Texas Roadhouse, Inc. (TXRH) Q1 2018 Earnings Report, Transcript and Summary

Good evening and welcome to the Texas Roadhouse First Quarter 2018 Earnings 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, Don, and good evening, everyone. By now you should have access to our earnings release for the first quarter ended March 27, 2017, that 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, 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. Following our remarks, we will open the call for questions. Now I would like to turn the call over to Kent.

Thanks, Scott. We’re pleased with our top line momentum and operating performance in the first quarter with sales growth of 10.8% and comparable restaurant sales growth of 4.9%, including 4% higher guest counts. Our momentum continued in the first four weeks of the second quarter with comparable restaurant sales up 8.5%. We have been busy in 2018 working on the basics that will continue to move us forward. Nothing revolutionary or radically different from what we have done in the past, instead simply challenging ourselves to execute even better on the fundamentals that we’ve now gotten us here today. In late March, we implemented a menu price increase of approximately 0.8% to go along with the 0.3% menu price increase that we took in mid-December. This quarter, we also raised our Annual Managing Partner base pay, which has not changed since 1993 by approximately 10%. Savings from tax reform certainly helps offset the cost of our investments in labor, while continuing to keep our prices low. We also will continue to look at other ways to reinvent in our people as we move through the years. Our new restaurant development is on track with 11 restaurants opened so far this year. We have another 10 sites currently under construction and now are well under – well on our way to opening approximately 30 company locations in 2018. In addition, our franchise partners have opened two restaurants this year, including our first location in Mexico. In closing, I want to congratulate Dave Eubank on Mesquite, Texas for being named our 2017 Managing Partner of the Year at our recent conference in California. It was great to be together with our operators and partners celebrating another successful year in our 25th anniversary. Now Tonya will walk you through our financial update.

Thanks, Kent, and good evening, everyone. For the first quarter of 2018, net income increased 59% over the prior year to $54.5 million, or $0.76 per diluted share. Our Q1 2018 reported net income included the benefit of a lower tax rate, compared to the prior year period, which contributed a $0.11 to diluted earnings per share this quarter. In addition, our Q1 2017 net income included a $14.9 million pre-tax charge, which impacted diluted earnings per share by $0.13 in the prior year period. Revenue growth of 10.6% during the quarter was driven by a 6.5% increase in store week and a 4.4% increase in average unit volumes. For the quarter, comparable restaurant sales increased 4.9%, comprised of 4% traffic growth and a 0.9% increase in average check. By month, comparable sales increased 5.7%, 3.7% and 5.3% for our January, February and March periods, respectively. As Kent mentioned, comparable sales increased 8.5% for our April period. In Q1 2018, we implemented the new revenue recognition accounting guidance and made certain reclassifications within our income statement. The reclassifications had no impact on net income and the comparative financial information has not been restated. Before I move to the discussion of restaurant margin performance, I will provide details surrounding the changes. This quarter, in conjunction with the implementation, we reduced sales by $1.8 million for gift card fees, net of gift card breakage income and increased other revenue $0.7 million for franchise-related items. In addition, as a result of the reclassification, cost of sales decreased $1.5 million, or 14 basis point, other operating costs decreased $1.5 million, or 20 basis points, and G&A increased $1.9 million, or 32 basis points. No reclassifications were made in labor. However, the change in sales resulted in an increase of 9 basis points to labor as a percentage of total sales. We currently expect the ongoing 2018 impact of the reclassifications related to the implementation to be similar as a percentage of total sales or as a percentage of total revenue to those just quantified. Now, I’ll move on to a discussion of restaurant margin, which decreased 75 basis points to 19.2% as a percentage of total sales compared to the prior year period. Cost of sales as a percentage of total sales decreased 12 basis points, compared to the prior year period. The impact of approximately 1% commodity inflation was more than offset by the benefit of average check and the impact of the reclassifications. For the full-year, we have updated our commodity cost forecast to approximately 1% inflation from previous guidance of relatively flat to costs. Labor as a percentage of total sales increased 126 basis points to 31.5% and labor dollars per store week grew up 8.1% compared to the prayer period. The main drivers are wage and other inflation of approximately 4.7%, including the impact of increasing Managing Partner base pay in growth in hours of approximately 3.5%, including the impact of higher guest counts. We continue to expect labor dollars per store week growth to be in the mid single-digit range, excluding the impact of higher guest count. Our labor expectation includes an estimate of increases due to mandated state wage rates, ongoing market pressure, restaurant level compensation increases in growth and labor hours due to certain hiring initiatives. Lastly, other operating costs as a percentage of total sales decreased 36 basis points compared to the prior year period, primarily due to the impact of the reclassification and lower costs associated with incentive compensation in general liability insurance. The decrease was partially offset by higher dining room supplies expense related to new to-go packaging rolled out in late 2017. We currently expect other operating costs to be approximately $1.5 million to $2 million higher for the remainder of 2018, due to changes in to-go packaging. Moving below restaurant margin, G&A cost as a percentage of revenue decreased 227 basis points, or $10.1 million in the quarter. The $14.9 million pre-tax charge in the prior year period resulted in a 262 basis point improvement this quarter, which was partially offset by the increase related to the reclassification. Just a reminder, the G&A expense in the second quarter of 2018 will include the cost of our Annual Managing Partner Conference held in San Diego this year, which we expect will be approximately $2 million to $3 million higher than the prior year. Our 2019 conference will return to Florida, so costs will be lower next year. Depreciation expense increased $1.9 million year-over-year to $24.5 million, or 3.9%, as a percentage of revenue,. which was a 7 basis point decline. Finally, our tax rate for the quarter came in at 13%, compared to the 26.5% rate in the prior year period. Our first quarter rate is lower than our full-year tax rate guidance of 15% to 16%, due to the impact of excess tax benefits recorded from the significant amount of equity compensation awards best during the period. Our balance sheet remain strong as we ended the quarter with $198 million in cash and $52 million in debt. In April, after the end of the first quarter, we use some of our cash to payoff our outstanding credit facility balance of $50 million. During the quarter, we generated $107 million in cash flow from operations, incurred capital expenditures of $35 million and paid dividends of $15 million. We continue to project capital expenditures of approximately $165 million to $175 million, excluding any cash used for franchise acquisition. Now I’ll turn the call over to Scott for final comments.

Thank you, Tonya. Our sales were off to a great start in 2018, with comp sales for the first four months of the year, up 5.8% at our company restaurants. Our strong top line performance is definitely a credit to our operators and their persistence of sticking to the basics and their commitment to always getting better. In this quarter, the 407 Texas Roadhouse restaurants in our comparable restaurant sales base generated average weekly sales of almost $105,000, which is up 4.9%versus last year. Even more impressive, our 18 newest restaurants that are less than six months old generated over $106,000 a week on average and the financial returns were in line with our expectations. No doubt, our operating performance is being pressured by continued labor inflation and investments. But we’re confident, we’re doing the right things for the long-term health and success of our brand. We believe that investing in staffing and in our people will take us to the next level in providing legendary food and service, which is always will position us for continued strong top line growth down the road. We all look forward to continuing to build upon the foundation that Kent started 25 years ago. As Kent said, it was great to be together at conference to celebrate, not only our past successes, but also what the future holds for our company. Special congratulations, again, to our Managing Partner of the Year, Dave Eubanks and also to Alex Marroquin of Bedford, Texas, who became our National Meat Cutting Champion for the third time. Awesome job, Alex. Now that concludes our opening – our prepared remarks. So please open the line for questions.

[Operator Instructions] And we’ll take our first question from Brian Bittner with Oppenheimer.

Thanks, guys, A couple of questions. Just first, are you just going to see a big kind of broad-based overall pickup in consumer behavior here entering the second quarter? Is there something else in April that’s really helping to drive this real strong 8.5% comp that you can point us to?

Hey, Brian, this is Scott. Obviously, we’re very happy with 8.5%. It could be some consumer pickup, we really don’t know. Admittedly, we would tell you, we were lapping a month from last year that was amongst one of our easiest comparison. So that’s probably part of it. But no doubt, we’re thrilled with the sales that you’re seeing.

Okay. And just second and last question, you talked on – in your prepared comments about upgrading your packaging further to-go business. Where are you guys on the to-go business as a percentage of sales now? And how fast is that business growing?

This is Kent. We’re approximately 7% in to-go, whereas a year ago, we’re like 6.2%, and the year before that 5.7%.

Okay. Thanks, guys.

We’ll take our next question from David Tarantino with Baird.

Hi, good afternoon. Just a couple of questions on the margins. First, Tonya, I think you mentioned something about other operating expense being up $1.5 million to $2 million for the rest of the year. Could you just clarify what you meant by that like what are you comparing that to? Is it to what we saw in the first quarter? And is that for each quarter going forward? Could you just clarify what you meant by that?

Well, there were a couple of things going on in other operating costs. So I’m not sure, which one – there’s a decrease expected we had it in Q1. It was a decrease of about $1.5 million relating to the reclassifications that we made in conjunction with the new accounting guidance. So that was about a 20 basis point benefit on the other operating line. However, we are seeing an impact of the dining room to-go supplies being up. And that’s I think that for the quarter probably ran about 10 basis points or so, and that’s what we were talking about when we said cost would be up for the remainder of the year, I think, we said $1.5 million to $2 million. So we’re talking about – they were up in Q1 and we expect $1.5 million to $2 million due to the rest of the year, primarily in Q2 and Q3 as we began that roll out in Q4 last year.

Okay. Got it. Thank you for that. And then, I guess, my broader question on the margin outlook is, is just the overall philosophy you’re taking on price increases. I know the traffic results certainly speak for themselves. But I guess, at what point does it make sense to lean in a little bit more on pricing, given the inflation you’re seeing? You had a great same-store sales in Q1 and the restaurant dollars for operating week were flat according to our math. So I guess, at what point does that sort of get frustrating for the operators to see flat profit with such strong same-store sales. Thanks.

Well, hey, Dave, this is Scott. As you know, because you covered this for a long time. We view the approach to running the business as definitely a marathon and not sprint. And so, we continue to take pricing over time. We will continue to closely monitor our margins over time. We will continue to generally closely monitor our – the compensation of all of our operators and folks that are accompanying over time. As Tonya mentioned and Kent mentioned, I believe, we did just increase the compensation – the base compensation for our Managing Partners, which is the first change ever. From that standpoint, obviously, their bonuses have grown quite a bit over the last 25 years as of the profits of restaurant have grown. But certainly, we better adapt to their program and they’ve had significant increases in their compensation for many years now. So, again, it’s a marathon, not a sprint. We’re going to continue to be very competitive on our pricing. That sort of got us here to this point, dance with one that brought you in. If somebody might have said that somewhere else in the world and that’s what we’re going to continue to do.

Fair enough. Thanks for that, Scott. And just so I can confirm, there’s no plan for further pricing actions for the rest of the year. So what you’ve done so far is what you expect in the balance of the year?

There are no plans currently.

Great. Thank you very much.

We’ll take our next question from John Glass with Morgan Stanley. Mr. Glass, check your mute function, we’re unable to hear you.

I’m sorry. on your acceleration you experience in April on sales, I know you talked about it being broad-based. But are there any clues as to what’s happening either geographically, for example, or in menu mix or these new customers have never visited? Is this just your existing base coming more? Are there any clues to kind of give you a sense of what’s changed in your business, at least, as it – with respect to the consumer?

Hey, John, this is Kent. When I opened my Christmas presents at Christmas, and I get something I’m sure not expected. I’m just like happy to see it. So that’s kind of where we’re at.

Okay, I understand. And maybe a quick, Tonya, for you on the – I just want to make clear. On the $1.5 million to $2 million of incremental expenses on packaging, that’s cumulative, or is that per quarter that you were talking about?

That would be the – for the remainder of the year, so Q2, Q3, part of Q4 is what we expect to see in addition to what we saw in Q1.

In total?

In total.

Correct, okay. And then you talked about giving the Managing Partners a 10% raise, now it’s part of reinvesting the tax – the benefits from tax reform. Is that what you’re going to do, or do you plan other similar investments in labor or something else along the way that you maybe haven’t decided on yet?

John, we’re always looking at like any company always looking at how we compensate our people. And the Managing Partner piece something we’ve been talking about a lot, because that base piece hadn’t changed for so long. There have been other things along the way that we’ve done to enhance their compensation program. And this was just another step, I guess, in that journey. Certainly, the tax change helps with that this particular year amongst other things. But we’ve made other changes to other compensation for other management folks, both in our restaurants and outside of our restaurant. So it’s kind of across the Board. And there could be more coming, I don’t think anything is big as this for the remainder of the year like likely not. For the most part, our situation is pretty set.

And this is Kent, and we had raised our service managers and kitchen managers last year. So we actually did that before we knew that this was going through.

Got it. Okay. Thank you.

We’ll go next to Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two questions. Just one, we haven’t heard the name Bubba mentioned yet on this call. So I’m just wondering if there are any new learnings to move the needle more, or I guess, less favorable as you think about growth of that brand over the long-term as Texas Roadhouse potentially slows down?

Hey, Jeff, this is Scott. We’re still on track to open possibly seven Bubba’s for the year. I can tell you that now that we’ve got 20, 22, I believe opened to date. We’re starting to get a better track record of what the weekly sales or and just as importantly, what the margins are, because part of the Bubba story has always been that the margins were a bit higher than on the Roadhouse side. They’ve proven to be quite a bit higher on the Roadhouse side. And so the returns have been pretty good on the Bubba side. So we’ve had a pretty big variability in sales. On Bubba’s, which we’re still working on trying to have better understanding of that aspect of it, but the margins have continued to be very strong on the Bubba’s side. One thing that has been encouraging this year is, we started to see some positive momentum in Bubba’s sales growth. So in the restaurants that we have opened, we’re starting to see a high percentage of those restaurants start to grow sales some at a pretty high clip. So we’ll continue to watch those very closely as we continue to open a handful of restaurants more this year. We’ll see next year not ready to give you the number yet and how many we’re going to open next year won’t be a huge number. But certainly, we’re very encouraged by the weekly sales trends and the growth that we’re seeing in that concept.

Well, that sounds quite encouraging. My other question was just around G&A this quarter. I’m just wondering or how we should think about G&A for full year, another with some unusuals in the line from last year? But it was up significantly, if you stripped out last year’s unusual. Just wondering, what – how you expect G&A to play out the remaining quarters of 2018 perhaps relative to revenue growth, or how everyone look at that?

Jeff, this is Tonya. If you look at G&A and you back out that $14.9 million, you do – G&A was basically flat year-over-year. I think, we’ll see it. Q2, it’ll be a little bit higher than last year with the conference expenses I talked about, and then it’ll probably normalize in the back-half of the year is what I would expect to see. So those are really the Q1 charge in the conference expense in Q2, I don’t think they’ll probably call out related to 2018 being different.

Okay. And is there any color to share on international? I know, that doesn’t get much discussion either, but it would seem like, I don’t know whether I’m I’m interpreting it correctly that the international comps perhaps were weaker this quarter than they had been? I wasn’t sure, if anything unusual going on there?

Yes, Jeff, this is Scott, again. Yes. So our international continues to grow and we’ve already opened – our partners have opened a couple of stores this year. We expect them to open a few more as the year goes on. We do open our first restaurant in Mexico this year. And – but we are seeing, most of our restaurants are in the Middle East. And certainly, the Middle Eastern economies have been hit pretty hard and that has hit our sales. So we’ve had some tough sales trends in the Middle East. That said, our partner in the the Middle East continues to develop restaurants, very happy with the concept, very bullish on the concept. So, like we see a lot of times internationally, there tend to be some pretty numerous and sometimes big swings in economic momentum in various parts of the world that I think we just experienced that now. So we think it will come back and it will come back pretty strongly thus.

Great. Thank you.

We’ll take our next question from Will Slabaugh with Stephens.

Yes. Thanks, guys. Let me ask on real estate. I’m assuming you’re getting well on to 2019 at this point. So I’m curious as we move toward the end of this year of 2018, curious how that’s shaping up? And then any glimpse into 2019, would be helpful as well?

This is Kent. I’ve actually already approved 27 sites for next year, of which nine are already in permitting, which is pretty early. So we feel very good about hitting around 30, again.

Right. And then I want to ask you about a comment. I think, Tonya, you may have made about growth in labor hours due to hiring initiatives. Is it simply just hiring more bodies to handle the incoming traffic that’s picking up, or is there something else going on in terms of initiatives inside of the stores?

Yes, it’s a little bit more than that. So we’ve been really working with operators on making sure they feel comfortable with the number of servers they have on their bench and in their lineup. So in doing that, they’re training more people. They’re hiring a few more people to kind of get up to those levels of what that next sales goal is. So that’s a piece of what going on and it’s driving a piece of that growth in hours.

Got it. Thank you very much.

We’ll go next to Jeff Farmer with Wells Fargo.

Thanks. I might have missed it, I apologize. But do you guys make any comments on Easter whether or not that impacted the April number at all?

No, there was no impact from Easter. It was all in our April period…

Okay.

…and no impact.

Okay. And then as of the first quarter that 130 basis points of pressure on the labor line. As we think about 2Q, 3Q, 4Q, is it reasonable to think that we could see three more quarters of similar level of labor pressure?

Yes, I think so, Jeff. I mean, if you look at the inflation numbers, mid single-digit kind of incorporates that. And you can kind of land within that range and get to something pretty similar. I think, the difference will be the amount of traffic there is to offset the – any benefit we get from traffic growth to help offset a little bit of that.

Okay. And then last question, following-up on a couple of the questions that were asking about the same-store sales strength. One of your causal dining periods noted last week that some of the credit card data they’ve been looking at suggested that middle end consumer was finally increasing their casual dining spending. So it wasn’t a super specific comment, but I’m just curious if you have any data or even internal customer data that suggests something similar, where that middle income consumer is finally beginning to increase their frequency?

Hey, Jeff, this is Scott. We don’t have any of that data. We’re not, like Kent said, we’re just happy to feel like all the effort we’re putting into the business and execute the basics continues to get people to come back.

Okay. Thank you.

We’ll go next to Peter Saleh with BTIG.

Great. Thank you. I just wanted to ask about the labor line. I know last year, you had made some investments in the hiring process to try and reduce the labor turnover. Where do you stand on labor turnover? And are you seeing any of those investments kind of bear out some fruit?

Hey, Peter, this is Scott. Well, labor turnover is up a little bit for us, not a whole lot year-over-year. I mean, some of that is partially just the economy and low unemployment. And so part of it we know it takes a while for some of these actions that we’re taking, meaning, accelerating our hiring for those to payoff. So what I mean by that is, when you are in a position of strength, which means you’re fully staffed, even more than fully staffed, you have an opportunity to let go some of your underperformers. It’s easier for you to have performance management when you’re fully staffed and when you’re not. So that’s part of it. Secondarily, when we’re so busy and we’re hiring a lot of people and there’s a really good economy, some of our people find we’re just the hard place to work at, because we’re so busy. So there is, as we’re hiring so many people, some will work out, some won’t. And it’s a continual process for us to keep banging away at it until we get an overall average for longer team and stronger bench at each restaurant.

Okay, great. And then just last question for me on commodities. How much of your basket is contracted at this point, given I know you’ve raised the inflation targets just slightly?

Yes, we’re lock on about – I think, it’s about 50%, maybe 60% to 65% of our basket is locked up on price, that’s the whole basket.

Sorry, is it 50% to 60%?

Yes.

All right. Thank you very much.

We’ll take our next question from Karen Holthouse with Goldman Sachs.

Hey, thank you for taking the question. Could you – on the manager salary increases, is that something that was fully in effect this quarter or something we should think about as sort of incremental to the cost line just going forward?

No, it was effective at the beginning of the year. So it was in effect the whole time, the whole quarter.

And then I apologize if I had missed it, but what was the per hour labor inflation this quarter?

The per store week?

You’ve usually given a number that’s like the average increase in hourly wages?

The average increase in hourly wages was about 3.3% on a weighted basis.

Okay, great, thank you.

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

Thanks for taking the question, I actually have two. First on the change in the commodities guide, the food basket guidance. What was the driver of the increase there? It looks like the underlying commodities have actually been trending pretty favorably. So is that freight or is that just the underlying commodity driving that, number one? And number two, kind of a broader question on labor additions, particular on the headcount side. Is there an upper bounds to headcount additions where even if you’re growing traffic you feel like you’re optimally staffed and you would just not see the additional headcount come on, maybe you’re seeing that on some of your higher volume units, just wondering how you think about it on that side? Thank you.

Sure Andrew, this is Tonya. On your commodity cost question, the primary change was on the beef line, so we locked up a bit more on our beef and this side up kicked just a little bit, which moved from relatively flat, moved our guidance from relatively flat to 1%. So, outside of the rest of the basket, the rest of the basket stayed pretty benign, it was really more on the beef side.

This is Scott, on the labor part, I would say, I’m not so sure we figured out what the upper bound is, because we haven’t figured out what the upper bound of our sales are yet. And certainly the Board just we serve you got to have the people to serve them. Certainly the kitchen would be tougher to fit more bodies in the kitchen, no doubt. But upfront, certainly we could always use more folks and even though we have a basically three table station model, the number of our folks will do two table stations at certain time, so. And there’s always a need for more of hosts and busters and food runners and so forth. So, I’m not sure there’s a upper bound to it, but no doubt we would expect beyond these staffing initiatives and in general inflation in wage rates to get labor, labor efficiencies as our sales grow over time.

So, I guess, are you adding labor hours at the same rate in your highest volume units as you are in kind of your average unit?

We’re challenging all of our restaurants to add any volume, to add labor. So it’s not a high volume you’re doing it, you are where you need to be exactly low volume, you’re not really need to be, it’s everybody, just about everybody has an opportunity to increase the levels of their staffing, to build a stronger bench and be in a greater position of strength to manage their respective teams.

This is Kent. We found that our stores that have over a certain level of servers on the high-end have stronger comps than those that have the amount of servers on the low-end which have lesser comps. So that basically tells you that when you’re properly staffed life looks a little better.

Make sense, thank you very much.

We’ll go next to Stephen Anderson with Maxim Group.

Thank you for answering most of my questions. I do have one follow-up question. Recent quarter you talked about you’re basically still doing a few bump outs, but most of them been dollar rate, but why don’t you also ask about some of the changes in the kitchen? You’ve talked some of the changes, maybe reconfiguring some of the kitchen areas and just want to talk about that?

Yes, I’m not sure I understand the question. Where we, in the past, we’ve debated bumping out some kitchens. We haven’t done really that per se. We’ve had a few folks have done some bump outs where they’ve added more storage space, both refrigerated and unrefrigerated storage space, more grill space that kind of things, we haven’t done very much of that. We’re still doing a number of bump outs though. I think we’re still doing anywhere from 15 to 25 a year, basically depending upon permitting and just general approvals and getting them done. We’re still occasionally buying more parking for our restaurants. We’ve done one relo this year already, so we’re still doing some of those other things. But we have no big plan on back house or kitchen expansions, that’s currently…

Now in terms of like trying to optimize the space you already have, I mean have user base or maybe changing some of the equipment that you’re using to maybe get some more efficiency in the kitchens?

Yes, this is Kent, basically we have found that we have a push and a pull in our kitchen. And we just reallocated some of the duties to those people and added a third-body in that role and that’s how we’ve been able to maximize kitchen efficiency.

Okay, thank you.

Yes, the other thing too just fair value, as we have, some of our restaurants have added some to-go rooms. So they’ve done sort of very small bump out where they’ve added dedicated to-go rooms that are off the main drag I’ll call it, where our host area is.

[Operator Instructions] We’ll go next to John Ivankoe with JPMorgan.

Hi, thank you. I was hoping for a little bit of insight on I guess the beef market generally and the stake market more specifically. Just in terms of what we see from nil supply that’s coming on the market, looking at the futures curve what have you. I mean as you look at what you’re currently paying relative to what you could be paying maybe six and 12 months from now understanding that some of this is contracted. What you think the general outlook is for the beef market is much to say over the next 18 months or so.

Hey John, this is Scott. I would – we’re not prepared for competitive and other reasons to get too specific on the beef markets. I’ll just say this that we feel that the beef markets are in pretty good shape. And we’re not very concerned about beef related issues going into the remainder of this year and into next year at this point. Granted, it’s only the end of April, so there’s a long ways to go in this particular year, but we’re more concerned if anything we just don’t take the next day’s sales for granted and we’re always more concerned about our guest counts and keeping our folks coming into the restaurants every day.

And I do understand that there is an amount of calls, for example, that are on path here before they come into the feedlot, just maybe if you can just educate us overall just in terms of if you can you what do you think the propensity of your stake costs are up or down, can you help us with that?

I wouldn’t tell you right now that there’s anything that’s making us think they would be materially up or materially down at this point right now. It’s just, again eight months before beginning of the year there’s a lot of different things that can happen. And we talk to a number of suppliers and again for competitive reasons that’s all I’m in liberty just to discuss at this point.

Okay, that’s helpful, thanks.

We’ll take our next question from Chris O’Cull with Stifel. Chris O’Cull: Thanks. Good afternoon guys. Tonya, was the increase in the commodity price inflation guidance caused by what you experienced in the first quarter or an expectation that it’s going to be higher prices going forward. And I know that the quarterly commodity inflation can vary based on what you paid last year and what you’re floating. So, can you give us any color on what we should be expecting on a quarterly basis as well?

Chris, I would tell you it’s a little bit of both, it was a little bit higher in Q1 than we would have expected, not too significant. And then some of the costs that we ended up locking up for some of the remainder of the year, we’re perhaps a little bit, maybe a little bit higher than maybe what we were walked in last year. So, again nothing overly significant, I know it’s relatively flat to 1% seems like a big change, but at the end of the day relatively flat. There’s some rounding going on and things like that. So it just wasn’t that big of a change for us nothing that was you could hang your hat on one certain thing that was driving it. Chris O’Cull: And any color on quarterly, what we should expect quarterly?

I think quarterly, it stays pretty consistent, if I remember off the top of my head. I think, it stays pretty consistent throughout the year. It maybe a little bit higher in Q2, but otherwise, I think it’s pretty consistent throughout the year. Chris O’Cull: And then lastly, could you remind us and I apologize if I missed this. What’s the average price increase was in the first quarter? And what we should expect now that you’ve taken the last one of the year for each of the remaining quarters?

Sure. So we had pricing of about 1% in the menu this quarter. So there was about 13 basis points, 10 basis points of negative mix to get to that 90 basis points check number. And then Q2 will be at the highest quarter of the year. We think that will come in at about 1.3%, because you have the amount rolling off in May. So you get the benefit of that for a little bit of time, and then it’ll drop more like to back to 1% Q3, Q4 and then pretty much a 1% number maybe a little – 1.1% on a full-year basis. Chris O’Cull: Great. Thanks.

We’ll take our next question from Andy Barish with Jefferies.

Hey, guys, one clarification and then just one financial question. On the labor side, Tonya, I thought you had mentioned that wages were up close to 5% and hours were up 3-ish%. I just wanted to make sure that was the case? And then the second question is, the franchise fee – royalty and fee number kind of popped up about $1 million kind of the first time I’ve seen it over $5 million. Is that have something to do with any of the revenue rec changes, or anything else going on in that line we should be aware of?

Yes. So on the first question, Andy, our wage and other inflation, so kind of all inflation on that labor line ran about 4.7%. So that had about 3.3% wage inflation it it. There was about 70 basis point relating to the increase in the Managing Partner compensation. And then the last was kind of like other lines, group insurance, things like that being up a bit this year over last. So that’s the components of that. And then on the other revenue line, yes, that would have been – it wasn’t – there were some reclassifications and things being made in conjunction with the revenue guidance. So that’s what caused that to be opt. We raised I think, there was about $0.7 million increase in that other revenue line relating to the revenue rec implementation.

And then I know it’s small, will that continue as well through the year at higher levels?

We expect it to be pretty similar throughout the year. We’re not overly franchise, so we don’t have quite the path maybe you’ve heard others talk about it, it’s pretty nominal.

Thank you.

We’ll go now to with Brian Vaccaro with Raymond James.

Thanks. So most of mine have been asked. But I just wanted to circle back on the quarter-to-date strength and some one suggested that the shifts maybe in school and spring break calendars may benefit the industry. So I guess, just wanted to ask beyond just the day of Easter, do you think this has been a benefit, or have you seen broader maybe more stable strength through the quarter to-date?

Yes, Brian, this is Tonya. We really thought across all weeks. It wasn’t something that you really saw one week or the other or a day of the week past that we didn’t really see that. I think, part of it is just, again, operators doing the right things and we’re happy about that. And as Scott mentioned, when you look at our comps last year, it was one of the easier compares.

Okay. And then on Bubba’s, you talked about sales, I think, it was in recent months or maybe within the last couple of quarters, Scott, you were referencing, but you said, you’re encouraged by some of the existing store sales. We’re encouraged, I guess, what you attribute that to? Is that just time in the market for awareness to build, or there specific initiatives on local marketing or getting the right managers in the stores, what what do you attribute that strength to?

This is Kent. I think, as we found with Roadhouse over the years that – like you had already mentioned that the longer you’re in a market, the more – the comps tend to be more positive.

All right. Thank you.

We’ll go next to Robert Derrington with Telsey Group.

Yes, thank you. Scott, a lot of times we get into trouble looking at two-year same-store sales trends. And April, I guess, last year was your weakest month of the quarter, up 2.6. But still on a two-year basis, it looks like comp trends for the month of April on a two-year basis are up a 11.1%. Is there any reason why we shouldn’t think in terms of that directionally being a two-year trend as we go through the balance of the year?

Well, I certainly hope so. But we’re not changing anything of what we’re doing except we hope to continue to execute at a better level each and every day. I know that just sounds kind of big change, as I guess. But that’s kind of what we talk about is just trying to get better and better and take care of our guest and take care of our people just the basics, blocking and tackling every day. And it’s really nothing more than that and just staying on top of it and keep grinding and just bringing people back in. You got to ask a lot of questions about pricing. I mean, this is one of those things of why we’re so aggressive on our pricing. And people ask us about how much pricing power do we have in all this, we normally talk about in terms of pricing power. We just say, what’s – what we think is part of bringing the guest back and it’s all these little pieces add up to this deal, where we’re get people to come in. So….

Is there anything within the menu that, as you look out towards the balance of the year that we should think about either having a positive or negative move on the check average mix.

By the way, this is Kent. I think as our competitors continue to maybe shave a little labor here and there. We don’t, I think, that might be helping us in our various locations.

And Bob, on the menu, there’s nothing on the menu that we would tell you is a big deal.

Yes, we do have the smaller – on the two smaller portions that we added in May. So we’ll lap that in May. So, I wouldn’t be surprised to see the negative mix maybe climb a little bit, maybe back to 20, 30 basis points. But outside of that nothing that I would point out.

All right, terrific. Thanks, guys. I appreciate it.

[Operator Instructions] We’ll take our next question from Brett Levy with Deutsche Bank.

Thank you. Good afternoon. if we could talk a little bit about – you’ve done a great job in terms of driving sales. And as you’ve proven, you are definitely a place that people want to work. If we turn from the people side to the tech side, are there more things that you can do either in equipment or beyond just the front of house table management, other areas of technology, where maybe you can help to drive up some efficiencies and maybe drive down some costs? Thank you.

Hey, this is Kent. One example would be our online to-go, our app to do to-go. A year ago, that represented 6% of our to-go orders and today, it’s 22% of our to-go orders, and two years ago, it was zero. So that’s one initiative that’s scored pretty well for us.

Hey, Brett, this is Scott. Probably the biggest item that I think maybe is a little different with Texas Roadhouse than some other change would be kitchen display systems. And our folks at Roadhouse almost overwhelmingly when we ask them about that, it would rather stay with our existing ticket system and many of them have come from environments, where there were kitchen display system. So they like as the ticket system, so we’re not pushing it on the kitchen display, but that would probably be the single biggest thing in the back of house that might be difference now. I wouldn’t be surprised if you saw us digitize a lot of our recipes in training materials, because so much of our food is so recipe-detailed intensive, it continues to be so to this date and have those materials or those TV screens would have you on the various locations in the back of house. I can see that happening for us on the technology perspective. But we already do. We already have guest management system in the front. We’ve experimented a little bit with pay at the table. I’m sure, we’ll continue to experiment with – on that front with some type of device or some sort of that maybe the server brings it to the table maybe not. I don’t necessarily see us doing tablets on tables. I don’t see that happening for us and we’ve been done that road once before, but you never know. We also use hot schedules, which is a big benefit for our folks, who work for.

Yes, we used the hot schedules and get a lot of folks other restaurant companies use that same product and particularly a lot of the hourly employees love to use of it, because they get access to a lot of their schedules on their phones and communicate to the management teams through their phones. So there’s a lot that we do. I wouldn’t say that, we’re uneducated in any way, shape or form. We stay very educated, very close to what’s going on. And typically, when venders ask us, if they can come talk to us about almost anything? We invite them to go come in and come talk to us and tell their stories. So we don’t just refuse to see anybody. We’re very open-minded.

Thank you very much.

That concludes today’s question-and-answer session. At this time, I’ll turn the conference back to Tonya Robinson for any closing remarks.

I just want to say thanks, everybody, for joining us tonight. If you have any other questions, please feel free to reach out. Have a great night.

This does conclude today’s conference. Thank you for your participation. You may now disconnect.