Q3 2019 Earnings Call
Excuse me. This is the operator today's conference is scheduled to begin momentarily until that time your lines will again be play some use that cold. Thank you for your patience.
Olefin keypad should anyone need assistance at anytime during the conference. Please press Star then zero and an operator will assist you I'd now like to introduce Tonya Robinson, Chief Financial Officer of Texas Roadhouse, you may begin.
Thank you Holly and good evening, everyone by now you should have access to our earnings release for the third quarter ended September 24th 2018. It may also be found on our website at Texas Roadhouse Dotcom any 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 FCC for more detailed discussion of the relevant factors that could cause actual results could differ materially and 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, as Kent, Taylor, founder and Chief Executive Officer, Texas Roadhouse, following our remarks, well open the call for questions now I'd like to turn the call over to cat.
Thanks, Tony we're pleased to report strong third quarter results that included not only another quarter of strong revenue growth.
But also solid restaurant margin performance and earnings per share growth our comps in the third quarter were up 4.4%, including truck traffic growth of 1.5% and our sales momentum has continued into October with comps increasing to 5.3%.
The benefit of average unit volume growth along with improvement in labor productivity.
Resulted in restaurant margin expansion of approximately <unk>, 0.5% during the quarter, Tony will give you more detail on the specific drivers and her financial update, but I will say that our operators deserve all the credit for the improvement we saw throughout the quarter their focus on labor scheduling and efficiency while mainly.
Getting the right levels of staffing to execute at our high standards of food and service quality well continue to serve us well.
We continue to focus on growing guest counts with an increased emphasis on driving those sales through to the bottom line without sacrificing sacrificing the guest or employee experience.
Sales growth continued a bubbas 33, this quarter with 20 restaurants, and the comp base generating growth of 8.8% are tested banning lunch and five babar locations, which began earlier this year contributed 2.5% of that growth 88.8 minus two point.
Five equal 6.3% growth youre construction and permitting delays continue to be a challenge in the third quarter, which of course several more openings into early next year with these delays. We now expect to have approximately 7.2% store growth in 2019, including the benefit.
Oh, the 50 Threerd week.
So far in the fourth quarter, we have opened five restaurants.
And expect to open six more before year end on a four year basis that will give us 22, new restaurants in 2019, including three public 33 sites.
Looking ahead to 2020 I'm excited with how our development pipeline is coming together. We currently are targeting at least 30 plus company restaurant openings, including as many as eight Bubbas. We also look forward to opening two jaggers next year, which are not included in our development outlook.
From both a commodity and wage rate perspective, we expect 2020 to be another inflationary year. As a result, we plan to roll out a menu price increase of approximately 1.9% in late November to replace the menu pricing that we'll be rolling off whether this pricing action will be enough to offset.
Inflation and maintain restaurant margins in 2020, it will depend on a number of factors, including traffic growth. The exact levels of inflation, we experience and continued improvement in our labor productivity.
For those roadhouse folks on the line, let me repeat for the continued improvement in our labor productivity. Thank you.
Finally, we spent the last month traveling the country and meeting with our managing partners. Our annual fall tour I came away from those meetings confident about the direction of our business and our long term growth opportunities I want to thank our operators in the entire team for continuing to grow sales take care of our guests and employees and for never.
Setting average as Gary Grimes likes to say no Tony will walk you through our financial update.
<unk> for the third quarter 2019 revenue grew 9.4% driven by 5% store weak growth and a 4.4% increase in average unit volume.
Restaurant margin dollars grew 12.7% to 108 million, while restaurant margin as a percentage of total sales increased 49 basis points to 16.7%. Additionally, net income increased 25.4% to 36.5 million or 52 cents per diluted share.
Comparable restaurant sales increased 4.4% during the quarter comprised of a 1.5% increase in traffic growth and a 2.9% increase in average check my math comparable sales increased 4.3%, 3.9% and 5.1% for July August September period.
Respectively, and as Kent mentioned comparable sales increased 5.3% for October period.
Cost of sales as a percentage of total sales decreased 76 basis points compared to the prior year period, the impact of approximately 0.8% commodity inflation was more than offset by the benefit of a higher average check.
Based upon our expectation for inflation in the fourth quarter, we've updated our full year 2019 commodity inflation guidance to 1.5% to 2%.
Labor as a percentage of total sales increased 33 basis points to 33.8% and labor dollars per store store week were up 5.2% compared to the prior year period. The main drivers were wage and other inflation, a 4.2% and growth in hours of 1.4%, which included the impact of higher.
Our guest counts.
Labor per store, we growth benefited by 0.4%.
Adjustments to the reserves associated with our group Health insurance claims development history, and our workers compensation claims experience in total these adjustments resulted in 1 million of expense this quarter compared compared to 1.8 million as expense in the prior year quarter.
We now expect labor dollars per store, we growth for the full year 2019, but to be between 6% to 7%.
Lastly, other operating costs as a percentage of total sales were essentially flat compared to the prior year period, we continue to see higher year over year insurance premiums. However, this increase was offset by favorable adjustments related to our quarterly actuarial reserve analysis for general liability insurance. These adjustments resulted in.
A 1.1 million credit this quarter compared to 0.5 million credit in the prior year quarter.
Moving below restaurant margin Gionee cost increase point 2 million and as a percentage of revenue decreased 48 basis points to 5.4%.
Our primary drivers of the decrease were lapping of an additional 1.4 million of incentive and equity compensation expenses from last year and 0.9 million in legal settlement expenses from last year.
It was benefits were partially offset by the expansion of our regional operation support structure, which impacted DNA by approximately 1 million.
We currently expect at the regional operations expansion will have a negative impact on 2019th fourth quarter of approximately point Sevenmillion as we will begin to lap the expansion, which began during the fourth quarter last year.
Overall, we continue to expect 2019 DNA cost to grow approximately 12% on a 53 week basis compared to the prior year.
Depreciation expense increased 2.5 million to 28.3 million or 4.4% as a percentage of revenue, which is flat as compared to the prior year period.
The increase included 1 million of additional accelerated depreciation primarily related to restaurants expected to be relocated within the next nine months, we expect additional accelerated depreciation of approximately point 2 million in the fourth quarter.
Our tax rate for the quarter came in at 15.1%, which is unchanged from our rate in the prior year period, our full year income tax rate guidance remains unchanged at 14% to 15%.
Finally, our total share count was down on a year over year basis, as a result share repurchase activity the impact of the 2.1 million shares repurchased in this years second quarter, along with the 358000 shares repurchased in the third quarter benefited earnings per share growth by approximately 3.7%.
We'll continue to allocate our operating cash flow and a smart and balanced way with a focus on disciplined growth of our brands dividends share repurchases in franchise acquisitions.
Our balance sheet remains strong as we ended the quarter with 100 million in cash during the quarter, we generated 55 million in cash flow from operations incurred capital expenditures, a 57 million pay dividends of 21 million and repurchase 19 million a stock we've actually done our projected 2019 capital expenditures to are packed.
The only 200 million.
As we near the end of 2019 I once you remind everyone that the fourth quarter, well have an extra week, which falls between Christmas in years, and it's usually part of our January period.
We estimate this extra week will benefit diluted earnings per share growth by approximately 4% for the full year 2019.
Finally, due to the timing of our year end on December 31st the for fourth quarter. It. This year, we'll have to dividend payment.
Looking ahead to 2020, our initial expectations include positive comparable sales growth and as Kent mentioned at least 30, new store openings, including as many as eight Bubbas 33 restaurants.
Well, we will be lapping the benefit of the 50 Threerd week from 2019, we expect to grow restaurants store weeks by three to have to 4.5% with openings more evenly weighted throughout the year.
We currently expect 1% to 2% commodity inflation with fixed prices on approximately 30% of our commodity basket at this time, our expectation for mid single digit labor expense growth per store week includes the impact of increases to mandated state wage rates as well as the impact of ongoing market pressure and growth in.
Labor hours due to traffic growth.
Our 2020 expectations also include an income tax rate, a 14% to 15% and capital expenditures of 190 to 200 million.
That concludes our prepared remarks Holly please open the line for question.
Ladies and gentlemen, as a reminder, if he would like to ask a question. Please press Star then one on your telephone keypad again that star one to ask a question.
[noise] once again press star one to ask a question.
Our first question is going to come from the line of David Tarantino with Baird.
Hi, Good afternoon my questions on the the restaurant margin performance.
In Q3.
As Mark up pretty nice inflection point.
<unk>.
And I wanted to ask in particular on the Labor line, what exactly are you doing to drive some of the productivity enhancement.
You mentioned.
Sustainable do you think.
As far as you're thinking about the fourth quarter and 2020.
<unk>.
Sure David on you know really we saw those labor improvements kind of happened throughout Q3. So we're still learning at that but we've been talking a lot about labor. We've had some meetings with our market partners. We just came off all Choosier course that haven't released we haven't seen the impact of that yet, but I'm really we're talking to stores just about what they are.
Number is what the number of hours they need to continue to grow restaurant sales and meet their guest count I'm you know the guest counts that they have so that's really what we've been doing do you remember back at the beginning of the year, we talked a little bit about that staffing initiatives. We had we felt like a lot of people you know really did get a great job that's getting.
Yeah properly, where they may be or understaffed in the past. So you know what we then said was there that could have been some overcorrection. If he will from some stores. So I think some of what we're seeing right. Now is just a little bit of I'm, a balancing of that kind of on tweaking that a little bit. If you went and just bringing that more in line. So I think it is right now.
We expect that that we will see that be sustainable too early to say Q4 will be a great indication of going forward, what we will expect but we've built into our mid single digit for 2020, our mid single digit labor guidance and expectation that those hours will start to be more in line with traffic growth and maybe even a little below traffic growth and.
Part of that was we brought quite a few managers on to get geared up for doing sixmillion and a lot of those folks are now out of training and you know a executing within the stores and then I will tell you on fall tour, Doug Thompson did want a heck of a class and labor productivity and I was a quite amazed to see people coming out of those.
Meetings, very energized and educated a little better.
Great and then the follow up I had was related to 2020 <unk>.
Can you.
You mentioned that you're taking a 1.9% price increase I think that's replacing 1.7% but I.
I guess in 2019, you took a second price increase in the spring to manage through the inflationary pressure so.
One one question is is that second price increase still something that you might consider for 2020.
Generally or philosophy around what you'd like to accomplish on restaurant margin.
And 2020, whether it's holding the line are increasing margin.
But just directionally how are you thinking about it.
Oh, well as we went through I meet with a all 60 of our market partners and obviously, a we probably in a lot of the higher wage states that had the bigger bumps took a higher percentage than our one nine and then there were states. They had no increase in late state wage that we.
Took less of a percentage. So you can't really say, it's an average it depends on the state your as far as next year.
We didnt know at this point a year ago that we're gonna do that you know that additional but so it's hard to tell I think a lot going to depend on how we see labor can be trending well probably be having those conversations as that 1.5 rolls off at the end of March I really too early right now to say, whether we'll be doing that it I think maintaining restaurant margin.
And it is a good place to D. and that's kind of labor environment. I'm you know if if we can do that with traffic.
I'm driving traffic and maybe getting a little bit of help from a commodity inflation standpoint, as far as being a little lower on that on that range. We gave I think that would be really positive and the biggest thing. She said as a traffic you know we don't know our traffic numbers say first quarter of 2020, and that's a big indicator of what we'll do or another.
Great. Thank you very much.
And our next question is going to come from the line, if Brian Bittner Oppenheimer and company.
Thank you.
Question on the food cost inflation outlook for 20, 21% to 2% for.
For next year is pretty good even potentially bad or.
Your operating in this year can you just talk a little bit more about what that outlook is exactly based on is it based on what you're currently contracting with your suppliers now or is it based on what do you expect the floating rates to be at any commentary there would be helpful.
Sure well, Brian it's really early on 2020 inflation commodity inflation on and we're locked as we said on about 30, 40% of basket. So it through you know, we're making a lot of estimates if you will about what does floating prices might be on some items. So that's what I would tell you right now we feel.
Like from the beef side of things you know, we're seeing a little bit of supply restriction. If you will just on certain on the grades that we use on beef some cuts that happening right now which is why we opt to that overall guidance, we've kind of narrowed the range, 1.5% to 2% for the full year 2019, we may see some hang on.
Over that into Q1 again, a lot this remains to be seen but on I would tell you that when did you. The I'm. We're baking in you know we've got some prices locked were floating a lot of things, we're making some assumptions, but overall, we feel good about that range right now its they'd be inflation in that number it's it's spread across the board.
Ask it there isn't one item that I R. One on that piece of the basket that I would really call out as being more of a driver there are various things. Some some deflationary some inflationary we've got a little bit of pork inflation built in not as much as we thought maybe we would have heading into 2020 and that's really all about that all I can tell ya.
Okay, and just a quick follow up as we do approach.
The spring when you did take price last year.
You talked about labor and watching that but is it safe to say you'd have to see food costs really I'm surprised you above this range to really take price in the spring time is probably something we should be gauging when we think about how you're thinking about the springtime price increase.
Maybe you could give us some outlook on what the terrorists will be at that time that might help us.
Yeah, I mean, it was just noted.
[laughter] those ranges there are a pretty big I mean, when we're looking at the commodity inflation guidance. The labor on guidance forgiven. So you know I think like Ken side, a lot going to depend on traffic trends, where we are there what the labor productivity, we're seeing how that's coming out on the rest of this year and heading into next year. So much much the same way we were.
We're sitting here last year thinking about you know what well what additional pricing might be so.
You know, what we'll be talking a lot more about that on the call in February .
Okay. Thank you.
Mhm.
Our next question will come from the line of John Glass Morgan Stanley .
Hi, Thanks, first maybe Tanya.
Or can you just go back to the gene a commentary this quarter was flat year on year, there may even some noise, but it sounded like Ricky made a lot less than I would've expected. So whether one time items in this quarter that we would not expect to continue and how do you think about maybe the gene a number for next year now that after you've stepped up in 2019 with some.
I think of those additional managing partners are area partners.
Sure John just to tackle the first part of that question first Yeah. We had about 2.6 million of charges that we were lapping from last year. So you know between some extra incentive and equity compensation with tax reform well, we paid out bonuses a little bit higher due to that we had to legal settlements. Another thing. So that was you know that.
At about 7.5% of an offset tickets to the growth. We saw this this quarter I'm and then looking at 2019 I'm really the biggest thing we saw what's the expansion of that region. All that we called out that regional support structure, which was about 1.2 million again that was about 18 basis points as a percentage of revenue so.
Overall, even if you kinda back all the things out its growth on DNA was reasonable a reasonable number as far as I'm concerned it was below revenue growth. It felt good I think we'll still we're still very good with a 12% DNA growth on a full year basis, and I'll remind everyone to you know we do one of the reasons that DNA will bump.
Pop in Q4 is because we do have that extra week impact, which is about 2% I think on the full year relating to DNA growth. So you have that going on but as we look to 2020 my expectation would be that we should be able to get some leverage on DNA.
So you know worst case I think it's it's flattish, but feel like we have some opportunity to get a little bit of leverage there well I can tell you that the new president of Texas Roadhouse will be paid one Chris 100 dollar Bill next year, meaning me for that role so that might help a little bit [laughter] good to know a and then.
Just just to be clear Tony on the on the price increase where does that leave the fourth quarter effective pricing and maybe first quarter effective pricing.
Given the increase you just talked about.
Sure a Q4 19 will run about 3.2% because that one seven will roll off and then we have about a week before we on have the one nine rolling in so we'll be at about one 3.2% Q1 of 19 will be about 3.4.
And then assuming that Onefive rolls off and is it replaced you'll obviously dropped down to the 1.9 the rest of the year. So I think on a full year basis for 2020 that would get you about 2.1% pricing in the menu effective.
Okay. You said, one Q1 9 million assume you Q1 20 is the three four yes I did thank Don Yeah. He went 20 twond.
Uh huh.
Our next question will come from the line of Jeffrey Bernstein Barclays.
Great. Thank you very much.
As we look at the comp trends in the current quarter seems like a solid continuation of momentum from the third quarter I'm just looking at the the compares the rest of the year looks like they get sequentially more difficult in November and December I didn't know, if there's any unusuals or shifts or anything like that that we shouldn't.
Speed going into the remaining months of this year or whether perhaps you don't look at it on a two year basis, because there's other things going on I'm just trying to assess how you think the comp would play out for the rest of this quarter.
The only thing from a calendar shift perspective, I call I would probably be in December I mean, you've got the benefit of that extra week, which I think ads you know like 8% in a quarter to store weak growth.
And then not typically is one of our biggest it's it's a busier week that week between Christmas in years, then the other weeks of December so you'll get a little bit of a help from not in December we aren't going to be enjoying a.
Christmas on a Wednesday, and Christmas Eve on a Tuesday, which has a lot better than the weekend.
As well as a new year's Eve on a Tuesday so.
That helps them yeah for sure.
Got it and then is there any I mean, presumably inflation will dictate whether you take another increase in early 20, but I'm just wondering as you know look back on the past many months of the second increase you took earlier. This year did you get the since there was any push back in terms of consumer sentiment or reason to believe that you might not want to take an increase even if inflation.
And justified it because of maybe some response from the consumer or is it really all flowing through in your mind.
All right looking at the last two months the comps were pretty okay, right, Yeah, and I think right now from a next perspective, we're not really seeing anything that would indicate that the pricing you know isn't being you know accepted by the guest it feels it feels pretty good I mean, it's always hard to tell when not really would show up you know any pricing I think it takes quite a bit longer to.
Kind of show, it's often at that point, you may not even realize that it's from pricing probably be looking at some other things, but at this right now sitting here today I can you know it the pricing falling through pretty well if you feel fine.
Great. My last question, we were just a clarification I think you said you've got 30 units going in to next year and a couple of Jaggers 32, and this you were talking about low twentys, but yet the capex spend is.
Very similar so I mean, I know, there's you know you spend to head of the openings. So I'm just trying to see if there's anything else going on there maybe the change in the course to build Texas versus bubbles or how that mix shift plays out just seems like a.
Big differential on her the units with Capex being the same.
Oh, one of these units that were supposed to open end December we'll now open. Unlike January maybe February so most of the construction and people expenses to open those stores will have already been spent yeah. That's definitely true we're seeing that and then we also are expanding that support center, which is about 20 million of the cost that were.
Being in that Capex number this year, we took our two existing buildings that were now filling up completely built to building in between so we're taking you know just taking nosing and getting it where it needs to be too I'm hold all the growth we've had and we're doing a eight floors in one year. So a lot of that.
That's all the floors, we got so it's like lets get it over and done with and move on.
And not have to deal with that next year.
Great. Thank you.
Mhm.
And our next question will come from the line of Brian Vaccaro Raymond James.
Hi, Thank you good evening, just back to the comps a the momentum accelerated through the quarter was obviously, a pretty strong start to fourth quarter I'm curious, what you'd attribute that to how much might be due to improved staffing in throughput versus some other dynamic anything worth calling out from a regional or day the week standpoint.
Legendary food legendary service, all let Tanya filling the black [laughter] nothing from a regional perspective that I would point out any different than what we've seen day parts are all behaving. Similarly, so nothing there that I would call out. So I think it's just the strength of the brand to Kens point, we can see need.
Execute really well and on I think that you know, we're just seeing thing that momentum so that's great.
Okay, and the acceleration I guess sort of <unk>, that's a modest acceleration, but a pretty solid acceleration was a concentrated in some set of stores, where maybe you are seeing the fruit as that investment you were making in prior quarters or pretty or more broad based.
I think it's more broad based Brian I would tell you its more across all across the country. It's it's you know we're seeing it across various dayparts and even among now you know you're seeing a lot of an early dine were seem to go continue to grow I'm not certainly helping from a traffic perspective, so that continues to be about 7% of our sale.
Sales and overall, we thought to go up 10% year over year. So that continues to be you know definitely a contributor to the growth.
Okay, and then on Bubbas with plans to re accelerate the growth there and you mentioned the strong comps get I'm curious, what's driving the constant it's been pretty strong in the last few quarters now and is it brand awareness is breaking through reading it on all cylinders on the store level execution or something else going through there.
No I would say you nailed it on both both counts I think our people you know are.
The people we have in place have been there now one two maybe three years.
So that part is getting worst stable and then I.
I think just people in these various markets where were located there are just trusting the brand more than we thought and so that's a good thing.
Okay and last month.
I'm sorry go ahead.
Oh no no go ahead.
Last one if I could it could you just back on Bob is could you just walk through the key components of the unit economic targets for the concept TV store margin and investment that's all for me. Thank you.
Sure you know right now, we really haven't given a whole lot of of that data out there I'll tell you know their sales sales growth looking great again, 8.8% in the quarter. We continued to see that level of growth all year, which has been very encouraging they continue to get improve restaurant margin. So there really those operators are real.
The honing in on labor cost and and different things as they at dive into that and that's certainly been encouraging to from a unit development development cost standpoint, you know I think right now we are seeing those costs come in anywhere from I would tell you from you know six to six and a half million that's taking out one store.
We had that was much higher than that so we kind of baked that out there was some other things going on there driving that out of the news rent.
10 times and that includes yeah that includes rented a 10 times factor as we usually do from a development cost standpoint us as well yeah and also fully loaded preopening. So we we expect to see mid teen returns when were modeling those needs starts out just like we do a Texas Roadhouse is what we're looking for so again I think we've talked before that you know if we can get 80.
5000 to weaken sales if we can keep that building cost around you know 6 million I'm, assuming you on margin, that's that's slightly better than in Texas roadhouse being out because of the alcohol. So you know that alcohol spend there and then the on the lower cost to sales those returns look good so and we do.
Three buildings that are slightly smaller getting ready to open a.
That might provide some efficiencies.
And lower costs, but too early to tell since are not open it yeah.
All right that's helpful. Thank you.
And our next question will come from the line I will slip out with Stephens incorporated.
Question on.
Yeah.
Thing.
Happening in the labor market that would point to any loosening of that market at all everything for me that we're seeing in the piano.
Productivity initiatives.
You know it will it looked really looks to be more on hours growth then wage inflation I mean wage inflation in Q3 did tick down I'm, just a little bit from where it was in Q2 19, I don't know how sustainable that would be I don't know it may be which as you know we've done some catching up and now we're going to see it kinda.
You know moderate a little bit we're not expecting that kind of in our guidance on but the hours is really where we saw the bigger turnaround in Q3 of 19.
Got it just a quick follow up on on Bob as you mentioned the small box opening up in a few stores you're coming up.
Can you remind us how much smaller that isn't how much you're saving there and then as you think about next year, how many of the potential.
We expect to be smaller format box.
Well as far as next year. It's just those three because you know you're always have more than a year out I want to say, it's 450 square feet small or something like that I believe that stride and I think it comes in at around a couple of hundred thousand maybe lower costs at 250 was a target.
Got it thank you.
<unk>.
Our next question will come from the line of Chris Ocull Stifel.
Yeah. Thanks, Good afternoon, guys new stores have opened it really strong volumes. The past few quarters is is there anything the companies doing differently to generate these higher volume openings.
Yeah were located against smaller towns go figure Huh [laughter], if that's true, but other than that I mean, there's really nothing we're doing differently and we are in sits towns that are a little bit smaller than maybe we wouldn't have expected to be in before and we are seeing you know just really great performance out of them as Kent mentioned so.
Nothing that I could point out that we've really done differently from an execution standpoint.
How many how many stores next year going to be in these smaller towns.
Oh Boy I find the development report in front of me I'll tell Ya Todd.
Let's see Tony you want to answer or something else long [laughter] do I think we finally I'd ask another one again well going after Paul.
Yeah.
Just back on the Labor question portion of the store base do you think still has an opportunity to improve labor productivity and and when did you really started to see the improvement this quarter.
Well it kind of happened throughout the quarter, probably a little bit in a bigger way in September I would tell you, but on it it's really hard to say what opportunity each store what opportunity to have because see honest every store is different and and we've been really as we're talking about these labor productivity you know questions challenging the stores to know their number.
And not giving them a target number or something that we feel like they should hit you know because we just don't have that labor model that we're going to push down from from corporate so it's hard to say I'm, you know where that opportunity might be but I feel pretty confident that we're going to continue to see them focused on that and and continuing to find.
Ways to make sure that they're hitting the number that that works for than I'm. So they can execute I guess, you know guest experience into quality for sure.
Nine towns.
Okay, and then I'm.
Just going back on the beef what are you hearing from your suppliers to make you think the beef inflation outlook could actually improve after the first quarter next year.
Well I think some of what we're hearing of course again you know we're not that we don't have a lot of transparency, we aren't locked up a loss on price on a lot of things. So some of what we're hearing it's just maybe it wasn't it's not as bad as maybe what the expectation was kind of coming off of the discussion that's been going on all year on terrorists and the swine fever and how that.
I would impact beef so it just doesn't seem to be there as much as we thought it would be now again, we there is some supply it you know a little bit from a supply perspective, just on the the choice be just from a grading perspective, we've no concerns as far as the supply of be for our restaurants, but just overall in the industry a little bit of supply.
Constriction, if you will I think slaughter rates are down year over year those types of things. So again using what we are locked on and then making some assumptions on the floating we did you know we get comfortable with before it lies within that 1% to 2% overall commodity inflation.
Great. Thanks, guys.
[laughter] and our next question is going to come from the lineup David Palmer Evercore ISI.
Just a follow up on labor productivity, you mentioned mid single digit labor inflation in 2020.
Could you bring down kind of your assumption on that goes into that seem store traffic.
We talked about productivity, perhaps managing hours better versus wage inflation any breakdown would be helpful.
Sure. So when we're thinking about that mid single digit range. We're thinking you know you've got approximately one in one 1% to 1.5% that we know it's just state mandated increases that are coming and then I'm, probably another I would call. It one and a half to two I've just continuing market pressure so that we can.
But it's pretty steady as far as the wage inflation, we're seeing along with the 1% we see on inflation on the other category, which is just taxes group insurance things like that we think that'll continue I'm on the hours side of things that one guy is kind of where you get to a range right because you've got to make some assumptions on traffic so without kind of giving any of that away. We typically don't.
Get traffic guidance I'll tell you what we're hoping as we see hours growth come on you know below traffic below traffic growth is kind of what we anticipate happening don't know so we'll get back to 50%, which is typically what we had been seeing on you know hours growing about 50% of traffic but with.
In that range, you happened scenarios, where you at least seat traffic our hours growth below traffic growth. So that made us comfortable with that mid single digit range, which you could call 46%.
Thanks, that's helpful and just.
Good question.
You made some comments in your opening remarks talking about labor productivity and and obviously, there's been a lot of talk about this it seems like the focus is up on that area.
You talked about some evolutionary things about how you would staffed up managers on that push to 6 million.
But there's also that bigger question about why now and what triggered this for you from an organizational focus is it.
I'd have to do with where the margins had gotten where you think that they should be or some other observations that you made about the business any color there be helpful. Thanks.
Oh Boy I wish I could give you the specifics like we just kind of evolved into that position and I think our Ah we learn from some of our better operators that we're managing labor more effectively.
Listen to them and then basically we've been out a teaching you know our learnings from those those folks. So nothing we've done a unusual it's just that we've basically are sharing the best of the best ideas on various fronts not just labor.
I think to David when you think about just the overall pressure from a wage inflation standpoint. It does make you want to see you know do everything you can on the other aspects of labor to really you know.
Help from a cost perspective, and we continue to see wage inflation, you know stack up and so as Ken said really you know the operators came forward with some great ideas and and that's just what we do best share best practices is really what our operators are great at.
Great. Thank you.
Our next question is going to come from the line of Dennis Geiger, Yes.
Thank you just given where your out now on labor inflation per store and considering the better labor scheduling inefficiencies wondering if you could just talk about employee and customer satisfaction satisfaction metrics kind of what you're seeing also on the throughput trends maybe in the context of those more tightly managed stores, but then just broadly across the system.
When I go into stores all look at the phases of our guests that are interacting with our our people and I continue to see smiles going back and forth Ah. So I think we're still keeping the staffing levels at the appropriate.
I'll point to have those great guest to employee interactions. So.
So I don't really see anything new to report on and I think traffic the strong traffic both were seeing to integrate indication from it you know the customer experience said on that we're doing the right thing.
Okay, and then maybe just if you could just provide an update on where we stand with bump outs currently and and the opportunity from here either on an annual basis or kind of in total for the system from a from where we sit right now thank you.
Sure. So we've got about 250 of those down to date of the bump outs.
And I think we have 11, so far in 2019 completed so as usual, there's usually about anywhere from you know 25 to 35 of those in the pipeline at any point in time, and we continue to feel like we continue to see stores meeting the hurdles that we kind of expect internally to get.
Approved for those bump outs, so that's pretty exciting I mean, I think you know from a red Hat's perspective, I could see it being 90% of the units eventually being able to sustain a bump out like that so that's really encouraging to be saying.
Thanks.
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Our next question is going to come from the line of Andy Barish [laughter].
Hey, guys are two questions just on the 50 Threerd week this year and having the holidays, how how should we think about the impact just starting out 2020 from from that shift.
Yes, so we will see a little bit of a negative impact from.
From that busier week falling in P. 12 versus being in P. wine.
It won't be as much as the benefit we're gonna see in Q4, because Q1, 10th or Q1 tends to be higher from a sales perspective. So we do think that that'll have a little bit of an offset comp. It. That's on the average weekly sales numbers, Andy because from a comp sales pace well it'll be well be looking at you know for EUR 13 weeks over 13 weeks so.
It won't be a comp sales impact it will just have an impact on average weekly sales growth.
Okay and then just following up on the on the Bob is work that's been going on the lunch Tas.
This week seeming like they're driving incremental sales, how how applicable as bad to kind of rolling out to the rest of the the Bubba stores at this point.
Like we do everything we just kind of move slow or and then and basically give something that we're testing like six months.
So I don't.
It's possible way out a few more stores next year, but not significant numbers.
Okay. Thank you.
HM.
Our next question is going to come from the line of Peter Saleh BTI G.
Uh huh.
Thanks, I just want to come back to the conversation around.
Format.
For the smaller format.
The service bar.
Just one bar is that.
The square footage cost savings.
Yeah. It's a we did remove the service bar Oh, we have a big party table.
That will be coming out of those three stores. So at the bar, we lose a little square footage.
And that's pretty much Uh huh.
And but you also have the equipment that's in the bar that caused a lot of money that I think we took like for Tvs out as well in a few speakers.
Got it.
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Roadhouse.
Kinda worked in your favor.
All right.
So.
Considering just to do.
Yeah I was the guy that really was was not in favor of that I'll be honest with you and then we had a few lower volume stores, where we.
Did a billboard in each market. The kind of mentioned that were connected or did mentioned that were connected and that was a very beneficial. So apparently I was wrong and we'll do that more in the future.
I just.
Uh huh.
It's hard to tell just because you know all those stores are up.
So it but I would say a there is a little more benefit on those that had the than those that did not so yes.
Great. Thank you very much.
And our next question will come from the line of John Ivan Cope with JP Morgan.
Hi, Thank you have it firstly Tanya as we look at the insurance and come to think about fiscal 2000 <unk>. How do you look at general liability in workers' comp and 19 when it was at.
An average year high euro or low years, we think about potential up and you lapse in fiscal 20.
Well I mean, they were they were up workers GL, probably more than workers comp I would tell you we expect to see insurance increasing in 2020 again I think it's something we can absorb in within the other operating line, but there will be some definite inflation on that line as we continue to see some lines of insurance just kind of.
Contract, if you will they get a little tighter.
Things like that so you know insurance seems to creep up a little bit every year and I think we'll continue to see that happening a little bit on 2020 now that's just from a premium perspective, John I, you know on the actuarial adjustments and things like that based on claims experience. That's when you just really never know for sure how that's going to work or how that's going to.
Happen and whether it's going to be a put our take in any given quarter.
Okay. Thank you and you know there's some news on that on the take today on just delivery in general third party delivery or eat that have you seen you know even.
Very temporary basis in any stores of all any type of competitive impact around any type of free delivery promotions that some of your competitors.
They have run and you know I mean as I'm sure many of try to come into your office to give you their best pitch is there an idea at this point that the at least in certain in certain markets, maybe certain even locations within certain markets or any of your managing partners, reaching out to do you say, hey, listen third party delivery make make might make make make Mike excuse me.
Might make more sense also tongue twister, you know in terms of adding delivery to the road store.
Sure.
Third party delivery for our competitors that drives more to go into our stores.
Yeah.
Yep and I'll tell you it just coming off all tour, we talked about a lot of things to go wasn't big topic I'm as we see volumes to go volumes grow and a lot of our restaurant. So delivery was not a commerce part of the conversation doing delivery was not part of the conversation I think they feel like they've got enough to handle with just the tigo volume, we're seeing and.
And so no no changes there and we also love when our stake competitors advertise on TV, because that helps drive more people into our stores.
Thank you.
Thanks.
Our next question.
In that line of Andrew Strelzik BMO capital markets.
Hey, good afternoon, thanks for taking the questions first for me.
You know in the past couple of quarters, you've talked about turnover creeping higher so I'm wondering how that's been trending did it did an improvement there may be contributes any of the better labor in the quarter and how important is improving those metrics to kind of holding onto some of the labor productivity.
Sure I mean, it from turned over standpoint, we didn't see too much of a change I think our leads were down slightly on versus what we saw last year weakness or turnover is also down yeah management turnover, we've been really see management turnover come down for quite some time now a lot of that have to deal with some of that things we did on competence.
Patient about two years ago. Some other things. He did you have from quality of life standpoint. So we continue to see that be you know I'm just beat impactful, which is which is really good. So overall that yeah from a turnover perspective, I mean, we would always like to see those turnover numbers come down we really work hard online on making sure were high.
Irene right, we're doing the right things by our employees were paying correctly, just all those things being flexible with schedule is another huge wind to retaining employees. So we talk about that quite a bit with the operators and we think the fact that we've added more servers in the stores and more managers.
Means it's easier for our servers, you know to get a night off to go that concert and our managers a you know might give a little more a time off maybe if we can everyone's well off a because we now have a additional managers in a store hopefully.
Great. That's very helpful and my second question, just kind of more broadly at the industry level, we've heard a lot throughout the quarter about maybe some restraint on consumer spending and your comps were obviously quite healthy, but the traffic did slow sequentially I guess just to touch I'm now you know talking about things maybe reaccelerating how are you viewing that consumer.
Are you seeing any pullback or or loosening of the per strings at all just kind of a broader view of.
The consumer spending environment.
Sure Andrew I mean, I would tell you just hearing from our operators I, we don't hear that on the consumer seems to be in in a really good in really good shape and it really get place. So I think people continue to want to eat out they went to have that experience and because of the execution levels. We have they continue to choose us because you know they know they're gonna get you know a great.
Value and great products. So great service I think that's really where our focus is and what is very important but nothing that I would point to from a consumer standpoint, you tell me further tell me that's what we do.
Great. Thank you very much.
Our next question will come from the line of John Tower Wells Fargo.
Great. Thanks, just with planned stick another round of pricing.
What are you doing to ensure that value on the menu remains front and center for the consumer are you doing any month menu on alterations or inserts or perhaps any new product additions.
Oh, that's can no pretty much the same and like I mentioned before the more more of the increase happens in the states that are really increasing minimum wage you know like California, Oregon, Washington, New York.
I think that consumers in those states kind of see that everywhere not just at our restaurant.
All right that's it for me thank you.
Thanks, John .
At this time, we have no further questions I'd like to turn the call back over to the management team for any final remarks.
Thanks, Poly and thanks, everyone for joining US Tonight. If you have any other questions. Please feel free to reach out two to us a at a later they have a great night. Thanks.
Once again, we'd like to thank you for participating in today's Texas Roadhouse incorporated third quarter 2019 earnings Conference call you may now disconnect.