Brinker International, Inc. (EAT) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Brinker International Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Tony Laday. Sir, the floor is yours.

Thank you, Kate. Good morning, everyone, and welcome to Brinker International's Fourth 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. During our management comments and in our response to your questions, certain items may be discussed, which are not based entirely on historical facts. Any such item 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 in 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 Financials section of the Investor tab. Consistent with prior practice, we'll be silent on interperiod 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 fourth quarter and for the full year, then turn it over to Wyman and Guy for a deeper dive into Chili's and the results before we answer any questions you have. As you saw in our press release this morning, we reported an adjusted fourth quarter earnings per share of $0.61, a 27% year-over-year increase, and an adjusted full year earnings per share of $1.96, a 29% year-over-year increase. Comp sales during the quarter increased 2.1% on a 0.9% gain in traffic. This was our sixth consecutive quarter of positive growth and we successfully lapped positive sales from last year. These results are evidence that we continue to deliver on our promises. Over 2 years ago at our Investor Conference in Dallas, we told you we needed to rejuvenate our brands by improving service and food quality, while at the same time improving our profit and loss to drive margin improvements. We laid aggressive goals, and I want to update you on how we're performing against those goals. Our fiscal '12 EPS of $1.96 puts us well on the way to reaching our EPS goal of $2.75 to $2.80. We've also achieved over half of our 400 basis point operating margin improvement. And I am confident that as we complete the rollout of our initiatives, we will achieve the remaining savings. And we've dramatically turned around our sales and traffic trends. We've achieved 6 consecutive quarters of positive growth, even in the midst of a challenging economic environment, and we continue to distance ourselves from our competitors and gain incremental market share. We achieved these results by changing the way we operate our restaurants, which has resulted in sustainable margin improvements. And…

Thanks, Doug, and good morning, everyone. As you just heard, Q4 was another strong quarter for Chili's. Our comp sales were up 2.2% compared to a flat industry as measured by KNAPP-TRACK. The thing we're most excited about though is delivering a 1.2% increase in traffic versus a negative 2.6% for the industry. That marks our sixth consecutive quarter of traffic growth, which demonstrates our strategy of bringing more guests into our restaurants every day continued to work for us in the fourth quarter. This caps an entire year of great results for Chili's. We ended the year up 2.5% in sales and up 1.5% in traffic, which is significantly better than the industry, while maintaining strong margins and a great guest and team member experience. In just a few minutes, Guy will walk you through the details of how our top line gains flowed through the profits. But for now, let me take a moment and recap how our strategy has been working for us. Let's go back a couple of years to when Brinker made the commitment to improve our margins by 400 basis points and talk about how we prioritized to build towards that goal. First, we attacked the initiatives that we knew would improve our bottom line and generate cash for us to reinvest back into the brand to keep it fresh and relevant. Earlier in fiscal '11, we implemented team service and the first phase of our 'kitchen of the future,' and we started to reap the benefits of a stronger P&L right away. This enabled us to reinvest in initiatives of longer lead times, things like menu innovation, reimaging and compelling everyday value platforms like 2 for $20 and lunch combos. We then began to leverage some really solid marketing approaches, like building a…

Thanks, Wyman. You've just heard Doug and Wyman highlight that our operators delivered strong results again this quarter, enabling us to continue to capture market share from our competitors. Now let's take a deeper dive into those results. Continuing the year-over-year improvement we've seen in the past 3 quarters, EPS before special items for the fourth quarter was $0.61 versus $0.48 in the prior year, a 27% improvement, demonstrating continued momentum in our quest to strengthen our business model and transform the Chili's business. Fourth quarter revenues were $728 million, an increase of 1.5% over prior year. Total company-owned comp restaurant sales increased 2.1%, on a 1.4% price increase, a 0.9% traffic increase and offset slightly by negative 0.2% mix. Capacity was slightly negative and weather had no impact on the quarter. Gift card-related revenue was approximately $2 million unfavorable, compared to prior year due to lower breakage. Franchise royalties and fees decreased 8%, due primarily to a one-time development fee refund of approximately $1 million. This was related to ceasing the previous plans we have for international development of the Maggiano's brand, consistent with our focus on Maggiano's domestic new restaurant development. This negative adjustment, coupled with lower development fees versus prior year was partially offset by the impact of net positive franchise openings in the last 12 months, an increase in domestic franchise comp sales of 2.4% and an increase in international franchise comp sales of 1.3%. Cost of sales increased 20 basis points over prior year to 27.1%, driven by unfavorable commodities of 40 basis points stemming from higher meat and oil, partially offset by lower produce and dairy costs and unfavorable mix of 10 basis points, partially offset by 30 basis points of favorable impact from menu pricing and other items. Restaurant labor improved 50 basis…

[Operator Instructions] Our first question today is coming from Jeffrey Bernstein.

Barclays. Two questions. First, just on, I guess, looking at fiscal '13, appreciate all the granularity. I think the free cash stood at $160 million to $170 million. Just wondering if you can dive into that a little bit, whether there's any potential to accelerate the -- maybe the CapEx spend for technology and the reimages. Or are there constraints beyond just cash flow that makes that harder to do? In which case, how do you balance the kind of a share repo versus dividend? And you mentioned on a few occasions kind of your leverage position, just wondering whether there's potential to increase that with the stability of the business and perhaps more -- return more to shareholders with still the investment-grade rating. And then I have a follow-up.

Okay, Jeff. Yes, we have talked about all of those issues before. The constraints on rolling out our initiatives aren't cash constraints. The position of the business is very healthy from a cash perspective. As we talked about before on the reimages, and really given that we're so close on the kitchens and the point-of-sale rollouts, we really can't roll those out any faster than we will, given we'll be done in 3 to 4 months time. Now the issue is really the reimages. And for us, it becomes an issue of just making sure that we can control the costs and control the quality of the reimage. To the extent that we would want to move faster given our market-by-market approach, we would then have to expand the contractor base that would work on the project, which either could result in increased costs or potentially not as high a quality contractor as we might have used before. And clearly, we want to make sure that we deliver the best guest experience, reimage experience possible to those who visit the restaurants without causing the costs to increase. As for the second part of your question about, could we do a little bit more on the leverage side while maintaining our investment grade profile? As you can see, last quarter, we talked about drawing down the revolver. We've already done that as well this quarter. And so we'll look for every opportunity we can in order to do that, again following the guide that we would want to maintain our investment-grade rating to do as much share repurchase as we possibly can.

Got it. And then just separately, I think both yourself and Doug mentioned the long-term guidance of $2.75 to $2.80. I know previously that was labeled as, I guess, fiscal '15 guidance. I didn't know whether we should be reading into that. It seems like now that's just long-term guidance. I wasn't sure if that was pulling it forward or pushing it back. But it does seem to imply if there's what seems to be 20% plus earnings growth in this coming fiscal year, it's more modest, kind of high single-digits in the outyears, so it's still a fiscal '15 target. So I'm just wondering, should we expect -- kind of how you pace that out over the next couple of years if fiscal '15 is still the long-term target end?

Yes. I guess my answer would be a quick one, Jeff, which is we're definitely not pushing it back.

But if it's 17% to 25% in '13, not pushing it back, saying the latest would be fiscal '15? Or is there potential be sooner than that? Or how do you see it playing out beyond this 20%? I'm assuming there's more benefits in fiscal '14 from all the reimaging work you're doing in '13, so just trying to pace it out a little bit.

I think the way you characterize it is good, Jeff. The latest would be fiscal '15. And there's the opportunity that could be sooner than that.

Our next question today is coming from John Glass.

It's Morgan Stanley. I've got a few questions. First, just on the fourth quarter. You saw slight negative sales mix at Chili's, and sales mix had been positive because you're lapping lunch. Can you maybe just comment on was that an expected reversion back to slight negative mix or what drove it and maybe what your expectation of mix going forward is?

Yes, this is Wyman, John. The sales mix issue is more to do probably with the strength of our lunch business relative to dinner. Both dayparts are still strong. We had continued strength at lunch, though, and that's the main driver of why we might see a little sales mix dropoff there. Overall though, we don't anticipate mix being a big part of the, well, a negative mix issue being an issue that we'll deal with going forward. All of the indications are we're going to continue to grow both dayparts and our add-on sales. And so mix should be relatively positive going forward.

Okay. And then Guy, a couple of questions on the guidance. One is you talked about flat food costs and your expectation of inflation, I think you said 2% to 3%. You had earlier talked about 3% inflation this year, commodity inflation. I don't know if that is, in fact, where the year ended up. But it does sort of fly in the face of fairly significant inflation in grains and stuff. And I understand your visibility or greater visibility through December. What gives you confidence, though, that 2% to 3%, even lower inflation in fiscal '13 and '12 is likely to occur?

Well, John, we had talked, the most recent conversations we'd had with this group had been 3% for calendar year fiscal 2000 -- oh, sorry, calendar year 2012. And you may recall, we thought that number was going to be higher in the front half of the year and lower in the back half of the year. I think what we're seeing now is we don't think that will continue to accelerate during the year. We don't think it will get even lower. We think it will flatten out to somewhere between 2% and 3%. The other point I would make is that, as you know, historically, John, you've follow the company for a long time, in times of commodity inflation, we tend to do better than the space and we don't see as much inflation as others do. And of course, the flip side of that is sometimes when you get good guys on the commodity side, we don't tend to benefit as much as others. So given our contract visibility, given our history, we feel comfortable with a 2% to 3% inflation for fiscal '13.

Okay. And then the last component of it was -- or last component of my question, at least, was just on unit growth expectations for fiscal '13 and beyond. And this topic has come up, I know, before given the success you've had in driving sales and margins and the ample free cash the business generates. So I think you said something about ramping up at the end of '13. But if you could just -- if that was the case, can you just amplify on it? And what is your current thinking since this is the year-end call about kind of what is the longer-term goal for the Chili's brand growth, maybe capacity, domestic capacity expansion in '14 and beyond?

So John, we have talked about that a lot. We are building the pipeline right now for Maggiano's and for Chili's. We believe that long-term, we can grow between 1% to 2% company-owned domestic unit growth for Chili's. We think perhaps that percentage can be a little bit higher for Maggiano's. And then of course, we have the added benefit of our domestic franchisees who will start to turn on development as well. And our international business continues to provide strong development going forward. But on the company-owned domestic side, which I think is probably more the gist to your question, we believe we'll be able to start open new restaurants late this fiscal year, which times very well with us making sure that we can lock down the rollout of all the kitchens and all the new point-of-sale systems and make sure that our existing restaurant base is solid, locked down and following through on delivering the rest of the results that we've already seen before we start to introduce new restaurant growth to the system.

Our next question today is coming from Michael Kelter.

Sure, from Goldman Sachs. I wanted to ask first about remodeling. You guys are saying you're going to do 200 to 225 units, about 25% of the system in a single year. What might be the contribution to traffic and same-store sales growth for your fiscal '13, given that the substantial number of units you're remodeling? And how much of the growth of same-store sales growth -- if you separate it out, I mean, does that mean you're guiding for the nonremodel restaurants to grow traffic at all?

Michael, Wyman. Yes. So we are obviously counting on these remodel restaurants. And you've got the number about right, to contribute to our sales growth. Probably about 1% of the overall sales growth that we're looking at is going to come from that. So it's a balanced -- so our plan is balanced between, as Guy talked about, a very moderate price, the impact of the reimages, which will drive traffic to some degree, and then a baseline traffic improvement as well in the rest of the restaurants. So we are continuing to focus on our strategy to grow the business with improved traffic trends, not just in the reimage restaurants, although they'll obviously carry a heavier weight, but also in our nonreimage restaurants.

And then on a separate point, you mentioned in your prepared remarks some new news on value coming in your fiscal '13. Can you maybe give us a little more color on that point?

Well, I don't think -- it's not just coming, I mean, it's been here and it's more about sustaining the value platforms that we have. So a good example is at our lunch -- right now, today, we're on air with a lunch offering of chicken fajitas. And that's taking our lunch combo platform, adding some new news to it, some products that we're really obviously familiar with in terms of fajitas and putting it out there in what's a great value. Now the beauty of that is it's in our platform that goes from $6 to $8 offering, and that's the high-end offering, right? So at $8, that actually helps -- It's a great value, but it's not necessarily the lowest price point. So we're continuing to focus on value in the future. With the new ovens and the new kitchen equipment, we think there are some other value platforms that could come off of those lines that will add to our already strong base.

And lastly, I just wanted to get your thoughts on your philosophy around your dividend. I mean, is there a scenario where you would take the payout ratio down? Because if not, then it suggests a fairly robust dividend increase upcoming.

Michael, this is Guy. We're committed to maintaining the 40% dividend payout ratio. And I think we've been pretty clear on just spelling that out that previous year's EPS, 40% of that EPS will result in a dividend that we would provide. So that is the -- that's a commitment we've made in the past, and there's no change to that commitment.

Our next question today is coming from Joe Buckley.

Bank of America Merrill Lynch. Question on the Olympics. Do you see the Olympics as taking away a little bit of sales in this 2 or 3 week period that they're on?

Joe, Wyman. Yes. It's interesting, right, because actually the Beijing, it was kind of a nonevent. So we weren't really sure. In prior Olympics, it's had quite a bit impact. This year, the Friday night, the opening ceremony night, we did see a little bit of a hit, nothing dramatic, but definitely a little bit of an impact. The beauty we have, though, now with, especially in our reimaged restaurants with all of the TVs we've added and with our local marketing ability, we've actually been able to market directly to our guests about the appropriateness of coming on in and watching the Olympics with us. And so we're not seeing a significant impact to our business or business trends with the Olympics for the last 2 weeks.

Okay. And then Guy, just a question on the food costs as well. I think when you introduced steak into the 2 for $20 options. I think you had beef -- contracts for beef, I think, through December if I'm not mistaken. And I'm curious now if you been able to extend that. Will we be able to do the steak 2 for $20 again in calendar 2013, given where these costs are?

You're right, Joe. We do have the steak contracted through the end of calendar 2012, so you remembered that correctly. As for calendar 2013, I don't think we want to disclose what we'd do on the call here. But I will say that by doing all of the heavy lifting that Wyman and Kelli and the operators of Chili's have done to fix the middle of our P&L, it certainly gives us more options going forward than it might have if we didn't have a healthier business model operating right now than we might have had 2 years ago. So we would not have had those same kind of options 2 years ago without the work we've done, so it does give us a couple of different ways to approach it starting in calendar 2013.

Yes. The other thing, Joe, about steak -- and we're thrilled to be a bigger player in steak than we have been in the past. But you've got to remember, relative to most of our competitors, I mean, almost all of them, we are still a much smaller player in the beef market. So it is an important component of 2 for $20 for us. But relative to our business in general, it's less than 10% of our sales are in beef. And so our ability to manage all of our commodity basket around that and our merchandising around that item and still keep it in the 2 for $20 menu, if you will, is much more reasonably -- or much more possible. And the possibility for us to do that and maintain margins is within the realm. So again, we'll face the same kind of impact with the commodity prices as others. But relative to others, our impact will be less, and therefore, our pricing should be not pushed as hard.

Okay. And then maybe just one more. Guy, the share guidance implies -- it seems to imply not a whole lot of activity, yet you've been pretty active here in the first 6 weeks of the year. So just kind of tell us how we're thinking about share repurchase for fiscal '13 relative to the share guidance.

Well, I mean, the approach there hasn't changed, Joe. So it's $50 million cash in our balance sheet. It's make the capital investments that we talked about today, $130 million to $140 million of CapEx. It's the 40% dividend payout ratio that we just talked about. It's some small debt amortization, about $25 million a year. After that, everything else goes to share repurchase with the added factor this year of the ability for us to draw down our revolver, which we've demonstrated before. So I wouldn't characterize our share repurchase this year as diminishing in any great degree at all.

Our next question today is coming from John Ivankoe. John W. Ivankoe - JP Morgan Chase & Co, Research Division: From JPMorgan. I know in the past that you've talked about when you put all the initiatives, all the operational change initiatives at the store level that you've actually seen some cases even more than 400 basis points of net impact when you kind of run them all together as opposed to kind of looking at them as separate pieces. In other words, kind of the sum is greater than the parts, I guess. I mean, just comment in terms of how significant that may be. And once the entire company kind of has its complete system by the end of calendar 2012, if there's any like real training or initiatives that you can do to kind of squeeze some more out on a consolidated basis in calendar '13, calendar '14, for example.

So John, a great question. One of the interesting things we found as we've rolled out the new kitchen equipment, and I think I've talked a little bit about this last quarter but we continue to see that, is that the way we rolled it out, we did it to make training very efficient in that we placed a couple of kitchens or a couple of point-of-sale systems in markets in order that we could bring nearby restaurants to those kitchens to train. But now as we're rolling out, and you can see all the way up to 620 restaurants now for kitchens and 400 for the point-of-sale system, we're able to attack whole areas. We now have whole areas, an area director with anywhere from 6 to 10 restaurants that now has an entire set of restaurants operating on the same kitchen or same point-of-sale system. They're seeing opportunities to leverage additional margin expansion from that. We had the previous kitchen for 30 years, and we got pretty good at running that. And we've only had this new kitchen in some of the areas for a handful of months. And our expectations would be that the very talented operators we have in our restaurants, who are very engaged and motivated because of the success we've had, are going to find additional ways to generate margin expansion. So we believe we'll be able to continue to expand margins even beyond the rollout of the new equipment. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Great. And if I may, you made a comment that you'd do more national advertising in fiscal '13. I mean, is that a reallocation of spend or are you actually taking up your percentage of sales?

Yes. John, Wyman. A couple of things. First off, we're our accrual rate or the percentage of dollars we spend on marketing flat but with increased revenue. Obviously, we get some more dollars there, and the media world is not coming in without some inflation. So it helps us to cover the inflation, but it also gives us more dollars to add to the marketing fund. We continue to get our dollars to work harder for us. So one of the things we've been doing over the last couple of years is just trying a lot different vehicles. And now we've got a pretty sense for which ones work harder for us and we're reallocating dollars there. And that allows us to come back with that new media mix and fill some hiatus weeks that we had on the plan. So we'll be on air 5 more weeks this year than last year. The bulk of those in the first quarter. So 4 of those will be in the first quarter, and so we are -- so it's a combination of a little bit higher media spend but a flat percentage, better and more effective media mix allowing us to fill in some hiatus weeks, which we think will help drive traffic. John W. Ivankoe - JP Morgan Chase & Co, Research Division: And just so we have it, I mean, how many weeks were you on national television in fiscal '12?

I don't have the number right with me. I think we were 43, we go to 48.

Our next question today is coming from David Palmer.

This is actually Eric Gonzalez in for David Palmer at UBS. Your guidance looks very similar to last year in terms of EPS growth. And as you compare fiscal '12 and fiscal '13, what are some of the margin drivers that will replace the things we may already know about for 2013? So in other words, how much of the margin gain is pretty high certainty because you're already getting those cost savings from initiatives currently underway?

Most of it is, Eric. So in the guidance, I outlined the restaurant labor makes up, as I said 50 to 70 basis points of the expected 100 that we would generate. And the vast majority, if not all of that, comes from the rollout of the new kitchen equipment, and it's just simply the fact that we're lapping, having that kitchen not in a lot of the system a year ago. So there's pretty high degree of certainty on the margin improvement, which is why we have so much confidence in the program. We know in 600 restaurants today, we're hitting the numbers. And we're just starting to hit some of those numbers in the ones that we just rolled out. And so we get that runway for 12 months, after we rollout every new kitchen, we get the runway of lapping, no labor improvements, with labor improvements following the implementation of the new kitchen.

Our next question today is coming from Chris O'Cull.

KeyBanc. Wyman, do you need to have the kitchen equipment in the entire system before you introduce new menu categories?

Well, obviously, we'd like to have it in as many restaurants as we can. We've got it in -- we'll have it in all of the company-owned restaurants, and the franchisees are all committed in ramping up as well. But right now, what we're focused on is really testing. So we have it in enough restaurants now, where we're doing all of the groundwork to get ourselves ready for a national rollout. So we're aggressively testing and going through that process now. And so we've got it in enough restaurants to do the work we need to do now so that we'll be ready to go with television support later in the year. Now obviously, we don't put it on -- I mean, we can put stuff in restaurants at any point in time without the whole system having that kitchen. But when we start talking to consumers nationally about it, we'd like to have it in as many restaurants as possible, obviously.

Right. And I understand that. And that was really my follow-up was how do you ensure that the new menu categories fit with the consumers' perception of what to expect when they go to a Chili's? And so you feel that the test...

Well, it starts -- we've been doing concept and research for months, knowing this was coming. So we've been -- it starts with concept research, and then menu development research before we ever even start to think about taking it into a restaurant. We've gone through all of those phases already. So we already have consumer acceptance clarification on a lot of work we're doing. So we're now really moving towards the operational piece of that process.

Okay. Great. And then did you -- or let me ask a follow-up on the advertising question. Do you expect TRPs to -- or how much do you expect TRPs to increase year-over-year?

They don't go up by as much as you might expect, given the change in op weeks, but there's a slight increase.

Okay. And then Guy, what are you assuming for the inflation for the commodity items not contracted?

I mean, how do we assume for items that aren't contracted, like the 40 we locked in price? The 40 that we don't have contracted?

Right. Is there...

We understand where the market is today and where we think markets are going to the best of everybody's knowledge that is out there. And then the one thing we, of course, have good clarity on is exactly where the items are contracted today that we're procuring today. We know what those contracts of those items are. So if we take our estimation of where we think things will be versus what we're paying today, that's how we triangulate against a bad inflation number.

Our next question today is coming from Jeff Omohundro. Jeffrey F. Omohundro - Davenport & Company, LLC, Research Division: It's Davenport & Company. My question is you've had some real success with the beverage alcohol mix. I think it's up about 30 basis points reported last quarter. Are those initiatives in training at the bar continuing? Do you see that mix continuing to grow in 2013? And if so, by about how much?

Jeff, Wyman. Yes. Thanks for bringing that up. We're really excited about the work our operations team has done in our effort to really improve our alcohol salesmanship and the appropriateness of the beverages we bring. We did see that 30 basis point improvement in the last year and we're continuing to see that. And we're counting on that for partial -- part of the year, when we wrap on the initiative introduction kind of more towards the second half, we may not see that same level of growth, continuing to see opportunities to grow our alcohol sales. And it's a combination of what we're doing with our team members and really the smart work that's being done in the marketing department with the beverage offerings that we're bringing. A lot of focus -- our focus now on margaritas and beer, and really just kind of coming up with best-in-class offerings in those 2 categories is really paying off for us. Jeffrey F. Omohundro - Davenport & Company, LLC, Research Division: And then just one follow-up. You previously -- or the company has previously given guidance around international expansion in the global division and some significant growth by 2015. Certainly, Mexico and the Middle East are strong for you. How are you looking at new markets, say, in Latin America? Where are you in the process of evaluating further opportunities?

Jeff, this is Doug. Thanks for asking. We continue to be very strong in Mexico and the Middle East, and we have expanded our footprint in Latin America. In fact, this year, we'll open up in Costa Rica. And of course, last year, we went into Brazil. So Colombia is also a new market we'll be expanding into. So again, our brand, our menu really plays very, very nicely with the consumers throughout Mexico and Latin America. And we still see lots of expansion, particularly in that market in the Middle East. And most of the 30 or so openings this year will continue to be in those markets.

Our next question today is coming from Peter Saleh.

Telsey Advisory Group. I just wanted to ask about the long-term unit growth. So I know you're talking about starting to add more units later in this fiscal year. But I guess, my question is when you're thinking about same store sales, are you anticipating cannibalization as you add more units? And if so, what level of cannibalization are you comfortable with?

Peter, it's Guy. Obviously, that question depends a lot about where we build and how closely we're building to existing locations. But one of the interesting thing about Chili's is while we have the second largest number of units in casual dining and generate more traffic than anyone else does, we're fairly underpenetrated in some parts of the country. As you know, we're pretty deeply penetrated in California, in Texas, in Florida and in the Southern part of the country. But there are a lot of markets where there's still penetration opportunities for our franchisees in the markets they own and in our own company of markets as well. And so cannibalization is always a consideration. There is opportunity for us to add in trade areas in markets where we already are. And we'll have to keep a close eye on that. But there are other parts of the country where we're underpenetrated that can also present opportunities for expansion, too.

I also think, Peter, just with the moderate number of restaurants we're talking about opening, we're -- there were days when we opened hundreds in a year, over 100 restaurants in a year. This is a much more moderate, and therefore, we're going to be a lot more selective on where we put these new restaurants. And so our ability to make sure that cannibalization factor is reasonable will be a big priority for us.

Great. And then it sounds like you're well on your way to your long-term guidance that you set out 2 years ago. Just wondering how that's changed with what we are hearing going on, on the health care side and what you have baked in over the next year or 2 for health care?

Peter, as far as health care, despite the ruling by the Supreme Court, it really doesn't change what we already knew when the elected officials in D.C. said it would start in 2014. There's nothing really any different. I think we're at the point now where we call it the regulatory stage of the process. Our company and the National Restaurant Association has lots of government relations folks. And they're working with the officials at Washington, looking into all the details of how the thing might roll out and try to make it more favorable for the industry and more to come and nothing to report now. Certainly, the work we've done in eliminating some of the team members in the kitchen, getting a lot more productive will help us. But a lot of details still to be worked out, and the industry's going through that regulatory part right now.

Our next question today is coming from Sara Senatore. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: Sanford Bernstein. I just wanted to clarify next year's comp guidance. Obviously, you've done a lot in terms of menu innovation this year at lunch and steak, among other things. And I know you mentioned that you would have some culinary innovations, thanks to the full rollout of your new kitchen. But can you just talk a little bit about the 2% to 3% comp, what the assumptions are in terms of how much of that comes from the remodels, the lift from the remodels versus menu innovation versus any kind of change in the demand environment? And it looks like things got a little better for you in June. So is there any expectation that things stabilize or get a little bit better?

Sure. Sarah, Wyman. I won't take you through all of the initiatives again, but you obviously know we've got a pretty specific plan that works towards keeping our brands fresh and relevant and continuing the momentum with leveraging the current value platforms and the innovation that's coming. So specifically though, we're counting on probably a couple of -- in order to bucket [ph] it, the remodels and the reimages are approximately 1% of that sales growth. When you think about our pricing, we've guided to 1% to 2%. We are continuing, we think, our plan is with the initiatives that we've got in place, we're going to continue to grow base traffic as well, and so maybe 1% there. So that would be the result of the innovation and some of the media strategies that we talked about. So it's a balanced plan that kind of comes from reimages, some pricing and stronger traffic based on marketing and innovation.

Our last question today is coming from Howard Penney.

Hedgeye Risk Management. I have 2 questions actually. The first one is about refranchising. And a few years ago, and if I could put words in your mouth, it seems like you couldn't get out of the business fast enough in terms of selling stores, and I'm kind of wondering what you're thinking about the ownership of your store base. Do you see more upside owning it? And then the second question is around -- traditionally, when you see the success that Chili's has, do you find people copying what you've done? And I'm just wondering if you're starting to see people that are copying your success in what you're doing? And on the flip side of that, are there things out there that competitors are doing that you might take a look at, particularly extending into late night?

Howard, Wyman. Just first of all, in terms of running away from the business, we love this business. And so we absolutely wake up just looking forward and running towards it. So as it relates to refranchising, I think Guy has kind of said in the past that with the results that we're getting, the need or the business is better to own than to franchise. And so we're kind of still looking at those opportunities always. But right now, we're not aggressively looking at refranchising. With regard to copying or people chasing other people's strategies or -- I'll just say that for us, it's about we're very much aware of what's going on in the competitive space. But it really is it's -- what's driving our activity and our actions is what the consumer and our team members are telling us is right for Chili's. And so we don't -- we are, I would say, very specific about following our own trail. And while we see again right now, there's a lot of stuff going on out there as people try and deal with maybe a tougher consumer and a tougher environment, we're holding true to our -- to what's right for our plan and for our brand. And so we don't -- we're not going to go chasing other people. We've got what we think is a real solid plan that's going to work for this brand and continue to capture share. I think as people try and copy and they get away from what really is true to their brand, they're going to be less successful. And we've seen several people do some things that we think are pretty similar, but we're not seeing them get the same kind of results.

So you've alluded to this, I was thinking that the $6 lunch or the $6 price point at lunch, for casual dining has become famous and I guess, you've made it famous, or maybe call it $6 to $7. And I would've thought 6 or 9 months ago when we saw some more and more concepts trying to introduce that same price point, you would have seen a bigger impact on your lunch business. And as you've alluded to today a couple of different times, the traffic at lunch is very strong. So why do you think that the concepts that are out that are trying to match that price point are not successful or have not been successful?

Well, I think consumers don't eat price points. I think they eat what's appropriate for the brand. And so you see brands out there, I think, selling products that don't resonate with their consumers and their guests, with their concepts just chasing a price point. And so if you're off-strategy, a price point alone isn't going to get you the traffic. And listen, we've lived that at Chili's, too. This isn't a lesson that we haven't learned ourselves. You can't just have the price point. You have to have the right offering for the concept. And guess what, then you have to deliver the heck out of it. And the other thing we're really proud of is what our operators have done with all of this work. I mean, I know when we put these plans together, a lot of you had a lot of questions about what's the impact going to be to the P&L if just rolling this stuff out and how much damage is it going to cause because you've seen it and we've seen it. That when you roll these kind of big initiatives out, they oftentimes come at a big rollout cost. And as you've seen over the last 2 years with our P&Ls, our operators have managed this in a way that's been very efficient and has delivered a great guest experience. So I think it has more to do with people chasing strategies that just don't resonate. And a price point doesn't work if it's not the right items. So to that extent, people that chase other concepts, specifics without understanding how it resonates with their guests are going to be less successful. Does that help?

Yes. That's great.

I think that's our last question for this morning, so I want to thank everyone for joining us. We know it is a very busy day for industry and company releases. So it was a strong year in F '12 for Brinker, which gives us even more confidence in the long term. We're excited about momentum of our business plans despite the economic uncertainty and cost headwinds. We continue to take costs out of the business and reinvest in the guest experience. We're upgrading our atmosphere. We're enhancing the menu. We're providing everyday value options. And we're delighting our guests. And we're well on our way to our promises regarding continued positive top line growth, margin expansion and earnings per share growth. It has been a great team effort by folks here at the Restaurant Support Center in Dallas, as well as our operators all across the world. And I want to thank the entire Brinker team for delivering on their promises this year in F '12. Well, thanks for your interest in Brinker. Have a great day, and we're signing off.

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.