Bob Evans Farms Management Discusses Q3 2013 Results - Earnings Call Transcript

| About: Bob Evans (BOBE)

Bob Evans Farms (NASDAQ:BOBE)

Q3 2013 Earnings Call

February 20, 2013 10:00 am ET


Scott C. Taggart - Vice President, Investor Relations

Paul F. DeSantis - Chief Financial Officer, Principal Accounting officer, Treasurer and Assistant Corporate Secretary

Steven A. Davis - Chairman and Chief Executive Officer


Michael W. Gallo - CL King & Associates, Inc., Research Division

Will Slabaugh - Stephens Inc., Research Division

Michael Halen - Sidoti & Company, LLC

Stephen Anderson - Miller Tabak + Co., LLC, Research Division


Good morning. My name is Jodi and I will be your conference operator today. At this time, I would like to welcome everyone to the Bob Evans Farms Third Quarter 2013 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Scott Taggart, Vice President of Investor Relations. Please go ahead.

Scott C. Taggart

Thank you, and good morning from Columbus, Ohio. This is Scott Taggart, Vice President of Investor Relations. I'd like to welcome you to Bob Evans Farms Third Quarter Fiscal 2013 Conference Call. With me this morning are Steve Davis, our Chairman and Chief Executive Officer; Paul DeSantis, our Chief Financial Officer; Ed Mitchell, our Vice President and Corporate Controller. Our call today begins with a summary of our performance from Paul and then Steve will go into further detail regarding developments within each of our segments. After that, we will open the call for questions.

Please note, our comments today contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections regarding anticipated future results. A number of risks and uncertainties could cause our actual results to differ materially from these forward-looking statements. Our recent filings with the Securities and Exchange Commission include a discussion of these risk factors. We caution investors not to place undue reliance on forward-looking statements, which speak only as of the date of this conference call. We undertake no obligation to update these statements. Also, we will reference non-GAAP financial measures today. We have provided a reconciliation of the non-GAAP information to the most directly comparable GAAP financial measures in our earnings release posted on the Investor Relations section of our corporate website at and filed with the Securities and Exchange Commission on Form 8-K.

And now here's Paul DeSantis with a review of third quarter results and a look ahead at the remainder of fiscal 2013. Paul?

Paul F. DeSantis

Thanks, Scott. Good morning, everyone. This quarter is truly a demonstration of our first strategic pillar: Transform our core businesses to enable expansion. During the quarter, we took another big strategic step by completing the negotiations for the sale of Mimi's Café. We signed the deal on January 28 and, we're pleased to announce, closed on February 15.

Let me highlight a few other key items since our discussions last quarter. Same-store sales at Bob Evans Restaurants were 1.6% for the quarter, including a net unfavorable snow effect of approximately 0.5%. BEF Foods demonstrated volume growth of 13% and top line of 7.5%. Year-to-date, Foods has grown volume 12%, sales by 6% and non-GAAP profit by 40%. Non-GAAP EPS was $0.56 per diluted share.

We refreshed 40 Bob Evans Restaurants during the quarter, bringing the total to 249 restaurants refreshed to date. We continue to successfully integrate the Kettle Creations acquisition and then immediately challenged the plant to in-source a key product line due to a production disruption attributable to one of the company's suppliers.

We converted our 2 restaurant-operating companies to limited liability companies. Besides streamlining our organizational structure, this conversion is expected to have favorable cash tax benefits in the range of $53 million to $63 million, the bulk of which we expect to realize over this year and next year. This conversion is not expected to have any permanent tax rate benefit.

We paid off our remaining private placement notes, approximately $100 million worth, primarily using funds from our revolving credit line. The primary reason to pay out the private placement notes was the organizational and covenant flexibility we gained to facilitate the restructuring and other corporate initiatives. In addition, we expect to gain interest expense savings from the interest rate differential. I'll go into more detail by business unit in a few minutes.

As a result of our transformational and restructuring activity, there are a number of large items that are recorded in our financial statement. The goal of our GAAP to non-GAAP adjustment is to highlight the performance of our businesses by adjusting out the large items not associated with ongoing operation. In total for the quarter, we recorded $32.3 million pretax and $10.3 million after-tax of GAAP to non-GAAP adjustment. We also expect to have significant Mimi's sale-related GAAP expenses, which will be excluded from non-GAAP reporting during the fourth quarter. I encourage you to read the GAAP to non-GAAP disclosures in our press release for more specific details.

Normalizing for all these GAAP, transactional and restructuring adjustments, we reported non-GAAP EPS for the quarter of $0.56 per share, where we thought we were going to be when we announced the sale of Mimi's a few weeks ago. Last year, we reported earnings of $0.69 per diluted share. The key drivers of the variance are as follows: Mimi's reduced profitability cost us $0.07 per share as a result of the continued top line weakness. Last year, during the quarter, Mimi's earned $3.2 million. This year, only about $300,000. Same-store sales at Mimi's for the quarter were down 4%, with December down 6.3%, likely in reaction to our announcement of the pursuit of strategic alternatives for Mimi's.

BEF Foods shifted marketing spending to the third quarter from the first and second quarters to better match up spending with the key holiday demand period and avoid expensive election-related media. This timing shift cost $0.08 per share in the quarter. The spending is designed to drive awareness, as well as current volume. For the full year, we're expecting marketing spending to be up slightly to last year.

During the quarter, the Foods business experienced a $0.03 per share decline in profitability, as a result of higher costs arising from a production disruption attributable to a unilateral price increase taken by one of the company's suppliers.

In December, Bob Evans Restaurants experienced several snow events, including the weekend after Christmas, which is a key weekend for that month. In January, we had a benefit as we rolled over a snow event last year. The company estimates the negative net sales impact from those snow events was approximately $1.2 million, while earnings were reduced by approximately $0.01 per share. In the taxes line last year, we received a $0.05 per diluted share benefit, resulting from a tax settlement. That settlement was not repeated in this year's third quarter.

Offsetting these headwinds were some favorable items compared to last year, which include the positive effect of Kettle Creations, favorable interest expense and the favorable effect of lower share count, each of which we estimate to be approximately $0.02 per diluted share, or approximately $0.06 of favorability in total.

Bob Evans Restaurants same-store sales reached 1.6% for the quarter. That included approximately $1.7 million of snow effect on the top line in December, which had the effect of reducing December's performance by approximately 2.3 percentage points and $500,000 of snow effect rollover benefit from last year, which had the effect of increasing January's performance by approximately 80 basis points. Overall, we estimate the quarter was unfavorably impacted by approximately 50 basis points. The weather effect impacted profitability by approximately $500,000, as labor, food cost and other restaurant expenses were hurt by the weather effect as well.

In terms of the Farm-Fresh Refresh program, during the quarter, an additional 28 Bob Evans Restaurants in the Detroit and Toledo markets moved into the category of restaurants refreshed for more than 1 year. Those restaurants joined the 27 restaurants from the Dayton market that have already been completed for more than 1 year. Overall, these restaurants are up 2.7% for the quarter, demonstrating the sustained power of the refreshed restaurants more than 1 year out. During the quarter, we refreshed approximately 40 Bob Evans Restaurants, compared with 15 restaurants last year. As a result, we experienced 258 closed restaurant days in the quarter, compared with 118 closed restaurant days in last year's third quarter, which would account for approximately $500,000 of incremental lost sales.

Overall, the refreshed restaurants, including the effect of closed days, continued to outpace the non-refreshed restaurants. The almost 20% returns on the Refresh program continued. Our strategy of refreshing the entire chain by the end of the next fiscal year remains in place, especially given the sustained growth we're seeing in the refreshed markets.

For the third quarter in a row, BEF Foods chalked up strong top line growth. Overall volume was up 13% for the quarter. The side-dish business grew at more than 9%. The food service business grew at more than 40%, on the strength of sales to third parties, third-party sales from the Kettle Creations acquisition and continued in-sourcing gains at Bob Evans Restaurants. Top line responded with growth of approximately 7.5% for the entire BEF Foods business.

Total cost of sales and operating wages combined, although favorable to last year, were not as favorable as we were expecting. During the quarter, one of our suppliers notified us that they would cease providing us with an integral component of our side-dish business. Given the timing of the notification, coupled with our desire to avoid supply interruption to our customers during a major production period, we had to incur additional expense reconfiguring our existing production lines to in-source the production of this product. The capital cost of this new equipment was approximately $1.7 million. The disruption to our production lines, coupled with initial inefficiencies in manufacturing, adversely impacted our results. We continue to refine production to improve efficiencies. Furthermore, the same supplier imposed a unilateral price increase on other products, which they continue to supply for us. Right now, our estimate is that the cumulative effect of the 2 actions related to this supplier has impacted our results by approximately $0.03 per share for the quarter. Any continued and contemplated impact from these items for the fourth quarter has been reflected in our guidance and we continue efforts to minimize any impact beyond that. As this matter pertains to pending litigation, we are not at liberty to discuss this further.

Other operating expenses were up over last year as a result of acquisition of Kettle Creations, as well as volume-related increases in hauling and freight. SG&A was also up over the prior year. The increase in SG&A was due to the timing of marketing spending for the year. Although our overall marketing budget is expected to be up slightly year-over-year, we concentrated it into the third quarter by pulling from the first and election-heavy second quarters. Our goal was to support the seasonal sell-in at trade by committing to our retailers that we would market our key items. As a result, retailers ordered more product. Volume, market share and the number of locations at which we are available for the key side-dish business increased again this quarter. The payback to the spending will ultimately be realized through sustained higher top line growth, better market share and increased consumer recognition. Marketing spending in the fourth quarter is expected to be up slightly to prior year.

A number of questions have come up regarding the impact of our strategic initiatives, such as the sale of Mimi's and the conversions of our restaurant-operating companies. I'd like to address them here.

When will the cash tax benefits be realized? We expect the cash tax benefits to be realized over the next few years, with the bulk of the cash realized this year and next. We will continue to firm up the numbers and come back to you with a narrower range during the next quarter's call.

What will we do with the cash received, both from the proceeds of the Mimi's sale and the restaurant-operating company conversions? We'll consider our liquidity position as we evaluate our capital allocation decision. As we've stated, the primary use of capital is for us to drive our profitable growth initiatives by investing in our business. This is followed by the payment of our dividend, then followed by acquisition. To the extent that there's the capacity, we will buy shares back. Our view on our balance sheet and leverage is to be a bit conservative, protecting liquidity in anticipation of potential acquisitions and from continued economic challenges.

What is the transition services agreement with Mimi's? Our transition services agreement is designed to provide Mimi's with the services necessary to continue running the business while the new owner integrates it into their organizational structure and support systems.

How long will the transition services agreement last? We expect that the majority of services we provide today will be provided for up to 1 year.

How much will the transition services agreement cost? The charges to the buyer for our services will not completely offset the cost of providing those services. We currently allocate approximately $10 million of cost to Mimi's each year. If all services were to be provided for the full year, we would collect approximately $5 million, leaving us with approximately $5 million to cover through other cost reductions and efficiency improvements.

Naturally, you're asking, how will we offset those costs? Our commitment is to offset any cost overhangs, stranded costs as we call it, to deliver on our 8% to 12% long-term EPS growth commitment. Over the past 5 years, we estimate we've saved more than $100 million through efficiency initiatives, such as the establishment of our formal supply chain and purchasing group, lean manufacturing initiatives implemented in our BEF Foods segment and actual versus theoretical food cost savings in our restaurants, just to name a few. Those savings have allowed us to offset cost increases and deliver 9% EPS growth during the last 5 fiscal years. As we've had historical cost savings and efficiency initiatives in the past, we have similar savings and efficiency improvement programs now and going forward.

For example, we implemented a hiring freeze earlier in the year, taking advantage of natural attrition. We announced cost savings projects in our plant consolidations and we paid off our higher costs private placement notes. Our Project BEST Way cost savings initiatives include SKU rationalization, menu management and labor management, in addition to the ERP install we're starting shortly to help us upgrade our processes to efficiently support growth. No savings opportunities are off the table. We're confident that we'll be able to offset the stranded costs over the next year and are committed to delivering 8% to 12% long-term EPS growth.

In terms of guidance for the rest of the year, in light of the complexity this quarter and next, we'll be giving guidance for the fourth quarter. We'll go back to annual guidance for fiscal '14. We expect the fourth quarter of fiscal '13 to be in the $0.60 to $0.65 per diluted share range. This includes approximately $0.03 per share of costs associated with Mimi's transition services, as I just discussed. This also assumes we exclude any Mimi's performance in the fourth quarter. Bob Evans Restaurants is expecting a top line of flat to 1% positive for the quarter.

February started out slow. We believe guest reaction to the tax increases and an extended string of snowy and bitterly cold days in the core Midwest markets kept a portion of our target audience at home. We've seen that trend begin to moderate in mid-February and expect to get back to growth by the end of the quarter. Operating margins are expected to be in the 9% to 9.5% range, consistent with previous guidance and reflecting the accelerated Farm-Fresh Refresh remodeling program and the early February sales impact.

BEF Foods is expecting overall net sales of $85 million to $95 million for the fourth quarter, up from last year's fourth quarter of $76.5 million. Operating margins are expected in the 9.5% to 10.5% range.

We continue to expect capital spending to be in the $130 million to $150 million range, primarily to support our expanded refresh initiative, expansions at the Kettle Creations and Sulphur Springs, Texas plant, our corporate campus and our ERP initiative. In terms of next year, there will be many headwinds and tailwinds that will likely keep us within our 8% to 12% long-term EPS growth range. For example, we'll have a loss on our transition services agreement with Mimi's, there will be expense as we invest in our ERP project and we'll be refreshing approximately 240 restaurants. Offsetting those headwinds will be the absence of the Mimi's loss, the benefit we expect to realize from our plant closures and other efficiency initiatives, incremental value from the Kettle Creations acquisition and, of course, profitable growth from our business units. We will give detailed guidance for the fiscal 2014 next quarter. With that, I'll turn the call over to Steve. Thank you.

Steven A. Davis

Thanks, Paul. Good morning, everyone. Our company's efforts and investments are now focused on our 2 Bob Evans-branded segments: Bob Evans Restaurants and Bob Evans Farms Foods. Both businesses delivered positive net sales growth this quarter despite several significant challenges.

At Bob Evans Restaurants, we generated our third consecutive quarter of positive same-store sales growth, due largely to continued strong performance from our Farm-Fresh Refresh remodeling program, as Paul noted earlier. We remain on track for completing that program during fiscal 2014, 1 year earlier than we originally planned. Likewise, we are not deviating from the value platform strategies driving each of our sales layers, as guest feedback and sales trends continue to be positive around our dine-in, carryout, bakery and catering offerings.

At Bob Evans Farms Foods, we had a successful quarter as we grew overall volume 13%, with food service, refrigerated side dishes and sausage generating positive growth of 42%, 9% and 3%, respectively. Our frozen business was down 7%, but that was due primarily to a couple of large retail customers shifting orders from January to February. We saw growth in market share for our sausage and refrigerated side dish products during the quarter, and a stable share in frozen, suggesting our efforts to turn around that business are taking hold.

Both Bob Evans Restaurants and Bob Evans Farms Foods have been transformed during the past 7 years. Both are more relevant, more efficient and better poised for top and bottom line growth than ever before. This is a testament to the vision and dedication of the 30,000-plus employees who have taken the BEST Brand Builders to heart. To these individuals, winning together as a team, consistently driving sales growth, improving margins with an eye on guest satisfaction, being the best at operations execution and increasing returns on invested capital are the framework for thriving in all operating environments.

Industry and macroeconomic challenges will come and go but our teams consistently perform and deliver long-term earnings growth because they operated from the sound foundation these BEST Brand Builder principles provided. Today, Bob Evans Farms Inc., through Bob Evans Farms Restaurants and Bob Evans Farms Foods, is a unique growth vehicle for capturing an increased share of stomach across each of the restaurant, grocery and food service channels. With the divestiture of Mimi's Café, our company is committed to realizing the full potential of the Bob Evans brand. Our confidence in that potential was reflected in our recent decision to raise long-term annual non-GAAP earnings-per-share growth guidance to 8% to 12% from the previous range of 7% to 10%.

Many respected industry analysts have noted that companies operating in the restaurant and packaged food industries have become locked in a battle for market share as macroeconomic trends limit overall industry growth. We certainly would not disagree with that characterization. However, our teams are not ones to shrink in the face of a challenge. The tough economic environment we have faced for the last several years has served our company well. It has forced us to rethink the way we operate our businesses and the way we meet the needs of our guests and customers. Our core principles have not changed but our approach to managing our food manufacturing and restaurant businesses has evolved to position our company for growth even if the overall food industry is not growing.

We are in a position today to discuss growth strategies for both of our business segments because we have undertaken a series of measures during the last 7 years that improved our cost structures, revitalized our asset bases and redefined our brands in the minds of our restaurant guests and grocery customers alike. As Paul said earlier, these actions have generated cumulative cost savings of more than $100 million. At Bob Evans Restaurants, some examples of these initiatives during the last 7 years include: continuous development of new and existing sales layers that meet the needs of today's family dine-in segment guests, including enhanced dine-in, carryout, bakery and catering options, all supported by well thought-out value layers designed to drive traffic and average checks; rebuilding our real estate, design and construction teams to enable acceleration of the Farm-Fresh Refresh program and to design a new restaurant prototype that will drive the success of our new, more aggressive unit development in the years following the completion of the Farm-Fresh Refresh remodeling program; the execution of a host of back- and front-of-the-house initiatives that have delivered earnings growth during a period of challenging revenue trends; the conception, design and prototyping and successful implementation of the Farm-Fresh Refresh remodeling program and the closure of more than 60 underperforming restaurants.

At Bob Evans Farms Foods, the projects initiated during that same period are equally noteworthy, which include: the expansion of our refrigerated side dish and frozen food offerings, which grew sales and further reduced exposure to sow costs swing while also introducing the Bob Evans brand to new customers; the acquisition of Kettle Creations, a former co-packer, allowing us to vertically integrate into our high-growth refrigerated side dish business; the transition from a direct-store delivery model to a direct-warehouse distribution model that has enabled us to expand our presence to all 50 states and more than double our retail points of distribution; and the launch of a lean manufacturing program that significantly improved our manufacturing efficiency and therefore mitigates the impact of sow costs volatility on our P&L.

While these examples of recent initiatives in both of our business segments are by no means exhaustive, they provide insight into how seriously we review responsible growth. We knew several years ago that our company had significant growth potential. We were also sufficiently humble to realize we did not have the infrastructure in place to grow in a manner that would best serve our guests, customers, employees and shareholders in the long term. Therefore we set on a course to do what was necessary to restructure our businesses for success in a more competitive environment where consumer decisions are increasingly impacted by value and convenience, as well as quality and freshness. We now have the infrastructure and growth projects in place that should enable us to deliver on our long-term earnings growth guidance.

With the divestiture of Mimi's Café, our growth story becomes clear. Today and in the coming quarters, we will articulate our plans for leveraging the Bob Evans brand as we grow the company in the years ahead. We are currently updating and revising our 5-year, long-range strategic plan and this year we plan to share more details of that plan to provide investors with a greater understanding of our operating plans and targets for each of our businesses over the long term. The long-range strategic planning process will continue into our fourth quarter and at next quarter's conference call we will discuss key elements of the plan, including guidance based on our sales layers and new cost structure.

With that, I will take a moment to recap the near-term programs we have in place to continue generating earnings growth and develop our brand at Bob Evans Restaurants and Bob Evans Farms Foods and then I will then turn to a review of our longer-term growth plan.

I will begin with Bob Evans Restaurants. Our current $9.99 3-course dinner menu features proven winners, such as our highly popular 3-course steak dinner. However, we also continue to innovate within the platform. During the diet-conscious, post-holiday season, we added several under-450-calorie options and as we transition to the Lenten season our $9.99 menu has grown to feature several new fish options, including blackened whitefish and garlic-crumb-crusted whitefish. And for a $2 up-charge, either dish is available with cod or salmon. Guests may also opt to add 5 shrimp to their meal for a very reasonable $3 charge. And finally, we offer a $2 dollar dessert upgrade option for guests who would prefer a slice of pie rather than the chocolate chip cookie or the ice cream sundae that is included in the $9.99 3-course offering.

Also in line with the Lenten season, we have expanded our premium seafood offerings outside of the $9.99 3-course dinner platform with 2 new fish-and-chips meals, as well as several shrimp combo platters, including shrimp and chicken and shrimp and fish. These new items are priced from $8.99 to $11.99 and are available at lunch and dinner.

Premium options have not been forgotten at breakfast either. We recently upgraded our $8.49 Farmer's Choice Breakfast to include All You Can Eat Hotcakes and, for $1 more, guests can add endless blueberries, pecans, chocolate chips or blueberry syrup to their hotcakes.

Our carryout, bakery and catering platforms continue to perform well during the quarter, with 11% growth in carryout and 16% growth in both bakery and catering. Carryout comprised 13% of sales during the quarter, while our bakery and our recently launched catering program represented nearly 2% and less than 1%, respectively. We are pleased that our bakery sales layer has already offset the sales impact of discontinuing the 650-SKU retail assortment, known as the Corner Cupboard, that we maintained previously in each of our restaurants. This is particularly impressive as our full bakery assortment is available only in remodeled locations, which currently comprise less than half of our chain. There's additional upside as we move towards completion of the Farm-Fresh Refresh program. Not only is the bakery sales layer outperforming our former retail business, it has far more growth potential and it is achieving that growth with less complexity, higher margins and a more relevant brand positioning. We are also developing new approaches to use in the bakery layer to drive the overall business. For example, we developed a Valentine's Day offer this month that drove gift card sales by including a free box of heart-shaped cookies with every $25 gift card purchase.

Catering and carryout are also increasingly important sales drivers. In fact, sales on the day before Thanksgiving now exceed Mother's Day, traditionally our highest sales day of the year, due to the impact of these growth sales layers. From a value perspective, our 10 for $6 Farmhouse Deals continue to drive sales for those guests who may be more price-sensitive or have smaller appetites. We recently introduced new offerings on the $6 Farmhouse Deal menu.

At breakfast, which as most of you know is available all day at Bob Evans Restaurants, we have added 2 new breakfast sandwiches served with either home fries or hash browns. And for the lunch and dinner menu, we introduced a $6 Chicken penne pasta dish, which includes slow-roasted, all-white-meat chicken and fresh vegetables in a garlic herb sauce served with grilled garlic ciabatta bread. As you can tell from these descriptions, while these new items may be targeted at guests with smaller appetites, they are certainly not small. And as we have said since we first introduced the $6 Farmhouse Deal menu, we will continue to innovate and exceed our guest's expectations for value, abundance and then taste within this platform.

Our Bob Evans Restaurants team is developing its digital marketing platforms to further leverage and expand both our 800,000-plus member eCLUB and our website, which generated 9.5 million visits over the past year, a 50% increase over the prior year. We will continue to improve our website to maximize conversion of site visits to online orders and memberships in our eCLUB. We are taking a holistic approach to digital to ensure brand alignment but we also recognize the subtleties of each channel within the space. We have found that our traditional guests favor online access while Millennials prefer to interact with the brand using mobile devices. Our future marketing through each of these channels will reflect these and other insights we have identified as our digital marketing presence has expanded during the last few years. We will also leverage digital interaction with our guests across Bob Evans Restaurants and Bob Evans Farms Foods, as we continue to develop cross-branding ideas between the businesses. We will have more to report concerning our digital initiatives in upcoming quarters.

Now turning to Bob Evans Farms Foods. I am pleased to report that the integration of Kettle Creations is progressing well. We are in the midst of a significant expansion project, the Kettle Creations manufacturing facility, which is focused on the production of our refrigerated side dish products, which grew 9% over last year, as well as our plant in Sulphur Springs, Texas, that produces our ready-to-eat sausage products, which grew 44% over last year and our refrigerated and frozen handheld sandwiches offering, which grew 6% on a combined basis over last year. These expansion projects are critical to our strategy of focusing on high-growth, convenience-oriented product offerings.

As Paul noted during his commentary, we incurred some one-time expenses at Kettle Creations during the quarter as the team there in-sourced an integral component of our side dish business to prevent a supply disruption to our retail customers. The sense of urgency, professionalism and creativity consistently exhibited by the Bob Evans Farms Foods and Kettle Creations teams following the acquisition is a terrific example of what we mean at Bob Evans Farms Inc. when we talk about winning together as a team.

As we have said, an important part of the growth story of Bob Evans Farms Food, is the development of a more diversified product portfolio that is on trend from a consumer perspective and is also beneficial to margin stability and growth from a profit and loss perspective. The expansion and innovation projects at Kettle Creations and Sulphur Springs are key elements of that strategy.

Our strategy has enabled us to capture 5 points of market share since the Kettle Creations acquisition. Bob Evans Farms Foods now commands nearly a 50% share of the refrigerated dinner side dish business. Our success in integrating Kettle Creations gives us confidence as we continue to seek appropriate acquisition opportunities to further drive Bob Evans Farms Foods growth.

As I mentioned earlier, our company is currently working through its annual strategic planning process, where we develop our operating plan for the upcoming fiscal year, as well as revise and update our 5-year strategic plan. We will provide our fiscal 2014 earnings guidance next quarter along with many of the key elements of the 5-year strategic plan.

However, before moving to question and answers, I would like to spend some time outlining the long-term strategic priorities that will enable our company to deliver 8% to 12% long-term earnings-per-share growth.

At Bob Evans Farms Restaurants, we have set bold 5-year goals and strategic priorities, including off-premise sales of at least 20% of total sales mix. Within that initiative, we expect to grow our catering business, which was relaunched last November, to 20% of overall off-premise sales. We will also continue to innovate around our proven value platforms that are driving both dine-in and off-premise sales. The $9.99 3-course meals, the $5 Soup-to-Go, our Farmhouse Deals and Family Meals TO GO are proven winners and we intend to continue their winning streak.

The focus during fiscal 2014 will be the completion of the chain-wide Farm-Fresh Refresh remodeling program, along with continued development of the carryout, catering and bakery sales layers the program has enabled. We will continue to seek out and adjust accordingly to insights that we gain from the Farm-Fresh Refresh program. The most recent example is our modification of our bakery assortment and merchandising to drive grab-and-go sales, a key driver of future growth as we target weekly sales of $2,500 per week, per restaurant, in the next 5 years from the current level of just over $500.

Beginning in 2015, Bob Evans Restaurants plans to return to a more substantial new restaurant opening program, with approximately 10 to 15 new restaurants expected to open during the year. These new restaurants will reflect an evolved design that incorporates the high-growth category of carryout, bakery and catering sales layers, currently rolled out in the Farm-Fresh Refresh program. The new design is expected to lower the investment cost, while an upgraded site selection program is expected to enable us to generate average unit volumes in excess of our current average unit volume. The new design will reflect our guests' expectations for a dining experience, whether dine-in or off-premise, and will also feature a reengineered back-of-the-house to realize further margin improvement.

Our real estate strategy will address fill-in opportunities in existing markets, but we'll also continue to expand our footprint beyond the 19 states where we currently have a presence. Our approach to new markets will be to establish a concentration of units. You will not see us opening one-offs in noncontiguous states. And as we have said, through the Farm-Fresh Refresh program, we will not allow our assets to become obsolete in the future. We are committed to evolving our restaurants and our brand in order to remain relevant to restaurant guests' expectation. Therefore, in the next 3 to 4 years, we will be ready to execute Farm-Fresh Refresh 2, a Farm-Fresh Refresh remodeling initiative, as always, with an expectation of an appropriate return on investment. Our real estate strategy will be focused on obtaining high-quality locations expected to generate returns in excess of our cost of capital. These locations will not necessarily be the lowest-cost properties in a given market. Furthermore, the decision to purchase or lease each location will be based on the implications for achieving the highest return on invested capital. Generally though, we prefer to purchase real estate. We view real estate ownership as an important strategic advantage. It provides us with a far greater level of flexibility in managing our restaurant assets and it provides us with the certainty of a onetime cash outflow rather than a cash flow stream that escalates in perpetuity.

Owning the majority of our properties enabled us to execute the Farm-Fresh Refresh program far more efficiently than if we had been required to seek approval from individual landlords to modify our restaurants. And in those rare instances where it becomes necessary to close an underperforming location, it is advantageous not be faced with penalties associated with early-lease terminations.

At Bob Evans Farms Foods, tremendous organic growth opportunities remain in our 3-key in-store categories of sausage, refrigerated side dishes and frozen food. We frequently point out that Bob Evans Farms Foods has a retail presence in more than 30,000 locations nationally, with the potential to add approximately 10,000 more locations. Another part of our organic growth story is to expand our SKU presence at each location. Today, our average number of SKUs per location is just over 12. However, several of our retailers offer more than 20 of our SKUs. So as you can see, based on this simple data, acquisitions are not the only meaningful avenue of growth we have ahead of us. Expanding our presence at each existing distribution point, as well as securing new points of distribution, are each significant growth opportunities in their own right.

Our recently highly successful product introductions, including rice and pasta dishes, oven-baked casseroles, breakfast burritos and breakfast bakes, show that we are capable of expanding the product categories in which we compete. We are more than ready to compete in a battle for market share with superior products, such as our mashed potatoes and macaroni and cheese side-dish product lines but we are also quite adept at expanding the size of the categories in which we compete through product innovation.

The priorities during fiscal 2014 will include realization of the initial benefits of the food production consolidation plan announced last May, which we estimate will improve our operating expense structure by $4 million to $5 million during 2014, with full realization of benefits totaling $7 million to $8 million annually, beginning in fiscal 2015. Fiscal 2014 will also include continued efforts to uncover acquisition opportunities that will complement Bob Evans Farms Foods core competencies in the meat and the refrigerated sections of the grocery store. After completion of our updated 5-year strategic plan, we will share with you our expectations for growth and profitability at Bob Evans Farms Foods in the coming years.

A critical priority for both Bob Evans Restaurants and Bob Evans Farms Foods during 2014 and beyond will be leveraging further synergies between the 2 businesses. We have spoken at length over the last few quarters about the in-sourcing initiatives between the restaurants and our Foods business. We have noticed that Bob Evans Restaurants has been in-sourcing 50% of the total potential volume from Bob Evans Farms Foods. However, we continue to uncover new potential in-sourcing opportunities and we believe there may be upside to our total potential volume. We will keep you updated.

Beyond in-sourcing, there are several additional opportunities to create value from the unique relationship between these 2 businesses. Embedded within the growth story of each of our business segments are elements of growth due to: leveraging opportunities for cross-marketing and promotion; the supply chain innovation and cost efficiencies, including packaging, transportation and raw material procurement; the joint product innovation projects unique to the Bob Evans brand that will be offered on grocery store shelves and in restaurants; and in the case of Bob Evans Restaurants, optimized back-of-the-house design and labor utilization enabled by offsite food preparation at our Bob Evans Farms Foods facilities.

Now turning to Mimi's Café. I would like to point out that the sale process was conducted over a period of many months in partnership with Lazard, our financial adviser, and was approached in a methodical and measured manner in order to realize for shareholders of Bob Evans Farms Inc. and to ensure that Mimi's Café would be aligned with an appropriate strategic partner. As we've said in the past, at Bob Evans Farms Inc., businesses, product lines or assets not delivering on our return of invested capital expectations are either successfully restructured or they are divested. The strategic fit, return on invested capital and long-term growth potential of Mimi's Café relative to our other businesses were keys that prompted us to initiate a sale process of the business. From its executive team to its restaurant staff, Mimi's employees are a highly talented group of individuals who believe passionately in the promise of their brand. Over the years, we have developed deep and lasting relationships with Mimi's 10,000-plus team members and we now wish them success as they continue to develop their business.

As we have explained in the past, our overall corporate strategy is driven by 3 pillars. One, transform our core businesses to enable expansion; two, selectively invest in high return on invested capital growth opportunities; and three, drive shareholder value with disciplined capital allocation. As I conclude my comments this morning, I want to underscore Bob Evans Farms Inc.'s ongoing commitment to 8% to 12% long-term annual adjusted non-GAAP EPS growth. We expect to achieve that objective, as we have over the last 5 fiscal years, with continued adherence to our internal BEST Brand Builders. The BEST Brand Builders keep us focused on the levers that generate attractive returns on invested capital. We also remain committed to rewarding our shareholders with robust dividend and share repurchase programs, in addition to earnings growth to drive stock price appreciation, our employees with opportunities to develop their skills and progress within the organization and, of course, our guests and our customers, with best-in-class offerings within the grocery, restaurant and food service channel.

We have generated strong earnings-per-share growth during the last several years largely through the optimization of our operations and significant opportunities remain within Bob Evans Restaurants and Bob Evans Farms Foods for further cost efficiencies. Our future earnings growth will also be increasingly generated by a focus on leveraging top line growth of both businesses. Next quarter, we will share our growth expectations on a more granular level for fiscal 2014 and we will also provide a broader view of our revenue and earnings growth expectation for the next 5 years within both of our business segments.

We at Bob's Evans Farms Inc. are proud to be an Ohio-based company. Our Midwestern work ethic and conservative approach to managing our businesses have served us well as we have retooled our business segment to compete more effectively in core and growth markets in this challenging and volatile economy. It has enabled us to create jobs, invest in infrastructure and reward shareholders during one of the most challenging periods in our nation's economy. Bob Evans Farms Inc. is executing on its growth story. We will generate growth through expansion into new points of distribution, as well as through increased sales productivity at current distribution points in both of our business. This is a key element of our 8% to 12% long-term annual adjusted non-GAAP EPS guidance. We will achieve our growth goals through developing our businesses in ways that resonate with our guests and customers after short-term financial engineering. We engage in an ongoing dialogue with all of our shareholders concerning this approach and we know they expect nothing less.

With that, I thank you, and we are now ready to take your questions.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Michael Gallo from CL King.

Michael W. Gallo - CL King & Associates, Inc., Research Division

A couple of questions. Kettle sounds like it's coming along faster than expected. How much is left to go on the integration? What do you expect, kind of the annual synergies to be, or the annual accretion to be once it's fully integrated?

Paul F. DeSantis

Yes, we're working through that right now so I'll be able to give you a better sense for that next quarter. We're in the process of doubling the size of that plant at the moment. And so we're -- it currently has 2 lines, we're going to expand that to 4 lines. That process is underway. We're spending capital on it. So I think, as I said in my script, we had $0.02 of accretion in the quarter. We're very happy with that. I mean, we've driven a lot of volume through that plant and it's been very efficient for us.

Michael W. Gallo - CL King & Associates, Inc., Research Division

So it sounds like you think we should just see that accretion kind of grow as you get these lines up and fill up the volume?

Paul F. DeSantis

Yes. Now the lines won't be complete until later on next year. So we won't see the real effect of getting the additional lines in. And then we're only starting with 1 line of -- and then ultimately -- it will be the second line will come after that. So we'll go from 2 lines to 3 lines closer to mid-next year and then 4 lines will be probably a year out after that.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Right. How long do you think it will take you to get the stranded cost removed related to Mimi's? I mean, we're sitting here, 6 months from now, you think you'll have removed the $5 million of costs or...

Paul F. DeSantis

Yes, I mean, as we said in the script, we're committed to getting it out, sort of by the end of next year. We're providing services to Mimi's and will continue to provide those services for a year. So we have to put it in place. But as you know, this is not a process that occurred overnight. And so we had some warning that this was coming. And so we've got kind of a whole host of projects, if you will, that are in the works, that we expect are going to help us. So everything from -- we implemented a hiring freeze, for example, at the beginning of May, and so we've really been pretty strict about adding headcount. And so we've subcontracted work out as a result of that and so if you think about what that means as we move forward. We're kicking off an ERP project, which will give us a foundation for really, really being able to drive efficiency through the organization through upgrades of our processes as well as much better information to make decisions. And then, like we've had in the past with our supply chain and our gear initiatives, we have a whole host of those in the works right now that we expect are going to help us offset it. And everywhere in the P&L we think is going to be affected. So for example, one of the benefits of paying off the high-cost private placement notes is interest expense savings. So we expect that. We've kicked off an initiative in our transportation group to save some money. We announced a project to save between $4 million and $5 million next year in the Foods business as we consolidate some of our ready-to-eat facilities. So we'll elaborate on those projects as we go forward but the expectation is that, over time, those are going to help us. And certainly one of the big things we're looking at is labor and what we can do to manage labor effectively. We've got -- we're installing a new labor management system in our restaurants right now. We expect that's really going to help us zero in on controlling labor costs in a productive and beneficial way. So all of that together is going to work to help offset the stranded cost.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Right. And then can I ask you a question, just a bigger picture question here? Mimi's is now out of the way. There's not a lot of store growth within the Bob Evans system. You're going to have to remodel program done by the end of next year. You're going to have this plant consolidation done by the end of next year and you're going to have the Kettle Creations volume expansion done by the end of next year. Where do you think, when we start to look at 2015, we could see CapEx go from the $130 million to $150 million this year?

Paul F. DeSantis

Yes, that's a great question. So next year, CapEx is probably going to be even a little higher than the $130 million to $150 million as we bring a lot of those projects to a close. And then our expectation is, by 2015, we're going to substitute new restaurant development for refreshes. But 10 to 15 new restaurants isn't going to cost the same as 240 refreshes we intend on doing next year, nor do we anticipate doubling the size of Kettle, again, and our Sulphur Springs plant, which we're also in the process of doubling the size of. So CapEx you're going to find, in 2015, is going to fall back into the more historic levels of spending.

Michael W. Gallo - CL King & Associates, Inc., Research Division

That would be just -- I know it's bounced around, but I mean an $80 million number seem reasonable?

Paul F. DeSantis

I mean, if -- we'll give 2015 guidance when we get close to it but somewhere in that $80 million to $90 million range probably wouldn't be unreasonable.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Right. Anyway, I'm just looking at -- your sort of post-Mimi's adjusted depreciation is that on the -- somewhere in the low 70s maybe?

Paul F. DeSantis

Well, I mean, over the next 2 years, because of the CapEx that we're spending, you're going to see depreciation. There'll be a trade off. So Mimi's had approximately $20 million worth of depreciation. That will come out but then you're going to see, between the spending this year and the spending next year, that's going to add to the depreciation for the Foods business and the Restaurant business. So those 2 businesses are going to see depreciation go up. And of course we have that contemplated in our guidance and everything else.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay, and then just final question. How much of a drag still is the food supplier disruption in the fourth quarter? It sounded like there still could be $0.01 or $0.02, which I know is factored in your guidance. But just...

Paul F. DeSantis

Yes. We've got it built into our outlook but, because of the litigation that's involved, we're not going to really disclose anything more than that.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay, but it's fair to say it's still a drag and at some point I suspect you think you'll be able to mitigate what that cost is?

Paul F. DeSantis

Yes, I mean, we're taking actions to do exactly that. So that's part of the beauty of owning that plant.


Your next question comes from the line of Will Slabaugh from Stephens.

Will Slabaugh - Stephens Inc., Research Division

I wondered if you can talk just us a little bit more about consumer trends in light of how strong you finished the quarter and then some of your quarter-to-date commentary as far as 4Q goes. I'm wondering if you've seen any sort of additional volatility week-to-week, maybe weekdays versus weekends or anything else that would give you maybe any additional concern as we start this year and then get through February?

Steven A. Davis

Yes, you can check the Knapp-Track and SalesTrack and all those types of things. But clearly, when there was a transformation of the whole tax structure and I think the kick-up of gas prices, I think that's why you saw a little bit of a hiccup. In terms of how we're handling it, we're just staying focused on value, both at the -- doing bundling with the 3-course dinners and the bundled breakfasts and then also having the $6 Farmhouse Deals for those who want lower prices and decent food. So we will continue to focus on driving not only our value layers but also, every time we do a Farm-Fresh Refresh, we're adding that bakery layer, we're putting in a larger carryout area, which allows us to drive sales and we're just starting to scratch the surface of the catering business. So we're seeing some great success stories coming out of the field, as the team starts to ramp that up. Catering is one of those things where you have to make an investment. You have to actually go out and seek out that business. But what our teams are finding, it's not unusual for them to get $1,500 to 2 $2,500 orders if they get the right accounts and those are things that can be reoccurring. So there's not much we can do about the economy as we always say with the teams, so just stay focused on our offense, which is driving the value layers, driving the sales layers, getting the catering up-and-going, getting -- trying to keep double-digit growth going on the carryout business. And our Soup-to-Go program has been a great sales driver for us as well. You get this almost quart-sized container for $5. We make many of the soups ourselves, so it's very profitable for us. So we're just going to keep on our offense to offset some of these headwinds. But we've got some good momentum with the overlap, also, on our Farm-Fresh Refresh restaurants. So even though we saw some hiccups, we're still encouraged on what we're able to control.

Will Slabaugh - Stephens Inc., Research Division

Got you. It makes sense. And then I want to ask you also, kind of flipping over to the margin side of things. As far as the margin structure goes, of the 2 businesses, over the long-term and then what those may look like on a combined basis? So maybe just sort of thinking about where Bob Evans is now, where it could go, where Bob Evans Food is now, where it could go. And then kind of how you're thinking about that on a combined basis?

Paul F. DeSantis

Sure. I mean those are our 2 businesses that are left. So those -- when you combine them, obviously, and we take out the Mimi's effect, you see a margin pop for that. I think longer-term, we have a number of initiatives that are driving margin improvement in both businesses. And so those margin initiatives, our expectation is to pay off. And so I'm sitting here, I just counted that we have 13 different initiatives going on right now that are designed to help us control that middle of the P&L. So when you combine that with top line leverage, I think you're going to see margin improvement on a relatively consistent basis and that's certainly our goal. So we have some cost headwinds coming at us, as we talked about or as I mentioned in the call earlier but that's one of the reasons we have a number of initiatives in place. And so long term my expectation would be that we would see margin improvement in both businesses, which will ultimately get us to overall margin improvement for the company.

Will Slabaugh - Stephens Inc., Research Division

Got you. And then just lastly, I want to ask you about the competitive environment. I'm wondering, obviously, it's a very price-point conscious environment right now at the restaurant level and then I wondered if you could kind of comment on that as well us -- or maybe compare and contrast that to the grocery segment?

Steven A. Davis

Oh, that's a good question. All consumers are price-sensitive and so it really boils down to how are you defining value. And we've chosen to look at value 2 different ways. This 3-course dinner, is -- it's almost going to be a $60 million layer for us when you start breaking out what the contribution has been. And remember, a year ago at this time, we didn't even have that program. What we're discovering is that you don't have to always have low prices. Giving people more food for their dollar value is the way we're going to play it. And we've gotten great response, whether we've done steak as the center point of the 3-course dinner. We just came off turkey. We sold more turkey dinners than we have ever had and that contributed to the great November. Obviously December was a little soft due to the snow but then we also transitioned then to our 450-calorie, 3-course dinner. We did that for the early part of January, which is when the diet-conscious nature of our consumers comes out. And then we've -- going right into the Lenten period, we've upped up our seafood offering. So part of that 3-course dinner includes seafood. But now we're back on steak because it is a great value and we've gotten great consumer response, so we just recently brought that back. So we're not just playing price, we're playing innovation within our bundled specials. And then with breakfast, we've got these wonderful bundled meals that we've had for years but we've been adding All You Can Eat Hotcakes, which is a very low-cost way to add value to our offerings. And so we'll just continue to promote those things. And in the end, doing some of the productivity work that we're doing allows us to keep our prices lower. We consciously try to take price increases lower than our competition, which will put us in a better position long-term with the guest. And as Paul outlined, a whole host of productivity initiatives will keep us from degrading our margins as we do some of these bundled offers.


Your next question comes from the line of Michael Halen from Sidoti.

Michael Halen - Sidoti & Company, LLC

So can you give us any more color on the performance of carryout, catering and bakery at the remodeled units, whether it be percentage of total sales or if you're seeing some sort of uptick in the rate of growth?

Paul F. DeSantis

Yes, that's exactly what we're seeing. There's a nice uptick in the rate of growth for all of that. Bakery and -- obviously, we're adding the bakery, so they don't even exist in the non-refreshed restaurants. And so, in terms of excitement from our point of view, we're on average about $500 in bakery sales a week per unit right now and our expectation is to grow that to $2,500. And then of course once we hit that, then we're up to $3,000 and beyond. So our expectation is that, that bakery layer has a lot of potential for us, both from enhancing the dine-in experience and, of course, the grab-and-go part of it. So we're just at the beginning of that right now and we're seeing a great guest reaction to that. So that's been helpful. As we've redesigned these restaurants, we've redesigned them to make carryout easier. So if you go into a Bob Evans restaurant, say, an older Bob Evans restaurant, in order to perform a decent job on carryout, some of our restaurants have actually blocked off parts of the dining room in order to stage carryout. And so, that's not an effective use of dining room space and it's not an efficient way to drive carryout. So as we put the -- as we do these refreshes, we're seeing carryout also being affected by that because we're able to execute it better, we're able to communicate it to the guests better because it's on the wall when they walk in. And so they can see us. So we're seeing that. But we're also seeing dine-in traffic improve as well because the asset looks a lot different and it looks a lot like more of what somebody's expectation would be for a Bob Evans dining experience. And so we're seeing growth in all the sales layers but we're really enhancing the growth of bakery and of carryout through the refresh.

Steven A. Davis

I think we're just scratching the surface with our Farm-Fresh Refreshes. When we're complete, we've got a team already working on what I mentioned in my script, the Farm-Fresh Refresh 2.0, which will place a greater emphasis on coffee and beverages. A statistic for you to think about: Our beverage incidence is 80% in a dine-in environment; in carryout it's less than 15%. Part of the issue is we don't have the right beverage set, we don't have the right beverage carrier and we don't have the right pricing that makes it attractive to our guests. So we've engaged in a partnership with our beverage supplier to really go after this and said, what if we just -- look, if you move that 10 points, that would be highly accretive in terms of the improvement in margins because drinks are the most profitable things that you sell in a restaurant. So that's an untapped opportunity. We talked about taking the bakery from $500 to $2,500. Again, I mean, basically, we're setting up a bakery case and then putting grab-and-go. So we haven't really put a lot of heavy advertising behind it. We're just now getting started with food innovation. We're starting to learn what sells and what doesn't sell. So there's some great opportunity there. And our bold goal on carryout is 20%. There are plenty of categories out there: Pizza, Chinese food, I mean, you name it. Some of the fast-casual operators have carryout in excess of 30%. So we know the business is out there and we also know that only 40% of dine-in occasions happen in the dining room. So there's plenty of upside growth for us in this whole carryout space and there's no reason why we can't continue to grow double digits. And as I mentioned earlier, someone had asked about catering, we're just getting started on that as well and our team is finding out that Bob Evans Food works very well in the catering environment and we can cater all 3-day parts, which is an advantage that a lot of our competitors don't have.

Michael Halen - Sidoti & Company, LLC

Great. Good stuff. And just one more question. Do you expect Mimi's to remain a food service customer of BEF past the next couple of quarters? And is there any sort of contract in place there?

Steven A. Davis

Yes, I'll let Paul talk in detail about the transition services agreement but with any transaction of this nature, there's a lot of things that have to be carried over. And we outsource -- we provide products for not only Mimi's Café but other food service providers. So obviously it's up to the new owner to decide that going long-term. But as you saw, our food service business is up 40%. So we'd like to keep the Mimi's business but we're also looking at other food service customers as well. Paul, is there anything you want to add on the TSA?

Paul F. DeSantis

No, I think that, that answers the questions Steve. We have a plant in California that provides a lot of support for Mimi's right now. And so, obviously, we want to make sure that Mimi's is happy with what we provide to them. They're our customer now.


Your next question comes from the line of Steve Anderson from Miller Tabak.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

A couple of quick modeling questions. With regards to the switch out of your private placement note, have you -- do you have any dollar numbers for the interest cost savings you've contemplated on a go-forward basis?

Paul F. DeSantis

Yes, I mean, we're -- if you assume we're sort of going to borrow in the 200 basis-point range, all in, it will depend on where LIBOR goes and the like. And we're kind of exchanging that for roughly $100 million worth of, let's say, 4% or 5% notes, all in. That would give you an effective interest expense savings.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Okay. And with regard to tax rate, do you have any dollar numbers for the -- what you anticipate saving over the course -- from your baseline weight?

Paul F. DeSantis

Sure. I mean, the tax department assures that we will not have 160% tax rates every quarter going forward. So we should get back to a much more reasonable rate. I mean, the federal statutory rate is around 35%. Our goal is to try to beat that over time, as we have. And so we have a whole series of initiatives. So I'd be much closer to the 35% rate or even slightly under that going forward. And I think we gave guidance for the tax rate for the quarter, the non-GAAP tax rate because the GAAP tax rate, obviously, is very difficult. We used about 32% this year. I would expect it's going to tick up a bit next year as a result of higher profitability and changes in the underlying set of benefits that we get. But that should give you a general idea.


[Operator Instructions] At this time, there are no further questions. I will now turn it over to Mr. Steve Davis for closing comments.

Steven A. Davis

Thank you, again, for everybody for joining us today. If you have additional questions, please feel free to give us a call. As always, we welcome comments and feedback from all of our shareholders and we appreciate the dialogue as we strive to drive shareholder value, guest satisfaction and employee engagement. So if we don't hear from you in the meantime, we'll look forward to sharing our fourth quarter results with you in June. Thank you very much, and back to you, operator.


Thank you. That concludes today's conference call. You may now disconnect.

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