Earnings Call: Q2 2018

Jan 30, 2018

Good morning, ladies and gentlemen, and welcome to the Brinker International Q2 Earnings Call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Micah Ware. Ma'am, the floor is yours. Thank you, Kate. Good morning, everyone. This is Micah Ware, Vice President of Finance and Investor Relations, and welcome to the earnings call for Brinker International's Q2 fiscal year 2018. Results for the Q2 were released earlier this morning and are available on our website atbrinker.com. Wyman Roberts, Chief Executive Officer and President and Joe Taylor, Chief Financial Officer, join me this morning here in Dallas. During the comments portion of the call, Wyman and Joe will provide a more detailed overview of the Q2 and will update the progress of our strategic initiatives underway at the company. Of course, before we begin our comments, please let me remind everyone of our safe harbor regarding forward looking statements. During our call, management may discuss certain items, which are not based entirely on historical facts. Any such items should be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. Additionally, on the call, we may refer to certain non GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. Now I will turn the call over to Wyman. Thanks, Micah. Good morning, everyone, and thanks for joining us to review our Q2 performance and highlight the next steps in our Chile's turnaround strategy. From an earnings perspective, 2nd quarter was solid for us, Taking into account the benefit of the new tax structure as well as the growth in our business, Brinker delivered adjusted earnings per share of $0.87 Looking ahead, while the lower tax rate will help our earnings, we will also invest back into the business by accelerating our reimage project and we'll invest in retaining and attracting top talent with performance based bonus incentives and new benefits like our advanced education program, which offers team members opportunities ranging from English as a second language all the way to an associate's degree, all at no cost to them. We just introduced the program and we're already seeing a lot of interest. We're excited to offer unique benefits that differentiate our brand and attract team members who are passionate about delivering a great guest experience. When we look at our business on an apples to apples basis, net of the tax impact on the quarter, we saw good earnings growth with Maggiano's strong holiday season leading the way. Maggiano's delivered record sales during the brand's most important quarter, up 1.8%, driving improvements across the business, dining room, banquets, takeout and delivery. We also turned the corner on our global business, returning to positive sales despite ongoing headwinds in the Middle East. At Chili's, this was the 1st full quarter in our turnaround strategy and we continue to see sales and traffic trends move in the right direction. Operations execution is improving and we're delivering food faster and hotter. We've cut the number of our longest ticket times by half and we're seeing meaningful improvements in our key guest satisfaction metrics. And our teams appreciate the simpler menu and back to our route strategy as we've seen decreases in turnover and stronger engagement scores. So we're encouraged by the momentum, but we're not satisfied. As we continue our laser focus on bringing back guests with higher quality food and better service, we're also pushing harder to strengthen our overall value proposition and give consumers even more reasons to come back to Chili's. Moving forward, we're dialing up the intensity on key aspects of our business we believe will increase relevancy and drive top line. For example, we still have marketing power to bring to bear, especially in the digital space. We're already recognized as a digital leader in the category with our cutting edge Chili's app and digital curbside platform. And with the recent promotion of our Wade Allen to Chief Digital Officer, he and the team will leverage the infrastructure we've built to elevate our ability to connect with guests. We believe there's significant white space here to further differentiate our story and increase our traffic momentum by targeting consumers uniquely with offers that meet their specific needs and compel them to visit Chili's more often. A great example of the power of digital marketing is a growth we've seen in our to go business. We delivered positive to go sales during the Q2 driven by double digit increases in online ordering. And now that the franchise system is on board, we have significant upside potential with the to the go business. Starting in the back half of the year, will leverage the power of our national marketing channels and focus our teams on delivering a great to go experience. We also recognize the increasing importance of delivery to our guests. We've learned a lot over the last 10 years since we've developed our own delivery model with Maggiano's. We've driven year over year growth every year since we started. And now we're taking the Maggiano's knowledge as well as work we're doing with multiple third party vendors like Amazon who can leverage our shared Olo platform to develop the most efficient model that delivers a great off premise Chili's experience. And just like with the Go, once we get the model right, we'll aggressively drive that daypart. We've taken a similar strategic approach to dayparts with the introduction of our simplified menu. We're seeing solid momentum in our dinner and weekend business and now we're working to build our lunch daypart. We know we can better meet the challenging needs of today's lunch users. So we've developed new food and operational enhancements to deliver more compelling value for lunch guests, which we are implementing starting this quarter and supporting with national marketing efforts. We're also continuing to improve the quality of our food as well as pursuing product innovation targeted around burgers, ribs and fajitas. We believe infusing new news into our core menu will preserve the simplicity in our operations while attracting new guests and giving our loyal guests reasons to return more often. And for the past year, we've been working to develop a new look for Chili's We've created a remodel that delivers a more relevant atmosphere and meets our return hurdles. We're able to use some of the incremental cash generated from tax changes to accelerate this program, while still maintaining our dividend and share repurchase targets. So starting in Q1 of F 2019, we're investing in a brand wide reimage program that will impact every restaurant over the next 3 years. What I'd like you to take away from today is that we're excited about the work we're engaged in. Everyone in the organization is focused on delivering a better guest experience and driving traffic at Chili's. And now I'll turn the call over to Joe to give you more insight into the 2nd quarter results. Joe? Thanks Wyman and good morning to everyone. Let me continue the overview of our Q2 by providing additional insight into our operating performance, highlight some of the more meaningful tax reform impacts and update certain aspects of our annual guidance due to those impacts. The Q2 marked the implementation of the Chili's turnaround strategy focused on food investment and a simplified menu. In addition, it was an important quarter for Agiano's with the continuation of their menu strategy, enhanced banquet offerings and more aggressively promoted carryout business. Both brands' efforts in the quarter combined to support solid earnings performance with reported adjusted EPS of $0.87 including approximately a $0.10 positive impact from the change in our effective tax rate due to the recently passed tax legislation. Factoring out this rate change and the other adjustments related to the tax legislation, our adjusted earnings per share would have been $0.77 for the quarter, an improvement of 8.5% when compared to the Q2 last fiscal year. Since I've already started the discussion of the tax legislation impact, let me highlight a couple of meaningful aspects of the legislation for us. First, our GAAP earnings include a provision charge of approximately $8,700,000 adjusting the valuation of our deferred asset accounts to reflect the reduction in the statutory rate. Next, and as you know, the U. S. Statutory rate decreased from 35% to 21% effective January 1. Now for June 2018 fiscal year taxpayers such as Brinker, the statutory rate for our current fiscal year is a blended 28%, basically half the year at 35% and half at 21%. As a result, we now expect our effective tax rate for this fiscal year to be between 20% 22%, down from our previous guidance of 27% to 29%. I would note the 2nd quarter ETR of 19.5% is slightly below what we expect for the remainder of the year and that includes a provision benefit effectively cashing up the provision for the higher ETR expense in the Q1. For comparative purposes, had we been able to benefit from the new statutory rate of 21% for the entire year, our effective rate for this year would be would have been in the 14% to 16% range. Lastly, our earnings per share will increase this fiscal year as a result of the tax legislation. As such, we are increasing our fiscal year earnings per share guidance range to be $3.42 to $3.52 up from our original guidance range of $3.25 to $3.35 This new guidance range reflects the utilization of a meaningful portion of the tax change benefit for this year for team member compensation and support programs as Wyman highlighted during his remarks. Now that we have likely set an all time record for the time devoted to tax during an earnings call, let me provide some insights as to the earnings performance reported this morning. For the quarter, Brinker reported comp sales of negative 1% based on brand comp sales of Maggiano's positive 1.8% and Chili's negative 1.5%. I would note the weather impact for the quarter was approximately 20 basis points for each of these figures. These results represent a change in the trajectory of our sales and are supported by sequential traffic improvement from the Q1 of 2.8% at Maggiano's and 4.3% at Chili's. Underlying those numbers, we improved traffic at Chili's in the important Thursday to Sunday timeframe by more than 5%, driven by the initial effectiveness of the strategy at dinner for those days. As Wyman indicated earlier, the improved performance of Chili's is encouraging for this initial quarter of the strategy. However, we are not satisfied with the pace and level of the improvement. We believe the initiative Wyman initiatives Wyman described will build on the initial momentum and more aggressively grow sales in the second half of the year. Further down the P and L, restaurant operating margin of 14.9% for the 2nd quarter decreased year over year by 20 basis points, primarily due to our food investment and increased hourly wage rates. The impact of wage rate increases, both merit and market inflation, during the quarter was approximately 60 basis points, partially offset by savings from employee healthcare and managerial bonus accruals, resulting in overall increase of 40 basis points for restaurant labor when compared to the Q2 of fiscal year 2017. Cost of sales were in line with our expectations, resulting in an increase of 20 basis points. Investment in our core food equities and a mix shift to those items as a result of our new menu were the principal drivers of the increase. For the quarter, we generated $43,000,000 of free cash flow, bringing our year to date total to $71,000,000 During the quarter, we repurchased 947,000 shares ending the quarter with 46,900,000 diluted weighted average shares. Our quarter ending adjusted leverage ratio was 3.8%. In conclusion, the 2nd quarter is most notable for the start of the turnaround strategy for the Chili's brand. Much planning, research, training and operational alignment went into the efforts to refocus the brand around its strengths. The Brinker leadership team is thankful to the many teammates who have worked tirelessly to formulate and start implementation of the strategy. It's been a good start, but we have much work still to do to build on the initial momentum. Sequential improvements and positive sales growth are central to our plans and we believe very attainable. Now with our prepared comments complete, let me turn the call back to Kate to moderate your questions. Thank you. Ladies and gentlemen, the floor is now open for questions. And our first question today is coming from Sara Senatore. Please announce your affiliation and then pose your question. Hi, thank you. It's Bernstein. And I guess I just had two questions. One is just trying to understand, you said you're pleased with seeing some improvement, but perhaps not satisfied with the pace. Could you maybe quantify that? Is it just where you thought your comps would be in the quarter versus where they ended up? Is it about a gap to the industry? Are there other metrics that maybe you can talk about in terms of what you might have expected versus what materialized? And then what the specific initiatives that you mentioned that address those? And then my second question was just about the margins. And again, I know you've talked about kind of offsets to wage inflation. I just I'm very impressed at the ability to manage expenses so tightly. Could you maybe remind us a little bit about what you've done around in particular labor? I think you've talked about just scheduling and that kind of thing, but just a little sense of whether it's reducing labor hours or just being more efficient and how much more you have on that front? Thanks. Okay. So let us unpack that and let me start with the second part of your question. We'll go back to the first to move through it. Again, our operators continue to do a very effective job in the restaurants of particularly managing labor and their overall expenses. It's not just the labor line, it's across a number of restaurant expenses. We give them a lot of tools to do that. We develop business rules that help in that capacity. But the in restaurant performance has helped maintain those margins as we kind of move through this environment. We obviously can continue to look at opportunities. We've talked in prior calls about the handheld devices and things of that nature that can help us as we move forward. And we're going to continue to look for those opportunities where they present themselves. And Sarah, this is Wyman. Just on the kind of the overall kind of how do we see it. It is we are encouraged about the changes we've seen with the implementation of the Chili's turnaround strategy. We have fundamental belief that improving the quality of the menu and the food was central to moving forward and delivering more consistently, especially on the hot and fast metrics. And we've seen the directional movement that we were looking for in the business on both those key metrics. So our metrics around hot and fast and around traffic have both improved. We'd like to see more and we think as we mentioned one example is the lunch day part that's not moving and needs to be probably more specifically addressed and that is going to happen this quarter relatively quickly here. The initial introduction of the menu was much more dinner focused. So not unexpected, but just kind of continuing to move down the path towards the strategy of making chilies much more compelling around a food based, more consistent delivery proposition. Just to clarify, so the dinner business was kind of in line with expectations. This is maybe the lunch day part that was a little bit of a laggard versus what you had hoped? More so, yes. Okay. All right. Thank you. Thank you. Our next question today is coming from Will Slabaugh. Please announce your affiliation, then pose your question. Thanks. It's Stephens and apologies for my voice. Is there any way to parse out the lift you got from the new menu versus the industry getting better in the quarter, especially as it relates to traffic? And then the second part of the question, can you talk about value on the menu after the change of this quarter? And if this means kind of what you saw tells you that you need more everyday value on the menu just given that the traffic is still lagging a little bit? Well, I'm not sure I've tracked on your first part. Sure. Any way to parse out the lift you got from the new menu versus just the industry getting better in terms of your sequential improvement? Yes. No, I think from a traffic perspective, yes, you can do the net math and see that there is an incremental difference between our traffic movement and the industry's movement, and where we were trending with the industry prior to the rollout. So yes, we've definitely outperformed where we were relative to the industry pre versus post rollout. Again, we've got work to do. We're continuing to put initiatives in place that will close the gap from an absolute perspective, but we definitely have seen movement on that metric relative to the implementation of the menu. From a value perspective, we do have we have seen some we've seen guests have told us that they're recognizing the improvements to the menu, especially on key categories. Again, burgers, ribs and fajitas, the work that's been done to improve the quality of the burgers has been noticed and we're selling a lot more burgers. And so those are things that will continue to gain momentum, we believe, as more and more guests get exposed to that. And that's one way the value proposition is being enhanced. We're looking at other ways, investments back into quality of other parts of the menu as well as pricing strategies and promotional strategies. So all of that is still in the works. Specifically, again, that lunch day part that we've talked about has yet to really be addressed and again that's coming. Thank you. Thank you. Our next question today is coming from Gregory Francfort. Please announce your affiliation and pose your question. Hey, guys. Two questions. Just the first is, I didn't see an update in the release on the full year guidance on comps. And does that mean you guys are still expecting it to get to flat to up 1%? And sort of what do you think is the trajectory of how we get there? And then my second question is just on the nonproductive media. I know you guys have been making a move to remove some aspects of that and reinvesting the savings back in the business. Can you remind us, sort of what impact that's having on the restaurant expense line and then when that program was started? Greg, as it relates to your first question, we obviously are very aware of the challenge and the build in the back half of the year. It's a competitive market and we're very understanding of the lift we have ahead of us. We are focused on the opportunities, the initiatives that we discussed today for growing traffic and growing sales as we move through the next year, and that's where we're going to keep our focus to build the business. And the second question? It was just on the nonproductive media and removing that and the timing of it and maybe how much you're saving on the restaurant expense line from that? Roughly, Anna, it's in that 10 basis point range for the quarter when you look at the accrual. Remembering we have an accrual based expensing system for advertising. Got it. Thank you. Thank you. Our next question today is coming from Jeffrey Bernstein. Please announce your affiliation, then pose your question. Great. Thank you. Calling from Barclays. Two questions. Maybe just one talking about the fiscal 2018 guidance. So it seems like the fundamental components are unchanged with the flat to plus 1% comp, which I'm guessing you're hopeful that then you could be doing a 2% plus comp in the back half to achieve that. If the fundamental components are unchanged, I'm assuming that the increase to the earnings guidance is purely I think the midpoint was like $0.17 increase was purely tax. So I'm just wondering if I think in the Q2 you said it was I think it was $0.08 or $0.09 benefit from tax. Presumably there was no reinvestment made. So should we assume the remaining $0.08 or $0.09 in the back half is evenly split between the 3rd 4th and that the offset is what you're talking about in terms of significant labor reinvestment? Is there any way to quantify that? I think the timing that you're referencing, Jeff, is applicable as you go forward. And yes, Jeff, is applicable as you go forward. And yes, the reinvestment piece of the equation would take place in the second half of the year since it's obviously been designed since the tax reform passed near the end of December. So I think you're on pace with the timing. Got it. And then just the can you maybe provide a little bit more color on the remodels? I think you said a good portion of your tax savings going forward would be to start this aggressive 3 year remodel program. So I'm just wondering any insight, I think you said you had a good template already. So what the costs of that are, maybe the sales expectation, whether or not you have the franchise buy in for whatever number of units they're going to be doing? Any color on those remodels would be great. Hey, Jeff. Wyman, I probably won't give you as much color as you're asking for here because we're just moving it forward. It's a program that we've been working on really over a year. We've been keeping you up to date. Got almost 40, 50 restaurants now finished in the New England area and we're seeing good returns on the investments we've made. With regard to how much of the tax savings we'll invest, it's not a significant amount. It's not going to change our capital structure that much. So we don't see this as changing models, if you will, from a cash flow standpoint in a dramatic way. We won't start the reimage program until the Q1 of 2019. That's when we'll actually start building them out. Right now, we're permitting and getting ready. But we're excited about the look. We're excited about the returns we've seen and the ability to kind of keep the brand relevant and keep reinvesting back into the Chili's to stay competitive. And the franchisees are totally engaged and aware of the remodel program. We haven't yet mapped out kind of the rollout for them. Jeff, I think underlying your question probably is a thought process as to what does it do for go forward capital expenditure programs, which we'll deal with obviously when we get into the fiscal 2019 rollout and the guidance we provide for that. But one of the things I would let you know is, one, there is some incremental cash benefit obviously coming from the tax piece of the equation, which does allow our capital allocation programs to remain, fairly consistent, and our thought processes there. You also have remember this year already in our CapEx budgets roughly $20,000,000 of this year is associated with the reimage program that Wyman mentioned, primarily the New England restaurants. Typically, when you get into a reimage program, there are some dollars that support that program for your from your R and M side of the equation. So I think when you if you're thinking about CapEx, there are already dollars in our CapEx budgets today that will support a meaningful amount of that reimage spend as we move forward in addition to some of those cash savings from the tax side of the equation. Understood. Thank you. Thanks, Jeff. Thank you. Our next question today is coming from Karen Holthouse. Please announce your affiliation then pose your question. Hi, this is actually Jared on for Karen with Goldman Sachs. Just a question on the remodels again. So the remodel push last time, CapEx averaged about $150,000,000 a year. Is that a fair ballpark to think about the spending over the next 3 year push? And how does that fit into some of the testing you guys have done around your bar remodels? Jared, good morning. Again, I don't want to get into specifics as to go forward CapEx. You're accurate in your assessment from the prior program. But again, I think as we have indicated, a meaningful amount of the spend we would anticipate it is going to be supported by current levels of CapEx spend that we do and the ability to shift some of those dollars around those buckets and the tax level. So we do not view incremental CapEx spending getting out of line in any way, shape or form. Okay. Go ahead. Yes. If I could just switch gears a little bit then. You guys mentioned a double digit increase in online spending helping to go. Could you frame that for us a little bit and remind us kind of what your current to go mix is and how much the ordering has migrated online? And how you think that kind of compares to what your peers have been talking about maybe a little bit higher? Again, I think, well, from a total mix standpoint, we're pushing up into the high 10s, 10% range is pushing towards 11% from a total mix stand. And a lot of that improvement is driven off of the mobile ordering application that we put in place. So we've been running double digit increases in that piece of the business, feeding the positive gains we're making on the to go side of the equation. We have a relatively good base to start from, I think larger than some peers, not as large as some other peers, but it's a good base that we're growing off of and it's a positive growth that we're doing. And Jared, again, I think one of the key things there is we haven't put a lot of marketing support behind this yet. Getting our franchisees up on the system has been a priority. And now that they're there, we will start to put more aggressive at national advertising behind this, just getting the awareness out about how easy it is to order and pick up to go at Chili's. Thank you. Thank you. Our next question today is coming from Chris O'Cull with Financial affiliation, then pose your question. Thanks, Stifel. Good morning, guys. Joe, you mentioned 10 basis points of savings in advertising, but you provide some more detail on what drove the remaining year over year improvement in that line? And then do you expect a similar improvement the balance of the year? It's actually a number of different things that run across those margin accounts and restaurant expense. I mean, again, when I refer to the job that our restaurant management teams are doing, there's it really does run across advertising, R and M spend, some IT spend, things of that nature. So there's a number of things. The consistent one and the meaningful the most meaningful one is that on the advertising side of the equation, We would anticipate that maintaining itself as we kind of move through the rest of the year. Are you lapping any unusual comparisons on that line? Because I think last year you saw some pretty big increases as a percentage of sales, which may have been due to the comp. But is there anything unusual in the back half that you're lapping? No, there's nothing really unusual. And you're right, the deleverage impact was probably the more meaningful issue last year. And then one last one. I apologize if I missed this, but what do you expect the check average growth to be the remaining quarters of the year? Well, what we'll talk about, Chris, is just our pricing strategy, right? So we definitely know that last year was a more was one of the most aggressive pricing years for us for various reasons and we are focused on keeping our pricing in that 1.5 range, tighter than we've been in the last 12%. So that's kind of how we that's the biggest driver to our check increase. Now what we do promotionally, what we do from a mix standpoint, they can obviously also impact the check. So but just from a pricing perspective, we think getting past the more aggressive pricing and lapping on that is another key to getting the traffic momentum back and that's going to happen as we get more in that 1.5% pricing range. Okay, great. Thanks guys. Thanks Chris. Thank you. Our next question today is coming from Robert Derrington. Please announce your affiliation and ask your question. Yes, thank you. TILZI Advisory. A couple of questions, if I may. Wyman, as you think about the increased efforts at lunchtime to try and drive traffic and sales during that weaker daypart, is there some risk or have you tested is there risk that you may be cannibalizing your dinner sales, which have a higher check average? Well, Bob, it's a great question. The beauty of Chili's is the difference between price points on the base menu, well, on the menu at lunch and dinner are not that dramatic. The biggest difference, frankly, in the check is probably the beverage component, more obviously a lot more alcohol being sold at dinner. So, no, we don't worry about that. We also know that most people have a lunch restaurant and they have a dinner restaurant and their lunch restaurant tends to be closer to their work and their dinner is closer to home, which makes all the sense in the world. And so you're not trading out occasions as easily as I think it might appear on the surface. So now we've got a lot of insight into the lunch business. We've obviously grown the business nicely prior. We're seeing some what we're really seeing is some macro kind of demographic issues around how consumers are using lunch, daypart and casual dining. And so we're addressing those. And the value proposition, the speed, the consistency, all those things are critical and we're excited about what we're kind of bringing forward. Okay. Thank you. And Joe, question on the tax rate. Within the release, it talks about subsequent years the federal statutory rate being 21%. Is it reasonable to expect that you'll still be getting some FICA tip wage credits that should lower that effective rate more into that roughly 15% range? I think I indicated in my script that if we had had 28%, we would have been in that 14% to 16% effective tax rate. A lot of that driven obviously one of the major tax expenditures we utilize is the FICA tip credit. So it's probably more reasonable that we use a rate within that vicinity for our projections going forward in the out year. Obviously, without providing guidance, I would understand that utilization, yes. All right, terrific. Thanks guys. Appreciate it. Thanks Rob. Thank you. Our next question today is coming from John Glass. Please announce your affiliation and impose your question. Thank you. It's Morgan Stanley. I just have a few follow ups. First, just on the question of the reinvestment in wages and the P and L reinvestments, not the CapEx reinvestment. Did you in fact quantify what that will be? And do you think those are contained within year kind of as more one time? Or what's the ongoing nature of the reinvestment that you're likely to make? Hey, John. I mean, I think you can do the math and you could see it's in that 40% range in terms of reinvestment this year. The biggest component of that is an incentive program targeted at the restaurant operators towards the initiatives and the objectives that we're so focused on. So that and then we've talked about the education program as well, which is again, that's a more ongoing. So it's a little bit of both. Some of it is more in this year and we'll decide next year as to whether or not we continue that incentive program or we change it and modify kind of the annual incentive program. And then obviously, we're committed to the education program. So for the most part, it's mixed, gives us some flexibility into next year. Yes. And then the question on mix, the mix was lower than in prior quarters, and it wasn't clear your answer. Is that a function of the new menu, so mix will just be lower because you're trying to drive traffic even if it's at a lower mix average? Or is that just a promotional activity this quarter and that's an anomaly? I don't look at it as an anomaly. I think it will be more than the normal scenario moving forward. So again, it's a combination of menu and promotional activity, that we'll utilize as we go forward. Okay. And then just finally on the advertising front, you noted that there was less advertising spending in Chili's and there was some efficiency gained. But do you plan on the second half a greater amount of advertising to emphasize the new menu, the new products on the menu? Or is there a rate of change in advertising rate in the back half versus the first half? And John, what I want to be clear about is when we talk about the advertising savings that is based on the accrual nature of how we account for it on the P and L. So that's a we use an accrual basis that basically straight lines our advertising costs throughout the year as opposed to the actual cash spend. I think we've talked in previous calls that our campaign was designed for incremental spend in the back three quarters of the year with that savings on the spend in the Q1 and that plan is remains in place and will continue forward. John, I would say from a marketing perspective, the weight levels, which is really the most important thing, are comparable in the back half. But, we are really challenging ourselves on media mix. With the changes that are taking place in traditional broadcast TV, how much can you put into digital, how much can you put into social, how does it all play out to deliver the most effective and efficient marketing plan that we could come up with. And so team has been working really hard. We're trying and testing a lot of different approaches as to how we spend via marketing dollars. Got it. Thank you. Yes. Thanks, John. Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation and then pose your question. Mr. Farmer, your line is live. Okay. We lost Jeff. Our next question today is coming from Stephen Anderson. Yes. From Maxim Group. One thing I've noticed, taking a look at the Knapp Track and some of the other indicators, I've seen Texas has been an outperformer relative to the rest of casual dining. I just wanted to see if you can parse out what you've seen in Texas and some of the energy markets where you would lag in the last couple of years. Yes, Steve, great observation. We talked about the energy markets for far too long. It was actually nice to have a call where we weren't talking about the drag on energy market that we are actually seeing some rebound in those markets. So I think with the they had kind of started they started to stabilize and now with some lift in oil prices and I think just a better overall economy, you've got the unemployment rate and some better income numbers. It's playing out well in places like Texas and Oklahoma, and we're starting to see that. And obviously, when you look at our mix of restaurants, that's important. So we're excited to see those markets stabilize and actually now start to move themselves back into a growth mode. And also wanted to with the some of the proceeds gained from the lower taxes, have you discussed maybe potentially looking at some of your debt and maybe looking at paying down some of that? Steve, that's really not something we have looked at in the short run. I think we've talked about what we've done this year on the call. As we get into 2019, obviously, the tax scenario continues forward and we'll look at those a number of different opportunities. We're very comfortable with the leverage position that we're maintaining right now. So frankly, I would view that fairly far down the priority list. Okay. Thank you. Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation and then pose your question. Welles Fargo, I do have a couple of quick follow ups. So you guys have been offering the $6.99 burger and fries, I think, for roughly 4 months. I'm just curious, how have consumers been responding? Any surprises? And then from a second question perspective, just looking at your tax reform or the guidance for your free cash flow for FY 2018 in terms of thinking about how tax reform could impact that number or even a number in 2019, any guidance for us on that? Hey, Jeff, Wyman. Just on the burger front, we intro the menu back in October with 6.99 Burgers, but then we moved the messaging to fajitas in December. And so, the initial reaction to the 6.99 Burgers was great. I think I'd mentioned earlier on the call, our overall response to the changes we've made in the burger category, both in the increase in preference, number of burgers we're selling is up significantly and the guest response and feedback on the changes we've made to the burgers is very positive. So the burger category is doing very well for us. As it relates to the cash flow, there are some benefits from a cash tax perspective as you move towards the end of the fiscal year. But some of it is dependent upon the timing when we make various cash tax payments. Obviously, the bigger, more annualized benefit of that will be as we move into F 2019. Okay. Thank you. Thanks, Jeff. Thank you. Our next question today is coming from David Palmer. Please announce your affiliation as that pose your question. Thanks. A couple of quick follow ups as well. Good morning. The first thing was the fiscal 2Q earnings that goes with the $3.42 to $3.52 I don't think that's the $0.87 which includes the deferred tax revaluation, correct, Joe? No, that would include the that is the $0.87 number. So that's the I mean the guidance you provided is for adjusted earnings on a go forward basis. So $3.42 to $3.52 is using $0.87 for the 2nd quarter and that includes the impact of the deferred tax revow? Correct. And it's utilizing the guidance we provided, the 20% to 22% effective tax rate for the year on a go forward basis. And obviously, we've also indicated that it's netting the reinvestment discussion that we had also. Got it. And just the follow-up just on the basic business, you had the core value message that you did in 2 phases, the burgers then the fajitas. I know you were heartened by the improvement in your trend through the quarter. And in some ways, you can see and squint through the numbers and see customer satisfaction scores and other things. But it feels like some of your competitors were more dramatic in their improvement and more sharp on price point and maybe they're not running the long term race. But are there some tweaks that you're thinking about that you can make to your value message to make it more impactful, more dramatic terms of sparking a traffic trend change? David, it's there are some competitors out there that are more aggressively promoting, with some offers that are pretty amazing actually in terms of just the magnitude of the discount and the offer. We're trying to our approach is to strategically build back business at Chili's through sustainable efforts around quality food and better execution and driving value that way. So while we will continue to look at value promotions and limited time offers and other kind of marketing tactics that help do that, we're going to do those things in a way that we think is sustainable and consistent with where the brand sits. And that's really probably the difference. So it may there may be some folks out there that can drive some shorter term sales and traffic with some kind of very aggressive offers, but we don't think those are sustainable and especially in a company owned restaurant environment. We see the P and L impact to all of those kind of things firsthand. And so we're very kind of aware that what's sustainable and what isn't. Thank you. Yes. Nice talking to Dave. Thank you. Our next question today is coming from Andrew Strelzik. Please announce your affiliation then pose your question. Hi, good morning BMO. Two questions for me. First on the G and A guidance, just want to confirm you're still expecting that it's going that you're going to hit the previously provided range and just understand what is driving that step up in the back half of the year? Obviously, you're tracking well below that here in the front half of the year. And my second question, on the Thursday to Sunday delta from a traffic perspective that you mentioned, is there anything that you can provide in terms of the types of customers that you're as frequent customers, infrequent customers, how they're using the menu, any kind of color that we can better understand what's going on in those days of the week? Thank you very much. Yes, Andrew. Good morning, first of all. And as it relates to the G and A, there's really no new news there from that perspective. I think one of the principal differences year over year would be related to incentive compensation and the accrued levels visavis the targets for that compensation, there was a meaningful decrease related to that last year. And then Andrew, with regard to the strength we're seeing Thursday through Sunday, again, it just really more aligns up with the introduction of the new menu at Chili's was more dinner oriented, right? So between the fajitas, the burgers and all the ribs, burgers and fajitas and margaritas and the messaging that we were focused on was primarily a dinner oriented message, although again, guests eat our menu at both dayparts fairly well, but it wasn't lunch specific and we are now pivoting to lunch specific messaging around the same strategy. So that was really the big difference. There's no major shift in user type or component of the guest mix. Great. Thank you very much. Thank you. Our next question today is a follow-up from Chris O'Cull. Your line is live. Thank you. Joe, I'm trying to understand why the earnings growth in the back half of the year would not be greater than the first half, given the lower tax rate. Is there anything in terms of just the sales trend that we need to be thinking about that would cause that not to be improving? Nothing as it relates to that. Again, I think what we've talked about on an ongoing basis is our plan was to continue to incrementally grow sales, which will have that impact to earnings. You do have some laps as it relates to the expense. What I just mentioned was the incentive side of the equation. So there are some expense laps that do have an impact as you kind of move through the second half, Chris, that come into play. Okay. Okay. Thanks. Thank you. Our next question today is coming from Joshua Long. Please announce your affiliation then pose your question. Great. Thank you. It's Piper Jaffray. My question was back on the pricing front, Wyman. When you talked about getting kind of moving past some of those higher than historical levels of pricing getting back down to that 1.5%, was curious if that's something that you reached this year, if that's more of a run rate number and that's something we see in more so in 2019? Yes. No, I mean our historic number has always been in that 1% to 2% range and really 1.5% kind of the sweet spot. But because of some of the specific things we had to kind of address in the last year, we got a little bit over that target and we're so we're really moving back to where we have traditionally and strategically think is the best place to be from a consumer standpoint. Understood. And then as we think about the investments in and around the To Go platform, you mentioned that you've been really trying to get those up and ready before putting marketing to it. Any other sort of investments that need to be put in there? Or is it should we think about the systems being in place and it's more about learning about them in the real environment as they've been kind of invested in and just need to start using them now with some of that marketing support? I mean, we're continuing to invest in our infrastructure with regard to digital marketing, but nothing structural that's holding us back now. So now it's just kind of incrementally finding ways to move forward. So we can now, especially now the franchise organization is aligned, we can start marketing more aggressively the capabilities that we already have. We will continue to look for new capabilities and be a little bit more of a leader in this area because we think this is how we can really provide a differentiated value to our guests and leverage the strength of Brinker. Thank you. Yes. Thanks, Josh. Thank you. We have no further questions in the queue at this time. Well, thank you everybody for joining us this morning. We are scheduled for our next earnings call on May 1. We look forward to talking to you all then. Have a good day. Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.