Texas Roadhouse, Inc. (TXRH) Q4 2016 Earnings Report, Transcript and Summary

Good evening and welcome to the Texas Roadhouse Fourth Quarter Earnings Conference Call. Today's call is being recorded. All participants now are 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.

Thank you, Rebecca, and good evening, everyone. By now, you should have access to our earnings release for the fourth quarter ended December 27, 2016. 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 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. And 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 Vice President of Finance and Investor Relations. Following our remarks, we will open the call for questions. Now, it's my pleasure to turn the call over to Kent.

Thanks, Scott. We are pleased to report another strong year of results with diluted earnings per share growth of approximately 19%, driven by a double-digit revenue growth and restaurant margin expansion. We delivered an impressive comparable restaurant sales growth during 2016 with an increase of 3.5% including 2.1% traffic growth. We also extended our streak of consecutive quarters of comparable restaurant sales growth to 28%, with comps in the fourth quarter up 1.2% and traffic growth of approximately 0.2%. Negative comps in December led to softer results in the quarter. However, we saw a return to positive territory in January. For the first 55 days of 2017, comps increased 1.5%. While weather is definitely creating some noise for us and others in the industry in the first quarter, we continue to expect positive comparable sales growth in 2017. New restaurant development is on track and 3 of our 30 expected company openings in 2017 are complete. We currently expect our 2017 development to include 24 Roadhouse's and 6 Bubba's 33s. Finally, our holiday gift card season, which runs from November through December, was a big success again this year with over $108 million in gift card sales, a 21% increase compared to last year. The strength of our brand continues to be our people and our operational focus on delivering legendary food and legendary service. While the casual dining industry is experiencing some difficult times, challenges such as these had always existed to some degree and we will continue to tackle them head on. A big thank you to all of our operators and partners out there for another great year. You make it happen every day and I look forward to seeing you all at our upcoming conference. Now, Tonya will walk you through our financial update.

Thanks, Kent, and good evening everyone. For the fourth quarter of 2016, sales growth of 7% and the impact of approximately 2.9% commodity deflation was offset by higher wage rate inflation and higher costs associated with payroll taxes, insurance reserve adjustments and gift card fee. Combined, this resulted in a 4% year-over-year increase in restaurant margin dollars to $82.4 million. Additionally, increased costs below restaurant margin contributed to a 10% decrease in net income compared to the prior year period to $20.7 million or $0.29 per diluted share. Revenue growth of 7% during the quarter was driven by a 6.9% increase in store weeks and a 0.3% increase in average unit volume. For the quarter, comparable restaurant sales increased 1.2% comprised of a 1% increase in average check and 0.2% of traffic growth. Comps during the fourth quarter were negatively impacted by approximately 70 basis points due to the shift of Veterans Day and the Christmas holiday. By month, comparable sales increased 3.8% and 3% for our October and November periods respectively and decreased 2.1% in December. November sales were negatively impacted by approximately 0.6% due to the shift of Veterans Day to Friday in 2016 compared to Wednesday in the prior year. December sales were negatively impacted by approximately 1% due to the shift of the Christmas holiday. For the quarter, restaurant margin as a percentage of sales was down 44 basis points over the prior-year period to 17.1%, driven by higher labor and other operating costs, partially offset by the benefit of lower food costs. I'll provide some color on each of the lines just mentioned. Labor as a percentage of restaurant sales was 147 basis points higher than the prior year period, primarily driven by wage rate inflation, the impact of overtime pay changes implemented at the beginning of December and higher costs related to payroll taxes and insurance. In the fourth quarter of 2015, we recorded approximately $1.5 million of credits related to labor costs, specifically health insurance and payroll taxes that we lapsed this quarter. Other operating costs as a percentage of restaurant sales were 56 basis points higher than the prior year period, primarily driven by higher general liability insurance costs and higher gift card fees due to the increase in our gift card sales during the quarter. Cost of sales as a percentage of restaurant sales was 153 basis points lower than the prior year period. For the quarter, food cost deflation was approximately 2.9% driven by beef, bringing our full-year deflation to approximately 3.8%. Below restaurant margin, depreciation expense increased $3.6 million year-over-year to $22.2 million or by 47 basis points to 4.6% of revenue. G&A costs were up $2.9 million in the quarter or 25 basis points as a percentage of revenue to 5.7%. Costs included a $0.6 million charge related to a legal settlement that we discussed earlier this year. Pre-opening costs increased $0.7 million on a year-over-year basis, primarily due to more restaurant openings this quarter compared to the prior year period. Finally, our tax rate for the quarter came in at 28.8%, which was slightly higher than the 28.5% rate last year. Our balance sheet remained strong as we ended the year with $113 million in cash and $53 million in debt. During 2016, we generated $257 million in cash flow from operations, incurred capital expenditures of $165 million and paid dividends of $52 million. Our cash balance increased $54 million compared to last year. Looking ahead to 2017, we have updated several of our expectations from our last call. We are currently targeting approximately 30 company restaurant openings including approximately six Bubba's 33 restaurants. We continue to expect positive comparable restaurant sales including approximately 1% of pricing actions. We recently took some additional pricing in a few states where wage rates rose significantly. We are also currently reevaluating our pricing actions as we prepare to roll out new menus to add calorie counts which are required to be implemented in May. On the cost side, we currently have fixed price arrangements on approximately 60% of our total food cost basket and we expect food cost deflation of approximately 1% to 2% in 2017. In regards to labor, we expect headwinds to continue due to ongoing wage rate inflation, state minimum and tipped wage rate increases and increases in pay for hourly and salaried managers. As a result, we continue to anticipate mid-single-digit labor inflation in 2017. Our initial expectations for the year also include an income tax rate of 29% to 30%. Finally, we expect continued free cash flow generation with projected capital expenditures of approximately $170 million excluding any cash used for franchise acquisitions. On the first day of our 2017 fiscal year, we acquired four franchise restaurants for an aggregate purchase price of $16.8 million. Two of the restaurants are company-owned, while two were converted to joint ventures in January. We will continue returning capital to our shareholders through dividends and our share repurchase authorization. As we announced, our board authorized an increase in our quarterly dividend payment, increasing it by 10.5% to $0.21 per share from $0.19 per share in 2016. Now, I'll turn the call over to Scott for final comments.

Thank you, Tonya. We are pleased to have wrapped up another year of solid sales growth and profit growth, particularly given the challenging industry environment in 2016. We're certainly not immune to those challenges and felt that a bit in the fourth quarter with negative comps in December. However, our quarterly comp trend remains positive and we still expect to achieve another year of positive comparable sales growth in 2017. On the development side, in 2016, we opened 30 company restaurants including nine Bubba's 33. In addition, our franchise partners opened four restaurants including three outside the United States. While returns in our new restaurants are in line with our expectations, we continue to closely monitor our development costs. Higher site costs associated with several of the locations opened in 2016 led to development costs of $5 million for our Texas Roadhouse restaurants which is up from $4.7 million in the prior year and we currently anticipate that 2017 cost for each Texas Roadhouse will be slightly higher at $5.1 million. We feel very good about the strength and flexibility of our balance sheet and intend to maintain our historically conservative and disciplined approach to allocating capital. And overall, we feel very good about the direction and underlying momentum in our business. A big contributor to our success has always been our value proposition which we believe is as attractive as ever. The long-term success of the brand is obviously very important to us and we will continue to focus on these things that we believe will make us stronger in the coming years. Like Kent, I want to thank all of our operators and franchise and vendor partners who are listening out there for a very successful 2016. It is absolutely a privilege and an honor to work with all of you. And that concludes our prepared remarks. So, Rebecca, please open the line for questions.

Thank you. Ladies and gentlemen, the question-and-answer session will be conducted electronically. Your first question will come from David Tarantino with Robert W. Baird. David E. Tarantino - Robert W. Baird & Co., Inc.: Hi, good afternoon. My question is on the recent same-store sales trends, which have been lower than what we've been seeing out of you even in a tough environment. So, I guess, the first question I had is, is there any noise in Q1 that might suggest that quarter-to-date comp is not a good underlying rate? And I guess specifically, have you seen softness in February perhaps related to tax refund delays or other issues?

Hey, David, it's Tonya. Hard to say on the tax refunds, I mean, it would be hard to quantify anything like that or what that impact could be. I think we don't talk about weather impact a whole lot, but I think we know there's been some storms across the country, different things like that, some things were lapping from last year. And probably one of the bigger ones on the 2017 Q1 trend is Valentine's Day. We saw some negative impact from the holiday shift of Valentine's Day. Last year, it was on a Sunday. This year, it was on a Tuesday. So we're estimating that's maybe going to be about 1.5 points on the month, probably about 0.5 point on the quarter. David E. Tarantino - Robert W. Baird & Co., Inc.: Got it. And so I guess absent that shift, Tonya, do you think that that 1.5% plus whatever you get back from the Valentine's Day shift is a good way to think about the underlying trend you're seeing or do you think there's other issues there? I just want to make sure I understand how you're thinking about – with the recent trend?

I can tell you – really say we haven't changed anything about the way we're operating or doing business. So nothing that we could point to internally that would be changing those trends. I think there's just a lot of noise right now between, like I said, between weather and some other stuff going on maybe on the macro side of things. But – and just with the holiday shifts and things like that. So outside of that, nothing that I can point to. David E. Tarantino - Robert W. Baird & Co., Inc.: Okay. That's helpful. And then one last clarification on the pricing, you mentioned that you might take a look at that in the spring. What are you looking at relative to or what criteria are you using to decide whether you take any and how much you might take in that menu change?

Hey, David, this is Scott. I would tell you we're looking a little bit of everything, like we normally do. So we took a 1% increase back in December and so we're going to continue to look at how those increases translated into any mix shifts in those items. And obviously we were very conscious of what's going on in the competitive environment, who is doing what, conscious of our own sales trends. And legitimately, they are harder to understand in the winter months, no doubt, depending upon what's going on in the world and what'll happen and so forth. But we're going to look at competitor pricing, competitor trends. Many of our competitors are struggling for sure and we've seen a lot of tough sales reports announced recently from a lot of companies and they've all taken certain amount of pricing actions relative to inflation which, especially on the labor side, is getting tougher and tougher. And so I think that's a big reason why some are taking some pricing and we just want to be very, very careful and protective as we always have been of our traffic counts. And so if we do anything, I can tell you it would probably still be very, very conservative. We did just take a little bit of extra pricing in a few states, Colorado and Arizona, would be two that I would mention that had very large increases in their minimum wage at the beginning of the year. So we did take a little bit – little bit of pricing in those states and there might have been one or two others as well. So we're going to keep studying it and we got – we have to make some decisions fairly soon to meet the May timeline of having calories on the menu, meaning the lead time to print menus and all that. So we'll probably have to make decisions in March – March, April timeframe. So that's coming up pretty fast for us. David E. Tarantino - Robert W. Baird & Co., Inc.: Great. Thank you.

From Morgan Stanley, we'll hear from John Glass. John Glass - Morgan Stanley & Co. LLC: Thanks very much. First, can you just talk about what changed in your food deflation outlook from low single digits to down 1% to 2%, what are the items that moved on you?

Well, I think low single digits is kind of right in the range of the 1% to 2% we're thinking of now. I think we just have a little more clarity now than maybe we had back in November when we put the initial guidance out. We're about 60% or so locked on the whole basket. A good portion of that is beef, given the size of it in the basket. So nothing really that I would point to that's changed from where we were, what we were talking about in November, just wanted to give a little more clarity, if you will, on kind of what we think we're going to see this year. John Glass - Morgan Stanley & Co. LLC: Got it.

Hey, John. It's Scott. It's just our best guess. I mean, it could be 1%, it could be 2%, it could be a little bit more than 1%, I mean, a little bit more than 2% on that side. Hopefully it is, but that's just our best guess right now – it's just the 1% to 2%. John Glass - Morgan Stanley & Co. LLC: No, makes sense. You just put it out as a change in the release. And why fewer bubbles in 2017 versus 2016, is that timing or how do you think about that development schedule going forward?

This is Kent. Actually, we're pretty much fine-tuning our new prototype, allowing the people that are running above us to get their feet under them, so it's kind of a temporary slowdown in our growth that we – that tend to open more in 2018. John Glass - Morgan Stanley & Co. LLC: And then maybe this is for Scott, just finally the cohort of stores 6 to 18 months seem to have a bigger decline, but I understand that I don't know how many stores were in that. Do you read anything into that? Or how do you explain that? I think there's a 10% decline of that cohort.

What I would read, I guess, 27 restaurants is in that group, John. Any time that group is doing sales less than our system average, which has been typical over the years. For me, it's always going be a bit of a concern and the gap's the widest, $13,000 gap's the widest it's been in some time. So, when you look at the individual restaurants, there's a few that are doing pretty low sales and there is a few that are doing pretty high sales. I think it just shows how difficult it is once you get as large as we are to continue to grow at a certain rate and find great sites and that had the same sales viability as we've had in the first 500. And we do model them more conservatively. So, we do model our new restaurants to perform less than the system average, otherwise we won't do the deals and we do model that, but it's always a concern and it always makes us look harder at sites we're approving and try not to have too much wishful thinking, again as this continues to get larger. And at the end of the day, most of the deals we're doing are either in smaller-size cities where there's more competition or they're in larger cities where we're building in more of the outskirts of town where you're betting on the come as far as the growth is coming to you and you may open a little bit lower and grow more in the future. That's part of what's happening. In some of the towns where there's a lot of competition, we're betting on, somebody is going to close. And eventually we'll get a bigger share of the pie when somebody closes. So, it's just a little tougher road for us than it was in years past. And we continue to watch it closely. It's also why we very much continue to watch our development cost very closely and we're constantly – it's also why we don't grow any faster than we're growing, the Texas Roadhouse concept, because we want to be as disciplined as we can because it is a very, very challenging – very challenging environment for us to continue to find great sites. John Glass - Morgan Stanley & Co. LLC: Okay. Thank you.

We'll go to Brett Levy with Deutsche Bank.

Good afternoon. Piggybacking on both of those questions, are you seeing any pockets where there is meaningful strength in terms of sales? Is there anything from the competitive landscape that you're seeing from players, either rational or irrational, that you can call out? And then, I have a question on development.

Brett, this is Scott. I would say, no. I would say we're not seeing anything that is, I would say, is irrational or any unusual things that competitors are doing or not doing. We're very focused, in our case, on what we control which is the quality of the guest experience, our food and service and staffing and all that. We're focused on that and we tend to not feel much from a lot of competitive actions already. There are 600,000 – 700,000 restaurants in the country, so we're just a real tiny sliver of that from our perspective. So we really haven't felt anything and we're not even contemplating doing anything different at Texas Roadhouse, except like we always do, continue to challenge ourselves to do a better job each and every day. We get a lot of good – great guest praises every day, but we get our share of negative guest feedback and know we're not perfect and we always have an opportunity to be a stronger company.

And on the development front, you talk about more conservative models for your new units, but you've also talked about higher costs for the build-out. Are you thinking at all about slowing expansion from here? Is this changing where you're looking at in terms of building out, not just focusing on the small, as you're saying, or focusing on the outskirts? Is there any reassessment of how you should be thinking about, especially as these costs are going up and the labor costs are skyrocketing across the country?

Well, we haven't considered slowing down at this point. On the development side, we can still do a better job of managing our site selection, particularly as it relates to cost of developing sites or what's known as site work. Our outliers with regards to the cost of site work are the biggest determinants of us having an average of $5 million for a typical Roadhouse deal versus $4.7 million or even $4.6 million. So our challenge is to mitigate or limit the deals that we're willing to do that we're rolling the dice more on what it costs us to actually develop the site. Some cases, it costs us so much to develop a site it's more than building the building and we're just kind of crazy. So we've got to do a better job in managing that. Sometimes that involves us paying a little bit more rent to a developer who understands and is willing to take on more of that risk themselves than overall larger development. So we will tend to focus more on those deals. But again and maybe a little bit more cost saving on rent, but will save on the – will save more than that on the flip side, on the site development costs. Definitely, labor is a headwind. I think over time, we'll figure it out like we have in the past, there's been, over the last 10 years, there has been significant increases in labor, particularly minimum wage around the country. And we've dealt with it and figured it out and we'll continue to deal with this and figure it out. That won't keep us from slowing down development. What would keep us – what would make us slow down would be our inability to keep inflation and building the stores under control and our inability to generate enough sales to make the numbers work both for investors and shareholders, but also for our managing partners since they get paid as a percentage of the bottom line. We want to make sure we're opening restaurants where those managing partners can make a lot of money.

Thank you.

From Oppenheimer & Company, we'll hear from Brian Bittner. Michael Tamas - Oppenheimer & Co., Inc.: Great. Thanks. This is Mike Tamas on for Brian. Just going back to the same-store sales really quick. I mean, obviously it's tough for everybody out there, but it looks like your outperformance is sort of narrowing versus the peer sets, so just wondering if you can maybe talk about that, what do you think is going on, on a relative basis?

Hey, Mike. This is Scott. I'd tell you, occasionally it may narrow for a month and then it widens back up again. We're not – any narrowing to us is like a blip. It hasn't made us change, again, any of our thinking in any way. We still think our positioning is really as strong as ever. Yeah, I mean, our average unit volumes, our average weekly sales are over $90,000, which are just huge numbers in our industry. So, we're very pleased with the sales growth that we've had. Again, it does not mean, we don't try to get better every day and we do talk about that getting better every day, but we feel like we've got a very strong guest proposition, our restaurants are as packed as ever. We've actually seen a little bit of an uptick in our to-go sales and we've seen an uptick in our Early Dine sales, which in part tells us that folks are accessing us in a different way because we are so crowded for dinner inside the four walls on the peak revenue hours. And so, the increases in Early Dine and increases in to-go's aren't super-material or anything, but it just tells us that a lot of people are still voting for Texas Roadhouse, a lot of people voted by buying $108 million worth of gift cards in our gift card season as well. And so we think there is a lot of endorsement there, but again I'll end saying two things. One is, we never take the next day's sales growth for granted, which is part of the reason why we've always continued to stay very conservative on pricing. And we continue to know that we can always get better and executing every day in our restaurants and being focused and that's what we challenge ourselves with. We've never thought we've arrived, if you will. That's one thing that we always talk about, we've never really arrived at the destination and we can always get better. Michael Tamas - Oppenheimer & Co., Inc.: Got you, thanks. And then just sorry if I missed this, but on the margins, I think you called out some insurance reserve adjustments, are any of the things that impacted the fourth quarter going to continue into 2017, things like that or were they more one-time in nature that are confined to 2016? Thanks.

Sure, this is Tonya. Most of those insurance things, we're self-insured on general liability workers' comp, health insurance. We did have actuarial reserve adjustments every quarter for those things. So there's just some shifts that happen every quarter, but so nothing that we're thinking are expecting to happen in 2017 on that. One of the bigger changes for labor that started in December was the changes on overtime pay that we made, that is continuing into 2017. So that's built into our labor inflation estimates. Michael Tamas - Oppenheimer & Co., Inc.: Great, thank you very much.

You're welcome.

Next, we'll hear from Jason West with Credit Suisse. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah, thanks. I guess just going back to the comp trends again, given the December, even adjusted for the holiday, would have been negative, I don't know if you guys have any thoughts on what you think is going on there. I mean is it something related to just kind of holiday shopping and people tightening their belts around that time of year or lack of traffic, given online and is this something that you feel like you need to start thinking more about going forward in terms of addressing the traffic issues or is it more just kind of anomaly?

This is Scott. I tend to – we historically haven't really – we don't track weather, but I can tell you our comps the last two Decembers were really high. And I do believe that in part that was we had a lot of benign weather in December and it kind of maybe changed a little bit more normalized in this December and I think weather had an impact on sales. As far as the theories behind more people staying home, to do more shopping online, don't know that, but again, we're not contemplating doing anything differently coming into December. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. And then just going back to the new store performance, can you remind us what your hurdle rate is for new stores? What would you like to see in terms of ROIs? And I know your investment cost isn't grossed up for rent expense. So I guess just kind of what you think about that and how close we are to get hurtle rates right now?

Well, I mean, we're hitting our returns and we're looking forward mid-teens, above 15% IRRs, that's what we're – that's what we're solving for. And so, and you're right, they are grossed up, so the CapEx number is quite a bit lower than $5 million and we got a pretty big pre-opening number in there, which of course in a cash flow model, you've got all the tax deductibility of that basically in year zero in the model. So, that's what we solve for, and we still continue to hit those numbers, but you always want to do a little bit better than that. So, that's why we keep such a close eye on it and then we'll see where we go. Our volumes are still high, even at these newer stores and even though they're a little bit below our comparable sales group, they're still very good sales volumes and typically these restaurants are the busiest in the town that they're in or the neighborhood that they're in. So, sometimes, it just takes a little bit longer for us to get going on these sites or it could just be a situation where and there is a little bit less low hanging fruit, as you might expect when you get to 500 locations, casual dining locations in that country. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. Thanks a lot.

From Jefferies, we'll hear from Andy Barish.

Hey, guys. Are you surprised you're not seeing, I guess, year-to-date, a little bit more follow-through on the increase in gift cards? And what do you attribute that to if that's the case?

Hey, Andy. It's Scott. I think it's hard to say. I think some of that certainly is benefiting us, don't know how much of that will benefit us beyond February, into March and April, maybe even farther down the road, don't know how much of our gift card sales were incremental because in a lot of cases in today's world, a lot of gift card sales are sold with some sort of discount attached to them. So, you could have a certain percentage of our existing guests versus incremental guests, we don't know for sure, what that is and so that all clouds the picture. And then again with January and February, weather shifts in certain key days, it all clouds the ability for us to really appreciate where we stand from a sales trend perspective.

Okay. One quick follow-up on labor in terms of the managing partner bonus, does some of that run through the labor line, thereby creating a little bit more variable costs when their payouts are going up in that line versus, say, other companies that don't have the partner structure like you guys do?

Andy, this is Tonya. The NP bonuses actually run through other operating costs, so those don't impact the labor line.

Okay. Thank you.

From KeyBanc, we'll hear from Chris O'Cull.

Thanks. Good afternoon, guys. Tonya, apologies if I missed it, but what was the wage inflation for the fourth quarter?

The wage inflation, it looks like it was a little bit higher bumping up against 4.5% for the quarter. So, definitely a little bit of a step-up in Q4.

Okay. And I don't believe you mentioned hourly turnover as a driver of higher labor costs in the quarter. Has turnover started to stabilize?

I think if anything it will be a little bit higher, but I think it came in at around 115%, 115% or so for the quarter. So I think we continue to see it to kind of stabilize versus last year.

Yeah. Hey, Chris. Yeah, the turnover – the growth in turnover percentage has definitely slowed. That said, it's still, in our minds, way too high.

Okay...

So – go ahead.

Well, is the 4.5% wage inflation, is that wage rate inflation or does that also reflect the changes you guys made to the overtime?

No, that doesn't include any of the overtime pay changes. That's just wage rate inflation.

That includes minimum wage changes...

Right.

... in certain states, but it has been getting more intense all year...

Okay.

...in 2016.

Okay. And then Scott, is the 1% price increase taken consistently across the system or does it vary meaningfully?

It varies like it always varies for us. So there are some at 0 or close to 0 and there are some that are – could rise above 1%, but it does vary tremendously and by item, I might say as well.

Is the focus of the pricing really in those areas where you've seen wage pressure?

Predominantly, yes.

Are those also areas that have had some pretty resilience to traffic declines or traffic changes and have they been pretty healthy demand areas?

I wouldn't say that there's a correlation there or a relationship with that, so we really haven't seen a regional or menu tier-specific relationship on traffic growth or lack thereof.

Okay, great. Thanks, guys.

You're welcome.

And next from Buckingham Research, we'll hear from John Zolidis.

Hi, good afternoon.

Hey, how are you?

Hi, sorry about the speakerphone there. Question on the franchise, the decision to buy in the franchisees. First, can you talk about whether those stores are locations where real estate is owned or leased? And looking at the $17 million spent on buying in franchisees compared to $4 million on share repurchases last year, can you just give us a little sense for how you think about allocating capital and returns that you expect going forward with those different potential uses in mind? Thanks.

So, this is Scott. So on the franchise acquisition, we did buy all the real estate. So all that land and buildings, we own all of that, it was all part of the purchase price. And the franchise acquisitions, we're looking to get a certain return, we will accept a slightly lower return pro forma on a franchise acquisition than we would a new store since we already know what the sales are and there is a lot sales history in these franchise locations and some of these restaurants that we acquire are some of our oldest in the concept. So there's a little bit less risk there for us in that regard. I think share buyback has been one of those things where we've always had the opportunity to be opportunistic in our share buyback strategy and we're going to continue to act in that manner and that's what we've done historically and we'll continue to do that. So, obviously, we have a lot of flexibility in our balance sheet to, if and when we decide to repurchase our stock, we can certainly do it in a pretty big way pretty quickly.

Thanks and good luck.

Thank you.

Next, we'll hear from Andrew Strelzik with BMO Capital Markets.

Hey, good afternoon. Wanted to ask first on the AUV restaurants that were brought up earlier, the 6 to 18 months, now that you've got a couple quarters, four quarters in a row of the year-over-year declines, I'm wondering as those reach the 18 months and start to go into the comp base, are those starting to have an impact on the comps or weighing down the comps a little bit relative to those more mature stores?

Well, for those restaurants, it really depends – it could weigh up the comps a little bit. May start ramping up the growth and in some cases, that's exactly what happens. Now, you're talking 27 restaurants on a comparable sales base of 370. So chances are the impact on the 370 is going to be practically de minimis, regard almost – unless the comps are just humongous numbers. If they're a few percentage points better or worse than the comparable restaurants, it's not going to have much of an impact just because our existing base is so large now.

Okay. And then kind of a bigger picture question on G&A. G&A dollar growth over the last six or seven years has been at or above revenue growth almost every year, but as a percent of sales, it's been in a pretty tight range. I'm wondering how you guys look at that internally. Is there any thought around maybe managing that a little more closely as you have costs throughout the P&L and other areas that have been more inflationary, obviously ex the commodity side?

Well, this is Scott again. I would say on G&A, one reason why on some of the years it's grown faster than revenue has been a couple lawsuits that we settled because we include those in G&A versus somewhere else on the P&L. Another reason is, we have made some investments in our future, which we believe will pay off with, both in the Bubba's concept and infrastructure in Bubba's and also in our international group. So we've made some investments and we've been able to keep generally our run rate in G&A in the low 5s. Some – we've all had a challenge with some of the stock-based compensation, which has been a little higher because our stock price has been quite a bit higher as well, which impacted some of our growth. But our target internally is to grow G&A in a normal year, if there's such a thing, less than the rate of revenue growth and that we'll get tougher as our growth in percentage terms, unit growth slows a little bit over time. So 30 restaurants a year on a larger base is just a little bit lower unit growth and it will continue to be challenge for us. We definitely, again, we talk about all the time and we think we have a very good balance and discipline in how we are investing our G&A dollars and holding our folks accountable to their budgets.

Great. Thank you very much. Operatory: And we'll hear from Robert Derrington with Telsey Advisory Group.

Yeah. Thanks. Scott, I thought the company was in the process of doing some testing of various technology initiatives to try and make the restaurants a little bit more efficient and help grow same-store sales. Where the third-party delivery, can you give us any kind of update on where some of those programs stand?

Well, probably the biggest one is our Texas Roadhouse app that some other concepts have rolled and the app being an app where you can put your name on our caller head list, you can pay your bill and you can order to-go from an app on your phone. That is being rolled out as we speak across the country, probably won't be in the entire country until at least the end of this year or maybe early next year would be the case there, that's probably the most significant thing happening right now. As far as any third-party delivery, anything like that, not even really in that game today, we're very protective of the end restaurant experience. And so, we've never really pushed, number one, to-go sales. We want folks to come in and dine in our restaurant and enjoy the hospitality. And likewise on delivery, same thing. Could there be an exception? Sure. A New York City-type situation if we had a restaurant in New York City, I could see us maybe doing that, but I would say limited appetite at this point for us to get into the delivery game.

Okay. And as we look at the slowdown in the recent sales trend, is there anything that when you review either the tail of benefit from Star Bar remodels or from bump-outs. Are any of those things changing of any consequence, Scott? Are you seeing less benefit from some of those? Are they running their course?

No, I mean we're still doing bump-outs and those bump-outs are still helpful to us. We're up to I think about 175, 180 bump-outs now and we probably have 40 in the pipeline. I don't know how many of those will get done this year, probably 25 to 30, somewhere in that range will get done this year; those are kind of full steam ahead. Star Bars, most of the systems done. But Star Bars is more of a helping us stay relevant longer term in the future than it is a sales bumping investment in the short term in our restaurants, I'd say nothing's changed in that regard. And I think it's just a question of – we don't get too crazy over a couple months of sales data that hasn't been as strong as where we've been the last few years and we're also cognizant of the whole industry has tailed off quite a bit as well. So that kind of tells us, hey, we're still packed, we're still growing traffic. I mean, we still have more people coming in our restaurants this year than last year. So we still feel like we've got some good momentum going and sometimes you got to just weather the storms and not think you've got something wrong with your model and start changing things that maybe you regret in the long run just for the sake of a little bit of short-term heartburn.

Sure. That makes some sense. And last question if I may. Kent, you had mentioned at one point that the calorie counts on your menus on a relative basis actually didn't look as bad versus some of your peers. What did you all find as you tested the calorie counts on the menus? Should we expect a shift in preference, higher check, lower check, any kind of color you can help us with?

This is Kent. We've already had menu counts – or calorie counts on the menus in New York and we've seen no change in the product mix versus what they had before.

Terrific. Thank you.

I'm seeing no other questions, I would like to turn the conference back over to management for any additional concluding remarks.

I just want to say thanks for joining us tonight and have a great night. Thanks.

Thank you, all.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.