Texas Roadhouse, Inc. (TXRH) Q4 2012 Earnings Report, Transcript and Summary

Good evening, and welcome to the Texas Roadhouse Fourth Quarter 2012 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to introduce Mr. Price Cooper, Chief Financial Officer. You may begin your conference, sir.

Thank you, Joyce, and good evening, everyone. By now, everyone should have access to our earnings announcement for the fourth quarter ended December 25, 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 earning 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 the GAAP information can be found under the Investor section of our website. On the call with me today is Kent Taylor, our founder and CEO; and Scott Colosi, our President. Kent's going to start the call off. After which, I'll provide a financial update, and Scott will provide some insight on our performance and business direction. Afterwards, we will 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, and good evening, everyone. I'm pleased to report that we finished 2012 with strong revenue and earnings growth while operators continue to do a great job building sales, providing a legendary dining experience for our guests and maintaining margins in the face of high beef costs. During the fourth quarter, comps increased 4.4%, leading to our second straight year of 4.7% comp sales growth. And 2012 was our third consecutive year of positive comp sales and positive traffic. Additionally, over the same 3-year period, we are pleased that we have been able to increase our diluted earnings per share by just under 50%. That's awesome. On the cost side of things, beef will again be a headwind this year as it was in 2012. While we expect beef costs will be up another 15% or so this year, we have locked in prices on over 80% of our beef needs for the year. So we feel like we have good clarity around food cost inflation. In response to some of the inflationary pressure, we implemented a menu price increase of approximately 2% in early December. As part of this rollout, we added a 23-ounce porterhouse steak in the remaining 2/3 of our restaurants. We believe this provides additional variety for our guests willing to spend more money. On the development front, we expect to increase the number of restaurant openings for the third straight year. We continue to have a solid runway for unit growth and we will continue to focus on developing domestic Texas Roadhouse restaurants and building our international pipeline to provide opportunities for our people and increase value for our shareholders. Domestically, we'll be entering a few new markets for 2013 including Alaska and Oregon, while on the international front, we anticipate opening as many as 4 more locations. Finally, I would like to note that our holiday gift card season, which runs through November and December was a big success again this year with over 52 million in gift card sales, an increase of 21% compared to last year. So I want to give a big shout out and a big yeehaw to our people that made that happen. Yeehaw. Now Price will walk you through our financial update and then Scott will provide some additional comments.

Thanks, Kent. During the review of the quarter, many of the numbers I'll mention are included in the schedules, supplemental financial and operating information included in the press release. Our fourth quarter and thus, 2012 results came in better than we had expected, primarily due to better-than-expected sales at slightly lower food inflation. In the fourth quarter of 2012, revenues increased 11.9% as a result of an 8.7% increase in store weeks and a 3.35% increase in average unit volumes. Net income was $13.9 million or $0.19 per diluted share, which represented a 12% increase from last year. For the year, revenue increased 13.9% and net income was $71.2 million or $1 per share, representing a 13% increase over 2011. For the fourth quarter, comparable sales growth continued to exceed our average unit volume growth, increasing 4.4%. This was comprised of an average check increase of 3.1% and traffic growth of 1.3%. By month, comparable sales increased 2.9%, 4.3% and 5.5% for October, November and December, respectively. It's worth noting that December comps were positively impacted by 1.5% to 2%, resulting from Christmas occurring on a Tuesday in 2012 as compared to a Sunday in 2011. On a dollar basis, restaurant operating profit increased 16.8% or $7.8 million year-over-year for the fourth quarter, at 16.2% for the year. Each of these was higher than our sales growth of 12% and 14% for the quarter and year, respectively, as we were able to leverage margins. All in all, we're able to leverage overall restaurant margins by 74 basis points for the quarter compared to the prior year and for the year, margins expanded by 37 basis points. Margin expansion for both the quarter and the full year was driven by leverage on the labor and other operating cost lines, offset by deleverage on cost of sales as inflation outpaced our pricing actions. Food cost inflation came in at 6% for the quarter, leading to approximately 6.5% food inflation for the year. Beef was the main driver of our inflation, and we expect it will be for 2013 as well. On the labor and other operating lines, we were able to generate leverage most of the year. The timing of openings and impact from being largely self-insured on some of our insurance programs, including workers' compensation and general liability insurance, created some timing differences, but overall, we were able to leverage each of the lines for both the quarter and the full year. We believe this will be the case in 2013 as well. However, much will depend on comp sales particularly as it relates to labor, given we will likely have less year-over-year pricing in our menu in 2013 as compared to 2012. Looking at cost below restaurant level line, G&A came in a little bit higher than we had originally forecasted for the quarter. A large part of this was driven by performance-based bonuses as a result of our stronger overall profitability for the year. For the year, reported G&A was up as a percent of revenue as a result of the $5 million legal settlement charge in the first quarter. For 2013, we expect to leverage reported G&A. Shifting over to the cash flow and capital side of things. During the fourth quarter, we deployed some of our excess capital as we repurchased 1.8 million shares of stock for $29 million, and spent another $4.3 million to acquire 2 previously franchise-owned Texas Roadhouse restaurants. Despite these cash outlays, we ended the year with $82 million in cash as we generated additional cash from the gift card sales that Kent mentioned in the fourth quarter. As we move forward, we will continue to evaluate opportunities to deploy some of our excess capital toward dividends and share repurchases. In fact, in conjunction with our fourth quarter release, our board authorized a 33% increase in our regular quarterly dividend payment to $0.12 per share from $0.09 per share last year. Looking ahead to 2013, while we did not provide a specific range for earnings expectations, we reiterated many of our expectations from the prior quarters and dialed in on a few others. We still expect positive comparable restaurant sales growth and continue to plan for approximately 28 company restaurant openings. Based on over 80% of our beef cost being logged, we now estimate food cost inflation of 6% to 7% for the full-year compared to our previous range of 5% to 8%. We did lower our expected income tax rate in conjunction with the retroactive reinstatement of the WOTC program and the extension of this credit through 2013. As such, we now estimate our tax rate will be approximately 31% for 2013. A few other things to point out timing-wise for the year. First, we do expect our development schedule to be back-end weighted. As such, we expect that up to 2/3 of our openings will occur in the second half of the year. Secondly, I want to remind everyone we expect the cost of our annual Managing Partners Conference, which is in the second quarter as it was last year, will be up approximately $2.5 million higher than in 2012 as we will be celebrating our 20th year anniversary in Hawaii, where airfare alone will be quite a bit more expensive. It is somewhat fortuitous that this occurs in a year when we have 53 weeks as the higher costs practically offset the benefit of the extra week in the fourth quarter of 2013. Finally, our first quarter income tax rate will be lower than the rest of the year due to the impact of the retroactive WOTC adjustment. We expect the first quarter rate to be approximately 29% compared to our expectation of 31% for the full-year rate. As we have done in the past, we will continue to focus on driving traffic and maintaining our position in terms of food and service, and we will continue investing in our restaurants. During 2012, in addition to incurring $14 million of repairs and maintenance expense that directly hit our P&L, we spent another $29.5 million in capital expenditures on things such as maintenance CapEx, remodels and adding seats in restaurants. We will continue making this investment as taking care of our assets is part of taking care of our business. As Kent mentioned, we did take a 2% price increase in December to help offset some of the expected inflation. However, even with this amount of pricing, we anticipate margin will be under pressure. In terms of sales, for the first 55 days of the year, which goes through yesterday, comp sales have increased approximately 2.2%. Comp sales have been a little choppy recently. Our January period sales were up mid-single digits while February period sales have been down a few points. Fortunately, the net of the last 2 weeks have been positive. We continue to remain focused on things we can control like providing Legendary Food and Legendary Service. As we overlap some of our toughest comparisons from 2012 with positive comp sales, we remain confident in our ability to drive positive sales going forward. Lastly, let me comment briefly on the fact that we did not provide a specific EPS range for the year. Being an 80% company-owned system, small changes in assumptions can have a very meaningful impact on our annual earnings. While impact on cash flow is much smaller percentage terms, assumptions can meaningfully impact EPS. Thus, it is generally difficult for us to provide a meaningful range of expectation for EPS because things like traffic and to a lesser extent, food inflation can greatly impact annual results. For instance, a 1% change in traffic equates to a little over 5% change in EPS and even a 1% change in commodity inflation that can have an approximate 4% impact on EPS. So our objective is to provide you with our expectations for the things we feel we have more clarity around such as number of openings we expect, what we have done from a pricing perspective, the tax rate and a range on food inflation. With that said, we expect to drive positive traffic year in and year out. In general, we believe that if traffic is flat to up 2%, we can drive positive EPS growth likely in the range of a low single to low double digit increase over 2012, although this will somewhat depend on food inflation and does not assume any additional pricing actions for this year. So with that said, I'd like to turn the call over to our President, Scott Colosi.

Thanks, Price, and good evening, everybody. We're pleased with our 2012 results as we grew diluted earnings per share double digits while investing in 25 new restaurants, reinvesting in and taking care of our existing restaurants and returning $54 million in capital to our shareholders in the form of share repurchases and dividends. In heading into 2013, we will remain focused on doing the right things for the long-term success of Texas Roadhouse. As Kent mentioned earlier, we see a healthy opportunity of growth ahead of us. We expect to open approximately 28 company restaurants in 2013, and we've already starting filling the pipeline for 2014 and beyond. Additionally, our new restaurant returns remain solid, driven by strong sales and development cost that continue to be a few hundred thousand dollars lower than they were several years ago. On top of growing our core business and continuing to lay the groundwork internationally, we're in the envious position of having excess cash flow and plan to continue returning that to shareholders, which will position us to continue driving long-term shareholder value. Challenges, whether consumer or inflation-driven, have and will always exist to some degree. And we will continue to deal with them head on as we have done in the past. It all starts with keeping our nearly 400 managing partners at the center of our universe. As long as we continue doing the right things for them, they will continue doing the right things for their teams who in turn, will continue doing the right things for our guests, thus keeping us on the path of Legendary Food and Legendary Service. We all look forward to celebrating our 20-year anniversary this year and thank you to all our operators for continuing to drive Texas Roadhouse forward. With that, we conclude our prepared remarks. So Joyce, please open the lines for questions.

[Operator Instructions] We'll take our first question from Brian Bittner with Oppenheimer & Co. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Just a clarification question. So as far as the reason you did not give EPS guidance, is it really because of the uncertainty around traffic? Because I think it seems as though most of the other things seem like give a pretty good idea of these other assumptions like food cost pricing, unit openings. Is that really the main reason for not doing it this year versus last year?

Brian, this is Price. I would say it's really a combination of a couple of things, but traffic certainly being one of them and it's always hard sitting here this time of year -- any year, be it last year, this year or any year to be able to provide you guys a meaningful range of EPS given the fact that we are an 80% company-owned system. And so small -- I think as I mentioned, small changes in traffic, 1% change in traffic is 5% for the year on EPS and even with a tighter range, if you will on commodity inflation, let's say 6% to 7%, that 1% alone is close to a 5% impact on EPS as well. So it's just tough for us to really dial in on a meaningful range. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Okay. And then for 2013, as far as the first quarter, I think you had 4 -- just correct me if I'm wrong, you had 4% pricing in the first half of the quarter, then it falls to 2% and if you don't take any more pricing, it's 2% for the rest of the year?

That's correct. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: So your effective pricing for the first quarter will be around 3%-ish?

Yes. Probably a little bit lower than that given the fact that we overlapped last year's pricing actions in the early to mid-part of February. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Okay. And then last question, you mentioned repairs and maintenance costs that hit the P&L in 2013. Can you tell me what that number was again and compare that versus last year?

This year, it was right at $14 million. Let me get you a number on last year, Brian. Brian, I think -- do you have another question while I'm digging into last year's number? Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: No, no, that's it. You can get me that later. It's not a big deal, Price.

Okay. It's $12.6 million last year.

We'll go next to Keith Siegner with Crédit Suisse. Keith Siegner - Crédit Suisse AG, Research Division: First question is on labor. And obviously, the nearly 5% comp provides you a lot of leverage in terms of levering up against that line item. Was there -- are there any things going on in labor outside of the changes in insurance than just the sales leverage? Were there any actions to try to save any cost there? And similarly, moving into '13, is there any effort there or is it simply just a function of where the sales end up versus where the insurance claims lined up?

Yes, in general, it's simply a function of where the sales end up and on our floating or our unknowns around things like insurance, because we're not looking to reduce service levels to our guests in any way or reduce the level of service we're providing them. Keith Siegner - Crédit Suisse AG, Research Division: Okay. Good. And my next question is on franchise acquisitions. I mean, this is something we used to talk about all the time several years ago and it's been what, 3 years, since you've have the acquisition. So is this something that might pop back up into the scene moving forward? And when you think about these 2 units that you just acquired, I know they didn't have any impact on the quarter but how do you think about the impact of those on '13 in the broader scheme of whether or not we'll see more of these going forward?

Hey, Brian, in general, as far as acquisition front, we will look for opportunities where we can negotiate deals with franchisees. We think it's a couple of reasons, one, we think it's a good deployment of excess capital when we can make what we feel like are good overall returns on it. And plus sometimes, it can help us from the people and growth side of things as well. So we'll continue to look for those. Don't have any scheduled right now for 2013 and specifically, on these 2 restaurants, just being in 2 restaurants and the fact that when you acquire these, you have to record some cost, and reacquire franchise rights cost that are noncash but they do get amortized in over the year. So don't expect any EPS accretion from them this year. But certainly, would a small amount going forward and in general, we think it's a good internal rate of return on our cash.

We'll take your next question from Will Slabaugh from Stephens Inc.

This is JR Visalan [ph] for Will. With respect to the consumer trends and you talked to choppy sales throughout the industry or throughout the quarter, just wondering if you could kind of talk about how your customers are using the menu. Maybe, are you seeing a change in pattern or more specifically, are you seeing them trade up for certain items or down for certain items?

JR, this is Price. No, we haven't seen any real differences in menu item preference, any shift -- any differences in shift and key mix nor have we seen any real differences in terms of days of the week. They are very consistent across the board.

Switching gears and going kind of to that -- back to an earlier question about labor cost and maybe in the savings initiatives, kind of the opportunities you're seeing there, maybe around the operating line or any other segments you see?

Yes, we're working on what we would term some nonguest interfacing savings in those areas such as -- should be things like supplies, chemicals, some of our labeling system. It would be more things like that versus looking for opportunities to take service or food quality. We're not looking for ways to reduce either one of those. It's all built around non-guest interfacing items.

We'll take our next question from Jeff Bernstein with Barclays.

This is Ashwin Shandilya on for Jeff. I was wondering if you could give us a little more color on the competitive environment and whether that's cause any of the volatility you're seeing. I mean, we've been seeing a lot of value focus take promotions from your peers and given that you're already known as a brand for offering value, are you vulnerable at all to those types of competitive promotions and how do you plan to respond to that?

They've been doing that for quite a few years and we've never had an issue with it.

And then just for your 2013 outlook, we've been hearing from a lot of peers about the higher taxes, the gas prices. What's your confidence on the guidance for positive comps if -- are there any levers that you can pull as the broader category starts to deteriorate further because of changes in consumer spending?

Just generally, a lot of that is unknown, obviously. But we feel pretty good about the fact that hey, we're sitting here today, we're up about over 2% in comps year-to-date on top of being up about 7% last year. So it's lapping some pretty high numbers from last year. Ultimately, that's the thing we don't know. We don't know about the overall consumer environment and for us, we're not relying on advertising. We don't have any secret levers per se to pull. It's all about grassroots marketing and continuing to drive that 4 walls execution and within that 5-mile radius of the restaurants.

We'll take our next question from Jonathan Komp with Robert W. Baird. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: Price, just one clarification going back. I think this might have been asked in different ways but looking at the labor line, specifically in the fourth quarter, were there any timing differences that hit that line in the fourth quarter where this -- with the 60 basis points of leverage year-over-year really reflective of the pricing and the traffic gains?

Really more reflective of the pricing and the traffic gains. There was nothing that really stands out as far as being unusual year-over-year. One thing I will point out is sometimes the timing of when we open different restaurants can play into that. We do have a little bit of a percentage-wise, inefficiencies if you will, early on in the opening of restaurants. So sometimes on a year-over-year basis, that can play a little bit of a difference. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: And then just one more clarification. Thanks for the color on the quarter-to-date trends in terms of the same store sales that you've seen. It is a little hard to tell just break out exactly the timing and the pricing that you're cycling. So would you mind maybe just breaking out the -- maybe the traffic that you've seen for the period so far and to be a little bit more specific there?

Yes. We're -- overall, year-to-date, we are down about a little over 1% in traffic year-to-date. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then I know we touched on this a little bit, but as you looked for the balance of the year and the expectation for positive comps, is it really just a function as you look forward and see the easier comparisons coming up, do you think the easier comparisons alone will help comps improve or is it a couple of factors like the porterhouse being added to 2/3 of the restaurants. What do you think in terms of how to get to the positive comps for the year?

Well, we're positive right now. We're up over 2% right now and in general, it's -- I think Kent mentioned in his script, we've had 3 years of positive traffic gains. I think we also like -- we've got a lot of momentum in the business. While we can always execute better, we think, we feel pretty bullish about how we're operating and how we're executing.

As long as we don't have any more big blizzards. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: Knock on wood for that one. Okay. That's good perspective. And then just the last question for me. Just as you look at restaurant margins for the year, Price, you talked about a little bit of pressure there, possibly. Mostly it was like food cost. If I go back to this time last year, I think you also were talking about pressure for the restaurant margin for 2012, and it looks like you actually expanded margin for 2012. So can you talk about as you look forward, are you incorporating a healthy degree of conservatism? Are there any other puts and takes that might not be obvious to us or what are you seeing there?

I think we're being realistic in what we're assuming. Last year, we did get a little benefit from, in particular, putting the pictures on the menu. For the first time, we had that. We didn't know what kind of impact that would or would not have. That helped us a little bit on the margin for sure last year and then sales came in higher than what we expected sitting here at this time last year. So both of those were a real driver -- a couple of real drivers of really helping on the margin side than last year.

We'll take our next question from Jason West with Deutsche Bank.

Just a few things. One, just going back to the trends we've seen year-to-date, I know there's been a lot of discussion about what's going on with the consumer these days and that was probably hard to tell less than 2 months into the year. But are you able to tell us if some of the weakness more recently has been more weather-related? Looking sort of the regionally, what's happening versus a broader sort of slowdown behind things like the payroll tax increase?

Yes, I would say that weather definitely had an impact. We don't quantify it, but yes, we've had restaurants closed especially when the snowstorm came through a few weeks ago, that's definitely an impact. I don't know exactly how much that was.

Hey, Jason, this is Scott. As far as like the payroll taxes and the delay in refund checks for federal taxes, we hear a lot about that. We just don't know. We just don't have that kind of data, that realtime data that really answers that question for us.

Okay. Fair enough. And then on the guidance, Price, you were going through it kind of quickly but you sounded like you said based on some of the components that you've laid out, you think that low single-digit to low double-digit EPS growth is a good number to kind of work with. Is that -- did I hear that correctly? I'm assuming is that off to the $1 number or is that kind of excluding the $0.05 charge and you think you could grow at that rate?

These things we talked about would also be all for the $1 number and did say to help give you guys some type of range of sensitivity if traffic was flat to 2%, to up 2%. We think we'd be in the low single to low double-digit EPS growth range. I mentioned too, part of that has been on where does inflation come in at because that will provide a little bit of variable in that number.

Right, right. Okay. I got you. Then I'm just having a tough time getting numbers that low given the strength this quarter on the restaurant margin. Some people alluded to the labor line but the cost of good sold is only up about 20 basis points. Is there anything going on there in the quarter that kind of helped you that wouldn't be kind of continuing? Because I mean, we have to assume some pretty significant cost of good sold pressure to get to your numbers if you have some leverage on the other lines. Just don't know if the fourth quarter number is not a good number to use going forward.

Yes. Couple of things there is one, we did have our pricing rollout in December, which certainly helped a little bit in the fourth quarter. Produce was a little bit lower for us in the fourth quarter than what we're experiencing now. And then we're still getting -- we're still getting the benefit of having those pictures roll out on the menu, which last year, will help us through I guess, January this year. But up through that period, it's probably helped us to a tune of 40 basis points, 40 to 45 basis points on that line.

We'll take our next question from Jeff Omohundro with Davenport & Company. Jeffrey F. Omohundro - Davenport & Company, LLC, Research Division: Just another question on consumer behavior around the menu. I think you indicated that you haven't seen preference shifts. What about the mix around the early dinner, the early bird special and also add-on sales in beverage alcohol?

Yes, as far as on the early dine, haven't seen a big shift there. We've seen it up a little bit over the last say, 6 to 8 weeks, up slightly. In general, on the mix side of things, we're still losing about 3/10 on menu mix and that is pretty consistently coming from a little bit year-over-year alcohol sales. Jeffrey F. Omohundro - Davenport & Company, LLC, Research Division: And with regards on the last question a little bit, regarding the pictures on the menu. When do you anticipate the next significant menu update?

Probably not 'til next year or I would guess actually, the end of this year. We did it at late November this year, so I would guess late November again.

And we'll go next to John Ivankoe with JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: First, a clarification on a question. Price, I think it was you that mentioned something about February same-store sales down a few points but the last 2 weeks have been positive. Is that what you meant to say? I mean, has it -- was it just the first couple of days of February were terrible?

It was the first couple of weeks of our February period were down for us. And then here in the last few weeks, we had Valentines for us hit in a different week year-over-year but the net of those 2 weeks were slightly -- was positive. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. I mean, we're not that -- it seems like we're not that far into the month. But that is what you meant to say so I'll just take that for what it is.

I'm sorry. Let me clear up something because our accounting cycle end -- like our January period ended about January 22 is when our period end. So I was speaking more in terms of on our cycle. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. That's helpful. And now for the question. I mean, I realized there's a lot of things that happen year-to-year with new unit openings, but just looking with the great disclosure that you give, on the units that have been opened, I think less than 9 months and the newer units that have been open more than that but not in a comp base, it seems like there is a little bit of slippage at least relative to the to the trend, relative to the average unit volumes for the units in the comp base. Was there anything kind of particular about the 2012 opening class relative to the 2011 opening class that we should be sensitive to and how should we be thinking about 2013 relative to 2012 as you guys look at your pipeline?

Hey, John, this is Scott. The 2012 class year, you're right. I mean, actually some of the numbers when we're reporting stores in the AUV not in the comp base, those include some 2011 openings as well. But they're a little bit lower than our system average. But they're actually right on our performance. So we know it's tougher to open the next 400 stores than it was the first 400 stores most likely and so we plan accordingly. There isn't as much low-hanging fruit when you're picking sites. And now that said, any time you're opening new stores and they're below your system averages, you're asking yourself questions. Are we doing the things we should be doing in supporting our openings? So we're asking those questions. But that said, they are still doing very, very healthy volumes for those stores. The most recent openings -- the biggest thing there is really just timing. So our plan was a lot more front-end loaded in 2012. And so some of the stores that are in the newest category of stores have already kind of eclipsed their honeymoon base and that's why their sales are a little bit lower than what we would normally have in our newest set of restaurants. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. That's does make sense and just thinking about 2013, would you expect more or less stability those lines year-over-year as the -- just the building blocks for the model or is it that -- I mean do you kind of -- made a comment that's like on the next 400 stores will be more difficult or do you think that you're kind of like firmly in that trend where it's going to be tough to sustain the year-over-year new unit volumes?

I think we would never be satisfied unless all of the new stores were doing what we're doing as an average of the system. But I can tell you that when we're doing pro formas, we model the sales a little bit below the system average and we're modeling out to midteens IRRs. And that's what we're getting out of these stores that are opening just based on the sales of what we have so far. So we're going to continue to go down that road. Every class year is a little bit different. And so if you go back and you were to look back at the last 10 years, we've got some class years are higher than others, and we don't know yet if the 2012 year may be a little bit lower than the most recent 2 or 3 years. It's still a little bit early. Time will tell but we're still very confident in the quality of the openings that we're having and we see it and just -- but they're still doing great sales, we're still on long waits even at these sales volumes.

And we'll take our next question from Conrad Lyon with B. Riley & Co. Conrad Lyon - B. Riley & Co., LLC, Research Division: First question just regarding gift card sales. I think you mentioned they're up pretty solid. Any color you can provide as to what the redemptions look like in January year-over-year perhaps, that might have been driving some of that strength in January?

Yes, Conrad, Price here. Gift card redemptions were up a little bit year-over-year. It's been consistently up year-over-year for all of the weeks of 2013. Conrad Lyon - B. Riley & Co., LLC, Research Division: Okay, got you. Helpful. Different question about the earnings expectations for the year. Obviously, the fourth quarter is going to be big. Any insight as you can provide as to the distribution? It looks like the first quarter looks okay. Obviously, going to have the big hit in the second quarter with the conference. But any ballpark estimate as to where you think the growth is going to look like throughout the year, say flattish early on and coming -- a big hit or a big improvement in the fourth quarter?

Conrad, it's Price. We're not going to give out quarterly expectations. In general, yes, I did want to remind everyone that as you alluded to, the second quarter is impacted a little bit by the conference being up, probably $2.5 million. And then the fourth quarter does have an extra week. Conrad Lyon - B. Riley & Co., LLC, Research Division: Okay. Last question just in terms of driving sales. Is there anything really different that you may and probably you haven't discussed I know that there's some talk about the higher-priced items on the menu, but is there something that you're more excited about than any other that you could potentially use to really get traffic going?

We're going to continue to focus on our overall speed initiatives. It's been a focus of ours for 1.5 years and so we continue to ramp up the intensity. I think we're buildings some momentum there. We'll continue to do things like we'll add seats and another probably, 30 restaurants this year. And beyond that, it's just continue to do our blocking and tackling, getting incrementally better at not just execution but also, our local store marketing and then how we're driving in new guests. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got you. The seats that you mentioned that you might add, in general, is that roughly -- is there a percentage you can talk about, say 10%, 5% more seating?

In general they had -- somewhere in that neighborhood of let's say, it would be about 10%, probably 10% to 12% more seating capacity in a restaurant when we do that.

We'll take our next question from David Dorfman with Morgan Stanley.

It sounded to me like when you were talking about the P&L going forward, like in 2013, that other than cost of sales, you were kind of expecting leverage on pretty -- most of the other lines, labor and other ops and G&A. I just wanted to see was that what you said? And does that leverage happen in that sort of the 0% to 2% comp range you were talking about for that -- for your sort of EPS bracket that you were vaguely talking about? And then specifically, if you could dig in a little bit more on what you expect for G&A, because that was a little bit higher than I thought for this year so I just wanted to see how you thought that may play out in '13 as well.

Yes, no problem. On the leverage, the labor -- we do -- would expect to get leverage in other even in flat sales -- flat comp sales given the cost savings that we're talking about finding. And then on labor, it will depend a little bit on what traffic is. Labor could be tough. If you're talking flat traffic, labor could be tough to leverage.

And then on G&A?

On G&A, we do expect to get some leverage on G&A. We're continuing to invest in things like, as Kent talked about, building our international pipeline. We're continuing to invest in that. We're continuing to invest in technology and in other areas of the business. But overall, we think we can do that and still be able to get some leverage out of G&A.

Okay. And then one last question is just when you think about your sort of longer-term business model, I'd say it seems like in years of high beef inflation it's just, you're going to under earn it. But I suppose you could be getting that back at some point if you keep running the model and beef comes back down, you'd have sort of an outsized benefit year. As you sort of look at beef markets and sort of how you contract with them, when do you think that might be? It sounded like this could be a sort of sustained issue for '13, '14 maybe into '15 and I'm not saying year over year over year high inflation, but when might it come back down in your view?

We don't really know. We're hearing the same things you are, as far as on the supply side of things, that it is projected to be a tight market for the next -- certainly this year and on into '14. Partially offsetting that, the cows themselves are large -- the animals are larger now. And then demand is down a little bit. Certainly some -- another thing working against us besides the supply demand on the beef itself is the whole ethanol and the fact that such a high percentage of the corn now goes to support ethanol versus being able to be used as feed.

Is that a fair characterization of your model though, that you will be -- you control what you can control but there's only so much you can do in the face of significant beef inflation but the flip side is that you'll have outsize year at some point?

Yes, and generally -- and you've seen that in the past back in '09 and '10, I believe it was because under our model, we're not going -- when you've got 15% beef inflation, we're not going to fully price to deflate inflation generally. And on the flip side, when we've got some commodity deflation, we're generally not going to be reducing prices. So yes, results in just what you're talking about.

But would you generally like to have a longer-term, just 2% pricing through good times and bad rather than the sort of flat, and then 4%, and then 4% and then 2% and have a more consistent just sort of pricing model going forward?

You never know because there's so many other factors that go into it other than just what the commodity market's doing. It depends on overall, the consumer environment. In general, you love an economy that's growing at a couple percent a year and consumers are making more money and spending more and that is consistent. Unfortunately, that doesn't always happen.

[Operator Instructions] We'll take our next question from Peter Saleh with Telsey Advisory Group.

I was hoping you guys could give us an update on your most recent thinking around the health care initiatives coming into play next year.

Peter, this is Scott. Well, as we understand it, we're going to be offering health care to a lot of people next year as the way things stand today. There's still a lot of things influx with it and we've got an internal range of potential impacts for us that we've developed. It's not that big of a deal for us is what we would tell you, especially when you start comparing it to beef inflation, what we had last year or this year. Those numbers are quite a bit smaller. Part of the flux is really how many of the people that we offer health insurance to will take the coverage. Some percentage of employees that would qualify will end up going over to Medicaid, the expanded Medicaid program. Some will be able to stay on their parents' plan. Some simply won't want to pay the premiums or the deductibles that go with any offered coverage and will pay the $95 penalty in effect. So with all that, we've got various scenarios and ranges of outcomes that we're very comfortable with telling you we'll just deal with it and kind of move on.

Would you consider raising prices, I guess, more aggressively later in the year if I can get a little bit more clarity or are you thinking adjusted labor hours or how would you guys deal with it?

We're not touching anybody's hours, I can tell you that. Pricing for us is what's going on competitively. Part of it, what does our gut tell us, part of it is what other inflationary items do you have in the business. I mean, there's a lot of pieces there for us. What have we most recently done? What are our trends? There's a lot of pieces that go into that and the health care thing, at least as it stands today for us, from what we know, isn't that substantial that we're spending a lot of time talking about it other than the administrative piece of actually getting all the people enrolled and managing the dollars going back and forth between employees and us.

Great. Just my last question. Are there any other calendar shifts that we should be aware of for 2013?

Nothing material, Peter. Everything is in the same period.

We'll take our next question from Chris O'Cull with KeyBanc.

I apologize if I missed it, but did you quantify the impact of the mix shift on gross margin?

Mix shift. No, we talked about the fact that the pictures on the menu that we just added last February, we think they probably helped us to the tune of 40 to 45 basis points on the food cost.

And that went in, in the summer?

That went in last February. So we just overlapped that right now.

Okay. And then was the bonus accrual during 2012, was that at the high end of the range that you were expecting?

Yes. Yes, it came in -- are you talking in G&A?

Yes.

Yes, it came in actually higher than we expected because our earnings were higher than we had expected for the year.

Right. But next year in 2013, are you accruing at a level below what you accrued in 2012?

Maybe slightly, slightly.

Okay. And then just longer-term, Kent, given capacity utilization is an opportunity to improve throughput I guess, during peak periods, have you guys made any changes to the new store prototype design to kind of address that issue?

Yes, our kitchen, we've made some changes to make it quicker to get the food out and then at the front door, as we've talked about our speed initiative, we're kind of operating a little differently at the host stand to get people to line up for their tables quicker.

How many stores have the opportunity for the bump outs and kind of how many new stores have you addressed that already?

We've done over 100 and then we, as Price said, I think we're looking at about 30 this year. And we can do a couple hundred more as we feel the sales justify doing so.

Okay. Great. And then what percent of non-beef commodities are hedged?

Price has got that specifically on a piece of paper here.

I don't have the exact percent. I can tell you we're over 2/3 locked in on all of our pricing for next year or this year, rather.

In 80% of beef.

In 80% of beef. The biggest part that would not be locked at this time would be some produce and dairy items that were typically on the market for and that can be -- produce and dairy in total are 15% to 20% of our food cost.

Chicken and pork are locked in?

Majority of it is.

We'll take our your next question from Steve Anderson with Miller Tabak. Stephen Anderson - Miller Tabak + Co., LLC, Research Division: You mentioned the restoration of the tax credits for 2013, assuming 29% is the rate for Q1, maybe a little bit higher rate for the remaining course, like a 31% rate. If you -- question on the tax credit, is that just for 1 year or has it -- is it extended beyond that?

Right now, it's been retro-ed back to 2012, and that's what's creating a little bit of a lower rate in first quarter because all that catches up during this first quarter. And then right now, it only applies through 2013, it hasn't been extended beyond that.

And we'll take our next question from Larry Miller with RBC.

Yes, I just had 2 quick clarifications, Price. The food cost inflation outside of beef, I know you said that you were roughly 2/3 contracted. What was that again?

Outside of beef, net net is about flat.

Okay. Perfect. And then when you said you were going to be able to leverage G&A in 2013, that includes the Managing Partners Conference expense?

Yes.

And at this time there are no further questions. Mr. Price, I'll go ahead and turn the call -- Mr. Cooper, I'll turn the call over back to you for any additional closing remarks.

No problem. I thank all of you joining us this afternoon. If you got any questions, please give us a call. Thanks. Have a great night.

That does conclude today's conference. We thank you for your participation.