Texas Roadhouse, Inc. (TXRH) Q3 2015 Earnings Report, Transcript and Summary

Good evening and welcome to the Texas Roadhouse Third 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. I would now like to introduce Scott Colosi, President and Chief Financial Officer. You may begin your conference. Scott Matthew Colosi - President & Chief Financial Officer: Thank you, Don, and good evening, everybody. And by now, you should have access to our earnings release for the third quarter ended September 29, 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. If applicable, 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 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. Wayne Kent Taylor - Chairman & Chief Executive Officer: Thanks, Scott, and good evening, everyone. We are pleased to report another solid quarter, highlighted by double-digit revenue growth, driven by increasing guest counts and strong operating week growth. Comps in the third quarter were up 6.9%, including traffic growth of 5.2%. Our strong sales momentum has continued into the fourth quarter, with comps increasing approximately 5% in October. While we are pleased with our current momentum, we do not take our success for granted. Our operators continue to challenge themselves to raise the bar on legendary food and legendary service. We believe our commitment to this principle, as well as our value proposition, is reflected in the strength of our comparable sales growth. Looking ahead at 2016, we currently expect low single-digit food cost deflation, with a D. This is a welcome news after battling high food cost inflation for the last several years. On the other hand, the overall labor market continues to show signs of tightening, and we expect ongoing labor inflation into 2016. Given this outlook, we plan to take approximately 1.7% of pricing in mid-November. With this pricing action and the overall momentum of the business, we expect positive comparable sales growth to continue in 2016. On the development front, we remain on track to open approximately 30 company restaurants in 2015, with 27 restaurants opened so far this year, which includes five since the end of the third quarter. Our franchise partners have opened three restaurants this year, including our third restaurant in Kuwait, which opened last week. We continue to target 25 to 30 restaurant openings in 2016, and sites have been selected for almost all these locations. Our development growth next year will continue to be focused on Texas Roadhouse restaurants, however, we currently expect to open at least five Bubba's 33 restaurants next year. Finally, I want to thank all of our operators for continuing to do a great job taking care of our guests and building sales. It was great to see all of you all over the last several weeks during the annual fall tour. In short, happy Roadies plus consistent food quality ensures positive results. Booyah! Now I'll turn it over to Tonya.

Thanks, Kent, and good evening, everyone. For the third quarter of 2015, we earned $20.5 million or $0.29 per diluted share, which is an 8% increase over the prior year. Revenue growth of 13.7% during the quarter was driven by a 6.6% increase in average unit volume and a 7.7% increase in store weeks. For the quarter, comp sales increased 6.9%, comprised of 5.2% traffic growth and a 1.7% increase in average check. By month, comparable sales increased 7.6%, 7.1%, and 6.1% for our July, August and September periods, respectively. As Kent mentioned, comps were up approximately 5% in the October period. While we are pleased with our fourth quarter comparable sales increase to-date, we do expect comps during the quarter to be negatively affected by approximately 0.5 point due to Christmas shifting from Thursday to Friday. Restaurant operating profit increased 12.1% or $7.8 million for the quarter compared to the prior year, and restaurant margin dollars per store week were up 4.1% in the quarter. Restaurant margin percent decreased 22 basis points. Cost of sales as a percentage of restaurant sales were up six basis points versus last year, as food inflation continued to outpace our menu pricing actions. For the quarter, our food cost inflation was approximately 3.4%, driven by beef, bringing the year-to-date increase to approximately 6%. For the full-year 2015, we currently expect food cost inflation of approximately 5%. Labor cost as a percentage of restaurant sales were 32 basis points higher versus last year, driven by wage rate inflation and higher healthcare cost, which more than offset growth in average unit volume. We expect wage rate inflation to continue to be in the 2.5% to 3% range for the remainder of the year and into 2016. While we continue to gain leverage on the other operating cost lines, higher general liability insurance caused the leverage this quarter to be a little lower than the first half of the year. On a year-to-date basis, restaurant operating profit increased 9.9% compared to the prior year, while restaurant margin dollars per store week were up 2.2%. Below (6:43) restaurant margins, depreciation expense increased $2.7 million in the quarter versus last year, and increased 14 basis points as a percentage of revenue, to 4.1%. We continue to expect our full year depreciation expense margin to be higher year-over-year in 2015 due to an increase in our capitalized cost last year on new restaurants as well as an increase in the level of reinvestment in existing assets. G&A costs were up $2.5 million in the quarter and were essentially flat as a percentage of revenue versus the same period last year. Higher share-based compensation expense mostly offset the benefit from average unit volume growth. Pre-opening costs increased $1.8 million on a year-over-year basis, primarily due to opening 10 company restaurants this quarter, compared to only three in the prior-year period. Our tax rate for the quarter came in at 29.9% which was lower than the 31.4% rate last year due to higher FICA tip credits. Year-to-date, our tax rate is 30.2% and we expect our full year rate to be between 30% and 30.5% depending on the reinstatement of the work opportunity tax credit in the fourth quarter. It is worth mentioning that our tax rate in the fourth quarter of last year benefited from the reinstatement of WOTC for full year 2014. Moving to the balance sheet and cash flow statement, we ended the quarter with $72.6 million in cash and $70.7 million in debt. Our debt level was $20 million higher than at the end of the second quarter while our cash balance increased by $1.7 million. During the quarter, in addition to borrowing $20 million on our credit facility, we generated $35.1 million in cash flow from operations, spent $52.3 million on capital expenditures and $1.6 million on share repurchases. We expect to repay the $20 million borrowing in the fourth quarter. We updated our guidance on 2015 capital expenditures to approximately $160 million, primarily driven by spending on future planned openings. Finally, I'll give a little more color on our initial expectations for 2016 which were included in the press release. As Kent mentioned, we are targeting 25 to 30 company openings including at least five Bubba's 33 restaurants, and we expect to continue drive positive comparable restaurant sales with pricing actions of 1.7% in mid-November. On the cost side, we currently have prices locked on approximately 75% of our beef needs for next year. We have also begun locking prices on other items in our commodity basket. As a result, we expect low single-digit food cost deflation in 2016. In regards to labor, we expect headwinds to continue due to ongoing wage inflation, along with state minimum and tipped wage rate increases. Additionally, we expect significant free cash flow generation, even after projected capital expenditures of $155 million to $165 million. Accordingly, we plan to continue returning capital to our shareholders through dividends and ongoing share repurchases. Now, I'll turn the call over to Scott for final comments. Scott Matthew Colosi - President & Chief Financial Officer: Thank you, Tonya. We're excited about the momentum we have in our business, particularly on the sales front. And after several years of significant beef inflation, we also look forward to expecting easing of prices in 2016. However, growing labor inflation remains a challenge for next year. And like most in the restaurant industry, we are seeing minimum wage increases in certain states, and that is on top of a more competitive wage rate marketplace in general. Kent and I just spent three weeks meeting with all of managing partners, and many were commenting on how wage rate competition has been intensifying, and this is a big reason why we are moving forward with a price increase in November, despite a softening commodity environment. On the development side, along with the 25 to 30 company openings planned in 2016, we expect our franchise partners to open as many as 6 restaurants next year, mostly internationally, including our first restaurant in the Philippines in early 2016. Our new unit growth has remained steady with 2015 being our fourth straight year of at least 25 openings. We are maintaining a lot of discipline around new unit growth and will remain vigilant on achieving our return targets. In addition, we continue to invest in remodeling our stores and believe this has played a key role in our sales success. In 2016, we'll remain focused on returning capital to our shareholders in the form of dividends and share buybacks and protecting the strength and flexibility of our balance sheet. And before I close, like Kent, I want to send a shout-out to all of operators. You all continue to do an amazing job of balancing the pressures of commodity and labor inflation by delivering a legendary experience to our guests. As Kent mentioned, it was great seeing so many of you on our recent fall tour. That concludes our prepared remarks. So, Don, please open the line for questions.

Thank you. We'll take our first question from Brett Levy with Deutsche Bank.

Good afternoon, everyone. If you could provide me a little bit more color on what kind of progress you're seeing at Bubba's, and what are you seeing in terms of your per-unit build-out costs right now? And then just one last question on that. How many bump-outs have we had in 2015? What's the remaining plan? And what does 2016 look like? Thank you. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. I'll let Scott take care of the bump-outs, and then I'll jump in on the Bubba's. Scott Matthew Colosi - President & Chief Financial Officer: We've had 11 bump outs completed so far this year and we've probably got 30 to 40 more that are planned over the next 15 months or so. Wayne Kent Taylor - Chairman & Chief Executive Officer: And on the Bubba's front, we're still trying to figure everything out. We're very pleased with the performance so far, but yet a lot of the stores are not even six months old. So you really want to kind of wait and let them get a year old before you can kind of figure out what the run rate might be. But the costs are a little bit higher than Texas Roadhouse, but believe it or not, our returns are slightly better at this point. But again, it's only seven stores.

And just the build-out costs on the traditional Texas Roadhouse? What are you seeing there?

Those look like they're still coming in as expected, around $4.7 million. Scott Matthew Colosi - President & Chief Financial Officer: That's with all costs and equipment, furniture, pre-opening expenses, training, all that stuff.

Thank you.

We'll take our next question from Will Slabaugh with Stephens, Incorporated.

Yeah. Thanks, guys. I wanted to ask about beef. And I think I heard you right that you mentioned you've locked in 75% for next year. So I'm curious if that lock is going to play out fairly evenly throughout the quarters next year, or is there some sort of way that may influence the level of deflation we see throughout the year?

As far as the beef is concerned, it is pretty evenly spread across the year. Now just given the play on inflation, by quarter, across the year, you could see a little bit of deflation in Q1 just because we're lapping some lower costs from Q1 last year. And then, again, Q2 the beef costs were really high in Q2 this year. That probably will be the highest quarter of deflation for us next year. But other than that the 75% beef needs are pretty well spread across the whole year.

Got it. Thank you. And a quick follow-up, if I could, on just what you saw on the quarter-to-date period. A lot of your peers called out choppiness in October. So I'm just curious, since your numbers didn't reflect that if you saw anything geographically that was different one way or the other from previous trends?

Well, there isn't anything I would say that we call out specifically. I'm sure there could have – I don't even know the numbers right off the top of my head. There could have been some choppiness. But it wasn't anything that jumped out at us. Wayne Kent Taylor - Chairman & Chief Executive Officer: With Halloween being on a weekend this year, we'll see a little softening in that specific week only.

Got it. Thank you, guys.

We'll go next to Brian Bittner with Oppenheimer. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Thanks. Hey, guys. You've got a pretty good vision into your food costs and your labor costs, which obviously are going in different directions here in 2016. And you talked about the price increase. With that coming, I just want to gauge, how do you feel about your ability to expand those four-wall margins in 2016 at the restaurant level, given all those dynamics? Any color on that would be helpful. And I have a follow-up. Scott Matthew Colosi - President & Chief Financial Officer: Hey, Brian. This is Scott. I would tell you that we feel a lot more confident, certainly than we have for the last five years, on the ability to expand margins next year. Any time we have a little bit of food cost deflation like we're expecting, we get a lot more confident. Yet labor will be a challenge next year, but only time will tell how much inflation we're going to have, just based on tightening of the overall labor market. But we're fairly confident. We think we can get some of the margin back that we've given up the last few years. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. And also, within your overall guidance for the food costs to be down low single-digits, assuming (16:38) for just the beef piece? And do you think that this is potentially the beginning of a multi-year cycle, because you probably have a little bit better vision into that than we do? Scott Matthew Colosi - President & Chief Financial Officer: We don't know the answer to that. Certainly it could be, and we're hopeful that it will be, after so many years of inflation, whether it be corn-driven, drought-driven. Wayne Kent Taylor - Chairman & Chief Executive Officer: Or the herd size... Scott Matthew Colosi - President & Chief Financial Officer: Herd-size driven. A lot of things have changed over the last five years to a more favorable way. So we're hoping it's just the start, but we won't really know, obviously, until we're talking again this time next year, maybe well into next year. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. Just the beef piece within that overall food cost? Are you able to say what you're assuming for just the beef piece? Scott Matthew Colosi - President & Chief Financial Officer: No. Just for competitive reasons, we're going to keep that one close to the vest. But obviously, beef is the biggest driver of whatever we tell you our food cost inflation or deflation is going to be. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. Thanks, guys.

We'll go next to Keith Siegner with UBS.

Thanks. First a question on the remodel. Tonya, I don't know if you have – how much of the CapEx is actually being put towards investing in the existing restaurants. And maybe if you could talk about, is there anything specific you're doing, is it just general maintenance? Are you doing like wholesale remodels on any of them? Just some breakdown of that CapEx on that, and maybe how that might trend into next year, please? Thanks. Scott Matthew Colosi - President & Chief Financial Officer: Keith, this is Scott. I can comment a little bit before Tonya maybe gives you the exact numbers. But it's all over the board. So part of the spending would be on Star Bars; our Star Bar bar remodel program. Part of it would be on more extensive remodeling, whether it's bathrooms, kitchen remodels, re-skinning our buildings, re-landscaping, those types of things. It's really across the board, bump-outs as well would fall into that category. So, a number of things (18:50)... Wayne Kent Taylor - Chairman & Chief Executive Officer: The biggest thing is, we are planning to take all of our prototype restaurants that have a bulkhead with storage above the bar, remove that, and then we call it a Star Bar because the lighting and the ceiling looks like a Texas Star, and then we add more TVs into the bar area, and that costs...

I think that costs about $85,000 is about what it runs, maybe a little higher than that. Wayne Kent Taylor - Chairman & Chief Executive Officer: Per store.

Yeah.

Okay. So, all-in remodels then, 2015 versus 2016, is it picking up any? Is...

No, we're not really seeing that. I think right now, in that $160 million number for 2015, I would say that's probably around – $50 million will be for remodels, renovations, replacements, on that end of things. And typically we've been seeing about $123,000 per store per year, and that's what we saw in 2014. We continue to see that in 2015, and I think we'll see that in 2016, too. Wayne Kent Taylor - Chairman & Chief Executive Officer: There's also more to the story, and that is, we bought additional parking for some of our restaurants this year. We've had the fortunate problem of needing more parking, and as we add more seats – and then, we're relocating a couple stores this year as well. So that's also a part of the CapEx equation for us, and I would suspect as the year goes on, I wouldn't be surprised if we had one or two remodels a year over the next number of years. Scott Matthew Colosi - President & Chief Financial Officer: And that's probably about, maybe six to eight to nine stores a year where we have to add parking, which is a good problem to have.

Absolutely. And congratulations on the same-store sales, obviously. But one thing that's interesting we don't really hear about much with you folks and clearly you don't seem to need it, is any of the spec, whether it's tabletop tablets, mobile order and pay and (20:45) more. But as you think about Bubba's and as you're just sorting this brand out and how it's positioned and where it's placed, could this be a great testing ground for you to say maybe play with some of that? Try out tabletop tablets? Try mobile order and pay? Could that be a great testing ground? Thanks. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. We see some text ahead to get on our waitlist and some text ordering on your cell phones. Those are the big two things we got coming up soon. Scott Matthew Colosi - President & Chief Financial Officer: I would tell you, Keith, on the Roadhouse side, we're looking very closely at what folks of the industry are doing. We've tested tabletop tablets just for paying in the past. We're looking at other devices to pay at the table, whether they sit on the table, whether they are given to you by a server, and different forms of that. We're looking in addition to paying from your phone which is another way to pay. And as Kent mentioned, we're looking at being able to text yourself to our waitlist. We're looking at apps to be able to go through an app or online to put yourself on the waitlist. And we're just getting educated and continuing to see what folks are doing, what's working, what's not working, and what maybe makes sense for us in the future. But I would tell you where we haven't done anything yet, at some point we will definitely do some of these things. We definitely want to make it easier for people to get on our waitlist. And we definitely think there's an advantage to being able to pay a little bit faster to get out of a restaurant. So those are two things that are probably pretty high on our list.

Great. Thanks.

We'll take our next question from David Tarantino with Robert W. Baird. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi. Good afternoon. Scott or Tonya, I wanted to come back to your comments on the labor inflation outlook. I know it might be tough to predict the exact amount next year, but just wondering if you could size up whether you think next year will be more challenging than this year. I think you said 2.5% to 3% for this year. Are you thinking more for next year? And then, I have a follow-up to that.

I think right now, David, kind of what we're thinking is probably on the higher end of that range. This year it's probably where we'll end up next year. I think we have about 70 restaurants or so that are going to be seeing state mandated minimum wage or tipped wage increases. So we'll have a little bit there. And then, I think you're just going to continue to see some of the labor market tightening, is what we're expecting. Scott Matthew Colosi - President & Chief Financial Officer: I think one variable that's still out there, David, is healthcare and how many more people do sign up for the healthcare piece being that this is the third year for us, I believe, that we're doing it. And just to see how much that increases or doesn't increase. And we're right in the middle of that right now of our annual enrollment period. And we'll see what happens there. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Got it. And then in terms of the restaurant margin outlook, I think, Scott, you've mentioned before that you think your Texas Roadhouse will be able to get back to kind of 18% plus margins on a long-term basis. Do you think that's a realistic possibility for next year given the beef deflation or the commodity deflation that you have? Or do you think maybe labor is going to prevent your ability to get to that kind of number? Scott Matthew Colosi - President & Chief Financial Officer: Well, I don't think we're getting to get that specific as to say how much we might get or not get, because 2018 will be certainly getting more specific on that, David. But I think we've got a really good opportunity. Again, anytime there's deflation in food cost and we're taking a – for us a pretty healthy price increase of 1.7%, I think we've got a very good chance of having some margin expansion. Again, to give you more guidance than that, I don't think we're ready to go there at this point. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Fair enough. Thank you very much.

We'll go next to John Glass with Morgan Stanley. John Glass - Morgan Stanley & Co. LLC: Thanks very much. A couple of questions. First just on the 1.7%, that's replacing existing pricing, right, so that would be the pricing that you'd dun throughout 2016?

That's right. John Glass - Morgan Stanley & Co. LLC: Okay, if you...

The 1.7% – oh, go ahead. I'm sorry. John Glass - Morgan Stanley & Co. LLC: No, no. Go ahead, please.

Oh, I was going to say the 1.8% that we had in place for most of 2015, I think rolls off about the same time that the 1.7% will be rolling on. John Glass - Morgan Stanley & Co. LLC: Okay. And have you ever taken pricing in the period of food deflation? I think in my model, we've got you back in 2010 was the last time you had food deflation, but it doesn't look like that you took much pricing. And I guess, just more philosophically or broadly, do you think consumers care that food's deflating and they still see pricing in your restaurant or do they not really connect those two? Wayne Kent Taylor - Chairman & Chief Executive Officer: Well, I think the labor is a big piece of it as well. So I don't point you can strictly look at it from the food cost standpoint. John Glass - Morgan Stanley & Co. LLC: Right. But does the consumer know that? They know food because they buy it. I don't think most of them probably payroll. Wayne Kent Taylor - Chairman & Chief Executive Officer: Well, I think when they go to the grocery store and get sticker shock, they're happy to come to Texas Roadhouse and not have to cook the meal or clean up and still get a quality steak for $9.99 with free bread, peanuts and two side items. John Glass - Morgan Stanley & Co. LLC: Okay. And then, just one other, is the quarter-to-date number, is that through Halloween or did Halloween come after that period you cut that off?

Halloween came after. It's in our November period. John Glass - Morgan Stanley & Co. LLC: Got you. Okay, all right. Thank you.

We'll take our next question from David Palmer with RBC Capital Markets.

Thanks. Just a quick follow-up on that last call. I mean, do you think that food inflation has been important to your same-store sales growth rate? In other words, (26:52) sticker shock has been increasing as you say, that's been a kicker to you same-store sales growth rate and do you worry about that on the back end, if we're on a multi-year run downwards in food inflation, might that be a drag to comps? Wayne Kent Taylor - Chairman & Chief Executive Officer: I think we continue to be a great place for people to go to unwind and feel good about life. And I think that's really the secret to Texas Roadhouse is. We have such a positive feeling in the restaurants on top of having great quality food. And I don't know I hope you can put a number on that, but that's kind of how I look at it.

Do you think that if you were to get further into a beef cycle and prices were to meaningfully be dropping, have you ever gone through a period like that and tried to value engineer more value onto the plate? In other words, as the steak prices get meaningfully lower, would you make adjustments to what the consumer gets in the restaurant? Wayne Kent Taylor - Chairman & Chief Executive Officer: That happened back in 2008, 2009. And we pretty much stayed the same as we are today. And it seemed to work out then as it is now.

Great. Thank you very much.

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

Great. Thank you very much. Two questions. Just one on the pricing topic. In the last call you mentioned and then you have these internal conversations with a lot of your operators to discuss that topic. I'm just wondering what those conversations were like. Is there a wide range of operators that were pushing for a lot more or a lot less necessarily? Wondering whether or not maybe you priced by regions, that different regions are taking differently, because I was under the impression maybe if the labor concerns were as structural as they were, that maybe you would consider taking even more price. I'm just wondering how those conversations played out. Scott Matthew Colosi - President & Chief Financial Officer: Hey, Jeff. This is Scott. Yeah, no doubt if you're in New York State and your tip wage is going from $5 to $7.50, which is a 50% increase, you're going to be thinking in terms of a little bit more pricing. If you're in California where your tip wage was $8 two years ago and now it's going to be $10 in January 1, you're thinking in terms of a little bit higher pricing. Unless you're in that scenario, a lot of our folks have been around this business a long time. And they get the balance of having limited price increases and keeping the pressure on great food and a great service model, well staffed restaurants, as being part of the equation and part of the whole package of Texas Roadhouse. So generally they like to keep pricing pretty conservative in the vast majority of the conversations. A few exceptions would be in the states where you've got really big increases in minimum wage. Wayne Kent Taylor - Chairman & Chief Executive Officer: And I would agree with everything Scott just said.

And then, just my other – well, (29:54) obviously have proven operators that have been around a while. So that definitely helps. The other question is just on the unit opening front. I think in 2015 you started with 25 to 30, and now you're pushing 30. It sounds like in 2016 you're starting that range of 25 to 30. I'm just wondering whether you believe that's conservative or I think you actually made comment in your prepared remarks about being vigilant on returns, and therefore, maybe not opening as many as the 30. I'm must wondering whether it's real estate costs that are getting higher or what you're seeing from a unit growth perspective that kind of leads you to maybe temper the growth a little bit in 2016 or maybe I misread that? Wayne Kent Taylor - Chairman & Chief Executive Officer: No. We're still targeting the same amount. It's just when you get toward the end of the year, sometimes you might have construction delays, due to certain factors or maybe your permitting takes longer, so there's always a little bit of stores that are in flux from the fourth quarter to the first quarter of the next year and that's how it always kind of play out.

There is nothing structural...? Scott Matthew Colosi - President & Chief Financial Officer: Yeah. Jeff, I would say this to you – this is Scott – I would say, we say 25 to 30. If everything in the world went perfect, it could be 31. You got to have a lot of sites and inventory and a lot of people hired to make sure you're getting 25 to 30 because inevitably some sites will go away; whether it's the municipality and some of the rules they come up with, or fees they want to charge you. Or something where landlords won't do their share of the work that they need to do in a development. Things will happen, and so you have to have quite a bit in inventory. Usually some – things happen and so you end up in some range, in our case typically, it's been 25 to 30. But we're pretty confident in the 25 at the bottom end, but certainly if the world went perfect, it could be 30 and it could even be higher than that.

So it's really timing-related, not necessarily anything you are seeing that's leading you to change your approach or change – just because of cost running higher, you're thinking differently about 2016 versus 2015? Scott Matthew Colosi - President & Chief Financial Officer: No. No.

Got it. Thank you.

We'll take our next question from Jason West with Credit Suisse. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah. Thanks. Just one on the labor outlook again. Tonya, do you have like an all-in labor inflation number or, said differently, do you have what the healthcare sort of incremental piece would be for next year in the guidance or in your thinking? I think you'd said $5 million to $6 million incremental this year, I'm not sure how that compares next year?

Yeah. We really don't have a number, Jason, for next year. As Scott mentioned, we're kind of in the process right now of open enrollment. And so, we'll see how many more participants we have and how that kind of plays out. I don't expect that it will be the kind of impact we saw this year, in that $5 to $6 million range as you stated. I don't expect that that's what we'll see in 2016. Overall, I would say we feel like the high range, the high end of that 2.5% to 3%, is where I think we'll probably end up; obviously, that does not include really any significant number for healthcare, if that were to happen. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. Because healthcare – we started, the first year we did 35 hours and up. And then this past year was to jump down to 30. And so, that was another big jump. This year, we don't have any big jump like that. It will be simply a question of how many more people sign up who are already in that 30-hour pool. And we haven't been telling our people to cut people's hours to 28 hours or 25 hours or anything like that. So, only time will tell. But I think, as Tonya said, the impact shouldn't be, I will be surprised it was anything near what it was this year incrementally, this year. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. That's helpful. And then, on the real estate side, we're just seeing a lot of restaurant sort of development, I guess picking up. I think maybe that's part of what the labor issue is. But just curious what you guys are seeing in the real estate market. Are deals getting tougher to find, and rates are going up? Or not really the case for a brand like you guys? Wayne Kent Taylor - Chairman & Chief Executive Officer: I would say the prices are definitely more than they would have been five years ago, for sure. And construction costs have gone up a little bit. But as far as finding quality sites, we're still able to do that. Jason West - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you.

We'll go next to Chris O'Cull with KeyBanc.

Thanks. Good afternoon, guys.

Good afternoon. Wayne Kent Taylor - Chairman & Chief Executive Officer: Hey, Chris.

Kent, what are the operators telling you are the benefits from the Star Bar remodels? And maybe if you guys could tell me how many you've completed and have left to complete. Wayne Kent Taylor - Chairman & Chief Executive Officer: The count, if you want to give them that, then I'll give my opinion.

I want to say that the count is probably nearing 300. And, I think at some point, we'll probably have all of them in the system done, maybe in the next 12 months. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. Our goal is to finish them up by 2016. It just kind of gives a fresh look to the bar area. And then, gives a few more TVs for people to look at while they're in the bar area, adds a little more energy. Some of the things we've kind of picked up at Bubba's. So we've kind of moved them over to Roadhouse.

Are you seeing an improvement in your liquor beer wine mix?

That really hasn't changed very much at all. We're still seeing it just be slightly negative. I think it really just opens up all the sightlines in the restaurant, and gives it that really nice updated feel, as Kent mentioned, I think, more than anything. It affects the whole restaurant, not even just the bar. Wayne Kent Taylor - Chairman & Chief Executive Officer: Right. And I would say that way more people in the bar area are actually eating dinner and not just sitting there drinking.

Okay. And then, how many stores have you added patio seating? I've noticed a couple stores that I've been to that had an extension, it looked like for patio. Is that another opportunity for remodels? Wayne Kent Taylor - Chairman & Chief Executive Officer: I would say it's probably less than 20. It's not something I'm focused on.

Okay. And then, in the past it seemed like pricing for the 6-ounce sirloin, I guess being below $10 was kind of a sacred cow, no pun intended. But given all the inflation that you guys are seeing on the wage rates, are you looking to change that entry-level price point? Wayne Kent Taylor - Chairman & Chief Executive Officer: Yes. We have done that specifically this year with those states that are, as Scott mentioned, like New York and California. So we're absolutely crossing that line this year and we'll kind of see what the results are.

Have you seen any pushback? Wayne Kent Taylor - Chairman & Chief Executive Officer: We don't know. The pricing goes into effect in November.

Got it. Thanks, guys.

We'll go next to Andy Barish with Jefferies.

Hey, guys. Most of my questions have been answered. Any regional geographic slowdown, I know you guys have a lot of Texas restaurants, some probably a little closer to some of the energy-producing areas. Seeing anything different in those restaurants? Wayne Kent Taylor - Chairman & Chief Executive Officer: Only the restaurant that's near you in San Francisco. That's about it.

That's probably been a good one. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. No. I'm just kidding. Yeah, in the few restaurants that we have that are West Texas, South Texas, you have seen more of an impact from the slowdown with that part, but most of Texas for us is just chugging right along, I would say unaffected. And we're pretty consistent across the country otherwise we're growing sales in every part of the country.

Okay. Thanks, guys. Wayne Kent Taylor - Chairman & Chief Executive Officer: Thanks.

We'll take our next question from Andrew Strelzik with BMO Capital Markets.

Hey. Good afternoon, everyone.

Hey, Andrew.

I just wanted to ask, trying to think about the restaurant-level margin. If I exclude the food cost piece is mid-single digits enough to get leverage across the other in store cost line items in aggregate or, if you prefer to talk about it more generally, is there a level you think you need to get leverage across those other line items in aggregate? Wayne Kent Taylor - Chairman & Chief Executive Officer: Are you talking for next year?

Yeah. I mean we are just conceptually, but yeah, in particular for next year. Wayne Kent Taylor - Chairman & Chief Executive Officer: Oh mid-single digits absolutely could still excluding food costs, we could still get some leverage. Again, it depends on the labor piece and what we see there. There's a number of states that even though they are going up in minimum wage, we're taking more price in there, there's a number of states that minimum wage isn't going up, because the CPI is so low right now. So that does help a little bit in some of those states. So it's really a little bit of a wildcard in estimating what labor inflation is going to be, kind of as we've mentioned. But I think mid-single digit comps absolutely could. We could still leverage off of that if that was the case.

Okay. And then I just wanted to also ask about the same-store sales growth at the franchise units. You saw an acceleration there from the second quarter to the third quarter. Anything there that was different from the company-owned units or anything in particular to call out? Wayne Kent Taylor - Chairman & Chief Executive Officer: I would say not really because a lot of our franchised stores are run by corporate people and vice versa. And so, we really don't think of them in those terms.

Okay. Great. Thank you.

We'll take our next question from John Ivankoe with JPMorgan.

Hi. Thank you. Question on pricing, if we can get back to that for a second, at 1.7% you're considering some pressures in various states, as you mentioned, like New York and California, doesn't really seem to be a lot on a nationwide basis, I mean, if you are looking at pricing regionally and even locally in some cases. So what is the range of pricing that your operators are taking at the store level? I mean, is it between zero and 5%, and just 1.7% happens to be the number? Like what kind of pricing are we talking about on a store-by-store basis?

I don't know if I can comment on that, but I can tell you that we did take a price increase in August on some of those stores that are seeing that higher wage inflation, particularly New York, California, a couple others. So that could be too why maybe you think that number's a little lower than what you would expect. But we did take some – we kind of went a little bit with them in August and then took a little bit more here, or will be, in November. Scott Matthew Colosi - President & Chief Financial Officer: Hey, John. This is Scott. The high end would be 3% to 4%. Nobody would be at 5%, okay. And I don't think we have anybody – occasionally, we'll have markets at zero. I don't know if we have any markets this year that didn't take any pricing this year. Usually we have one or two that just want to go it without any pricing. We didn't have that this year. So the vast majority of markets are really closer to the 1.7%, even than we have been in prior years.

Okay. That's good color. And how much did that August price increase matter? Was that measurable in your overall comp and your pricing composition? Scott Matthew Colosi - President & Chief Financial Officer: No, it was very small. We don't have that many restaurants in New York, and California, we've only got three company stores in California, so a very de minimis impact for us overall.

Okay. Thank you.

We'll go next to Robert Derrington with Telsey Advisory Group.

Yeah. Thank you. Kent, when you look at the performance of Bubba's 33 at this point, you've got to be, I would expect, pretty proud about the way it's performing. Ultimately, have we seen any of the Bubba's compete with Texas Roadhouse stores at this point? And... Scott Matthew Colosi - President & Chief Financial Officer: Yes, I'm sorry, go ahead. Wayne Kent Taylor - Chairman & Chief Executive Officer: Yeah. The answer's yes. Sorry. I didn't know you had a backup to that. Go ahead.

Well, I'm just wondering as we look out, say, towards 2017, given the better returns, it appears as though you could be generating in those stores, depending on the average unit sales, could we begin to see actually Bubba's unit growth begin to eclipse that of Texas Roadhouse in the future? Wayne Kent Taylor - Chairman & Chief Executive Officer: I would say in the next five years, absolutely not. But I will say that when we open near the Texas Roadhouse, say, quarter a mile away or across the street, we're lucky if maybe there's a 2% or 3% temporary impact in sales. I think with our menu being so significantly different, so we're really not seeing any problem with sales at Roadhouse so that's been really cool (43:10).

That's great. That's encouraging. Thanks, Kent.

We'll take our next question from Paul Westra with Stifel. Paul Westra - Stifel, Nicolaus & Co., Inc.: Great. Thank you, and good afternoon. Maybe one more follow-up on the cost of goods sold commentary. Can you quantify at all perhaps the non-beef component where you're looking for next year, even if it's just inflationary or not? Scott Matthew Colosi - President & Chief Financial Officer: Paul, again, it's something we're not going to comment on. We've got some things down, some things up. We're just comfortable in getting enough detail to let you know that we're confident and that we're going to have overall food cost deflation next year. So we're not going to comment specifically on beef and we're not going to specifically comment on the other items. Paul Westra - Stifel, Nicolaus & Co., Inc.: Okay. And maybe one more follow-up for Tonya maybe. The purchase, the 75% of contracted beef, that's going to be spread out all throughout 2016, so the 2016 cost of goods sold line item won't be very variable, right? It'll be pretty consistent all year because you're going to spread that purchase throughout all four quarters or are they going to maybe front-loaded?

No. The 75% is pretty much spread across the year. Yeah. Wayne Kent Taylor - Chairman & Chief Executive Officer: However, our produce is seasonal, so it's hard to tell what that's going to do every year. Scott Matthew Colosi - President & Chief Financial Officer: Yeah. There won't be probably the same movement like we saw from Q1 to Q2 to Q3 for this year. But there could still be some movements, Kent mentioned produce related. Not every contract we sign runs January to December. So some things are contracted quarterly, some things are contracted in the middle of the year, so it does vary what we're doing and when we're doing it. And, of course, sometimes our (45:05) mix doesn't change much, but some of the pricing actions we're taking and if there's any mix shifts or anything, that could also influence a little bit of what we see on the food cost side. Paul Westra - Stifel, Nicolaus & Co., Inc.: Great. Thank you.

We'll go next to Karen Holthouse with Goldman Sachs.

Hi. Good evening. This is actually Greg (45:24) calling in for Karen. I was just wondering if you guys have seen any signs of increasing turnover, or do you think that you've been out in front of raising wages and competition for workers so far? Scott Matthew Colosi - President & Chief Financial Officer: This is Scott. Yeah. Our turnover is definitely up year-over-year. I guess 7% or 8% year-over-year is what we're up on an hourly basis. Our management turnover hasn't changed much. But on an hourly basis, it's definitely up and not unexpected as unemployment continues to fall. Usually that's what we've seen in the past, unemployment falls and our turnover tends to go up a little bit.

Thanks.

And we'll take our next question from Steve Anderson with Maxim Group.

Good afternoon. I have a question about your unit development for next year. Of the 25 to 30 sites that you mentioned, can you say how many of them will be freestanding sites and how many of them will be end-caps or other configurations? Wayne Kent Taylor - Chairman & Chief Executive Officer: This is Kent. I would say we might have two end-caps and the rest will be freestanding.

All right. Thank you.

That concludes today's question-and-answer session. At this time, I'd like to return the conference to the management team for any closing or additional remarks.

Just want to say thanks to you all for being on the call this evening. And if you have any other questions, please let us know. Have a great night. Wayne Kent Taylor - Chairman & Chief Executive Officer: Thank you, all.

This concludes today's conference. Thank you for participating.