Good day, and welcome, ladies and gentlemen. Thank you for standing by. Welcome to the Texas Roadhouse First Quarter 2012 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would like to turn the conference over to Mr. Price Cooper, Chief Financial Officer of Texas Roadhouse, Inc. Please go ahead, sir.

Thank you, Cynthia, and good evening, everyone. By now, everyone should have access to our earnings announcement for the first quarter ended March 27, 2012. 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. Reconciliations of the non-GAAP measures to GAAP information can be found under the Investors section of our website. On the call with me today is Kent Taylor, our founder and CEO; and Scott Colosi, our President. Kent is going to start the call off. After which, I'll provide a financial update. Scott will then provide some insights on our performance and business direction. Afterwards, we'll all be available to answer any questions. Now I'd like to turn the call over to our Chief Executive Officer, Kent Taylor.

Thanks, Price. We're very pleased with our better-than-expected first quarter sales and restaurant margin performance. Our momentum continued with comparable restaurant sales up 6% on top of a healthy 4.6% increase in the first quarter of last year. This led to higher profitability on a per-store basis despite higher input costs. In addition to the sales and traffic growth at our existing restaurants, our newer restaurants continue to open and perform well. In fact, all 10 restaurants that have opened this year have exceeded $100,000 in sales during their first week of business, as did over half of the 20 restaurants we opened last year. Our operators have done a great job remaining focused on Legendary Food and Legendary Service and taking it to the next level through various local store marketing and speed initiatives. We feel very good about the state of our business. However, we are facing short-term crisis in 2012, namely 7% to 7.5% food inflation. As we discussed on the last call, we implemented an average price increase of 2.2% in February to help mitigate some of this pressure. This should allow margins to grow on a dollars-per-store-a-week basis despite margin pressure on a percentage basis, and growing restaurant margin dollars is what creates value for both our operators and shareholders. Beyond restaurant margins, we are looking at a very good year in terms of bottom line earnings. Price will go through some of the details on the pricing front, but I will tell you we are pleased with the flow-through we are seeing from our February menu changes. In addition to the price increase, our menu rollout included something we've never done before at Texas Roadhouse. We added a flap on the right side of the menu with pictures of 4 entrée items on one side. With the addition of pictures, we are seeing a number of guests trading up to these items, which is very cool. I would like to say to our operators listening today how great it was to see you at our annual Managing Partner Conference in Orlando a few weeks ago. Your passion and dedication to our core values is the foundation for our continued success, and I look forward to celebrating our 20th anniversary with you next year in Hawaii. Price will now walk you through our financial update, and then Scott will provide some additional comments.

Thanks, Kent. During my review of the first quarter, please note that many of the numbers I will mention are listed in the schedule, a supplemental financial and operating data that was included in the press please. In the first quarter of 2012, we reported net income of $18.9 million or $0.29 per diluted share. Our reported diluted earnings per share of $0.27 was impacted by $0.04 due to a onetime pretax charge of $5 million relating to the settlement of the Massachusetts wage and hour lawsuit. Hopefully, you have all had a chance to review our press release, which included a reconciliation of GAAP and non-GAAP information. Excluding this charge, diluted earnings per share of $0.31 came in better than we anticipated due to better sales and lower food cost inflation. Starting at the top of the income statement. Both restaurant sales and total revenue grew 14.5%, as operating lease grew 7.9% and average unit volumes grew 5.7%. On top of this, as Kent mentioned, our newer restaurants continued to open with very strong sales volumes, with all of this year's openings generating over $100,000 a week in their first week of operation -- $100,000 sales rather. Texas Roadhouse Restaurant's average unit volume growth of 5.7% was less than our same-store sales growth of 6%. This was a function of the fact we had 3 slightly lower volume restaurants rolled into our average unit volume base this quarter that modestly affected the 13 stores in our base that have been opened 6 to 18 months. While these stores have lower volume than the group, they're still averaging $65,000 to $70,000 per week in sales, and thus still hitting our hurdle rates. With regard to same-store sales, traffic increased 2.2% for the quarter, while average check was up 3.8%. By…

Thanks you, Price, and good evening, everybody. I would like to start off by echoing Kent's comments regarding our conference. It was great to be together with all of our operators celebrating the year, and we look forward to celebrating many more. And congratulations to Mitch Hauber, 2011 Managing Partner of the Year from Wichita, Kansas, or as we now refer to as Mitchita, Kansas. We're very pleased with our momentum as well as with what the future holds for Texas Roadhouse. Sales are up, and we're growing more and creating more value for our employees and shareholders. And going forward, we will continue to maintain a balanced, disciplined approach, particularly as it relates to growth. We increased development in 2011 and 2012, and we're optimistic that 2013 restaurant growth will be up as well. However, we will not grow purely for the sake of growing. When we moderate our expansion plans back in 2009, the result was better real estate decisions, and thus, better returns on our investment. Even with increased growth, we anticipate that we will continue returning excess free cash flow to our shareholders through dividends and share repurchases. As Kent and Price mentioned earlier, our new restaurants continue to perform very well sales-wise, and we've been able to keep development costs at these restaurants about $300,000 lower than they were 3 years ago. As a result, we're comfortable projecting sale to investment ratios in excess of 1:1. This typically translates into a mid to high teens internal rate of return, which bodes very well for us. In addition to our domestic growth, we're excited about our international opportunities, particularly after the opening of our first international franchise location in Dubai last year. In fact, we could see another couple of openings this year in the Middle East, which would be in addition to our planned 25 domestic company-owned openings. We're also working on deals in both Canada and Mexico that could result in restaurant openings in each of these countries in 2013. In closing, we feel very good about the direction of our business and the depths of our teams, both in the field and in our Support Center. We do not take our recent sales momentum for granted, and we will continue to challenge ourselves, the company, to get bigger, faster and stronger and create more value for our employees, our guests and our shareholders. With that, Cynthia, we would like to open the call up for questions.

[Operator Instructions] And our first question will come from David Tarantino with Robert W. Baird.

Just a couple of clarification questions on the check growth and the new menu introduction. Could you maybe clarify how much pricing component was in the first quarter, I might have missed that, relative to maybe the mix benefit you got from that menu change?

Yes, David, it's Price. We had just over 4% in pricing -- in our menu for the first quarter and a couple tenths of negative mix netted us to a 3.8% increase in check.

And so, Price, perhaps maybe you can explain sort of the positives and negatives on the mix side. It seems like maybe the new menu insert or the pictures that you mentioned are helping mix, but there must be some offsets if it's still running slightly negative. But so, can you reconcile those 2 for us?

Yes, definitely. The negative part is really -- continues to be driven from the alcohol side. That's been a factor for us for a couple of years now where we're just losing right now about 0.5 point on alcoholic beverage side, and we're picking up a little bit from these pictures. Of course, the pictures weren't out there all quarter, but we are picking up some from that. And additionally, we continue to pick up a little bit of positive mix from our Bone-in Ribeye that we rolled out last year as well as the addition of the porterhouse that we added in about 1/3 of our restaurants.

Great. That's helpful. And then, Scott, you mentioned very positive commentary about the unit growth outlook. Could you maybe elaborate on what the pipeline looks like for 2013 and how much of a step-up in the growth might be possible as you see it today?

Yes, David. Our pipeline looks really, really strong for 2013. Kent and the real estate team are, again, well into the year as far as picking the sites and finalizing what we're going to do in 2013. When you're sitting here in April, certainly, the second half of '13, you're more in preliminary negotiations for leases and property purchases and such. So there's still a little ways to go, but we have a lot of restaurants in our pipeline already that are pretty definitive for next year. So we feel very, very good about what we've got on the plate.

Yes, I would say at least half of our restaurants for next year will occur in the first half of the year.

Okay. And then just to be clear, the growth rate in unit growth next year, you're expecting that to be higher in 2013 than in 2012?

Well, all I'll say, David, is that what we have said publicly is that we will do at least 25 restaurants next year at a minimum. So I would suspect it's going to be higher than that, but we just haven't got that specific yet.

Moving on to Keith Siegner with Crédit Suisse.

So clearly, very strong traffic, and I know you talked a little bit about the pictures. But just wondering if you could talk a little bit more about how you feel about the menu now. What's really driving the comp? Is it steaks? Is there another category that's strong? Is there anything you feel like you want to tweak either down or up? And along those lines, could you also tell us maybe a little bit about which items you picked to put in the pictures?

Keith, this is Price. I'll start off. With kind of from a menu perspective, it's a -- we are seeing a little bit of an increase in preference for the 4 items that we added to. There's a grilled barbecue chicken, 11-ounce sirloin, a barbecued chicken and ribs combo, and the 8-ounce sirloin and grilled shrimp. So we are seeing a little bit of trade out of those categories into those items. But other than that, our menu mix has stayed pretty constant. I think I mentioned we are continuing to get a little bit of benefit from the porterhouse and the Bone-in. But I wouldn't say any material menu preference shifts.

Okay. And then one follow-up question. I think last quarter, there was a brief mention of a little bit of price competition from steak. And if that has happened, have you seen any impact of that at all?

Explain on the price competition on steak.

Just some others launching like pretty aggressive entrée deals for sirloin under $10, things like that.

I love to see our competitors put steak on their TV commercials because that reminds people that they might want to go out and have steak. And of course, if they want a better quality steak, where do they go? Texas Roadhouse.

Our next question will come from Will Slabaugh with Stephens.

Just a couple of quick ones for me. On pricing, I wonder if you could just remind us how that's slated to play out by quarter, assuming you don't add any additional pricing throughout the year.

Yes, Will, it's Price. For this quarter, we'd expect to have -- for the second quarter, we expect to have somewhere around 3.8% to 4% in pricing in our menu. And then as we move into the back half of the year, we'll have -- we'll start overlapping last year to where it will be around 3% for the third quarter and about 2.5% in pricing in the fourth quarter because we overlap last year's pricing.

Okay. Great. And then also on labor, last quarter, you mentioned you'll likely see that higher this year on a percentage basis, just on tip wage increases, things like that. Do you think that's still the case or do you think you'll be able to continue to leverage that as we saw this quarter?

Yes, I think we'll be able -- I'm hoping for the year to be able to get a little bit of leverage on the labor line. Of course, it will be tougher, as we talked about just a minute ago, from the fact that we'll have less check as we move further into the year. But even with those 6 or 7 states going up in their minimum and/or tip wages, hopefully if we're able to run the 4% to 5% in total comp sales, we'll be able to translate that into a little bit of leverage on the labor line for the year.

Move on to Jeffrey Bernstein with Barclays.

A couple of questions. Just first on the comp trends. It looks like it's slowed a little bit in March, but obviously, we know that the broader industries slowed there. So I'm wondering in your view whether that perhaps the deceleration in the absolute number you talked about in March was due to more industry trend or was there specific on your comparisons kind of through the quarter and similarly as we look at the second quarter. My understanding is, from a monthly comparison standpoint, that comparisons get easier as move through the second quarter. So just looking for kind of sequential trends in the first and second quarter. And then I have a follow-up.

Okay. Jeff, it did seem to be like -- there was nothing specific that we noticed in March. You mentioned it, certainly was an industry trend. I think the industry had its first negative month in comp sales in over a year in March and traffic was down over 3%. So we kind of participated in that a little bit, if you will. We are fortunate to see it kind of bounce back in April. And the numbers we were overlapping from last year, in January last year, we were up 3.3%. February, we were up 5.1%. March, we were up 5%. And as you mentioned, it does get a little lighter as we move throughout this quarter, where we're up 4.3%, 3.6% and then 3.9%. Did I answer your question there?

Yes -- no, that's very helpful. I don't know whether internally you guys had a view on people talking about a lot about weather and gas prices. Do you have any sense what your survey consumers are going to feel for the next 3 or 6 months, whether your confidence in the underlying trend getting better or close [ph], unusuals or are there a little bit more skepticism or concern?

Well, like I said, we definitely feel good that it kind of bounced back in April. Don't know exactly what drove March, but it did seem like it was an industry-wide deal.

Okay. And then just otherwise, as you look to the food and related pricing, I'm just wondering whether you have any insights when you think about beef being such a big exposure for you as we look at the rest of this year and maybe into '13, what kind of your experts are talking about. Would you consider taking prices when you lap that couple of points this summer if you thought that, that was necessary? Or are you more cautious that the consumer will push back on all that pricing?

Yes, yes. Right now, we're very fortunate of the fact that we got pricing arrangements in place in 2012 for well over 9% of our beef. We began -- we'll begin more talks with our packers as we get into the summer months as far as it relates to 2013. And at that time, if we get more clarity around that one, we'll be able to drive you guys hopefully a little more insight on our next call. And then secondly, that's when we would start to evaluate potential pricing actions later this year and/or into next year for next year's inflation.

Okay. But today, it doesn't seem like you're seeing much pushback on the kind of 4% price that you're running at this point in time?

No, we're not seeing anything. From a mix perspective, we're not seeing any pushback.

And Brian Bittner with Oppenheimer & Co. has our next question.

When I look at your new units running at average unit volumes that are good 14%, 15% above the comparable base, I think it's somewhat of a decent representation of maybe the sales slack that you still do have in many of your stores. So I was wondering if you can maybe just talk about how you think about the potential sales slack across your comparable base. I mean, what do you think potential peak average unit volumes there could be? And maybe if you could parse out and tell us what really are the major differences, accounting for this gap between the sales volumes of the new units and comparable units, so maybe we can get better idea of how you can continue to possibly grow the average unit volumes of these comparable units going forward for the next couple of years.

Brian, this is Scott. We've got stores doing $6 million a year, same number of seats, same boxes as our average restaurant doing, just shy of $4 million. So absolutely, we believe we've got the capacity to grow sales in our existing stores. And typically, what happens is the peak periods become longer. So instead of going from 6 to 9, they go from 5 to 9:30 and 4:30 to 10. That's one way, of course, to grow sales. And then instead of running peak, really peaks sales, long waits on Friday, Saturday and Sunday, it becomes Wednesday, Thursday, Friday, Saturday, Sunday. Then it's all-in sometimes Monday and Tuesday. So that's the way that our highest volume stores are able to grow sales. Certainly, it's a combination of -- starts with the people, the quality of the operation, the involvement of local community, the quality of the real estate. Sometimes it's number of competitors, sometimes density of the population, if there's a lot of competition. It's really a variety of factors that come together. And a lot of times, it's just doing the same things consistent over and over and eventually word-of-mouth, which is really just the strongest bit of advertising we have, as almost most businesses have. Once that picks up some steam, you kind of have the snowball effect that really cranks out more guests coming in the door for us. And typically, once we get the guests in the door, we can do a pretty good job of getting them to come back.

Can you talk about what you're doing incremental in 2012 versus 2011 on a local marketing perspective? I know, pretty familiar with what was going on last year, but is there anything different this year that you're potentially doing?

Not really. We really just keep sharpening our pencils and getting better at what the basic programs are in our local store marketing package, so building relationships with various constituencies in our community, doing bread runs, road [ph] runs. It's really kind of basic blocking and tackling. And over the years, we've built up a local store marketing army that's out there executing for us every day in addition to our managing partners. And they continue to get better and better at executing the programs that we have in our system. And it's really just driving that consistency. And as Scott said before, they're getting bigger, stronger and faster. So watch out the other guy.

And last question, I mean, is there anything you could help us on the disclosure front as far as trying to parse out maybe underperforming versus outperforming stores? I mean, for instance, is there a certain percentage of stores you'd be willing to tell us that are performing in that $4 million range -- I'm sorry, $4 million average unit volume range or under $4.5 million or anything like that?

Well, we've got a pretty normal distribution curve of stores, so you've got somewhat of a bell curve, around $4 million being the average. And of course, it tails off when you get up above $5 million and close to $6 million, and it tails off when you get down below $3 million. We don't have any cash flow losers in the system, I can tell you that. We haven't had any for a few quarters now. So we feel very good about the strength of our portfolio across the country. And we've been pretty disciplined in our real estate decisions. We had a great opportunity that kind of strengthen that process when we slowed down development a few years ago. And we feel pretty confident in that the sites that we're picking, we're making good, sound decisions.

Moving on to Howard Penney with Hedgeye Risk Management.

I think you answered this question in response to one of Jeff's questions. But I just wanted to confirm that the difference that you're seeing in current trends in this quarter relative to the first quarter was traffic and not how the customers are using the menu.

Howard, this is Price. That's exactly right. We've been down a couple of tenths in menu mix. So it is all traffic is the difference.

[Operator Instructions] We'll move on to David Dorfman with Morgan Stanley.

I just wanted to go back to the pricing issue as it relates to leverage, particularly on labor. And it seems like this quarter you had 4% pricing, and we saw some leverage on labor versus the other periods with strong comps but maybe with less pricing. But is this the sort of pricing level, the 4%, where you think sort of longer term you have to be if you're going to see leverage on this line or is there something else that may move there? And is that a pricing level that you consider taking especially in terms of maintaining your value gap to peers over the next -- the medium term? And I guess, lastly, if you go back a year ago, it seems like your operators at the store level had some initial resistance to taking pricing to even that first 1%. And now we're in sort of around 3% and it just keeps going. Is that -- is this a different understanding on their part or is there more pressure coming from corporate as you get them on board?

This is Scott. Let me answer a part of your question. I think when you're talking about last year, the 1% we took earlier in the year last year was really 2% at some of our stores, 0% at others of our stores. So and then in the summer, you sort of had the reverse where we had stores that took 0% in March, took 2% in the summertime and the other stores kind of took 0%. So it wasn't sort of pricing on top of pricing, and then coming into this year, more pricing for those stores. So most of our stores really only had 2 menu price increases in the last 2 years. And given that we've had a lot of food inflation in both years, that kind of gets them to a point where they feel that they need to do something. They just wanted to do it in a very conservative manner and really protect the value for the guest.

And on your question as far as level of pricing to leverage labor, looking at it long term, sitting here today, don't necessarily think that we've got to take 4% a year to get leverage on labor, year in and year out. Now that can change as states change their philosophy towards wage rates in certain states. But in general, I would say at 4%, we ought to get some leverage and wouldn't necessarily need that much in pricing to leverage labor going forward.

[Operator Instructions] And there are no further questions at this time. I'd like to turn it back over to management for any closing or additional remarks.

All right. Thank you all very much for being in the call. We'll see you next quarter.

And this does conclude our conference call for today. We'd like to thank you for your participation.