Texas Roadhouse, Inc. (TXRH) Q2 2014 Earnings Report, Transcript and Summary

Good day and welcome to the Texas Roadhouse Inc. Second Quarter 2014 Earnings Conference Call. (Operator Instructions) I would now like to introduce Tonya Robinson, Director of Financial Reporting and Investor Relations. You may begin your conference.

Thank you, Stephanie, and good evening everyone. By now, you should have access to our earnings release for the second quarter ended July 1, 2014. 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 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 Investors section of our website. On the call with me today is Kent Taylor, our Founder and Chief Executive Officer, Scott Colosi, our President and Price Cooper, our Chief Financial Officer. Following their comments, we will open the call for questions. Now I would like to turn the call over to Kent.

Thanks, Tonya. Good evening everyone. We’re pleased to report solid results for the quarter starting with healthy revenue growth from a combination of continued growth in new restaurants and comp sales. Although we did get back some margin percents, we generated solid profit growth which is pretty flow especially in this environment. While we’re pleased with our continued momentum we don’t take our success for granted. Our operators regularly charge themselves on ways to drag traffic, tighten processes and improve execution, all while guest experience. And one of our main objectives is to provide the resources to help them meet their goals to a continued investment in our people and infrastructure. We recently met with all of our market partners for two days at collaborations where we shared best practices and discussed ways we can raise the bar on legendary foods and legendary service. It is evident to me that our team’s commitment to our guest and their passion for Texas Roadhouse continues to make us even stronger. Flicking to development, our new restaurant openings continue at good results. As you might have noticed in our release, we’ve modified our new unit expectations for 2014 to approximately 25 units as we’ve had a few deals flipped back in early 2015. Looking ahead with our good shape at this point we will open another 25 or 30 restaurants in 2015 and our international pipeline (inaudible) continues to build. Overall I’m very proud of results and what we’re establishing at Texas Roadhouse. I want to say thanks to everyone on the team for continuing in Legendary food and Legendary service happen. Now, I’ll turn our call over to price who will walk you through our financial updates.

Thanks Kent, and thank you all for being on our call today. For the second quarter of 2014, we reported a double digit increase in revenue and earnings growth. Also associated with our annual managing partner conference we’re much lower year-over-year which did help on the earnings side. Starting at the top our revenue has increased 12.3% as a result of a 9% increase in store weeks and a 2.4% increase in average unit volume. Average unit volume growth was again outpaced by comp sales growth of 2.9% during the quarter. comp sales were split about 50:50 between traffic and check growth as traffic increased 1.5% and average check was up 1.4%. By month comparable sales increased 1.6%, 3.4% and 3.7% for our April, May and June periods respectively. We call April comps for a little weight down by the shift in Easter period. Also as reported in our release July comps increased 4%. Restaurant operating profit increased 9.6% or $6.2 million for the quarter compared to the prior year. Although little less in our sales growth is, while restaurant margin dollars grew both in total on a per-store basis, restaurant margin percent decreased 45 basis points for the quarter compared to the prior year. As we anticipated, we lost from leverage on both the cost of sales and labor line this quarter, food inflation of 3.8% outpaced our check increase of 1.4%. Our food inflation in the second quarter as compared to the first quarter was driven by beef, berry and produce costs being higher year-over-year. Some of this was a result of how we contract certain items. We expect the food inflation in the second quarter will be the highest that we experienced for the year, overall we continue to expect low single digit food inflation for 2014. On the labor line, our healthcare cost in the re-classes and costs from other operating drew margin compression. We’re seeing average weight raise increase basically in line with our average check increase, however we expect that it will difficult to leverage labor in 2014 with the ongoing combination of healthcare cost and increases in the re-class. As we did in the first quarter, we gain leverage on the other operating cost line. The improvement versus the first quarter was driven by deceleration and utility cost increases versus the prior year. We expect to leverage this line for the full year, however, the third quarter is much more difficult as we overlap a $1.3 million general liability insurance credit from the prior year. Pre-opening costs were $215,000 this quarter as compared to the prior year, we opened one less restaurant this quarter, however, we continue to see higher pre-opening cost on a per-store basis. We did slightly modify our store openings expectations for this year, however, we do not expect any real benefit on the pre-opening line as the delayed openings were just pushed back into early 2015, so we would still have many of the pre-opening costs hit this year. Appreciation costs were up $2.2 million this quarter compared to the prior year primarily due to depreciation on new restaurants. D&A costs were down $500,000 or basis points as a percentage of revenue versus last year. Cost associated with our annual managing partner conference came in below expectations and were $2.4 million lower than the prior year. Thus on a reported we show a considerable leverage on this line. Factoring out the change in conference expenses which was about 70 basis points, the leverage was more modest as we continue to invest in supporting our business. The income tax rate for the quarter came in at 29.8% which is higher than the 29.2% rate last year primarily due to the expiration of work opportunity tax credits at the end of 2013. We continue to expect our full year rate to be 30% to 31% which is up from the 2013 of 28.9% and large part due to the expiration of the same tax credits. We ended the quarter with $77.5 million in cash, a decrease of $13 million from the end of the first quarter. During the second quarter we generated $36 million in cash flow from operations. We spent $31 million on capital expenditures, $10.5 million on dividends and $7.6 million to repurchase 300,000 shares of our common stock. The 1.7 million shares of stock we’ve repurchased over the course of last 12 months, our total share count was down on a year-over-year basis. As we discussed last quarter, we’ve continued to allocate a portion of our free cash flow towards share repurchases and plan to do so going forward. Finally, on the development front, we continue expect our capital spending to be $100 million to $110 million for 2014. With that said, I’d like to turn the call over to our President Scott Colosi.

Thanks Price, and good evening everybody. We’re very pleased with our results for this quarter, particular our strong comp sales results which have continued into the third quarter. solid sales performance at our new restaurants is also very encouraging and we continue to generate targeted returns even with increasing average development costs. As of today, we’ve opened 14 company restaurants this year and expect another 11 openings for the remainder of the year. And while we target 25 to 30 company restaurant openings each year, issues with permitting, construction and weather can push openings during the year. And these delays are short term and do not reflect any change in our long term development strategy, it’s just the nature of the development process. In general, our goal is to continue driving double digit top line growth and solid earnings growth for the foreseeable future. We expect to maintain a healthy balance sheet and generate more than enough cash flow to provide new store growth and the maintenance of our existing store base. Additionally, we’ll continue to balance the return of our excess cash flow through a combination of dividends and share repurchases. Lastly, before we open it up for questions, I want to thank all of our operators for their continued commitment and performance. Stephanie you may now open the line for questions.

(Operator Instructions) And we will go first to Brian Bittner with Oppenheimer & Company. Brian Bittner – Oppenheimer & Company: Thank you. Hi guys, good afternoon. Your traffic continues to be very impressive, aside from the Legendary food and Legendary service which obviously is working very nicely, is there anything else that you can point to there, maybe driving the traffic, has there been any capacity improvements within the store or bump outs within the stores in the system that’s helped or anything else you can point to, on the traffic side?

Hi Brian, this is Price. I’ll start with that, yes, we definitely continue adding seats, we call bump outs as you mentioned, we continue doing that in our restaurants, we’re up to about a 130 restaurants where we’ve added seating capacity that certainly helping out a little bit on the sales front. And as you mentioned I think a lot of it is just really that intense focus on the operational side of the business, we also, as I think you’re aware very involved in our local communities and our community involvement, local store marketing was tough to quantify exactly what that is, we believe that’s part of work continues to drive our traffic. Brian Bittner – Oppenheimer & Company: And then just quick follow up and then I’ll done, as you look in the 2015 and think about the labor line, do you think that’s a leveragable line in ’15 if you see similar comp sales that you’re generating in ’14, just a little more color on maybe the incremental puts and takes on that labor line in 2015?

It could be Brian, it will openly depend on what we do pricing was and as you mentioned what overall sales are, but if you’re thinking about the puts and takes on that line, we do have another round of the healthcare rolling out, so we’ll expand that down to those employees working 30 or more hours and that will be another couple of million dollars we estimate of impact somewhere to what we’re experiencing this year. And then, we’ll continue to have more and more states, I think we’re up to now, there is about 20 states which we operate in that have their own tip and/or minimum wage increases. We’ll have that kind of working against us, again next year, but with all that depending on what level of pricing and ultimately overall sales it could be alarm that you could hold margin on anyway. Part of our lose in some this year is a little bit of re-class between other in the payroll line which is about 15% or 20% basis headwind in the quarter. Brian Bittner – Oppenheimer & Company: Okay, thanks.

And we’ll move to Andrew Charles with Bank of America Merrill Lynch. Andrew Charles – Bank of America Merrill Lynch: Thank you. It looks like July sales decelerated a bit onto your basis from May and June and just talk about what you experienced in July?

Andrew, this is Price. Overall, July and overall it up 4% with 2.5 points to that being traffic, will definitely take that any day of the week. Nothing big, we probably did lose out a little bit on July 4, we had a little bit of counter shifting in the timing of when July 4 is that impacted us a little bit. But overall, we’ll definitely take 2.5% traffic and 4% overall comps. Andrew Charles – Bank of America Merrill Lynch: Sure, no it’s no dis-credit to yourselves obviously a very stellar in July and appreciate the commentary. And also doesn’t sound like you’re testing a price, I know it’s something you’ve done the last two summers, I just want to know what’s in the mentality for it?

This is Price, in essence, you’re right, we don’t have any official test out there although, we would remind folks that we’ve got between 10 and 15 different menu price tiers out there in general in our systems. So, in essence we’re always testing different price barriers as we’re taking pricing on those different tiers over the course of last several years. So, we will be looking at that data over this fall timeframe as well as continuing to get a clear picture on what we think the overall inflationary environment will be like into 2015 specifically on the commodity side of the business to help us kind of dial in and what we do pricing was during the later part of this year. Andrew Charles – Bank of America Merrill Lynch: That’s helpful, thank you.

And we go now to Jeffrey Bernstein with Barclays. Jeffrey Bernstein – Barclays Capital: Great, thank you very much. Two questions, just one on maybe looking at throughput, I know you talked about the bump outs on the heading of seats and that obviously helps meet the demand, just wanted to know if there is any update in terms of the capacity constraints that the broader system is facing kind of stripping out, bump outs whether there is, whether you look at that way in terms of the percentage of the system that has opportunity from a capacity standpoint, whether you’re testing tablets or handhelds or other initiatives to ease that pressure? And then I have a follow up?

This is Kent, we’ve got units to do our set and remain in the same product type as our other units, so I think we’ve got plenty of capacity left. Jeffrey Bernstein – Barclays Capital: Is there any update in terms, I know you were talking about different means of technology, whether the servers or the seating people or anything along those lines?

Hi Jeff, this is Scott. Yes, we’re in a couple of our stores, we’ve been testing either some version of a handheld ordering device, with the couple of our servers online ordering for carryout, so we’re kind of dipping a little toe in the water on a few things, as most of you know we’ve experimented in the past with pay to table devices. We’re not doing anything currently, but we’re watching a lot what other folks are doing and attempting to learn from the experiences of some of our competitors in the business. And we’ve been expanding the reach of our guest manager system which is a host, guest seating system which we’re putting in more and more of our restaurants to automate more of that process as well. And we’ll continue to see that expand across our system as the years go on. So, I think it’s an about 60% of our system today, something like that 60%, 65% of our system today and I anticipate that will continue to grow and reach as the years go on. Jeffrey Bernstein – Barclays Capital: And just related to that the opportunities to mitigate the margin pressure, I know in the past we talked like $2 million to $3 million in ’14 of cost saving, I’m just wondering whether that something we should assume can be sustained in future year, as maybe what the biggest pockets are if that still an opportunity to do that in ’15 and beyond?

This is Price, we definitely think that sustainable for the next few years, we’re estimating we can get somewhere in that $3 million range this year, a lot of that early on here between last year and this year and even heading into next year is around chemicals, services at the restaurant level, a little on the procurement side and some efficiencies there on gaining maybe a little bit better purchasing powers that relates to certain items like say produce in particular. So, we feel like we still got some room there to continue to help offset a lit bit of that margin pressure even going forward into next year. Jeffrey Bernstein – Barclays Capital: Understood, helpful, thank you.

And we go now to Jonathan Komp with Robert W. Baird. Jonathan R. Komp – Robert W. Baird & Co. Incorporated, Research Division: Hi, thank you, Price. First of all, if I could just ask a clarification on the cost of sales ratio, I think you mentioned in the prepared remarks that the third could have the highest food inflation year-over-year, so I just want to confirm what that might mean for the cost of sales ratio, do you think it could be approaching the mid 35% range or even higher than that or what’s the thinking there?

And Jon, just to be clear there, we were expecting the second quarter to be our highest inflationary quarter in terms of food inflation, not the third but better the second. Jonathan R. Komp – Robert W. Baird & Co. Incorporated, Research Division: Okay, got it, thank you. So then, if you look at the back half of the year I guess, do you think it could be in the 35% range or as a percent of revenue or how should we think sequentially as you look at the balance of the year for the food inflation?

It’s tough to say exactly what it would be Jon, it certainly mathematically you can get there on a low single digit, but it depends on what that low single digit ends up being to be honest with you. Jonathan R. Komp – Robert W. Baird & Co. Incorporated, Research Division: And then, actually the follow up question I had, you held for your guidance for low single digit food inflation, as you’re thinking with the map ban which has fairly wide changed at all versus a couple of months ago or what you’re thinking in terms of expectations there?

It’s really not a whole lot different from our expectations where last time we spoke to you, we were expecting the second quarter to come in at the highest, part of that had to do with the way contracted certain proteins in last year and certainly that’s what kind of proven out thus far is that the second quarter definitely came in higher. We’ve already seen some of those costs kind of subside some of that driven by seasonality pricing, so we still feel good about that low single digit good cost inflation for the year. Jonathan R. Komp – Robert W. Baird & Co. Incorporated, Research Division: Got it. And then, with the recent movement in the live cattle futures market in some of the beef indicators, if the current prices for some of the market indicators would hold to that portray possibly more inflation as you look into next year or how should we think about that in that scenario would you potentially look to take more pricing then you typically have in the last couple of years or any thoughts there?

It is Price, as we think about next year, it’s a little too early to speculate on exactly what that means, but as you alluded to definitely it’s the tight supply out there. So, sitting here today we would definitely expect inflation of some amount for next year exactly what that is, we don’t know. We’ll be taking with the packers and economist as we approach the next few months here and certainly that will be a factor in helping us to determine what ultimately we end up doing pricing was later part of this year. Jonathan R. Komp – Robert W. Baird & Co. Incorporated, Research Division: Okay, thank you very much.

We go now to Will Slabaugh with Stephens. Will Slabaugh – Stephens: Thanks guys. Two quick clarifications if I could. Price, as far as the commodities, can you update us on how far out you’re locked on basically you’ve gotten very far end to 2015 if at all at this point? And then second question there is, just to clarify, I think you said this in the call, but were you at 25 to 39, you were at 25 towards for the year, you said that was a third party issue and all, sort of out of your control correct?

Correct on the store, basically, we had a few slide into ultimately the early part of 2015. On the beef we do have some contract get through the balance of this year and as we talked last time, I’m not going to get specific on exactly how much that is but, we do have some locked up through the balance of this year. Will Slabaugh – Stephens: Great, thank you.

We go now to John Glass with Morgan Stanley. John Glass – Morgan Stanley: Thanks. On the unit I understand that there are things outside of your control that happened, some kind of these land bank or said in another way somehow they get more sight to the pipeline and they actually need in cases and eventually how it happened. Do you typically do that or not do that or did everything just break the wrong way this way and that’s why ended up at the bottom of the range?

This is Kent. Yes, we had, sometimes we have third party approvals kind of, the landlord will tell us who is going to take a month, and next day you know it takes 5 or 6 months so we’ve absolutely gotten more aggressive for next year trend to get on the front end of it because we continue to have more issues like that in the last two years so I would that we’re going to be a little stronger the next two years as we get ahead of it.

This is Scott, I would tell you also, in addition to what Kent said, which absolutely we see happening in pushing some of the deals. We’re also trying to balance on the pre-opening side and so we’re really trying to control our growth if you will, but at the same time not have so many sides where we’re paying for a lot of folks for a longer period than we have to on the field opening end. So, we’re just trying to balance that and be reasonable and how large we’re letting that pipeline build up to. John Glass – Morgan Stanley: That actually makes lot of sense. You think about the labor line longer term, the things you mentioned next year, whether it’s minimum, state minimum wages, whether it’s healthcare, those don’t go away, they probably get worse in fact I would think over time, how do you think, I know you’ve been ready in the past, reduce labor in any way and somewhat ready to use technology to reduce labor in the restaurants. But, are there new ways thinking about that if this is going to be kind of a real challenge balancing labor class?

Part of next year will be the healthcare, I think you’re right in the fact that we will continue to experience some amount of healthcare insurance going forward, but part of what’s hitting us this year as well as next year is the fact we’re rolling out coverage to a larger group of team members. And so, we wouldn’t necessarily that you would have that every year and as far as on a go forward basis, we haven’t talked about reducing our servers to tables ratios or taking labor out of the stores yet. In fact, that’s part of what we think is helping to drive the solid same-store sales results that’s not to say that if the overall backdrop didn’t change entirely, yes, we would have to talk about what that meant to us. But, as it stands right now, we’re very committed to the service levels that we have and feel that’s a big part of our overall value equation and sales driver.

This is Scott. I would say that sometimes we may have folks that want to sell us on the idea that if you buy a labor system that you can reduce the number of people you have and still provide great service. And as somebody who is in the hospitality business, I feel very comforted by the fact that we still have the same staffing levels that we’ve had for a long, long time. And somebody asked earlier about how do you keep growing traffic and I would say that large part of that as we continue to staff our restaurants with a lot of folks to give great service, both friendly service and fast service to term on the speed piece and back of house. John Glass – Morgan Stanley: Thanks very much.

We now go to Andy Barish with Jefferies. Andy Barish – Jefferies: Hi guys. Just on the sequential food costs, I look back historically, and 2Q is usually a down period of food cost from the first quarter, is there something different that’s got on sort of sequentially in this quarter, you mentioned contracting a couple of times what’s sort of change there?

Hi Andy, Price. Seasonally, some of our cuts of our beef, couple of our cuts of our beef are seasonably higher during the second quarter of the year. Last year we had more fixed price contracts in place for our beef needs so that kind of leveled that out and so, as you’re more on the market say, for beef, you’re paying those higher prices during this quarter. Does that make sense to you? Andy Barish – Jefferies: Yes, that makes a lot of sense. And then, I guess, I know it’s too early on ’15, but am I wrong in thinking that you guys are sort of advantageous to the market this year after being disadvantage last year so, the logic seems like it’s going to be tougher to contract that an advantage next year, is that sort of the way this process works?

We don’t know about next year, but what you say about this year is definitely right. If you look at say for instance, what beef has been up, the market basket of our goods is up considerably more than our overall beef cost or if you’re talking beef alone this year. Don’t know about how that plays into next year, but your logic makes sense in the fact that you would think we would be closer to the market on the beef side of things. Andy Barish – Jefferies: Okay, thanks.

(Operator Instructions) And we’ll go now to Jason West with Deutsche Bank. Jason West – Deutsche Bank AG, Research Division: Hi thanks guys. Just one on the oversight, there has been some talk that maybe we’ll get a tip wage increase at some point. Just wanted if you talk order of magnitude how important tip wage move is versus just minimum wage which we just seem to see more frequently at the state level, if you extend that will be great?

This is Price. And not getting to specifics of it, but as you will imagine for us anybody in the food service industry, tip wages definitely more of a direct and meaningful impact because of typically a dollar for dollar change on a lot of your front house employees.

We have faced that before in a number of states, I think Colorado, Arizona, Ohio and maybe a few others in there that went up quite a bit 4 or 5, 6 years ago on their tip wages from 2.13 upward close to $4. So, and it’s a big change because it impacts every employee at that level unlike the regular minimum wage which doesn’t necessarily impact every employee overnight. But, we’ll get through it if that was to happen, we’ll deal with it, we’ve done before.

And it looks like Andy’s line has disconnected from the conference. we’ll move to our next question from Alton Stump with Longbow Research.

Hi guys, it’s Britney on for Alton today. Just wondered to see if you guys had any thoughts on new products coming, I know it’s been a while since there has been a major product launch and just kind of wondered around how they ahead around that?

This is Scott. We’re typically very consistent and steady on our menu and we always meeting with our food team and looking at new potential items or revisions to any current item. But, currently we don’t have any plans for any real big changes to our menu.

We always are testing some items but we can’t have a philosophy that you add one, you take one off and we’ve been testing quite a few things, but nobody can find something that take to add.

Okay that makes sense. And then, do you guys have any color on the competitive environment you’re seeing, particularly if any stake house are getting more rationale on discount and given higher meat cost lately?

I would say, we haven’t really talked about substantially different from the competition, maybe we’ve seen a little less of the extreme discounting from some of the casual diners, but it still a very, very, very, very competitive industry and so, we’ve got to be very, very careful on own side, on our own pricing and the options that we have on our menu.

Okay, great, thanks guys.

We’ll go now to David Palmer with RBC Capital Markets. David Palmer – RBC Capital Markets: (Technical difficulty)

Just talking about the guest management system and the throughput that we get on that system, that really varies by store and how much each individual management partner and their team are using all aspects of the system. So, it definitely helps our folks keep track of, really sets of guests, guests that are calling ahead and putting their name on the list remotely and guests are walking in all the street and putting their name on our list. Certainly we think it has the potential to contribute to little bit faster turns in our system. But certainly, it creates a lot more stability at a place in our restaurant that can be very chaotic on almost any night of the week. David Palmer – RBC Capital Markets: (Technical difficulty)

This is Scott. At our Marker Partner meeting some of the best practices we talk about are real estate, sites, with our marker partners and in addition to leveraging some of the infrastructure we’ve invested in to help us on both the food and the service side as well. So, we talk about this specific programs and the people we have to help whether it’s for training, education and various means of support. David Palmer – RBC Capital Markets: Thank you very much.

And we’ll go now to Steve Anderson with Miller Tabak. Steve Anderson – Miller Tabak: Good afternoon and sorry to jump on the call little bit late. But, I want to get the monthly breakdown on your same-restaurant sales?

This is Price. in April, May and June up 1.6, up 3.4, up 3.7. Steve Anderson – Miller Tabak: Great, thank you.

And we’ll go now to Robert Derrington with Wunderlich Securities. Robert Derrington – Wunderlich Securities: Yes, thanks. Clarification on Price, is the menu pricing for the second half of the year, could you give that to us for Q3 and Q4, I apologize if I miss that?

No problem Bob. We took a little over a 1.5% last December so that basically what we will have in effect for the third and fourth quarter. Robert Derrington – Wunderlich Securities: Okay, alright, so it will be the same, alright. And then, second here Scott, could you help us for a second on the loyalty program that you have at Texas Roadhouse, how many folks participate within that, what kind of trend have you seen, is it growing, any kind of color would be helpful?

Well, it’s a email database loyalty program and I believe we have about 6 million folks signed up now, and our restaurants have the ability to communicate individual messages to their specific databases and they take advantage of that all the time and there is also different deals. And then, we can also leverage it for some of our more national programs if you will which would be like a Valentine’s Day or gift card season, Mothers Day, those types of things. Robert Derrington – Wunderlich Securities: That’s helpful. One thing that I noticed, I think recently you had a maybe a contest for a trip, maybe Hawaii if I remember correctly and I think more recently there was another one that you had come out, does the participation in the interest vary depending on what kind of offering you provide?

That something I don’t know how varying that’s been, certainly a trip to Hawaii is going to get more interesting than some other contest that we have. But, lot of it depends on the local practice of each restaurant and what specifically they’re giving away is going to dictate basically how much interest is involved. But, we do have a pretty high opening rate on our emails that go out, so we’re pretty encouraged by the database itself and the effectiveness we think that it has with our guests.

That is an opt in program and as Scott mentioned it can be local, it can be set up localized and individual store level, individual market level overall company level. So that’s why we don’t always know at any given point in time exactly what the message is for a specific store. Robert Derrington – Wunderlich Securities: So, in other words if you’ve had a last user, the message might be a little bit stronger than otherwise?

It could be, it wouldn’t be driven for that specific user as it would be for that specific location. Robert Derrington – Wunderlich Securities: Got you, terrific, thank you, I appreciate it.

(Operator Instructions) And we’ll go now to David Carlson with KeyBanc. David Carlson – KeyBanc Capital Markets: Hi guys. Price, quick question for you, I think you said that commodity inflation was 3.8% for the quarter and I apologize if I miss this, could you spell out what beef inflation was?

I would tell you, beef was up a little more that, I didn’t spell it out, but it was up a little bit more than that like mid single digit range for the second quarter. David Carlson – KeyBanc Capital Markets: Do you think that may have also peaked in the second quarter or any expectations for that?

Yes, we think that will be kind of, that’s what drove our peak in food inflation and so yes, we would expect that to be the highest in the second quarter. David Carlson – KeyBanc Capital Markets: And then, one additional question on pre-opening expense, kind of rattle a bit, I know guys had cost little bit more to open each unit, should we anticipate something in the $700,000 range plus on a go forward basis as opposed to I think traditionally its run in the kind of $600,000 range, $650,000 range?

Yes, right now it’s running about $600,000 but for modeling purpose you could have more than that here in any given one year depending on the timing of the openings. David Carlson – KeyBanc Capital Markets: Sure, thank you.

We will go now to John Ivankoe with JP Morgan. John W. Ivankoe – JP Morgan Chase & Co, Research Division: Hi, thank you. I was hoping if I could be reminded on your use or opportunity around actual versus theoretical food costing and you referred other companies that have had some success in putting it in, maybe anticipate having some success in putting it and with your company concept in particular that cuts each meat and stores, just wondering how much the variances maybe in terms of your actual food cost relative to what the specs may suggest? Thanks.

This is Scott. There is two sides to that one is, certainly there is a variance which could imply an opportunity to make the food with less waste if you will. There is also opportunity to make sure that we’re executing the recipes correctly. So, our recipes have a lot of pieces to them with everything being made from scratch. And so, it’s a great check sometimes to make sure that we’re using the right amount of all the correct ingredients in our recipes as well it is to mitigate waste in our stores. So, it’s both angles that we look at that, we do have a variance, it’s not a huge variance over the theoretical, but we’re very decentralized company, so we let our individual operators use those reports as they see fit and some maybe using it more than others, some maybe pushing little harder than others just like some may invest more in local stock marketing than others or community involvement or other things as best they see fit for their restaurants. So, it’s really kind of across the board and quite varying depending upon which operator or market that we’re operating in. John W. Ivankoe – JP Morgan Chase & Co, Research Division: But, it does sound like the system is in place to the most of its ability so it should stay, it’s something just for the measurement that already exist and that isn’t necessarily a wholesale opportunity from here?

We just roll a cloud based version of our back office product of which the food cost and pieces of part of that and literally just in the last couple of weeks, we hit the last few stores with that. So it’s quite a big rollout, we’re talking about 400 restaurants for us to do that and so, a lot of our operators have gotten more engaged then they ever had before because we had more train that we had before with the rollout of the new cloud based system for them. So, I anticipate we’ll a little bit of improvement I think and how well we’re able to use the system. John W. Ivankoe – JP Morgan Chase & Co, Research Division: Interesting, thank you.

We’ll go now to Peter Saleh with Telsey Advisory Group. Peter Saleh – Telsey Advisory Group LLC: Great, thanks. I just wanted ask about the international units being opened and how does that pipeline shape up for the rest of this year and into 2015, and we should we expect that to ramp up at all as we go into 2015?

We might have between 3 and 5 next year so nothing is significant. Peter Saleh – Telsey Advisory Group LLC: Okay. And then, just on the G&A investments for international, are most of the G&A investments already made and already kind of there or should we expect more G&A investments as you guys add more restaurants in 2015?

This is Kent again, we’re really actually making money internationally when you look at our cost of the people involved versus the income coming in. so, we add maybe a couple of people here that’s about it. And we’re franchising most of our source internationally. Peter Saleh – Telsey Advisory Group LLC: Thank you very much.

And there are no further questions at this time, I’d like to turn the call back over to the management group.

We want to thank you all for joining us and have a great night.

And this concludes our conference. Thank you for your participation.