Q2 2019 Earnings Call
Good morning, everyone and welcome to the Red Robin Gourmet Burgers incorporated second quarter 2019 earnings call.
Please note that today's call is being recorded.
During the course of this conference call management May make forward looking statements about the company's business outlook and expectations.
These forward looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties described in the safe Harbor discussion found in the company's SEC filings.
During the call. The company will also discuss non-GAAP financial measures.
These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of the company's operating performance that maybe useful.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release.
The company has posted its fiscal second quarter 2019 earnings release, and supplemental financial information related to the results on its website.
At Www Dot Red Robin Dotcom in the Investor section.
Now I'd like to turn the call over to Red Robins interim CEO Pattye Moore.
Maybe I missed it.
Good morning, and thank you for joining US with me. This morning are Lynn Schweinfurth, our Chief Financial Officer, and he kind of step our chief operations Officer, Jonathan literate Chief concept Officer is also with us to help to answer questions. You may have during our call today.
Before we begin our review of Red Robin its second quarter results.
I wanted to comment on our recent board refresh we recently named three casual dining veterans to our board of directors.
I'm really pleased to welcome Tom Conforte and accomplished retail executive who was most recently CFO for Wyndham worldwide previously Tom was CFO at Diamond brands, where he led the acquisition of Applebee's and the change and I Hopped franchisee model. He also has held leadership positions at the Walt Disney Company.
GJ hard, it's a seasonal food and beverage executive with more than three decades in the industry and is currently CEO of torches caucus. He previously led California Pizza kitchen has turned around this the brand's CEO and prior to that was president of Texas Roadhouse.
And David pace.
Who also has more than 30 years of leadership experience in food beverage retail and consumer products. Most recently he was CEO of Jamba juice.
And previously held leadership positions at Bloomin brands, Starbucks and young brands.
These talented industry leaders Brinker, Red Robin deep restaurant, and retail expertise and strong track record working with public companies enhancing shareholder value.
We are excited and proud to have them on the red Robin team.
Now turning to our second quarter performance as you know, we announced that Q2 had the best same store sales performance in the past five quarters with sequential improvement from Q1.
We are gaining traction on our turnaround efforts and we are seeing very encouraging signs of that momentum accelerating there in early Q3.
In addition, our customer satisfaction scores continue to rise our highest performing restaurants that was in the top four trial of the system are generating positive guest traffic and sales and it's no coincidence. These restaurants have higher overall satisfaction scores tenured management strong team member engagement and lower turnover, we know that success in these and other areas are linked and he will talk more about the operational improvements that we're making across the board.
These are just some examples of the progress we're making on the critical areas of focus that I've shared with you in the past our five strategic priorities. As a reminder, two of these priorities, which go hand in hand are stabilizing the dine in business and improving the guest experience, which includes recapturing our gift of time convenience as a differentiator.
He will go into more detail on the momentum that we're seeing in these areas.
Our third area of focus is to continue building our to go and catering. These are components of our off premise business, which now comprises 12.5% of sale and includes third party delivery and Lynn will talk more specifics. This is specifically about progress on this priority.
As it relates to our fourth strategic pillar implementing digital platforms and technology solutions I'm very pleased to report that we have now deployed additional technology tools to help improve the guest experience both in dine in and our growing off premise business. These include implementing headsets printers for labeling to go orders and replacing third party delivery provider tablets with direct integration into our Pos system.
In addition, we also have server handheld Pos devices and almost one third of our system, which as a reminder are focused on improving our gift of time kitchen execution in server attentiveness, we expect to complete this rollout in the next few months.
And finally, we're making great progress on moving to our new loyalty platform, which gives us the ability to better target and segment offers two or 8.5 million royalty members one of the largest loyalty programs in our category.
Our fifth and final area of focus is on selectively refinance refranchising in reassessing, our real estate portfolio.
As we mentioned before we're working with the Cypress group on this effort and we expect a new CEO to develop a go forward strategic approach to this we also continue to evaluate and assess our real estate portfolio as well.
And finally on the marketing front, we launched our new Omni channel brand campaign, all the falls in mid July with TV radio and increased focus in spending on digital marketing and social activation. The campaign is already producing results as an example year to date, our social media content has been significantly outperforming our previous year with engagement improving across Facebook Instagram and Twitter.
Prior to our campaign launch we commissioned a survey to find out what kids today really want 73% said they wish they had more time to connect with their parents.
Based on the survey results, we are celebrating playful days in August to encourage fun connections between kids and their parents over a meal at Red Robin.
We have also leaned into social Influencers to foster excitement about all the false campaign and our PR activation days.
And finally building on the consumer research that led to our new brand campaign, our consumer insights team is kicking off I guess deep dive in Q3.
The output of this initiative will enable us to develop a comprehensive segmentation framework.
Better understand our guests' needs that motivate visits to red Robin and further refine our position as a differentiated choice in the marketplace.
We expect that work to be completed in the fall.
I will now turn it to get to talk about the significant progress is being made in operations and then Lynn will address Q2 results in more detail off premise growth digital platforms, and our real estate portfolio before I share some closing thoughts and it open for questions.
Thank you Patty and good morning, everyone as Tony mentioned, our first and foremost priority is stabilizing and strengthening the dine in business.
In order to do so we are focused on four key areas for operations that we communicate consistently and measure religiously.
First is hire train and retain.
As we discussed last quarter, improving the dine in guest experience starts with hiring the right people training them properly and being fully staffed, particularly as the general manager level.
Our operations leadership and HR teams have made real progress against these objectives.
At the outset of 2019, we were short over 100 managers across our system.
At the end of the second quarter, our manager staffing level was 99.4% we were short approximately 30 managers.
And our manager turnover numbers continue to improve and are approaching best in class levels.
With stable and more fully staff management team comes a better experience for our team members and this has been a parent and the progress we have made in our hourly turnover numbers, which have improved throughout 2019.
This is in sharp contrast to a continued deterioration in industry turnover and staffing metrics.
Our hourly turnover numbers ended the second quarter better than casual dining industry averages and have continued to improve into the third quarter. These important leading indicators are critical to building the engagement of our team members a key component of any sustained improvement and operational execution.
Next is manager front of house engagement.
We know we can improve the overall guest experience deliver better wait times reduce walkaways improve our cleanliness and effectively identify and resolve potential problems by establishing a better presence of our managers on the dining room floor and by having managers at the host and during peak hours.
This focus has begun to deliver results.
Overall guest satisfaction, which had declines throughout last year to a low point at the end of Q4 2018 has shown steady improvement throughout 2019 rising to its highest level in three years during the first period of the third quarter.
This leading indicators critical to leveraging the full service that differentiates casual dining from other segments of our industry and nurtures the engagement and loyalty of our guests.
Next is managing the shoulders to peak the peaks.
By shifting the labor investment from overstocked shoulder hours to understand peak hours, we are able to improve throughput on our busiest shifts, thereby capturing a greater sales opportunity that is available during those times.
Our continued focus on staffing is yielded steady improvement in guest ratings for speed of service food temperature the execution of our bottomless promise and for restaurant cleanliness. During the first half of 2019. This area of focus is a key part of delivering a great guest experience, while maintaining strong labor productivity.
Finally, delivering on the promise of maestro.
This effort focus is our kitchen managers on the active coordination of the fast and accurate delivery of high quality food at the proper temperature.
As a result, we've seen a sharp improvement in ticket times, which in the second quarter were over 80 seconds faster than they were a year ago.
In addition to the improved speed concentrating our culinary focus on improving the consistency and quality of our core menu products, such as our gourmet burgers chicken bones and of course, our signature bottomless steak fries.
And an emphasis on reducing complexity in our heart of house have all contributed to improved guest ratings for taste of food and pace of experience in 2019.
This area of focus is crucial to recapturing gift of time promise that has historically differentiated red Robin from our competitive set.
The only way to sustainably rebuild our dining business and deliver predictable sales improvements is to consistently execute on the basics in our restaurants every day.
We are thankful for the efforts of our operators and recognize their progress while we know there is a great deal of work to do.
The initial pieces have been put in place.
And the leading indicators of manager staffing hourly turnover and guest satisfaction are all trending positively.
I look forward to discussing further progress again with you next quarter.
With that I'll turn the call over the way right. Thank you Bobby and good morning, everyone. While there is still more to achieve we are encouraged by our improving guest and operations metrics and the improving trajectory, we're seeing in our comp store sales trends comparable restaurant revenues declined 1.5% an improvement from the first quarter of down 3.3%. The Q2 decline was driven by a 6.4% decline in guest traffic, partially offset by a 4.9% increase in average check overall net pricing after taking into account discounting was 2.6%, while the 2.3% mix increase was driven by lower tavern mix and higher entre and finest mix.
In Q2, we deliberately moved away from promoting five tavern burgers at 699, and instead featured our higher margin Gourmet line through our Burger Masters series. This program had the added benefit of showcasing the talent of railcars from our restaurant.
We believe this shift negatively impacted our traffic in the short term, but positively impacted our mix and gross margin.
Turning to our quarterly results.
Q2, total company revenues decreased 2.3% to $308 million down $7.4 million from a year ago.
Dine in sales were down 4.3%, partially offset by off premise of traffic traffic at enclosed mall locations now representing 66 restaurants in our system as a result of closing seven mall locations in Q2 continued to perform worse than the balance of our company owned locations by approximately 300 basis points that being said our HCV for enclosed mall locations currently sits at $3 million.
Slightly higher than non mall locations.
However, these locations are less profitable with margins that are 500 basis points worse than non mall locations, primarily due to higher occupancy costs.
On a positive note off premise growth continues to be meaningful and rose 25.7% in Q2, and now represents 12.5% of total food and beverage fail.
Q2 restaurant level operating margin was 18.2% down a 110 basis points versus a year ago driven by the following factors cost of sales of 23.9% was favorable 20 basis points versus a year ago due primarily to favorable food waste as measured by actual versus theoretical performance and lower tavern back restaurant labor cost of 35.2% were unfavorable 90 basis points versus a year ago due primarily to higher wage rates increased management headcount to allow our restaurants to become fully sat staffed in support of our focus on operational execution.
And sales to leverage.
Other operating costs increased 50 basis points to 14.2% due primarily to higher cost of third party delivery fees, partially offset by decrease in restaurant supply occupancy costs decreased 10 basis points to 8.4% due primarily to 11 net locations that closed since second quarter 2018, partially offset by sales still average general and administrative costs increased 60 basis points to 7.1% of total revenues due primarily to professional and legal fees selling expenses decreased 40 basis points to 4.4% of total revenues due primarily to a decrease in media spend.
Preopening costs decreased $2.6 million due primarily to the suspension of restaurant openings net interest expense and other was point $2 million lower versus the prior year due primarily to a gain in our deferred compensation plan assets compared to a loss in the same period a year ago. Our weighted average interest rate was 5.2% our effective tax rate was a 106.5% benefit and better than the prior year due primarily to lower income.
During the quarter, we recognized other charges of $16.8 million, which included $14.1 million, an asset impairment $1.2 million and board and shareholder matter costs $1 million in restaurant closure cost point $4 million and executive transition and severance costs and point $3 million an executive retention.
Q2, adjusted EBITDA was $25.5 million as compared to $28.8 million in Q2 2018.
Q2 adjusted earnings per diluted share was one dollar and three cents as compared to 46 cents in Q2 2018.
Now turning to the balance sheet, we invested $10.8 million in Capex in Q2, which was primarily related to facilities improvements corporate and system costs and new investments in information technology.
We ended the quarter with $26.2 million in cash and cash equivalents our lease adjusted leverage ratio was 4.3 times and we were in compliance with all debt covenants. We also recently amended our credit facility to provide greater financial flexibility.
During the quarter, we paid down $2 million on our revolving credit facility, resulting in a quarter and outstanding debt balance of $180.5 million. In addition to letters of credit outstanding a $7.4 million.
We also bought back approximately 17000 shares for a total of approximately $2.5 million. This is consistent with our initial goal of offsetting the dilutive effect of our equity compensation program over the course of four quarters as we utilized cash flow primarily to reinvest in our business.
While we returned the business to sustainable growth.
As we announced in our first quarter 2019 earnings release, we closed 10 locations during the second quarter year to date restaurant revenues totaled $6.1 million and year to date pre tax operating losses totaled $1.7 million, including an immaterial amount of depreciation expense.
All related leases allowed us to go dark and we are actively pursuing all sublease and lease termination outcome and are making good progress we remain focused on improving the financial performance of other underperforming locations. While we continue to assess our real estate portfolio pursue negotiated rent concessions and pursue catering and targeted marketing and sales building strategies for restaurants once they improved their operation.
Turning to our 2019 expectations, we have affirmed our same store sales and adjusted EBITDA ranges, an updated Rs gionee net income and EPS expectations based on year to date results and updated forecast and tax estimates.
From a cash flow perspective, we are currently anticipating full year cash tax payments between $3.5 million and $5 million. In addition, we are anticipating concluding several lease termination agreements related to our closed restaurants in the third quarter.
Consistent with what we indicated last quarter, we continue to expect an improving trajectory of comp store sales in the back half of 2019.
This is due in part to continued improvement in our operations execution, Walkaways and ticket times as well as the impact of our new brand campaign. We are also lapping LIBOR weaker performance in the prior year and our shift in promotional strategy continues to.
On our Pp Hey, we continue to expect higher third party delivery sales.
Clues higher organic growth added delivery coverage to more restaurants with legacy service providers and we recently added a new service provider to the majority of our system, replacing tablets with Pos integration and sticky media should improve accuracy and execution in the restaurant further supporting our third party and carry out channel. We are also in the process of testing outsourced last mile delivery for orders placed by our guests directly with red Robin, allowing us to control the ordering experience retain order and guest history leverage our royalty platform and lower costs associated with third party delivery market places.
Catering continues to be a bright spot in terms of current growth and long term potential we have welcomed a new catering director with proven experience building catering programs developing product and implementing successful marketing strategies.
We've also added sales team resources increased focus on driving business to business national accounts.
Handed our beverage offerings, including core carbonated Fran.
So let me wrap up by thanking all of our team members in the field and that the home office for their focus and tenacity and building. The momentum that is currently underway with that I will turn the call back to Patty.
Thank you Lynn.
I'd like to close by saying what a privilege. It is to work with the Red Robin team members in our restaurants and home office I'm. So proud of their significant efforts their collaboration and their perseverance in turning around the business and as I said earlier I am very encouraged by the improvements that we are seeing across the board in the business.
Before we begin our Q and eight I want to note that the purpose of today's call is to discuss our Q2 operational and financial results and we ask that you focus questions on these topics and now we would be happy to take any questions.
Thank you.
We will now be conducting a question and answer session if you'd like to ask a question today. Please press star one on your telephone keypad and the confirmation Telmo indicate your line is in the question queue.
You mean press star two if you like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
Thank you. Our first question today is from the line of Gregory Francfort with Bank of America. Please proceed with your question.
Hey, thanks, Thanks for the question.
I just had two questions one on the comments on the start to the third quarter can you tell us what that was going up against and kind of what the comparison is as you move through the quarter and then the other question I had is just on the mix in the quarter and.
I guess most of that was probably driven by the lower.
Kind of value focus and do you expect it to mix to stay at the 230 basis points going forward or should we expect that to kind of temper as you move through the year. Thank you, yes, well, we are lapping a softer period as of last quarter or last year in the third quarter. So we are seeing the benefits of that comparison, but we also are seeing momentum we believe.
Combining both the operations execution and our new marketing campaign.
The P.P.A. increase we've seen.
As a result of the change in the promotional strategy and we do anticipate a continuation of the positive effect on PPA as we move forward through the quarter.
Got it and then maybe just on the the manager staffing levels can you just go into a little bit more detail on what happened in terms of why that slipped and then.
What you've done to kind of build that back up recently.
Well Theres nothing really fancy about what we are doing Greg is just focusing on making sure that we we put the right people in place and solve the churn and moving people around.
We found as as would be the case with most casual diners highest correlated factor to good performance in our restaurant as the tenure of the general manager in that restaurant and so big focus for us not only just to get staff, but also to reduce the amount of churn that we have within our restaurants.
Thank you very much.
Our next question is from the line of Alex Slagle with Jefferies. Please proceed with your question.
Okay. Thank you.
Good to see the improving trends in the business and another follow up on that question date improvement in same store sales that youve seen is that.
Hi, I guess coming from a better sequential improvement in traffic or check in and then also how much of that is related to the higher media spend year over year, and then new creative do you think.
Yes, there is positive momentum in terms of guest traffic and we do believe that our new campaign is helping to garner this improvement in our comp store sales trajectory.
And then.
Did the tavern double mix have you mentioned the percentage of sales that is.
Sorry, but in the second quarter on tavern was a little below 10%, Max which is down considerably versus prior quarters, which we had I think 16% to 17% mix last year. So it's come down considerably.
Okay.
And if there are any other dynamics or our metrics you could provide to us just to give us an idea of how this value strategy and the discounting levels impacting traffic and how that sort of offset by all the improved operational and guest experience levels, you're seeing just.
You know any metrics in terms of the magnitude of these factors.
Well, what we like Alex about what we're seeing is.
We believe that that this uptick we're seeing or improvement that we're seeing is more sustainable and its longer term in nature. You recall in 2017, when we saw the improvement in traffic a lot of that was with the specific price point.
National Media heavy focus on tavern, which of course did attract traffic, but it comes at lower profitability levels, and perhaps attracts a little more detail chasers.
What we feel like we have today is.
You know the partnership of all the departments as Patti mentioned earlier.
Focused on hey, this longer term stable operational metrics a message that we have on air that we feel leans into exactly what mix Red Robin specialists connection are on the table, particularly for.
Middle class.
Household income families.
That focus we believe is one that's more sustainable than trying to guess on meeting with a call to action on a lower price point national message.
Got it thank you.
Thank you.
Our next question is coming from the line of will Slabaugh with Stephens. Please proceed with your question.
Thank you.
If you talk a little bit more about how you're thinking about your value platforms. Today I know in the past we talked a lot about the tavern platform at 699, and it sounds like Thats being deemphasized at least somewhat and then I know more recently you talked about the potential of a test at $10. So I wonder if you could give an update there and then just at the same time, but most of your peers are kind of bundling.
Neal's around that $10 slightly above price points I was wondering how you you see red robin fitting into that landscape as if from a value platform standpoint.
Yes, absolutely. This is Jonathan can chime in on that.
Yes. So you are kind of building off of Gary's comments, what we hear from our guess is that value really starts with great product and experience and those are measured against the price paid.
And we have an attractive positioning in the market, we are lower priced or average truck is lower than our casual dining competitors and so as we improve the experience and the product that we're delivering to our I guess, that's we believe that it's going to really pay off and increased value perception from our guests at the same time, we get high marks for a bottomless promise. So we're leaning in there. This is something that we've had for over 20 years, but there's upside on awareness based on our research.
And so.
And so and put our guests that are aware of it love. It. So we're leaning in harder there featuring our about our bottomless promise with our new advertising campaign and then finally, what I'd say is our loyalty program continues to work really powerful for us and we're just enhancing our capabilities there.
And Thats, where we can go out with these segment.
First to our guests as well the $10 bundle on a local basis has done well for us it performed well again in the second quarter.
So we're looking at that on a selective basis for markets, where we feel like it's a good fit.
And to be specific there in terms of the.
The market focus strategy, we're focusing now.
More on our markets, where we have those high osats scores and we're delivering that great experience for our guests. So that we can really start to get that that feedback loop with gas that visitation frequency up.
Where we're performing well and thats been a great incentive for our field as well.
They up their performance they are getting more of that marketing support and we get that virtuous cycle going.
Got it and then just a follow up there.
How we should be thinking about traffic given the current strategy.
Obviously, you gave up a little bit of more traffic than.
Then you had the path as you as you sort of.
Realign some strategies this quarter around value should we think about.
Traffic being in a similar range and I know, obviously, you're implying better results going forward, so moving up commensurately, but wondering if we should.
Should be expecting fairly soft traffic in the coming quarters as you sort of we see this strategy play out.
Yes, I'll chime in there I think we do expect traffic to still be a little bit soft in the third quarter, but we do also expected to improve.
And as we get out to the fourth quarter as you know we had on average.
Discount messaging last year, and so that did have an impact in the fourth quarter and that we believe will impact our traffic. However, it will positively impact our PPSA.
Okay. Thank you.
Our next question is from the line of Peter sit with BTG. Please proceed with your question.
Great. Thanks.
Again, I want to come back to the labor turnover commentary.
Could you just give us a little bit more color on the hourly labor.
Turnover, we're just stand this quarter. It is just the first quarter that you've seen an improvement or is has been an ongoing trend.
More recently.
Yes, it's been an ongoing trend since really the end of 2018, Peter So weve steadily seen our trailing 13 period hourly turnover decline what we've seen a decline at the manager and the general manager level too.
It's declined more quickly at the general manager and manager level, because that's where we focused our attention first.
Because.
Our view on that is that the hourly turnover follows having lower manager in general manager turnover, we can get stability at the lead positions in the restaurant.
That will help us reduce hourly turnover. So we're starting to see that gain even some more momentum now in the hourly turnover side.
But we're as I mentioned on my comments were close to best in class levels on a general manager and manager turnover were better than industry averages on hourly turnover not as close to best in class levels, but we feel like we're on our way.
Great and then any any comments you guys can provide on.
The refranchising initiatives that we've been talking about it feels like for a couple of years now and.
No that goes hand in hand, with the search for a new CEO .
Yeah, I'll just comment on it we do continue to have discussions with interested parties, but as I said in my opening remarks.
We expect a new CEO to come in and work with the management team review the Cypress report and then develop a go forward strategy.
All right. Thank you very much.
Thank you. The next question is from the line of Chris Ocull with Stifel. Please proceed with your question.
Yeah. Thanks, good morning.
Yeah, I don't know if this is to gear land, but the company has a history of shifting promotional strategies from value to premium back to value with the pendulum swing between traffic and margin. So well I guess my question is why was this time be different or maybe what initiatives have you tested that really gives you confidence traffic and improve with less focused on the tavern double value platform.
Hi will this is Jonathan I'll I'll I'll I'll jump in on that so as we developed our new campaign, we spoke to consumers quite a bit did not ethnography research spend a lot of time with our guests and and so our current strategy is really based on what we've heard from them. We do know as we've shared that our service experience had slipped over the past year or so and they encouraged us to focus on that that's what they love most about our brand they love the great experience they have at Red Robin over great food and the connections that they make with each other and so that kind of reminding them of what they know and love about Red Robin is very motivating to them and then the value stems from that experience it stems from the great product.
As I said, we do have a lower checkpoint there one thing I'd say about tavern and the mix of our burgers is that we feel like we have a good balance we haven't abandoned it as Lynn said, it's still about 9% of our mix. So we have that great tower and for those who are looking for that lower price 0.6, 99 799, we have that available. We also have our finest line available at those higher price point and the bulk of our.
Ranges in that middle Gourmets.
Section of our menu. So we're still offering a great value for our guest across our menu.
Okay. This is Patty let me just add two things to that one is as Jonathan said, we do see opportunities in local markets. If they improve their operations and guest experience is to give them additional marketing can lean in and then we believe our real opportunity is with our 8.5 million royalty members could do targeted and specific offers to them based on the specific customer group and Thats, a real opportunity to deliver.
An additional value message.
And I apologize if I missed this but did you did you say, whether you expect selling expense to be up year over year in the second half of the year or how should that look.
I guess when the back half of the year period the first.
Yes, I don't believe we said set but I'm happy to answer the question.
We are planning to be up.
Year over year in the third quarter in terms of our media spend and the media spend is certainly helping to introduce our new campaign and helping to build the momentum. We believe we'll see through the balance of the year, our media spend will be a little bit down year over year in the fourth quarter, but fairly calm comparable.
And then for the full year the fairly comparable.
Yeah for the full year I think we are going to be down.
Down just a little bit year over year.
Great. Thank you.
[laughter].
Our next question is from the line of Stephen Anderson with Maxim Group. Please proceed with your question.
Yes, good morning, I wanted to clarify some of the common says you made about potentially taking more of the delivery of picking up more in house or do you have any mind, how many restaurants, you would like to do that at and what kind of capital improvements or any capital purchases you made like safe like for extra delivery trucks, you would need to make all this happen.
[laughter].
Oh, yes.
Well actually can you just repeat the question. Please yes I wanted to clarify a comment you made about maybe taking some of the delivery maybe seeing more of that or more in house as you mentioned about having more ownership of the data on customers that you may see to the third party delivery providers, but one of the asset will have a capex said requirements. You beat you would need to make that happen and how many locations.
Well, we are currently testing the program on the capital allocation for that isn't a great amount I think where we're spending more capital as we think about going into next year is really you know in the lobby of our restaurants and helping to facilitate you know, allowing those delivery drivers to come in and efficiently you know pick up the meals with which they're delivering and this is Patty Lynn let me clarify when we talk about last mile delivery, we're not talking about doing self delivery.
With our own drivers, we're talking about contracting with a third party. So that it is a seamless the customer goes to our website. They order from our web site. They then get it delivered by one of the third parties, but we retain the customer data, we can get them in the royalty program and so its something that other concepts are working on as well and they call. It last mile. So its not self delivery, but red Robin controls most of the process.
Thank you.
As a reminder to ask a question to you May press Star one.
The next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.
Thank you and good morning.
Just wanted to circle back on the on the second quarter comps and then some of the details there. So in the second quarter pricing Lynn what was gross versus net how much pricing did you take in the quarter and what are your expectations on menu pricing specific.
Okay. So so menu pricing in the second quarter I think we said was that a 2.6% for the second quarter and then we'll be lapping some pricing that we took in the prior year, we took 1% and P. 11 last year and so for the second half of the year will be closer to about 1.8% in pricing.
So that will bring the year to about a little over 2% for the full year.
Okay and you said the two six was was was net was gross you know to nine or three then ER given kind of historical discount impact on pricing.
Yet the gross was for nine.
Gross was for nine okay, and circling back to quarter today, Yeah, you mentioned that the traffic has improved sequentially, but I think you also said there was an easier compare I guess just so we're on the same page would you be willing to provide traffic can track within that down 10 basis points quarter to date, and if not maybe comment on sort of what you're seeing from a two year traffic perspective, compared to where you were in Q2.
Yeah, our two year or Q3 traffic on a two year basis is trending fairly similar we did have a promotional print promotional item I'm in the second quarter of last year. So that did further negatively impact the second quarter results, but absent that effect, we are seeing a continuation in Q2.
I did want to clarify so on a on a a net sales basis, we've got pricing of 2.6% for the current quarter and then our menu mix was 2.3%. So that was that 4.5% that I mentioned earlier.
Right and I was asking purely about net versus gross just in pricing ex but we can follow up offline, that's fine and moving on I guess to the server handheld rollout Brian I'm. Sorry go ahead, I guess same boat both net and gross are the same.
Okay, Great Greg I'm on the server handheld if I just ask one more and so I think you mentioned a third of the units of could you talk about sort of the the get sat scores in the throughput that you're seeing in those units are you seeing an outsize list.
Relative to the rest of the system and then maybe comment on any efficiencies or labor cost savings you are seeing from the server handhelds. Thank you.
Brian It's a little early I think to weigh in on a on.
Where we are with the handheld what where we think we will see the benefit though.
As we do think we'll have better server attentiveness, because our servers will be able to stay on the floor more as opposed to having to go back to the point of sale system, Dan The order.
We think will waive the kitchen less frequently so as you would be aware sometime servers will take multiple orders before they go back to the Pos and answer them all at once of course, when they have a handheld they order the they place the order as they get it which helps pace the kitchen allow them to execute.
Better as well, we're not anticipating making further labor productivity changes around the servers, we feel like our labor productivity is already high compared to the rest of the industry and so we feel like these in addition to some other things we've done our tools to help us execute better and that are contributing to these improved guest satisfaction scores that you're seeing.
All right. Thank you.
Thank you.
Our final question. This one comes from the line of Stephen Anderson with Maxim Group. Please proceed with your question.
Yes, it's just as a follow up question as you start to think about maybe.
On a year or two out.
So with regard to.
Potentially a new prototype that's why I asked if you've seen any donnie progress.
Got into a new model that maybe.
I have a little bit less dynamic and more of an off premise component.
To Steven this is Gail respond to that you know as as you would know Stephen following the industry for a long time, the most expensive part of the building is the kitchen.
Building, the dine in and sort of revenue generation areas is actually the least expensive part of the building. So I don't think in a new prototype will be looking to reduce the amount of dine in but we certainly would look for ways to improve our ability to execute on the off premise business.
Yeah, its 12.5% right now depending on who you listen to you know those those percentage numbers could go higher just based on whats happening in the industry and the popularity of off premise. So I think as we think about a new billing me to think about how we could handle an off premise mix that might be considerably higher than what it is today.
Got it thank you.
Thank you.
Ill now turn the floor back to Mr. Moore for closing remarks.
Alright, Thanks again, everyone for joining us today, and we look forward to sharing our third quarter results with you in November Thank you.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.