption that your guidance assumes continued positive traffic at Chili’s in the coming quarters?

Yes. Brad Ludington – KeyBanc Capital Markets: Okay, thank you.

Thank you, ladies and gentlemen. Our next question comes from the line of Chris O’Cull of Sun Trust. Please proceed with your question. Chris O'Cull – SunTrust: Good morning, thanks. Guy, you mentioned the company’s pleased with the first half results, but it looked like performance incentives were down during the quarter. Why was the bonus accrual down and what was the benefit in terms of basis points?

It was down a little bit from our plan. In part, we’ve got challenging goals we have for our operators in order to when these new initiatives roll out. Some of it was related to timing of new initiatives, too, Chris. You may recall that we were expecting to be maybe a little bit further down the line with some of these initiatives than where we are today. The fact that we’re not as far along as we thought is not a reflection of the fact that we don’t think they’ll be successful, it’s just simply a matter of the timing of the rollout and, as Wyman said earlier, wanting to make sure we pace and sequence these well enough so that the operators can accept it. But in terms of the bonus good guys, I said, manger expense was slightly unfavorable, so overall, it wasn’t really that significant a benefit, but it was a little bit of an aid in the second quarter. Chris O'Cull – SunTrust: Okay, and then, Guy, the labor savings, it sounds like it will be coming more from the new kitchen equipment going forward. Do you expect a similar year over year improvement in the labor line in the back half of the year?

So, Chris, obviously embedded in when I say that it’s on a year over year basis, because embedded in our numbers is the fact that we’ve locked down team service and we got that 100 basis points. The prep procedures we’re getting is 50, maybe a little more than 50. That’s all locked in, so we’re still getting those labor savings, just on a year over year basis. They don’t show up now because we’ve lapped them, so this is now where the kitchen equipment starts to pick up the slack moving forward. One area where we have been a little ahead of where we thought we would be is on the labor line and we would expect that to continue going forward. Chris O'Cull – SunTrust: So, continue it around 30 to 40 basis point benefit?

Yes. Chris O'Cull – SunTrust: Okay, and then one last question. Wyman, you said the two-plus percent pricing, it sounds like, with this new menu. Are you counting the new steaks as a lift to the pricing or as an expected benefit to mix?

It can have both impacts, so there is a price element to that because we had steaks on the menu, and we did price for some of the upgraded product on the base menu items, the ten ounce and the twelve ounce, but then also, we could get favorable mix depending on how the guests respond to eating this item, especially if we can convince some lunch guests that a six ounce steak is a pretty good lunch item. That would probably have a positive mix impact at lunch, so it could impact both of those elements. Chris O'Cull – SunTrust: So, just as a follow up, steaks aren’t going to be probably a hero in a lot of your promotions the back half of this fiscal year as you’re trying to drive mix.

We’re going to put a lot of effort behind introducing this product. Chris O'Cull – SunTrust: Okay, great. Thanks.

Thank you, ladies and gentlemen. Our next question comes from the line of Destin Tompkins with Morgan Keegan. Please proceed with your question. Destin Tompkins – Morgan Keegan: Thanks. Just a couple quick follow ups. I guess one on the restaurant expenses. You kind of quantified the credit cards fees, but I wondered if you would be willing to quantify the R&M and the worker’s comp, and maybe clarify what you’re thinking about going forward. It sounds like the credit card fees will continue the next few quarters, but what about the lower R&M and worker’s comp?

Destin, on R&M, as we start to roll out the reimage program more aggressively than we have to date, we should start to see some benefit on R&M. Obviously, when you do a reimage, you’re putting new tables, new chairs, new fixtures in the restaurant that don’t require you to follow up on an R&M cycle until much later than perhaps you might have originally thought, so a key part of doing any sort of reimage program is your opportunity, if you time it right and you sequence it well and you plan it correctly, is your opportunity to potentially skip an R&M cycle on many items because you’re replacing it with new, so I would think we’ll have opportunities to keep R&M favorable going forward. On worker’s comp expense, this is a pretty good run we’ve had of managing our restaurants very safely. Our operators have done a great job doing that and we’ve continued to see benefits on that line. At some point, will we reach a point where the benefit opportunity isn’t as great? I’m sure that will happen, but to date we’ve continued to see benefits from that line.

Thank you ladies and gentlemen. That’s all the time we have for questions today. I’d like to turn the floor back to management for any closing remarks.

Thanks, Everett, and I appreciate everyone joining us this morning and all the great questions. I would just close by saying how pleased we are with our results and how confident we are with our F12 guidance, both top and bottom line. Our strategies are working. We have exciting new news for the guests in the back half of this year, along with the continued steady pacing of all our in-restaurant initiatives—the kitchen equipment, the technology, the building reimage and the bar work. Just to remind you, part of that excitement is five quarters in a row of earnings growth, four quarters of sales and traffic growth, and we’re stealing share from other casual dining brands, so we look forward to talking to everyone in April. Thanks again for joining us this morning.

Thank you ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.