Good evening, and welcome to the Texas Roadhouse 4th Quarter Earnings Conference Call. Today's call is being recorded. All participants are now in a listen only mode. After speakers' remarks, there will be a question and answer I would now like to introduce Ms. Tonya Robinson, the Chief Financial Officer of Texas Roadhouse.
You may begin your conference, ma'am.
Thank you, Annie, and good evening, everyone. By now, you should have access to our earnings release for the Q4 ended December 29, 2020. It may also be found on our website at texasroadhouse.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward looking statements, including factors related to the COVID-nineteen outbreak. In addition, we may refer to non GAAP measures. If applicable, reconciliations of the non GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Ken Taylor, Founder and Chief Executive Officer of Texas Roadhouse and Jerry Morgan, President of Texas Roadhouse.
Following our remarks, we will open the call for questions. Now I'd like to turn the call over to Ken.
Thanks, Tonya, and thanks, everyone, for joining us. The challenges we faced in 2020 were unlike any other, and I'm very proud of how our operators worked through the uncertainty. The Q4 was another example of how we must stay on our toes ready for the quick changes this pandemic throws our way. After a good start in October, our top and bottom line results were impacted by the reclosure of approximately 90 of our dining rooms, along with increased capacity restrictions in many other of our restaurants starting in mid November. More importantly, most of these dining rooms have reopened and as of today over 98% of our company owned restaurants have some level of dining room capacity in place.
Sales are benefiting from reopenings and the easing of restrictions as weekly sales in limited capacity restaurants have averaged over 108 $1,000 for the 1st 7 weeks of 2021. The last 11 months have shown us that Texas Roadhouse brand is strong as ever and consumer demand to dine inside our restaurants remains high. In addition, our to go sales continue to be a big part of our restaurant business. For restaurants with dining rooms open, to go sales averaged just over $25,000 per week or approximately 20 3% of sales during the 1st 7 weeks of 2021. Our expectation is that to go sales will remain a significantly larger part of our business after capacity restrictions are lifted and our dining rooms fill up again.
However, we are simply waiting for everything to return to normal or we are not, I'm sorry. We are in a growth mode. In 2020, we opened 22 new company owned restaurants across our three concepts and our franchise partners opened 4 restaurants including 2 international locations in Korea and Taiwan. In addition, we signed several new development agreements in the back half of twenty twenty for Korea, Brazil and Puerto Rico, which is providing a pipeline of locations for 2021 and beyond. Our 2021 development plan is shaping up nicely and we plan to open between 25 30 company restaurants this year, including as many as 5 Bubba's 33 restaurants and 1 Jaggers restaurant.
Speaking of Jaggers, our newest location opened in early December and continues to perform way above our expectations. We have 2 more company owned locations already in the works for 2022 and we will continue to explore potential franchise opportunities. Our retail business continues to expand with 2 recently signed licensing agreements. The first is for a bottled version of our margarita mix, while the second is for a canned cocktail seltzer that will be offered in a variety of Texas Roadhouse branded margarita flavors. Both are expected to be in retail locations sometime during 2021.
These initiatives together with our butcher shop business are low risk and require minimal investment. We believe over time they have the potential to generate strong returns. We are excited about our growth opportunities, however, we remain focused on the operational challenges we continue to face due to the pandemic. Just like in 2020, the safety and well-being of our guests and employees remains our top priority this year. We are also feeling the impact of inflationary pressures throughout the business from commodities to wage rates to the cost of supplies and food packaging.
Over the coming weeks, we will have conversations with our operators about menu pricing options and based on their feedback, we could take some additional menu pricing as early as the middle of Q2. And we will be keeping a close eye on federal minimum and chip wage developments as any increases are factored into our pricing decisions. While business is certainly not back to normal, we are encouraged by the direction of the business in our current financial position. We are committed to making the right decisions for the long term benefit of the company, making the right decisions for the existing business while also focusing on the future growth requires strong leadership. That is why I'm pleased about the recent addition of Jerry Morgan as President of Texas Roadhouse.
Jerry shares my vision and has the same passion that our entire management team has. His experience and perspective will be a great addition to our leadership team. So Jerry, why don't you give us
some of your thoughts, man? Thanks, Kent. I appreciate that. This company has been a big part of my life starting back in 1997 when I joined as a managing partner at the First Texas location in Grand Prairie. I'm excited and honored to serve as the President of this amazing company that Kent created in 1993.
Over the last several weeks, I have been spending time with each and every person in our support center to understand ways I can better serve and set them up for success. As I become involved in new areas of the business, I look forward to working with Kent and our leadership team to build upon our success. And before I pass it back to Kent, I would like to give a shout out to all of our folks dealing with the weather issues across the country. We are here if you need us. Thank you for all that you do or you're doing out there and stay safe.
Kent, back to you.
Thanks, Jerry. I look forward to working closely with you in your new role. With your guidance at the support center as well as partnering with Doug Thompson, our COO, and our strong regional partners on restaurant operations, I'll have even more time to focus on new ideas. For example, I've had a lot of fun in the past 6 months working on new retail initiatives and fine tuning Jaggers, which has set us up for future growth over the next decade. We've been very successful in the full service world, so why not retail and fast food too?
I want to end with a big thank you to our operators and support center staff. 2020 was a year filled with challenges and you all did not hesitate in your efforts to tackle and overcome them. Without your efforts, Texas Roadhouse would not be as strong as it is and ready to get back on track in 2021. Now, Tonya, take it away.
Thanks, Ken. Overall, we have a 9.5% decline in average weekly sales and a 3% decline in store weeks. The 7.6% negative impact of lapping the extra week in the Q4 of 2019. Comparable restaurant sales for the 4th quarter declined 8.9%. By month, comparable sales increased 0.8%, decreased 6.3% and decreased 18.2% for our October, November December periods respectively.
Comparable sales for the 1st 7 weeks of 2021 are down only 2% as more dining rooms reopened in January February. Together sales accounted for slightly over $20,000 per week or approximately 21% of sales at our limited capacity restaurants in the Q4. And as Kent mentioned, To Go sales have grown to over $25,000 per week per restaurant and approximately 23% of sales at our limited capacity restaurants during the 1st 7 weeks of 2021. This growth is great to be given sales volumes inside our dining rooms are also increasing. And as we think about what sales could look like in the future, we are encouraged to see that our higher capacity restaurants, those who can use 75 percent or more of their dining room seats, have averaged slightly under 23,000 per week of the go sales so far this year.
This represents approximately 20% of their total sales. So to date, we are seeing minimal drop off in to go sales as indoor dining capacity increases. Restaurant margin as a percentage of total sales decreased 380 basis points to 13.3 percent with approximately 60 basis points of the decline due to overlapping the benefit of the extra week in the Q4 of 2019. Margins were below our initial mid teen expectation because of increased dining room closures in November December, which led to lower sales volumes and a larger than expected percentage of sales coming from lower margin to go transaction. Food and beverage costs as a percentage of total sales were essentially flat versus last year remaining at 32.4% in the 4th quarter.
Commodity inflation of approximately 1.5% and the impact of guests shifting to less profitable entrees was offset by the benefit of menu pricing and a higher overall guest check. For 2021, we currently expect commodity inflation of approximately 3% driven by higher prices on beef, pork and oil based products. Labor as a percentage of total sales increased 213 basis points to 35.2% compared to the prior year period. The decrease includes an 8.6 percent reduction in hours, partially offset by wage and other inflation of 4.6%. In addition, one time items had a 0.5% negative impact on labor dollars per store weight.
This was driven by $1,600,000 insurance reserve charge this quarter compared to a $1,000,000 charge last year. It also includes $500,000 of costs incurred this quarter for relief pay and enhanced benefits for hourly restaurant employees net of employee retention payroll tax credits, 16.9%, which was 100 year, other operating costs of purchasing PPE to go supplies and other COVID related costs. Moving below restaurant margin, G and A costs for the quarter decreased $7,200,000 as compared to the prior year period. The primary drivers of the decrease were a $4,100,000 reduction of cash and equity compensation
and a
$2,200,000 reduction in travel and meeting expense. In addition, the benefit from overlapping the extra the expense of the extra week from the Q4 of 2019 was $2,200,000 With regards to cash flow, we ended the 4th quarter with $363,000,000 cash, which is up $35,000,000 from the end of the 3rd quarter. The increase was driven by $84,000,000 of cash flow from operations with most of the offset coming from $37,000,000 of capital expenditures and the acquisition of 2 franchise locations. Based on our schedule of new store openings for 2021, we are projecting $210,000,000 to $220,000,000 of CapEx for full year 2021. We expect these new stores along with the 22 we open in 2020 will lead to store week growth of 4% to 5% in 2021.
These expectations assume we continue to see positive sales momentum from the continued easing of dining room restrictions. For 2021, we believe 15% to 16% restaurant margins are attainable given the current sales and cost environment. Margins should continue to improve as sales grow, but will remain pressured from lower dining room sales, wage rate inflation and ongoing cost pressures related to supplies. The timing of a return to pre pandemic restaurant margins will depend on the lifting of capacity restrictions, the mix of dining room and to go sales and the easing of COVID related costs. Finally, I'll conclude our prepared remarks by reiterating earlier comments on the strength of our business and financial position.
With a net cash position of $123,000,000 and continued improvement in cash flow generation, we believe we will be well positioned to return to our usual uses of free cash flow later this year. Operator, please open the line for questions.
Thank you, ma'am. We have our first question from the line of Jake Barnett from Churwood Securities. Your line is open. You may ask your question.
Great. Thanks for taking the question. My first is just to understand that the 1st 7 weeks of the quarter, same store sales were down 2%, but January, they were down less. Just confirm, is that related to weather? Or are there any other factors there that would have had a deceleration in the last few weeks?
Sure. Hey, Jake, this is Tanya. Yes, when we're looking at the sales, what you had going on in January, we got some benefit from the calendar shift related to New Year's Eve. We think that was probably about a 1.3% benefit to January. And then on the 7 weeks, you obviously get a little bit less benefit there.
But also what comes into play is Valentine's Day and weather, which are both negative impacts on those sales for the 3 weeks of February. And we estimate that on a total 7 week number, that's probably about 1%, 1.3% of a negative impact on the total 7 weeks.
Great. That's helpful. And it's obviously surprising and encouraging to see the in store dining increasing as you start 2021 as well as the off premise. So how do you square that? I mean, people are coming more for off premise as they come more for dine in.
Anything that you're doing to kind of promote that or just maybe help explain why you think that's happening?
Hey, Jerry, you just came from operations. Why don't you give them a little color on how we kick ass on the go?
Yeah. Thanks, Kent. I would just say that number 1, as people get more confidence and get out and about, it's going to drive our to go and our dining room sales. And as the capacities get lifted, people still want our amazing food and they want to experience that service and that we feel people are anxious to be served. So the convenience of the windows that we've installed in our corrals and in our outdoor waiting areas makes it a lot easier.
And we've done some things from a technology standpoint with the two way texting to be able to communicate to our guests to make it very easy for them to check-in and then to be communicated with when their food is ready for them to come pick it up. So many, many things will be driving not only the experience, but the ease of the pickup.
Great. And then last question. Tony, you mentioned the guidance of 15% to 16% restaurant level margins. That's assuming kind of having a negative impact from sales. So it seems like you're barely having a negative impact now.
What would I mean, do you expect if the sales recover to maybe some 2019 levels, I mean,
what level of margins do
you think you could achieve at those levels? Just trying to gauge if there's any kind of temporary or cost that you think you're going to bear in 2021
that are unique to 2021?
No, I don't think there's anything I would point out that's different. I think a lot of it just depends on the timing in 2021 far as when we see that those restrictions get listed in the dining room because it really comes down to increasing sales. And then as you do that, it comes down to the mix of those sales. So if you see a return in the dining room to historic levels or higher and we hold on to those to go sales, that's where you could really see those margins get back to normal and potentially even a little beyond. If dining room sales don't go get back to those historical levels, but we continue to see the high level of to go on the other end of the spectrum, that's where there's a little more pressure on those margins because that to go transaction is a little bit less profitable.
So that's kind of the way we see it. We expect to continue to have costs related to COVID throughout 2021. We expect to have those PPE costs, supplies costs, different things like that continue to be part of the business. And don't know when maybe those we potentially see those go away.
Great. I appreciate it. Thank you.
Thank you. We do have another question on the line of Dennis Geiger from UBS. Your line is open.
Great. Thanks for the question. First off, I was just wondering if you could speak to kind of the G and A spend and the opportunity for investment. Maybe just looking out over the next couple of years, particularly as digital becomes a bigger focus and then some other opportunities that you folks just commented on. Just wondering if you could kind of help frame up what that might look like or at least directionally or any kind of commentary on some of that investment behind some of these initiatives?
Sure. Yes, we will continue to see those investments, I think, over time. And some of that could impact G and A. A lot depends on what we're investing in, if it's software and hard assets versus some other things, services and things like that. But definitely want to stay on top of those technology.
And that perhaps has been a bit of a silver lining through all of this is that we have moved pretty quickly on some technology enhancements to the business with the higher to go volumes and things like that that we've seen. So I'm expecting that we continue to see that Just from an overall perspective on G and A, we did see G and A down quite a bit in 2020 just due to the situation we were facing, lower travel meetings. And a big piece of it, as I mentioned, is equity and cash compensation. So a lot of that will come back into play in 2021. And as you're kind of looking at what 2021 could be, I mean, our goal is to say G and A spend stays around the 5% of revenue mark.
I anticipate that it will be higher than 2019 G and A just because you do have that equity compensation piece of it that's driven by share price. So it's likely that we'll see that be a bit higher in 2021 than it was in 2019. Outside of that, 2021 will have additional costs coming back into the model, whether it's related to the conference. A lot of our compensation is based on performance. So that was down pretty significantly in 2020.
Those will that cost will be coming back into play in 2021. Those are just a few things that I can think of off the top of my head, Dennis, that I would call out for sure.
To that historical margin over time. Does that contemplate improving the off prem margins or is that not even part of the consideration there? And just based on the sales piece that you kind of frame, you could see upside to that 'seventeen to 'eighteen potentially from that scenario alone, if that makes sense?
Yes. It really doesn't build anything in specifically for improving the profitability, but that's certainly something we're working on. Speaking to the digital app, they moved our apps to a different platform in October. We've seen more digital downloads of our apps at the Bubba's and Texas Roadhouse and we're seeing a bigger percentage of digital and online orders as a percentage of our total to go sales. So I think we've been talking quite a bit just about what does that to go transaction look like, how can we make it more efficient, how do we help the operators with that higher level of to go volume.
So it's definitely something we're talking about, but not necessarily built in. I think that would be a little bit of a grading in the upside when I'm talking about 17% margins or maybe a little bit higher.
Hey, this is Ken. Remember, we were doing 7, 8000 a year ago before the COVID experience and to go sales now are averaging over 23,000 with dining rooms typically less than half full inside. So when you think of later this summer, hopefully, people there's a lot of people that are ordering to go now that maybe work such big to go customers before or do not want to come inside. So as we are able to seek more seats inside, then obviously you can make up the math, whatever you think that might be for sales.
Got it. Thank you.
Thank you. We do have another question from the line of Peter Saleh from BTIG. Your line is open.
Great. Thanks for taking the question. Tania, can you just give us a sense on the commodity inflation? I know talked about 3% this year. Give us a sense on the cadence on how that plays out through the year?
Sure, Peter. Yes, it's going to be a little tough to tell. We're a little more locked on the front end of the year than we are on the back. So there's probably less visibility in the back half of the year. But I'll tell you it's pretty evenly spread throughout the year.
Obviously, Q2 and Q3 last year or 2020, we had higher levels of inflation. So it would go to say that UnitAct could mean some lower level of inflation in 2021. But outside of that, nothing that would cost It's really tough to say. I mean, obviously, this year, we continue due to changes we made when we went to that high level of employees working to go to minimum wage so far through 20 20, we're going to evaluate that. But that's a good piece of why we're seeing labor higher in 2020 and still in 2021.
We think that could drive about 1% in 2021. And so that's the environment that we're seeing today, and whether that's going to be due to just the COVID impact if folks maybe still a little nervous about coming out to work, whatever it might be. We're just anticipating that those staffing that still stays a pretty challenging thing to do in 2020. 20. I think you'll see growth in hours get back to normal, continue to see growth in hours with sales being higher and dining rooms filling up, things like that.
That will take that labor dollar that percentage labor dollar per store week growth up.
All right. Thank you very much.
Thanks, Peter.
This is from the line of David Tarantino from Baird. Your line is open.
Hi, good afternoon. Tanya, I had a question about a comment you made about the cohort of restaurants that has 75% or more to to 20% of the sales. So can you confirm that I heard that correctly?
Yes, that's right, David. It's about 165 stores, I believe, is what's in that group that are in that 75% to 100% capacity ramp. I mean 7 weeks is still not a lot of it's hard to read a whole lot into just 7 weeks of data. I think that does give us some comfort that we're seeing those stores do well, comp positively and maintain those to go sales levels to go sales.
Yes, that was going to be my follow-up. So I guess, is that would imply they're doing something on the order of 115 1,000 in average weekly sales and that's about 7% or so above what you did in Q1 of 2019 for the system. So I was just wondering is that a good way to think about how those restaurants are performing kind of comps up maybe mid to high single digits? And do you think that's a precursor for what we might see when the rest of the system gets to those capacity levels?
Yes, you're absolutely right. That's how the math works for those for that group of stores. Of course, like I said, it's 165 restaurants. So I think it gives us some comfort to see them performing at that level, when we try to extrapolate what that means for the rest of the restaurants in the system when they can get into that bucket capacity. But anything we never take that for granted and we're never going to assume that's going to happen.
I think we'll see how things continue to play out, but definitely good to see those stores doing that well.
And then the last question is what if you split those stores out, what type of margin structure are they running? Are they up in that 17%, 18% range if you kind of normalize for the market? Or are they above that or below that? I guess any context you could give kind of once those volumes come in, what you're seeing on the margin side?
Sure. I would I don't have that data in front of me in detail, but I would venture to guess that it's probably a variety of outcomes from a margin perspective because a lot going to depend on what state they're in and what labor looks like for them and things like that. So cost of sales tends to be pretty steady across the system, across the country. Labor is really the one that acts differently depending on the geography. So, I think you could definitely see stores in that group that are above probably even above 17.
And you might have some stores in that group that are right there slightly below would be my expectation.
Okay, got it. And then I guess I do have one more. On the margin guidance for this year, do you expect Q1 to be the low point for restaurant margin and that to build in the second half of the year as you get more capacity or how would you encourage us to think about the sequence of margins?
That would certainly be the hope, because that would imply that things are getting better throughout the year. So that's what fingers crossed, that's the direction we're heading. Alexis obviously depends as we found out in November. If there's a spike and we start seeing states kind of walk some step backwards, that definitely is impactful. But that would be our expectation, of course, because we don't have a crystal ball or know that.
From a seasonality perspective, Q1 does tend to be a better higher performing quarter from a sales perspective and things like that. But definitely hope to see things improve throughout the year.
So just to be clear, so would you expect Q1 to be inside that range or below that range?
I would expect Q1 probably to be inside that range.
Okay, great. Thank you very much.
Sure.
Thank you. We do have another question from the line of Lauren Suvman from Credit Suisse. Your line is open.
Hi, thanks so much. So just
a quick follow-up on the 165 restaurants or so operating at 75% to 100% capacity. It looks like implied on premise sales are down about 10% relative to on premise in the prior year. Is that correct? And then is that all a function of capacity restrictions or also demand?
Yes, Lauren, that would be how to look at those numbers. And we would say we look at it as a capacity restriction issue, not a demand issue. So we believe as the restrictions lifted, I mean, they're still even at 100% capacity, that doesn't necessarily mean they're getting all of that, because they could still be having to skip seats around the bar and different things like that. And then you also have wait times that are longer because you do have some of that capacity that we have to manage because of any restrictions that are in place. So definitely more of a capacity restriction issue than a demand one.
This is Kent. I'd also say that we have a computer system in our kitchen and there are times when people call in on to go and because our kitchen is getting slammed so hard, you know, we have to kind of push their time back on when we can get there to go. Maybe, Jerry, you want to explain that in a little more detail?
Well, it's basically how we control so that our kitchens can maintain it. So depending on how many orders that we expect coming in or how many people we have in the dining room and how many to go orders are coming in. So I think as we continue to improve that process and be able to handle more, that will definitely help our execution and our sales too. And again, as we find out each restaurant and their ability, you know, most of them execute very, very well. There's a few that are just outstanding, and they probably have a bigger capacity window accepting orders.
So I hope that explains it a little bit, Ken.
That's really helpful. One more question on labor reform. So given the Roadhouse teams are what I consider a competitive advantage for the company, how do you think labor reform could change the employee proposition in the industry and specific tip credit and then as well as just $15 minimum wage as presumably many prices will have to increase limiting upside to tips Or how do you expect to manage through that should that pass?
Well, we're kind of doing some of that already in a lot places across the country. We already run those higher wage rates. California specifically, we've seen that movement in Colorado, Arizona, Minnesota doesn't have a tipped wage. There's a handful of states across the country that are already operating without a tipped wage. So we see that working.
And I can tell you, Lauren, I mean, in general, and I'm sure Jerry could chime in, from what he sees out in the field. But we don't really see an impact to tips for those servers in those higher weight states. They continue to get to tip well and their overall average wage is pretty high. Jerry, I don't know if you want to jump in on any color you're seeing there out in the field.
I would agree, Tanya, from that aspect. Again. It's kind of unknown if people will change their tip behaviors when they know people are making quite a bit more money than maybe they are today. So and obviously, as this gradually takes place, then we'll adjust our business model to make sure that our services continues to be legendary and outstanding. And obviously, we deliver on the guest experience.
And I think that's what people will be continuing to focus on no matter what people get paid inside the building.
Great. Thanks so much.
Thank you. Our next question comes from the line of Brian Bittner from Oppenheimer. Your line is open. You may ask your question, please.
Thanks. Thanks for taking the question. Tommy, can you just provide us some more color on the indoor capacity for the portfolio that you've had so far in January February to achieve those average weekly sales? I know you've talked a lot about what the stores that have 75% or more are doing, but just if you can maybe just give us an average across the portfolio so far year to date?
Sure. So one of our stores live in that 50% capacity bucket. I don't have P2 numbers in front of me, but for January, we had over 2 50 restaurants that were in that 50% capacity range. I don't have the details of what they're doing from a sales perspective. Again, our operators work really hard to find ways to continue to maximize what they can do.
So they're learning a lot through this as far as seating utilization and just all of those different things, utilizing that text to page system as far as bringing people in. Because remember, we don't have waiting rooms anymore. Everybody's waiting in the car. So all of those things I think really help them maximize as much as they can based on what they're dealing with. But Brian, that's the majority of them.
We have about 50 restaurants sitting in that 25% capacity bucket still. And then the remainder and then we had I think we're down at this point. This is actually as of today down to just 8 restaurants that still have no dining room capacity. But otherwise everybody is living in some of those other buckets, primarily the 50% and the 7,500 percent range.
Okay. Okay. No, it does. That's perfect. And I'm going to throw another margin question your way.
The average weekly sales that you're doing so far year to date is very similar to what you were doing in first half of twenty nineteen when you were approaching that 18% margin. So presumably, the difference between the 15% to 16% and kind of the close to 18% is all that to go lower mix. Can you is it possible for you to parse that out a little bit more dive into kind of the spread and margin structure between to go and in store? I know that's really hard to do, but just as we kind of think about this mix thing elevated and ultimately what that portion of your business generates from a full margin perspective?
Sure. Yes, you're right. It does get pretty complicated because a lot of times it just depends on how you're allocating those costs to the buckets as far as do you allocate anything from rent? Do you allocate anything? So it does get a little hard to break that out.
I can tell you from a PPA perspective, those to go sales, there's about a $4 gap between dining room and to go on PPA. And then of course, you layer in, you probably have a little bit higher labor cost on to go. Again, you could probably split that 50 different ways to Sunday to get a different answer. And you have to hire to go supplies. Now there's some other costs you don't have on the to go transaction that might offset some of that.
So but really that PPA difference, but not having that alcohol attachment is really what drives the bigger piece of that difference. And that's something we're focused on, operating beverage items on the to go and areas where we can do alcohol to go and what's our opportunity there. So those are just some of the things we're looking at there. But really to your point, what it comes down to is when the dining rooms are full, that to go impact does become more neutral to margins. And that's really kind of how the equation works.
Okay. Thank you. Yes.
Thank you, sir. We do have another question from the line of John Glass from Morgan Stanley. Your line is open.
Thanks. First, could I just ask about pricing? You've talked about maybe thinking about pricing. What is the effect of pricing right now, given that you're experiencing some of these pressures, it's labor, it's commodities, do you think there's a and the demand is coming back? Is this an opportunity to sort of take a larger than average price increase?
And have you ever thought, I guess, just going into that to go question, a service charge or some other way to kind of recoup some of those costs on the to go? Or is that really you think it's transient and that's not worth doing? Thanks.
I'll start and then hand the baton to Tonya. No, we're not interested in doing a service charge at this time. And we have probably 30 different separate menus with different pricing around the country. So it usually changes per state and what the wages are in those specific states. And then the other costs that might be more expensive, AKA like New York or California?
And then I'll hand the baton to Tanya.
Yes. That's exactly what I was going to say. I mean, it's just a lot depends. We don't ever take for granted being able to take pricing. And we'll be having those conversations with our operators to really hear from them and their specific locations how they feel like the consumer is feeling.
It certainly feels like John like you were saying though that demand is good, the consumer feels good. But obviously, we want to make sure that we're keeping as much value on the menu as we possibly can. So we're just going to be looking at that and seeing kind of what the opportunity is and how those operators feel across the country. I tell you right now from a pricing perspective, we have about 1.4% pricing in the menu. About 40 basis points of that or so will roll off in September.
That was some beverage pricing, alcohol pricing we took in September of 2020. And then the remaining 1% rolls off in November.
Got it. Okay. Thank you.
Sure.
Thank you, sir. We do have another question from the line of Jeffrey Bernstein from Barclays. Your line is open.
Great. Thank you very much. Two questions. 1, as we think about the unit openings, glad you were able to narrow that down, I guess, to the 25% to 30% this year. It looks like that's pretty much in line with historical kind of starting of the year.
But now seemingly you have 2 or sounds like you're excited about JAGRIS, maybe you have 3 brands going forward. I'm wondering if there's potential upside, whether there's any insight on maybe you're seeing independent closures or better real estate availability. Any color on what you've seen lately from a real estate perspective that would allow you to increase that number? And then one follow-up.
This is Ken. We're doing extremes that we would look at before. There are some businesses that have gone out of business that have given us some additional locations. However, construction costs continue to rise. And so what we might save in rent, we kind of get offset on some increases in cost of construction, specifically concrete lumber, things like that, even the trades, you know, like plumbing and HVAC and electric.
And then with Jaggers, obviously, if we should pursue the franchise model, then that would be additional sales without the added cost of
developing sites. And then,
Tanya, do you want to
Yes, Yes, I think just looking at the change of the $25,000,000 to $30,000,000 over the course of the year, it's a little more back end loaded, which does create a little more risk. But I think we feel very good about the pipeline that we have in place. We've got restaurants under construction right now, getting ready to open and so when they get those jobs done and the labor supply being okay. Tim's absolutely right on point with the cost being higher. For 2020, we came in at about $6,100,000 development cost for Texas Roadhouse, which was up just a little bit compared to where we were in 2019.
So a lot of those things Kent mentioned are we're definitely adding to those costs from a building cost perspective. We think those costs will come down in 2021. Right now based on the info we're getting in the bids and things like that, we think those will also come down a little bit, but we're going to continue to keep an eye on it.
Understood. And then my follow-up question was a little bit more holds you in high regard. So I'm wondering maybe what you think you bring to the table, practices that you can share with the broader system. Just wondering what your initial take is on what you can bring to help the broader system.
Well, I thank you for that. I hope that my results over the last 24 years that I've been with Roadhouse as a managing partner. So I've run a restaurant and had pretty good success and I've opened probably 20 as a market partner and have so I do understand how we execute and what we're trying to accomplish inside the restaurants and that is to hustle to help people and always provide an environment for our roadies and our employees that they want to work at and an experience for our guests that is memorable and to represent the standards and expectations of our company. So I feel like the value that I add is that I really do understand the hospitality side. And so when I'm in Louisville as joining that team, I will be able to represent that as well as whenever we're doing something need with a support center, and that's when that's why I hope that I'll be able to help the individual departments understand how valuable they are to the execution of our experience for a roadie or desk or even a vendor partner.
So I hope that mentality of we're here to serve. We're here to take care of our people, and we're here to represent our company with the highest standards when it comes to food service in our facility. If that will share what you were looking for.
That's great. Hey, Tim, I'd also like to throw in that Doug Thompson did a stellar job, you know, during the COVID year, really leading our operations and its regionals. All of them have come from operations and are all homegrown. As a matter of fact, our new regional like Smith started as a buster for us. Some 27 years ago.
And then Neil Nicholas, another one of our regionals, ran one of our most successful units and actually was the father of line dancing. So we are very operationally driven and have a lot of experience with the people that run our operations in the field. All
right. Thank you. Our next question comes
from the line of David.
If we could just talk a little bit, 1, on the margin and 2, on the to go customer. When you think about the to go customer,
I guess we'll start there.
What are you seeing in terms of new to the brand customers? What are you seeing in terms of those that have transitioned from previously in house only to really only to go? And then how are you what are you seeing in terms of buckets of those people that are using both of them? Are you seeing any difference in their check behavior, any difference in their frequency, whether they're doing one or the other?
This is Ken before Tanya. In fact, that we do lose the beverage sales typically and the cocktail sales in the restaurant. So when people are ordering to go, even though we do sell iced tea to go and in some markets we're allowed to sell margaritas, say, by the court to go. So, Jerry, any comments on that from that question?
Yeah I mean, I think you're seeing a blend of depending on and again where some states are still somewhat locked down. I mean, think about the beginning of December, we had 100 restaurants that I think were to go only. And now here we are 2.5 months later and it's down to 8 or so. So that's been a real win from that standpoint. But there's still a lot of folks that I think are trying to stay safe and precautious on how much they get into public places.
So that continues to drive our to go sales. But our experience, the convenience that the upgrade of our app, the installation of the windows are just adjustment in how to execute the to go at that dollar amount on a weekly basis in our shifts has definitely been supportive of the sales growth there and the execution. And the bottom line has been people take their food home and they open it up and out of that bag in their own dining room table. We were very much happy to serve you your dinner at our dining room table. But now when you get it at home and you unpack it, the packaging and all of the things that we have done to make sure that our food travels well and is presented well when you're sitting in your own home, eating Texas Roadhouse food, and we want that experience to be as legendary as it could be from that aspect.
Yes. And Brett, this is Tanya. I'll tell you just from an online ordering perspective, the digital side of things, we've seen that increase. I think it's as much as 55% of total to go sales today. And that's been climbing over the course of 2020.
And one of the phenomena you see there is that digital PPA is higher than your normal to go PPA. And I think that's just the nature of when you get on that app, you see pictures, you're getting prompted for choices. If you pick something, we give you, hey, you might like this too and different things like that. So and we had a tremendous amount of downloads on those apps in January. So I think we're starting to see the guests get more and more comfortable using those apps.
And that really gives us a great way to communicate with them that maybe you don't have if they're calling into the restaurant. So I think all of us would say that's pretty exciting to see that opportunity.
Great. And then just on the margin front, obviously, sales will cure many woes, but you've taken some cuts, you've made some refinements. If you could walk us through just how you're thinking about what won't return, what will return, where are the real puts and takes regardless of what happens in the sales level? Thank you.
Sure. I'll give that one a shot. So from a margin perspective, I mean, as I mentioned earlier, you're probably going to see those COVID related expenses stick around. On a labor line, we have COVID pay that is available to our employees. If they contract exposed to the virus, I expect that's probably going to stick around for a little while through 2021 and we'll see what happens in 2022.
And I think you're also going to see just the supplies related to the PPE and things like that probably stick around. One of the other increases that we saw on cost as a percentage of total sales, which is the increase in compensation. As you remember, a lot of our all of our operators, the majority of their compensation comes based on the performance of the restaurants. So during 2020, we had some guaranteed bonuses in place to make sure they were taken care of. And more and more of them we're seeing return to actual bonuses based on live results.
But we'll still have a little bit of that guarantee hanging in there probably for a little bit in 2021 and then that'll go away completely. So those are just a couple of the things that I'm kind of thinking of off the top of my head. Some of the cost structure will depend on kind of where we lay in from a to go perspective and what level of to go sales we continue to see will dictate some of the costs we might be seeing related to go supplies and labor and things like that too. But hopefully that helps. Those are just a few other things I can think of.
We do have another question from the line of Jeff Farmer from Gordon Haskett. Your line is open. You may ask your question please.
Tanya, just a couple of clarifications for you. So the 15% to 16% restaurant level margin for 2021, does that assume that that spring 2021 price increase will take place? Or is that still would that be, I guess, beneficial to that 15% to 16% restaurant level margin?
Yes, Jeff. This is a placeholder in our models. We are assuming a little bit of pricing in mid Q2, not a big amount at all, but it does assume a little bit as a placeholder. Yes, other than that, we're not assuming a second price increase or anything like that later on in the year, not making any assumptions there.
That's helpful. And then just a clarification and probably a little bit more detail on G and A. So I think you were indicating that 2021 G and A dollars would be higher than I think you said $20.19 So just want to clarify that you did mean 2019 rather than 2020, which I assume you did. And if so, if we're talking about 2019, what G and A dollar number are you using? Because I think there were some one time expenses in there that some of us might have pulled out.
Yes. So I'm looking at reported G and A dollars for 2019. So that number, just to make sure we're all on the same page, is a little over $149,000,000 So I'm kind of looking at it from that perspective. And you're right, that does have the benefit of the extra week is I'm sorry, the additional cost of the extra week is in 2019. It's the one off that I remember off the top of my head for 2019, but it is in there.
Okay. So just to be clear, 2021, you're thinking at least right now high level will probably be at least at that level of that $149,000,000
Yes. And a big piece of that again is that equity compensation. Part of our compensation that's based on performance involves PSUs, performance shares, which are based on the grant date share price. So we did that. We had a grant on those in January, early January this year.
So that's a big piece of what's driving that additional cost up.
Up. Congratulations on the new role, Jerry. Thank you, guys.
Thank you very much. Appreciate it.
Thank you, sir. Another question from the line of Andrew Sjozig from BMO. Your line is open.
Great. Thank you very much. I just had a question on the unit growth. And I believe last quarter you said you hope to get back to that 30 kind of typical company owned unit openings and this year now you're guiding slightly below that. But I'm just curious, is that really a function of the construction costs that you talked about?
Or is there something I saw other nuance in there that's impacting that number? And then as we think kind of more broadly, obviously, a lot of optimism around Jaggers and Bubba's and international as well, some positive commentary there. I know some of that would be franchise locations, but I'm just curious where you think the unit opening numbers could go kind of over time if
we think several years out?
This is Kent. I believe based on those smaller towns that, you know, we can continue this space for the next, you know, quite a few years. I give you more exact number, but I think Tanya might spank me, so I'll back off.
Well, and I'll tell you, Andrew, I mean, when we came into 2020, we had goals of hitting 30 restaurants getting 30 restaurants open in 2020. So obviously, we were very proud of the fact that we got 22 opened during a global pandemic. But I think we were ready to kind of pull the trigger on 30 for this year's for 2020. So 25 to 30 really in 2021 isn't a function of cost, higher cost. More just a function of the pipeline and what it looks like.
And then we are still in the middle of kind of this pandemic. So we're just taking that into consideration and being moderating things a little bit because finding the sites, we've got a pipeline already working in the works through 2022, 2023. But the other piece of it when you're opening restaurants is finding the people, finding the management teams, making sure all that is good. And so that's something we definitely spend a lot of time on and make sure that we're covered because the success of that restaurant is just so predicated on that managing partner and that management team. So really not a function of the cost, the development costs themselves for
that. Okay, great. Thank you very much.
Sure.
We do have another question from the line of Andy Barish from Jefferies.
Thanks. Hey, guys. We got the As at the end, I guess. Just a follow-up on pricing. From what I recall, I mean, you guys usually take it about now kind of in the middle of the Q1.
Is there anything going on with I mean, obviously, other than the uncertainty in the external environment with the pandemic that's leading you to kind of push that out a few months?
No, this is Tanya. Nothing going on other than just what you mentioned. December November, December, obviously, we had a lot of uncertainty as far as when those restaurants would reopen. And given the process that we go through for pricing with having those conversations with the operators, that adds a little time to the process of getting that done and then just given rolling it out with menu printing and all of those things. So that's more what pushes it.
And typically, Andy, we would usually get it done in March, later in March. So yes, it is about a potentially could be about a month and a
Excellent
Excellent. And then
on the year to date numbers, just
a couple of quick questions on that. Holiday gift cards, I know it's obviously a weird year, but you guys had rolled out the ability with the new app to use gift cards through the app. Did you see some benefit from that? And then on the other side, this week's weather, I assume, is not in the 1st 7 week data or is it?
Yes. Well, the 7 week number would have been through Tuesday. So it does have some of that weekend weather we saw over the Valentine's Day weekend. And that's why it's kind of hard to quantify Valentine's Day separately from the weather impact. We think that the negative impact is a mix of the shifting of Valentine's Day and the weather impact.
So a little bit of both is kind of what we're looking at there from that perspective. And then I'm sorry, if there was another piece of that question that I didn't answer, I apologize.
Just how you saw kind of holiday gift cards and then moving into this year, that's usually a nice bump in you guys. Go ahead.
Yes, absolutely. So yes, gift card season for us is big, those 8 weeks leading up to the end of the year. And our operators really killed it. I mean, our gift card goals are pretty big goals. And we didn't we came in a little shy of our goal, but given everything that we went through, I mean, it was awesome.
And so you're right, having that ability to use Redeem on the app has really helped gift card redemption. Those who kind of tailed off throughout 2020 because we didn't have that ability and we definitely saw those pick up with the rollout of that mobile app starting in October and we continue to see that.
From Goldman Sachs, your line is open. You may ask your question.
Hi, thanks for taking the question. Just wanted to ask a question about kitchen capacity. And Jerry, maybe this is a good question for you as you talked a little bit about it earlier in terms of throttling some of those online or to go orders. But in an environment where, knock on wood, things get back to normal and dining rooms are essentially full again, how are you thinking about managing the kitchen capacity to sustain those higher level of to go orders?
Yes, I think we'll just take the approach of on a day to day basis and look at how especially during the peak hours, that's when we need to continue to be able to balance that number so that execution is not negatively affected. So we can throttle that up and down. The operator actually has the control or has some control of that restaurant. If they can open up the window or they can shrink it down a little bit and they have ability to do that when to get caught up or not. And I think we've got a lot to learn about it and especially during the holidays that we just learned in Valentine's Day and even New Year's Eve, how to most effectively use it.
So it's something that we are continuing to get better at. I would tell you the operators are really sharp and they want to get every dollar that they can. So they're not accustomed to shutting things down to where we lose potential sales. So I have total confidence in Doug and the regionals and all of our Fantastic managing partners to figure out how to maximize every 15 minutes that we have orders coming in. So I think
Can you give what the 4Q traffic and check dynamics were in your company units?
Sure. So in that 8.9% decrease on comp sales, 3.2% increase in check is part of that number. So you've got 1% of that is positive mix and then the remainder is pricing.
Okay.
The 2.2% pricing, yes.
Okay. Thank you for that. And I guess circling back on store margins, I think you said that your quarter to date store margins are in that 15% to 16% range. Yes, first, did I hear that correctly? And then if so, can you give some more color on how your team members are bringing certain costs back as you've seen sales accelerate into that 1 $0.5 range?
Maybe help us with sort of labor cost per week in the quarter to date period or maybe there are some other costs in the other OpEx line that you're bringing back online that were cut during 2020? Just some perspective there.
Sure, Brian. And I want to be really careful because obviously, as I said earlier, 7 weeks is just not a big group, right, 7 weeks of data. So want to be careful of reading too much into that from a margin perspective. Then. And it's better to look at that from a 13 weeks perspective, So just want to say that it's going to be positive, but you're going to see more hours being utilized in the dining room.
And but you're going to get benefit from those higher sales that's going to help that labor line as a percentage. So I would say that's probably where you're going to see the bigger impact. Again, cost of sales shouldn't fluctuate too much. And other operating might, obviously, you're going to get some benefit from those higher sales on that other operating line and on that rent line. But outside of that, there isn't anything else I would really call out or point to.
All right. Thank
you. You're welcome.
Thank you, sir. There are no further questions at this time. I would like to turn the call back to the management
for closing remarks. Yes. Thank you, Annie, and thanks everyone for joining us tonight. I hope everyone is staying safe with all of this crazy weather going on across the country. If you need any other information, don't hesitate to reach out to us.
Thanks so much. Have a good night.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating. You have a good day.