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Ignite Restaurant Group (NASDAQ:IRG)

Q1 2013 Earnings Call

May 7, 2013 5:00 PM ET

Executives

Ray Blanchette - Chief Executive Officer

Michael Dixon - President and Chief Financial Officer

Analyst

Karen Holthouse - Credit Suisse

Phan Le - Lazard

David Tarantino - Robert W. Baird

Bryan Elliott - Raymond James

Christopher O'Cull - KeyBanc

Operator

Good afternoon, everyone, and welcome to the Ignite Restaurant Group first quarter 2013 earnings conference call. (Operator Instructions)

Before I turn the call over to management, I would like to note for you that portions of this call deals with forward-looking information. These statements reflect management's expectations for the future. The company's actual results may differ materially from these expectations. Management refers all of you to today's press release and the company's recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial conditions.

On the call today we have Ray Blanchette, Chief Executive Officer of the company; and Michael Dixon, President and Chief Financial Officer.

At this time, for opening remarks, I would like to turn the call over to Michael Dixon, President and Chief Financial Officer. Please go ahead, sir.

Michael Dixon

Good afternoon and thank you for joining us today. By now everyone should have accessed to our press release, which we issued this afternoon. The release, which covers our first quarter fiscal 2013 can also be found our website under the Investor Relations section. Additionally I would encourage everyone to review our related 8-K and 10-Q filings with the SEC for greater detail on the information included in our press release and on today's conference call.

Our agenda for the call will be as follows. Ray will provide an overview of our business, and then I will discuss the financial results. We will have time at the end for questions, but we'd like to finish up in about an hour. Before I turn the call over to Ray, let me put out the change in our fiscal quarter calendar.

Beginning with the first quarter of fiscal 2013, we adjusted our quarterly reporting calendar to four 13-week operating periods. Previously, the first three quarters of our fiscal year consisted of 12 weeks, and the fourth quarter consisted of 16 weeks. As a result to this change, financial results for the 13-week quarter ended April 1, 2013, may now be directly comparable to those of the corresponding 12-week quarter ended March 26, 2012. Now, we'll point out the impact of this as we go through the numbers for the quarter.

Now, I'd like to turn the call over to Ray Blanchette, our Chief Executive Officer.

Ray Blanchette

Thanks, Mike, and thanks everyone on the phone for joining us today. I'll start with a couple of big picture items. Shortly after the first quarter ended, we closed on the Macaroni Grill acquisition. With the closing behind us, I feel very good about the future of Ignite.

We have three great brands, a solid infrastructure and a robust development pipeline. Our revised organizational structure gives us three strong brand presence, all focused on our excellence, and best-in-class infrastructure working on menu innovation, brand awareness and restaurant support, here at the restaurant support center.

Consumer environment and values have been challenging, but I'm pleased we are well-positioned to profitably grow the Ignite business. As for the first quarter of 2013, well unfortunately after four-and-a-half years of positive same-store sales growth, that came to an end this quarter.

I am certainly not happy with these sales results, but it seems headwinds and facing a casual dining phase in January and February in particular, combined with the positive 5.3 that we rolled against in the prior year, we're just a bit more than we could overcome this quarter. So we ended up the quarter with our reported negative 1.4 in comp stores sales.

As I am sure, you probably noticed if you read the release, we disclosed comp sales by brand for the first time. As you'd expect Joe's Crab Shack represents a vast majority of our revenues and drives our overall comp sales results. Joe's posted down 2 comp stores sales for the quarter and down 3.8 in traffic offset by 1.8 benefit between price and mix.

Our opportunity at Joe's is clearly about driving traffic. I am confident that our 100% sure brand messaging is delivering the right message to make that happen. The campaign that we're currently on now focuses on our Gulf Coast roots. It showcases our elevated food quality and unique dining experience. As a Gulf Coast based company, we have the opportunity to leverage the flavors and spices that are unique to the region.

The campaign not only plays off of that distinctiveness, it lays the foundation for our current and future menu innovation. We're also using new commercials to shift the guest perception at Joe's from the celebratory type occasion to more everyday enjoyable moments, which we believe will drive frequency over the longer term.

We rolled out a new menu in April, and that includes several of the strongest performers from the test menu that we had in our test markets, including things were like Joe's Stuffers, our Spicy Citrus Steampot, and a new golden breading process for our fried seafood. We moved to a larger size shrimp, which in test proved enhanced overall satisfaction and the value perception.

The pricing on the new menu was a modest 1% increase. We used RMS to help us with that as we always do. And thoroughly, but I'm confident these new items will prove to be successful across the system, as they were in the test markets.

In the second quarter-to-date, we're seeing some benefit from these initiatives as Joe's comp sales have improved in Q1, and tracking to date at about down eight-tenth of a percent. So still room to improve, but we are moving in the right direction. And clearly this is the coldest spring on recording and with the size of our patios we think that probably had an additional impact.

And what we're seeing in Brick House, right now, quarter-to-date its north of 8% same-store sales, and Mike's going to talk a little bit more about that. So despite the first quarter softness in Joe's comp sales, new units continue to open and operate very strong. Our average weekly sales at the non-comp restaurants are approximately $90,000 a week, compare that to the Joe's average of roughly $64,000 a week.

And our two newest restaurants, Deptford Township, New Jersey and West Nyack, which both opened in April, actually on the same day, they've had average weekly sales in access of $175,000. Now, remember this is part of the honeymoon period. We don't expect those sales to continue at that level, but it is encouraging for us to see these types of volume still as we open our new units.

Now, let's shift to Brick House Tavern + Tap, I'm very pleased as mentioned in our last call with the continued development of this plan. Brick House posted solid first quarter comps at 3.9% as I have just mentioned and second quarter is just over 8%. This is a smaller brand, which has 15 locations, 14 of those restaurants are in the comp base, but the strong comp growth in a challenging quarter is encouraging nonetheless.

We'll get two to three new Brick House locations open in fiscal '13. Our menu innovation and food quality are excellent. The service model provides a noticeably superior customer experience. And the atmosphere there is unique and welcoming for a very broad range of guests. So based on the success of the current units, I believe this next generation bar and grill concept will continue to take market share from the more established brands that we compete against.

And to that end, many of you probably saw, we announced last week our intention to open this concept for franchising. With the addition of Macaroni Grill franchise units, at Ignite we're now in the franchising business. So combine that with a strong demand that we've experienced with people asking us to franchise the Brick House brand, we feel this is a good time to consider this longer-term growth channel.

To lead actually all of our franchising efforts, we brought in Sam Rothschild, who I believe is one of the most accomplished and experienced operators in the casual dining franchise world, having led these efforts at Applebee's, Tony Roma's and Bennigans domestically and internationally. So under Sam's leadership, and it looks like franchise partners are very thoughtful in deliberate manner and look forward to this new exciting growth opportunity at Ignite.

As I mentioned earlier, we closed on the acquisition of Macaroni Grill, on April 9, that's less than a month ago. We feel like its ages ago, with all the work that's been going on. Over the past four weeks, we've hired a new President for the brand, David Catalano. We've held strategy discussions here and used them with the Macaroni operations team. And then very quickly, we brought the entire Macaroni system, all of the General Managers here to Houston for a two day conference to set clear direction.

In addition, we've changed the advertising agencies and prepared a new TV spot that will begin airing this week, and that doesn't even included the infrastructure work, we had it going on behind the scenes that I'll have Mike tell you more about. So it's obviously a lot of work in short order, but once we took control of this brand, it became clear to us that a lot of work was required.

Some short-term decisions made by previous management took Macaroni off the air, and they did not run television in the first quarter of 2013 on a scheduled event, resulting in additional sales pressure. So at this point, the Macaroni restaurants are running 12 month AUV just under $2.1 million.

Our new spot is coming out this week with a strong on-air message, and we worked with the operations team to ensure the service and quality message is well understood in the restaurant. I look forward to keeping everyone impressed to the progress in that brand as we move forward.

So to summarize the growth at Joe's and Brick House continues, the revitalization of Macaroni has begun. While we have a lot of work ahead of us, we firmly believe we have the passion, the team and the experience to deliver some very nice results across the portfolio.

So with that, let me hand it back to Mike to walk you through the financials. Mike?

Michael Dixon

Thanks, Ray. I will second Ray's comments, that when the comps slide over the past month or even further second that we've still got a lot to do. I mentioned earlier the change in calendar quarters to a 13-week quarter from a 12-week quarter. We did give revenue results in press release or the earnings release today on a comparable 13-week basis. However, the expense side of equation along with the balance sheet is not directly comparable, and I'll remind you about that as we go through the results.

So back to the results, for the first quarter ended April 1, 2013, we posted total revenues of $118.2 million. This is a $5.1 million or 4.5% increase over the comparable 13-week period of the prior year, due primarily to new stores, partially offset by the 1.4% decrease in comparable restaurant sales that Ray mentioned.

By concept, sales at Joe's increased $5 million to $106.6 million versus $101.6 million in the comparable period of the prior year. This increase is driven by new store openings, partially offset by a 2% decrease in comparable restaurant sales. Now, the comparable sales decrease at Joe reflects a 3.8% decrease in traffic, offset by a 1% increase in price and a 0.8% benefit from mix shift.

At Brick House, revenues increased to $100,000 in 2013 to $11.6 million versus $11.5 million in comparable 13-weeks of the prior year. This increase reflects a 3.9% increase in comparable store sales offset by one occasion that was converted to at Joe's Crab Shack since last year's first quarter. This comparable sales increase is comprised with 2.4% benefit from price and 1.5% benefit from traffic and mix.

For the second quarter, as Ray mentioned, we're currently tracking comparable sales at Joe's of about negative 0.8% and a positive 8.3% in Brick House. For the full year of fiscal 2013, we're still projecting a 1% comparable sales increase in our base Joe's and Brick House businesses. That comprise of about 0.6% increase at Joe's and a 4% increase at Brick House.

Mac Grill revenue for fiscal 2013 is projected to be between $260 million to $280 million. This is higher than the previous guidance we gave back in February, obviously as we closed on this deal earlier in Q2 than originally planned.

On the margin side, let me focus on percent of sales as the extra week in the current year quarter throws off the absolute dollar comparison. Cost-to-sale was 30.7% of revenues versus 31.8% in the prior year. This reflect some favorable shellfish pricing and a little bit of mix movements of better margin items.

Labor at 27% was pretty consistent versus the prior year's 27.1%, but significantly better than 30.1% we ran in the sequential quarter. The sequential improvement is a reflection of the benefit obviously from higher average weekly sales, but it also reflects a more disciplined focus on labor after some fresher in Qs three and four of last year.

Occupancy expenses were also relatively flat with the prior year at 7.2% in 2013 versus the 7.3% in 2012. While other operating expenses jumped to 18.4% from 18%, primarily as a result of increased marketing spend. G&A increased to 8.7% of revenue from 6% in the prior year. It's a pretty big jump, but the primary drivers for this increase include $1 million from Macro acquisition related cost; about $1.1 million from cost that are primary associated with us being a public company, which we weren't in the first quarter of last year, such as legal and accounting fees; and a $0.2 million dollar increase in non-cash equity related compensation expense. In addition, we increased personnel related cost as we both improve our infrastructure and prepare for the Macro addition in Q2.

Depreciation and amortization cost moved to 4.1% of revenue versus 3.8% in the prior year, which reflects increase to perishable asset base with the addition of the new restaurant over the past 12 months. Pre-opening expenses decreased to $1.1 million from $1.5 million in the prior year, reflecting one less company in Q1 2013 versus the prior-year quarter, as well as the timing of expenses related to the future openings and progress.

Interest expense dropped $1.6 million from $2 million last year to $400,000 in 2013, due to lower debt balance year-over-year and lower interest rates. Finally, our effective income tax rate was 30.7% versus the 25.6% in the prior year.

To look forward, let me give you an update on guidance, our full year margin expectations for this is for the Joe's and Brick House brands, and these haven't changed significantly from my last update. We expect COGS will be in the 30.5% to 31.5% range; labor will be in the 26.8% to 27.4% range; occupancy cost about 7.4% to 7.6%; other expenses between 16.8% to 17.3%; all that combines to deliver our restaurant level profit between 16.5% and 18.2%.

On the Macaroni Grill side, we're really still just getting into a lot of the operating details, but at this point we think our previous guidance of 6% restaurant level profit for fiscal 2013 is a good estimate. From an infrastructure perspective, the integration work is proceeding on schedule. We are fortunate to have a number of the Macaroni restaurant support team members at all levels, joining the Ignite team here in the Houston.

We believe we're well on our way to realize in the cost savings we identified earlier. At the close, we paid severance and accepted the resignations of the employees representing approximately $3 million in annual salary cost. We also have a number of folks in the Mac Grill team working with us temporarily during the transition process. This represents about another $1.5 million in annual salary cost. Now, some of these savings will be an offset by new headcount here in Houston, but the majority represents true synergies.

At this point, we expect to have all functions transferred to our Houston office, and the Dallas office completely shutdown some time in her third quarter. All that said, we expect G&A to be between 5.9% and 6.1% as combined revenues for the full fiscal year. Pre-opening expenses are planned at about $5.5 million for the year.

Depreciation and amortization expense will be impacted by the asset valuation we discussed in February. This valuation is well underway and should be completed in the next few weeks. But as a reminder, this valuation could have a meaningful impact on the results based the deemed accounting value of the assets and leases we are acquiring, relative to the $55 million dollar we paid. Subject to adjustment, depending the outcome of this valuation or assuming depreciation and amortization expenses of about 3.3% for the full fiscal year.

On the capital side, we had $45 million drawn on our existing revolver facility at the end of the quarter. As discussed in February, we restructured our credit agreement in conjunction with the Macaroni acquisition to add a $50 term loan on top of the existing $100 million revolver.

The term loan requires scheduled payments including principal and amortization over five years. Revised facility bears interest between 1% in the quarter and 4% in the quarter over LIBOR with no LIBOR floor. As of today we have $105 million drawn against the facility. That about 8 million users support letters of credit and approximately 37 million still available is need for new store growth or other needs. I point out that that 8 million on the letters of credit should come down to about 5 million fairly quickly.

We are assuming an effective tax rate for the full fiscal year of 20%, so though quite a bit lower than the 30.7% that we reflected in Q1 as the accounting rules do not allow us to reflect the potential benefit of the Macaroni Grill acquisition to our effective tax rate, until after the transaction formally closed in Q2. We are also assuming a weighted average shares outstanding of approximately 25.6 million.

Finally, we estimate acquisition related cost at about $8.7 million. This includes about $3.5 million of cost related to debt issuance and some hardware and software investments that will be capitalized, the remaining $5.2 million reflects various accounting, legal and specific integration cost like relocation and severance. We incurred $1 million of that $5.2 million of the acquisition related expenses in the first quarter. One last bit of housekeeping before we turn it over for questions. We plan to release our second quarter earnings during the week of August 5.

So at this time, I would like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) From Credit Suisse, we'll hear from Keith Siegner.

Karen Holthouse - Credit Suisse

It's actually Karen on for Keith today. One quick housekeeping question, the guidance for 5.9% to 6.1% G&A for the full year, is that on a pro forma or a GAAP basis?

Michael Dixon

It's a GAAP basis.

Karen Holthouse - Credit Suisse

And then I guess you called out that cold weather was affecting probably patio sales in some of your units. Do you see any sort of benefit from mineral water companies have talked about spring rate shifting a little bit earlier, because of the Easter holiday did you see any benefit from, maybe a little bit it kind of earlier vacations in the first quarter this year?

Ray Blanchette

It was fairly negligible actually for us this year.

Karen Holthouse - Credit Suisse

And then one other quick one with kind of greater focus on labor at the store level, we actually saw labor cost per store weak down on this quarter. This is the first time that we've seen that in a while. Is that a trajectory that we could see continue during the year or another way to asking that, given what you're doing or under managing labor what's the threshold? What's kind of the comp threshold for leveraging that?

Ray Blanchette

Well, I think it's less about comp threshold and more about the changes that we talked about at the end of last year. Specifically in the Joe's business there is an ops rework, where we added an additional Regional Vice President, went to three changed overall scope. And anytime you make a major change like that there is a little bit of run room, where it takes folks time to get acclimated to the new role and I think that what we've said in the last call is that we expected it to get better and in the first quarter we saw the benefit of some of the investments that we made in leadership. So I would expect that that would remain consistent.

Operator

From Lazard we'll hear from Matthew DiFrisco.

Phan Le - Lazard

This is actually Phan in for Matt. I just wanted to go back to the quarter-to-date trends, I know I got the number for Brick House, but I didn't catch Joe. Could you remind me what you guys are trending at the moment?

Michael Dixon

A negative 0.8.

Phan Le - Lazard

And then, I guess the sparring between the two brands in terms of the comp would you be able to provide a little color. I mean, are you just flapping tough when compared to Joe or is there is some sort of like difference between the demographics, whereas maybe the Brick House guys are referring better than Joe's? Just any color you can to fill in the blanks there.

Ray Blanchette

I think that it's more unlikely life cycle situation rather than one guest base being under more pressure than another. We started making significant changes for the Brick House brand. Last year we talked about that, actually to the IPO roadshow that we're in the process of doing a lot of menu work. And things that we really believed would benefit the brand in a significant way long-term. And what we're seeing is that that work is paying off and that from a menu standpoint, from an overall positioning standpoint we're very, very comfortable with where Brick House is competing and how they're able to kind of go out and win incremental guests.

In the Joe's business, we still feel very strong about our positioning. We loved the new work that's been done externally. As I mentioned, its new ops focus internally where the re-org enables us to get better over side of the individual restaurant. And so Joe's obviously has a difficult four-and-a-half year comparison not just a difficult first quarter comparison.

And so there is certainly was that. And in cold weather, I mean, obviously, you know the seasonality in the Joe's business, but we're coming into our season now where a lot of folks are going out of season, warm weather does help that brand respond. And we're optimistic that that's we're all going to see here in the near future.

Phan Le - Lazard

And then just in terms of development, I think in the press release you had mentioned you're going to add more nine more new stores through end of the year, looks like that moderated a little bit from previous guidance. So I'm just wondering if you could maybe address that. Are you finding that a little bit more challenging to find new sites or are you've kind of pushed that out till 2014, sort of what's changed since the last call?

Michael Dixon

Well, I think it's nine new stores plus as many as three conversions, which is 12 plus four, so that we've already guided, which gets us right back into the 14 range that we've targeted initially, 14 to 16.

Phan Le - Lazard

And one last question, if I may, just in terms of the franchising, have you guys signed up any franchising yet for the Brick House plan and any idea when you might think it might start to become accretive to the model. Just wondering also is there any potential to further franchise the Macaroni Grill brand and possibly the Joe's brand?

Ray Blanchette

I mean, obviously, us going out and hiring someone like Sam was very intentional, right. That if we were going to be in franchising, we were going to do it at the highest level. And so that's indicative of that thinking. We think that there is potential for Macaroni Grill to continue its international expansion. We think there maybe some potential for Joe's abroad quite frankly.

But at this point franchising is new to the company. We're doing a lot of work to understand just how significant, how material it will ultimately be. But we know there is a lot of demand for the Brick House brand. And at this point we don't have any signed agreements. We literally just made the announcement, just filed the papers maybe 10 days ago. So in terms of how quickly it will be accretive to the model, we are not really modeling anything internally.

Michael Dixon

Not for 2013.

Ray Blanchette

Certainly not for 2013.

Michael Dixon

We've got some planned openings internationally from Macaroni Grill.

Ray Blanchette

Yes, it's true. At this point, we could do as many as four new international Macaroni Grills in 2013.

Operator

We'll hear from David Tarantino with Robert W. Baird.

David Tarantino - Robert W. Baird

Couple of questions here, first, on the new unit productivity line, you mentioned $90,000 for the new units, which is quite strong. But I guess according to my math, maybe that's a little lower than what you had been running, but it's not clear given the seasonality and the change in the fiscal period. So could you maybe compare what you're seeing recently in the business versus what you've seen previously?

Ray Blanchette

I don't think that it's materially changed from anything that we've seen in the past, David. We still are seeing the need to have the full 24 months before it rolls in the comp base, because there is clearly an extended honeymoon, right. And so as we're rolling new units into the business there is an extended, that second 12 months we model in a significant decline. But they are now rolling in, we have the couple that are rolling into the comp base recently and add sort of normalized performance. So that's exactly what we had hoped would happen.

When we open these 8,000 square foot restaurants at $180,000 we know that's not sustainable. I mean, people aren't going to wait three hours for a table and perpetually it doesn't happen. And that's why when we see this the honeymoon fall-off. It feels very natural to us. We know that we're going into new markets that haven't been served. But that have been getting the benefit of television for six years, so there is enormous pent-up demand. And these two most recent openings prove it that is continuing to be the case.

David Tarantino - Robert W. Baird

Well maybe turn into Brick House and that decision to do the franchising. I'm just wondering what the impetus for doing franchising versus pursuing a company operated model given that the returns there look pretty good and potentially look like they're improving. So just, Ray, if you could philosophically talk about why franchising make sense for that brand?

Ray Blanchette

Well, I think the potential for that brand because of the space that it competes in. Obviously, when you look at a fully build out Brick House brand versus our other brands, it is significantly more restaurants. So that's the primary reason, you'd even consider franchising as a potential domestically.

Secondarily, now that we are a franchise business, having the opportunity to potentially create forth light of this tool, and Ignite through franchising and developing the expertise there, I like it from a risk mitigation standpoint, I like the idea of building an annuity for our shareholders over time. It's a bit of a risk mitigation tool as we expect choppy waters over the next several years and kind of an exciting way for us to create value for shareholders.

Michael Dixon

And just to be clear, we're not saying that Brick House is a franchise-only business. We will continue to develop Brick House locations, a lot of runway on this brand.

David Tarantino - Robert W. Baird

Maybe one on Macaroni Grill and the trajectory that business as you took control, it sounds like maybe the first part of the year was pretty soft there. But could you give us a sense for the type of trend that business is on as you're taking control of it and what you've assumed in the revenue number that you have given us if it is showing some improvement towards the end of the year.

Michael Dixon

I'll answer the second half first and I'll let Ray talk about what we're seeing and what we're doing, but we basically assume that in the comp sales, if you will, at Mac Grill for the time that we own it really from April 9 to the end of the fiscal year, are flat to slightly positive. I think we're somewhere around the 0.4% positive for the full year. And Ray, you want to talk about the trends and what we're seeing.

Ray Blanchette

I'll talk about it from the standpoint of, obviously, we've bought this brand with the intention of changing the trajectory, using the platform essentially that we use to change Joe's trajectory. We have a continuity plan built. We'll get on television here by the end of this week, which was a very quick turnaround. And we have built a fully integrated marketing calendar for balance of the year. So as we sit here today, we're confident that we're going to be able to materially impact the trajectory of the business through both the ops focus and taking a definitive position in the marketplace. I think that's our game plan.

David Tarantino - Robert W. Baird

And then can you give us any idea what that comp trend looks like prior to you taking it over?

Michael Dixon

I'll tell you that it's not a great. It's in the mid-to-high negative single digits.

David Tarantino - Robert W. Baird

And then lastly Mike, the tax rate of 20%, just if you could give some context on why so low and is that's the right expectation as you look out through 2014 as well.

Michael Dixon

I clearly hope it's not the right expectation beyond 2013. Really, that reflects the above our Macaroni Grill brand. It's not dropping off a lot to the bottomline. We'll get the benefit of the FICA tip credit on very little income delivered from that business, but it goes against the positive cash flows we have from the Joe's and Brick House brands. So that really is driving the tax rate lower along with some of these transaction expenses that we're incurring this year. So on a go forward basis, no, I don't expect it to be that low. I think we'll end up being back into the mid-to-high 20s like we originally expected for this year.

Operator

And next we will go to Bryan Elliott with Raymond James.

Bryan Elliott - Raymond James

Just a couple of housekeeping items, and then a little bit more of it. But potentially up to four international Mac Grills, will that be the first initial presence of the brand overseas?

Michael Dixon

No, we have a presence currently in the Middle East. If we get all four of these restaurants this year, they will be in the Middle East, so leveraging existing relationships and attempting to accelerate growth. And then we're also in Puerto Rico and Mexico and Japan.

Bryan Elliott - Raymond James

How many in total?

Michael Dixon

The total international it's 12 in Puerto Rico. Its 12 plus, Puerto Rico and Puerto Rico is seventh.

Bryan Elliott - Raymond James

I didn't realize that it was that substantial. And, Mike, the G&A guidance you gave, GAAP guidance, so the GAAP means that all of the acquisition costs of $8.7 million that you called out is that included in your GAAP G&A guidance you gave us.

Michael Dixon

It is not, that is excluding the $5.2 million in transaction costs, I mentioned, and we'll put that out separately.

Bryan Elliott - Raymond James

And then just $3.5 million, will that be pulled out that also?

Michael Dixon

$3.5 is capitalized.

Bryan Elliott - Raymond James

So it's a GAAP and a ongoing underlying real number?

Michael Dixon

Correct.

Bryan Elliott - Raymond James

And then just real quick, any change in CapEx outlook, now that you've now the owner of Mac Grill. Are we still looking at mid-50s for this year?

Michael Dixon

I don't think there is any real change in that. We're obviously evaluating the condition of the Macaroni Grill restaurants and I think there was a little bit of sort of pent-up maintenance that needed to be done, but nothing significant that we've seen yet and we're going to manage it closely. So at this point we're sticking with that capital number for the year.

Bryan Elliott - Raymond James

And I guess, Ray, you could speak a little more to (inaudible) or I don't know did you see the Mac Grill commercials have broken or will be breaking I guess shortly here. Could give us a little flavor for the message that you're trying to convey and how that might be different from what they have been doing?

Ray Blanchette

Well, we actually created this commercial in a week. I think you saw, we just announced maybe two-and-a-half or three weeks ago, the agency changed to McCann. So clearly fast and furious, I mean that's indicative of the kind of partner that they've been for us and the wherewithal they have there, a robust organization that can move very quickly.

We're going to talk about create-your-own-pasta, because we think it's unique to the brand and a compelling message. It delivers everyday value. We're not discounting it. We believe at the $11 price point, it's already a compelling value, given the bronze-cut pasta. And I think we planned to show the commercial at the Baird Conference this week, on Thursday. So I don't know if you're going to be in Chicago, which you will get a chance to see it.

Bryan Elliott - Raymond James

They would throw me out of my ear if I bark in that door way.

Ray Blanchette

I am sure they would. We think the message is compelling. This is similar to if you think back to lobster pot pie in January, where McCann sort of created a bridge tactic for us. Very effective, very food focused, very quality centric and this is not a fully bright campaign relative to what is going to look like as we complete the positioning work. But we believe it's going to be a compelling message and shot in a way that elevates the brand and pushes us towards to the ultimate positioning.

Operator

(inaudible).

Unidentified Analyst

Quick question, can you just give me the history of price increases for both Joe's and Brick House. You just said there is 1% price increase now at Joe's that's in May. What was the last one before that and how much?

Ray Blanchette

Beginning the fall, and Mike's looking that up as we speak.

Michael Dixon

Let see, we had about a 0.7% in fourth quarter last year in Q4.

Unidentified Analyst

And what was up before that?

Michael Dixon

You had a 0.6% in the second quarter so they will be rolling off that very quickly here.

Unidentified Analyst

And could do me the same favor in Brick House, what's the last price increase?

Michael Dixon

I don't have the Brick House in front me.

Ray Blanchette

So we just formed a relationship. RMS is now doing our pricing work for Brick House as well. Brick House is not going to be as apples-to-apples, because the amount of new products that we have brought on to the menu. So it's really tough to get a direct compare there.

Unidentified Analyst

Then let me just a twist the question around. How about, what can you tell me about traffic at Brick House? It was down in Q1, is that right?

Michael Dixon

No, Brick House traffic was up.

Unidentified Analyst

How much?

Michael Dixon

We don't track traffic at Brick House just because of the nature of the business, but I think what did, I say that we're between traffic and I think we gave a little guidance that we had about a 2.4% benefit from price of Brick House.

Unidentified Analyst

So there was 2.4% in price in Q1?

Michael Dixon

In Q1, that's right and 1.5% benefit from traffic and mix combined.

Unidentified Analyst

And it wasn't bigger than that in the past?

Michael Dixon

Price, no.

Ray Blanchette

It would have been probably 1% to 1.5%.

Michael Dixon

Yes, slightly less than that.

Unidentified Analyst

And for the quarter mix and traffic was positive, how much you said again?

Michael Dixon

1.5%.

Operator

From Raymond James, we'll go to Bryan Elliott.

Bryan Elliott - Raymond James

Just to be clear on Ed's question there. I think you've given him incremental, I think he was probably looking for total, just confirming that my records are accurate, that Joe's Crab Stack pricing starting in Q1 '12 where 2.2% and a 1.7%, 1.9% and then 1.7%?

Michael Dixon

2.2% in Q1.

Bryan Elliott - Raymond James

2.2%.

Michael Dixon

Yes, then what did you say?

Bryan Elliott - Raymond James

1.7%?

Michael Dixon

In Q2? Right, I've got a 2.1%, and then 1.9% and 1.5% is that what you have?

Bryan Elliott - Raymond James

Yes.

Michael Dixon

So little bit off in Q2.

Bryan Elliott - Raymond James

And as far as looking forward what's your expectation to be kind of keep it around Q1 almost for the balance of this year or is that open to conditions, future conditions or how do you think about partition going forward strategically and practically?

Michael Dixon

Primarily, Bryan, we rely on RMS data so that we understand sensitivity and elasticity. Based on their recommendation, we have seen a more price sensitive customer, which is why you are seeing the smaller increases. And so at times like this, when we need to be little more pragmatic, that's exactly what we do. We're not going to see envelope on price, when RMS comes back to us with statistical information that says we can be a little more aggressive, then that's the point in time that we would be more aggressive.

Operator

We will move to Christopher O'Cull with KeyBanc.

Christopher O'Cull - KeyBanc

Mike, as a follow-up on the contract to Mac Grill, do the comparisons get easier or you're assuming a mid-to-high single digit swing in the trend.

Michael Dixon

Well, I think it's a combination of both. I think the comparisons do get easier, but we're also assuming that some of the Elvis stuff that Ray just talked about is going to get some traction, so all that's factored into our estimates for the full year.

Christopher O'Cull - KeyBanc

Is the 6%, is that a cash margin and also does it include the incremental advertising plan from Mac Grill.

Michael Dixon

It is a cash margin, restaurant level profit cash margin and it does include the expected marketing spend for the business.

Christopher O'Cull - KeyBanc

And then I understand G&A is going to be lumpy the next few quarters, but is the high 5% range reasonable for the second and third quarters?

Michael Dixon

I don't want to get him by quarter, but I think there is 6% range, 5.9% to 6.1% I gave for the full year is a good number. Obviously coming out of the first quarter 8.7% means adjusting for these transaction cost means, it's going to get better in the back half of the year for sure.

Ray Blanchette

The transaction costs though were not included the 5.9%, 6.1%.

Michael Dixon

But there are obviously, you got to back them out of the first quarter numbers to get the right number.

Christopher O'Cull - KeyBanc

And the savings you're expecting once you work these some of the G&A savings, how should we expect those to trend though the year?

Michael Dixon

Well as I said, a large chunk of them have already occurred, because of we have had some headcount reduction as the part of the integration here. So that's already happened. I think the next piece; will kind of phase in over the Q2 and Q3. The bulk of it, the large one should be reflected by the end of Q3.

Christopher O'Cull - KeyBanc

And the total again was how much, was it $7 million?

Michael Dixon

I think $7.5 million-ish is what we are targeting.

Operator

And at this time, I would like to turn the conference back over to management for any additional or concluding remarks.

Ray Blanchette

Well, that's really all we have. Thanks again for joining us. As you can see, in the first quarter we accomplished quite a bit around the Mac Grill business in a very short period of time. We obviously have a long way to go and we're looking forward to that work. In addition, we remain very excited about the prospects for all our brands and the opportunity they provide to add shareholder value overtime, so look forward to speaking with everyone again in the near future. Thank you.

Operator

Ladies and gentlemen, that concludes today's presentation. We do thank everyone for your participation.

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