Red Robin Gourmet Burgers, Inc. RRGB
Q1 2013 Earnings Call Transcript
Transcript Call Date 05/21/2013

Operator: Good morning, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers Incorporated First Quarter 2013 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation.

As a reminder, part of today's discussion will include forward-looking statements within the meaning of federal securities laws. These statements are commonly identified by words such as continue, plan, expect, intend, project, should and other terms with similar meanings. These statements will include, but will not be limited to, statements that reflect the Company's current expectations with respect to the financial condition of the Company. Results of operations, plans, objectives, future performance and business including the Company's traffic and revenue driving initiatives, intentions with respect to expense management and plans for deployment of capital and other expectations discussed during the course of this call. Although the Company believes the assumptions upon which preliminary or initial results, financial information and forward-looking statements are based are reasonable as of today's date, these forward-looking statements are not guarantees of future performance and therefore, investors should not place undue reliance on them. Also, these statements are based on facts, known and expected, as of the date of this conference call and the Company undertakes no obligation to update these statements to reflect events or circumstances that might arise after this call.

Participants on the call today should refer to the Company's Form 10-K and other filings with the SEC for a more detailed discussion of the risks, uncertainties and other factors that could impact the Company's future operating results and financial conditions. The Company has posted its fiscal first quarter 2013 press release and supplemental financial information related to the quarter's results on its website www.redrobin.com in the Investors section.

I will now turn the call over to Mr. Steve Carley, Chief Executive Officer of Red Robin. Please go ahead, sir.

Steve Carley - CEO: Thanks Vicky, and thanks everyone for joining us on our call today. With me are Eric Houseman, our President and Chief Operating Officer; Denny Post, our Chief Marketing Officer; and Stuart Brown, our Chief Financial Officer. After Denny, Stuart and I deliver our prepared remarks, we will be available for Q&A.

But first I'd like to review our first quarter headlines which we've included on Slide 3 of our supplemental financials. Overall, we continue to be pleased with our performance and this quarter marked our 11th consecutive quarter of positive same-store sales. We also increased restaurant revenues, despite having seasonality and marketing headwinds. As we said during our Q4 call in February, we expected sales and earnings to be negatively impacted due to our lapping of Q1 2012 that had week of strong holiday sales and our change in media timing. The impact in Q1 2013 was a shift of about $8 million in sales into the fourth quarter. Our year-over-year guest traffic was down 60 bps and both net income and diluted earnings per share decreased compared to Q1 last year. Nevertheless, our continued same-store sales growth and our market share gains and the progress we are making on our key roadmap initiatives give us confidence that we are strengthening our business and positioning Red Robin for long-term growth and profitability.

As you may recall, our strategic priorities and roadmap for 2013 and beyond are focused on three fronts; engagement, efficiency and expansion as illustrated on Slide 4. Engagement is about how we connect with our guests, enhance their experience and ultimately drive the top-line; efficiency is about increasing productivity and managing margins; and expansion is about growing our operational footprint and effectively deploying our capital.

On our last call I shared examples of initiatives we have in each of these areas. They are all queued up for deployment over time, some short-term and some long-term. The analogy we used is a Friday afternoon at O'Hare Airport with the planes landing, the planes on approach, and planes queued up to the horizon, and that's what it looks like going forward with Red Robin.

I won't be repeating all of these initiatives we've completed or have in the pipeline, in each of these three focus areas, but I do want to provide an update on the couple of them, namely our brand transformation efforts and the development of our next-generation restaurant prototypes.

Moving to Slide 5, as you know, one of the ways we are enhancing the guest experience is through our brand transformation work. This came out of a lot of work and deep guest insight and competitive benchmarking about where the Red Robin brand was winning and where we had opportunities. Our goal is to serve more guests more often and leave them more delighted. I want to stress, this is a lot more than just new paint and wallpaper.

We started this effort with the transformation of 21 restaurants late last year with varying levels of investment. We are pleased with the result so far, especially the restaurants that underwent a full transformation. That includes new plating and food presentations, service changes, full interior reimaging, and exterior changes.

To give you an idea of our conviction here, one thing we did has had every team member reapply for their jobs against new enhanced job specs, and not everyone got rehired. We are still deep in the testing phase of this initiative, and as we said before, we're going to take the full six months or so to evaluate the performance of the transformed units and we'll have much more to share with you on these specific metrics at our Q1 call in August.

In the meantime, Denny will provide some additional color on guest response to the transformations. And most importantly, some changes will pull forward through the entire system this year. Given the results to-date, we have added plans to transform an additional 20 restaurants this year with the appropriate level of investment based on what we believe is the most attractive ROI for each unit.

Slide 6 summarizes our work on our new restaurant prototypes. Our learning's from brand transformation design work and guest feedback have given us a lot of insight how we could better engage with our guests and elevate the Red Robin brand. We're using that insight to incorporate refinements for future openings and we have plans to test a new restaurant prototype with two new sites to be developed later this year. This is where the engagement platform of our roadmap bridges to our expansion platform. I also mentioned on our last call that in the fourth quarter last year, we opened the first of our 4,000 square foot full-service Red Robin restaurants. Since then we've opened another two. With this significantly smaller footprint, we couldn't be more encouraged with the results.

The smaller units have a number of advantages, including greater flexibility in site selection as we expand, with a much lower construction costs while still providing operating capacity for very healthy volumes. With these results and our successful relationships with landlords, we now expect to include seven of the midsized units among the 20 new Red Robin restaurants we're opening and planning this year. Plus we're going to do several new Burger Works units.

Speaking of Burger Works, we've completed a number of important changes to these initial units and we continue to evaluate Burger Works performance in different types of trade areas as we set the expansion plans. We're currently working with landlords for a number of new Burger Works locations, including expanding the test to additional markets.

With that brief overview of the quarter and several initiatives on our roadmap, I'm going to turn the call over to Denny to give you more perspective on our marketing initiatives. Denny?

Denny Marie Post - Chief Marketing Officer and SVP: Thanks Steven. I'm happy to share insights today about the guest response to VTI and what we will be doing next on this very important multi-faceted initiative. I'd also like to take this opportunity to speak very briefly about our new ad campaign and our media strategy plus I'm going to provide a quick sneak peak of what’s coming in the summer.

Slide 8 illustrates our brand transformation work. To gauge guest response to our transformed stores and the associated server and presentation changes Steve alluded to, we used a variety of qualitative and quantitative insight tools. The parental feedback were both consistent and illuminating. We got a lot of likes. Our guest really appreciate the spaces and the environments we have created to accommodate everyone from adults out for an evening of beer and burgers to a five-year old celebrating their birthday with their family. They love the freshened look, the new plated presentations and the improved server interactions. The lobby functions much more effectively now, and the bar is a cooler place to hang out. What else do we learn, well we did learn that we have an opportunity to add more whimsy back into the design to deliver greater pop from the exterior as well as dialup patio presentations particularly where we have opportunities to increase year round seating and drive revenue.

We continue to refine the design as we transformed 20 more locations this year, optimizing the investment as we go from maximum return. We are more than happy with what we have accomplished so far, but we still are content to stay intact. We are going to keep improving and continue to evolve this work.

While we finalize remodel designs we have the opportunity to pull forward into this year the server plating and menu presentation improvements. All our guests will soon be enjoying burgers on red plates with our famous bottomless fries featured in the new and fun way. Along with reenergized service components to optimize guest engagement, tableside and particularly in the bar.

Starting with the upcoming Burger News in our summer promotion and moving across the entire menu by the end of summer, our guest system wide both company and franchise will soon be enjoying an upgraded dining experience.

To ensure we have a steady base of guests crossing the threshold to experience our great new presentations, we have begun a new ad campaign tagged 24 Burgers. A Million Reasons created for us by our new partner Vitro agency. It's capped off with our distinctive Red Robin…. Yum! This new campaign features a spokeswomen, who mirrors our core key brand personality and relates equally well to both our key target of adult women as well as the men they make all the decisions for. You can see a screenshot of the new campaign on Slide 9.

We have a new media strategy to support this approach which without increasing national spending this year, allows us to (indiscernible) media and build critical top of mind brand awareness throughout the year. Our agency team pulled out all the stocks to get new campaign on air in record time allowing us to capture two weeks of media in our Q1. Our coffee (indiscernible) and impacts tracking to-date show that we are off to a strong start and with at least 1 million reasons to love Red Robin. There is a lot more creative runway ahead.

We put a link on the investor site if you'd like to be at a first five spots in the new campaign. With growing Red Robin royalty base, new ad campaign and some terrific new burger news set for this summer we are raring to go. Next week we begin sneak peeks for our summer menu which includes that exciting burger news and pioneering new cocktail. We will also begin testing – emphasis 'testing' our first premium burgers in select locations. Just like our Tavern Double launched this last year, the intent is that these will be permanent not limited additions to the menu, rounding out our Barbell of Burgers. I am proud of how our pipeline process is taking hold, beginning with the successfully launched beer shakes 3,579 apps menu and desert, this summer's LTOs and rolling through core menu platforms as well as some exciting new platform works in the future.

With that, I'm going to pass it over to Stuart to speak about our financial results.

Stuart B. Brown - CFO and SVP: Thank you, Denny and good morning everyone. We're very pleased with our first quarter results. I'll provide some color on this quarter's underlying performance as well as our outlook, incorporating the progress we've made on the initiatives which Steve and Denny reviewed.

Our earnings per diluted share were $0.66 for the first 16 weeks of 2013. This is down from $0.71 per share reported last year due mainly to the sales shift of an estimated $7.5 million to $8 million related to the fiscal calendar change, shifting sales into the fourth quarter, as well as the lapping of more media weeks. If you assume a 25% flow-through, the impact of these two items reduced first quarter EBITDA by about $2 million and first quarter earnings per share by about $0.10.

Top line sales this quarter were generally in line with our expectations despite tougher than anticipated market conditions. Comparable sales grew 2.2% resulting from price increases to offset inflation and guest adding on more beverages and appetizers, offset by a modest guest count decline.

Our average check increased 2.8%, of which 1.9% related to pricing and the remainder due to higher sales of beverages, both alcoholic and non-sides and appetizers. Denny touched on our new appetizer program and dessert menu which we kicked off on April 8 and is resonating well with guests. This growth more than offset the 60 basis point decline in comparable guest counts. We are very proud of the initiatives taken by our marketing operations teams, which allowed us to continue taking market share from competitors. According to Black Box Intelligence, we outperformed our casual dining peers by 360 basis points on guest counts during the quarter. This is our fourth consecutive quarter taking market share and follows a 390 basis point outperformance last quarter. We attribute the outperformance to items like our great Tavern Double at an everyday value of $6.99 with Bottomless Fries and Red Robin Royalty.

Further, our higher income core guest base has shown improving consumer confidence, which is a competitive advantage. As discussed in our last call, our comparable sales are calculated comparing the 16 weeks of this quarter against weeks two through 17 of 2012, so they are now skewed by the shift in holiday week sales related to last year's 53 week calendar. It is also adjusted for $1.9 million of restaurant level promotional costs, which were previously in other operating costs.

Our restaurant level operating profit margins improved 30 basis points to 21.5% in the first quarter from a year ago. The improvement was mainly result of our leverage on our higher average check, lower hamburger and cheese costs and favorable mix. The cost savings that we pursue as part of project blueprint continue to offset some of the investments we are making back into the guest experience, including a new interactive iPad based training program for all of our hourly team members, which we rolled out this quarter.

If you look at Slide 15 in the supplemental, you can see how we have improved restaurant operating margins over time, 330 basis points higher than Q1 2010. Selling, general and administrative costs were $37.6 million in the first quarter, but about $1.5 million higher than we expected. The variance resulted primarily from higher performance-based incentive accruals, investments in staffing to support growth and preliminary innovation as well as an additional menu run.

G&A includes cost related to the development, research and testing of a number of our roadmap initiatives including our new information technology for our restaurants, brand transformation and more.

Depreciation expense increased $1.2 million over 2012 due to the opening of new restaurants, restaurant improvements and the placing into service of our new financial systems. The decrease in interest expense reflects the impact of the debt refinancing late in 2012 as well as our lower average debt outstanding. We continue to generate significant cash flow which we are investing to improving and grow Red Robin.

Capital investments in the first quarter totaled $13.6 million was spending on our new restaurants, maintenance capital, kitchen equipment upgrades and IT systems. We remain pleased with the performance of our new units including the 4,000 square foot mid-sized prototype as Steve discussed and have increased our planned new restaurant openings based on successfully identifying additional sites in growth markets in fill and trade areas.

We now expect to open 20 full and mid-sized units in 2013, relocate two units and open several Burger Works. As you've gathered by now the brand transformation initiative is showing good promise. We will pull forward some changes system-wide and expand the remodeling task to an additional 20 units this year. We will incur one-time operating expense of around $800,000 to $900,000 and accelerated depreciation estimated to be $600,000, but pending the final selection of locations.

We project spending $400,000 per remodel. We are also planning to expand three restaurants to add capacity. These combined with increasing the number of restaurant openings will result in 2013 capital expenditures of around $70 million.

Our other expectations for 2013 remain mostly consistent with what we discussed on our earnings call in February. Comparable store restaurant revenue are projected to grow 2.5% to 3%. Restaurant level operating margins are expected to be approximately 20.9% as favorable commodity costs are partly offset by one-time roll out cost for brand transformation elements in restaurant systems.

Our general and administrative costs are now expected to be closer to $87 million versus our $83 million to $84 million as previously projected reflecting the higher cost in the first quarter in addition to investing in talent to support the accelerated growth and ensure the proper testing and rollout of road map initiatives.

Depreciation is now expected to be bit north of $59 million which includes the accelerated depreciation I mentioned a moment ago. We are confident in the investments that we are making in our people, our systems and our restaurants while enhance guest engagement, improve efficiency and expand our footprint thereby providing greater value for all of our stakeholders. Steve, let me turn the call back over to you for some final comments before Q&A.

Steve Carley - CEO: Thanks, Stuart. I'd like to wrap up our prepared remarks by reiterating how encouraged we are by the momentum we have achieved engaging our guests and what that implies both for this year and beyond. We continue to raise the bar on great Gourmet Burgers and other craveable Red Robin entrees, apps and creative beverages. But just don't take it from us, make sure you get to a Red Robin this summer and check it out for yourself. We've gotten exciting summer menu line up that launches on June 3rd including an innovative and mouthwatering new burger a new Tavern Double style and from the bar first to market cocktails and other refreshing beverages that you will only find at Red Robin. Of course this strong line-up in our continued success as a company is possible because of our talented and passionate Red Robin team. So, again I want to make sure to thank my fellow Red Robin team members across the organization for their commitment and outstanding working take care of our guests each and every day.

With that operator we'd be happy to take questions.

Transcript Call Date 05/21/2013

Operator: Will Slabaugh, Stephens Inc.

Will Slabaugh - Stephens Inc.: Wanted to ask if you could talk a little bit more on the remodels, about the ROIs you're expecting or maybe beginning to see at the newly remodeled restaurants. And I know it's early there, but it seems like at least it's safe to say that the more intensive remodels are providing a superior return.

Stuart B. Brown - CFO and SVP: This is Stuart again. We've been able to read the results for – most of these have been done for five or six months. We want to continue to read them and watch guest count trends, but I can tell you, today the full remodels are getting returns that are over our 12% hurdle and that's about as much details we're going to give right now. We'll be able to provide some more colors as Steve said next quarter.

Will Slabaugh - Stephens Inc.: One thing else I want to ask you about the premium test that you mentioned. I wonder how big that would be, across how many restaurants and then if you would be willing to tell where that might take place.

Denny Marie Post - Chief Marketing Officer and SVP: We're starting small with a select number of restaurants in our area and we'll measure that first and then decide what's next.

Will Slabaugh - Stephens Inc.: Then, just lastly, if you could talk about any sort of inter-quarter trends that you guys saw. I know it was a very choppy quarter for most, just maybe from the consumers' reaction during what turned out to be pretty volatile months?

Steve Carley - CEO: Yeah, I think what we saw was pretty consistent with what most everybody else saw, although, I don't think we were hit quite as hard in any of the period, so again strong January, I think February is where most people fell off and that was a tougher month for us and then some recovery back in March. So I don't think we were that uniquely impacted.

Operator: Bryan Elliott, Raymond James.

Bryan Elliott - Raymond James: A question, those were a few of mine actually. But one I have, Stuart, did I hear correctly food costs – that burger and cheese costs were actually down in Q1, and I think I heard you say you expect commodities overall now to be down for the fiscal year.

Steve Carley - CEO: Hamburger was down for – year-over-year was down actually in the first quarter versus a year ago and in cheese favorable as well. So we expect commodity to be favorable for the year, but not down year-over-year. Looking at where hamburger prices are today we expect hamburger to be favorable to our previous guidance, really for the whole first half and then really start to pick up more in Q3 and Q4, as we cycle with somewhat lower numbers. I mean also back out the other thing on COGS is we've renegotiated our cod contract and we actually sell 1.7 million pounds of cod, so we'll have favorable cod pricing in the second half compared to a year ago.

Bryan Elliott - Raymond James: On the timing of the Creative, the new campaign. Remind me, I missed the details on that one, is it just breaking now or and are we doing national cable from right from the get-go.

Denny Marie Post - Chief Marketing Officer and SVP: Yes Bryan. We are on national media including network, syndication and cable. So you might see us pop up, in fact we've launched in the boys, so we've got some higher quality programming than we've had in the past. We got two weeks in Q1 and then we're using a pulsing strategy throughout the remainder of the year.

Bryan Elliott - Raymond James: As far as percent of sales going. Is the selling expense that we saw in Q1 in the press release that's the same basis that we've historically seen – I think it was called advertising expense prior is that right?

Steve Carley - CEO: Yeah right, exactly, but sort of 2.8% of sales and that's our contribution to the fund.

Bryan Elliott - Raymond James: We're continuing to hold that as far as planned spending now for this year, although we'd actually pre-booked that, we didn't spend it in Q1, we are going to spend in Q2, Q3, Q4.

Steve Carley - CEO: Correct.

Operator: Jeff Omohundro, Davenport & Company.

Jeff Omohundro - Davenport & Company: Follow-up to Bryan's question regarding media, one thing about lapping some more challenging upcoming comparisons in part benefiting from the Tavern burger successful rollout last year. Just wondering how you are thinking about drivers of traffic, how you see that splitting between the new media efforts and the new burger news that’s upcoming. And also how the new media strategy integrates with investments that you made in the social media and how you might track the results from those two efforts thanks.

Denny Marie Post - Chief Marketing Officer and SVP: Jeff, I'll take that one, I guess first I'll go backwards, how we track it is, we wake up every morning in chicken sales and guest counts, so that’s certainly most critical but we are tracking using Nielsen which tracks online guest response, etcetera and allows us to make real-time changes in our media mix. In terms of the overall media mix, I think it is a balanced in terms of more investment this year. We are starting to move more aggressively toward social media and that kind of guest engagement via social media, because we think we can really win there and also it's a great tie to our Red Robin royalty program. That said, our traditional media is very much still there. The whole discussion about really what you are asking is balance of message between LTO news and other elements of the campaign, I'd say that the way that campaign is constructed 24 burgers A Million Reasons allows guest to discover something new about our brand. And so even though it may not be a limited time only, a spot and you will see one of them on the five focused on Bottomless Fries reaches out and touches some guests who may not have been aware of that proposition. So, the campaign itself is designed to help people discover new things about Red Robin into which we can drop LTO news when appropriate. Hopefully that's pretty (indiscernible) overview, I'd encourage you to look at the five spots and get some sense of that. We will have more balanced and a growing emphasis on social media and digital media over time.

Jeff Omohundro - Davenport & Company: And on the subject of check growth in the quarter how did that aligned with your goals in the period and how you see that evolving through the balance of the year?

Stuart B. Brown - CFO and SVP: This is Stuart. Couple of difference things going on; first of all, we've continuing to work through the take back the bar initiatives knowing that beverage is really alcoholic and non-alcoholic remain an upside for us. We do a great job in Freckled Lemonade, it is really strong platform for us that we can lean into but we know we've got more things than you alluded to couple of fun things coming this summer on the beverage side. And the appetizer side we had tested that late last year 3,5,7, 9 and we knew that was going to work well so that rolled out on the new menu and our new deserts was really a point where we just didn't have enough sort of small indulgences on the menu and that's really rolled out in April. So, your question is (indiscernible) you are going to be essentially lapping Tavern Double which wasn't the check issue, that was a guest count issue in bringing everyday value onto the menu well now we've got some things to continue to bring people onto the restaurant but also help check.

Jeff Omohundro - Davenport & Company: Lastly on the guidance around Burger Works from 5 to 6 to several how are you – maybe give a little more granularity about how pleased you are with the progress. There has been some refinement and target there?

Steve Carley - CEO: Well, Jeff, as we talked when we put these initial ones up, we went to a variety of different trade areas to get a feel for how effective they were and we also tested some stuff inside these restaurants including digital menu boards and a new POS system. So we're in the process of evaluating how these perform by different kinds of trade areas. We have learned that the POS system we did look at, which was different than the one we have in the big Red Robins, did not meet our expectation, so we're in the process of swapping that out, and we've got – we've done some great work in the middle of the P&L. It's not quite complete yet, but we really like the direction we're going there. And so we're fine tuning all the elements of the brand including its look and feel and how much familial resemblance it will have to the big Red Robin, and we're taking our learning from brand transformation and applying that. So, we are being very thoughtful and very prudent about where we are going with this and we want to get it right. And then, we got a long runway from there once we get this thing optimized.

Operator: Joseph Buckley, Bank of America.

Joseph Buckley - Bank of America: Just a few questions with just the timing of things for the balance of the year. First, can you talk a little about price? What you took in the first quarter and what kind of runs off over the balance of the year. What your additional plans might be?

Stuart B. Brown - CFO and SVP: Joe, this is Stuart. So we exited the quarter with about 2.2% in price total. So we took about 0.9%, just on the 1% last year in October, and 1.5% we took in February this year. So we'll be cycling over that 90 basis points later in the year.

Joseph Buckley - Bank of America: Stuart, $800,000 to $900,000 of incremental expense, I think you said associated with remodels. First, how will that flow? And then secondly, what is that, is that almost like marketing expense to draw some attention to the remodel.

Stuart B. Brown - CFO and SVP: No, so $800,000 to $900,000 is really pulling forward. It's couple of different pieces. The one piece is pulling forward some of the branch transformation that Denny and Steve talked about. The new food plating, the presentation, some of the training that goes around that in terms of some of the service changes we're making. That's a big piece of it, as well as some of the IT systems we'll be rolling out there will be some training cost around that. The bulk of it had really hit in the third quarter.

Joseph Buckley - Bank of America: Then just as you go forward with the remodels, what key aspects of the remodels did you sort of – I wouldn't say settle on them, settle on, but you select?

Denny Marie Post - Chief Marketing Officer and SVP: I think the most important part for that is the elements that separate and provide kind of unique zones for our guest as I mentioned everything from adults in the bar to families in another section of the restaurant and some transitional area in between, so the elements that help us create more intimate environments for the right kinds of parties and associated guests. I think also again their lobby has been a big win in terms of having a key hostess leading the charge in the lobby and just the sense of the guest knowing where they go to begin their Red Robin evening. As well as some of the other elements that work very well for us, just the bright updated fund components of the restaurant and of course the plating and presentation. We know we have an opportunity to go back in and dial-up as I said some of the whimsy around the brand and the design. But to the most part I'd say the functional elements are really strong. (indiscernible) also continues to be an opportunity for us.

Joseph Buckley - Bank of America: Just one more on the time aspects of things, so the two weeks of advertising in the first quarter versus four a year ago, I believe, how is it lined up for the balanced of the year. Is there any like big skewing of being on air versus not being on air or vice versa?

Denny Marie Post - Chief Marketing Officer and SVP: Well again the strategy is shifted, so you are going to see us on air more often at more pulsed in lower rates than we've been in the past. So, it's a very different strategy and we are fully aligned with our LTO 12 weeks on a year approach.

Stuart B. Brown - CFO and SVP: So, there will be some variances that we see within the weeks or within quarters that should balance us without (indiscernible).

Operator: Alex Slagle, Jefferies.

Alexander Slagle - Jefferies: Question on the components of the same-store guidance, it looks like you are looking for increased visits. Just wanted to get your thoughts on is that – because you are happy with the first quarter to the point you see traffic being a little bit better than previous expectations or maybe a function of the acceleration in the new creative in the two weeks that you saw there in the first quarter?

Stuart B. Brown - CFO and SVP: Obviously the biggest component it continues to be price which for the year will average about 2%. And to the remainder of the combination of check in terms of guest adding items on, appetizers, desserts, beverages as well as potentially a guest count. So, you got to remember in the first quarter if we hadn't had this media shift to $7.5 million to $8 million guest counts would have been positive 0.5% to 1%. So, if you sort of normalize for that, we would have actually positive guest count in the first quarter, we are not dependent on positive guest count, we continue to more like obviously keep taking market share from our competitors, but I think it will be a combination of average check as well as some guest count.

Alexander Slagle - Jefferies: And the total Red Robin builds that’s 20 now versus the previous outlook 15?

Stuart B. Brown - CFO and SVP: 20 plus those (indiscernible) 20 to 23 total including Burger Works versus last year – last quarter we said 20 which included five Burger Works.

Alexander Slagle - Jefferies: And then the 20 remodels that you talked about timing of that did you mention that?

Stuart B. Brown - CFO and SVP: Yeah, we are just settling on the locations now so there will be some permitting and things like that. So, this is really back half of the year.

Operator: Jeff Farmer, Well Fargo Securities.

Jeff Farmer - Well Fargo Securities: Most of these questions have been asked I am curious so I will just take advantage of the opportunity to ask you guys about your thoughts on the casual dining environment. In general just from a promotional standpoint are your peers getting more and more aggressive do you feel that we stabilized at this point? What's your view?

Steve Carley - CEO: This is Steve. I look at the casual dine landscape and it continues evolve into what we would have thought was a QSR landscape 10 years ago. There is continuous promotion across multiple dayparts by every single major player and if they see any softening in their traffic they go deeper into price point oriented kind of stuff. Simultaneously there appears to be a growing bifurcation between brands that are relevant and differentiated and giving the guests – meeting the guest expectations and those that aren't and that's kind of a secondary theme which is why we are so focused on this brand transformation element dramatically enhancing our guest service and our guest experience and continuing to elevate our food and its presentation to build upon what we have learned through a lot of guests insight competitive stuff is a terrific brand equity and we want to continue to differentiate and become even more relevant not only to our core group of families, but also as Denny mentioned, to continue to claw back that place for adults, particularly young adults as a great spot to go to have beer with their pals.

Jeff Farmer - Well Fargo Securities: Then just one final question in different direction and you did touch on this a little bit, but it sounds like four franchise unit openings planned for '13, again, as you guys pointed out, it's been a while since you see not many – what's sort of behind the scenes there? How have these guys been sort of rekindling development? What's your expectation for 2014 and '15 are we going to see this number continue to grow on the franchise development side?

Steve Carley - CEO: No. The franchisees, of course, are – their optimism continues to grow as their business strengthens. We brought them in and have been very transparent and open with them on what we're doing and where we're trying to go, and that fuels their optimism. They continue, especially the smaller franchisees, those with two, three, four, units, continue to struggle with financing surprisingly in this kind of environment, but it's still true. But I think you should look at three to four new units in the out years too as a good base.

Operator: Chris O'Cull, KeyBanc.

Chris O'Cull - KeyBanc: Denny, I may have missed this, but do you expect to increase the amount of media impressions with this new strategy, and without increasing the spending as a percentage of sales?

Denny Marie Post - Chief Marketing Officer and SVP: Yes. (Indiscernible) is a complete sentence. Also, we've shifted target toward a stronger key female decision maker in the household. So, we're buying differently now and that comes from the inside about who makes the decisions in the households about where to go and particularly related to Red Robin.

Chris O'Cull - KeyBanc: So it's a combination of a new buying agency plus just better consumer insight into what media you're buying?

Denny Marie Post - Chief Marketing Officer and SVP: All of the above yes. We're very pleased with our new buying partner.

Chris O'Cull - KeyBanc: Then there seems to be two approaches to remodels in the industry. Companies that target strong year one sales that try to sustain that lift, and another group that create sales layers into their design to build on the comp each year. How would you describe Red Robin's approach?

Stuart B. Brown - CFO and SVP: I think we're still learning and testing. The next 20 we're going to do is we picked using the same analytical software we did to analyze the first 21, so that a, we are someone there that based on the demographics and things of those locations we think we will so very well and other ones that are in different demographics that we need to test and do some more research on, so we're still learning.

Chris O'Cull - KeyBanc: Is there going to be significant changes? It didn't sound like there were going to be significant refinements to this next group?

Denny Marie Post - Chief Marketing Officer and SVP: No, they will be fairly close, but I think again because we got most of it right, so we just have an opportunity to go back in and dial up some of the developments.

Stuart B. Brown - CFO and SVP: You saw it, so we appreciate you coming to visit and we'll take some of the advices you gave us when you are out there.

Operator: John Glass, Morgan Stanley.

John Glass - Morgan Stanley: I do have a question on the prototypes, can you just talk about the learning's of the mid-size prototypes that you've built so far. Are you able to get the same kind of sales productivity for as the full size, and maybe because they're in small markets. How do you think it eases, you said it's partial it's going to be six of your existing 20 this year. Do you envision evolving entirely to the smaller prototype or is it going to be kind of dependent on the market size?

Eric C. Houseman - President and COO: We have three of them in the ground so far and another two under construction currently. We're real happy with the sales performance. Obviously at a much reduced cost of capital, the hurdle rate in terms of sales is much, much lower to other 30% to 40% return on cash-on-cash. To the point that I think it's a little bit of that is fueling some of the franchise growth so because we see the great returns, still it's a lot, you have still full bar store full menu. It's the hurdle rate. So, we are really pleased with the performance so far. And to your point I think you knew that headed it's just gives us another tool, the toolbox when we are looking at real estate across the country. To go and show me different areas that remain that has been able to get into with a successes work with Big Box.

John Glass - Morgan Stanley: If I could also just clarify a couple of things, I wasn't clear on the food cost commentary. I think, at least the beginning of the year, you had said or maybe late last year sort of mid-single-digit inflation. You saw deflation this quarter, but you're expecting still inflation but at a reduced rate this year. Is there a rate of inflation you're not targeting for '13?

Stuart B. Brown - CFO and SVP: Yes, (Indiscernible) built into our operating margin goals but do we expect commodity inflation this year to average about 3%. So, deflation was it was only on hamburger not all the other categories.

John Glass - Morgan Stanley: But year-over-year you were down in food costs maybe that was some promotional activity as well or mix?

Stuart B. Brown - CFO and SVP: Yes, there was certainly some mix and you guess some leverage obviously on the higher beverage sales and things like that.

John Glass - Morgan Stanley: And then just another clarification on the burger work strategy, from 5% to 6% to several now, is that I mean how you define that. It sounds like you are still refining the concept a little bit, so are you slowing it down or speeding it up?

Steve Carley - CEO: This is Steve. I think you can interpret several as more than one and less than 10. One of the things we are learning in the real estate market which is known to those guys who also cover fast casuals. This 2000, 2200 square foot box and a great trade area as an end cap is the hottest piece of real estate in the country right now. Everybody wants that exact piece. We find it – we're somewhere between six and 10 folks talking to a landlord on that particular piece of property. And so going after those is a little more problematic. Number two, once we get them, it only takes 90 days to build out. So, we're not trying to be cute here. There are just a lot of moving parts on that particular piece of real estate, and once we get several closed, we can have two or three opened in 90 to 120 days. So there's a lot of variability, and we're currently looking at markets outside of Denver and that's exciting, and that's one of our objective is to get some more experience outside of our core market.

John Glass - Morgan Stanley: So it sounds like, more like it's the variability you still want to commit because of real estate availability not a viability of concept issue or still need to refine the concept issue. Is that fair?

Steve Carley - CEO: It is overwhelmingly the former. We are still doing some refinement and improving the financial performance, but the real estate and the availability of sites and the competition for those sites is a big challenge.

Operator: Peter Saleh, Telsey Advisory Group.

Peter Saleh - Telsey Advisory Group: I wanted to come back to the remodels. Just wanted ask are there going to be any changes to the back of the house or all the change is going to be primarily to the front of the house and the exterior?

Denny Marie Post - Chief Marketing Officer and SVP: The primary changes that we have just tested are front of house. We have completed our kitchen transformation initiative which has involved some changes to the heart of the house to improve overall quality and flexibility for our menu, but those are separate and they've gone system-wide prior to us doing any front of house remodels or exteriors.

Peter Saleh - Telsey Advisory Group: Steve, can you just talk about To-Go sales and that was one of the initiatives you guys had some quarters ago. Where do you stand on pushing more on the To-Go sales?

Steve Carley - CEO: Peter, we know To-Go is a big opportunity for us. Our competitors who do a good job that are doing 10% of their sales in To-Go, we're probably doing 2% of our sales in To-Go. It requires a real focus around both the heart of the house and then the guest-facing part of it. It is in our strategic plan. We are going to get after it here in the next year or so, but it's one of those planes that skewed up to land here in the next 12 to 18 months. We don't want to do it haphazardly, and so we're going to take the time to get it right, but it's relatively complicated. You should take a look at the folks that are doing a good job with it. They not only have heart of house support, but they have great guest-facing kinds of service and technology to make To-Go work. So, we know it's an opportunity, it's skewed up, and we're going to take it in sequence when it makes sense.

Peter Saleh - Telsey Advisory Group: Then, just a little bit of housekeeping, alcohol as a percentage of sales, where do you guys stand versus where you were last quarter?

Steve Carley - CEO: We continue to do – make great progress around that. In Q1 of '13, our bev alcohol percent was about 7.5, that's up 40 basis points from a year ago Q1 '12. And as you know, we talked about trying to grow bev alcohol about 50 basis points a year, slow and steady, took us 10 years to lose it and we're not going to get it back all at once, but we're excited about what the summer has to offer with some of these best first one-of-a-kind cocktails that we're going to be bringing out. Also to correct, our To-Go percentage is just little under 5%, which is about half of where we are.

Stuart B. Brown - CFO and SVP: Up 20 basis points from last year.

Steve Carley - CEO: And that is up 20 basis points from last year.

Operator: Stephen Anderson, Miller Tabak.

Stephen Anderson - Miller Tabak: A house keeping question. This time on the G&A line, just sort of you can go through with me like where the jump was and that jump versus historical (raise) is not going to recur in following quarters or in '14?

Stuart B. Brown - CFO and SVP: So, G&A if you look at a couple of different things going on now. Obviously I mentioned on the call we're a little bit of incentive based pay that was little bit of a one timer in the first quarter, that's been $700,000. The bulk of it really is increased salaries. Let me touch for a second on where it is that we're investing because as we're talking about increasing growth and the other initiatives. With the increased growth that sort of puts us over the tipping point with a new restaurant opening directors, we're going to have to add a new opening director. The North east where we're growing we're going to add two restaurant directors. We've hired on staff full time now a labor engineer to help us with labor-management. On Red Royalty, which we've seen such great success on, we've added a director of Royal Royalty. So, we're investing, making investments in the number of the areas of our business. They're not capitalized, but these are things that as we go through and make these decisions. One of my jobs to make sure we got the discipline they're getting returns on all these. So these are things that we're good about. So those are areas that we're adding and investing. That's the primary driver of G&A. Again, keep in mind, we do have G&A we've got (iCube), which is our new IT systems. There is about $4 million worth of expenses related to that this year going through G&A. Again, that won't go away next year because we've got some other pieces, we'll add on to that, labor management is about another $1 million of expense going through G&A. So there is some other things going on there also.

Operator: Bryan Elliott, Raymond James.

Bryan Elliott - Raymond James: I wanted to circle back to the learning's from the 21 initial physical brand transformation test unit. So, a key aspect of your business has been the appeal to families with small children and you talked a lot about those of us that are beyond that not necessarily one or even those that have small children getting away for the night, not necessarily wanting to sit next to high chair. And so in context of that, the fear that maybe the changes might alienate that key part of your audience, can you give us some help on what your follow-up research and all other anecdotes maybe on how the families with children are responding to sort of arguably being corralled into the (play pen and high chart area).

Steve Carley - CEO: Bryan those were your words not ours.

Bryan Elliott - Raymond James: I'm not a decorator either, but I'm creative with words.

Denny Marie Post - Chief Marketing Officer and SVP: Well, I will say from the very start, our goal has been more guest more often more delighted, so we weren't looking to give up anyone and there is no evidence of any deterioration at all in our family base. We continue to be as one guest described as the beacon of hope for large parties, no matter what the age of your party. And we went out of our way to create some new interactions particularly with our younger guest that we are getting very good feedback on. I'd be happy to go sit with you. I won't put on a high chair but we can try it out in the back. But yes, there is no evidence that there has been any deterioration in our appeal. We still stand is a place to take a great evening with your family.

Operator: That’s all the questions that we have the queue, I'd like to turn the conference back over to Mr. Carley for closing remarks.

Steve Carley - CEO: Thanks, everybody. We appreciate your time and attention and we will talk to you here in August.

Operator: That does conclude today's teleconference. Thank you all for joining.