Texas Roadhouse, Inc. (TXRH) Q3 2018 Earnings Report, Transcript and Summary

Good evening and welcome to the Texas Roadhouse Third Quarter Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to introduce Scott Colosi, President of Texas Roadhouse. You may begin your conference.

Thank you very much, Rob, and good evening, everybody. By now you should have access to our earnings release for the third quarter ended September 25, 2018. It can also be found on our website at TexasRoadhouse.com in the investor section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC for a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures if applicable reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Kent Taylor, our Founder and CEO, and Tonya Robinson, our CFO. Following our remarks, we will open the call for questions. Now I’d like to turn the call over to Kent.

Thanks Scott. We are pleased to report another quarter of double-digit revenue growth driven by increasing guest counts and operating lead growth. Comps in the third quarter were up 5.5% including traffic growth of 4%. Even with the earnings decline this quarter, diluted earnings per share are up 23.5% on a year-to-year basis. Our sales momentum has continued in the fourth quarter with comps increasing approximately 4% in October despite 70 basis points of negative impact primarily from overlapping last year's post-hurricane sales lift. The fourth quarter will also see us opening as many as 11 company restaurants. That will bring our full-year 2018 count up to 27 or 28 new restaurants. Looking ahead to 2019, we are targeting 25 to 30 company restaurant openings which includes four Bubba's 33 restaurants. We expect mid-single digit labor inflation to continue into 2019 with unemployment rates at historically low levels along with the continuation of our hiring initiatives. This includes adding more managers and hourly employees as we position ourselves for our target of $6 million in per unit sales. We view this as short-term pain in return for long-term sales gain. Additionally, we believe our commodity basket will experience approximately 1% to 2% inflation in 2019 with the expectation of higher beef cost. We expect that the remainder of our basket will be impacted by modest inflationary pressure as well as higher freight cost. In response to these expectations and the margin declines we have already experienced, we will roll out a menu price increase of approximately 1.7% in mid-November. Depending on how much inflation we experience going forward, you may see us take additional pricing during the first half of 2019. Finally, I want to thank our operators, most of whom I saw over the last several weeks in our annual fall tour. It’s always energizing to see their excitement and passion for the business as we discuss our current results, future plans and most importantly, listen to their feedback. Now, Tonya will walk you through the financial update.

Thanks Kent, and good evening, everyone. For the third quarter of 2018, revenue grew 10% driven by 5.6% store wheat growth and a 4.8% increase in average unit volume. Restaurant margin dollars grew 0.3% to $95.8 million and net income decreased 6.1% to $29.1 million or $0.40 per diluted share as the strong top line growth was more than offset by the expected continuation of commodity and labor inflation, as well as the impact of several adjustments in both this quarter and the prior-year period. I will provide more detail on these items below. For the quarter, comparable restaurant sales increased 5.5% comprised of 4% traffic growth and a 1.5% increase in average check. By month, comparable sales increased 4.7%, 5.3% and 6.2% for our July, August and September periods respectively. As Kent mentioned, comparable sales increased 4% for our October period, including approximately 70 basis points of negative impact primarily from overlapping the post-hurricane sales increase from last year. At the beginning of 2018, we implemented the new revenue recognition accounting guidance which resulted in a reclassification of certain expenses and credits. The reclassifications had no impact on net income and the comparative financial information has not been restated. As a result of the reclassifications, we reduced sales by $1.2 million for gift card fees, net of gift card breakage income, and increased other revenue $0.6 million for franchise related items. Additionally, cost of sales decreased $1.3 million or 15 basis points, other operating costs decreased $1.5 million or 22 basis points and G&A increased $2.2 million or 38 basis points. No direct reclassifications were made in labor, however, the change in sales resulted in an increase of 7 basis points to labor as a percentage of restaurant sales. We currently expect the Q4 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. For the quarter, restaurant margin decreased 157 basis points to 16.2% as a percentage of total sales compared to the prior-year period. Cost of sales as a percentage of total sales decreased 35 basis points compared to the prior year period. The impact of approximately 0.75% commodity inflation was more than offset by the benefit of average check and the impact of certain reclassifications. We continue to expect approximately 1% commodity inflation in 2018, which implies approximately 1.5% inflation in the fourth quarter. Labor as a percentage of total sales increased 194 basis points to 33.5%, and labor dollars per store week were up 10.5% compared to the prior-year period. The main drivers were wage and other inflation of approximately 5.3% including the impact of increasing managing partner base pay and growth in hours of approximately 2.8%. The additional 2.4% of labor growth was driven by reserve adjustments associated with our group insurance claims development history and our workers’ compensation claims experience. In total, insurance costs were negatively impacted by $1.8 million of additional expense this quarter along with the overlap of $2.5 million of credits from the prior-year quarter. Overall, total wage inflation and growth in hours this quarter were in line with what we experienced in the first half of the year. We continue to expect labor dollars per store week growth in Q4 2018 to be in the mid-single digit range, excluding the impact of higher guest counts. Lastly, other operating costs as a percentage of total sales were essentially flat compared to the prior-year period. The benefit of an approximately $0.5 million credit related to our quarterly actual reserve analysis for general liability insurance and the impact of certain reclassifications mentioned earlier more than offset higher costs associated with to-go supplies, repairs and maintenance expense and gift card production. Moving below restaurant margin, G&A costs increased $8.9 million to 5.9% as a percentage of revenue, which was a 106 basis point increase. Along with the $2.2 million impact of reclassifications mentioned earlier, the increase included $1.4 million of additional incentive and equity compensation costs related to 2018 bonus targets, $0.9 million of additional legal settlement expense and $0.3 million related to higher group health insurance reserve adjustments. These items, along with the reclassification impact, accounted for 83 basis points of the increase this quarter. In addition, higher share based compensation costs due to increased share price as well as the timing of certain training and development meetings during the quarter more than offset the benefit of average unit volume growth. Depreciation expense increased $2.3 million year-over-year to $25.8 million or 4.3% as a percentage of revenue which was a 1 basis point decline. Preopening costs decreased by $0.2 million year-over-year driven by the timing of openings. As Kent mentioned, we plan to open as many as 11 company restaurants in the fourth quarter, so we currently expect fourth quarter preopening costs to be higher compared to last year when we had seven openings. Finally, our tax rate for the quarter came in at 15.1% compared to the 28.8% rate in the prior-year period. Our full-year income tax rate guidance of 14% to 15% remains unchanged. Our balance sheet remains strong as we ended the quarter with $151 million in cash. During the quarter, we generated $60 million in cash flow from operations, incurred capital expenditures of $44 million and paid dividends of $18 million. We now project 2018 capital expenditures of approximately $160 million to $165 million. As we near the end of 2018, I want to point out that we expect Christmas Eve and Christmas Day to have a positive comparable sales impact for approximately 1% on the month of December with the holiday shifting from Sunday/Monday to Monday/Tuesday. And looking ahead to 2019, our overall expectations include positive comparable sales growth in 25 to 30 new store openings including four Bubba’s 33 restaurants. We currently expect approximately 1% to 2% commodity inflation with fixed prices on approximately 40% of our commodity basket at this time. Our mid-single digit labor inflation expectation includes an estimate of increases due to mandated state wage rates, ongoing market pressure and growth in labor hours due to the hiring initiatives Kent mentioned. Our expectations also include an income tax rate of 14% to 15% and capital expenditures of approximately $165 million to $175 million. Finally, as a reminder, 2019 will be a 53-week year for us. As such, the fourth quarter of 2019 will have 14 weeks versus our normal 13 weeks. We estimate that the additional week could benefit full-year earnings per share growth by approximately 3.5%. Now, I’ll turn the call over to Scott for final comments.

Thank you, Tonya. Well, we’re very proud of the sales momentum we have in our business. We have now achieved 35 consecutive quarters or almost nine years of comparable restaurant sales growth. It certainly would not have been possible without the passion, dedication and ownership mentality of our managing partners. We just spent three weeks meeting with our managing partners and asking for their feedback. Many of them commented on how the competition for employees and wage rate pressure is more intense than they can remember and it seep seems likely to continue in 2019. The 1.7% menu pricing we are taking later this quarter would help to offset some of this pressure, and as Kent mentioned earlier, we will continue to evaluate additional menu price increases as we see how 2019 plays out. We also continue to build our pipeline of new restaurants for the coming years. Sales at our newer stores are strong, and we are generating good returns as we have not seen a meaningful increase in our construction costs. Heading into 2019, we will remain focused on making the right decisions for the long-term success of Texas Roadhouse. In many ways, this is a continuation of our philosophy of never taking the next day sales for granted as we know we have to earn our guest’s repeat visits each and every day. We will continue to strive to find the appropriate balance between menu pricing and inflationary pressures, staff for continued sales growth, open new restaurants at a pace that works for us and deploy capital in a disciplined manner. That concludes our prepared remarks. So, Rob, please open the line for questions.

[Operator Instructions] And your first question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Two questions. Just one on the pricing topic with the November increase, I think you said 1.7%. I mean, having just spent three weeks with your managing partners, I’m just wondering what the feedback has been because it feels like, historically, managing partners and yourselves have been hesitant despite the labor headwinds to raise the price because you feel like maybe that would have a negative impact on traffic. So I’m just wondering if you can kind of give any feedback hearing from the operators and what it would take, I guess, to potentially increase pricing further in early 2019. Are there specific indicators you’re looking for, or what would be the driver to lead you to take that increase again in early 2019?

This is Kent. Yes, I met individually with 60 market partners we have, plus additionally I met with managing partners in all of these various states, and I would say the 1.7% is not unilateral. We have taken over 2% in some of the higher wage states where they have increased wages quite a bit. So in some states, it might be as little as 1%. So it’s kind of a broad spectrum on the pricing and not just a 1.7% across the board.

Jeff, on the second part of your question for 2019, it’s really going to depend on a number of factors. One is what kind of continued inflation are we seeing across the board. That would be one. What is the status of the economy, what is the competition doing. It’s really the typical things that we would look for in any type of price increase. But we’re only going to go so far so fast in any event in how much pricing we’re willing to take regardless of how much minimum wage goes up or doesn’t go up or how much wage pressure there is or isn’t. So we just kind of take it step by step, and we’ll see as we get into 2019 just kind of what the whole world looks like for us.

And my other question was just on the unit openings. Just wondering what you’re seeing from a real estate variability perspective. It would seem like your retail brethren, clothing stores I would think, maybe you’re getting better terms and perhaps being able to lower your investment costs. I’m just wondering what the learnings have been as you’re pursuing incremental real estate for 2019 and beyond.

This is Kent. I would say that when you’re looking for main on main, we have not seen any significant price decreases on properties because we always look for kind of the best real estate. The secondary sites possibly but that’s not the ones we typically look at.

And your next question comes from the line of David Tarantino from Baird. Your line is open.

Just a couple of more questions on margins. I guess first, Scott or Tonya, could you maybe tell us what level of comp or traffic you think you would need with the pricing you’re planning to take next year to hold on to the restaurant margin percentage or hold that flat? And then maybe philosophically talk about what you think about holding the margin structure on a long-term basis, if that’s - if you have a specific target around that.

This is Scott. I would tell you that it really depends is the short answer because what does labor inflation end up being, what does food cost inflation end up being. We said 1% to 2% on food cost inflation. Well, 2% is double 1%. So that leads into how much pricing we’re willing to take. So pricing for every percent of pricing we don’t take, we need 2% to 4% traffic growth to make up for that, all other things being equal in the world. So it really just depends is what I would say, and that’s why we have left open the window in a big way to consider taking additional pricing relatively earlier in 2019 than we otherwise might normally do.

And Scott, is there a specific target you have for that line long-term? I know kind of fluctuated around 18% long-term. Is that important that you keep it at that level, or are you willing to let it decline in favor of trying to drive traffic?

Well, if you go back over the last 10 years, we bounced around a little bit anything probably between 17% and 19%. 18% is a feel-good number for us. So when we get down more towards the 17% range on a full-year basis, I should say, definitely the sense of urgency around taking harder look at our pricing actions definitely ratchets up internally. That’s not to say we wouldn’t ever let margins go below because you do take dollars to the bank obviously. But definitely it does put more - a lot more internal discussions in play. And our managing partners feel it too, and to the earlier question from Jeff on what are they saying, they’re feeling the same type of pressure, and they want to, at some point, be more protective of margins than maybe they have been in the last couple years.

And then, Tonya, on G&A, could you - that was a big surprise at least to us this quarter. So could you maybe guide us to what you’re thinking a good dollar number for Q4 should be when you, I guess, take out some of the noise, I guess, in Q3? And then secondly, with the total of that year-to-date plus whatever you’re expecting for Q4 be the right space from which you grow next year, or are there some one-timers that come out?

On Q4 2018, I think you won’t see the impact at least of what we’re expecting. We’re not expecting to see any impacts from the insurance reserve at this time like we did on the labor line. But we’re not expecting any onetime hits there. So I think you won’t have - the biggest thing really is that $2.2 million in revenue recognition reclassifications. That’s a pretty big number. In Q4, we - that’s typically when we would update our target and bonus where we came in on our bonus and incentive compensation. So we typically would take a bit of a hit in that quarter, so that doesn’t really pop in Q4 like it maybe did in Q2 and Q3. So outside of those things, I would tell you, David, G&A is going to act a little more normally than maybe it did in this quarter. And then that last question, can you repeat that one for me?

Is there anything that you would maybe pull out of this year when we think about the base for modeling next year, or is this a good run rate or clean number to model next year against?

I think it’s a good rate to model against. I mean, we will have lower conference expense next year compared to this year. We talked about that before. But I’ll tell you, we continue to make investments, so it’s hard to say as we continue to make those what that G&A number could be. I think we’ll be able to give more clarity on that on the call in February as we continue to look at that G&A line. But nothing that I would call out maybe right now, but we’ll see in February where we land.

This is Scott. I just have a couple more things. Insurance always is a little bit of a wild card. We’re self-insured, and so depending on claim history and just overall medical cost inflation, that can swing a little bit. And of course our stock price, as Tonya mentioned in her comments, and the way we’re paid depending upon where the stock price goes or where it doesn’t go can increase expense or likewise reduce expense depending upon kind of what happens. So those are just some of the fluctuating things. Just organizationally, we are adding some more office space as we have grown. We’re leasing space in more floors in the building next to our original building. It’s not humongous numbers, but it’s additional things that we’re having more of than we have had historically just growing with stores and eventually running out of space for our existing people, things like that. So we have some of those things. Again, none of it is humongous numbers, but they’re just all contributory to the equation.

One of the things, obviously, that we’ll be lapping those additional legal reserves, the $0.9 million we called out this quarter, we’ll be lapping that next year. So obviously we don’t forecast having those next year. So that would be something too I’d point out.

And your next question comes from the line of Will Slabaugh from Stephens Inc. Your line is open.

I had another question on the pricing. Just want to be clear. With the 1.7% you’re taking in November, can you walk through what that means from an aggregate pricing standpoint in 4Q? Does that - are you on top of some other pricing there as well? And then does that continue into 1Q as well?

It looks like for Q4 2018, that will - it will come up to probably about 1.7% pricing for the quarter. So we’ve got - and then rolling into - so that will give you about 1.3% on the full year. And then on 2019, we’ll have 0.8% that will roll off in March, late March of 2019. So that will be in play for three quarters. And then obviously the 1.7% we’re taking in November this year.

And then last quarter you gave us some pretty positive commentary around Bubba’s in terms of how same-store sales are doing at, I realize, just a handful of restaurants, but just in general, good business momentum and good new units openings. Anything else to share there in terms of an update?

This is Kent. Our sales are up year-to-date 6.5%, so that’s a good number. And then we’ve got two prototypes, new prototypes, that are opening first half of next year, and so once those two open, I think we’ll be set on the prototype for the future. So those will be my comments.

And your next question comes from the line of Brian Bittner from Oppenheimer and Company. Your line is open.

Another question on the pricing, just on the same page here. So if you were to take an additional price increase in the first half of 2019, would that be replacing some pricing that is falling off in March or would that be all incremental to your price factor in 2019?

Well, we have 0.8% falling off at the end of March. So that would help offset that a bit, and we get more impact from the 1.7% along with anything else we took. 0.8% is the only pricing we have that we would have in the first half of 2018 that we would be lapping.

So, yes, that would be incremental. Got it. And just with the healthy cash situation that you find yourselves in here, are you keeping this cash to make opportunistic acquisitions of franchisees? And if you’re not, what would trigger you to start more aggressively buying back your stock?

Well, this is Scott. Definitely we would love to reacquire a number of our franchisees who are great operators and we have a lot of great relationships with them. And we’ve talked to many of them and continue to do so. As always, our commentary on buying back the stock is we look to be very opportunistic in buying back the stock. And so if we feel really good about spending our shareholders’ money on buying back the stock, we would certainly do so, just like we would in increasing our dividend or putting it somewhere else.

Your next question comes from the line of Chris O'Cull from Stifel. Your line is open.

Scott, would you update us on just the progress you guys have made increasing staffing levels and whether you have been able to maintain higher staffing levels from this effort? And then maybe what positions in the restaurant are you finding the most difficult to recruit and fill?

From talking to the operator - well, first of all, we’ve made strides in all - both back of house and front of house in staffing. And at the same time, we’ve had - like a lot of folks, our turnover continues to tick up a little bit. So we’re fighting two battles at the same time. One is - one is finding people, and the other one is fighting turnover. So we’ve also continued to add managers as well. Just we’re sort of just really staffing for the next 10,000 a week or, as Kent mentioned, getting our average unit volumes to $6 million. So we’re making progress. It’s very different restaurant by restaurant as our operators experience different levels of turnover and different success in hiring. It’s very competitive in the industry, and you’re not only competing with other restaurants, you’re competing against a whole slew of other industries that are also having a tough time keeping staffing levels in place. So it’s quite a challenge and everybody is trying to adjust to a new world of higher wage rates, more benefits, whatever it takes, bonuses, whatever it takes at different positions in your business to keep yourself staffed.

This is Kent. With that said, we’ve also - we’ve gotten our server level up about three per store. Manager level is up by half a manager, call it. And to answer your other question, the hardest positions to recruit into on the back of the house would be your dishwashers, fry station. And in the front of the house would be your bussers and host positions.

I noticed that restaurant profits per week were down more than we’ve seen in the past - from the company in several years it seems like. I’m assuming managers are making less bonus and I’m surprised they’re not more eager to take additional pricing or more aggressive pricing given it looks like their bonuses may be down.

This is Kent. I would tell you our managers still make really excellent money and they are long-term decision makers and they’re not going to make any short-term suggestions if their bonuses are down just a slight bit. So they’re definitely where we are, building for the long-term sales and wanting to get to that $6 million average level.

[Operator Instructions] Your next question comes from the line of Nick Setyan from Wedbush Securities. Your line is open.

Yes, you mentioned kind of as you go down to 17%, you start to think about some incremental pricing, and obviously we’re seeing the 1.7%. But given the inflation we’re seeing in labor and the incremental inflation in commodities, even an incremental price increase early next year, obviously given the magnitude you talked about, may not be enough to stave off deleverage. So is that something that you’re really watching as a catalyst for maybe even a little bit more pricing? I mean, obviously your relative value gap versus competitors has continued to increase over the last few years. So is that something that we should think about as a floor, or is that something that we can - you’re willing to let go even below 17%, maybe, in the medium term?

This is Kent. I mean, the big factor that we don’t know and you guys don’t know is we don’t know what our sales levels will be next year and how much we potentially will be up. So that’s the major factor I look at, but I’m sure Scott has some additional thoughts.

I would just tell you that in the past, we’ve had multiple years where we’ve taken more pricing than we have lately; meaning we’ve had years where we’ve taken over 2% multiple years in a row. So it’s not unheard of for us to go higher than 1.7%. It’s not unheard of us to have a particular -can’t go 2.5%, can’t go higher than that. So I wouldn’t say anything is off the table. But we’re just going - we just don’t take, again, the next day’s sales for granted. And as Kent mentioned, we don’t know, sitting here today, what our sales momentum is going into next year and how that balances with inflation. Obviously, the higher amount of inflationary pressure and given where competitive pressures are and how we’re doing, we may take more pricing than you might suspect, but we won’t know until we get to that point.

And your next question comes from the line of Stephen Anderson from Maxim Group. Your line is open.

I wanted to actually pin down some of the numbers with regard to the - some of the cost adjustments on the labor side, also on SG&A. Now, you said you don’t expect this to be a recurring, but just looking at some of the other companies that have had these elevated expenses, they come down but they take a couple quarters to really moderate. Are you prepared to say that you may not see this again next quarter? And I do have a follow-up.

Sure. So when we’re talking about insurance reserves, like when you were talking about workers’ comp, GL, group health insurance, which we’re self-insured on all of those, there can be some volatility when your trueing up based on your claims development. So that’s kind of what we are seeing. Last year it was a credit. This year it was a hit to true-up to those actuarial reports. So I don’t think we would ever say there won’t be a pickup or a hit in any quarter. We don’t forecast for those or plan for those, but they could happen. It’s just kind of the name of the game when you’re self-insured on those types of lines of insurance. So I think that’s where we - yes, on the insurance side, that’s - and that was really the bigger part of the labor pressure that we felt was really driven by - different than what we saw the rest of the year, was really driven by those insurance reserve adjustments.

And my follow-up question, you said on in the prepared remarks that you didn’t expect much of an increase in the way of insurance - rather, in construction costs for next year. But as you look at development, you basically you’re looking for the Texas Roadhouse locations, going more into higher population, maybe higher cost markets. But is it safe to say that you’re seeing - you’re balancing that out by development at Bubba’s 33?

This is Kent. Actually, if you look at our pipeline for next year, we’re actually more heavily loaded in smaller markets, not into the high population markets.

And that can definitely play a part on the development cost. And I think when we mentioned development costs having gone up meaningfully, we were talking more about 2018 openings and the returns that we’re seeing on those versus what our expectation is for 2019.

And your next question comes from the line of Andrew Strelzik from BMO Capital Markets. Your line is open.

Two things from me. We’ve heard from some of your peers recently that they have been or plan to take less pricing than they have in the past. And I’m wondering when you’re looking at taking price, whether it’s more price or incremental price to the levels that you usually take, do you look at your spread versus your peers in the market? And if you do, how does what you have seen now compare to history? That’s my first question. And my second question is just on beef. As you are looking for inflation now on beef going forward, if you could just dive in a little bit more on kind of the beef markets. I know the conversation has been around cattle futures that were lower going forward. What are you seeing, whether it’s from a supply or demand perspective, that is driving the higher beef costs going forward? Thanks a lot.

This is Kent. I’ll take question one. As I said before, we have 60 market partners. We probably have 20 or 30 different versions of our menu pricing around the country. And as I also mentioned, we have some markets that maybe only took 1% and some that took north of 2%. So it’s really not across the board pricing thing as it compares with our competition.

And then on the beef market, I’ll tell you, Andrew, what we’re hearing is it seems like beef supply is good. We’re seeing the levels be at a really good place. At the same time, demand is really good too. So that really kind of offsets some of that. I think there is some risks out there. Maybe you hear the suppliers talk about when it comes to some of the things going on in the economy, whether it’s the tariffs or just other things out there that puts this locking up out in the future at a premium right now. So that’s one reason why we’re just - we’re 40% locked on our overall commodity basket. We’re going to wait and kind of see how that plays out a little bit, but that’s - now, 1% to 2% commodity inflation number in the higher beef costs that we alluded to, those are our numbers so a lot of that is not just based on market but what we locked up and what our prices were this year and what we expect they will be next year.

[Operator Instructions] And your next question comes from the line of Karen Holthouse from Goldman Sachs. Your line is open.

I actually wanted to go back to the G&A commentary for the year again, and maybe not for the fourth quarter, but for the year. Could you kind of put some guardrails around how we should be thinking about dollars of G&A? And then would the expectation be you’re getting leverage on that in 2019, or there are puts and takes we should make sure we’re thinking of?

I think from a full-year basis, Karen, for 2018 on G&A, it seems like at the end of the day, even though there was a lot of noise this quarter, it feels like we’ll come in still close to revenue growth on that line. So that’s what our expectation is right now. So you can kind of back into the Q4 number based on that. And I think it’s still a little early to tell for 2019 of what it will be. Our goal is to always grow below revenue growth. That’s what we’re shooting for. You’ll have some puts and takes in there for sure that could drive things one way or the other. This year, a big piece of it is just that revenue recognition. Those reclassifications create a lot of noise amongst the lines on the P&L even though they have no impact to net income or anything like that. So that does make it a lot more difficult. Luckily, we’ll be lapping that. We won’t have that next year to have to talk about. But 2019, I think it still would be number - a good assumption to say right below revenue growth.

When you say growing in line with revenue growth, is that X the revenue recognition piece? Because if I do the math on that as reported, that would imply, like, sub $20 million G&A in the fourth quarter.

No, I would have to look at those numbers. I don’t have that calculation right in front of me. So I’d have to check on that and get right back to you because I don’t think that would be the assumption for Q4. So I would think on a full reported basis is what I would be looking at. So I’d have to check that number and let you know but definitely on a fully reported basis. Not excluding any - not with rev rec or anything.

And your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.

Two separate questions, if I may. Firstly, on the $6 million average unit volume target, are there any commonalities in those stores that we should be aware of in terms of market type, geography, maybe number of seats or sales per square foot, whatever you want to call it, that we could compare to the rest of the system to see if the rest of the system, I guess, is physically capable of handling those type of volumes in the future?

This is Kent. They’re actually geographically all over the country, and they’re not necessarily in this type of population market or that. The commonality between them, I would say, is they’re better staffed and have more managers, and that’s kind of our thought pattern on increasing staffing and increasing manager staffing as well to get to those service and management levels that would take us to that sales level.

And then secondly, we have heard, I guess, on a very local basis some kind of discussion about mid-week lunch or during the week lunch at Texas Roadhouse. I mean, is that something that is being considered system-wide or on a local regional basis that could actually have some impact as we think about the next couple of years?

I don’t know if you’ve ever heard that in any of our restaurants because that would not be so.

And there are no further questions at this time. I will turn the call back over to Tonya for some closing remarks.

Alright. Thanks, everybody, for joining us. We appreciate it. If you have any other questions, please give us a call. Thanks and have a good night.