Texas Roadhouse, Inc. (TXRH) Q4 2014 Earnings Report, Transcript and Summary

Please standby, we are about to begin. Good day. And welcome to the Texas Roadhouse Incorporated Fourth Quarter 2014 Earnings Conference Call. Today’s conference is being recorded. All participants are now in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Scott Colosi, President and Chief Financial Officer. You may begin your conference.

Thank you, Kevin, and good evening, everybody. By now, you should have access to our earnings release for the fourth quarter ended December 30, 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 CEO; and Tonya Robinson, our Director of Financial Reporting and Investor Relations. Kent is going to give you some general comments about the business and Tonya is going to follow up with the financials. Following our remarks, we will then open the call up for questions. Now, I’d like to turn the call over to our Founder, Kent Taylor.

Thanks, Scott. We are pleased to finish 2014 with a significant comp sales growth momentum. Comps during the fourth quarter increased 7% at our company restaurants and included an increase in traffic of 5%. For the full year our comps increased 4.7% of which 3.2% was an increase in guest counts. I want to take a second to thank our operators who continue to do a legendary job of taking care of our guests and building sales, especially in the face of continued inflationary pressures. On a full year basis we achieved double-digit revenue growth for the fourth quarter in a row and grew diluted earnings per share almost 13%, excluding the impact of the extra week in 2013. Our solid comp performance has continued into 2015 with comps up 12% through the first seven weeks of the year. Tonya will talk more about those numbers in a moment. For 2015 we remain focused on doing the right things for the long-term success of Texas Roadhouse. Ongoing food cost pressures and higher healthcare costs will be a hurdle for us this year. Challenges such as these will always exist to some degree and we will continue to tackle them head-on. In response to some of these inflationary pressures, we completed the rollout of an average menu price increase of 1.8% in late November. While this pricing action will not be enough to completely offset inflationary pressures this year, our goal continues to be balancing short-term profit growth with protecting the long-term positioning and value of Texas Roadhouse. We believe that has served us well in the past and we will continue to do so in the future. On the development front we opened 22 company-owned Texas Roadhouse and two Bubba's 33 restaurants in 2014, as well as six franchise restaurants. Five of the franchise openings were international including our first location in Taiwan. Our pipeline for 2015 is in great shape as we expect to open 25 to 30 new company restaurants, including as many as five Bubba's 33 locations. In addition, we expect our franchise partners to open four to six restaurants with as many as four of those outside the U.S. Our primary focus is and will continue to be Texas Roadhouse where we have significant opportunities to grow both domestically and internationally. We realize that the development of Bubba's 33 is important not only for the long-term growth of the company but also for the growth opportunities it brings to our people. Now, Tonya will provide the financial update.

Thanks, Kent. Before I begin my discussion of results, I want to remind everyone that 2013 included an extra week, which added $32 million in revenue and an estimated $0.03 to $0.04 to diluted earnings per share for both the fourth quarter and full year of 2013. Both revenue and earnings growth for the fourth quarter and full year of 2014 were negatively impacted by lapping the extra week. My discussion of our results will be based on reported results which includes this negative impact. For the fourth quarter of 2014, net income was $18.6 million or $0.26 per diluted share, which is a 10.9% increase over the prior year. Overall, revenue growth of 7.6% along with lower G&A costs and a lower income tax rate helped offset the impact of higher food cost inflation. Revenue growth during the fourth quarter was driven by 6.7% increase in average unit volumes. In addition, we continue to see strong sales performance at our newest location. On a 13-week basis comp sales increased 7% during the quarter, comprised of 5.5% traffic growth and a 1.5% increase in average check. By months comparable sales increased 7%, 5.8%, and 7.9% for our October, November and December periods, respectively. As Kent mentioned, trends have remained positive during the first seven weeks of 2015 with comps up approximately 12%. We did have some positive benefit in early 2015 due to the New Year’s Eve shift between years. Restaurant operating profit increased $2.8 million or 4.5% for the quarter, while restaurant margin dollars grew both in total and on a per store week basis, margin percentages were down 47 basis points for the quarter and 26 basis points for the year as commodity inflation outpaced our pricing actions. Food cost inflation was 4.5% for the quarter, leading to full year inflation of just over 3%. On the labor line strong average unit volume growth during the quarter more than offset the impact of higher healthcare costs, wage rate inflations and a reclassification of some costs from the other operating line. Below restaurant margin, pre-opening costs were lower on year-over-year basis, primarily due to fewer restaurant openings this quarter compared to last year. That was somewhat offset by higher pre-opening costs on a per store basis. We have experienced more situations where the timing of store openings have shifted for various reasons leading to increase pre-opening costs. Much of the increase relates to management team cost since we hire new managers well in advance of the store opening. Depreciation costs were [at] [ph] $800,000 this quarter compared to the prior year. The impacts from new restaurants along with increase CapEx spending at existing restaurants was partially offset by overlapping a $700,000 increase in amortization expense related to leasehold life adjustments in the prior year. In addition, the pro rata allocation of depreciation expense last year due to the extra week helped comparisons this quarter. G&A costs were down $366,000 in the quarter, primarily due to an extra week of costs in the prior year, as well as overlapping approximately $700,000 of one-time costs from last year. These impacts along with strong guest traffic growth helped us leverage G&A costs by approximately 48 basis points in the quarter. The income tax rate for the first -- fourth quarter was 27.7%, which was lower than the 29.3% rate from last year due to the retroactive reinstatement of the work opportunity tax credit at the end of 2014. For the full year our rate came in at 30%. Moving to the balance sheet and cash flow, we ended the year with $86 million in cash, down about $9 million from last year. In 2014, we generated approximately $192 million in operating cash flow, of which $124 million went to capital expenditures, $31 million went to dividend and $43 million went to share repurchases. In total, we repurchased 1,675,000 shares in 2014. Looking ahead to 2015, we feel very good about the momentum in our business. As Kent mentioned, we are targeting 25 to 30 company openings and expect to continue to drive positive comparable restaurant sales growth. The cost of beef remains a pressure point for us as cattle supply continues to be low. As such we currently anticipate 3% to 4% food cost inflation for 2015. Given how food cost inflation played out in 2014 with less than 1% inflation in the first quarter and then rising throughout the year, our current estimate assume that we will see our highest inflation in the first quarter of 2015. This means that food cost inflation in the first quarter of 2015 could exceed the high-end of our full year range. On the labor front, we expect our healthcare costs to be at $5 million to $6 million with further expansion of coverage to employees working 30 hours or more. In addition, we expect some headwinds from ongoing state minimum wage increases. As Kent noted, in anticipation of these expected pressures, we took approximately 1.8% in menu pricing in late November. In addition to the benefit from pricing, some of the costs pressures we have discussed will be partially offset by our ongoing focus on cost savings initiatives where we believe we can save another couple of $1 million. Below the restaurant margin line, I will give you additional color on a few items. First, we expect depreciation and amortization to be up in 2015 as a percentage of revenue due to an increase in our capitalized costs on new restaurant along with an increase in the level of reinvestment in our existing asset. Our average development cost for new restaurants was $5.1 million in 2014 which was up above $1 million from our 2013 average. A large part of the increase was due to high drilling coast at certain locations, including few restaurants in Alaska and more in the New York City area. G&A cost will be impacted by approximately $4 million due to the renewal of our officer and board contract at the beginning of 2015. The higher costs relates to stock compensation as the amount of expenses recorded depends largely on the share price, which was just over $34 on the recent grants compared to approximately $15 on the previous grants in 2011. Lastly, we expect our 2015 income tax rate to be 30% to 31%, depending on whether the work opportunity tax credit is reinstated in 2016. From a cash flow perspective, we expect to continue to generate significant free cash flow even after $135 million to $145 million of capital expenditures. In addition, we plan to continue allocating excess capitals towards repurchasing shares of stock and paying a growing dividend. In conjunction with our fourth quarter release, our Board authorized a 13% increase in our regular quarterly dividend payment to $0.17 per share from $0.15 in the prior year. Now, I’ll turn this call over to Scott for final comments.

Thank you, Tonya. We certainly have lot of positive momentum on the sales structure. This is the tribute to the outstanding operators we had on our team. Our operators continue to do a legendary job of balancing all the inflationary pressures we have with providing our guests with a legendary food and service experience. We also believe we are maintaining discipline around new unit growth and will remain digital to achieve our return targets associated with new restaurants. We also remain committed of having a balanced approach for how we allocate our guests between new restaurants, remodels and refurbishment, dividends and share buybacks. Having a balanced approach to how we operate our restaurants have served us well in the past. And we believe a balanced allocation of our financial resources is an important piece of our strategy to create value for employees, our guests and our shareholders. So with that, Kevin, please open the line for questions.

Thank you. [Operator Instructions] And we’ll take our first question from David Palmer with RBC.

Hey guys, congrats on the momentum in the business. Wanted to ask a question, just with regard to the beginning of this calendar quarter, the first quarter. Are you seeing a divergence in your trends that seems to be dramatically associated with weather? For instance, is the middle of the country doing a lot better than perhaps with the East and North East as we would expect?

When it comes to comps for 2015, I would say -- it's been pretty consistent across the regions in the day parts. We really just don’t talk a lot about weather, good or bad. So we feel like we are on track and you have to believe there’s probably some weather impact just given kind of what’s been going on but we lapped some pretty bad weather from last year too.

Yeah. Is there anything with regard to the day parts and meal parts and menu parts that give you an insight into how the consumer is feeling? For instance, are you seeing any trading up within the menu or any sort of other behavior that would otherwise tell you that the consumer mood is brightening other than the sales trends themselves?

You know, we really haven’t seen anything from that regard. No.

Thank you.

And we’ll go next to Brian Bittner with Oppenheimer & Company. Please go ahead.

Thank you. Congratulations also on the momentum you are seeing. Question about the operating leverage in the business. The 7% comps you put up in the fourth quarter were obviously strong, and on the labor line the same-store labor costs were up about 7% as well. So I'm just trying to get a better sense of how the labor tracks throughout the quarter because my guess would be if comps were up, say 5%, I don't think that labor line would have been up as much. When we see this momentum going into 2015, should we assume that the labor line build similarly or -- I know you talked about healthcare cost and things like that, but just trying to understand how we can maybe get some leverage out of that, or maybe use the fourth quarter as a talking point?

This is Scott. I think one thing to keep in mind is – or actually two things, one is there is lot of inflation out there. Whether it’s minimum wage related because you do have so many states that minimum wage goes up every year. That’s a piece of it. And then we started the whole healthcare thing early. So we offered healthcare to employees that work 35 hours [indiscernible] last year. So that was few million dollars as well. And then we were reclassifying some expenses between other operating expenses and up into labor and also it impacted our labor line.

Okay. You're seeing double-digit comps. And then I know you're not really wanting us to extrapolate that for the whole quarter, but it would be safe to assume, and I know you're going to feel pressure but whether it'll get more leverage out of the labor line on a double-digit comp than, say, high single digit comp like we saw in the fourth quarter?

You would absolutely expect there to be some leverage on the labor line with double digit comps almost in any scenario. I’d tell you that from an extrapolation standpoint, we’re lapping our easiest comparisons of 2014 as the first quarter of the year. So they only get tougher, particularly the second half of the year. Secondarily, we do have more minimum wage increases this year. And then going to 30 hours from 35 on the healthcare piece, our healthcare costs are going up quite a bit, $5 million or $6 million, I believe is what our current estimates are and it could go high, it could little bit lower depending upon what happens later this year. But certainly those are some big numbers to overcome.

Okay. Thank you. Congrats guys.

Thank you very much.

We’ll go next to Andy Barish with Jefferies. Please go ahead.

Hey guys. Can you give us an update on Bubba's, little surprised that kind of ramp up is there - is there some swapping of some real estate that maybe you thought was going to be Texas that you’re going to use for Bubba's now and how are you addressing some of the cost increases on the investment side at the Texas Roadhouse buildouts?

Hey, this is Kent. The Bubba's 33 like Texas Roadhouse is a partnership-based concept. Bubba's 33 is a family sports restaurant that serves appetizers, burgers, sandwiches and beer. Just like Texas Roadhouse, we make the food from scratch. We also provide our guest with a cool service as well as a great vibe and energy level through the restaurant. And pretty much we found for the first three restaurants that we can locate near a Texas Roadhouse and not affect the sales of the Texas Roadhouse since the menu is so different. So with that said on the real estate front, we’re really not stealing sites from Texas Roadhouse. We’re actually pretty much targeting locations where Texas Roadhouse does well and but not typically going next door. And in some cases, we are in and most cases, we are not.

I think -- Andy, this is Scott. On the development cost piece, we did average just over $5 million. We had three locations in particular that really were expensive. Two of those deals were on the two storage we built up in Anchorage, Alaska and of course, the sales have been quite a bit higher up there in that part of the world. Then we had one in New York City that ended up costing quite a bit of money. And you back those out, your average gets back down in the fours but it’s a little bit higher than we were in ‘13. Part of that’s pre-opening expenses. We have had -- it seems like just taken us longer to get the sites open through permitting, through construction. We’re talking a lot about that internally or from those numbers. We did add the length of time that we would like some of the management team to be in the system before they open the Texas Roadhouse. We had managing partners always been at 12 months, but we wanted some of the assistance to be with us for 12 months versus nine months, was the old standard just to increase our ability to be successful and run, that’s a huge volumes that we are doing in the system. A little bit of that increase is related to building cost. Some of that from us experimenting a little bit in a handful of sites where we maybe added a second bar or add some garage doors or just took some things that we’ve seen around the industry and made some small bets in certain stores and that pushed us up a little bit. It’s too early to read the results in those, particular restaurants. We don’t have any of those currently on the plans for this year. And so we do think our average investment cost will be comparable to last year but without the big outlier site. So below $5 million to probably above $4.5 million, probably somewhere between $4.5 million to $5 million. Now all that said, given where our average sales volumes are and our margins, we are still very comfortable with mid-teens IRRs with those numbers. So having a slightly less than one-to-one sales to investment ratio, we are still in that mid-teens level. We’d love to be at a one-to-one level. And keep in mind, we do take a pretty conservative approach to preopening. And with preopening when you are -- you get the tax benefit right upfront on preopening. It’s time zero effectively tax benefit for preopening whereas building depreciation overs 39 years, those kind of things. So the preopening hurts our return little bit less and building construction costs. So we are still very, very comfortable with the returns that we are getting, but we are watching and talking quite a bit about where we think development cost might be doing down the road.

Thank you.

Next to Keith Siegner with UBS.

Thank you very much and congratulations on the quarter. Scott, if I can ask the first question just to follow up on a little it. If we look at where the CapEx guidance was last quarter to this quarter, coming up a little bit there and we just talked about maybe not having quite as many of the outliers on the new unit expense like Alaska and New City. Can you help us like bridge that gap a little bit? Is this reimaging or a little more reimaging? Is it maybe because there is more bubbles or are they a little bit more expensive? Just maybe what changed on that CapEx please?

We are definitely or definitely spending more money on our existing base. No question about it, we are doing more bump outs. We are doing a -- we had a bar reimaging program that we’re doing and we may get through our whole empire system within a couple years. So we are pretty excited about that and we are pushing pretty hard on that. And just to keep our concept relevant. The Bubba’s cost a little bit more, the buildings are a little bit bigger, but they are not too far off from Texas Roadhouse. Sometimes it comes down to what the -- for the real estate cost as well. So for some -- for the first few Bubba’s, the real estate has actually been on the lower side with bowling cost getting a little bit higher and we are kind of net now close to Texas Roadhouse. The sales in Bubba’s pretty strong comparable to Roadhouse and the margins are somewhat higher given that the alcohol mix is quite a bit higher.

And the food cost is lower?

And the food cost is little bit lower given the menu of others not sustain for us. So encouraging so far which is one reason why we are willing to move little faster on the Bubba’s front.

Got it. That’s very helpful. And then just as a follow-up, the traffic is very impressive to say the least, what the brands are putting up? So when you think about capacity, I mean how much capacity do you think there is in the system for more traffic? Is there room at peak? Is there more room in the shoulders? Is this kind of what the bump outs are back or about? How do you think about the capacity for continued traffic gains? Thanks.

We don’t believe there is a limit. Our restaurants have not shown us that there is a limit. Our highest volume restaurants continue to grow. Sales everyday early, lunch and dinner, weekends, I mean, they continue to grow sales and some of it’s -- of course it gets check going up, some of its speed on the franchise, some of it is earlier in the weak or earlier in the day or later in the day all on the edges. But our highest volume restaurant that continue to grow sales quickly they grown more than our lower volume stores. And certainly to get that kind of volume usually you have some of your best managing partners in the systems and maybe they have the best relationships in their community, the best strongest marketing team, the stronger teams all around and they continue to find ways to grow the business.

That’s really helpful. Thank you.

And we go next to Jeff Farmer with Wells Fargo.

Thanks. Scott, you did touch on it, but what was the quarter to date seems to have sales lift from the New Year’s Eve shifting into Q1. I think I missed out if you said it.

On the quarter, on Q4 it was about 1%, yes.

Okay. So Q5 and then -- and then just Scott, looking at taking another crack at understanding potential sales leverage in the model, understanding there is a lot of moving pieces, but I think this guidance was about two years old, but at one in time you guys were seeing at a 1% change in traffic drove approximately a 5% change in EPS. Does that relationship still approximately hold or is there way we should be thinking about how the earnings metrics work?

That’s the way we look at it about 5%, I think 1 point of traffic.

Yeah, wasn’t sure what the labor and some of the other moving pieces of whether or not it was still not cleaned but it sounds just little comfortable with that?

That assumes of course no other changes in inflation, as that assumes nothing else changes in the business. So we would tell you based on the assumptions we gave you was the food inflation, labor inflation, we would probably need mid-single digit comps to hold margin percentages flat.

Okay. That’s helpful. Thank you.

Okay. Next to Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you. Two questions. One, it seemed like following up relatively stable fourth quarter comp. There was a nice uptick in the first quarter which you’re not alone from an industry perspective. I am just wondering of the New Year shift. It hasn’t seemed like the micro has changed so many meaningfully. I am just wondering, it seems like it’s a broader industry think and that was Texas Roadhouse specific thing, but to what you might attribute just the most kind of accelerations for you guys to hitting this double-digits comps?

This is Kent. One of the things we do in the fourth quarter as we saw a lot of gift cards around the Christmas season and we sold more gift cards this year than we typically do. So it’s possible that some of these are getting redeemed right now at a higher rate than they were last year, so that might be part of it.

Yeah. I think, Jeff, in addition to what Kent said, certainly it’s a lot of things out there and maybe our tailwinds, whether some of it is weather or of course lower gas prices. In our case, adding seats and we like to say have you tried one of our states lately? We just continue to execute better on the food. We are taking things to the next level. We’ve got some very cool service initiatives we’ve been working on and investing some of our G&A in more support for some of our operators in the field as well. And so just to raise the bar on what legendary services at Texas Roadhouse and I think we are just on offense in both in the kitchen and in the front. And combined with the other things, it just really enables us to move a lot of people.

And as beef gets more expensive in the grocery stores then people can come at Texas Roadhouse, they don’t have to go out to growth store to buy, they don’t have to cook, they don’t have to clean up, they can come in, have a great experience and pay the same low price at Texas Roadhouse. I am getting hungry right now.

I am going to say Kent I am sold as well, but I had one other question more from quest standpoint actually got just to clarify. You said the mid-single digit total comp would be needed in this environment to hold the margin flat, that’s assuming the 1.8% price you’ve got in there and the COGS and labor inflation that you are assuming?

That’s correct.

Yeah, that’s correct.

Got it. Are you seeing any uptick in just looking at labor or hearing those, talk about maybe uptick in turnover whether it’s presumably in conjunction with an improving macro that there is alternative for the labor?

Yes, our turnover has been drifting upward. On the hourly basis, it’s been drifting upward. So that adds a little bit of pressure. Certainly you saw what Walmart, everybody thought Walmat came out and announced and I am sure there is many, many reasons behind that, but certainly they are seeing lower unemployment and you are fighting more for great people to work in your restaurants. So actually there is some pressure there, but there is also -- on top of that minimum wage, on top of that healthcare. So it’s in full swing, and just again it’s just like on the sales, all of those things add up to great sales and all of those things add up to inflation sometimes on the cost side.

Got it. Thank you very much.

We’ll go next to Andrew Strelzik with BMO Capital Markets.

Hey, good afternoon, every one. You are obviously able to narrow the input cost. The inflation on the input cost range pretty meaningfully. I am just wondering if you’ve been able to lock in any beef for 2015 or where you stand on that.

Hey, Andrew, it’s Tonya. We really don’t want to comment on where we are from that standpoint. I will tell you we’ve locked some items in our commodity basket for sure for 2015 and we’ve talked about those a little bit before, things like shortening, mixes and dairy products, things like that, a little bit on seafood. So I think don’t really want to comment on the beef side of things, but I can tell you that the 3% to 4% range we are talking about, there would be some inflation there and that’s really part of probably the biggest significant driver of that.

Okay. And on the last call, last quarter you talked about being open to raising prices again if there was more meaningfully labor inflation that you had previously expected. I am just wondering if you are still open to that or how are you thinking about that at this point, given particularly how strong the traffic is?

This is Scott. I would tell you these kind of traffic trends certainly less likely, but sure it’s always open. But we are going to stay very, very aggressive on our pricing as well for many years. So things would have to get pretty tough, particularly on the food cost side for us to -- if you look at pricing.

Okay. Thank you.

[Operator Instructions] We’ll go next to David Tarantino with Robert W. Baird.

Hi, good afternoon. I wanted to come back to the question on the unit growth outlook and the decision to increase the number of openings for Bubba's 33. So just wondering if you could talk us through your logic on why now is the right time to accelerate the growth of that concept? And then maybe on a related question, the number of openings for Texas Roadhouse and the core concept is sliding downward this year at least according to plan relative to what you did last year. So why fewer opening for the core concept and why more openings for Bubba’s 33?

Hi, it’s Kent. A lot it’s people related and the same people that may open a Texas Roadhouse now who are asking to open Bubba’s. So overall we are still opening at the same pace as we have been in the past couple years, but we want to make sure we provide a future for our people and we tried the Aspen Creek thing, it did okay, but it didn't seem to be a national concept. Bubba’s 33 is doing very well. And so we are going to step it up a little bit why not.

Is this, Kent, in your mind still a pilot phase on Bubba’s 33 or is this full steam ahead in terms of a roll out? I guess, how are you thinking about it based on what you are seeing so far?

It’s too early to tell. I would say we are in the Phase II of our pilot phase.

Got it. And then your comments suggest that the returns are quite appealing on Bubba’s 33, are they -- how would you frame those up relative to Texas Roadhouse?

I’ll let Scott answer that because he knows more big words than I do.

Yeah, David, the returns are comparable to Texas Roadhouse and could be a little bit better just depending upon where we end up in sales and margins. So Bubba’s model with so much alcohol relative to Texas Roadhouse and lower food cost has the potential to do a bit better than the current new roadhouses are right now. So, so far in the few Bubba’s we have open, the sales have been pretty strong and we go to margins on top, the returns are really better than average, but again there is three and we got a long way to go. So nobody is celebrating victories here. We are trying to plant some seeds and we got three seeds in the ground. We are going to plant five more seeds and it doesn’t make a whole field, but we are planting some more seeds to hopefully have a brand that we can grow pretty substantially in the future really for the benefit of our people as much as anything else.

Great. Thanks for the clarification on that. And then one quick modeling question, are you expecting that you’ll get G&A leverage this year, maybe I missed this in the commentary. But I know you called out an extra expense related to stock compensation but would you expect to get leverage on G&A this year?

I think that additional expense that we talked about could make it a little tough to get leverage on that line. A lot will depend on where traffic comes in, things like that, but I mean, I don’t think it’s out of the realm of possibility, but it could be a little tough.

Okay. Thank you very much.

Next to Joe Buckley with Bank of America Merrill Lynch.

Thank you. I have a couple of questions. Tonya, just a clarification on the New Year’s Eve comment. So you had a 1% negative impact through fourth quarter and will that translate into something greater than 1% positive for the first quarter and maybe a couple of points on the first seven weeks perhaps?

Yeah. It looks to be over 1.5% on that first seven weeks in 2015, so it’s going to be a little bit higher impacts on Q1, that it’ll be -- the negative impacts on Q4.

Okay. That’s helpful. And then, can you give us an update on where you are in bump outs, how many you did last year and how many you think you might do this year at Texas?

We did approximately I think between 25 and 30 bump outs in 2014, not kind of the pace we sit on for a little while. I believe we’ve done around 140 or 150 maybe at this point since we started that program. So I think that 25 to 30 is a good number for us to do going forward. And we just continue to look at the stores where you think that’s a possibility, that number gets a little bigger every year. And it just seems like a great program. The costs are great on it so kind of no brainer in stores that can take that on.

And what is the impact on sales or maybe the impact on seats, sales but it’s not seats, for above that?

It adds about 25 to 30 seats in the restaurant. So it’s probably about a 10% maybe close to that bump on comps for that one restaurant.

Okay.

Overall though it probably is only like maybe at 10 or 15 did impact overall on comps.

And it typically helps a lot on the weekends, but if we are not full like Monday, Tuesday, Wednesday, it really doesn’t add anything on those days.

Right. Okay. One last question I read recently in my [indiscernible] office, but was there one other opening in the fourth quarter besides the Bubba Texas Roadhouse for this or if so what was that?

It’s another one of my experiments out there that we are not talking about at this point.

Okay.

What you’re saying is another restaurant that I'm toying with, but we’ll see how it works and let you know -- when you’ll need to know I guess.

Okay. All right. Thank you.

I get bored sometimes.

We’ll go next to David Carlson with KeyBanc.

Hey, thank you. Hey I was wondering if you guys could discuss any changes in the menu or new menu items that you might have or may be plans for new menu item this year, just trying to really gage the opportunity for check growth as we move through 2015?

Yeah. This is Kent again. We’ve got no specific. We always have a few items in test and maybe 10 to 15 stores. But nothing at this point that we’re ready to roll.

Okay. And then one follow-up on the Bubba’s 33 looking at the economics from the partner standpoint, does it require the same or similar equity investment from the partner? And is there share in the operating profit of the restaurant similar to what is in Texas Roadhouse?

Identical and it’s Kent again. It’s identical to Texas Roadhouse.

Okay. Thank you guys.

We’ll go next to John Glass with Morgan Stanley.

Thanks. Just a couple of follow-ups, one is what is -- what is your current thinking in the outlook for the beef market, right? I mean it seems like you are holding out at some point for getting this relief and every year it seems to be a little bit further out? Do you think ‘16 from what you know now is that year yet or is it as we push to that ones again?

Hey, John. This is Scott. Great question. It just seemed recently in the last month for the first time we’ve seen a few reports come out, with some claims that maybe add-on some stage of the process is up 1% or 2% versus down 3% or 4% or 5% or 6%. So maybe that’s the start of our sizes beginning to be rebuilt. But I think we’d like to see a lot more on that front. If that continues, maybe 2016, we start to see some relief and we’re hopeful of that. Well, I think like it sounds like you feel, we believe it when we see it.

And so none of your discussion with your vendors in ‘15 lead you to believe that only the pricing gets embedded this year though, was that correct?

I think we’re feeling more of our discussions. There are still a lot of pressure out there.

And then just one more on the margins. I mean, when you talked about the mid single digit to lever your margins, you’re talking about the operating margin in the business as I look at your operating margins, they been on the down trend, modest down trend over the last several years and your comp have been mid single digit? So I mean, what would bend that? Why would that not be the case in ‘15 beyond, given that everything you said? Are you saying mid-single digits is maybe north of five when you’ve been on a annualize basis less than five or I’m sure, square mid-single digits of what we’ve seen and historically we see margins go down?

Well, we’ve got a little bit less inflation with like food inflation of only 3% to 4%, some years I think we had 6% or 7% food inflation. So that’s a pretty big difference. Beef would be one thing. We’ve got pricing of 1.8%. For the most part, it seems like its sticking whereas some years we might have had because of negative mix, we might have had lower check growth because of that. And certainly, its been a uphill battle just for last five or six years just getting beef going from something like $0.90 a pound to $1.70 at one point earlier this year again and last year. So it’s just been really challenging for us on the margin side. And hopefully we’re hitting the lower ends of our margin range as a percent of sales that where we are now and hopefully we’re ready to start moving up a little bit.

Got you. All right. Thank you.

We’ll go next to John Ivankoe with JPMorgan. Please go ahead.

Hi, Kent. How are you? At this point, I think just for me. The question is on new unit volumes. And I think it’s really been sense the second half of ‘13 at least for your newest stores which continued all throughout 2014 that you’ve really had some great store openings and maybe some of that is New York and the Alaska stores and maybe some of that Bubba 33 as well that sounds like it has some higher average unit volumes in the overall concept. But just looking for kind of a little bit more color as the average unit volumes have been moving up, yes they’ve been moving up investment cost but they have been moving up. And if it’s possible to give an outlook into ‘15 if you expect, new unit volumes to continue to increase?

Hey, John. This is Scott. I mean, absolutely we’re expecting continued progress on the new unit front. When we look at how our stores are opening out of the gate, they continue to do a little bit better each year. Again our guest gets little bit higher each year. We are typically building a restaurant a little bit bigger and we did five years ago, the few more tables and seats in those restaurants, progress driven by just the success of the bump-out program, knowing that we can handle the seats and the tables in our restaurants. We’ve been for a long time now we’ve been -- we hire people very early in the process, new managing partners, management teams and a lot of exposure to the business as we are one of the higher volume transactional volume concepts, which a lot of folks just take some getting use to deal that kind of volume. And we help people like some of our training staff in our restaurant longer after we open to help deal us with the huge honeymoon that we had out of the gate. So we’re hopeful that trend continues and we had a smaller gap between our newest stores and the stores in our same-store base like we’ve seen for the past four quarters.

And just a follow-up on that, I mean, is there any sensitivity that the new stores since they do open so well, maybe don’t contribute to the comp base as much as they may have in previous years?

I mean, when they hit their 18 months to get in the comp base.

Yes. I mean, just because the volumes are higher relative to the average or does that -- that you -- you don't think that matters?

I don’t think that matters and I think, they’re just as each last year, because we have an increase aside with the last year that much, certainly in the last couple years, not all. As a percentage, is the smaller percentage of the same-store sales grew. So that definition has less of an impact.

Okay. All right. Thank you.

The next to Billy Sherrill with Stephens Incorporated.

Yeah. Thanks, guys, and congrats again on another quarter. I think, most of my had been answered. If I could real quick on beef cost again, not as a cost as a percent of, excuse me, as a percent of sales? I believe part of your total baskets roughly 40%, cut it if I’m wrong? I was -- really the check growth was small part of the comp, but are you seeing any discernible trend as far as people spending extra money in their pockets by trending up to more expensive items on your menu, perhaps someone was ordering chicken is now ordering steak or -- I would dig at the rib and I’ll get the flay? Just trying to get on has that percent of -- has beef as a percent of COGS changed at all?

Beef hasn’t change as a percent of COGS but we have been very successful in some of the larger steaks we’ve introduced over the last few year, just they are bone-in ribeye has done very well, continued to do very well. We’ve actually got the bone-in ribeye on more pictures in on our menu and that there is paint on the right hand side of the menu, we have added bone-in ribeye to more of those pictures. And so we’re selling more of those and some more combos as well, few more combos as well on the menu. So that’s all helping. Other than that our fee mix has been traditionally pretty consistent overtime, part of that is because we don’t do a lot of LTOs when a time offers or do buying a stuff like that and by its nature, our fee mix is relatively has been very consistent.

Great. Thanks, guys.

And we’ll go next to Paul Westra with Stifel.

Great. Thanks. Good afternoon. Just a couple of follow-up questions, first on, pricing of 1.8%, where did you take that and maybe if you were going to revisit additional pricing when might that be go through 2015?

The 1.8% pricing back in December, Paul, that was in many items on the menu. However, we’re still very protective of some of the lowest items on our menu, especially our 6 ounce Sirloin item which is still $9.99 and just about everywhere in the country and it still remains a great value for us.

Any geographic taking more or less to mention in a way to extra expenses?

Yeah. We do take a little bit more in the states that have higher wage increases. Just to cover the labor.

Some of that still depends on what the market partners, the operators want to do, I mean, we can’t still has a call with each one of our market partners. And get their feedback and listen to that feedback, because some of them are more comfortable as they’re taking a little bit more price some, rather take less price and are betting they can drive more traffic in the store. So just that simple example I gave you sometime it is a big part of our success in growing sales because our guys in our stores really own it and their voice is absolutely heard into business.

Great. And then your question get solved, looks like you kept it pretty much inline that what you total before, was there any changes as beef a little bit worst, something is little bit better or is it pretty much as you expected from your last guidance?

Not really.

Pretty much as expected.

Great. And then lastly, you had a 500 basis point top here and your comp here in the first quarter of ‘15, maybe one question to ask that help the consumer. Is that 500 basis point bump up, is that evenly balanced between traffic and check maybe or is it going to be more favorable the traffic inside? I know there are people spending a little bit more here in January?

Yeah. Paul, we really don’t break out those interim comps into traffic and we don’t get into the traffic and check makeup of those comp.

Yeah.

We only got 1.8% pricing in the menu so and we told you our mixed hasn’t changed very much so.

Yeah.

There you go. Okay. Congrats.

And there are no further questions at this time. I’d like to turn the conference over to management for any additional and/or closing remarks.

Well, thank you all very, very much for listening. We feel very fortunate to have had such a nice sales run in our business. And obviously, our challenge is to continue to keep it going, continue to lap, first quarter will be tougher comps second half of the year. And operators keep doing it. So, again, good thanks to our operators make it happen everyday for us. So, thank you all and talk you next quarter.