Good morning, everyone, and welcome to the Red Robin Gourmet Burgers, Inc. 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 as 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 may be 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.redrobin.com in the investor section. Now, I'd like to turn the call over to Red Robin's Interim CEO, Pattye Moore. You may begin, Ms. Moore.
Good morning. Thank you for joining us. With me this morning are Lynn Schweinfurth, our Chief Financial Officer, and Guy Constant, our Chief Operations Officer. Jonathan Muhtar, our Chief Concept Officer, is also with us to help answer questions you may have during our call today. Before we begin our review of Red Robin's 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 Conforti, an accomplished retail executive who was most recently CFO for Wyndham Worldwide. Previously, Tom was CFO at Dine Brands, where he led the acquisition of Applebee's and the change in IHOP's franchising model. He also has held leadership positions at The Walt Disney Company. G.J.
Hart is a seasoned food and beverage executive with more than three decades in the industry and is currently CEO of Torchy's Tacos. He previously led California Pizza Kitchen's turnaround as the brand CEO and prior to that, was president of Texas Roadhouse. 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 Yum! Brands. These talented industry leaders bring to Red Robin deep restaurant and retail expertise and strong track records 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. We are seeing very encouraging signs of that momentum accelerating in early Q3. In addition, our customer satisfaction scores continue to rise. Our highest performing restaurants, those in the top quartile of the system, are generating positive guest traffic and sales. 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. G.J. 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. Guy will go into more detail on the momentum that we are 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 sales and includes third-party delivery. Lynn will talk more 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 in almost one-third of our system, which, as a reminder, are focused on improving our gift of time, kitchen execution, and server attentiveness. We expect to complete this rollout in the next few months. Finally, we're making great progress on moving to our new loyalty platform, which gives us the ability to better target and segment offers to our 8.5 million Royalty members, one of the largest loyalty programs in our category. Our fifth and final area of focus is on selectively refranchising and 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. Finally, on the marketing front, we launched our new omni-channel brand campaign, All the Fulls, in mid-July with TV, radio, and increased focus and 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 Play Full 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 Fulls and our PR activation days. Finally, building on the consumer research that led to our new brand campaign, our consumer insights team is kicking off a guest deep dive in Q3. The output of this initiative will enable us to develop a comprehensive segmentation framework, better understand our guest 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 complete in the fall. I will now turn it to Guy to talk about the significant progress that is being made in operations, 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 opens for questions. Guy?
Thank you, Pattye. Good morning, everyone. As Pattye 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 at 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. Our manager turnover numbers continue to improve and are approaching best-in-class levels.
With stable and more fully staffed management teams comes a better experience for our team members, and this has been apparent in 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 in 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 stand during peak hours. This focus has begun to deliver results. Overall guest satisfaction, which had declined 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. Next is managing the shoulders to peak the peaks.
By shifting the labor investment from overstaffed shoulder hours to understaffed peak hours, we are able to improve throughput on our busiest shifts, thereby capturing the greater sales opportunity that is available during those times. Our continued focus on staffing has yielded steady improvement in guest ratings for speed of service, food temperature, the execution of our Bottomless Steak Fries, 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 focuses our kitchen managers on the active coordination of the fast and accurate delivery of high-quality food at the proper temperature. As to results, 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, buns, 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 the gift of time promise that has historically differentiated Red Robin from our competitive set. The only way to sustainably rebuild our dine-in 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 to Lynn.
Great. Thank you, Guy. 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 are 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 entree and finest mix. In Q2, we deliberately moved away from promoting 5 Tavern burgers at $6.99, and instead featured our higher margin gourmet line through our Burger Masters Series. This program had the added benefit of showcasing the talent of real cooks from our restaurants.
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 traffic. Traffic at enclosed mall locations, now representing 66 restaurants in our system as a result of closing seven mall locations in Q2, continue to perform worse than the balance of our company-owned locations by approximately 300 basis points. That being said, our AUV 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 sales. Q2 restaurant level operating margin was 18.2%, down 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 mix. Restaurant labor costs 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 staffed in support of our focus on operational execution and sales deleverage. Other operating costs increased 50 basis points to 14.2%, due primarily to higher costs of third-party delivery fees, partially offset by a decrease in restaurant supplies.
Occupancy costs decreased 10 basis points to 8.4%, due primarily to 11 net locations that closed in second quarter 2018, partially offset by sales deleverage. 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. Pre-opening costs decreased $0.6 million, due primarily to the suspension of restaurant openings. Net interest expense and other was $0.2 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 in asset impairments, $1.2 million in board and shareholder matter costs, $1 million in restaurant closure costs, $0.4 million in executive transition and severance costs, and $0.3 million in 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 $1.03 as compared to $0.46 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-end outstanding debt balance of $180.5 million, in addition to letters of credit outstanding of $7.4 million. We also bought back approximately 17,000 shares for a total of approximately $0.5 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 utilize cash flow primarily to reinvest in our business while we return 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 outcomes 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 improve their operations. Turning to our 2019 expectations, we have affirmed our same-store sales and adjusted EBITDA ranges and updated our SG&A net income and EPS expectations based on year-to-date results and updated forecasts 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. Our shift in promotional strategy continues to on our PPA. We continue to expect higher third-party delivery sales, which includes 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 restaurants, further supporting our third party and carryout channels.
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 marketplaces. Catering continues to be a bright spot in terms of current growth and long-term potential. We've welcomed a new catering director with proven experience building catering programs, developing products, and implementing successful marketing strategies. We've also added sales team resources, increased focus on driving business-to-business national accounts, and expanded our beverage offering, including core carbonated brands. Let me wrap up by thanking all of our team members in the field and at the home office for their focus and tenacity in building the momentum that is currently underway. With that, I will turn the call back to Pattye.
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. 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&A, 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. Now we would be happy to take any questions.
Thank you. We will now be conducting the question and answer session. If you'd like to ask a question today, please press *1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we 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 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? 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 value focus. Do you expect the mix to stay at the 230 basis points going forward, or should we expect that to temper as you move through the year? Thank you.
Yes. Well, we are lapping a softer period of last year in the third quarter. 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 PPA increase we've seen is 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. Maybe just on 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, there's nothing really fancy about what we're doing, Greg. It's just focusing on making sure that we put the right people in place and stop the churn and moving people around. We've found, as would be the case with most casual diners, that the highest correlated factor to good performance in a restaurant is the tenure of the general manager in that restaurant. A big focus for us, not only just to get staffed, 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 Alexander Slagle with Jefferies. Please proceed with your question.
Hey, thank you. Good to see the improving trends in the business. Just another follow-up on that quarter to date improvement in same store sales that you've seen. Is that, I guess, coming from a better sequential improvement in traffic or check? Also how much of that is related to the higher media spend year-over-year and the new creative, do you think?
Yeah, there's positive momentum in terms of guest traffic. We do believe that our new campaign is helping to garner this improvement in our comp store sales trajectory.
The Tavern Double mix, have you mentioned the % of sales that is in the second quarter?
In the second quarter, Tavern was a little below 10% mix, which is down considerably versus prior quarters, which we had, I think 16%-17% mix last year. It's come down considerably.
Okay. If there are any other dynamics or metrics you could provide to us just to give us an idea of how this, the value strategy and the discounting levels impacting traffic and how that's sort of offset by all the improved operational and guest experience levels you're seeing, just any metrics in terms of the magnitude of these factors?
What we like, Alex, about what we're seeing is we believe that this uptick we're seeing or improvement that we're seeing is more sustainable, and it's 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 deal chasers. What we feel like we have today is the partnership of all the departments, as Pattye mentioned earlier, focused on this longer-term stable operational metrics, a message that we have on air that we feel leans into exactly what makes Red Robin special, this connection around the table, particularly for middle-class household income families.
That focus, we believe, is one that's more sustainable than trying to get on media 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 questions.
Thank you. Wonder if you'd talk a little bit more about how you're thinking about your value platforms today. I know in the past we've talked a lot about the Tavern platform at $6.99. It sounds like that's being de-emphasized at least somewhat. I know more recently you talked about the potential of a test at $10. I wonder if you could give an update there. Just at the same time, most of your peers are kind of bundling meals around that $10 or slightly above price point. I was wondering how you see Red Robin fitting into that landscape from a value platform standpoint.
Absolutely. This is Jonathan. I can chime in on that. Kind of building off of Guy's comments, what we hear from our guests is that value really starts with great product and experience. Those are measured against the price paid. We have an attractive positioning in the market. We are lower priced. Our average check is lower than our casual dining competitors. As we improve the experience and the product that we're delivering to our guests, we believe that is going to really pay off in increased value perception from our guests. At the same time, we get high marks for our bottomless promise, we're leaning in there. This is something that we've had for over 20 years, there's upside on awareness based on our research. Our guests that are aware of it love it.
We're leaning in harder there, featuring our Bottomless promise with our new advertising campaign. Finally, what I'd say is our loyalty program continues to work really powerfully for us, and we're just enhancing our capabilities there. That's where we can go out with these segment offers 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. We're looking at that on a selective basis for markets where we feel like it's a good fit.
To be specific there in terms of the market focus strategy, we're focusing now more on our markets where we have those high OSAT scores, and we're delivering that great experience for our guests so that we can really start to get that feedback loop with guests, that visitation frequency up where we're performing well, and that's been a great incentive for our field as well. As they up their performance, they're getting more of that marketing support, and we get that virtuous cycle going.
Got it. Just to 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 you had in the past as you realigned some strategies this quarter around value. Should we think about traffic being in a similar range?
I know obviously you're implying better results going forward, so moving up commensurately, but wondering if we should be expecting fairly soft traffic in the coming quarters as we see this strategy play out.
Yeah, 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 expect it to improve. As we get out to the fourth quarter, as you know, we had a discount messaging last year, and so that did have an impact in the fourth quarter, that we believe will impact our traffic. However, it will positively impact our PPA.
Got it. Thank you.
Our next question is from the line of Peter Saleh with BTIG. Please proceed with your questions.
Great. Thanks. Guy, I wanted to come back to the labor turnover commentary. Can you just give us a little bit more color on the hourly labor turnover? Where does that stand this quarter? Is this the first quarter that you've seen an improvement or has this been an ongoing trend more recently?
Yeah, it's been an ongoing trend since really the end of 2018, Peter. We've steadily seen our trailing 13 period hourly turnover decline. Well, we've seen it 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 and general manager turnover. We can get stability at the lead positions in the restaurant. That will help us reduce hourly turnover. We're starting to see that gain even some more momentum now on the hourly turnover side. We're, as I mentioned on my comments, we're close to best in class levels on a general manager and manager turnover.
We're 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. Any comments you guys can provide on the refranchising initiative that we've been talking about, I think it feels like for a couple of years now, and I know 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 O'Cull with Stifel. Please proceed with your questions.
Yeah, thanks. Good morning. I don't know if this is to Guy or Lynn, but the company has a history of shifting promotional strategies from value to premium back to value with the pendulum swinging between traffic and margin. I guess my question is, why will this time be different or maybe what initiatives have you tested that really gives you confidence traffic can improve with less focus on the Tavern Double value platform?
Hi, well, this is Jonathan. I'll jump in on that. As we developed our new campaign, we spoke to consumers quite a bit, did ethnography research, spent a lot of time with our guests, 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. That kind of reminding them of what they know and love about Red Robin is very motivating to them. Then the value stems from that experience. It stems from the great product. As I said, we do have a lower check point.
The other 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. We have that great Tavern for those who are looking for that lower price point, $6.99, $7.99, we have that available. We also have our finest line available at those higher price points, and the bulk of our range is in that middle gourmet section of our menu. We're still offering a great value for our guests across our menu.
This is Pattye. Let me just add two things to that. One is Jonathan said we do see opportunities in local markets as they improve their operations and guest experiences to give them additional marketing to lean in. We believe our real opportunity is with our 8.5 million Royalty members to do targeted and specific offers to them based on the specific customer group. That's our real opportunity to deliver an additional value message.
I apologize if I missed this, but 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, Lynn, the back half of the year compared to the first?
Yeah. I don't believe we said so, 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. 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. Media spend will be a little bit down year-over-year in the fourth quarter, but fairly comparable.
For the full year, be fairly comparable?
Yeah. For the full year, I think we're going to be down just a little bit year-over-year.
Great. Thank you.
Our next question is from the line of Stephen Anderson of Maxim Group. Please proceed with your question.
Yes. Good morning. I wanted to clarify some of the comments that you made about potentially taking more of the delivery, taking that more in-house. Do you have any mind how many restaurants you would like to do that at? What kind of capital improvement or any capital purchases you may save for extra delivery trucks you would need to make all this happen?
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 taking more of that more in-house, as you mentioned, about having more ownership of the data on customers that you may cede to the third-party delivery providers. I wanted to ask what kind of CapEx requirements you would need to make that happen and at how many locations?
Well, we are currently testing the program. 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 in the lobby of our restaurants and helping to facilitate allowing those delivery drivers to come in and efficiently pick up the meals with which they're delivering.
This is Pattye. 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 seamless. The customer goes to our website, they order from our website, 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. It's something that other concepts are working on as well, and they call it last-mile. It's not self-delivery, but Red Robin controls most of the process.
Thank you.
As a reminder, to ask a question today, 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. Good morning. Just wanted to circle back on the second quarter comps and some of the details there. The second quarter pricing, Lynn, what was gross versus net? How much pricing did you take in the quarter? What are your expectations on menu pricing specifically into second half?
Menu pricing in the second quarter, I think we said was up 2.6% for the second quarter. We'll be lapping some pricing that we took in the prior year. We took 1% in P11 last year. For the second half of the year, we'll be closer to about 1.8% in pricing. That'll bring the year to about a little over 2% for the full year.
Okay, you said the 2.6 was net, was gross, 2.9 or 3 then, given historical discount impact on pricing?
Yeah, the gross was 4.9%.
Gross was 4.9%. Okay. Circling back to quarter-to-date, 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 and check within that down 10 basis points quarter-to-date? If not, maybe comment on sort of what you're seeing from a 2-year traffic perspective compared to where you were in Q2.
Yeah, our Q3 traffic on a two-year basis is trending fairly similar. We did have a promotional item in the second quarter of last year. That did further negatively impact the second quarter results. Absent that effect, we are seeing a continuation in Q2. I did want to clarify, on a net sales basis, we've got pricing of 2.6% for the current quarter, our menu mix was 2.3%. That was that 4.5% that I mentioned earlier.
Right. I was asking purely about net versus gross just in pricing. We can follow up offline. That's fine. Moving on, I guess, to the server handheld rollout.
Brian?
Sorry, go ahead. Yeah.
They're the same. Both net and gross are the same.
Okay, great. On the server handhelds, if I could just ask one more. I think you mentioned a third of the units. Could you talk about sort of the guest app scores and the throughput that you're seeing in those units? Are you seeing an outsized lift relative to the rest of the system? Maybe comment on any efficiencies or labor cost savings you're seeing from the server handhelds. Thank you.
Yeah. Brian, it's Guy. It's a little early, I think, to weigh in on where we are with the handhelds. Where we think we'll see the benefit, though, is 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 to enter the order. We think we'll wave the kitchen less frequently. As you would be aware, sometimes servers will take multiple orders before they go back to the POS and enter them all at once. Of course, when they have a handheld, 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. We feel like these, in addition to some other things we've done, are 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 morning comes from the line of Stephen Anderson with Maxim Group. Please proceed with your question.
Yes. This is a follow-up question. As you start to think about maybe a year or two out with regard to potentially a new prototype, I just want to ask if you've done any progress into a new model that maybe might have a little bit less dine-in and more of an off-premise component.
Stephen, this is Guy. I'll respond to that. 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. I don't think in a new prototype we'll 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. It's 12.5% right now. Depending on who you listen to, those percentage numbers could go higher just based on what's happening in the industry and the popularity of off-premise. I think as we think about a new building, we need 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. I'll now turn the floor back to Ms. Moore for closing remarks.
All right. 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.