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Del Frisco’s Restaurant Group, Inc. (NASDAQ:DFRG)

Q1 2013 Earnings Conference Call

April 30, 2013 08:30 ET

Executives

Tom Pennison - Chief Financial Officer

Mark Mednansky - Chief Executive Officer

Jeff Carcara - Chief Operating Officer

Analysts

Nicole Miller - Piper Jaffray

Imran Ali - Wells Fargo

Jason West - Deutsche Bank

Bryan Elliott - Raymond James

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Del Frisco’s Restaurant Group Inc. First Quarter 2013 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Tom Pennison, Chief Financial Officer. Please go ahead, sir.

Tom Pennison

Thank you, Kayla, and good morning everyone. By now, you should have access to our earnings press release for the 12-week period ending March 19, 2013. If you have not already reviewed it, it may be found on our corporate website at www.dfrg.com, under the Investor Relations section.

With me this morning is Mark Mednansky, our Chief Executive Officer; as well as Jeff Carcara, our Chief Operating Officer who will be available for the Q&A portion of our call. Before we begin our formal remarks, I must remind everyone that part of our discussion today may include forward-looking statements.

These statements are not guarantees of future performance and therefore, undue reliance should not be placed upon them. We refer all of you to today’s earnings press release and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition.

In addition, we also will be referring to some non-GAAP financial measures this morning. We have therefore provided reconciliations of those measures on the earnings press release tables to the most directly comparable financial measure presented in accordance with GAAP.

With that, I would like to turn the call over to Mark.

Mark Mednansky

Thank you, Tom and good morning. You may recall that on our year end 2012 conference call we had noted that comparable sales through the first two-thirds of the first quarter were running in a low-single digit negative range. And as we expressed at that time this was the consequence of a variety of factors including macro economic headwinds, adverse weathers such as Nemo that affected several of our highest grossing restaurants. And of course the formidable full quarter comparison of 6.8% from prior year. We were therefore very gratified to see that our trend line improved in our March fiscal period and that all three concepts generated positive traffic over the last four weeks of the quarter and perhaps even more important that momentum has stayed with us through April as well.

For the first quarter, total comparable restaurant sales were down 50 basis points. This included minimal impact from pricing. In fact, there was no price intaking during the quarter and no pricing has been taken since the first quarter of 2012. Given our expectations accounts will further improve as we move through the year, we see no reason why we should not be able to achieve our 2013 outlook, which Tom will reiterate shortly.

Later in the call I will address some of the investments we are making in the field and here at our home office to ensure that we have resources in place hope to run exceptional restaurants today and prepare for the future. These efforts certainly affected our first quarter margins, but frankly I think we could have done a better job managing labor when trends were at their softest. We have since taken corrective measures to minimize the possibility of that repeating itself, particularly at Sullivan’s where the impact was most pronounced.

In addition, we are working through inefficiencies of our newest restaurants which also weight our restaurant level EBITDA even as their sales trends were above our initial targets. I do think it’s noteworthy that we held cost of sales steady to positive as a percentage of total revenues despite commodity inflation and without the benefit of the price increase. The constant communication between our chefs and our general managers is instrumental in controlling costs and we think that the flexibility that we have in preparing our daily specials or adjusting regional or seasonal items goes a long way in helping us manage this key line item. As you know we are also benefiting more from Grille’s impact on our total P&L. As it runs a lower rate of cost of sales than that of Del Frisco’s or Sullivan’s due to its lower reliance on beef and seafood.

During the first quarter, we opened a new Grille in the West Avenue area of Houston, a sea we know rather well as we already have Del Frisco’s Double Eagle and of Sullivan’s Steakhouse operating in close proximity. The beauty of the Grille, which now encompasses a total of six restaurants across the country is that is positioned to either complement our existing higher price concepts or serve as a scout for their development at a later point. The five Grille restaurants that we have opened this year certainly reflect both of these scenarios.

You probably are all aware now that we referred to Del Frisco’s Restaurant Group as the next generation full service restaurant company. We think that this description suits us well, because everything we do is designed to ensure that our guest view our restaurants as a place where the setting is contemporary, not trendy, and where a meal or bar experience can be had in a lively high energy environment. That’s why it’s the lightest as we are to expand our footprint and tap into the pent-up demand for distinctive dining experience.

We are equally excited by how we are keeping our existing locations fresh and relevant in markets where they already have a strong local following. So, whether it’s updating the color palette or adding more seats to accommodate private patio or balcony dining, we strive to be seen as a destination of choice and provide guest with more reason to consider dining with us. This year, we have approximately 10 projects planned in varying scopes. And that’s on top of the 11 we completed in 2012. Above all, I think these efforts signify the importance we place in proactively investing in our portfolio.

Before I turn the call back to Tom, I wanted to express how honored we are that two of our restaurants, the Del Frisco’s Double Eagle Steak House in Chicago and the Del Frisco’s Grille in Dallas were added to the open tables top 100 hotspot restaurant list for 2013. This in fact is the second consecutive year for the Dallas Grille. This list is user generated and the result of the collective opinions of more than 5 million reviews submitted and verified by open table guest for more than 15,000 restaurants across the country. We are incredibly proud of our teams in Chicago and Dallas as their work truly validates what we look to do in all of our restaurants provide our guests with the absolute best food and service available anywhere.

And with that, I will turn it over to Tom Pennison.

Tom Pennison

Thank you, Mark. For our 12-week first quarter, our consolidated revenues increased 13% to $59.8 million from $52.9 million in the year ago period. Our top line growth was driven by 49 additional operating weeks resulting from the opening of four Del Frisco’s Grilles and one Del Frisco’s since the beginning of the first quarter of fiscal 2012. Total comparable restaurant sales for the quarter decreased 0.5% or 50 basis points, following a total comparable restaurant sales growth of 6.8% in the year ago period. The first quarter 6.8% is our most formal comparison versus 2012 that takes place during this current fiscal year.

Considering the quarter to-date trend that we discussed back in February 21 as Mark alluded to we did progress nicely beyond that initial softness. That positive momentum did continue into our fiscal fourth period, which included late March and into April. As a reminder, our first quarter ended on March 19. So, we are not impacted nor received benefits by an Easter shift into late March.

For Del Frisco’s Double Eagle Steak House, revenues increased 14.1% to $32.3 million in the first quarter from $28.3 million in the year ago period. This improvement was due to 12 additional operating weeks related to our December opening in Chicago and a 1.9% increase in comparable restaurant sales, which was comprised of a 0.5% increase in average check and a 1.4% increase in entrée counts. This increase lapped over comparable restaurant sales growth of 7.9% in the prior year first quarter. This was the 13th consecutive quarter of positive comparable restaurant sales for Del Frisco’s. Operating weeks for Del Frisco’s were 120 compared to 108 in the first quarter of 2012.

For Sullivan’s Steakhouse, revenues decreased 3.4% to $19.9 million in the first quarter from $20.6 million in the year ago period. This was primarily due to a 4% decrease in comparable restaurant sales, which was comprised of a 1.4% decrease in average check and a 2.6% decrease in entrée counts. This decrease lapped over comparable restaurant sales growth of 5.4% in the prior year first quarter. As Mark noted, following the initial softness, we did see positive traffic in Sullivan’s during the third period of our first quarter, and this momentum has continued into Q2. Operating weeks for both periods were 228.

Also in the first quarter, the gross revenues increased 90% to $7.6 million, primarily due to 37 additional operating weeks resulting from three Grilles opened in 2012 and one Grille opening at the end of the first quarter of 2013. Last year at this time, we only had two locations opened in New York City and Dallas, whereas in the first quarter of 2013, we benefited wholly or partially from six Grilles in New York City, Dallas, Phoenix, Washington D.C., Atlanta, and our latest in Houston.

In terms of our cost structure, cost of sales as a percentage of revenue decreased 10 basis points to 30.8% from 30.9% than the year ago period. For comparison purposes beef accounted for 33% of our cost of sales in the first quarter of this year versus 34% in the same quarter of last year. There was no pricing taken during the quarter as Mark referenced and as he also stated, we have not had any pricing since the first quarter of 2012 which at that was approximately 1% and it’s now rolled off. By concept, we experienced a 20 basis point decrease in cost of sales but 31.5% for Del Frisco’s Double Eagle which was able to offset a 30 basis point increase at Sullivan’s to 30.8%.

The lower cost of sales of 28.1% at the Grille assisted in offsetting the overall cost of sales as a percentage of revenue as the Grille is becoming more impactful to margins as we go to concept. Restaurant operating expenses as a percentage of revenue increased 220 basis points, the 44.4% from 42.2%. At the concept level Del Frisco’s experienced higher operating expenses as compared to last year’s first quarter and as a percentage of revenue increased by 200 basis points. This was due primarily to new opening inefficiencies at the Del Frisco’s that opened in December. Sullivan’s also delevered by 280 basis points due to the sales volatility during the period which negatively impacted labor as well as certain other fixed in semi-variable operating expenses.

Also like Del Frisco’s, the Grille’s operating expenses were similarly impacted by new opening inefficiencies, mostly from restaurants that are opened in the fourth quarter of last year. And as a result its operating expenses rose as a percentage of sales by approximately 120 basis points.

For the quarter marketing and advertising costs increased $55,000 from a year ago, but as a percentage of revenue decreased approximately 10 basis points to 1.5%. Taken together restaurant level EBITDA increased 3.7% to $13.9 million in the first quarter from $13.4 million in the year ago period, but our margin decreased 200 basis points to 23.3% from 25.3% in the prior year.

During the quarter pre-opening costs increased to $591,000 from $70,000 last year due primarily to costs incurred with the Del Frisco’s Grille that opened in March as well as one other Grille under construction. Pre-opening costs include among other items non-cash straight line rent, which is incurred during the construction period and can proceed our restaurant openings by 4 to 6 months. During the first quarter approximately $197,000 of the pre-opening costs represented non-cash straight line rents.

General administrative expenses during the period increased to $3.8 million from $2.6 million in the prior year. This increase is due to new public company expenses including stock compensation expense with the remainder due to added headcount and infrastructure versus the prior year to support our growth that was added in the second half of 2012. As a percentage of revenues general administrative expenses increased 130 basis points to 6.3% from 5% during the prior year.

Depreciation and amortization increased to $2.4 million from $1.7 million. As a percentage of revenue this increased – this expense increased roughly 90 basis points to 4.1% from 3.2%, this is clearly due to our new development as well as our remodel and refresh expenditures over the last couple of years.

Interest expense during the quarter decreased to $24,000 from $1.2 million in the year ago period. Bringing these together on a GAAP basis net income for the quarter was $3.6 million or $0.15 per diluted share and this compared to a prior year net income of $5 million or $0.28 per diluted share. On an adjusted basis net income was $5 million or $0.21 per diluted share compared to $5.4 million or $0.30 per diluted share in the first quarter of the previous year. The adjustments to the first quarter consists solely of expenses in transaction bonuses associated with the secondary stock offering that took place during the quarter for our majority shareholder.

We encourage you to review the reconciliation table in the earnings press release for further details as how we arise at these adjusted results. Please note that in all the aforementioned calculations, the share base was $23.8 million in the first quarter of 2013 compared to $18 million in the first quarter of 2012.

In terms of our liquidity and balance sheet, as of March 19, 2013, we had cash and cash equivalents that are approximately $9.8 million and no outstanding debt. Once again, we intend to finance our capital requirements for development, maintenance, and remodeling solely through cash provided by our operations as well as borrowings available under our credit facility.

Turning to our outlook, we are reiterating our guidance for the 53-week fiscal year 2013. Specifically, we expect total comparable restaurant sales to increase between 1.5% and 2.5% on a 52-week versus 52-week basis on top of the 4.2% gain we achieved in 2012. And as our first quarter comp results would suggest, we anticipate stronger growth in the second half of the year than in the first half of the year. We will open five Del Frisco’s Grilles in 2013, of which one is already opened with the remaining four expected to open in the back half of the year, one in fiscal Q3 and three in fiscal Q4. Mark will discuss our development in more detail shortly.

We expect our cost of sales between 30.8% and 31.2% as a percentage of consolidated revenues, which considers double-digit beef inflation as well as our own ability to manage this line item. We also anticipate our annual restaurant level EBITDA to be between 22.8% to 23.3% of consolidated revenues.

General and administrative expenses are projected between $17 million and $18 million, and this is inclusive of non-cash stock compensation expense. We anticipate an effective tax rate of approximately 30% to 32%. And we are estimating our total capital expenditures before tenant allowances of between $27 million and $29 million. However, net of tenant allowances, cash capital expenditures are expected to be between $24 million and $26 million. For 2013, with all of this together we expect our adjusted earnings per diluted share to be between $0.92 and $0.96. This utilizes an estimated annual weighted average diluted common share base of approximately $23.9 million versus the base of $20.4 million we had in 2012.

Also please be aware that well not very helpful to our first quarter, the Boston Del Frisco became the ninth Del Frisco to be included in our first quarter comp base and we will begin reporting comparable sales for the Grille in the second quarter off of a base of 1, our New York City Del Frisco’s Grille.

With that, I will now return the call back to Mark.

Mark Mednansky

Thank you, Tom. Before Q&A, I would like to leave you with the following thoughts. I cannot be more proud of the team we have assembled at Del Frisco’s Restaurant Group. They are doing a great work in support of our company and our shareholders. Be in that hospitality business, we know how important it is to have the right people, both within the restaurants themselves as well as at the managerial and even at corporate level to ensure flawless execution within all facets of the organization. That is why we are adding talent to the bench across the three brands as well as adding resources and infrastructure within our Salt Lake Support Center. This way, we can better manage a growing and more geographically disperse portfolio restaurants with human capital and analytical tools that one would expect from a next generation restaurant company. These investments are certainly impacting operating expenses and G&A cost, but already factored into our guidance.

More importantly, they make it possible for us to grow long-term EPS in the 18% to 20% range and thereby enhance value to our shareholders. This year our team is focused on several initiatives. Well, not a complete list, these do include expanding our digital media and enhancing our loyalty program. We will continue to focus on growing our strong beverage sales through expanded education of our team. In fact, we are proud today to have over 120 team members with Level 1 or above Court of Master Sommelier Certification. Lastly, our culinary team continues to demonstrate their innovative and creative skills, renew offerings for all three of our concepts.

Since I discussed our Houston Grille in my opening remarks, I would like to now update you on what we have planned for the remainder of year. At the beginning of the third quarter, we opened a Grille in Santa Monica, California, this particular location originally have been scheduled to open at the very end of the second quarter, but was delayed several weeks due to the permitting process. We are going to follow that up in the fourth quarter with a Grille in Palm Beach, Florida, an entirely new market for us and then finished the year strong with a Grille opening in Fort Worth and South Lake, Texas, Houston by the way opened strongly and is off to a great start.

Our 2014 pipeline is also coming together and we see no reason why would not be able to expand our footprint by 10% annually or generating at least 25% cash-on-cash return after pre-opening expenses. On a related note our Chief Operating Office, Jeff Carcara and our Vice President of People and Education, April Scopa are reviewing our entire new restaurant opening process to ensure that it is as cost effective as it can be. That’s both before we commence operation as well as in the weeks and months after the restaurant is open. This work is already paying dividends with a reduced pre-opening cost of our recent Houston Grille opening.

Given the great name recognition we have with Del Frisco’s and Sullivan’s, we are frequently approached by developers and landlords interested in bringing us to their sites. However, sometimes they don’t have the available square footage for any of these concepts and they are looking for something that attracts our high-end guest, but also has a strong lunch component that’s why the Grille fits so well into our portfolio and compliments our more established brands. And while we are focusing on the development of Grille this year, the bottom line is that all three brands provide us with significant growth potential and we are fortunate to be able to select the very good sites as there is no shortage of opportunities being offered to us today.

So, with that, we appreciate you joining us this morning and we are now available to answer any questions you might have. Operator, please open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we will take our first question from Nicole Miller with Piper Jaffray.

Nicole Miller - Piper Jaffray

Thanks. Good morning. The human capital element being so important to what you do, at the end of your prepared remarks you were talking a little bit about the support you might be adding at headquarters and also out in the field, could you give us some idea of the hires that you need to make in the bench strength?

Mark Mednansky

Sure, Nicole. Good morning. It’s Mark. Well, first everything that we have – that we are going to hire in 2013 is already fully baked into our model. But most recently we hired another Director of Training for our team. We are very excited to bring on a veteran in the restaurant business of over 13 years and shall be starting with us next week. We are currently recruiting inside Director of Purchasing, currently we outsource that position, but we are gong to hire it internally. Later in the year, we will hire another financial analyst and then a young lady or man that will help us with our stocks requirements. Right now, we are actually sitting pretty good when it comes to regional managers, regional chefs, and all of our management teams that are in place for our current units and for the units that are planned to open this year.

Nicole Miller - Piper Jaffray

Okay, thank you. And then a second follow-up question, the growth as we understand of course there is not a comp yet, so how you characterize the success of the openings thus the revenues about pro forma, are they sustaining those levels if so. And then as it does relate the comp coming into next quarter having a growth comp, do you think that that will be a positive comp lift? Thank you.

Tom Pennison

Sure. Well, as you know the new concept for us, but this is definitely the Grille was build for the high-end guests, so different than the honeymoon period that you would see the same casual dining. So, we have one in the comp base right now and again that is 18 months and that’s New York and its comping positive for the year. So, we are excited that this concept has some legs and be able to move north after it gets into the base. With that said, all these Grilles have opened strongly. We have six right now and five of the six were actually outperforming our initial performance projections. They opened strong and then it is our responsibility to build that dining guests. As you know we have limited private dining, but that is another area of opportunity for us to build in the future years. But they are opening strong, they’re holding their sales, they are gaining traction, they are getting some good reviews reminder Nations Restaurant News picked it as a hot concept. We were very encouraged that for the second year open table picked the Dallas Grilles one of the top 100 hot restaurants in the country. So, we are just really excited about this brand and the affordability that it gives to us.

Nicole Miller - Piper Jaffray

Thank you.

Operator

And we’ll take our next question from Imran Ali with Wells Fargo.

Imran Ali - Wells Fargo

Hey guys, it’s Imran in for Jeff Farmer. Thanks for taking my question. Just kind of following up on the last question, just talking about the six Grilles and as many markets, can you maybe speak to any of the variances in averaging volumes that you have seen across different geographies or is it too soon?

Tom Pennison

Well, I think given that each one of it is relatively it’s own geography, it’s hard to see trends of it clearly our first opening – this is Tom by the way I’m sorry.

Imran Ali - Wells Fargo

Hi, Tom.

Tom Pennison

Our first opening in New York City clearly is a very above average volume similar to our other locations in New York. But on average we are seeing, we are still running five of the six well above the top and of our range that we provided for the Grille. So, right now we are still comfortable with that, we will call it north of six of those five. And then we have one location that is within the range or the lower side of the range which is actually anticipated to be lower side of the range and why the range was set where it was because it was a location that we did based on a return on investment opportunity. But right now, it’s still kind of early I think to kind of set what our realistic AUV is. Our pro forma model that we have shared before is that midpoint is about 5.25 as an AUV. And from a forecasting we are still staying with that, that said as we have alluded to five of the six are well above that 5.25 today.

Mark Mednansky

Imran, it’s Mark and I will expand just a little on that. One of the beauties of this concept is the fact that you it can go into very diverse markets and if you look at our Del Frisco’s Double Eagle you’re looking at the central business district, Sullivan’s we’ve positioned to be the leader in affluent suburbs for a white table cloth option for Steak House dining. We’ve taken the Grille and we haven’t just cherry picked some of the great spots. The first one I’ll give to you rock centers kind of hard to miss there. But we’ve gone into the uptown area of Dallas and been very successful. We went into (indiscernible) in Houston where we are not downtown, we are not uptown, we are just in an area called West Avenue and doing extremely well with that opening. DC, Phoenix, they are all different marketplaces and you will see that with some of the future growth of the brand. We believe that it has legs not only in the central business district but also affluent neighborhoods out in suburbs malls it really hits a sweets spot with the upscale guests where they live or where they work.

Imran Ali - Wells Fargo

Understood I appreciate it. Thank you very much.

Operator

And we’ll take our next question from Jason West with Deutsche Bank.

Jason West - Deutsche Bank

Yeah. Thanks good morning guys.

Mark Mednansky

Hi, Jason.

Jason West - Deutsche Bank

Hi. So, on the April commentary you guys talked about seeing some acceleration from the low point in the first quarter. Can you give us any sense of where that’s running in April so we can sort of better model 2Q?

Mark Mednansky

Well, once again we’re still early in the quarter. So, outside they are being negative concerns, it’s not going to be our practice to give too much color of actual numbers. But I would say what we’re seeing in Q2 so far is in line with above the top end of our annual range, slightly above.

Jason West - Deutsche Bank

Okay, that’s helpful. And then you mentioned traffic was positive at all the brands and including Sullivan’s and I mean would there be a net negative mix there that maybe offset some of that I am just wondering why characterize that as traffic and not just total comps?

Mark Mednansky

One of the areas we’re positive from a combined base in – we’re positive both in traffic and overall comp sales. That said we are speaking a lot more about traffic in general way, because our focus has been on traffic. There are some initiatives that we have been working through that will talk about in future quarters as we evaluate their success to drive traffic, especially at the Sullivan’s side. Right now, our traffic growth is outpacing our overall sales growth to where our check average is running a little bit negative, but that’s consistent what we saw in Q1 too. But right now, the traffic focus we are very pleased with especially on the Sullivan’s side, which has been some of the stronger traffic growth we have seen over the last several quarters.

Jason West - Deutsche Bank

Okay, that’s helpful. And then Tom you mentioned the outlook still assumes double-digit beef inflation and the numbers that we are getting particularly on the prime side showing beef is down significantly currently? And I know maybe that doesn’t hold up all year, but it seems like it’s off to a very good start and the double-digit number, maybe could be high just wondering your thoughts on that?

Tom Pennison

Yeah. I think you are spot on, Jason. We entered – the first quarter we did experience some pretty decent inflation early in Q1 and that subsided pretty quickly as we went through the quarter. And to your point you are spot on what you are seeing right now. We are experiencing much more favorable cost than we initially anticipated, which what that will do for us is definitely give us the opportunity to be on the lower side of our range as far as cost of sales. Right now, I mean, there are still elements out there that we could expect some inflation. We never did believe as a management team that what was being reported would be the case. So, we never fully factored ourselves in to be into the 15% plus that some people were speaking about, but we do feel there is still the opportunity for increase, and we are managing and prepared for that if there is an increase. But to your point to the extent it doesn’t materialize, we will be in a much better place in our cost of sales.

Mark Mednansky

And Jason, it’s Mark. As you know, it’s one of the reasons why historically we have not locked in beef prices, between Tom and I and our culinary team, we have many years in the Steak House business. And we are able to look at the price of beef on a weekly or monthly basis and make intelligent decisions rather than locking in the price and really hurting profitability by the end of the year.

Jason West - Deutsche Bank

Okay. And then just last thing on the Grilles, now that you have got a year behind you have some significant openings and a little bit of sales history you talked about and the volumes are good for the most part, it looks like maybe on the cost side it’s been a bit of a learning curve. Can you talk about kind of where you are on the profitability of the Grilles versus where you thought you would be at this time? Are you kind of behind schedule and it’s not like you have got some new management there that trying to get caught up a little bit just overall if you talk about maybe the opportunity to improve profitability on the Grille and is that something that you are kind of behind on right now?

Mark Mednansky

Well, Jason, it’s Mark. I will start with it. That was a lot there, but the Grille was a new concept for us. We had a lot of learning in our first location in New York and then our second one in Dallas, but we are very confident right now that we have this model down. With all new restaurants, there is inefficiencies in the first 60 to 90 days whether it’s labor cost, beef cost, beverage cost. And one of the reasons we bought Jeff Carcara into our teams is Jeff has had a great experience in opening restaurants and significantly reducing the inefficiencies, net time of inefficiencies. Houston, even though he was brand new out of the gates was his first opportunity and not only did he cutback on pre-opening costs, but we are seeing Houston as far as food cost, labor cost, bar cost, get in the line much quicker than we did with the first five restaurants that we opened.

With that being said, we are very confident in our culinary team, our training team, and reducing that time of the inefficiencies and be able to get steady state at a faster rate. Now, on construction, we have been very proud of our construction team bringing in projects on time and on budget. We are off by a couple weeks here with Santa Monica due to some permitting problems, but we are often running, I’ll be there to moral. We are excited about that. We are excited about the locations that we pick our side picking. We continue to vow. We are very pleased with the processes that we put in place very disciplined manner and style in which we select our property. So, even though it’s a new concept the learning curve we shortened it quickly we had much experience opening restaurants before, we are still dealing with the same upscale guests. So, we are confident in the rollout of this brand.

Jason West - Deutsche Bank

Okay. Thanks for the color guys.

Mark Mednansky

You bet.

Operator

(Operator Instructions) And we’ll take our next question from Bryan Elliott with Raymond James.

Bryan Elliott - Raymond James

Hi, good morning gentlemen. Tom just a couple of quick questions for you, did you give CapEx for the quarter, did I miss that?

Tom Pennison

No, I did not give CapEx for the quarter. However, we will be filing our – it’s not in the release today. We will be filing in our Q which you will have it but just CapEx for the quarter and this is the gross CapEx from our cash flow is up $5.2 million.

Bryan Elliott - Raymond James

Okay, I wanted to just maybe for all of you just wanted to drill little more into the Sullivan’s. So, the average ticket is falling, is it signs of consumer choice are people who are cutting back on some of the frills maybe alcohol, wine, the add-ons, or is it more – it sounds like it might be more proactive that you are undertaking some promotions maybe using the e-mail list and other ways to discount, is that accurate?

Mark Mednansky

Bryan, it’s Mark, it’s a little both. So, during the – especially the beginning of the quarter, we think that the middleclass and upper-middleclass guests were as you know affected by the tax increases. So, it’s kind of a shock and so we saw a decrease especially at the beginning of the quarter where peoples’ trending – spending CapEx I should say. They are still coming in. They still want to dine but perhaps they weren’t ordering extra appetizer or cocktail or more pricy bottle of wine. With that being said, we have always positioned Sullivan’s ad more of value play within a white table cloth Steak House segment. But sometimes we didn’t do a very good job of marketing that. So, that’s something that’s on Jeff Carcara’s bucket list right now. He is getting the appreciation and getting the recognition for the true value that the Sullivan’s brand does display. So, there is a few initiatives that we started at the very end of the quarter that will proceed in the second quarter that we’re excited about. Not necessarily discounting, but more bundling of meals and courses and showing our guests the value that they can get at the Sullivan’s brand.

Bryan Elliott - Raymond James

You’re doing that communicating via the e-mail list primarily or more broadly to the general public?

Mark Mednansky

Well, we’re just starting an initial rollout, Bryan. Right now, it’s been down with some e-mail, but the marketing plan will be set in stage here in the next month, month and a half.

Bryan Elliott - Raymond James

Okay, great. Thanks a lot.

Mark Mednansky

Thank you.

Operator

It appears there are no further questions at this time.

Mark Mednansky - Chief Executive Officer

Well, thank you. Well, we really appreciate you taking the time to hear about our company. We are excited. We’ll look forward to seeing you and talking with you by the end of next quarter. Have a great day. Good bye all.

Operator

That’s concludes today’s conference. Thank you for your participation.

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