Q2 2021 Texas Roadhouse Inc Earnings Call
[music].
Good evening and welcome to the Texas Roadhouse.
And that's the second quarter earnings Conference call today's call is being recorded.
All participants.
And now in a listen only mode.
The speakers remarks, there will be a question and answer session. At this time, if he would like to ask a question. Please press Star then the number 1 on your telephone keypad should anyone need assistance of anytime during the conference. Please press star zero, and an operator and we'll come back.
And to 50.
I will now turn the call I would now like to introduce Tonya Robinson, the Chief Financial Officer of Texas Roadhouse, you May begin your conference.
Thank you Maria and good evening, everyone by now you should have access to our earnings release for the second quarter ended June 29th.
And in 'twenty 1 it may also be found on our website of Texas Roadhouse Dot com and the investors section.
Before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements.
These statements are not guarantees of future performance and therefore undue reliance should.
She's got placed upon them.
And we refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward looking statements, including factors related to the COVID-19 pandemic in it.
Dish and we may refer to non-GAAP measures if applicable reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release.
On the call with me today is Gerry Morgan Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call for questions now I'd like to turn the call over to Jerry.
Thanks Tanya.
We are very pleased with our results for the second quarter of 2021 hitting historical highs on both sales and net income for our June period average guest counts and our dining room were comparable to 2019 levels with the majority of the state mandated.
Capacity restrictions lifted and at the same time, we were still serving approximately 2.5 times. The number of to go guest that we did in 2019, we have worked hard to support our operators since the start of the pandemic and much of our success is due.
Mandated their hard work and creativity, the dedication and passion that our restaurant management teams have shown during this time has strengthened our brand and expanded our base of loyal guests.
Our top line and focus along with strong consumer demand.
<unk> have enabled us to grow our sales volume with these higher volumes come challenges that may be magnified in the current business environment. Our top operational focus is supporting our managing partners and their management teams as they continue to hire and train.
And who roadies most.
And most of our restaurant have made great strides and their staffing levels, while others have faced challenges, reaching and holding their desired staffing levels on a consistent basis.
Spice of challenges, we have not wavered on our expectations of delivering.
Legendary food and legendary service to our guest.
We also continued to exceed our initial 2021expectations for commodity usage. This has required us to buy more product on the open market and outside the cost parameters of our original contracts.
New as a result, we are seeing our cost for most commodities and particular beef trending higher than anticipated leading to an increased level of food inflation during the second quarter and and the back half of the year.
On our updated outlook, we are raising our commodity inflation.
Inflation expectation to approximately 7% for the full year of 2021.
Despite the cost pressures, we are facing we will continue to run our restaurant with a steady approach and a long term focus we will have our normal internal conversations.
<unk> with operators regarding menu pricing several weeks from now with the target of implementing any price increase and late October.
We are also seeing some inflationary pressure on development cost for new store openings, however, strong cash flow.
At the store level leave us confident that we will meet our return on investment expectations and continue continue to fund our growth internally.
During the second quarter, we opened 8 company restaurants, including 2 Bubbas 33 locations. Our current expectation is that by end of year.
We will opened 26 to 29 company restaurants, including 5 Bubbas and 1 jaggers.
As we set our sights and attention on the back half of 2021 and continue to prepare for 2022 and beyond I want to thank all of our managing partners are manager.
<unk> and <unk> for their efforts as your partner I want you to know how much. We appreciate you and that together, we will continue to make Texas roadhouse bigger faster stronger let's go Roadhouse now Tonya will provide a financial update.
Thanks Jay.
<unk> quarter of 2021, we reported diluted earnings of $1.8 per share driven by $899 million of revenue and $158 million of restaurant level profit.
Average weekly sales grew to over 126000 as compared to.
Approximately 70000 in Q2.2020, and approximately 106000 in Q2.2019 throughout.
Throughout the quarter, our restaurants benefited from the continued easing of dining restrictions as average weekly sales were over 124000, and our April period and over.
127000, and both are May and June periods.
Comparable restaurant sales for the second quarter grew 82% versus 2020 comprised of 58, 6% traffic growth and of 21, 6% increase and average check.
As compared to Q2.2019.
<unk> comparable restaurant sales grew 21, 3%, including 12, 4% traffic growth.
And average check grew 8.9%, including positive mix of approximately 3.9% and gets moved to higher priced on shade bye.
By month comparable restaurant sales versus 20.
<unk> grew 29% 18, 9% and 23, 5% for our April May and June periods, respectively.
Sales and our July period were also strong with comparable restaurant sales growth of 25, 5% versus 2019 average weekly.
<unk> sales were approximately $124000, which were below June levels due to normal seasonality.
As Jerry noted we continue to benefit from elevated to go sales volume and the second quarter, our restaurants averaged over 21000 per week and to go sales, which represented 16, 9% of total sales.
9 over the course of the quarter, we saw gradual decline and to go sales as dine in sales levels increase.
And July to go sales were over 17500 per store week were 14, 2% of total sales.
Restaurant margins for the second quarter as a percentage of total sales improved year over year.
Sales to 17, 7% largely due to the traffic recovery.
Restaurant margin also benefited from a higher.
Here overall guest check driven by 2.8% menu pricing and 18, 8% positive mix most of the positive mix comes from alcohol and softer beverage sales associated.
Are the reopening of our dining rooms.
Food and beverage cost as a percentage of total sales was 33, 1% for the quarter, which was 156 basis point improvement versus prior year, despite commodity inflation of 6.5%.
As Jerry mentioned, we updated our full year inflation expectation of approximately.
With the 7% due to higher than anticipated inflation in Q2, 2021, and the expectation that inflation will remain elevated through the back half of the year.
Upon current sales volumes, we estimate that approximately 50% of our commodity basket is locked with a fixed price for the back half of 2020.
<unk>.
Labor as a percentage of total sales decreased 885 basis points to 32, 3% of compared to Q2.2020. However, we believe the second quarter of 2019 is of more relevant and beneficial comparison.
As compared to Q2.2019 labor.
Labor as a percentage of sales was 66 basis points better even as labor dollars per store week increased 16, 5%.
This increase and labor dollars per store week was driven by wage and other inflation of 14, 2% and growth and hours of <unk>, 5%.
The remaining increase of 1.8% was due to onetime items, consisting of $1.9 million of additional bonus and COVID-19 related payments to our restaurant employees and point 8 million of additional reserve expense related to our workers' comp and group Health insurance program.
We believe.
And that labor pressures will remain a headwind going forward as we continue to attract and retain the best talent and the current competitive environment.
Other operating costs were 369 basis points lower than the prior year period, primarily driven by sales leverage and overlapping approximately $3 million of expense for Covid.
And it supplies and the second quarter of 2020 move.
Moving below restaurant margin and G&A costs for the quarter increased $7.2 million versus the prior year period, but decreased 211 basis points as a percentage of revenue to 4.1%.
The increase in G&A dollars was primarily driven by an additional 8.
And they relate to $2 million of cash and equity compensation and of $1.2 million dollar increase and travel and meeting expense. These increases were partially offset by a $1.3 million reduction and legal settlements.
I also want to point out that our second quarter benefited from an effective tax rate of 12, 4%.
8 points. This was primarily due to a higher benefit of FICA tip credits driven by the increase and our sales based on current sales trends, we expect our full year effective tax rate would be approximately 15%.
With regards to cash flow, we ended the second quarter with $483 million of cash, which is down 13 million from the end of the first quarter.
Quarter cash flow from operations was strong at $119 million and was offset by 46 million of capital expenditures $50 million of debt repayment and $28 million of dividend payments.
In May we entered into a need of $300 million credit facility, which replaced our previous $200 million.
<unk> deal.
With access to this additional liquidity and the strength of our balance sheet, we are well positioned for any future needs.
Here I want to thank the entire Texas Roadhouse family for continuing to deliver legendary experience to our guests each and every day, we know that it continues to be of challenging work environment and to see the passion.
Cash and that you all branch and Runny restaurant is truly inspiring operator, please open the line for questions.
Okay and at this time, if you would like to ask any questions discretion Sars and the number 1 on your telephone keypad and enjoy your question Kristen.
The loss participles ethical filed the kidney roster.
<unk>.
And your first question comes from Jeffrey Bernstein from.
From Barclays. Your line is open.
Great. Thank.
Thank you very much.
2 questions first question just on the to go business.
Gary I know that.
Most of them.
A big fan of to go until it was really much of a certain COVID-19.
Some of it a degree experience I was wondering your thoughts there and whether there's a sort of on reducing emphasis on whether you realized from and in addition to your experience with.
And she is still from.
17% of the second quarter.
And I got on the 14th of July.
I'm just wondering your thoughts on that business and maybe.
Percentage settled and market sort of been opened the longest and then I had 1 follow up.
Yes, I would say good afternoon and.
We're very excited about what we've learned on how we can execute on the to go side.
And we feel very confident that we're delivering a much better experience to our guests and we are absolutely committed to making that legendary.
So it's new to us and at this volume, but we've made the big adjustment and feel very good and we will continue to provide a great experience of that that margin will hold.
<unk> liked it to hold and we're going to earn it.
Yeah, and Jeff I would add too just as we're looking ahead, we focus a little bit more on the dollars versus the percent because as those dining rooms are reopened capacity restrictions become easier.
And those percentages are going to come down.
And so you know our goal we've talked about it last quarter and even earlier was really targeting 20000 of weak and seek out sales and that continues to be what we focus on and our operators focus on it dipped down a little bit below that 20000, and you know like I said July came in at 17005 hundred, but still and a very.
<unk> veins and we feel very good about it and it's tough to kind of look at the stores and because so many of them have been through different levels of capacity restrictions and such and get a good feel but there are some stores out there who do very very well on the to go side of the business.
And you've got a lot of operators he definitely see the benefit.
And have learned a lot through 2020 and like Jerry said, they're just focused on keeping it.
Understood and then just most.
Follow up is on the restaurant margin, it's the inflation pressures remain outsized, which it sounds like that's.
What's your expectation of Im just wondering how you're thinking about profitability.
At least theoretically whether you'd prefer to take a hit.
To the margin.
And the short term just to maintain all of this very strong traffic.
Do you think there may be incremental cost savings or.
You are confident and taking incremental price and just wondering how you would potentially change the pricing.
Any color on the restaurant margin for the back half of the year. Thank you.
Sure.
We've always said we.
We feel very confident in the 2017 and 18% range as far as restaurant margin.
And so you know we were happy with the margin that we you know where we are and it didn't surprise us too much and we did see some higher cost on the commodity side than we expected, particularly later in the quarter.
But the mix of sales on.
Among dining room sales and <unk>.
Knowing that we want that investment and the labor side of the business, we want to make sure we're staffed.
And we were we were feeling really good about that 17.7% that we were able to produce this quarter I think when you look out to the rest of the year, we still feel very comfortable.
Comparable and up 17, and 18 range on a full year basis, the inflation on commodities does get tougher and the back half of the year, There's no doubt.
But with what we're driving from a traffic perspective, the positive mix that we're seeing.
And the check that the other pricing, that's and that check growth.
On the still feel good about being able to hit those targets.
For the back half of the year.
Understood. Thank you.
Mhm.
And your next question comes from James Rutherford from Stephens. Your line is open.
Hey, Thank you I just wanted to follow up on the question.
We still commodities and my right.
And my math here of 7% for the full year implies around 10% commodity inflation for the third and the fourth quarter and kind of of this.
Parts of that what are you expecting from mix as we progress through the year given it was kind of a strange lab here this quarter.
Yeah, you're right James that would imply around that 10% range on the inflation side of things.
And so.
That would be the expectation I think are you. When you say expect on the mix are you talking about the sales mix or.
And where that replacement just that mix had a pretty big was a pretty big driver to the 1 year.
<unk> on this court, yeah curious how that trends for the rest of the year.
Sure our expectation is that we hold on to that positive sales mix for the rest of the year, we kind of really started seeing that ramp up a bit and late Q4, and and really hit the stride more in Q1. So we think you know the rest of the year we.
On a purely that benefit now that a lot depends on consumer behavior and things like that that's what's driving it.
And we're seeing our guests and go more towards.
Bigger stakes more expensive entrees, they're adding apps at the beginning of that meal and theyre looking for that great experience as they get and that dining room.
And then also.
The alcohol on the software side of things as you're moving those to go sales back into the diet and some of that's moving back into the dining room, you get a lift on those dining room sales because they are $4 more on PPA. So that certainly helps too from that perspective.
Got it that's helpful.
We should follow up on the commodity piece of.
You mentioned you have I think 50% of the basket locked for the remainder of the year and it sounds like commodity has really started to move towards the end of this quarter. So what kind of visibility do you have into that 10% inflation for the back half of the year and and kind of what are you baking and are you baking and sort of quarter and prices.
And how are you coming to that number I guess.
Sure.
It's not easy given the uncertainty that's sort of out there right now, but yeah. We do have some visibility as far as the contracts, we have and place the fixed pricing that we have but we are buying with of demands that we're seeing and our sales levels were seeing we are buying quite.
And as of spot market and.
So that you are kind of set susceptible than to just the market swings that are happening.
We're a little more conservative building some of that in as far as what our expectation is on.
Different cuts of beef and things like that and.
And it's primarily on beef you see it on pork also a little on.
A bit on then.
And then oils and fats and we're seeing a little bit of it there too.
And some of it is just knowing you know and you've got the demand side. You also have this the some of the issues of suppliers are facing right now and it's just difficult.
They're facing similar labor issues transportation things.
On checkout and and Theyre starting to pass those costs on that they are feeling so some of it is how long does that last.
And as we kind of all field is bit of supply tightening and things like that just across you know across everything.
Very helpful. Thanks for the color Tony.
Sure.
And your next.
Like Bastian comes from features sales from B P. I G. Your line is open.
Great. Thanks Tonya.
I wanted to come back on the conversation around commodity inflation and the.
The last time, you guys had commodity inflation of anywhere near this amount was in 2015 and then.
No.
2 consecutive years after the of commodity deflation. So I'm just wondering if you of any sense on how transitory you think this inflation is and if your suppliers of giving you any sense on when some of these the prices might roll off a little bit from where we are today.
Yeah, It's a great question and.
We'll be learning more about that as we get further into Q3, typically we start having conversations with our suppliers and things like that towards the end of the quarter heading into the year. So I think we'll get more clarity on that and I'm sure. They would say when we they can get some clarity right on where prices are going and cost of doing business and labor and things like that that they are being impacted.
I think by right now so I think it's going to be tough to know that for a bit and.
And potentially you know as you head into 2022, there's just all of the normal and commodity inflation inputs right as far as supplies of cattle slaughter rates things like that.
And that could cause some noise and 22 so.
Impact here, and we're kind of teeing up to expect some commodity inflation for a bit.
Through this year and potentially into 2022 is the way we're looking at it.
Okay and <unk>.
Given the situation how are you thinking about menu pricing and I know you.
During the call.
We on potentially some more pricing and maybe sometime in October can you give us an update on what pricing level, you're running and the third quarter and and the fourth quarter and.
And what you may expect to take and the backend of the year.
Yes, happy to do that so pricing today, and we had about.
And then on totaled 2.8 total pricing in the quarter. That's made up of that 175% that we took at the beginning of May. So we didn't get the benefit of that the whole quarter. We will for the rest of the year and then you had about 1.4% that was in there.
Throughout the back half of 2020, but for the most part of it was it most of it.
October so that's about when that rollout will occur on that.
So Q3 looks like it would be it would come in at about 2.9% or so pricing Q4, assuming no additional pricing just with what we have right now would be about 2% in Q4 and.
And you know as Jerry.
And we're gonna be having those conversations.
And with our operators to see you know where they are how they're feeling things how the consumer feels to them on and as usual you know we've always been a little.
A little slower to take pricing when it comes to commodity inflation because of the temporariness of that the cycle that that goes through.
And you mentioned, a little more likely to take pricing to help on labor as it's more permanent that philosophy has not changed and that's something we still very much believe and so that's the approach we'll be taking as we have those conversations with them.
But I can tell you just from you know it certainly seems like it will take some pricing.
In October.
On the levels of all you know we'll be remain remained to be seen but it feels like there is some pricing there to be taken and I would just say that as we gather with all of our market partners and NPS and look at their local areas and what they might need and different parts of the country, but we will still be rather conservative.
And would assume but we're also looking at some menu items that might help we had a lot of success with the 5 don't Salmonella and a smaller portion of that kept our value side. We do we're very excited that our guest is going for the high dollar right now a little bit, but we also want to make sure that we keep that value side, there and keep it very.
And part of who we are.
But we obviously are will listen to our operators and see what they need so that they can get the margins that would be balanced and responsible.
Thank you very much.
And your next question comes from and David Tarantino from Baird. Your line is open.
Yeah.
Hi, Good afternoon, Tonya just wanted to come back to of the discussion about margins and the outlook for the second half of the year I just wanted to clarify 1 comment. So you you mentioned 17 to.
And to 18 was that a comment about the full year or was that a comment about the back half specifically.
I'm kind of both.
Q1 came in a higher percentage I think we were over 18 and <unk>.
<unk> is still strong and Q2, so I think both for the back half and the full year, we still feel confident and being in that range of ports a lot will depend on sales trends the mix of sales.
What pricing we take.
And things like that but we.
We can we can see a scenario, where we can still hit that target.
Got it and then on on.
And on Labor and I wanted to ask about I think you mentioned that.
Ours.
We're up a half of <unk>.
Versus 2019 and traffic I think was up 12% so.
Yes, how are you able to accomplish.
Of that labor model with such big traffic growth over the last 2 years and is that I guess, a function that maybe you're understaffed and and need to catch up.
Or is it some efficiencies that you've gained over the past couple of years.
Yeah.
Definitely imply that there was some there was some staffing issues throughout the quarter, but I'll tell you. When you look at the hours broke and the growth and hours broken down by month, we saw that trend up throughout the quarter.
Up and coming in after our conversation on Q1 in April and things like that we were putting a lot of initiatives in place things like that to help on the staffing side with Super folks and and I think what we see and that in the numbers as of <unk>, that's working and staffing is becoming a bit easier with that growth and hours getting.
And so bigger in June.
So that was certainly good to see from that perspective, because of your you're absolutely right, David and you would expect at that traffic level.
To be a bit to have that growth and hours be a bit higher.
You also have to keep in mind you you do have that to go higher to go business, which typically is going to be a bit less on the.
A little bit high because you don't have the servers the front of house labor on that piece, so that does kind of mitigate that a little bit.
Great. Thank you very much.
Mhm.
And your next question comes from it and Dennis Geiger from UBS. Your line is open.
Great. Thanks for the question.
Of labors under and jewelry with the first 1 just wanted to ask you a bit more on the margin as it relates to the to the other Opex line and you spoke to it to some extent, but just wondering.
And what else in the quarter any other commentary you can add there against those sales volume is or just the cost of everything all of us insurance, if it lumps through their equipment or of gloves others.
<unk>.
And you're just seeing a lot of inflation through through that line dollar wise as well as that of fair characterization or or anything else sort of onetime in nature.
Yes, it does.
And you definitely are on point I mean, if you.
Looking at other operating cost as a percentage of sales 2019.
There are some 2021 it was flat at 15, 2% so that would imply any check benefit was offset by higher cost more.
More usage because of the to go piece of the business. So more to go supplies and Youre still looking at PPE costs love cost have been elevated different things like that insurer.
Vs absolutely runs through those lines.
And <unk>.
Credit card charges things like that as you see more credit card usage and and all of those things so definitely seeing a bit of inflation on that line, which offset that any of that check benefit on a 2 year stack.
Got it Thats helpful.
Total.
And then 1 more I think you just spoke to to some extent, but just just wanted to clarify as far as ours from here I guess it feels generally like youre in a pretty good spot hours relative to traffic and then and I guess, if I, if I caught that loosely correctly.
And given where you are and June dine and wise.
Not a significant amount of of incremental labor hours from from where Youre. At now is that of is that a fair characterization of our summer is a summary of of.
And how you just described and Sonya.
Yeah, I mean, I guess, what I would.
The point I was making was growth and hours became higher throughout the quarter.
And I think that's a piece of dining room.
All of growing so you began to see more and more hours used and the restaurant and.
And so to see that improvement you know that's that's good because we like to see that staffing level increase and hours and the restaurant increase from the levels. We were in so that's a piece.
<unk> of it for sure.
And we'll just say that.
We added 5000 employees and second quarter. So we made up of lot of progress on getting fully staffed so that was a big win we had a great national hiring day, which really brought us a lot of folks so as we were training.
Them and bringing them back and our average weekly sales continued decline I think we're positioning ourselves for the back half of the year as we fought staffing and the first quarter I think we've had a lot of success and the second quarter and a lot of momentum going into the third quarter.
Unknown is how school goes back and.
Change our trend it typically does I don't know that it will this year. So we're anxious to see how this next couple of months goes as kids get back to school and are we really going to get back to some normal but I. We made a lot of gains on the success of getting staffed across the country.
<unk> to be able to continue to provide great service to our guests.
Great. Thanks, guys.
Your next question comes from Lauren Silberman from Credit Suisse. Your line is open.
Thank you. So I appreciate all the commentary on staffing just a follow up there are.
Are you still looking to increase staffing at these sales levels and then just with respect of training and overtime are you on.
Realized levels or are you seeing any elevation there just as you bring on more people.
Yes.
Going to continue to to get staffed and we are of great team we call. It and then just staffing so.
So we're really we know which stores need help specifically and we're really focused on that as a team or a regional market partners are managing partners at the store level and and our support center here, we have a very dynamic team that is focused to support our restaurants as we know as we continue to get.
More staffing, we will be able to provide even probably higher comp sales and and a little better service to our guests. So we are going to continue of full core press on on getting properly staffed across the country, especially where a lot of them are there, but theres still a lot that need some help and we are.
And absolutely all hands on deck to help support that mhm and Loren on me and overtime question. You had we did see a bit more on the overtime nothing too significant and didn't really drive a lot of that wage inflation.
But there was as you would expect you have folks working more hours.
And so there.
And it's a little bit of an uptick on that over time versus last year.
Great and just on the sales for on premise sales well above pre Covid can you talk on where your on premise transactions are vs. Prior level and how you are getting more capacity and the box and then just how do you think of that capacity to expand on premise from here. Thank.
Or was it.
Yes, sure I can sell you Lauren on Q2, that's 1 point for them.
For all of dining room was down 3.2%.
And then we had to go traffic that was up 15.6 those of the components of that 12, 4% growth and.
And as I mentioned now and Jerry mentioned on the call. We saw that that negative dining room traffic get better and better of the course of the quarter and ended up slightly positive and June and July even better even more positive and so that's really a function of that.
And even room capacity getting being.
Lifted across the country.
E stores, and we still have stores in the quarter and that had some pretty significant restrictions in place.
And things like that so they continue to find ways to.
Right now, they're just focused on meeting.
Meeting the demand that they have we do our wait times are long and especially.
Country weekends every day part of week looks really good and.
Across the geography looks really good across the country the comp sales of great. So nothing that we would call out from a constraint perspective, and we feel like we still have quite of bit of capacity within the restaurant to grow.
On the traffic and and things like that so that's going to be the focus for us for sure of the rest of the year.
Great. Thanks, so much.
Yeah.
And your next question comes from John Glass from Morgan Stanley. Your line is open.
Alright, thanks, very much for Jeremy.
You mentioned development costs are also going up how much are they going up and you know how close are you getting to a return hurdles not being satisfactory or is this still really good just go into maybe a little bit less good and it doesn't impact how you're thinking about development over the next 12 or 18 months.
Yes, sure John I mean.
Yeah.
And we expect 'twenty, 1 cost to be lower than 2020, because 2020, we're a bit more pressured with the delays.
Pre openings and that number of things like that so that caused 2020 to be a bit higher we expect 'twenty 1 to be lower but you can't really you know it's hard to quantify exactly what those dollars are we're still seeing them come in as we continue.
And so need to get restaurants open and and built.
And you certainly hear from contract Youre, saying its difficult on the labor side for them and sometimes.
And sometimes they have some issues on supply and materials.
We are very lucky so far we have had no issues on on anything.
Anything that has caused us to have concern on meeting our pipeline.
Any openings or anything like that haven't had to think about slowing anything down.
And that's been really good to see.
My personal opinion, and we might see cost pop a little bit more in 2022, and we're getting those bids put together you might see some of those more of those costs being passed on.
But it still remains.
You know a little bit how that ends up so nothing right now that gives us concern.
I would say to that.
We are having a lot of success with our new store openings and our contractors that were working with we are meeting with and just identify and if there is going to pay but it does seem like the supply chain is coming through pretty soon.
And can be fully right now on their side and then on our side.
Tom You mentioned, our pipeline is very strong and very solid where we are as excited about 'twenty..2 as we were about 21 and and all of the concepts are continuing to have a lot of success and the new store openings bubbles.
Roadhouse.
So we are cover and those costs I believe and we're getting them done on time and what you would.
As of really hats off to our contractors for hitting those commitments.
And returns continue to look good, especially with those sales volume.
No issue on the return side of thing.
Texas, Okay. Thank you and then.
Pricing.
Does this experience change and anyway. Your view on maybe of how scientifically you look at pricing and though in the past and maybe even now you're sort of its bubble up from the operators and you get you get their opinions.
But do you think about more frequency and sort of get on.
A more faster and it sort of of this do you think about or maybe you have tools that are more surgical location by location of item by item. How do you do it I guess any of that changing at all or do you think the way you do it as sort of the right way to approach place and going forward.
Yeah, we've got a good historical data on everything that we've done.
The last 5 years I would say.
If we had to move fast we could and I believe our operators would trust us enough. If for some reason we were forced to do that but I would prefer just to continue to pay attention to what's going on in our stores and our and our certain regions and makeup.
Adjusted Accordingly, with their opinions, but we could move if we had to for some crazy reason and we do get pretty surgical on the line and the number is you know the menus.
Sure. So we kind of all stores led and our pricing grid with other stores similar to them as far as.
On for costs, and things like that or parts of the country and.
And when we sit down with folks we're going menu line by many.
Menu item on line by line really understanding Pemex, and and gaps and things like that so it is a pretty detailed discussion that we currently have today and that's the way it's been.
Yeah.
Since the beginning of the beginning.
Okay. Thank you.
And your next question comes from Brett Levy from <unk> Partners. Your line is open.
Great. Thank you for taking the call.
I guess, if we could start on labor what did you need.
Need to do on the <unk>.
And sensing on the benefit side as you were doing these hirings and what do you think.
It is a fair way to to assess what your inflation is going to be in the back half of the year and also.
As we've seen the enhanced benefits of rollout have you seen any pockets of the country.
Yeah.
You immediately saw influx of applicants for ease and hiring start to pick up.
So I'll kind of start off a little bit and luxury you talk about what the operators have done and things like that but I you know the labor inflation for the back half of the year I feel like.
It's going to be pretty consistent with what we've seen so far.
We look at it right a little bit more on a 2 year stack of Silicon I, you know comparing back to 2019.
And we feel like that inflation range that we're in is probably but what's kind of hold for the rest of the year now that has a couple of components.
And where you have wage inflation and their wage rates over time all of those things that are impacting it along with group insurance and payroll taxes all of those components of things that go into that too, but it feels like it will be pretty pretty similar and then I know our operators have been very creative and.
And really all.
And as for the hiring piece of it I know Jerry I'll have some examples on that yeah, I think they've got a strategy of being aggressive and their own markets to identify what their needs are and if they need help and in an area on a larger scale. We're there for them, we've got great plans for our local marketing and.
All of which drives a lot of communication and partnership out there. So I think each store has its strategy, but we are being aggressive we've always known that if we are properly staffed we will grow the business and we can execute legendary more consistently.
Have you had cash.
Hey.
Been more on the upfront camp or has it been elevated wages and more of a higher back and guarantee of of what people are going to net acres at just that.
We were able to go with the incentives and then just.
Before I jump off.
On the development front you talked about.
Excitement about the pipeline for 'twenty, 2 as well, but you also talked about elevated costs.
What's your appetite for.
Taking on.
And of growing that pipeline as we are seeing.
These elevated costs and as you said some of them may not be transitory youre talking about commodity still going.
And 1 labor still going into 'twenty, 2 labor still going in.
How do you feel about accelerating the pipeline versus just maintaining it. Thanks.
Well I think they're all doing a little bit of different things, whether it would be.
And from that standpoint of incentivizing people.
And using referral program. So from the staffing side, I think depending on where you're at its easier and some parts of the country than others. So we have a more aggressive approach, obviously, where they need it.
So we do what exactly what we have to do to get properly staffed and the front of the house and on the back of the house I think our operators.
<unk> know that they can make those decisions to hire great people train them right.
And then let's keep them as a part of our family as far as the pipeline I feel really good right now and we like our number and we're really been for many many years of we have to be able to open and operate a business.
<unk> successfully and openings are.
A lot of manpower it takes a lot of work not only on our construction side, but our training teams and our management teams. So you've got to do it right you only get 1 chance to do it right. It doesn't make a lot of sense for us to stretch ourselves every restaurant, we opened as a new opportunity.
<unk> for us to be successful, we have to put every effort and to getting it done right without starting looking forward to the next opening and maybe not get that 1 done as well, so we like where it kind of and our comfort spot of of that 30%, 28% to 30 restaurants, a year successfully and so we'll probably.
<unk> of that number until we feel different and.
And Brad on the development cost I think it still remains to be seen on 'twenty to what those development cost do you know right now we're getting bids on on those projects, depending on where they land and the year. So I think much remains to be seen if the development cost does creep up.
I mean, it all comes down to sales and and what you feel like you can do from a sales perspective and that justifies the deal. So that's what we'll be looking at we ran returns on all of those models and.
To see kind of are we and the bandwidth of where we want to be and that still with that mid teen IRR focus for sure.
Sure.
And your next question comes from Jeff Farmer from Gordon Haskett. Your line is open.
Admittedly, it's early but I'm just curious if you guys have seen a change and consumer behavior and some of those markets with the.
Quickly rising case counts the Florida's miseries Oklahoma's of the world.
Hey, Jeff, it's not that I haven't seen anything that.
Makes you kind of raise your eyebrow or anything it's like okay. Yeah that makes sense and everything seems to be pretty normal you know.
We find some stores, maybe those stores have a little bit of higher to go next.
And then dining room, but even in the dining room and like I said earlier, we have wait times and there's still people that are very comfortable coming into the dining rooms to eat so.
Even in those areas like that so nothing that I've seen.
In the numbers right.
Right now obviously, we're paying very close attention to daily we are operators know that we're here if they need us from that standpoint, they have to protect their employees and their guests and their business. So obviously, we're paying very close attention to what's happening out there and we are just ready to help and we've got everything needed and case.
You mind anything changes.
Alright, and then just 1 more of unrelated question and I believe this might of been asked on the last couple of calls, but your cash balance is getting up there I think it's.
All of those 3 times your normal level. So how are you thinking about that excess cash balance as you move forward.
While we're.
Still carrying about $190 million and debt.
So that's a piece of it and.
Liabilities that are a bit higher just as we were able to defer some tax payments and things like that through Covid.
So we definitely take that and a consideration when we're looking at it we did turn of the dividend back on last quarter. So.
It's really great to see and of great use of cash.
The development pipeline as we're looking at spending more on restaurant they need to do bump out things of that great use of cash and 1 other thing that we will be doing for the back half of the year as train of share repurchase program back on.
As you all know our philosophy has been.
And that to pick up dilution.
And on a consistent basis and that's still the same philosophy, we have today heading into the back half of the year. So we will start taking a look at that now versus we have put that on hold you know last March. So we'll see how that continues but having a little extra cash in of environment like this doesn't feel.
And actually.
You know it feels like a good place to be alright, I appreciate it. Thank you.
And your next question comes from Jared Garber from Goldman Sachs. Your line is open.
Hi, Thanks for taking the question.
I just wanted to know if you guys could talk about what youre doing on especially.
Especially as we move into a somewhat more normalized environment to retain a higher level of off premise sales that you've seen sort of accelerate throughout the pandemic, obviously as dining rooms of opened those numbers have come down slightly and I think you noted.
<unk>.
A little bit below that sort of 20% goal that you had kind of set out or talked about.
So could you talk about some of maybe the digital enhancements you've made and the rest of maybe some of the operational enhancements that you've made and or are going to make to.
Pertain some of that sales level. Thanks.
Yeah, we've really I think our App, we made such great progress not only of towards the end of last year, but.
This year all of the Windows that we put in and it does come about convenience and ease of getting the product. So the windows that we put in and the front of our restaurants.
Even the drive up Windows that we've tested and a couple of stores have been very successful the ability to communicate by text with the guests.
So our ability to communicate with the guests has really strengthened our ability to get them the product.
Whether it's curbside or whether it's them pick and of walking up and picking it up the window I think those are all very strategic moves that are going to help continue as we move forward to hold our to go business.
Even net and then.
Oh, sorry, I was just going to also add as we see dining rooms and sales increase the logistics within the building on how they manage those higher to go sales really being proactive on that is so important with just how we manage that so that.
It's been great to see great Thats really.
And just 1 kind of follow up on that.
Is there anything that youre seeing and the data in terms of consumer behavior that would suggest maybe sort of different different usage for to go versus dining and the restaurants, maybe a different customer or is it a different day part.
Or weekend versus weekday and it would suggest some level of incrementally from some of your.
Yes. Thanks.
Sherri just to get through and nothing that I would really call out of you see to go high to go usage just about every day of the week you see it in what we call the power hours kind of that 6 to 8 timeframe. When we are the busiest and the dining rooms.
You know it seems like people.
Helpful and in App.
After work to pick food up maybe they come and call in a little later to pick it up but.
Nothing really.
Anything I would call out.
That's pretty much what we've been seeing.
Great. Thanks.
Yes.
And your next question comes from.
And are coming.
From Wedbush Your line is open.
Thank you and just wanted to circle back on the on the labor and the second half and I think you said pretty consistent inflation.
Q2, and a half percent over.
Q2 of 19.
As of.
Labor per operating week.
A big fan of half of that kind of fair for the second half in terms of.
Growth over.
Over the second half of 2019 or could we see that pick up as the hours of pick up.
Yeah, I think it is possible and Nick to see that tick up as the hours pick up the question is what will that wage inflation.
But I do think you know our expectation would be to see hours behave a bit more like what we saw in June and.
And continue to see some growth and hours versus 2019, especially of dining room.
Guest counts are higher.
And then 2019, so that would that would be our hope.
And <unk> to see that.
Great. Thank you.
Yeah.
And your next question comes from Andrew Charles Zhang from BMO. Your line is open.
Great. Thanks, I was hoping first you could provide excuse me and update on bubbles and jaggers just out of those brands are doing from a job.
Perspective, and this environment and you know and the context of your commentary on on development cost just kind of how things are evolving for those 2 brands.
Right now.
Yeah, I'll give you some of the confidence, though and and let you comment on some of the performance side you know conflict really good they are very strong on both of those brands versus 2019 on.
And you know Q2, <unk> was up about 20% jaggers over 30.
So we're very feel very good about that and they continue to focus on margin seem to gain brand awareness so from that perspective.
And really positive.
Yes, the 2 bubbles that we opened and the second quarter.
Really.
Net margin.
Unbelievably fantastic and so we are very excited as they've continued to gain momentum operationally. We've got strength. There. So we're very excited and I think we've got 35 Gaba is at this time and and have a couple of more to get this year and and.
Really did jaggers is coming along great. We've got 1 coming out of the ground.
And then we've got several and the pipeline for next year. So we're very excited about the jaggers here in Louisville, and the success of its having and holding it sales. The food is just unbelievably fantastic. So I will tell you I have a lot of excitement.
And then for Bubbas 33, and Jaggers and and we are we are all on board of getting continuing to invest and bubbles and we are building some strength around the team to grow jaggers.
That's great to hear and the enthusiasm behind those and.
And my other question was.
And I apologize if you already mentioned this and I missed it I know you were.
And we're working on some efficiency opportunities and the to go business, where are the margins now relative to dine in and as you know kind of evolve through this environment with that growing to go business have you been able to find additional opportunities that maybe were not in place yet. Thank you.
Uh-huh share Andrew.
I don't know that theres been as much focus on measuring what that to go margin looks like because it's really hard to do because you've got to have.
You got to make some calls on how do you divide of Brent how do you divide up certain other costs do you really see you could build of case different.
As for what those margins look like I think you know just anecdotally, we feel really good about what the stores had been doing any efficiency efficiencies they've been finding and I'll tell you I think they are going to continue to do it simply because of how we're structured on compensation. So higher to go sales they want that margin to be good on.
In case of transactions and Thats, a piece of compensation and so as they were making a percentage of the bottomline restaurant. So we feel like that's naturally built into the model for them to manage it and do it well, we're helping them as Jerry mentioned from a technology side of really giving them every resource we can helping them from the building.
And on knowing perspective of how they structure of Theyre building their corrals all of those things around there to go volumes and feel really good about continuing to see good returns and and performance on that to go transaction.
Great that makes a lot of sense. Thank you very much.
Yep.
And your next question comes from Chris O'connell from Stifel. Your line is open.
Hey, Thanks, good afternoon guys.
And I apologize if I missed this on you, but you mentioned last quarter that do you expect of G&A to be closer to 2019 levels, but you ran quite a bit lower than that this quarter, especially if you exclude the stock based comp has anything changed in terms.
And your G&A outlook for the year.
No I don't think so some of it is you know we ran a bit lower as we continue to see meetings and things like that would be a bit lower travel and be a bit lower and so you know I think on a full year basis, and you know with the margin.
And that we're running obviously you get quite of bit of leverage there on that G&A as a percentage of revenue and.
I think we continue to expect you know, it's gonna be and we believe G&A for 'twenty, 1 will be higher than 2019 and.
And just given some of that cost around equity compensation and bonuses things like.
That those are going to add to them and those those costs from 2019, and then Q.
Q3, we will have some additional cost that we don't have and had so far this year related their conference related expenses sort of.
Be around $4 million that we'll see and Q3 and.
<unk> wise, we feel really good about the G&A spend and the trend and we're on.
Okay. That's helpful. And then I understand you're prepared to provide of beef inflation outlook for next year, but I was wondering if the team has a view as to whether the company might contract of higher or lower percentage of its expected needs next year than it normally.
I'm leawood.
I think it just depends you know talking with our purchasing team I think they're very open to contracting more if suppliers are open to that and then the premium isn't too high sometimes as the suppliers are going to be building and some of this uncertainty that they're feeling right now and it's and if that's the case and we feel like we would be better.
That are waiting on to see how the cost develop then we might not lock up as much of it. So I think that that kind of there look at it and how they're feeling about it and like I said theyre going to be having some more of those conversations have come on up here soon with suppliers and and getting a feel for how everybody you know what they think about the environment.
Okay. Thank you thank.
Thanks, Chris.
And your next question comes from Andy Barish from Jefferies. Your line is open.
Hey, guys.
Oh excuse me.
It's a good flow.
Nothing's traditional anymore, but the 3 key was easily.
And kind of a seasonally slower quarter and those margins are on.
Lower and you just mentioned that a couple of other factors, obviously ramping for the second half.
Or is the potential for price and October.
And we kind of think of the 3.2 is being lower and then the bounce back in the fourth.
<unk>.
You know assuming volumes do normal seasonal things.
Yeah, I mean, I think that is a very reasonable expectation we saw it in July.
And as volumes normalize a bit.
Came down a bit which is normal seasonality for us and that continues through October and then you kind of see that bounce back.
In November December and and heading into the next year and a lot to will depend on that menu pricing that we do end up where we ended up on that and well.
Play a bit of a part of that too.
And on the.
On the 14% wages can you.
Kind of break that out and do you have enough.
Past dues.
In terms of that.
The actual wage growth versus other items and.
Was there a significant amount of.
Incremental training costs, just given that that 5000 employee hiring number that Gerry mentioned that rolled into that.
Yes, I think that would.
Would be very fair to say that there is some incremental cost there associated with you know as we're hiring.
Gerry mentioned, you know over 5000 additional employees and the hiring day that we had and things like that that 14% breakdown. It's about just.
And just under 11% were related to wage and then the remainder.
With other inflation on other line items, so can't really give you a breakdown as far as you know how much of that is training, but I would say there is some some some there.
Okay. Thank you.
Hmm.
And your next question comes from Jon Tower from Wells Fargo. Your line is open.
Hi, This is Karen holthaus on for John.
Just 1 more on the labor.
Labour front, maybe another way to try and get a modeling the second half would be and and ideal world. If we were looking at that kind of relationship between traffic and hours versus 2019, you know would.
And ours to be growing at 50% of of what traffic is 70% of what traffic is ah or alternatively give us some color on where that kind of ours was running versus 2019 and June when you thought you were kind of catching up to staffing levels.
Sure.
Would you want the month of June we had total traffic growth of about 14% and the month of June.
And we had half of point of growth and hours a.
A lot of that you know a good portion of that traffic growth was almost all of it was.
To go.
And so that's a little bit different when you're thinking about hours growth rate. It doesn't behave necessarily the same as it would and the dining room. So historically pre COVID-19. We would tell you Hey, you know we like to see you know our growth and hours being that 50% to 75% range as far as percentage of total.
So the growth, we ran and 50% for quite some time it ticked up a bit you know and in recent years and.
And that felt like a good place, but that was 7% to go sales. So it's quite a different business with double the to go sales and don't expect that maybe that 50% wouldn't necessarily.
Shirley you know it might be not as big as that now, but I think we're still waiting to see because again, we just had so much you know dining rooms reopening shifting things like that happening in Q2 that we'll be watching that really closely and Q3 to see and a more normal environment and how that behaves so more to come definitely.
I'll try that how that's trending.
Great. Thank you.
And your next question comes from Brian Vaccaro from Raymond James Your line is open.
Oh, Thanks, and good evening, a couple of on the on the margin front, if I could and interest back to your second half comments I think he said.
Leon and 10% to 18% and I was hoping maybe we can compare that to the second quarter, where you were 17, 7 and I'm trying to just square we've got higher inflation. So I would I would think that the cogs ratio of moving higher sequentially. So can you help me understand what costs do you expect to come down sequentially or where you would expect flow through.
To improve sort of allowing you to hold that 17 to 18 range sort of way.
And as I mentioned.
Sure. So 1 piece of it is the dining room vs to go traffic because you're picking up that PPA on the dining room and.
And if dining room is going to continue to grow with restrictions lifted and you are getting some benefit.
And if it there on that along with the positive mix continuing as it did in Q2 and.
And then specifically on cost of sales and you're applying that 10% inflation to a lower percentage cost of sales as a percentage of sales of last year Q3 and Q4 so.
And remember Q3, and Q4 last year cost of sales were in the low 32% ranges.
Versus 34% in Q2 of 2020, so you've got that dynamic going on too so that 10% inflation is on a smaller number.
On that.
It makes it a little bit different as far as how it plays out on the margins for the back half of the year.
Okay, and and in the release I guess, you and <unk>.
You referenced restaurant margins pressured by pandemic related costs kind of higher pandemic costs.
The I think it was close to $2 million and the labor line.
And the Covid pay.
Can you help frame what other COVID-19 costs of our pandemic related costs in Q2, I'm sure. There's a lot of different things and a lot of different dimensions on that whether it be retraining or gloves et cetera, et cetera, but is there a way to maybe catch all of their on on what those costs look like in addition to the.
And on.
Yeah. So on the other operating line really we had a 3 million dollar and.
And last this time last year Q2 last year and that we incurred that were lapping I'm not seeing the same levels on the P. P. E. In Q2 this year versus what we.
And last year, so that's a little different but we still definitely are seeing the cost of PPE.
In the numbers and Q2 gloves, specifically it was what I called out just as.
Materials have gotten very expensive when it comes to make and gloves cost. We're definitely we were seeing those increased significantly over the quarter I think those.
We're do already maybe to come down a little bit now, but and they they did they did peak there quite a bit and.
And so really that would be more of what I would tell you is living and other operating obviously you have the hired to go supplies and.
And that summer lab payment, which was I think he mentioned at 1.8 and labor and.
And.
Those of stung with just other benefits on that labor line, but that's really Brian I think that that's all I can really call out specifically.
Okay. Thank you.
Yeah.
And our next question comes from John I've and co from JP Morgan Your line is opened.
Hi.
And a lot of.
Obviously over the past 12 to 18 months, we've talked a lot about the contraction and industry supply and certainly understand a lot of that is urban of lot of that is in line and capped and shopping centers, but what are you seeing.
In terms of freestanding pads that may exist and trade areas that you would want to be I mean have you seen.
And a significant number of properties that have come on board and.
So I mean, I guess, what would be preventing you from taking them is it the size of the book the waters of cost.
The time to kind of kind of get permits and what have you do you have a preference for greenfield just to give a give us a kind of a sense of your ability to absorb some of the supply of that.
Ah recently come out of the marketplace. Thank you.
Well I think we're looking at it and there is no doubt as we look at our development team and where we're going where our pipeline and say were probably mostly looking at late 'twenty, 2 now where everything else is booked and ready and and as we start looking at 'twenty 3 what will be available.
<unk>.
There are some buyers out there, but there is there are some others that are given up their properties. So we are I think we're being very aggressive that looking at what our options are and what are our best deals in front of us that we can continue to add too.
Our pipeline for 'twenty, 2 'twenty 3 'twenty 4.
On all 3 concepts and we're probably looking a lot of jaggers right now too. So there is a lot to look at but we feel very good where we're positioned and we'll be very aggressive of a great deal comes along if not we will hold our course and be very strategic and where we want to be.
And so that we can continue to grow all 3 successfully.
And so I should interpret that comment.
Those types of development opportunities would be upside to what you're currently guiding and not necessarily that you need them to basically.
Your body and especially in 'twenty 2 correct.
Correct.
Thank you so much.
Youre welcome.
And our last question comes from Jake Bartlett from Truest Securities. Your line is open.
Hey, Thanks for squeezing me in here.
My question was about the staffing and the thin staff and that you've had and how does that manifest itself in other words, if you are fully staffed.
And so how you seem to be staff here in July would sales have been higher it was that of constraint.
To rebuilding your in store dining and the quarter.
I would say it had some impact obviously as we came through the to go and the capacity side pretty quickly a lot.
And of course started turning that on very fast and and for us to try to catch up and and then the labor.
The supply of employees out there with very tight obviously everybody was fighting the same fight to try to grab the best people out there and get them onboard and trained and ready to rock and roll. So.
We had a factor.
Of the steps that I think we've really made a lot of gains and progress and getting properly staffed all across the country lots of places are we still have some that we need to support and help and and of course, yes. It would of our if you look at our sales obviously was unbelievable, which is fantastic our operator.
We're really hustling and that second quarter and you can see it see it and our average weekly sales and and had we been able to get them more help and we probably would have had more and blessed.
And what they did that's for sure.
Great Great and then and just last question as we look at your target of having 20000.
<unk> and off premise sales.
Sales of below that in July and at about 17, 6% and so what I'm getting.
It is July and I know you.
You guys have more limited experience with this but.
It is July of <unk>.
And flea seasonally low month for off premise sales I mean, how should we kind of.
Look at the July performance, and how that fits into your target of of 20000 of a week.
Yeah and in July.
And historically you know there is seasonality there and just overall total sales and.
And you're going to see them down and and we saw that and you know July just being just over 124000 and harder.
Our day to stay on it to go because again, we're doing twice of the business that we're doing pre pandemic. So I think we're going to learn a little bit about that.
Thank the dining rooms, and ramping up more and getting more open and creates you know just that demand of folks wanting to be in the dining room again, maybe that had a little bit of and impact on to go.
And sales things like that but on.
Well just continue to watch it and see how it goes we still feel good about being able to you know get closer to that 20000 week average.
Great I appreciate it thank you.
Thank you.
And that is our final question I would like to turn the call over to Tonya Robinson.
Any closing remarks.
Hi, just wanted to say thank you guys for joining us. We appreciate it I hope everybody has a good night and reach out if you have any additional questions. Thanks, so much.
Great.
And that concludes today's conference call. Thank you for participating you may now disconnect your lines.
And.
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