Q4 2019 Earnings Call

Good evening and welcome to the Texas Roadhouse fourth quarter earnings Conference call.

Today's call is being recorded.

All participants are now and I listen only mode. After the speaker's remarks, there will be a question answer session at that time, if he would like I say question.

Star then the number one on your telephone keypad.

Anyone need assistance at any time during the conference. Please press star Zero and an operator will assist you.

I would now like turn the conference I agree to Tonya Robinson, the Chief Financial Officer of Texas Roadhouse, you May begin your conference.

Thank you Carmen and good evening, everyone by now you should have access to our earnings release for the fourth quarter ended December 31st 2019 May also be found on our website at <unk> Detroit Dotcom any investor section.

Before we began our formal remarks I need to remind everyone that part of our discussion today will include forward looking statement.

These statements are not guarantees of future performance and therefore undue reliance should not be placed upon.

We were for all of you to our earnings release and our recent filings with the FTC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward looking statement.

In addition, we may refer to non-GAAP measures, it's applicable reconciliations of the non-GAAP measures to GAAP information can be found in our earnings release.

On the call with me today, as Kent, Taylor, founder and Chief Executive Officer at Texas Roadhouse.

Following our remarks, well open the call for questions now I'd like to turn the call every weekend.

Thanks, starting in 2019 was another strong year for Texas, Roadhouse with double digit revenue growth, including a 4.7% increasing comparable restaurant sales and a 1% 1.8% increasing guest counts we ended the year with significant momentum in the fourth quarter driven by operating.

Gross.

Creasing guest counts and expanding margins.

Comparable restaurant sales also remained strong during the fourth quarter growing 4.4%, giving us our 14th consecutive quarter of growth.

Our restaurant so returned to overall margin expansion in the back half of the year.

This allowed us to keep restaurant margin as a percentage of total sales essentially flat year over year and to grow restaurant margin dollars per store week, 4.3% for the full year.

Heading in the 2020, we expect both wage rate pressure from a highly competitive labor market and mater, Lee and moderate commodity inflation do continue we're in a process of assessing a second quarter price increase has approximately 1.5% rolls off at the end of March it is likely to.

We will take somewhere between <unk>, 0.5, and 1% pricing with higher amounts in restaurants impacted by state mandated minimum and tip wage increases.

Increase in that range in the second quarter would give us effective pricing up to what I have to 3% for the full year.

Moving on to development, our new Roadhouse company restaurants continue to open with strong sales volumes and are on track to deliver a healthy financial returns for 2020, we are targeting at least 30 company restaurant openings, including as many as seven Bubbas 33.

We continue to see strong sales growth. It Bubbas 33 comparable sales were up 7.1% for a four year 2019 at eight restaurants in our same store sales base, our test of adding a lot ship by bothers locations, which began in early 2019 contributed 2%.

That growth.

Our franchise partners are expected to open as many as eight restaurants, primarily in international markets. Our company openings are expected to be more evenly spread throughout the year with 14 restaurants already opened or under construction and additional 16, either fully approved or in the permitting process.

We also plan to relocate six order company restaurants over the next 12 months, which is not included in our new restaurant development forecast over the last several years, we have successfully relocated a handful of high performing restaurants to larger sites with more parking which has allowed us to build bigger bigger but.

Building with more seating capacity and typically obtain better lease terms.

We believe we are well positioned for 2020 to be another solid year for Texas Roadhouse. Our development pipeline is strong in our operators remain focused on both the operational and financial fundamentals.

Additionally, we remain committed to further driving shareholder value, our strong balance sheet and healthy cash flow enabled us to repurchase over 2.6 million shares in 2019, and we just increase our dividend by double digits for the seventh straight year looking back over the last.

Decade, our team has accomplished a lot and I want to thank all of our operators and partners have contributed to the cause their dedication has allowed us to open over 220, Texas Roadhouse domestic restaurants.

Hold on international presence and start to new concepts, all while driving comparable sales growth each and every one of those 10 years as we start a new year. We look forward to following the same game plan by staying committed to legendary food and legendary service. So Tony will walk you through the financial update.

Thanks, Ken for the fourth quarter 2019, we reported revenue growth of 19.7% comprised of 12.9% store weak growth and a 6.8% increase in average sales volume. We also reported diluted earnings per share growth of 45.4%.

These measures were positively impacted by an extra week in our December period, which resulted in 14 weeks in the fourth quarter 2019, compared to 13 weeks during the fourth quarter 2018, we estimate the extra week positively impacted diluted earnings per share for the quarter by 10 to 11 cents.

Ken mentioned comparable restaurant sales for the quarter increased 4.4% comprised of wanting to have present traffic growth and a 2.9% increase in average check.

My mom comparable sales increased 5.3%, 4.9% and 3.5% for October November and December periods, respectively.

Where the first seven weeks of 2020 comparable sales increased approximately 6.4%, including approximately 70 basis points of benefit from the impact of the calendar mismatch of new year's day.

Keep in mind, because at the 50 Threerd week in 2019, our comparable sales growth and 2020 is based on a different set of wheat and what is included in our 2019 reported restaurant sales. This mismatch of weeks will lead to a larger than normal variance between comparable sales growth and average weekly sales growth in 20.

20, the first quarter, we'll see the biggest impact with comparable sales at least 1% higher than average weekly sales.

For the quarter restaurant margin dollars per store, we grew 13.9% in restaurant margin as a percentage of total sales increased 117 basis points to 17.1% as compared to prior year period.

The margin improvement was driven by decreasing overall operating costs, along with an estimated 60 basis point benefit from the extra week.

Cost of sales as a percentage of total sales decreased 20 basis points compared to prior year period, the impact of approximately 2.9% commodity inflation was offset by the benefit of a higher average check inflation for the quarter was inline with expectations and resulted in full year 2018 commodity inflation of 1.9 per se.

Uh huh.

Labor as a percentage of total sales decreased 23 basis points to 33.1%.

Labor dollars per store week increased 5.4% compared to the prior year period, driven largely by wage and other inflation of approximately 4.2% in growth in hours of approximately 0.6%.

I will note that the majority of the growth in labor hours relates to the impact at the staffing levels for that does your extra week at the ended the quarter, excluding that week labor hour growth for the quarter was essentially flat.

[noise] LIBOR dollar growth per store, we put snack elite negatively impacted by 0.6% due to 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 to 100000.

All or benefit in the prior year quarter.

For full year 2018 labor dollars per store, where he grew 6.5% and labor as a percentage of total sales increased 57 basis point.

I believe at 22 basis point decrease in rent expense as a percentage of total sales and a 44 basis point decrease in other operating costs. Both resulted primarily from the extra week of sales in this years for fourth quarter.

Other operating costs also benefited 14 basis points from adjustments to our quarterly actuarial reserve analysis or general liability insurance.

The adjustments resulted in a 300000 dollar credit this quarter compared to a 500000 dollar charge in the prior year quarter.

For full year 2019 restaurant margin as a percentage of total sales was 17.3% down six basis points compared to full year 2018.

Moving below a restaurant margin DNA cost for the quarter increased 2.3, million% to 5.3% as a percentage of revenue a decrease of 66 basis points compared to the prior year period.

<unk> for the quarter included approximately 2.2 million of additional expenses, primarily payroll related due to the extra week.

He they benefited this quarter from an 800000 dollar onetime marketing credit related to full year 2019, as well as the overlap of $500000 of onetime costs in the prior year quarter.

Depreciation expense increased 5.2 million to 31 million or 4.3% as a percentage of revenue, which was an increase of two basis points compared to the prior year period. As a reminder, 2.3 million of your every year increase this quarter was due to the extra week of depreciation expense in 2019.

We also recorded a $1.3 million net gain to the impairment enclosure line in the fourth quarter, the gain resulting primarily from a settlement related to a forced restaurant relocation due to eminent domain.

Our tax rate for the quarter came in at 16.9 per se compared to 5.8% rate in the prior year period. Our prior your tax rate benefited from a 19 million dollar adjustment related to tax reform that we are 1.9 million dollar adjustment related to tax reform that we recorded in the fourth quarter 2018, which lowered the rate.

Approximately 5.5%.

Moving to the balance sheet, we ended the year with 108 million in cash down 118 million compared to last year. During 2013, we generated 374 million in cash flow from operations and incurred capital expenditures of 214 million. We also paid dividends of 100, and she million repurchased 140 million of stock.

Instead, she million to acquire one franchise restaurant.

Moving forward to 2020 as announced in our press release, our board of directors authorized at 20% increase in our quarterly dividend payment increasing at June 36 cents per share from 30 cents 2019.

We also expect positive comparable sales growth for the year and as Kathy mentioned, we're planning for at least 30, New company restaurant openings and restaurant store, we growth of 3.5% to 4.5% are expected restaurant. We growth in 2020 includes the negative impact of lapping the 50 Threerd week from 2019.

Our commodity inflation forecast continues to be one 2% with fixed prices on a little over 50% of our commodity basket our guidance at mid single digit labor dollar per show. We growth includes continued wage and other inflation along with the expectation of lower growth in hours through the third quarter at 2020.

Fleet depreciation expense will benefit from lapping the extra week in 2019, along with lower expense associated with accelerated depreciation on relocation.

I expect it 2020 income tax rate of 14% to 15% and I've updated our capital expenditure guidance to approximately 210 to 220 million.

That concludes our prepared remarks Carmen please open the line for questions.

[noise] certainly at this time.

Star one on your telephone.

Your first question comes from a line of Brian Bittner with Oppenheimer and company.

[music].

Thanks.

Question on margins and 2020.

You'll be getting some positive leverage on your Cogs margins, most likely with food costs up only 1% to 2% against pricing of tune after three.

You're clearly controlling labor better as seen in the second half of this year can you grow restaurant margins in 2020, giving all these moving pieces, how do you want us thinking about that line item as as we go into 2020.

Hey, Brian its Tanya you know I think it's you know much to that same me outlook that we've had in the past switches. We just don't count on that and we don't know where it lands on pricing that 0.5% to 1% is a pretty big range well be having calls with our operators on market partners coming up here in a few weeks to get their outlook on kind of where they.

They are so that'll that'll play a part and then again those ranges definitely you know on cost to sales at one to GE will you know we expect to see some leverage on that cost of sales line labor I think it's still a little bit of and I know and that's really why we kept that mid single digit labor inflation range feels like ours will continue to see benefit on that.

Third quarter and that we're just we're continuing to see pretty decent wage inflation and things like that so you know it would certainly you know he great to see some marvin margin leverage there.

But you know, we'll see how things go.

Okay. Thank you.

<unk>.

Two questions from a line of Dennis Geiger would you be a please go ahead.

Thanks, much <unk> following up on the labor on the Labor question I'm wondering if you could talk a little bit more about the labor scheduling efficiencies that you've been able to realize over the last couple of quarters and then just kind of looking ahead.

Going to going through the opportunities for greater efficiencies sharing of best practices. Among store managers, just how you see that playing out beyond some of the commentary you mentioned already on the labor side. Thank you.

Sure I'm you know it really isn't one thing across all the stores each stores is handling it depending on their situation. So it really isn't one size fits all you could have stores that you know maybe they determined by looking at their scheduling that they've got an extra person honest shifts they don't need or it could be a store looking and saying.

Hey, we could do a better job locking in and out and reducing the hours from that perspective. So it really just depends on on the floor and that's the way. We wanted we want those stores really doing it from there isn't what we want them to know their number and we want that to understand the number of hours they need to run the restaurant every shift and that was really the big communication that we put.

Oh, all year operation has really stepped up and doing just that so we feel pretty confident they will continue to see benefit there for Q1 Q2, probably in Q3, because that's really where we started seeing some of that picking up 2019, a we think will continue to see.

That same kind of progression and you're absolutely right. Dennis I mean, they are sharing best practices. We just had great feedback from operators you know and then we really feel like they're doing it the right way and as you know based on their compensation program. You know the majority of their compensation that comes from the bottom line results results of their restaurant. They are very motivated and committed to doing the right thing.

For the long term and into us that's really the most important thing.

Great talking to forget one one quick follow up just specific to two unit growth wondering if you could just quickly touch on on the development opportunity from the smaller roadhouse footprints.

Speaking about the potential.

For growth in for.

My growth off the back of that opportunity. Thank you.

Oh, there's can't yeah, we're a probably 25% of our stores this coming year, we'll be in those smaller markets are so we'll see how they perform but I will tell you based on the ones that have opened this year a their store results not only have been equal.

There are other locations with more population, but in some cases more.

I think we're going to continue to learn from those openings as we continue to do that so I think it's definitely going to help our development pipeline I think it's hard to say right now what that does for the long term I think it's gonna help contribute maybe to getting to the higher end of that 700 800 domestic range, we talked about and if we continue to see great performance maybe it.

If you're a little bit beyond that so I think it just remains to be seen we'll learn a lot as they get continue moving forward.

Thank you very much.

Your next question.

As David Tarantino with Baird. Please go ahead.

Hi, good afternoon.

2019.

Oh, it was better and good tomo and give us a little crown it about a very good.

Alright, alright, good thank you very much.

So my question is on the pricing philosophy and I just wanted to understand your thought process as you look at how much pricing you're going to take.

Next.

And what the.

But sitting here.

More to protect.

Again, same unleashing are saying or.

More to where the mindset that you want to see the margins expand.

Right.

This cat yeah, what I do a calls with every market partner and specifically as we've seen in the past the those states that have mandate at a higher wage that is effective in 2020 would be more of our targets and then the other states that where you're not seeing though.

The wages go up there will be more market driven so I don't know exactly what they're going to tell me. Our calls are actually happening in two weeks. So a we'll have more information after those calls.

Yeah, David we really want to give those operators of waste like we always have done in a path to hear from non specific to their market. How they feel I mean, we're always going to be conservative on taken price that hasn't changed.

You know, we're going to have a very disciplined approach to it and you know not so much with a concern US maybe you know getting leverage are driving margin. It's it's more helping our operators, making sure you know that they have that ability to help offset some of that inflation that they've been feeling for a number of years in their stores. So some of it. It's just we you know.

Have a little we had a little catching up to doing some location.

Got it and then.

Also wondering if you could give us an update on and Bob in terms of what you're saying with the.

You know things such strong momentum in some of the stores.

Just wondering.

The framework.

And then can.

Any early read on how you're thinking about growth and 2021 for that.

So I'll take the first part of that question I'm, you know the comp growth that we've been seeing at the 18 stores in the comp base has done really you know really great to see those stores you know seem like they're getting out there, they're getting the legs underneath them in their communities and they're driving sales and that's that's certainly very encouraging I'm. You know we continue to talk about how to.

We build that brand awareness a bit faster maybe in the newer restaurants to help them get there quicker and and a lot of it as we talked about just how many patients.

We've also seen good improvements you in that comps comp store based on our margins. There again, they're figuring out you know efficiencies and things like that you do get margins you know in a place that that feels good and feel sustainable. So I think that's been very encouraging to see.

From from that standpoint, and opening seven restaurants in 2020, well definitely give us a lot of information I'm. You know we were we had three in 2019, we were hoping to get more 19. Some of those are falling into 2020 enough with bumping up that seven number but on.

So far so good.

There's cannot yeah, we've targeted up more sites for 2021 doesn't mean, we will do them all but we've targeted more sites and we have this year and what kind of let the early openings dictate exactly what that number would be in 21.

Great. Thank you very much.

And again, if you would like to ask a question. Please press star one on your telephone keypad.

Your next [laughter] Unblinded, Andrew Strelzik with BMO capital. Please go ahead.

Hey, good afternoon. Thanks for taking my questions. Two for me My first one is just.

Thinking about labor kind of longer term understanding that.

Agencies for a couple more quarters.

Once you get passed that though.

Should we be thinking about kind of the underlying wage growth is the right level I'm kind of.

<unk> wage inflation beyond that are there other investments that you're contemplating.

I guess.

More broadly.

Efficiencies.

Sure Andrew I you know.

That you know I have to get past 2020, I would expect it I think there's still gonna be pressure, just given that tight labor market and given unemployment, where it's at and and different things like that I think it's going to be tough. So our operators are still gonna be focused on making sure they're staffing appropriately that we're doing the right thing from that standpoint as usual.

And we're going to be making sure. We've got great talent in there, it's definitely been a hurdle, but I would imagine that wage and that wage inflation, maybe doesn't go away for a little bit and then any hours growth hopefully would return to behaving based on more based on traffic growth than anything else. So again, you know maybe.

Back to you know, we've always said Hey, 50. It traffic you know running 2% maybe hours growth is around one I don't know that we get back to that level, but maybe we we see that kind of getting a little bit more back in line. It would be my expectation, but a lot depends on the market the labor market and how that continue.

Okay, and then just a question on January.

No there it sounds like you're a bunch of moving pieces in the fourth quarter, but taken kind of as a whole.

Peter basis, the dollars in the back half are somewhat flattish versus up a bit more in the front half I'm just trying to get a sense for how to think about the growth in June $8 going forward in 2020 in particular.

Sure. Yeah, you know, we we got it originally for 19 to about 12% DNA growth. We came in just shy of 10% a lot of that was due to Q4 results and the extra week came at a little bit lighter than we expected. It to we're activating we're continuing to see savings on you know everybody's you know really.

Okay. So now we're talking about different efficiencies meetings, just different things like that which has been great. So that's good to see I think it can be sustainable and then we had that credit and Q4 of about 800000, which also helps bring that that growth percentage down a little bit I think going forward. Our goal. It's still too you know come in below revenue growth.

To get a little bit a leveraged DNA line and that's gonna be that's really going to be our focus there aren't any specific initiatives that we know about today that I would call out.

That my changes, we you know get later into the year, but right now nothing that I would say is going to drive DNA differently.

Great. Thank you very much.

Your next question is from online, it's Jeff Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much.

Two questions first one just on throughput temp Im wondering.

What percent of system, you see that maybe has capacity constraints.

What are the top initiative.

To ease it whether you're a little more open to technology or perhaps the acceleration of bump outs I don't know if that's the reason for the increase in Capex just trying to size. If you think it's the capacity opportunity from your existing store base.

Well if you look at store number one that's been up for 27 straight years that would tell you that we have a lot of room and the restaurants. We also are focusing on a of making our to go a better and faster and more streamlined.

So that does not interfere with I guess inside the restaurant.

As we've seen to go pick up.

So or I'm not worried about any restaurant at this point that is maxed out because every year. They proved to me that they're not.

Your wasn't tag on to that all letter [laughter], Yeah, I hate to on a bump out at opportunities I think we continue to see stores, you know being able to getting to that pipeline.

So what I do those bump outs, we've got stores asking for double bump outs were a little slower to respond on those we want to kinda take care on as we mentioned in the past from a kitchen constraint perspective, and we've got operators, who are running as Kent mentioned really high volumes continuing to drive sales every single year and they find ways and they're really death.

That's way we have to learn on how they're doing those things and and we aren't doing some stuff My technology, you know where a little slower on that but we've been testing a handheld device for the servers for ordering at the table would do and not just in three stores small pets is gonna be it slow process, but so far you know it's been interesting to learn from.

Not in and it to go with Cat matching continues to grow the guest is asking for that and so we're going to make sure we're responding well, there and but not impacting the dining experience. So it's really about speed speed of service, making sure you know where given the great guest degrade experience and that's really where the focus has been our and our a lot of our operators have done some.

Really cool things went to go that we're learning from and sharing with other folks.

Got it and then just on.

Because I mean, it sounds like momentum is very strong in your came to accelerate the growth I was interested to hear your learnings are takeaways from the lunch rollout sounds like that's.

The solid contributor I'm, just wondering you know I know, Texas Roadhouse brand you had concerns around doing lunch, especially during the week.

How's that playing out with bubbles in terms of the labor model and having to run multiple shifts.

Does that change your view on the potential for lunch at Texas Roadhouse in the future during the week.

Well to answer the Texas Roadhouse question, No way are we going to add lunch.

On the Bubbas side, there are based on the menu that it's a little more lunch friendly we have some locations that makes sense, but I'd say you know we've got over half locations adult makes sense based on how we chose the real estate.

Great. That's all I got on that.

Your next question is from a lineup David Palmer with Evercore ISI. Please go ahead.

Thanks.

Good question on the V. gap versus the same store sales growth it looks like an improved through the year, even excluding of course that extra week at the end of year could you speak about the new store productivity and the impact you expect from the relocations you mentioned Bob was in the mix do you expect that you just seems yourselves gap or two.

Continued to be positive maybe even growing.

I don't expect it to change too much David I, I think it'll it'll be pretty in line with what it is right now we've had some really great classes that store openings that have done well I needed you well and I'm you know so I think the gap that we're seeing now is is one that can be it's sustainable and feel I don't.

It's going to be much different in 2020.

I think the shift in the weeks, we'll probably be it a bigger you know the shifted the weeks as usual and not you know when you're lapping that 50, Threerd week, just causes a little bit annoys, mainly in the first quarter.

Yeah, Yeah, and then just a quick question on follow up really on labor <unk>.

Just as far as a framework if we were to think about the labor cost per unit in the past. It was something similar to what you would see in terms of traffic plus a mid single digit inflation, but it feels like you're maybe getting at least for this.

Three plus we're three or so quarters letter left you're getting about a few percentage point.

Offset to that something like that is that it's not about right. I mean, how do you think about that I know you're getting this from the bottom up as you share best practices, but what sort of percentage offset to your natural inflation would you expect.

Well I, it's a lot depends on where traffic is you know I think that it certainly seems like we know we've got state mandated increases of about 1.5%. He seems like that 3% range. We've been living in from a wage inflation perspective, it's going to stick along with about 1% on other inflation.

Down those other line so that seems pretty sticky right now for 2020, and then it comes down to labor hours and you know I can see possibilities, where we <unk> Q4 repeats itself. It you know I'm not really quarters of 2020, and maybe we see flat to just slight growth in the hours again traffic.

Higher traffic, Chris change that a little bit you know all for the right reasons, so not a bad thing there, but that's kind of how I guess I would think of it.

And I mean, just one on the new store productivity front, you cant made the comment about somebody's rural markets, even open it up stronger is there any sort of.

Extra color you could offer about what is driving some of the better news story store productivity because it is somewhat notable given the fact, we see less trade areas for a lot of different reach <unk> less trade areas for a lot of other types of retail, but you seem to be finding.

In fact better sites than ever.

Well, knowing that our competitors might be listening, we'll just kind of keep that under wraps. If you don't mind [laughter].

Thank you.

Uh huh.

From a line of Chris Ocull with Stifel. Please go ahead.

Yes.

Chris Your line is open. Please go ahead.

There seems to be no response from that.

The next question.

Question or will be from the lineup Andy Barish with Jefferies. Please go ahead.

Hey, guys nice results and not just two quick ones on.

Mr to go growth can you give us that number in.

Thank you and then.

Understanding the average unit volume impact in the first quarter, how do we think about I guess the restaurant level margin impact given your you're losing that that high volume week of the holidays.

Sure. So wanted to go we're running about we ran about 7% in Q4, which I think it was pretty much in line on a full year basis about 7% of sales being to go and that's been if that was about 10%.

10% growth versus last year I'm on the marching question as far as what we think about how Q1 might react I don't think on a margin perspective, it's gonna be overly impactful.

Because I think you know hot just given the volumes in those wheat costs will probably react similarly to what sales volumes are so that would be our expectation.

Thank you.

<unk>.

Your next question is from a line of Peters.

<unk>.

Great Thanks, Rob Fantastic quarter.

<unk> I was asked about the price in conversation again, you guys mentioned 50 basis points.

Our point you guys will take some point in March is it possible, but you go Bob the high end of that level. After you do these calls with the market partners.

Coming weeks.

Well, if you want a call those guys before I talk to you can let me know because I have no clue, what they're going to tell me.

[laughter] I really don't I wish I could tell you, but I don't know yeah. That's really why the range. We have the range. We do is just not you know really for sure where they're going to land on that you've got stores. Certainly there are feeling a lot of labor pressure, especially state mandated he may come in and say, hey, I want to I feel like I can do it and they've done them the they've done all the research.

Surge in their markets as far as pricing competitors those type of thing so they're going to be talking asked about that and where they think they they can be so you can imagine tiniest talked a few of them because she is already kind of like given you a clue huh.

[laughter].

Great. Okay fair enough I'm not sure if I missed this capex guidance.

About 20 million.

For the year <unk>, what was the reason for the for the inquiries.

Well, there's a couple of things going on in going on there. Some of it is the fact that on we're buying some more land versus leasing land in some situations in what we originally expected. So typically does on deals that aren't 2020, though a little there further out so a little of it is that then Youve I'm also just you know we try to plan.

For what we think the next year's pipeline looks like it how the timing of those might work when we're making a little bit of an estimate on how we think those costs will be incurred in a in the back half 20 and that kind of applied to for for 19, as we head into 20, and what we have left to incur so all of those things kind of come into play there really isn't any other.

Big ticket item or anything like that driving it.

Got it great. Thank you very much.

Yes, Peter I'll tell you two relocations or are a piece of that also you know add into that.

Your next question is from the line of Brian Vaccaro with Raymond James.

Oh, Thanks, and good evening I'm going ask about the commodity inflation outlook in it seems that spot prices for certain cuts have been quite favorable in recent months and just curious how you expect that flows through your Cogs line and you expect lower inflation sort of first half are set for second half or could you just frame the cadence that you see.

Yeah actually on the cadence, we think we'll probably be at the higher end of the range in the first half of the year and seeing more at the benefit in the back half of the year. You know we're locked on a little over 50% of the basket and that's more of that being locked in the front half of the year than the back so we have a little bit more.

Visibility there and that's what our expectation is right now I'm you know, we had a little bit higher inflation in 2019 in the back half of the year, which we think we may get a little bit of benefit on which will drive you know that those numbers down a little bit hit to be within the range.

Okay, and then on the on the labor cost fraud, I just want to ask about the hours per week. He said, we're about flattish in the fourth quarter, excluding the high volume a holiday we apply that flattish can sustain so far through the first seven weeks a of 2020. Thank you.

Sure.

You know really we haven't.

Really those numbers are talking about that I'll tell you we built into our guidance on the full year 2020, the expectation that we do continue to see trends similar trends. So that's you know that's kind of built into the lower end to that range is that expectation.

Understood. Thank you.

[laughter].

From a line of countries, Ken with JP Morgan. Please go ahead.

Hi, guys. Thanks for the question I'm just won a we've seen labor cost management, and but like beyond labor are there any other areas.

And the piano yet to be address where maybe there are material differences among stores, you know whether it be around food waste or portioning.

Our repair and maintenance, you know where with increasing attention like with labor that could possibly drive store margins further.

Yeah, there's not really those opportunities I mean, our operators because it's the way they are compensated on the bottom line results there always managing those costs in a really great way. So from a restaurant margin perspective, you know, there's really not anything out there that we're targeting to say hey, we've got some money here in it.

Bucket that we can save I don't think we'll see that so you know I below restaurant margin I think DNA continues to be an opportunity from that perspective, and we're going to you know continue to just you know take a look at that and see but outside and even on a DNA line I'm not sure you know.

Sure you're talking and any you know huge amounts of money there are really big levers to pull or anything like that but it's something we can see any keep an eye on.

No further questions at this time I will now turn the call back over to management for any closing remarks.

Thanks, everybody for joining us for the call again any other questions. Please feel free to reach out and I'm had a great week.

Thank you. Thank you again for joining.

These calls.

Disconnect.

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