Earnings Call: Q4 2019

Feb 20, 2020

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 the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Tanya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your conference. Thank you, Carmen, and good evening, everyone. By now, you should have access to our earnings release for the Q4 ended December 31, 2019. 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. 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 Kent Taylor, Founder and Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call for questions. Now I'd like to turn the call over to Ken. Thanks, Tanya. 2019 was another strong year for Texas Roadhouse with double digit revenue growth, including a 4 point 7% increase in comparable restaurant sales and a 1.8% increase in guest counts. We ended the year with significant momentum in the 4th quarter driven by operating week growth, increasing guest counts and expanding margins. Comparable restaurant sales also remained strong during the Q4, growing 4.4%, giving us our 40th consecutive quarter of growth. Our restaurant saw a return to overall margin expansion in the back half of the year. This allowed us to keep restaurant margin as a percentage of total sales essentially flat year over year and to grow restaurant margin dollars per store week 4 0.3% for the full year. Heading into 2020, we expect both wage rate pressure from a highly competitive labor market and moderately and moderate commodity inflation to continue. We are in the process of assessing a second quarter price increase as approximately 1.5% rolls off at the end of March. It is likely that we will take somewhere between 0 point 5% and 1% pricing with higher amounts in restaurants impacted by state mandated minimum and tip wage increases. An increase in that range in the 2nd quarter would give us effective pricing of 2.5% to 3% for the full year. Moving on to development. Our new Roadhouse company restaurants continue to open with strong sales volumes and are on track to deliver healthy financial returns. For 2020, we are targeting at least 30 company restaurant openings, including as many as 7 Bubbles 33. We continue to see strong sales growth at Bubbles 33. Comparable sales were up 7.1% for a full year 2019 at 8 restaurants in our same store sales base. Our test of adding lunch at 5 Bubba's locations, which began in early 2019, contributed 2% of that growth. Our franchise partners are expected to open as many as 8 restaurants, primarily in international markets. Our company openings are expected to be more evenly spread throughout the year with 14 restaurants already opened or under construction and additional 16 either fully approved or in a permitting process. We also plan to relocate 6 older company restaurants over the next 12 months, which is not included in our new restaurant development forecast. Over the last several years, we have successfully relocated a handful of high performing restaurants to larger sites with more parking, which has allowed us to build bigger a bigger building with more seating capacity and typically obtain better lease terms. We believe we are well positioned for 2020 to be another solid year for Texas Roadhouse. Our development pipeline is strong and our operators remain focused on both the operational and financial fundamentals. Additionally, we remain committed to further driving shareholder value. Our strong balance sheet and healthy cash flow enabled us to repurchase over 2 point 6,000,000 shares in 2019 and we just increased our dividend by double digits for the 7th straight year. Looking back over the last decade, our team has accomplished a lot and I want to thank all of our operators and partners who have contributed to the cause. Their dedication has allowed us to open over 220 Texas Roadhouse domestic restaurants, build an international presence and start 2 new concepts all while driving comparable sales growth each and every one of those 10 years. As we start a new year, we look forward to following the same game plan by staying committed to legendary food and legendary service. Now Tanya will walk you through the financial update. Thanks, Kent. For the Q4 of 2019, we reported revenue growth of 19.7%, comprised of 12.9% store week growth and a 6.8% increase in average sales volume. We also reported diluted earnings per share growth of 45.4%. These measures were positively impacted by an extra week in our December period, which resulted in 14 weeks in the Q4 of 2019 compared to 13 weeks during the Q4 of 2018. We estimate the extra week positively impacted diluted earnings per share for the quarter by $0.10 to 0.11 As Kent mentioned, comparable restaurant sales for the quarter increased 4.4% comprised of 1.5% traffic growth and a 2.9% increase in average check. By month, comparable sales increased 5.3%, 4.9% and 3.5% for October, November December periods, respectively. For the 1st 7 weeks of 2020, comparable sales increased approximately 6.4%, including approximately 70 basis points of benefit from the impact of the calendar mismatch of New Year's Day. Please keep in mind, because of the 53rd week in 2019, our comparable sales growth in 2020 is based on a different set of weeks than what is included in our 2019 reported restaurant sales. This mismatch of weeks will lead to a larger than normal variance between comparable sales growth and average weekly sales growth in 2020. The Q1 will see the biggest impact with comparable sales at least 1% higher than average weekly sales. For the quarter, restaurant margin dollars per store week grew 13.9% and restaurant margin as a percentage of total sales increased 117 basis points to 17.1% as compared to prior year period. The margin improvement was driven by a decrease in overall operating costs along with an estimated 60 basis point benefit from the extra week. Cost of sales as a percentage of total sales decreased 28 basis points compared to the prior year period. The impact of approximately 2.9 percent commodity inflation was offset by the benefit of a higher average check. Inflation for the quarter was in line with expectations and resulted in full year 2019 commodity inflation of 1.9%. Labor as a percentage of total sales decreased 23 basis points to 33.1%. Labor dollars per store week increased 5.4% compared to the prior year period, driven largely by wage and other inflation of approximately 4.2% and growth in hours of approximately 0.6%. I will note that the majority of the growth in labor hours relates to the impact of the staffing levels for that busier extra week at the end of the quarter. Excluding that week, labor hour growth for the quarter was essentially flat. Labor dollar growth per store week was negatively impacted by 0.6% due to adjustments to the reserves associated with our group health insurance claims development history and our workers' compensation claims experience. In total, these adjustments resulted in $1,000,000 of expense this quarter compared to $100,000 benefit in the prior year quarter. For full year 2019, labor dollars per store work week grew 6.5% and labor as a percentage of total sales increased 57 basis points. Lastly, the 22 basis point decrease in rent expense as a percentage of total sales and the 44 basis point decrease in other operating costs, both resulted primarily from the extra week of sales in this year's 4th quarter. Other operating costs also benefited 14 basis points from adjustments to our quarterly actuarial reserve analysis for general liability insurance. The adjustments resulted in a $300,000 credit this quarter compared to a $500,000 charge in the prior year quarter. For full year 2019, restaurant margin as a percentage of total sales was 17.3%, down 6 basis points compared to full year 2018. Moving below restaurant margin, G and A costs for the quarter increased 2,300,000 dollars to 5.3 percent as a percentage of revenue, a decrease of 66 basis points compared to the prior year period. G and A for the quarter included approximately $2,200,000 of additional expenses, primarily payroll related due to the extra week. G and A benefited this quarter from an $800,000 onetime marketing credit related to full year 2019 as well as the overlap of $500,000 of $5,200,000 to $31,000,000 or 4.3 percent as a percentage of revenue, which was an increase of 2 basis points compared to the prior year period. As a reminder, dollars 2,300,000 of the year over year increase this quarter was due to the extra week of depreciation expense in 2019. We also recorded a $1,300,000 net gain to the impairment enclosure line in the 4th quarter. The gain resulted primarily from a settlement related to a forced restaurant relocation due to eminent domain. Our tax rate for the quarter came in at 16.9% compared to the 5.8 percent rate in the prior year period. Our prior year tax rate benefited from a $19,000,000 adjustment related to tax reform that we a $1,900,000 adjustment related to tax reform that we recorded in the Q4 of 2018, which lowered the rate by approximately 5.5 percent. Moving to the balance sheet. We ended the year with $108,000,000 in cash, down $102,000,000 compared to last year. During 2019, we generated $374,000,000 in cash flow from operations and incurred capital expenditures of $214,000,000 We also paid dividends of $102,000,000 repurchased $140,000,000 of stock and spent $2,000,000 to acquire 1 franchise restaurant. Moving forward to 2020, as announced in our press release, our Board of Directors authorized a 20% increase in our quarterly dividend payment, increasing it to $0.36 per share from $0.30 in 2019. We also expect positive comparable sales growth for the year. And as Kent mentioned, we are planning for at least 30 new company restaurant openings and restaurant store week growth of 3.5% to 4.5%. Our expected restaurant week growth in 2020 includes the negative impact of lapping the 53rd week from 2019. Our commodity inflation forecast continues to be 1% to 2% with fixed prices on a little over 50% of our commodity basket. Our guidance of mid single digit labor dollar per shore week growth includes continued wage and other inflation along with the expectation of lower growth in hours through the Q3 of 2020. Lastly, depreciation expense will benefit from lapping the extra week in 2019 along with lower expense associated with accelerated depreciation on relocation. We expect a 2020 income tax rate of 14% to 15% and have updated our capital expenditure guidance to approximately $210,000,000 to $220,000,000 That concludes our prepared remarks. Carmen, please open the line for questions. Your first question comes from the line of Brian Spitner with Oppenheimer and Company. Please go ahead. Thanks. Hey, guys. Question on margins in 2020. You'll be getting some positive leverage on your COGS margins, most likely with food costs up only 1% to 2% against pricing of 2.5% to 3%. You're clearly controlling labor better as seen in the second half of this year. Can you grow restaurant margins in 2020, given all these moving pieces? How do you want us thinking about that line item as we go into 2020? Hey, Brian, it's Tanya. I think it's much of the same outlook that we've had in the past, which is we just don't count on that. We don't know where we'll land on pricing. That 0.5% to 1% is a pretty big range. We'll be having calls with our operators, our market partners coming up here in a few weeks to get their outlook on kind of where they are. So that will play a part. And then again, those ranges, definitely, on cost of sales at 1% to 2%, you will we expect to see some leverage on that cost of sales line. Labor, I think, is still a little bit of an unknown, and that's really why we've cut that mid single digit labor inflation range. Feels like ours will continue to see benefit on that through Q3, but we're continuing to see pretty decent wage inflation and things like that. So it would certainly be great to see some margin leverage there, but we'll see how things go. Okay. Thank you. Your next question is from the line of Dennis Geiger with UBS. Please go ahead. Great. Thanks so much. Just following up on the labor question. Wondering if you could talk a little bit more about the labor scheduling, the efficiencies that you've been able to realize over the last couple of quarters? And then just kind of looking ahead, going through the opportunities for greater efficiencies, sharing Sure. It really isn't one thing across all the stores. Each store is handling it differently depending on their situation. So it really isn't one size fits all. You could have stores that maybe they've determined by looking at their scheduling that they've got an extra person on a shift that they don't need. Or it could be a store looking and saying, hey, we could do a better job clocking in and out and reducing the hours from that perspective. So it really just depends on the store and that's the way we want it. We want those stores really doing it from there. We want them to know their number. We want them to understand the number of hours they need to run the restaurant every shift. And that was really the big communication that we put out all year. Operations has really stepped up in doing just that. So we feel pretty confident that we'll continue to see benefit there for Q1 and Q2, probably into Q3 because that's really where we started seeing some of that picking up in 2019, we think we'll continue to see that same kind of progression. And you're absolutely right, Dennis. I mean, they are sharing best practices. We just had great feedback from operators, and then we really feel like they're doing it the right way. And as you know, based on their compensation program, the majority of their compensation that comes from the bottom line results of their restaurant. So they are very motivated and committed to doing the thing for the long term and to us that's really the most important thing. Great, Tanya. If I could get one quick follow-up, just specific to unit growth, wondering if you could just quickly touch on the development opportunity from the smaller Roadhouse footprints, how you're thinking about the potential for growth and for ultimate growth off the back of that opportunity? Thank you. This is Kent. Yes, we're probably 25% of our stores this coming year will be in those smaller markets. So we'll see how they perform. But I will tell you based on the ones that have opened this year, their store results not only have been equal to our other locations with more population, but in some cases more. I think we're going to continue to learn from those openings as we continue to do that. So I think it's definitely going to help our development pipeline. I think it's hard to say right now what that does for the long term. I think it's going to help contribute maybe to getting to the higher end of that 700 to 800 domestic range we talked about. And if we continue to see great performance, maybe it gets you a little bit beyond that. So I think it just remains to be seen. We'll learn a lot as we continue moving forward. You very much. Your next question is from the line of David Tarantino with Baird. Please go ahead. Hi. Good afternoon. Congrats on a good 2019. Just It was better than good. Come on, give us a little credit. I thought a very good 2019. All right, all right, good. Thank you very much. So my question is on the pricing philosophy. And I just wanted to understand your thought process as you look at how much pricing you're going to take here in this next round. And what the purpose in your mind would be? Is it more to protect against the inflation you're seeing? Or is it more to with a mindset that you want to see the margins expand, post the price increase? This is Kent. Yes, I do calls with every market partner. And specifically, as we've seen in the past, the states that have mandated at a higher wage that is effective in 2020 would be more of our targets. And then the other states that where you're not seeing the wages go up, it will be more market driven. So I don't know exactly what they're going to tell me. Our calls are actually happening in 2 weeks. So we'll have more information after those calls. Yes. David, we really want to give those operators a voice like we always have done in the past to hear from them specific to their markets, they feel. I mean, we're always going to be conservative on taking price. That hasn't changed. We're going to have a very disciplined approach to it. And not so much with a concern of maybe getting leverage or driving margin, it's more helping our operators making sure that they have that ability to help offset some of that inflation that they've been dealing for a number of years in their stores. So some of it is just we have a little we had a little catch enough to do in some locations. Got it. And then I was also wondering if you could give us an update on Bubba's in terms of what you're seeing with the unit economics now that you're seeing such strong comp momentum in some of the stores. I'm just wondering kind of what's the framework for unit economics? And then Kent, just any early read on how you're thinking about growth in 2021 for that concept? So I'll take the first part of that question. The comp growth that we've been seeing at the 18 stores in the comp base has been really, really great to see. Those stores seem like they're getting out there, they're getting the legs underneath them in their communities and they're driving sales and that's certainly very encouraging. We continue to talk about how do we build that brand awareness a bit faster maybe in the newer comp store store base on margins. So there again, they're figuring out efficiencies and things like that to get margins in a place that feels good and feels sustainable. So I think that's been very encouraging to see from that standpoint. And opening 7 restaurants in 2020 will definitely give us a lot of information. We had 3 in 2019. We were Some of those are falling into 2020 and that's what's bumping up that 7 number. But so far, so good. And this is Ken. Yes, we've targeted more sites for 2021. It doesn't mean we'll do them all, but we've targeted more sites than we have this year. And we'll kind of let the early openings dictate exactly what that number would be in 2021. Great. Thank you very much. Your next question is from the line of Andrew Strelzik with BMO Capital. Please go ahead. Hey, good afternoon. Thanks for taking the questions. 2 for me. My first one is just, how you're thinking about labor kind of longer term understanding that you'll get efficiencies for a couple more quarters. Once you get past that though, should we be thinking about kind of the underlying wage growth is the right level of kind of property and wage inflation beyond that? I mean, are there other investments that you're contemplating? Or I guess just more broadly, how you're thinking about it beyond the efficiencies? Sure, Andrea. I would tell you that as we get past 2020, I would expect it I think there's still going to be pressure just given the tight labor market and given an appointment where it's at and different things like that. I think it's going to be tough. So our operators are still going to be focused on making sure they're staffing appropriately that we're doing the right thing from that standpoint as usual. And we're going to be making sure we've got great talent in there because it's definitely been a hurdle. But I would imagine that wage inflation maybe doesn't go away for a little bit and then any hours growth hopefully would return to behaving based on more based on traffic growth than anything else. So again, maybe you're not back to we've always said, hey, 50 traffic running 2%, maybe hours growth is around 1%. I don't know that we get back to that level, but maybe we see that kind of getting a little bit more back in line. It would be my expectation. But a lot depends on the market, the labor market and how that continues. Okay. And then just a question on G and A. I know there it sounded like there were a bunch of moving pieces in the Q4, but taken kind of as a whole on a year over year basis, the dollars in the back half were somewhat flattish versus up a bit more in the front half. I'm just trying to get a sense for how to think about the growth in G and A dollars going forward in 2020 in particular. Sure. Yes. We had guided originally for 'nineteen to about 12% G and A growth. We came in just shy of 10%. A lot of that was due to Q4 results. And the extra week came in a little bit lighter than we expected it to. We were estimating. We're continuing to see savings. Everybody is really focused on that. We're talking about different efficiencies meetings, just different things like that, which has been great. So that's good to see. And I think it can be sustainable. And then we have that credit in Q4 of about $800,000 which also helps bring debt growth percentage down a little bit. I think going forward, our goal is still to come in below revenue growth to get a little bit of leverage on that G and A line. And that's going to be that's really going to be our focus. There aren't any specific initiatives that we know about today that I would call out, that might change as we get later into the year. But right now, nothing that I would, let's say, is going to drive G and A differently. Your next question is from the line of Jeffrey Bernstein with Barclays. Please go ahead. Great. Thank you very much. Two questions. First one just on throughput. Kind of I'm wondering what percent of the system you see that maybe has capacity constraints and what are the top initiatives to ease it, whether you're a little bit more open to technology or perhaps the acceleration of bump outs. I don't know if that's the reason for the increase in CapEx, but just trying to size up what you think is the capacity opportunity from your existing store base? Well, if you look at store number 1, that's been up for 27 straight years, that would tell you that we have a lot of room in the restaurants. We also are focusing on making our to go better and faster and more streamlined so that does not interfere with the guests inside the restaurants as we've seen to go pick up. So I'm not worried about any restaurant at this point that is maxed out because every year, they prove to me that they're not. And Tanya wants to tag on to that all letter. Yes. I think on the bump out opportunity, Jeff, I think we continue to see stores being able to get into that pipeline to be able to do those bump outs. We've got stores asking for double bump outs. We're a little slower to respond on those. We want to kind of take care on those as we've mentioned in the past from kitchen constraint perspective. And we've got operators who are running, as Kent mentioned, really high volumes continuing to drive sales every single year and they find ways and they're really best way we have to learn on how they're doing those things. And we are doing some stuff on technology. We're a little slower on that, but we've been testing a handheld device for the servers for ordering at the table. We're doing that just in 3 stores, small tests. It's going to be a slow process. But so far, it's been interesting to learn from that. And the to go as Kent mentioned continues to grow. The guest is asking for that. And so we're going to make sure we're responding well there and but not impacting the dine in experience. So it's really about speed, speed of service, making sure we're giving the guest a great experience and that's really where the focus is. And a lot of our operators have done some really cool things with Tagore that we're learning from and sharing with other folks. Got it. And then just on Bubba's, I mean, it sounds like momentum is very strong and you're keen to accelerate the growth. I was interested to hear your learnings or takeaways from the lunch rollout. It sounds like that's been a solid contributor. I'm just wondering, I know Texas Roadhouse brand, you had concerns around doing lunch, especially during the week. How is that playing out with Bubba's in terms of the labor model and having to run multiple shifts? And does that change your view on the potential for lunch at Texas Roadhouse in the future during the week? Well, to answer the Texas Roadhouse question, no way are we going to add lunch. On the Bubba's side, there are based on the menu that's a little more lunch friendly. We have some locations that make sense, but I'd say we've got over half locations that don't make sense based on how we chose the real estate. Great. That's all I got on that. Your next question is from the line of David Palmer with Evercore ISI. Please go ahead. Thanks. A quick question on the AUV gap versus same store sales growth. It looks like it improved through the year, even excluding, of course, that extra week at the end of the year. Could you speak about the new store productivity and the impact you expect from the relocations you mentioned, Bubba's in the mix? Do you expect that AUV, the same store sales gap to continue to be positive, maybe even growing? I don't expect it to change too much, David. I think it will be pretty in line with what it is right now. We have some really great classes of store openings that have done well and need to do well. And so I think the gap that we're seeing now is one that can be sustainable and feel I don't think it's going to be much different in 2020. I think the shift of the weeks will probably be the bigger the shift of the week as usual and that when you're lapping that 53rd week just causes a little bit of noise mainly in the Q1. Yes. And then just a quick question on follow-up really on labor. Just as far as a framework, if we were to think about the labor cost per unit in the past, it was something similar to what you would see in terms of traffic plus a mid single digit inflation, but it feels like you're maybe getting at least for this 3 plus or 3 or so quarters that are left, you're getting about a few percentage point offset to that, something like that. Is that about right? I mean, how do you think about that? I know you're getting this from the bottom up as you share best practices, but what sort of percentage offset to your natural inflation would you expect? Well, a lot depends on what traffic is. I think that it certainly seems like we know we've got state mandated increases of about 1.5%. It seems like that 3% range we've been living in from a wage inflation perspective is going to stick along with about 1% on other inflation down with the other lines. So that seems pretty sticky right now for 2020. And then it comes down to labor hours. And I could see possibilities where we Q4 repeats itself in the early quarters of 2020, and maybe we see flat to just slight growth in the hours. Again, traffic higher traffic growth could change that a little bit all for the right reasons. So not a bad thing there, but that's kind of how I guess I would think of it. And I mean just one on the new store productivity front, Kent made a comment about some of these rural markets even opening up stronger. Is there any sort of extra color you can offer about what is driving some of the better new store productivity because it is somewhat notable given the fact that we see less trade areas for a lot of different retail less trade areas for a lot of other types of retail that you seem to be finding, in fact, better sites than ever? Well, knowing that our competitors might be listening, we'll just kind of keep that under wraps, if you don't mind. Okay. Thank you. Your next question is from the line of Chris O'Cull with Stifel. Please go ahead. Chris, your line is open. Please go ahead. There seems to be no response from that line. I'll go to the next question. Your next questioner will be from the line of Andy Barish with Jefferies. Please go ahead. Hey, guys. Nice results. And just two quick ones on off premise or to go growth. Can you give us that number and where it wound up for the 4Q? And then understanding the average unit volume impact in the Q1, how do we think about, I guess, the restaurant level margin impact given you're losing that high volume week of the holidays? Sure. So on the to go, we're running about we ran about 7% in Q4, which I think was pretty much in line on a full year basis, about 7% of sales being to go. And that's been that was about 10%, 10% growth versus last year. On the margin question, as far as what we think about how Q1 might react, I don't think on a margin perspective, it's going to be overly impactful, because I think cost just given the volumes in those weeks, cost will probably react similarly to what sales volumes are. So that would be our expectation. Thank you. Your next question is from the line of Peter Saleh with BTIG. Please go ahead. Great. Congrats on a fantastic quarter year. Ken, I wanted to ask about the pricing conversation again. I know you guys mentioned 50 basis points to our entire point that you guys will take at some point in March. Is it possible that you go above the high end of that level after you do these calls with the market partners in the coming weeks? Well, if you want to call all those guys before I talk to them, you can let me know because I have no clue what they're going to tell me. I really don't. I wish I could tell you, but I don't know. Yes. That's really why the range, we have the range we do is just not really for sure where they're going to lay on that. You've got stores certainly that are feeling a lot of labor pressure, especially state mandated, who may come in and say, hey, I want to I feel like I can do it. And they've done all the research in their markets as far as pricing competitors, those types of things. So they're going to be talking to us about that and where they think they can be. So you can imagine Tanya has talked to a few of them because she's already kind of like giving you a clue, Great. Okay. Fair enough. I'm not sure if I missed this, but the CapEx guidance, I think it was up about $20,000,000 for the year. What was the reason for the increase? Well, there's a couple of things going on there. Some of it is the fact that on we're buying some more land versus leasing land in some situations than what we originally expected. So typically, those are on deals that aren't 2020. They're a little bit further out. So a little of it is that. Then you've also just we try to plan for what we think the next year's pipeline looks like and how the timing of those might work. We're making a little bit of an estimate on how we think those costs will be incurred in the back half of 'twenty. And that kind of applies too for 'nineteen as we had into 'twenty and what we have left to incur. So all of those things kind of come into play. There really isn't any other big ticket item or anything like that that will be driving it. Got it. Great. Thank you very much. Yes. Peter, I'll put you 2 relocations or a piece of that also add into that. Your next question is from the line of Brian Vaccaro with Raymond James. Please go ahead. Thanks and good evening. I wanted to ask about the commodity inflation outlook. And it seems that spot prices for certain deep cuts have been quite favorable in recent months. And just curious how you expect that to flow through your COGS line? And can you expect lower inflation sort of first half or second half? Or can you just frame the cadence that you see? Yes. Actually, on the cadence, we think we'll probably be at the higher end of the range in the first half of the year and seeing more of the benefit in the back half of the year, we're locked on a little over 50% of the basket. And that's more of that being locked in the front half of the year than the back. So we have a little bit more visibility there and that's what our expectation is right now. We had a little bit higher inflation in 20 19 in the back half of the year, which we think we may get a little bit of benefit on, which will drive those numbers down a little bit to be within the range. Okay. And then on the labor cost front, I just want to ask about the hours per week you said were about flattish in the 4th quarter excluding the high volume holiday week. Has that flattish trend sustained so far through the 1st 7 weeks of 2020? Sure. Really, we haven't released those numbers or talked about that. I'll tell you, we built into our guidance on the full year 2020 the expectation that we do continue to see a similar trend. So that's kind of built into the lower end of that range is that expectation. Understood. Thank you. Your next question is from the line of Patrice Chen with JPMorgan. Please go ahead. Hi, guys. Thanks for the question. Just one. We've seen labor cost management and but like beyond labor, are there any other areas in the P and L yet to be addressed where maybe there are material differences among stores, whether it be around food waste or portioning or repair maintenance, where with increasing tension like with labor that could possibly drive store margins further? Thanks. Yes. There's not really those opportunities. I mean, our operators, because of the way they're compensated on the So from a restaurant margin perspective, there's really not anything out there that we're targeting to say, hey, we've got some money here in a bucket that we can save. I don't think we'll see that. So at the low restaurant margin, I think G and A continues to be an opportunity from that perspective and we're going to continue to take a look at that and see. But outside and even on the G and A line, I'm not sure you're talking any huge amounts of money that are really big levers to pull or anything like that. But it's something we continue to keep an eye on. There are no further questions at this time. I will now turn the call back over to management for any closing remarks. Thanks everybody for joining us for the call. If you have any other questions, please feel free to reach out and have a great week. Thank you. Thank you again for joining us. This concludes today's call. You may now disconnect.