BBQ Holdings, Inc.
Q2 2013 Earnings Call Transcript

Published: 25 Jul 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to your Second Quarter 2013 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Diana Purcel. Ma'am, the floor is yours.

[Diana Garvis Purcel:]

Thank you, Rich. Good morning, everyone, and thank you for joining us for the Famous Dave's Fiscal 2013 Second Quarter Conference Call. I'm Diana Purcel, Chief Financial Officer, and with me today is John Gilbert, our Chief Executive Officer. Before we begin, we'd like to remind those listening that certain matters discussed within are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Famous Dave's believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause the actual results to differ materially from Famous Dave's expectations include financial performance, restaurant industry conditions, execution of our restaurant development and construction programs, franchisee performance, ability of our franchisees to meet their development commitments, changes in local or national economic conditions, availability of financing and other risks detailed from time to time in the company's SEC reports. Our earnings release, which contains the financial and other statistical information being discussed this morning, was issued yesterday afternoon after market closed and can be accessed by clicking on the Investor Relations link on our website at www.famousdaves.com. As a reminder, this call is being recorded and will be available for replay for 7 days. Now I will turn the call over to Famous Dave's CEO, John Gilbert. John?

[John F. Gilbert:]

Thanks, Diana, and thanks to everybody on the call. We appreciate you guys taking time out of your day to be with us. We're pretty excited to be with you today. Just over 9 months ago, I became Famous Dave's CEO with a mandate from the board

[Diana Garvis Purcel:]

Thank you, John. To those on the call, please refer to our press release issued yesterday as I summarize our results. Famous Dave's reported revenue of $43.4 million and net income of $2.1 million, or $0.27 per diluted share for the second quarter of 2013, compared to revenue of $41.3 million and net income of $1.9 million, or $0.25 per diluted share for the prior year. Net income for the second quarter of fiscal 2013 includes a bonus accrual or expense of approximately $540,000 or $0.05 per share, while the results for the second quarter of fiscal 2012 included the favorable impact or a credit of approximately $431,000 due to a bonus recapture, or approximately $0.04 per share. So in essence, a $0.09 delta. Additionally, the recent quarter included severance costs as a result of a recent reduction in force of approximately $271,000 or $0.02 per share. For the year-over-year comparison, this was essentially offset by closure costs in the second quarter of 2012 of $183,000, or $0.02 per share, for a company-owned location closed during the quarter. Our adjusted EBITDA for the first 6 months of fiscal 2013 was $6.7 million compared to an adjusted EBITDA of $7.9 million for the comparable time frame in fiscal 2012, reflecting the challenging results that we saw from the first quarter of 2013. We generated $9.4 million in cash flows provided by operating activities during the first 6 months of fiscal 2013 compared to $4.5 million for the first 6 months of 2012. Now this year-over-year cash generation reflects second quarter strong results, as well as increased cash flows in 2013 due to no corporate bonus for 2012, in addition to payments made during the second quarter of 2012 to repurchase shares that were not replicated in the current year. During the quarter, restaurant sales increased approximately 5.5% year-over-year, reflecting the comparable sales increase of 3.8%, the annualized impact of the 2 new company-owned restaurants that opened in the third and fourth quarter of 2012, in addition to our weighted average price of 2.5%. These increases were partially offset by the closure of the Lombard, Illinois restaurant. We were pleased with the gains made in dine-in and to-go sales, which increased on a weighted basis by 1.5% and 4%, respectively. However, we were challenged by a 1.7% decline in catering sales. Led by strong to-go sales performance, we saw growth in off-premise sales, which grew to 35.4%, of which to-go represented 26% and catering represented 9.4%. This compares to off-premise sales of 34% for the prior year. Our dine-in per person average for the second quarter of fiscal 2013 was $16.69 compared to $15.79 for the second quarter of 2012, reflecting the weighted average price increase. The breakdown by day part was $14.73 for lunch and $17.86 for dinner. On the franchise side, royalties decreased year-over-year, reflecting the comparable sales decline of 1.9%. During the quarter, we had a very successful franchise-operated restaurant opening in Carolina, Puerto Rico, and we had a closure in New York, New York. Subsequent to quarter end, we had 3 franchise-operated restaurants opened in

[Operator:]

[Operator Instructions] Our first question comes from Mark Smith with Feltl and Company.

[Mark E. Smith:]

A handful of questions for you. First, Diana, thank you for clarifying the supervision expense. Can you tell us what that would have been here in the quarter?

[Diana Garvis Purcel:]

Yes. So actually, it's a -- we're restated on the 6-month period. So Mark, for the quarter and the current year, the best thing to do is to -- I'm sorry, it was -- I don't have that number at hand right now. I have the reclassification in the quarter and the prior year. So for the 6 months in the prior year, it was $930,000 that was reclassified in the 6 months time frame, which is about $460,000 in Quarter 1 and $471,000 in Quarter 2, and it's commensurate with what we're seeing this year. So I can't get you a more final number for the current year. Since we've reclassified the presentation, we're reporting along those lines in the current year. But the best indicator is the prior year's reclassification amount.

[Mark E. Smith:]

Okay. But we should look for that to be somewhere in the $450,000 to $0.5 million roughly on kind of on a go-forward basis?

[Diana Garvis Purcel:]

Correct. Correct.

[Mark E. Smith:]

Okay. Perfect. And your guidance that you gave is for, what was it, 100 -- 135 to 140 bps lower, that's including that reclassification as well as in Q1?

[Diana Garvis Purcel:]

Correct. So that's an annualized number range that we've given with prior year, restated for conformity purposes.

[Mark E. Smith:]

Okay. If we look at that on an apples-to-apples basis from where the guidance was previously, with supervision still in that -- would that guidance have been, I guess, not quite as favorable through the year, or just about flat?

[Diana Garvis Purcel:]

Say that again, I'm sorry?

[Mark E. Smith:]

I guess, if we still had supervision up in operating expenses, would that guidance on operating still be roughly that 115 to 120 bps favorable? Or maybe it would have moved down and be a little less favorable this year?

[Diana Garvis Purcel:]

So it would have moved down. So if you look at -- if we were reporting on this as of first quarter, the guidance on an apples-to-apples basis, instead of the 115 to the 120 that you're referring to, would have been 100 to 105. So we have -- so you would have looked at the guidance at the first quarter at 100 to 105. Currently, it's 135 to 140 bps of a decrease in operating expense, predominantly due to we're seeing leverage on fixed costs on our second quarter results, but in addition to a reduced, more applicable advertising spend.

[Mark E. Smith:]

Okay. And it sounds like still even with moving some of that expense down to G&A, your guidance still got better for G&A, which is a positive. And is that really due to some of the cuts at the home office?

[Diana Garvis Purcel:]

It is. So we're going to start to see -- obviously, there's a severance number in there of $271,000. But as John had indicated, we will see the positive results of the reduction in force through the balance of the year and as we annualize that through the second quarter of next year.

[Mark E. Smith:]

Okay. And then John, in your comments you mentioned kind of wanting that G&A, I think, under about 10% of revenue. Is that excluding management bonus or some pieces of that G&A? Or is that kind of a pure number that as a goal there, to be less than 10%?

[John F. Gilbert:]

Yes. The latter, Mark. It's a pure number that would be inclusive of all G&A categories.

[Mark E. Smith:]

Okay. Okay. Excellent. Perfect. It's good to see that. Can you guys -- I'm really curious about breakdown of traffic versus ticket, especially with some of the digital coupons and things that we saw out there during the quarter, the P.I.G. Club members. Can you talk a little bit about that strategy and kind of success that you're seeing and kind of the impact on traffic and ticket for those?

[John F. Gilbert:]

So Mark, I think the quarter had a number of different contributors to performance, both from a traffic and a ticket standpoint. Let's start with the basics. We did do a price increase at the very early part of the quarter. It appears most of that stuck, if not all of it. That also is part of a new -- newly designed menu that had a lot more science behind how we guided the consumer from a purchase process. So that shows up on the ticket side. Interestingly enough, then we got into new products with Burnt Ends, which showed up both from a traffic standpoint, we saw positive traffic for the first time in a long time and really probably one of the only players in the industry is our segment of the industry, that kind of had that performance as we look at Black Box. So we got a nice lift in traffic because of the new product. And then the new product was essentially an appetizer. So you saw an impact on ticket as well. In fact, it's probably the biggest single contributor to the quarter was the ticket increase associated with Burnt Ends that prevailed for the entire quarter. Then lastly, the elimination -- almost total elimination of the direct mail other than some direct mail tests that we continue to really identify and prove to ourselves that the shift away from direct mail was the right way to go. So we saw the P.I.G. Club email promotional strategy really supplant or replace the direct mail strategy across the quarter, and that manifests itself both in ticket and traffic increases. That is a daily direct mail -- excuse me, daily email circulation. So it really performs differently by day. But in the aggregate, the performance clearly lapped last year's direct mail program and frankly, the cost of distribution is nothing versus $0.65 a piece in the direct mail room.

[Mark E. Smith:]

Can you give us any numbers around P.I.G. Club growth perhaps here in the first half? And I know that's been an emphasis recently on pushing that in the restaurants. And then I don't know if you can give us any sort of attachment rate or redemption rates on kind of those email offers and what you're seeing used in the store.

[John F. Gilbert:]

Mark, I'd prefer not to share a whole lot about P.I.G. Club. It's pretty proprietary to us. We're on to something that's clearly stimulating business for us, and it's really one of our secret sauce things. So I'm going to hold off on providing a whole lot of insight there. I'm sure you'll understand.

[Operator:]

Our next question comes from Conrad Lyon with B. Riley & Co.

[Conrad Lyon:]

First of all, nice job growing sales here. Question on the comps. Clearly, doing a nice job on the to-go side. John, I think you mentioned part of it -- is it -- was it related to the call center? Is that what's really driving that, just more efficient, better use of the call center?

[John F. Gilbert:]

Conrad, thanks first, for the high-5 on sales. We appreciate it. Secondly, on the call center, it's only in test. So it's only in a handful of stores in those test stores that has been contributing to performance increases in to-go. However, on a broader basis, we are clearly benefiting from the consumer sentiment around to-go food across the spectrum of restaurants. So we have this nice tailwind in to-go anyways. I think that by positioning ourselves as a relevant and important to-go choice for the, let's just pick one segment, the busy mom who's got a job and 3 kids at home and frankly, who wants more choices than pizza and fried chicken. So we're playing in that space pretty efficiently -- or pretty effectively, I should say -- based apparently on simply positioning a significant volume of our communication this year, particularly in the company restaurants both with promotional support and non-promotional support, just awareness, has been about Famous Dave's as a relevant to-go choice in the market today. So we're seeing a lot of support for that from a consumer standpoint. As it relates to the dine-in business, which we're very pleased with the dine-in performance, and even if we were to be compared as a standalone dine-in business versus our peers in the quarter, we had -- we turned in a pretty good number. And then catering is really more -- what we're feeling there is it's regionally based, and it seems to be tied to some of the government spending. If you look at the category, it's down the most in catering. It's those occasions that were government-driven -- and perhaps it's the sequester, I'm not sure what the real cause or factor here is, but we've seen a downtick in that part of our catering business. But in general, we're pretty pleased with where catering is as well.

[Conrad Lyon:]

Got you. Okay. The gap between both the company and franchise same-store sales performance, is that -- is a large part of that attributed to the to-go? Meaning, are the franchisees not as strong on the to-go side?

[John F. Gilbert:]

I think -- well, it's going to vary by franchisee, obviously. But in general, they're very similar to us in both to-go and catering. I think the bigger opportunity for us is as we saw the things that work for us and actually the things that help the franchisee modify their pretty significant declines, a big part of it was the presence or absence of traditional TV support. And so where we saw the biggest performance increase is in our company markets because we don't have TV everywhere either. We saw the correlation to the presence of TV being very strong. Now keep in mind, we had 2 televised initiatives over the quarter, both of them using a new campaign. But the first one, with the Burnt Ends new product news, really performed extremely well in all markets including franchisees. But a big part of that performance gap was those markets that had TV really, really performed well. So that will be one of our initiatives for the future is to bring more of the system under that umbrella of media support in order to provide essentially more awareness and get more leverage out of our news so that the whole country can understand who Famous Dave's is and what we do. And where we get that message out, we've been very effective this year.

[Conrad Lyon:]

Got you. A little talk just about trends. Now I appreciate you moving up in the Black Box and discussing that. I think that's fantastic. And we've seen headlines, as you well know, that the industry seems to be on some sort of decline June, July. You guys seem to outperform the industry and moving up. So a question, and as much color as you can provide would be appreciated, are you kind of seeing this downturn? Or you think you're -- are you outperforming this downturn of sorts across the dining spectrum?

[John F. Gilbert:]

We did in the quarter, obviously, from our Black Box performance. I don't -- I've seen some of the same quarterly reports you have. I haven't seen anything beyond that from other than Black Box for the new quarter. But certainly during the quarter, we saw a lot of traction us versus our peer group. I think the challenge with us versus our peer group is there really isn't a peer group for us. So we like to be seen as a peer to some of the quick casual concepts from a performance standpoint, both from a consumer perspective, obviously, but also from how we approach the business going forward from a franchisee perspective. And we believe we have earned the right and will earn the right to be seen in that light clearly as a higher standard there in terms of year-over-year growth. So as a strategy going forward, we'd like to be able to benefit from that continued interest in an off-premise consumption that consumers have. We aren't advocating on our responsibilities as a dine-in company, and we see a lot of potential there, obviously, particularly as it relates to some of the beverage initiatives that we've seen. And we have 2 new prototypes this year that will open, designed to showcase Famous Dave's full-serve going forward as a point of introduction and sales to new franchisees, and existing franchisees, as we shape this brand and contemporize it with more of a higher level of dine-in energy, so to speak.

[Conrad Lyon:]

Let me say perhaps this way

[John F. Gilbert:]

Yes, I hesitate to answer that question. I'm not sure I can provide any. I wish I could. I don't have a crystal ball. I have some skills, but that's one that's beyond my abilities.

[Conrad Lyon:]

All right. It's fair enough on that one. All right. Let me shift over to just the bonus accruals, or captures. I just want to make sure I understand that properly. Bonus accrual, that's under the new plan. The bonus recapture, that's really -- is that largely just a function of the readjustment of the compensation plan?

[Diana Garvis Purcel:]

No, it's really not. I'll let John talk to this, because it really speaks to us as a performance-based organization and the fact that last year, in 2012, we didn't hit our internal targets and therefore, were not tracking for bonus. And therefore, in accordance with our plan we ended up reversing the bonus accrual in the second quarter of last year. This year certainly will be a second quarter performance. We have made up ground and are in the process of accruing a bonus accrual. But strategically, I'll let -- maybe John can add a few points on that.

[John F. Gilbert:]

Well, I think the methodology year-over-year is the same. We simply did not earn a bonus for 2012's performance. For most of the executive team, almost 2/3 of the total compensation is at-risk compensation, and that didn't bode well for 2012. 2013 is a different year with a different performance. The only real thing I'd highlight in terms of how we're looking at this year is this year's target is EBITDA. We're looking at 2 real targets actually

[Conrad Lyon:]

Got you. Okay. And so just to be clear, the bonus recapture, that essentially was a 1x benefit. And then bonus contingency, hopefully as EBITDA grows bonus accruals going forward, right?

[Diana Garvis Purcel:]

Correct.

[Conrad Lyon:]

Yes. Got you. Okay. Question, I'm not sure if you mentioned this or not, and I apologize. But in regards to the rationalization of the home office, did you mention what the dollar amount will be saved on an annualized basis for this year?

[Diana Garvis Purcel:]

We didn't mention on an annualized basis. On a steady-state less the severance, we're looking at probably $1 million. So obviously, that won't fall all into this year.

[Conrad Lyon:]

Got you. Okay. Shifting over towards not necessarily unit development, but just a smattering of closures. Any sense of if that's going to kind of persist? Are there going to be some more kind of relocations going forward, that type of thing? Or do you feel pretty good about kind of the cash flowing of stores and that on the franchise side?

[Diana Garvis Purcel:]

Yes. We're not aware of any closures. As we indicated, there was a closure subsequent to the quarter that was a relocation opportunity. That seem to be the best thing for the franchise partner, and we leave it up to them to understand their market. But we're really pleased with the health of this system right now. In any given year, I know that we've had closures in the past. We've had 3 this year, all for different reasons and all seem to be in the best interest of the brand as a whole. So at this point in time, I'm not aware of any closures on the horizon or any relocations of existing franchise restaurants.

[Conrad Lyon:]

Got you. Okay. This will be my final one. Just on food COGS, or really the pork contract. Can you remind us where you stand on the pork contract duration? Inflation?

[Diana Garvis Purcel:]

Yes. So we're contracted through the end of the year, and we always do it at the time of the year that we're watching the market closely to see if there's opportunities to blend and extend. So our pork contract year-over-year on comparable volumes is down 1.3% for all of our of pork contracts; and that includes ribs, pork butts, hotlinks. So that's total pork. But as I mentioned, we are watching the market. We're right now anticipating some further release later in the year. And so we want to make sure that we time our contracting appropriately to capture as much savings as possible. And if we can blend and extend into this year and still benefit this year in the fourth quarter, we will do so.

[Operator:]

Our next question comes from Justin Ruiss.

[Justin Ruiss:]

I just had a quick question. I know that somewhere along the lines you said there would be possible remodels of restaurants. And I just kind of wanted to get a scope of how well the, I guess, the alcohol segment is with the craft beers. Is there a chance that you could be extending out bar space? Or if you are remodeling any stores, would that be something that you would look to do?

[John F. Gilbert:]

Justin, it's John. I think the intent of the remodel has a number of different elements, both in terms of simplifying the box so that it's less expensive, adding some capacity kind of per square foot. And then to your point, I wouldn't say that we would make the bar areas bigger. Now they would be bigger than some of our early restaurants that don't have much bar space. But we will have the bar area be more central to the overall experience. In many cases, our bars are kind of tucked away and not really integrated into the main dining space. In both remodels, Timonium and Germantown, they will have bars that are central to the overall experience. And we believe that's very contemporary for casual dining, it's not out there. And we think that there will be some more opportunity for some density improvements in dining, and we're testing some community table-type setups in a couple of these prototypes, which actually adds seats. And so as you know, as a restaurant with peak periods it would be wonderful to be able to increase the ability to sit customers when they come in. So that's part of the dynamic. And then frankly, the other part is to elevate the barbecue, let's say, expertise and kind of make that more central to the experience and maybe downplay, a little bit, the Northwoods aspect of the current Famous Dave's portfolio. It will be pretty substantially noticeable change, but with an eye towards making the overall box economics work better our franchisees going forward.

[Justin Ruiss:]

Got you. And then just quickly on, I guess, looking at possible new menu items or anything like that, would you -- if you are going to roll out new menu items, would it be on like a quarter-to-quarter basis? Or is it just going to be a whole revamp on the menu going forward?

[John F. Gilbert:]

So we're -- our menu is very sound right now, and we're very pleased with how the consumer interacts with our product offerings. We -- to be specific though, we will eliminate items that are -- that add complexity and don't sell well. And then on a periodic basis, and it maybe 2x a year, maybe 3x a year, we don't have to have the frequency of some of our peers because of the nature of our barbecue frequency, inherently. We will add new products that we believe, like the Burnt Ends, for example, capture the imagination of the consumer, particularly when they're advertised and drive traffic and sales profitably without having to resort to discounts. So our product strategy is probably less LTO and more permanent additions like Burnt Ends, which is permanently on our menu at this point in time. It's still selling extremely well. So our approach is probably a little more straightforward, and let's just say simplifying the menu experience for our customers.

[Operator:]

Our next question comes from Greg McKinley of Dougherty.

[Gregory J. McKinley:]

Diana, you had provided some updates on margin expectations by-line item, but I know there are some re-classes there as well. How does that all boil down in terms of your net operating margin for you then versus what your previous guidance was?

[Diana Garvis Purcel:]

Well, I'd refer back -- I can certainly reiterate the guidance that we have given in -- as of second quarter, and that will be an apples-to-apples, I'd be happy to do that. But I'd refer you back to the comment we made at the beginning of the year that we expect to achieve 250 to 300 basis points improvement in our restaurant-level operating margin and believe that our second quarter performance showed significant progress towards that initiative on an annualized basis.

[Gregory J. McKinley:]

Okay. Maybe I'll just maybe talk with you offline and make sure I understand that on a line item level. In terms of...

[Diana Garvis Purcel:]

Would you like me to -- Greg, would you like me to go over the guidance again by line item?

[Gregory J. McKinley:]

Sure. Maybe just in terms of how your view changed on G&A and operating expenses, because I know there's the re-class. So I just want to make sure I understand where those -- are we reiterating that on a net basis or changing that in some way?

[Diana Garvis Purcel:]

These are reiterated on a fully reclassified apples-to-apples year-over-year basis. So in other words, there was improvement from our prior guidance in the first quarter, which is probably what you're asking about?

[Gregory J. McKinley:]

Yes.

[Diana Garvis Purcel:]

And so from an operating expense, the quick and easy answer for both of them, and then I'll go a little bit in depth, certainly, our second quarter performance certainly reflected an improving trend in both of those categories. And second quarter is our largest volume quarter. So we have the opportunity to really, when we get top line sales, to really leverage our fixed costs, particularly in our operating expense line, occupancy, et cetera. So the other thing that, as we mentioned, that is meaningful, particularly for the back half of the year, our advertising spend. And our guidance in the reduction in that spend for the balance of the year, as we make more purposeful use out of promotions and the digital strategy that we feel is working better for us and driving sales than some of the vehicles that we've used in the past. So being more mindful of that is going to help in an op expense. A couple other things in the second quarter that helped us on our operating expense, one of them, we've talked about our initiative on to-go supplies. We're starting to see some of the results of that initiative. And as John had mentioned, that's going to roll out to the organization. We saw some leverage on utilities, and we also -- some of the success in the pilot that we're seeing are in R&M expenses that we're testing in the Minneapolis market, that has been meaningful. That presented itself in the quarter as well. So we're expecting that those trends will continue. On the G&A side, again, second quarter leverage certainly helps from a revenue perspective, but also the reduction in force. The severance obviously falls into our numbers, but that is a 1x event, won't replicate itself in the back half of the year. And so on a steady-state basis, we should start seeing the savings as a result of that reduction in force. Does that help?

[Gregory J. McKinley:]

Yes. Yes. Maybe bigger picture from a G&A standpoint. You talked about the eventual goal of achieving a 10% level of expenses. Is that something that occurs within the next -- you think we can achieve that in the next 12 to 24 months? Or is that a multi-year kind of goal? And what are some of the -- I wonder how much of that is dependent on revenue growth versus just further opportunities for expense dollar reductions?

[John F. Gilbert:]

Greg, it's John. I think the answer is, yes. We can achieve that within the 12- to 24-month period. That's our plan. And yes, it includes both direct and substantial cuts, but it also includes some expectation of, I would say aggressive, but not overly aggressive growth. We are committed to and have to get our G&A in line.

[Gregory J. McKinley:]

Yes. Okay. The sales impact in the quarter of lower discounting, so obviously we have a margin benefit, but we're also not shaving that discount off the top line. Can you help us understand the degree to which you felt that impacted both revenues and food costs?

[Diana Garvis Purcel:]

Yes, give me a second. I'm just going to look up our discounts. So for instance, in the quarter, just to give you an idea -- I'll let John speak strategically. But -- so in the quarter, comps and discounts call it, last year was 4.7%. This year at 4.1%. Year-to-date, 5.5% last year, 4.6% this year. So certainly, those dollars are very meaningful, and the flow-through can be very impactful.

[Gregory J. McKinley:]

Okay. And would you describe the second quarter as the beginning of an initiative? Or did we see that really you hit the button, and you're full go during the quarter? Or is that 4.1% change even lower on a go-forward basis?

[John F. Gilbert:]

Well, I think it's a fair question. I don't think it's transient. I think it is part of our go-forward vision of how we manage this brand. So as we look at the balance of the year plan, our plan has significantly lower discount windows in it. I mean, those discount windows are driven by some sort of tool to get that discount in front of consumers. So we know we're not going to do direct mail to the level that we did last year. I'll say a couple of things about discounts or promotional strategy, and that discounts are a tool. And I saw one of our competitors last night on TV with an open discount. Essentially, that was 2 entrées and an appetizer for $10. So I'm not going to comment on the validity of that strategy as it relates to their results or not. But I think discounting or improving the consumer price value dynamic is part of the tool chest we have as brand builders, and it's part of our tool chest as well. So we're not antagonistic to the idea of helping our customers find a higher frequency with us based upon offering them a better price value equation. Our formula simply for that gift that we are giving the customer to get is hopefully incremental behavior of some sort. So an extra visit a year, or an extra item when they come in, and that has been happening. So we feel like we're not alone, but we certainly feel like we found a way to leverage the promise of this brand by using promotion and discounting effectively, albeit a lot more cautiously than we have in the past.

[Gregory J. McKinley:]

Okay. On the menu side, I wonder if you can just make sure I have my facts correct. In April, you rolled a new menu. You have about 1.5% pricing on a blended basis. That worked for you then. And then did I hear you correctly that there would be an additional 1.5% taken with the new September menu?

[John F. Gilbert:]

Yes, that's correct.

[Gregory J. McKinley:]

So you'll have 3% working for you, really, September, December and Q1 of '14?

[Diana Garvis Purcel:]

Yes, on a weighted basis, the way it works, we're looking at about 2.5% for the year.

[Gregory J. McKinley:]

Okay. Okay. And then finally, you'd commented about still seeing your stock as an attractive way to provide cash back to shareholders through repurchases. Can you remind us how you think about your real estate portfolio. Do you have a lot of owned real estate? Would you ever look at refinancing through like a sale-leaseback and using that to retire shares? Or how do you view that?

[Diana Garvis Purcel:]

We own less than 20% of our portfolio and as we saw last year with one of our locations that, frankly, we had held up for a number of years as a seed restaurant in Tulsa, Oklahoma, we're able to sell the real estate, which frankly at the time had a greater degree of value than the business. So I guess the answer to that is we're open to any and all ideas as to what makes sense for the strategy of the company. To be clear, the reason that we -- we paid off a substantial portion amount of debt in the second quarter. So the reason we didn't buy back shares didn't have to do with the fact that we didn't have the cash to do so. We were restricted under some covenants under our current line of credit.

[Operator:]

There are no further questions at this time.

[John F. Gilbert:]

Well, I want to thank everybody for listening this morning. We're clearly pleased with our progress in the second quarter. But I want to highlight, this is a -- even though we talk to you in a quarterly basis, this turnaround and brand building opportunity is more than a single quarter. And so we see this as a long-term project, a long-term commitment. We will continue to work on the initiatives laid out this morning. And really, we do look forward to talking to you guys again on the next quarterly update.