Good evening and welcome to the Texas Roadhouse Fourth Quarter 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 Chief Financial Officer. You may begin your conference.

Thank you, Melinda, and good evening everybody. By now you should have access to our earnings release for the fourth quarter ended December 26, 2017 that may also be found on our Web-site 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, and applicable reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Kent Taylor, our Founder and our CEO, and Tonya Robinson, our Vice President of Finance and Investor Relations. As always, following our remarks, we will open the call for questions. Now it's my pleasure to turn the call over to Kent Taylor.

Thanks Scott. We are pleased to announce another year of double-digit sales and profit growth in 2017. Traffic growth continues to drive our top line momentum with comparable restaurant sales growth of 4.5% for the year, including a 3.6% increase in discounts. With fourth quarter comps up 5.8%, our operators have now achieved 32 consecutive quarters of positive comparable sales growth and they are on track to add another quarter of comps of 4.7% through yesterday. In mid-December we implemented a price increase in some of our restaurants with eight mandated wage rate increases in 2018, which resulted in a wage increase nationally of approximately 0.3%. We plan to take an additional increase of approximately 0.8% at the end of March for the rest of the Company restaurants, no doubt that we have had our challenges in 2017 and in 2018, especially inflation which Tonya will talk about later. But overall, I'm feeling some very cool vibe for 2018, and as usual, I know our folks will continue to serve legendary food and service to our guests and strive to be their friendliest place in town. I want to thank our people for another rocking year and look forward to celebrating our 25th anniversary coming up in April. Trust me, it's going to be huge. Now, Tonya will walk you through our financial update.

Thanks, Kent, and good evening everyone. For the fourth quarter of 2017, revenues grew 12.5%, driven by 7.3% store week growth and a 5.2% increase in average unit volume. Additionally, we earned $28.6 million, or $0.40 per diluted share, during the quarter, which is a 37% increase over the prior year. Results for the quarter included $3.1 million, or $0.04 per share, income tax benefit from new tax legislation. Starting at the restaurant level, restaurant margin dollars grew 11.9% to $92.2 million, driven by strong top line growth and commodity deflation, partially offset by labor inflation. As a result, restaurant margin as a percentage of restaurant sales was down 11 basis points over the prior year period to 17%. I'll provide some color on each of the items just mentioned. For the quarter, comparable restaurant sales increased approximately 5.8%, comprised of 4.7% traffic growth and a 1.1% increase in average check. By month, comparable sales were 5.3%, 5% and 6.8% for our October, November and December periods. Overall, comps during the quarter were positively impacted by approximately 50 basis points, primarily due to the Christmas holiday shift. Cost of sales as a percentage of sales improved year over year by 137 basis points, benefiting from commodity deflation of approximately 3.1% driven by beef. Labor as a percentage of restaurant sales was 135 basis points higher than the prior year period and total labor dollars per store week grew 9.5%. Growth per store week includes labor inflation of approximately 5.8% along with growth in labor hours due to higher guest traffic and certain hiring initiatives rolled out earlier in 2017. Lastly, other operating costs as a percentage of restaurant sales were up 9 basis points, primarily driven by higher supplies expense and higher costs associated with disaster claims. Below restaurant margin,…

Thanks Tonya. We are pleased to have finished the year in such a strong note. No doubt restaurant margins in 2017 were significantly impacted by labor inflation. However, strong sales and commodity deflation did help offset the impact. During 2017, we opened 27 new Company restaurants and acquired four franchise restaurants, and we also continued to reinvest in our existing sites. At the same time, we returned $58 million in capital to our shareholders through dividends. Overall, we remain comfortable with the financial returns we are seeing on our new restaurants. And while our newest Roadhouse locations continue to perform well, our average development cost in 2017 increased to $5.3 million, primarily due to higher building cost. For 2018, we expect to see our development cost for Roadhouse restaurants remain similar to last year. Our unit economics on Bubba's are still very much a work in progress. We continue to tweak our prototype and similar to Roadhouse are very focused on the strength of our day-to-day execution. In addition to our domestic growth, we are excited about our international growth plans in 2018 and beyond. We currently have 18 international franchise locations in seven countries and expect to add as many as six more restaurants this year, including our first in Mexico. The lower tax rate that Tonya mentioned will result in significant tax savings in 2018. Our plans for those monies include, reinvesting in our people through higher compensation and additional benefits, keeping our menu prices aggressive, and returning more cash to shareholders through higher dividends. At the end of the day, we know our best chance for success lies in staying focused on driving top line growth by providing a legendary dining experience to our guests. We do that by maintaining our value on the menu and taking care of our people, who in turn take care of our guests. And like Kent, I look forward to seeing our operators and vendor partners at our upcoming conference and celebrating 25 legendary years with them. That concludes our opening remarks. So, Melinda, please open the line for questions.

[Operator Instructions] We'll go to David Tarantino, Baird.

First, a clarification question on the quarter to date comps. Tonya, could you let us know how much pricing and I guess check growth or traffic growth is in that number?

Yes. So, for Q4, comps came in at 5.8%, including traffic of 4.7%. That implies about 0.9% of average check, which had about 1.3% pricing.

Tonya, thank you. My question was related to the first quarter and what is – I guess the 4.7%…

Oh, the quarter to date, yes, sorry about that. So, quarter to date we are at about – comps are at 4.7%. And we really don't talk about how much of that is traffic, David. We kind of, since it's only 55 days, we kind of keep that – we only talk about that on a quarterly basis. Sorry about that.

Okay. Is it right to think though that there is less pricing in that number than what you had in Q4, given what you said about the pricing?

Yes, that would be right to assume. So, we implemented about 0.3% in mid-December. We had some roll-off. There's also about 60 basis points of pricing in there that will roll-off in May. So, yes, there is probably a little bit less pricing in there for Q1.

David, probably 75% to 80% of that number is traffic growth, quarter to date, not much yes.

Got it, okay. Thanks. Thank you for that.

Dave, I can't tell you, sorry for that, but just to clarify a little bit further, for Q1 2018 I would tell you pricing is probably going to be about 1%, just for the full quarter.

Right, thank you. And then a couple of other questions about just the dynamics in Q1, just so we are all clear, Tonya, you mentioned the calendar shift at the start of the year helping. Is there anything else underneath the calendar shift? I know for example Valentine's Day shifted on to Ash Wednesday. Was that a negative impact or was there any also negative impact from weather in the quarter to date period?

As far as Valentine's Day, no. That's kind of baked out by having all 55 days in there. So there was a little negative benefit on that day, but the next day it kind of picked back up from lapping. As far as weather, there could be some weather in there really going one way or the other actually because we are always lapping weather or something else is happening in the current quarter, so nothing that we would call out specifically or quantify from a weather perspective.

Okay. Then last question, Scott, you mentioned that you are planning to reinvest in your people with I guess the tax savings specifically. So, can you talk about the level of investments that you are planning to make in 2018 and where that would manifest itself on the income statement?

David, we're not going to get that specific in where and how much and by position. Some of that we haven't even announced to our own folks yet. So, we're keeping that kind of close to the vest. But I think as we laid out in the earnings, in our scripts that some amount will go to compensation and benefits related programs, and some of the benefit stuff we are still working on. And then some of it will be definitely to protect pricing and ultimately result in us taking probably less pricing than we might otherwise would have. And the last part, of course potentially growing our dividends faster over time than maybe we would have otherwise.

We have made some assumptions in our mid-single-digit labor inflation assumption of some increase in compensation. So there's a little bit built-in on that line. Just expecting that there will be some of that at the field at the restaurant level, a fair portion of that will be at the restaurant level.

Great. Thank you very much.

We'll next go to Will Slabaugh, Stephens.

Wanted to ask about Bubba's, and you mentioned Scott that it was sort of a work in progress in terms of the unit economics. Could you give us an update on what you've been seeing just broadly from a standpoint of sales and profitability trends and how you'd kind of characterize those so far?

Essentially Bubba's has just been pretty mixed and continues to be pretty mixed bag. We've got some restaurants that are doing exceptionally well, we've got others that aren't doing so well, and we are still trying to sort out some of the causal factors of that. Some we know is maybe our own doing. Operationally we've had some turnover in some of our restaurants. Some of it may be location. Some of it may be just we're early in growing the concept and getting more brand awareness of the concept, just like Texas Roadhouse was 25 years ago. We didn't just start out like gangbusters. So, we've got some stores that have a good bit of sales momentum as far as growing sales where they started or where they sell in after the honeymoon, others not so much, and again that's why we are focused so much on the day to day execution piece of that. And we continue also to tweak the box, if you will, a little bit. It's really a little bit of everything throughout the box, whether it's number of TVs, size of the kitchen, size of the building, that kind of thing. I can tell you that, I mean our average development cost in 2017 was a little bit lower than 2016, albeit we opened fewer restaurants. So, we feel like we're making a little bit of progress there. We'll see how 2018 turns out. We do have an even little smaller prototype, not much, but a little bit smaller, and that one is scheduled to open near the end of the year this year. So, we are continually pushing on Bubba's on all aspects to see if we can continue to get better and better and build more positive momentum and hopefully accelerate our growth in the future beyond this year.

Got it. So, should we be thinking about Bubba's as this is a year where we should learn a lot more and more maybe as we look into 2019 and be able to reflect back on some of the changes you are making and next year becomes a year where we learn a lot more in terms of if we want to accelerate or sort of go at a more measured pace?

The answer to that, I mean, I think right now we're kind of taking it year by year. And so, we’re learning a little bit each more year by year, and the experience of our people is building year-by-year. So, this year could be the year that we think we're over the hump on certain things or maybe it takes us a little bit longer to figure out how many tweaks we want to do in the concept. Again, whether it's the asset design itself, the menu itself, the pricing structure, the hours of operation, all those things are sort of up for debate and continuously up for debate. And Tonya have a new concept. I mean Texas Roadhouse had a number of changes in the early days to menu and hours of operations and all sorts of stuff since Kent first created the concept. And so, I think Bubba's is sort of following a little bit of that same evolution and it just may take us a little while longer than even we'd like. We're a very impatient bunch and certainly our people are operationally, and so they are pushing hard. But we still have enough confidence in what the guest is telling us about how much they value the experience at Bubba's to push us to keep going.

Great. Thanks Scott.

We'll next go to Brett Levy, Deutsche Bank.

If I could ask really a two-part-ish question, one is on research and margins. You guys have always been responsible on price but are you doing any research out there right now to see how much elasticity you have? Do you think that with how conservative you are on pricing, it's possible you might actually be leaving dollars on the table by taking even more of a value proposition than you have? And also, as that relates to your overall restaurant-level margins, since you are taking minimal price and you are seeing all of these increases in labor, how should we be thinking about what it takes to drive restaurant-level margins to drive expansion of restaurant-level margins? Thanks.

This is Kent. With 32 quarters behind us of increase in our same-store sales, I think we've got it figured out. I'll let Scott take it from there.

I think that's – I mean that really says it, Brett, in that that's been the same philosophy for so many years now and even most recently I mean we grew traffic 3.5% last year on a little more than 1% pricing. So, we feel like that's resonated very well with our guests. We never really talk in terms of price elasticity internally. Certainly there is always debate, do you leave some money on the table. We'd rather leave some money on the table and know we're protecting our [indiscernible] accounts because we're in this thing for the long term. We treat it like a marathon, not a sprint, is the best way I can say it. And so, we are going to continue to do that. If in the short term that means we give a little bit of margin, we have in the past and sometimes these things are cyclical and you eventually get some of it back and we figure out how to do some things more efficiently, we'll do that. But very much we just want to be on offense, and be on offense is aggressive pricing and it's staffing like crazy, and that's kind of what we're doing right now. And again, we know it may make the margin battle a little bit tougher, which means we've got to grow traffic a lot to keep our margins in line. We know that going in if we stick with the current pricing that we've announced to all of you, but that's basically been our bread-and-butter for a long, long time and we see a lot of competitors often go aggressive price points for the TV or otherwise are very sensitive to that. And most important thing is, we never take the next day sales for granted and we never tell ourselves that we have arrived. And so, part of that mentality says we have always got to be cautious and aggressive when it comes to protecting value on the plate and we're going to continue to do that.

We'll go next to John Glass, Morgan Stanley.

Just first a follow-up on the tax question, is there a way, I know you don't want to talk about where the money may go on a [indiscernible] basis, but do you intend to preserve 80% of that and pass through 20%, or is there a way to think about just in totality how much comes back to the bottom line at the end of the year versus gets reserved from the business however you choose to do it?

This is Scott. I think we don't have a percentage figured out. And one thing is we are still talking about it. What I mean by talking about it is, some decisions we know we're going to make, we're going to announce some of those internally very soon. Other things we are still investigating. So, the numbers even internally are moving around a little bit. Because we waited a little bit, we've kind of heard some things from other companies that they are doing, which has given us certain ideas or things to think about that we might be able to do for our people, and so we're looking at some of those things as well. But as far as what final percentage, a lot of that could be construed to be taken up with protecting pricing. So, you could assume that some percentage, and I can't give you that, some percentage is not going to fall to the bottom line because it's going to be taken up by pricing or labor cost.

Okay, thank you. Thanks for that. And then just on the to-go packaging comments, is that a signal that you are focusing more on to-go, or just remind us maybe what the to-go percentage was either in the quarter or the year, have you reemphasized or plan to reemphasize more of this packaging or is that just a comment on the packaging cost themselves and you're not changing strategy there?

This is Kent. We're making it easier to see the food when you are putting it together for the guest. We're also trying to be a little more environmentally friendly and looking at containers that keep the food a bit hotter. But we are not chasing delivery or anything. We just want to make sure that our experience when people do come in and get to-go is the best that it can be.

Are you willing to disclose the percentage of sales now that are to-go?

This is Scott. So, over the last five years, our to-go business as a percent of sales has doubled. I mean, it's gone from 3% to roughly 6%. And with the average being 6%, and we don't advertise it, we don't like pushing it or anything like that, it's just part of that, I think it might be a function of the long waits that we have just to dine-in inside the four walls, and we'd much rather have people come in and eat. However, for those 6% that want to do take-out, all the things that Kent just mentioned are things that enhance presentation of the food for us and make us more environmentally conscious, which we definitely want to do, make a great corporate partner. As well, we've got some restaurants that are obviously higher than 6%, our average is 6%, and so they really want to make sure we are doing a good job. Some places it's high demand for food-to-go for whatever reason, and so we're just kind of stepping up our game and we definitely don't have our head in the sand on it just because we'd rather have people come in inside the four walls, we don't want to ignore the quality and the experience that the folks get that dine in with us. We have significantly, we have nationally rolled out our online platform to order to go. So, you can go online and order to go, so you don't have to call us, and getting through on the phone was tougher. So, that by itself will lead we think to an uptick in to-go sales, and it has, when we were rolling it out. So you've got that. You've also got the ability to order to go on our mobile app. So, we've added more platforms for people. So, our presumption is that business will continue to grow.

Got it. Thank you.

We'll next go to Jeff Farmer, Wells Fargo.

Just following up on an earlier question, it sounds like you are guiding to a similar level of wage rate inflation that you saw in 2018 compared to in 2017, sounds like a little bit more modest menu pricing. So, putting all the pieces together, Scott, is it fair to assume that you could see another labor year where labor as a percent of revenue is up greater than 100 basis points in 2018?

It's possible, yes. I mean it's absolutely possible. A lot of it will depend how accurate we are in forecasting labor, meaning will these trends continue, the pressure that we are seeing on wage rates continue. And if they are, if it's mid-single digit labor inflation and we end up with the year with just roughly 1% in pricing, depending upon how much traffic we grow, you could easily see 100 basis point change in labor.

Okay. And just one more unrelated on the top line, might have missed this, the 4.7% same-store sales number through the first seven weeks of 2018, any commentary on whether or not you were able to hold onto that? Looks like roughly 500 basis points of outperformance that you saw versus the peer group in 2017. So, said differently, are you holding on to your market share [indiscernible]?

I don't know the answer to that question.

I mean, I don't think – I don't know if that number is really even out, final numbers. I haven't seen any for January or for this whole 55 days we are talking about, so hard to say. I mean, I can tell you we haven't changed anything or done anything differently that would tell me that number is going to change a whole lot. It's just hard to say.

All right, thank you.

We'll go to Jeffrey Bernstein, Barclays.

A couple of questions as well, one just following up on that labor question, just to clarify, I know you said mid-single-digit inflation in 2018, and I believe you had said that last quarter, I know last quarter was prior to your knowledge of the tax reform benefit. So, does that mid-single-digit put you at – did that include some of the tax reinvestment? I just want to kind of parse that out and see how much of that mid-single-digit is already factoring in some of the benefit from tax reform versus kind of more traditional inflation.

This is Scott. All we can tell you is that right now our forecast includes mid-single-digit labor inflation. So, we are not going to parse out which piece is what for you guys, guys and gals, but that's what our current forecast is today. It's got a lot of pieces in it. So, we are calling everything inflation. Some of it are operational changes like when we are aggressively asking our folks to staff at a greater level. That's part of it and we're just calling it all inflation.

I got you. I guess, the wind-up question from a few people, just I guess people don't want to be too wide-ranging in terms of earnings estimates for next year, for 2018, but it sounds like at this point you don't have a better guess in terms of how much of it is reinvested versus how much of it is returned. Is that fair to say?

I think we can go – we have some ideas on that and we still felt very comfortable with the mid-single-digit guidance that that would encompass that. So, I think that's what you can read from that.

I think we always deal in a world of wide-ranging earnings estimates. When you've got 1 point of traffic equals 5 or 6 points of earnings growth, that by itself, because we own 85% of the restaurants, there is significant operating leverage. So, we are always going to have a wide range of outcomes. I think we've got very little of our food locked in the second half of the year. So, that's another – food cost can be different from what we've forecasted simply because we haven't locked in so much of it for the second half of the year. So again, by nature of how many of the stores we're going to operate being an operator versus a franchisor, there is always going to be a lot of a bigger range in earnings outcomes.

Understood. And my follow-up was just on the unit side, I mean with the talk of Bubba's, I know a couple of quarters ago it sounded like maybe you had more conviction that Bubba's was the second brand. I wasn't sure if maybe Bubba's doesn't come over the hump as you mentioned, [indiscernible] pull back on Bubba's or would you say Bubba's is the second brand and all the 18 stores are under construction and you would expect at this point an uptick in openings in 2019?

I will let Scott answer that, but we are building seven stores this year. So, [indiscernible] seven stores, but I will let Scott answer it.

I think it remains to be seen, Jeff. I think based on our guest feedback, they certainly tell us they'd like it to be the second brand. We get a lot of great feedback on it. So, for us it's really rightsizing the reality of sales and margins with how much we can put into the box, like any concept, and sometimes it just takes a while to figure out that relationship, that sales to investment relationship that has the right balance to it. And so, we're still working on that. At the same time, we're building a whole new brand from scratch. So, there's still an element of, we are still in a very competitive business just with the Bubba's concept, and just like Roadhouse, not every Roadhouse opened to great sales after the honeymoon but over time by day to day good execution started growing sales, and many of our restaurants have grown sales for 10, 15 or 20 straight years. So, we're kind of taking the same approach with Bubba's, and again, it may just take a little bit longer than we would like before we are more comfortable building more Bubba's than fewer. So, we just did four last year, seven this year. Part of the seven this year really should have opened last year. They just got pushed. So, I can tell you that for 2019 it's certainly up in the air how many, we'll probably do at least a few, and then depending upon how much momentum we've got, we may opt to do a few more. Time will tell.

Understood. Thank you.

We'll go to Andrew Strelzik, BMO Capital Markets.

First question is on beef prices. If we look at beef prices at least on a spot basis over the last couple of months, they've been moving against you on a year-over-year basis. So, I guess first, what do you think is going on there in the beef market that you are seeing? And second, maintaining the flattish type of commodity basket, what gives you the confidence to hold that level? Do you think that this is a temporary move, is there something else going on there within the basket?

It's Tonya. I would tell you, when you look at the year, as Scott mentioned a minute ago, we're 45% locked on the whole basket. Obviously, a good amount of that is beef. We're really locked more on the first half of the year than the back half of the year. And when you look at 2017 and how we had 2.4% of deflation in 2017, a lot driven by beef, and really we were, I would probably say we were kind of under-market in the first half of 2017 and a bit over-market in the back half of 2017. This is kind of how that played out. So, obviously there is some volatility there potentially. We feel good about being relatively flat. Our current guidance, we feel good about that. Nothing in the beef markets that I would point out to you that I would call out. Scott may have more to add to that, but nothing that I would necessarily call out that we think is changing a great deal.

I would just say one thing, just transportation cost. So, there's been a lot of discussion around anything trucking related. Whether it's your food distributor or any supplier who has got to transport something from point A to point B, it's been really tough to say staff the drivers. All these trucking companies are having to pay more than they ever had paid historically, pay bonuses to hire people. And so, their cost structure is going up high a bit as well, and so some of that can translate into spot prices for just about anything that has to be transported.

That's very helpful, thank you. And then just kind of from a consumer perspective, you've got the tax cuts and more money that's going to be flowing into consumers' pockets. You've got kind of a narrowing gap food at home/food away from home that some people like to look at. So, I guess I'm just wondering, do you think going forward as you think about 2018, the demand side sets up better for a concept like Texas Roadhouse and is there any kind of historical precedents that you can point to where you have seen that either benefit or not benefit the Company?

I don't know of any historical precedent where [indiscernible] till today. I mean, I can't think of any, certainly in my working life. So, as Kent mentioned I think in his comments, we feel very good about the positioning of our business, the strength of our business, the strength of our people, the quality of the people that we have running our restaurants every day. We've got a lot of momentum, we feel very good about that. So it's very encouraging. [Indiscernible] employment, a lot of folks are getting a few extra bucks in their pocket every week. That helps. I mean we have got more of a tailwind for sure. So, I think that's good. So we're hopeful. Obviously, we are sitting here early, third week of February, so you've got most of the year left to go before you close the books, but we feel pretty good at our prospects.

Great. If I could just squeeze one quick one in here, another one, the delta on the CapEx guidance from last quarter, just what was behind the reduction?

Some of that is just the timing of openings, Andrew. It's just really more of what that's about. We're seeing about the same level of spending on existing restaurants' maintenance CapEx, so really just more about the timing.

We will now go to Jason West, Credit Suisse.

I guess a quick one to start, just following up there, with the tax savings, are you considering anything on the capital side that you might do in the future, whether it's around remodels or bump-outs or any of that stuff in the plans?

No…

This is Kent. Hopefully we'll do some more franchise acquisitions.

Yes, so that would be one, would be franchise acquisitions. And certainly we have a lot of debate over what kind of tax rate should we use when we are looking at 20 year projects plus, not knowing how permanent this tax cut is and what could happen in the future, if there is a change in administration or philosophy or whatever it is. So we definitely changed our tax rates that we use in our financial models and we haven't gone all the way down to 15% to 16%, because again, we are talking 20-plus years when we are looking at these cash flows, whether it's new restaurants or whether it's franchise acquisitions as Kent mentioned, but it definitely helps.

Okay, got it. And then just on the Easter coming up, I think it's on April 1 this year, does that fall kind of equivalent calendar year-over-year, is there anything we should be aware of there in the first quarter?

No, Jason, there is nothing different there that we will call out. It should be pretty much a push. There's no change on timing or days or anything.

We'll next go to Alex Mergard, JPMorgan.

I just wanted to ask about some of the labor initiatives that are underway and if you have seen any meaningful changes in either turnover or comps for the units that you have implemented it in?

This is Scott. So, one of the biggest initiative is simply just staffing levels. So, with just more of a position of strength, given we have over 100 employees, Roadies per restaurant, and particularly on servers which is our most populated position, we have really challenged our folks to continue to add servers. A lot of these folks want time off, they want flexibility in their schedule. And to do that, you got to have a lot of servers that you've got hired and ready to go. So, we've been talking a lot about. When you add more people, there is a training cost to that. We really had it in place for that long and haven't made that many strides yet. Some restaurants have made that many strides, that of 500. Hasn't been that big of a change in the system yet, so it's really too early to tell how much of an impact that's having on sales growth. Our turnover really hasn't changed, our hourly turnover. In the past year, and still for us, it's above 100%, which is too high. So we're having a lot of discussions about that. We think ultimately part of this staffing and giving employees more flexibility in their schedule will help the turnover, but it's still yet to be proven.

Okay, thank you for that. I completely understood. And then one quick follow-up, with respect to capital allocation, do you have any intention whether it's in 2018 or beyond of perhaps accelerating the number of bump-outs or even making about kitchen redesign or back of the house remodel to help us with the capacity issues that your stores at peak are having? Thank you.

I can tell you we don't have a plan to increase the rate of bump-outs. However, we are having a lot of discussions about kitchen bump-outs. And so we've got a lot of restaurants that are starting to hit 7 million, some are hitting 8 million in sales, which is a tremendous amount for existing size of our kitchen. So they are making it work. We haven't yet proven to ourselves what capacity is at any restaurant. However, we know that there is an opportunity to bump out both cooking area, storage area, grilling area, but also just how food is close to the kitchen. So there is a certain number of plates that have to get through a certain window in the kitchen to get out to the front. So we even have to figure out how to make that part of the kitchen bigger. Those are the little things that we might talk about. But we don't have any definitive plan at this point to do any sizable number of back of the house or kitchen bump-out at this point.

We'll go to Nick Setyan, Wedbush Securities.

I hate to belabour the labor question, but I know last quarter you guys had said all-in 7% to 8% labor inflation, labor expense growth with mid-single-digit labor inflation plus the increased staffing and labor hours. So, this time when you are talking about mid single digits all-in, is there change in terms of how you thought about 2018 from last quarter to this quarter or is that still mid-single-digit wage inflation plus another 2% to 3% of staffing initiatives?

I would tell you that the mid-single-digit is really just it has a little bit baked in for some labor initiatives, but it doesn't have anything baked in for whatever traffic growth may be. So, when we talk on a per store week basis, that's kind of the all-in number, inflation plus traffic growth, growth in hours, things like that. When we are talking labor inflation, we're just talking more, we are kind of baking out that traffic piece of it. So, I think that 7% number may have had some of that traffic benefit, kind of what's going on with traffic growth in there too. So, I think right now just mid-single-digit I would say somewhat similar to what we've seen in 2017, and again as Scott mentioned, it's a big range and there is a lot of things, a lot of moving pieces and parts that could change, just market pressure type things, how the initiatives roll in, what we do on any compensation changes, just a lot of different things there. So, I'll just remind people that that is a pretty big range.

Okay, got it. And then just on the other OpEx, with 5.8% comp growth, it was still delevered a little bit year-over-year on the other OpEx. I mean it's still the case, but ultimately what are some of the inflationary factors that we can't lever that expense line?

This is Kent. I don't know what [indiscernible] does. So, I don't know if we can answer that.

I think, Nick, it's really hard to hear you, so I'm not sure we heard all your questions.

On the other operating expense line, with 5.8% comp growth, we still saw a little bit of deleverage there. I guess maybe if you could give us some more color on what some of the moving parts there that are driving that kind of inflation on that line item and what kind of comps would it take to see some leverage there?

So there were a couple of things running through in Q4. We kind of called out disaster claims. So, you had some stuff going on there with hurricanes, different things like some of that impact you. Also on that line in Q4 there was about, a little over $500,000 on that line with the hurricane relief donation that we had at the beginning of the quarter. So, those are a couple of one-time things I guess I would call out that drove that up a little bit in Q4 that you may not see going forward. However, those supplies run through that line, you will see that $3.5 million to $4 million will be coming through that line in 2018. So, that will make it a little tougher on leverage for that line. A lot again just depends on comps and traffic.

And just lastly, I know the franchise piece is obviously not that big, but anything to pay attention to with respect to some of the changes in the accounting standards?

With the revenue recognition guidance, is that what you are referring to?

Yes.

Not for us, not a lot there for us. Development fees, you do change the way you recognize those, the timing of recognition changes. We don't have too much of that, so not very impactful for us and we do have a pretty small base of franchise restaurants. You are going to see some changes. We'll be talking about them in Q1. Not to the bottom line but some movement of pieces around the P&L. It's going to be a little bit confusing as we are moving some stuff around based on the guidance, implementing this guidance at the beginning of the year. But again, no effect to the bottom line and we don't think the franchise development change, we are not expecting much of an impact there.

Very small.

Perfect. Thank you very much.

We'll go to Stephen Anderson, Maxim Group.

Another question on the labor side, you talk about increasing the investment in your people. Do you expect to pay any one-time bonuses in Q1 or Q2 or just you expect this to be a level approach to increase their compensation?

This is Scott. Whatever we do will be an ongoing investment. So it won't be a one-time bonus. It will be a permanent increase in some rate of compensation or benefit.

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

This is Jared on for Karen. You guys launched two smaller portion meals sort of in the first half last year. I kind of just wanted to ask how the mix was sort of trending over time and how you think that's kind of positioned as value with some of the additional price point discounting that you are seeing at peers.

We did implement those in May. We added five-ounce salmon and eight-ounce strip steak. So, we did see a little bit of positive mix on those because of the lower price point. From a sales perspective, they are popular, they do well. I think to your point on value, I mean it did what we want, it's doing what we wanted to do as far as adding a little more value on the menu, and we'll lap that in May. That's when we implemented that in 2017.

Okay, thanks. And then do you guys anticipate doing more of those smaller portions?

We don't have anything – there could be some stuff in the works with the food group, don't know. When we implement pricing at the end of March, there is no menu changes that are expected that we'll be implementing then, so nothing in March.

We'll go to Peter Saleh, BTIG.

Just wanted to ask about your long-term unit potential domestically for Texas Roadhouse, I think historically you had thrown out somewhere in the 600 to 800 unit range. Has your thinking around that range changed at all, up or down, given the unit volumes recently, the cash flows, the changes in tax policy? Anything around that would be helpful.

This is Kent. I would actually put it more of the 700 range.

I think that's what we have said in the past, kind of the 700 to 800 range domestically.

All right, thank you very much.

We'll go to Chris O'Cull, Stifel.

Scott, in the past you guys have historically paid management partners with I guess a large portion of the comp in bonuses which was tied to performance. Are you guys considering any changes to this structure, given you are talking about using some of the tax savings to make changes to give back to employees, is there going to be any risk that you guys change this incentive?

Our bonus piece of how we compensate our management partners will not change.

Okay, great. And then, Tonya, you mentioned less bonus year-over-year in the fourth quarter, but I assume the Company paid above the target level in 2017. Is that correct?

Yes, we did pay – yes, the numbers for 2017 did come in above the target, just not as much above as they did in 2016.

Okay, great. And then just lastly, are you guys assuming beef prices are going to be flat in the back half of 2018, to which you guys paid to get to your flat commodity guidance for the year?

No. I mean into that flat guidance we have some beef deflation assumed. So, I would say that there is some beef deflation possibility there built into that. I would say it's probably more deflationary in the back half of the year on beef than it is in the front half of the year, just based on how we contracted in 2017.

Perfect. Thanks.

And that does conclude our today's question-and-answer session. At this time, I'd like to turn things back over to Tonya for any additional or closing remarks.

Thank you all for being on tonight. If you have any additional questions, please feel free to reach out to us. Have a great week.

Thank you. And that does conclude today's conference call. We thank you all for joining us.