Good day and welcome to the Texas Roadhouse Incorporated First Quarter 2015 Earnings Conference Call. Today’s call 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 CFO. Please go ahead, sir.

Thank you, Melissa, and good evening everybody. By now, you should have access to our earnings release for the first quarter ended March 31, 2015. It may also be found on our website at texasroadhouse.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC for a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures. Reconciliations of the non-GAAP measures to the GAAP information can be found under the Investors section of our website. On the call, with me today is our Founder and CEO, Mr. Kent Taylor; and Tonya Robinson, our Senior Director of Financial Reporting and Investor Relations. Following our remarks, we will open the call for questions. Now, I’d like to turn the call over to Kent.

Thanks, Scott. We’re pleased that the sales momentum we discussed in our last quarterly call has continued to the first quarter and into April. First quarter comps increased 8.9% and the first four weeks of the second quarter has started off very strong as well with comps up 8.4%. Increased traffic has been the main driver, which we believe as a result of our continued focus of offering our guests legendary food and legendary service at a decent price. Our operators have done a groovy job in the face of continued commodity pressure and I want to thank them big time for taking some serious– but on the development front, we have opened six company restaurants so far this year including one Bubba's 33 restaurant. The remainder of our 2015 pipeline is in great shape with 17 restaurants currently under construction and it’s expected to be open by the end of September. At this time, we are set to hit a high end of our range of 25 to 30 company restaurants openings for 2015. We also expect our franchise partners to open four to six restaurants this year. In closing, I want to congratulate Pat Ryan of Thornton, Colorado for being named our 2014 Managing Partner of the Year at our recent conference, Arizona. Pat’s win was very well deserved. As always has been great to be together with all of our operators to celebrating our another successful year. Now, Tonya will provide the financial update.

Thanks, Kent. For the first quarter of 2015 net income increased 23% over the prior year to $32.3 million, or $0.46 per diluted share. Overall revenue growth of 15.9%, along with lower G&A and pre-opening costs more than offset the impact of higher food cost inflation. Revenue growth during the first quarter was driven by a 9% increase in average unit volumes along with 7.4% increase in store week. For the quarter, comp sales increased 8.9% comprised of 6.9% traffic growth and 2% increase in average check. By months comparable sales increased 14.8%, 6.5%, and 6.6% for our January, February and March periods, respectively. We did have some positive benefit in January due to this New Year’s Eve calendar shift and as Kent mentioned comps were up 8.4% in April. Restaurant operating profit increased 14.6% or $11 million for the quarter compared to the prior year. This was slightly below our sales growth as restaurant level margins decreased 20 basis points. While strong average unit volume growth during the quarter more than offset the impact of higher healthcare costs in wage rate inflation, food cost inflation of 5.2% outpaced our pricing action. Looking ahead, our full-year expectation for food cost inflation remains the same at 3% to 4% primarily driven by beef. We currently anticipate that we will have our highest inflation of the year in the second quarter, implying lower inflation in the back half of the year to hit the mid-point of our full year range. Below restaurant margins G&A costs were $21.8 million, up $1.6 million versus last year. $1 million of the increase in the quarter was due to higher share based compensation cost related to the renewal of our officer and board contract at the beginning of 2015. As a percentage of revenue, G&A decreased…

Thank you, Tonya. We’re very encouraged by our current sales momentum and with 20 straight quarters of traffic growth, we believe our disciplined focus on sales and the consistency of our food quality and guest experience will continue to drive success. If you want to point out, I will start lapping higher comps in the back half of the year, which could make it more difficult to maintain the comp levels we’ve seen so far this year. Our new stores continue to perform well and we’re pleased with the returns we are seeing. Solid sales growth at existing restaurants along with solid performance at our new restaurants helped us to generate over $24 million of free cash flow during the first quarter, giving us more flexibility to enhance shareholder returns in the future. As Kent mentioned, we recently returned from our annual managing partner conference in Phoenix. We have great time with our operators and our vendor partners celebrating our 2014 accomplishments and our culture of partnership. I’d like to add-on to Kent’s congratulations to Pat Ryan, our 2014 Managing Partner of the Year and also give a big shout-out to our National Meat Cutter Champion, Alex Marroquin of Bedford, Texas. Congratulations Alex. And with that, Melissa, please open the line for questions.

Thank you. [Operator Instructions] And our first question will comes from Joseph Buckley with Bank of America.

Hi, thank you, two questions obviously very, very strong same-store sales and most of the traffic. Are you seeing anything noteworthy in the way consumers are spending within the restaurants in terms of mix of mix or alcohol or side items or anything of that sort that would suggest maybe a little better consumer spending environment?

Yes, this is Kent. No real change in our sales mix.

Okay. And then…

And the same items as they were before.

And then just one more question just on labor. Could you just talk about wage rate inflation sort of what you’re seeing or is there any signs of that beginning to pickup as well?

Right now, we continue to see about 1.5% to 2% kind of in the range of what we’re expecting. So we haven’t seen anything more than what we’ve expected to probably this year?

Okay, thank you, Scott.

Joe, this is Scott. I’d add one more thing to that. I mean there’s no doubt. We’re seeing an inflation pickup a little bit. We’ve seen our turnover pickup a little bit as well. Things that we would expect to see with unemployment continuing to tick down. And I think unemployment by itself is probably one of the biggest drivers of sales in our industry, just by having that benefit very highly correlated to our sales momentum over the years, to the good or to the bad and right now of course it is to the good as we’ve seen unemployment continues to drop.

Okay, thank you.

And next we’ll go to John Glass with Morgan Stanley.

Thanks very much. If I can just first follow up on the wage question, your labor dollars per store grew like something like 7% this quarter and you’re seeing the underlying wage inflations less than that. So is it right to assume that that increases the variable cost associated with better comp or is there some other element? What am I trying to answer the question of is comps were to decelerate, would you expect labor cost per store to decelerate? Or is that more of a structural increase you’re seeing in the first quarter?

I would say we do have the $5 million to $6 million of additional healthcare costs that we mentioned on the last call. So on top of that 1.5% to 2% wage inflation that healthcare probably takes it up to 3% overall from an inflation standpoint on a full year basis.

Okay. And then just remind us does that healthcare carry through to the balance of the – when did – is that something you would lap or is that something that’s with you the whole year?

It will be with us the whole year. It’s going to be incurred pretty evenly over the course of the year.

So, John, two years ago, we went to 35 hours and up in offering healthcare and then this year we went to 30 hours and up. And so, it was another step on top of the step from the prior year.

That’s helpful.

That’s why we have it throughout the whole entire year.

Got it and I will appreciate your reminder. And then just on food inflation last quarter was supposed, this quarter – the first quarter was supposed to be the peak and then it was supposed to get better, now the second quarter is the peak. Is there – what’s the difference in that, and where there as things that are – or there things – or things like beef or anything else you haven’t contracted, more inflationary that you expected or how do you explain that?

Well, I think we typically see Q2 as being the – as the highest inflationary quarter of the year. That’s didn’t happen last year, it was a little counter seasonal or counter cyclical if you will. And we actually saw a higher in Q3 and Q4. We feel – we expect to kind of return to the normal trend that we’ve seen before where Q2 is the highest level of – or inflation for the year and that’s driven by beef.

Okay, thank you.

We’ll now take a question from Jeffrey Bernstein with Barclays.

Great, thank you very much, two questions. One is just a follow-up on that. When you think about beef, I think you guys are now refraining from sharing maybe what percentage is locked versus floating. But if not case, we only love to know what percentage is locked versus floating. But otherwise what are you hearing from your suppliers in terms of the outlook going into next year? It seems like we’re hearing from some that confidence is building, you could actually see whether its inflation neutralize or actually turned favorable year-on-year when you look into 2016, I mean what are you hearing thus far?

Jeff, this is Scott. I would tell you that at the end of the day, we really don’t know. So there are so many variables that go into the price per beef well beyond just sort of corn and supply of cattle that we don’t know – we don’t think it will be substantially or prices will be substantially higher than this year. But of course, we’ve all wanted to be able to know we’re going to get relief in pricing. And we’re still hopeful that eventually and the keyword is eventually, there will be relief in cattle prices and certainly some of that will be supported by continued lower corn, some of that will be supported hopefully an eventual pick up in cattle supplies, but there are other factors. And so we really don’t have a level of confidence to tell you one direction to the other, what we think prices will do in 2016 or 2017 for that matter.

Okay, I appreciate that. And then separately just in terms of the company franchise balance here, I am just wondering whether there is interest in buying in units from franchises or I guess the other way round whether there’s – potential thought to sell some stores to franchises or is that just opportunistic and there is no really key directional strategy one way or the other?

We’re very much in operations driving company at Texas Roadhouse. We like to run restaurants here and we love our franchises. And as you’ve have noticed we have got plenty of money in the bank. We would like to buy some of our franchisees out as however a lot of our franchisees are very much enjoying being a part of Texas Roadhouse and doing a great job. And so we’re really comfortable where we’re at, but any such change in that will be very opportunistic in nature.

Got it. Lastly and there was a lot of – positive commentary last quarter on Bubba's. Any change in trend there? Or it seems like results are still exceeding expectation?

This is Kent. Results are still very appealing. However, we still only have four restaurants opened. So I would say by the next quarter, we’ll open three more before our next quarterly report, I think we’ll have more information at that point.

Great, thank you.

And next we’ll go to David Palmer with RBC Capital Market.

Thanks. A question on throughput your dinner hour sales productivity has to be darn near the industry peak. And you had cushioned it 7% traffic growth number. Were you doing anything, were you focusing on any particular throughput initiatives during the quarter and in this year and does it concern you that – where you're getting to on sales productivity, particularly at the dinner hour, being able to keep this up?

This is Kent and I think Scott might tag in behind, but we've got stores that do a lot more than our average. So I mean we've got stores over 5 million. So I think we've got a lot more room in the building for productivity as far as why the comps are so great. I'm not going to question them. I'm just hoping they keep going.

There's no doubt it's something that we talk about, yet our highest volume restaurants continue to grow traffic as good or better than our middle volume or even our lower volume restaurants. One of the things we do – certainly we've added seats to a lot of our restaurants and certainly it helps when you add seats, but a lot of our restaurants where they may be hitting a theoretical capacity on a Friday or Saturday, they seem to be able to push the waits out into Sunday and Thursday and Wednesday, and some stores Monday and Tuesday. So it's just pretty remarkable. And as Kent said, we kind of just get out of the way and let them do their thing and they continue to find ways to increase the productivity within their four walls.

In the last year, we’ve had a bit of focus on reducing the amount of time that a table sits empty after somebody leaves and we receipt somebody, so that might be a part of it.

And then just a follow-up on Bubba's 33, are there any early learnings about how that brand interacts with Texas Roadhouse. I assume that you designed it to occupy a different space in terms of the choice set. But have you found any impaction or interaction with the two brands cannibalization?

No, I will tell you that in all four of the current restaurants, we’re within typically a mile at the most, two miles from a Texas Roadhouse and we've not seen any negative sales associated with an opening of a Bubba's with a Texas Roadhouse. And the next three restaurants are all three within a quarter mile of a Texas Roadhouse, so we'll know more then.

Thank you.

[Operator Instructions] And our next question will come from Will Slabaugh with Stephens Incorporated.

Hi, guys. Can you walk us through how the quarter played out? If I want – if you would – it didn't seem like you guys saw the deceleration in the quarter or the quarter [Indiscernible] for that matter that most did. So I'm just curious if there were any differences geographically or anything else you might be able to call out regarding weather et cetera or whatever may have played out during the quarter?

Yes, I mean – the January sales were 14.7% and we did see a benefit there of about 3%, 3.5% within benefit from the New Year's Eve shift on the month of January. And then rolling into February sales were 6.5%, March was 6.6%. Really nothing in those months and I would call. I think overall you know January might have seen some negative weather, but overall for the quarter we really don't feel like there was any weather there to mention one way or the other.

Got it, thanks. And just one quick follow-up if I could on pricing. Where were you in this quarter on pricing and what are your plans for the remainder of the year?

Well, I can tell that you we were at 1.8% on pricing which is what we took in early December of 2014. And that's where we expect to be at least through December of 2015.

Got it, thanks Tonya.

And next we’ll go to [indiscernible] with Robert W Baird.

Hi, good afternoon. Thanks for taking the question. Just in terms of the same-store sales outlook, obviously a lot of difficult comparisons coming up here. So how should we maybe think about holding the two year trend line that you saw in April or maybe what's the best way to kind of frame up how to think about the comp as we enter the back half of the year?

This is Scott. You know sometimes looking at two year comparisons is good, sometimes looking at three year comparisons is good, sometimes neither one are good. So, it really – no two months are the same. What I mean by that is life changes, unemployment changes, gas prices change. What competitors do changes, the environment just changes? And so our system, our partnership based system that rewards our operators based on the profitability of their restaurant certainly encourages them to find ways to continue to grow sales and grow traffic specifically. And our prices are going to be very competitive. We’re very much on offense with regards to taking care of the guests, I mean, very active in our community. So I think we’ve got a great opportunity to certainly lap some of these tougher numbers, but whether it’s more tied with two year or three year number that’s anybody’s guess.

Thanks. And in terms of the restaurant level margin outlook, I think before you had mentioned, you think you needed a mid single-digit comp to be able to hold the margin percentage flat year-over-year. Is there anything in terms of the inflation outlook that’s changed that would you think – that would made you to think that that mid single-digit comp is any different than before?

No, Sam. This is Tonya. I don’t think so. We’re still comfortable with our 3% to 4% inflation guidance. So that’s really the biggest variable, if you will. So I think we would still say that’s true on the mid single comp for flat margins.

Thanks. And then maybe lastly, just really quickly how are you thinking about G&A for the whole year? And is that a line you think you can get leverage on for the full-year 2015?

I think on G&A, I think it could be tough to get leverage. We will have about an additional $4 million in costs on that line. We saw about $1 million of it this quarter related to the additional RSU expense I mentioned. A lot is going to depend on traffic. We think it could leverage on that line this quarter, a lot of that was driven by the higher average unit volume. And also we did some timing of expenses and things like that kind of also helped out a little bit. But I think there really isn’t anything significantly different the rest of the year. A lot of just depend on comps and on personnel salaries and things like that as we continue throughout the year.

So this is Scott. Certainly the strong start to the year helps a lot with our ability to leverage G&A for the whole entire year. So certainly with the kind of comps and sales we’ve had for the first quarter that goes a long way toward getting us there for sure.

Great, thank you.

And next, we’ll take the question from Keith Siegner with UBS.

Thanks. Scott, If I could ask question about same-store margin dollars. And how that’s trending obviously there is a lot of cost pressures but great, same stores sales as well. When these guys are running these boxes what are same-store margin dollars looking like year-over-year?

I don’t have that in front of me, let’s see here. Margins for store week, well they were up, looks like they were up about 7% for the first quarter. So despite pretty high food inflation, pretty good increase in their compensation.

So if I sit back and think about that, right, if you – 7% increase in same-store margin dollars year-over-year, the business is going really well, everybody is happy. It seems to me like those guys wouldn’t be too concerned about whether or not they need to really add more pricing to the mix now. Would that be somewhat a safe assumption?

Sure. It would be less likely to be overly concerned about price. Certainly, you have variations on that. What I mean but that is minimum wage related. So the guys are in certain stage where maybe they’re making minimum wage changes might be feeling a little more pain than other folks, so it does vary. But yes no doubt, they’re pretty happy right now. But again we had a pretty good quarter with traffic being a pretty high number for this first quarter and things could change second half of the year. And in second half of the year, margins are certainly – the margins per store week, the dollars per store week get a little tighter.

Right.

You might have guys having more pricing conversations.

Okay, thanks a lot.

Our next question comes from John Ivankoe with JPMorgan.

Hi, thank you. New unit volumes were obviously very strong in 2014 and continue to be strong in the first quarter of 2015. So I guess some variability around the same-store sales. What’s kind of the multi-year outlook of sustaining that new unit volumes in other words I mean when you kind of look at the development pipeline over the next couple of years, are the sites that you’re seeing have the same kind of volume potential of what you’ve done in the past couple of years in relative to the average. And I guess I’ve got to ask this maybe a little bit in the context of I think something that I’ve heard from you in the past that the second 400 units that you open might not be as highly profitable, it may be from a sales perspective or an ROI perspective as the first 400 units. Considering what the current trends are is there any kind of re-thinking of that logic?

This is Kent and I think Scott will tag on. But I’m the one that approves the sites and I’m already getting close to the end of 2016 and I’m still seeing some pretty nice sites out there. So I’m not too worried at least in the next two years after that we’ll see.

John, this is Scott. I would say a couple of things. One is when we’re doing our models, our financial models on these – we definitely take a more conservative approach on the sales. We don’t have a lot of wishful thinking, at least the financial people on the sales of these restaurants because we do believe the second 400 would probably be tougher than the first 400. That said, we may have a little bit of an advantage over – may be some of those have gone before us just because we’re not doing that many relative to what we could be doing. So I think we talked about this many times where we might open – or we’ve said 25 to 30 restaurants this year and a handful of those will be Bubba. So let’s figure 25 Roadhouses, we could be doing 50 financially, but we consciously choose not to – one of those is not outgrow our people. Our supply of great talented people, but the other part is just making better real estate decisions and we continue to hope that that strategy continues to pay off for us and we’re just more careful about where we’re going to spend the money.

Thank you.

[Operator Instructions] And next we go to Andrew Strelzik with BMO Capital Markets.

Hey, good afternoon everyone.

Good afternoon.

If I could just ask about the other operating cost line on a per-store basis it’s the biggest step up or it was at the highest level that we’ve seen in several years. So I’m just wondering what is driving that and should we expect that same level of increase going forward?

Hi, Andrew, it’s Tonya. I would tell you that we did get a lot of benefit from the higher average unit volumes this quarter, but with that said – and we also saw some lower utility cost too. But with that said I would tell you gift card fees were up year-over-year. We continue to see – sell more gift cards in Q4. We continue to see a lot of redemptions in Q1. So we continue to see higher gift card fees. And then also I would tell you that things such as bonus, credit card fees, things like that with higher comps – those are a little more variable expenses. So we are going to see those go up pretty substantially when we have comps like we do. So those are just a few of the things that I can think of off the top of my head.

Okay, that’s helpful. And I was also wondering if you could talk about the pace of unit openings for the year, but first quarter was a little bit lighter than I would have thought. So I just wondering what the rest of the year look like in terms of pacing?

Well, I think Kent mentioned we do have 17 right now, 17 units that are under construction. We expect those to open by the end of September. And then to get to that 25 to 30 range, you can kind of back into what Q4 looks like, but I think right now we feel like we’re set up to kind of hit the high end of that range on a full year basis.

Okay, great. Thank you.

And at this time I show no further questions in the queue and I would like to turn the conference the…

I see one from Joe Wang with Fortune 50 Investments. He just kicked off, sorry never mind.

No problem.

Operator, go ahead.

That’s Okay. I’ll turn the conference back over to the management team for any additional or closing remarks.

I just want to thank everyone for being on the call this evening and we look forward to talking to you soon. Thanks a lot.

Thanks a lot.